<PAGE> 1
IMPORTANT NOTICE
REGARDING DELIVERY OF
SHAREHOLDER DOCUMENTS
SCHWAB
TAX-FREE BOND FUNDS
August 31, 2000
Annual Report enclosed
SCHWAB SHORT/INTERMEDIATE
TAX-FREE BOND FUND
SCHWAB LONG-TERM
TAX-FREE BOND FUND
SCHWAB CALIFORNIA SHORT/INTERMEDIATE
TAX-FREE BOND FUND
SCHWAB CALIFORNIA LONG-TERM
TAX-FREE BOND FUND
<PAGE> 2
IMPORTANT NOTICE REGARDING DELIVERY OF SHAREHOLDER DOCUMENTS
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<PAGE> 3
SCHWAB
TAX-FREE BOND FUNDS
August 31, 2000
ANNUAL REPORT
SCHWAB SHORT/INTERMEDIATE
TAX-FREE BOND FUND
SCHWAB LONG-TERM
TAX-FREE BOND FUND
SCHWAB CALIFORNIA SHORT/INTERMEDIATE
TAX-FREE BOND FUND
SCHWAB CALIFORNIA LONG-TERM
TAX-FREE BOND FUND
<PAGE> 4
SCHWAB
TAX-FREE BOND FUNDS
[PHOTO OF CHARLES SCHWAB]
Dear Shareholder,
We're pleased to bring you the first report for these funds that uses our new
"plain English" format. This format is part of a major initiative to make
SchwabFunds(R) materials easier to use.
We've given the report a simpler organization and a new look. Our goal has been
to focus on presenting information clearly and explaining what it means to
shareholders.
The most significant change is the new section on how to read and understand the
report's financial data. We've even found ways to make the financial statements
and notes more accessible. We will continue to look actively for ways to improve
these reports even further.
We hope you find this report helpful and we welcome your feedback. Thank you for
choosing SchwabFunds.
Sincerely,
/s/ Charles Schwab
Charles Schwab
ANNUAL REPORT
September 1, 1999 - August 31, 2000
1 Market Overview
5 Schwab Short/Intermediate
Tax-Free Bond Fund
Rising interest rates in 1999 gave way to growing investor demand in
2000.
18 Schwab Long-Term Tax-Free
Bond Fund
An increase in the demand for long-term muni bonds coincided with a
decline in the supply.
31 Schwab California Short/
Intermediate Tax-Free Bond Fund
Demand for high-quality muni bonds was a factor during the report
period.
44 Schwab California Long-Term
Tax-Free Bond Fund
Investors benefiting from technology growth helped boost demand for
long-term muni bonds.
57 Financial Notes
61 Proxy Results
-----------------------------------------------------------------------
64 HOW TO READ THIS REPORT
An illustrated guide to the financials, along with a glossary.
<PAGE> 5
MARKET OVERVIEW
IT'S OFFICIAL: U.S. GROWTH PERIOD IS THE LONGEST IN 50 YEARS.
As of the close of the report period, U.S. economic expansion was in the middle
of its tenth year, making this the longest period of continuous expansion in
U.S. history. The main forces behind the expansion have been high levels of
consumer spending -- fueled by increases in personal income, personal wealth and
consumer confidence -- as well as a healthy housing sector and strong investment
in capital improvements by businesses.
[PHOTO OF CONSTRUCTION WORKER WORKING]
The economy's rate of growth remained high: this was the fourth year in a row of
4% or greater growth. Historically, economists and the Federal Reserve Bank (the
Fed) believed that growth above the 3.5% to 4.0% range is likely to trigger high
inflation. However, the Fed has recently indicated that it may be comfortable
with growth as high as 4.5% as long as productivity growth remains in the
vicinity of 3.5%, which it did during the report period.
PRODUCTIVITY EMERGES AS A KEY FACTOR.
In recent years, the Fed demonstrated its commitment to keep the economy under
control by raising short-term interest rates (since June 1999, it has raised
these rates six times). The Fed has voiced concern that runaway economic growth
could push up wages faster than productivity, forcing companies to raise prices
and touching off spiraling inflation.
--------------------------------------------------------------------------------
ASSET CLASS PERFORMANCE COMPARISON % returns during the report period
--------------------------------------------------------------------------------
This graph compares the performance of four widely used measures of securities
market performance, including U.S. stocks and bonds and international stocks.
These figures assume dividends and distributions were reinvested. Index figures
don't include trading and management costs, which would lower performance.
Indices are unmanaged and you can't invest in them directly. Remember that past
performance isn't an indication of future results. Source: Charles Schwab & Co.
Inc. (Schwab).
[ASSET CLASS PERFORMANCE COMPARISON LINE GRAPH]
LEHMAN BROTHERS U.S. AGGREGATE RUSSELL 2000(R) INDEX: measures
BOND INDEX: measures the U.S. U.S. small-cap stocks
bond market
S&P 500(R) INDEX: measures U.S. MSCI-EAFE(R) INDEX: measures
large-cap stocks large-cap stocks in Europe,
Australasia and the Far East
<TABLE>
<CAPTION>
Lehman Brothers
U.S. Aggregate MSCI-EAFE(R) Russell 2000(R) S&P 500(R)
Bond Index Index Index Index
<S> <C> <C> <C> <C>
9/3/99 0.0049 0.0081 0.019 0.0279
9/10/99 0.007 0.0166 0.0314 0.0237
9/17/99 0.0105 -0.0026 0.0161 0.0114
9/24/99 0.0172 -0.0168 -0.0243 -0.0326
10/1/99 0.0073 0.0029 -0.0087 -0.0273
10/8/99 0.0078 0.0186 0.0012 0.0126
10/15/99 0.0064 0.0024 -0.0291 -0.0541
10/22/99 0.003 0.01 -0.0195 -0.0131
10/29/99 0.0156 0.0355 0.0042 0.0341
11/5/99 0.0218 0.0406 0.0366 0.0397
11/12/99 0.0231 0.0564 0.0539 0.0593
11/19/99 0.0189 0.076 0.0807 0.079
11/26/99 0.0167 0.0896 0.0753 0.0749
12/3/99 0.0171 0.0899 0.0888 0.088
12/10/99 0.0235 0.1045 0.094 0.0765
12/17/99 0.0126 0.1057 0.0934 0.0795
12/24/99 0.0095 0.1462 0.1315 0.1078
12/31/99 0.0105 0.1654 0.1845 0.1172
1/7/00 0.0099 0.1123 0.1463 0.0961
1/14/00 0.0052 0.1397 0.1917 0.1141
1/21/00 0.0036 0.1142 0.2535 0.096
1/28/00 0.0103 0.1091 0.1851 0.0343
2/4/00 0.0116 0.1322 0.2344 0.0839
2/11/00 0.0087 0.1386 0.262 0.0555
2/18/00 0.0142 0.1216 0.2823 0.0242
2/25/00 0.0207 0.1303 0.3084 0.0145
3/3/00 0.0226 0.1542 0.4062 0.0735
3/10/00 0.0205 0.1539 0.4196 0.0627
3/17/00 0.0276 0.1402 0.3515 0.1155
3/24/00 0.0264 0.1625 0.3505 0.1635
3/31/00 0.0327 0.1608 0.2685 0.1426
4/7/00 0.041 0.1491 0.2779 0.1562
4/14/00 0.0402 0.1089 0.0685 0.0343
4/21/00 0.0393 0.0998 0.1344 0.0938
4/28/00 0.0296 0.0987 0.1921 0.1082
5/5/00 0.0152 0.0942 0.208 0.0931
5/12/00 0.0139 0.0829 0.1569 0.0843
5/19/00 0.0159 0.0441 0.1305 0.0735
5/26/00 0.027 0.0498 0.0783 0.0514
6/2/00 0.039 0.1194 0.2095 0.1288
6/9/00 0.0422 0.1177 0.2338 0.1134
6/16/00 0.0511 0.1134 0.2126 0.1191
6/23/00 0.0413 0.1031 0.2052 0.1016
6/30/00 0.0506 0.1116 0.2206 0.1124
7/7/00 0.0553 0.1218 0.2458 0.1309
7/14/00 0.0539 0.1171 0.2802 0.1547
7/21/00 0.0598 0.092 0.2332 0.1319
7/28/00 0.0596 0.0565 0.1568 0.0859
8/4/00 0.0677 0.052 0.1889 0.1196
8/11/00 0.0696 0.0674 0.2052 0.1265
8/18/00 0.0709 0.0759 0.2179 0.1417
8/25/00 0.075 0.0836 0.2411 0.153
8/31/00 0.0756 0.0955 0.2715 0.1632
</TABLE>
1
<PAGE> 6
MARKET OVERVIEW continued
However, when productivity grows along with wages, companies can pay higher
wages without raising prices because they can achieve greater output for every
dollar they spend in labor costs. Spurred mainly by technological advances,
productivity grew at 3.0% in 1999 and an annualized 3.8% during the first half
of 2000 (these figures include all economic sectors except farming).
UNEMPLOYMENT HITS NEW LOWS, YET INFLATION REMAINS AT BAY.
After trending downward for years, unemployment fell below the 4% mark (a level
once considered impossible without high inflation) in April of 2000, reaching a
three-decade low. By the end of the report period unemployment had edged above
4%, but most of this increase can be attributed to the layoff of 122,000
part-time census workers and the fact that 87,000 telephone workers were on
strike at the time the figures were calculated.
Source: Schwab Washington Research Group.
[PHOTO OF PEOPLE WALKING]
-------------------------------------------------------------------------------
Job growth continues to outstrip population growth. Today, a higher percentage
of the population has a job than at any time since WWII.
-------------------------------------------------------------------------------
Source: Bureau of Labor Statistics.
Overall, labor markets have continued to be extremely tight, and there has been
evidence in some regions of labor
FIVE FACTORS AND THEIR EFFECTS ON THESE FUNDS.
----------------------------------------------
The following charts show recent figures for five common measures of the state
of the U.S. economy and the stock market.
While the relationship of each of these factors to the performance of the funds
is complex, the captions over each chart and the discussion above include
analysis of how we believe these factors may have influenced market behavior
during the report period.
REAL GDP GROWTH
Annualized growth rate for each quarter shown
The U.S. economy has grown steadily for more than nine years. Real GDP grew 5.0%
in 1999 and at an annualized rate of 5.2% in the first half of 2000.
[REAL GDP GROWTH BAR CHART]
<TABLE>
<S> <C> <C>
Q1 1990 0.05
Q2 1990 0.01
Q3 1990 -0.006
Q4 1990 -0.03
Q1 1991 -0.017
Q2 1991 0.026
Q3 1991 0.013
Q4 1991 0.025
Q1 1992 0.038
Q2 1992 0.038
Q3 1992 0.031
Q4 1992 0.054
Q1 1993 -0.001
Q2 1993 0.025
Q3 1993 0.018
Q4 1993 0.062
Q1 1994 0.034
Q2 1994 0.057
Q3 1994 0.022
Q4 1994 0.05
Q1 1995 0.015
Q2 1995 0.008
Q3 1995 0.031
Q4 1995 0.032
Q1 1996 0.029
Q2 1996 0.068
Q3 1996 0.02
Q4 1996 0.046
Q1 1997 0.044
Q2 1997 0.059
Q3 1997 0.042
Q4 1997 0.028
Q1 1998 0.065
Q2 1998 0.029
Q3 1998 0.034
Q4 1998 0.056
Q1 1999 0.035
Q2 1999 0.025
Q3 1999 0.057
Q4 1999 0.083
Q1 2000 0.048
Q2 2000 0.052
Q3 2000 0.08
Q4 2000 0.08
</TABLE>
Gross domestic product (GDP), a broad measure of the goods and services produced
in the United States during a given time period, is a prime indicator of the
health of the country's economy. Typically, stock investors see increases in GDP
as a positive, since it indicates stronger demand, production and corporate
earnings. The figures shown here are adjusted for inflation.
Source: Bloomberg L.P.
2
<PAGE> 7
shortages driving up wages. In spite of this, increases in prices and wages
during the report period were comparatively modest, thanks in part to strong
productivity growth.
STOCKS STUMBLE, RECOVER; MOST BONDS POST HEALTHY RETURNS.
Spring 2000 brought bad news to equity investors in the form of a substantial
market decline. Even so, stocks of all sizes, both in the U.S. and overseas,
posted respectable gains for the period.
-------------------------------------------------------------------------------
The U.S. Treasury's plan to buy back $30 billion of its long-term bonds
substantially pushed up prices for all long-term debt securities.
-------------------------------------------------------------------------------
While short-term interest rates rose during the report period, intermediate- and
long-term rates actually fell. This boosted the returns of most bond investments
-- including muni investments -- over the period: the Lehman Brothers U.S.
Aggregate Bond Index was up over 7% for the report period.
A major factor for bonds was the U.S. Treasury's decision to buy back $30
billion of its own bonds. This resulted in an inverted yield curve, a situation
in which short-term bonds actually pay higher yields than long-term bonds.
Muni bonds generally remained fairly priced compared to Treasuries during the
report period, by historical standards. However, because the Treasury's buyback
program skewed demand for long-term Treasuries, the traditional comparison
U.S. UNEMPLOYMENT RATE
Adjusted for seasonal variations
Unemployment hit a three-decade low of 3.9% in April. Although it ended the
period slightly higher at 4.1%, it is still very low by historical standards.
[U.S. UNEMPLOYMENT RATE LINE GRAPH]
<TABLE>
<S> <C> <C>
Jan-90 0.054
Feb-90 0.053
Mar-90 0.052
Apr-90 0.054
May-90 0.054
Jun-90 0.052
Jul-90 0.055
Aug-90 0.057
Sep-90 0.059
Oct-90 0.059
Nov-90 0.062
Dec-90 0.063
Jan-91 0.064
Feb-91 0.066
Mar-91 0.068
Apr-91 0.067
May-91 0.069
Jun-91 0.069
Jul-91 0.068
Aug-91 0.069
Sep-91 0.069
Oct-91 0.07
Nov-91 0.07
Dec-91 0.073
Jan-92 0.073
Feb-92 0.074
Mar-92 0.074
Apr-92 0.074
May-92 0.076
Jun-92 0.078
Jul-92 0.077
Aug-92 0.076
Sep-92 0.076
Oct-92 0.073
Nov-92 0.074
Dec-92 0.074
Jan-93 0.073
Feb-93 0.071
Mar-93 0.07
Apr-93 0.071
May-93 0.071
Jun-93 0.07
Jul-93 0.069
Aug-93 0.068
Sep-93 0.067
Oct-93 0.068
Nov-93 0.066
Dec-93 0.065
Jan-94 0.068
Feb-94 0.066
Mar-94 0.065
Apr-94 0.064
May-94 0.061
Jun-94 0.061
Jul-94 0.063
Aug-94 0.06
Sep-94 0.058
Oct-94 0.058
Nov-94 0.056
Dec-94 0.055
Jan-95 0.056
Feb-95 0.054
Mar-95 0.053
Apr-95 0.058
May-95 0.058
Jun-95 0.056
Jul-95 0.056
Aug-95 0.057
Sep-95 0.056
Oct-95 0.055
Nov-95 0.057
Dec-95 0.056
Jan-96 0.056
Feb-96 0.055
Mar-96 0.056
Apr-96 0.055
May-96 0.056
Jun-96 0.053
Jul-96 0.055
Aug-96 0.051
Sep-96 0.052
Oct-96 0.052
Nov-96 0.053
Dec-96 0.054
Jan-97 0.053
Feb-97 0.053
Mar-97 0.051
Apr-97 0.05
May-97 0.047
Jun-97 0.05
Jul-97 0.047
Aug-97 0.049
Sep-97 0.047
Oct-97 0.047
Nov-97 0.046
Dec-97 0.047
Jan-98 0.045
Feb-98 0.046
Mar-98 0.046
Apr-98 0.043
May-98 0.043
Jun-98 0.045
Jul-98 0.045
Aug-98 0.045
Sep-98 0.045
Oct-98 0.045
Nov-98 0.044
Dec-98 0.043
Jan-99 0.043
Feb-99 0.044
Mar-99 0.042
Apr-99 0.043
May-99 0.042
Jun-99 0.043
Jul-99 0.043
Aug-99 0.042
Sep-99 0.042
Oct-99 0.041
Nov-99 0.041
Dec-99 0.041
Jan-00 0.04
Feb-00 0.041
Mar-00 0.041
Apr-00 0.039
May-00 0.041
Jun-00 0.04
</TABLE>
This measures the portion of the U.S. labor force that is unemployed and is
either seeking a job or waiting to return to one. Low unemployment often
accompanies prosperity and is generally a positive factor for investors,
although very low unemployment may boost inflation as employers raise pay to
compete for workers. Rising unemployment may mean a softening economy.
Source: Bloomberg L.P.
MEASURES OF INFLATION
Monthly CPI and quarterly employment cost index (annualized)
CPI was up 3.4% for the 12 months ended August 31, 2000 (2.5% if food and energy
are excluded). ECI rose 4.3% for the 12 months ended June 30, 2000.
[MEASURES OF INFLATION LINE GRAPH]
<TABLE>
<CAPTION>
Consumer Price Employment Cost
Index 12-Month Index 12-Month
Change (Monthly) Change (Quarterly)
<S> <C> <C>
Jan-90 0.052 0.055
Feb-90 0.053 0.055
Mar-90 0.052 0.055
Apr-90 0.047 0.054
May-90 0.044 0.054
Jun-90 0.047 0.054
Jul-90 0.048 0.052
Aug-90 0.056 0.052
Sep-90 0.062 0.052
Oct-90 0.063 0.049
Nov-90 0.063 0.049
Dec-90 0.061 0.049
Jan-91 0.057 0.046
Feb-91 0.053 0.046
Mar-91 0.049 0.046
Apr-91 0.049 0.046
May-91 0.05 0.046
Jun-91 0.047 0.046
Jul-91 0.044 0.043
Aug-91 0.038 0.043
Sep-91 0.034 0.043
Oct-91 0.029 0.043
Nov-91 0.03 0.043
Dec-91 0.031 0.043
Jan-92 0.026 0.04
Feb-92 0.028 0.04
Mar-92 0.032 0.04
Apr-92 0.032 0.036
May-92 0.03 0.036
Jun-92 0.031 0.036
Jul-92 0.032 0.035
Aug-92 0.031 0.035
Sep-92 0.03 0.035
Oct-92 0.032 0.035
Nov-92 0.03 0.035
Dec-92 0.029 0.035
Jan-93 0.033 0.035
Feb-93 0.032 0.035
Mar-93 0.031 0.035
Apr-93 0.032 0.036
May-93 0.032 0.036
Jun-93 0.03 0.036
Jul-93 0.028 0.036
Aug-93 0.028 0.036
Sep-93 0.027 0.036
Oct-93 0.028 0.035
Nov-93 0.027 0.035
Dec-93 0.027 0.035
Jan-94 0.025 0.032
Feb-94 0.025 0.032
Mar-94 0.025 0.032
Apr-94 0.024 0.032
May-94 0.023 0.032
Jun-94 0.025 0.032
Jul-94 0.028 0.032
Aug-94 0.029 0.032
Sep-94 0.03 0.032
Oct-94 0.026 0.03
Nov-94 0.027 0.03
Dec-94 0.027 0.03
Jan-95 0.028 0.029
Feb-95 0.029 0.029
Mar-95 0.029 0.029
Apr-95 0.031 0.029
May-95 0.032 0.029
Jun-95 0.03 0.029
Jul-95 0.028 0.027
Aug-95 0.026 0.027
Sep-95 0.025 0.027
Oct-95 0.028 0.027
Nov-95 0.026 0.027
Dec-95 0.025 0.027
Jan-96 0.027 0.028
Feb-96 0.027 0.028
Mar-96 0.028 0.028
Apr-96 0.029 0.029
May-96 0.029 0.029
Jun-96 0.028 0.029
Jul-96 0.03 0.028
Aug-96 0.029 0.028
Sep-96 0.03 0.028
Oct-96 0.03 0.029
Nov-96 0.033 0.029
Dec-96 0.033 0.029
Jan-97 0.03 0.029
Feb-97 0.03 0.029
Mar-97 0.028 0.029
Apr-97 0.025 0.028
May-97 0.022 0.028
Jun-97 0.023 0.028
Jul-97 0.022 0.03
Aug-97 0.022 0.03
Sep-97 0.022 0.03
Oct-97 0.021 0.033
Nov-97 0.018 0.033
Dec-97 0.017 0.033
Jan-98 0.016 0.033
Feb-98 0.014 0.033
Mar-98 0.014 0.033
Apr-98 0.014 0.035
May-98 0.017 0.035
Jun-98 0.017 0.035
Jul-98 0.017 0.037
Aug-98 0.016 0.037
Sep-98 0.015 0.037
Oct-98 0.015 0.034
Nov-98 0.015 0.034
Dec-98 0.016 0.034
Jan-99 0.017 0.03
Feb-99 0.016 0.03
Mar-99 0.017 0.03
Apr-99 0.023 0.032
May-99 0.021 0.032
Jun-99 0.02 0.032
Jul-99 0.021 0.031
Aug-99 0.023 0.031
Sep-99 0.026 0.031
Oct-99 0.026 0.034
Nov-99 0.026 0.034
Dec-99 0.027 0.034
Jan-00 0.027 0.043
Feb-00 0.032 0.043
Mar-00 0.037 0.043
Apr-00 0.03 0.044
May-00 0.031 0.044
Jun-00 0.037 0.044
Jul-00 0.035
Aug-00 0.034
</TABLE>
The Consumer Price Index (CPI) tracks changes in the cost of goods and services
and is the most common measure of inflation. The Employment Cost Index (ECI)
measures the cost of employing workers, including benefits costs. Financial
markets are very sensitive to increases in inflation because of the potentially
negative impact on corporate earnings, investors and consumers.
Source: Bloomberg L.P.
3
<PAGE> 8
MARKET OVERVIEW Continued
between munis and 30-year Treasuries has become less meaningful. Along with
others in the industry, we are currently exploring alternatives that will allow
investors to evaluate more precisely the relationship between munis and
Treasuries.
LOOKING AHEAD: GROWTH MAY CONTINUE, BUT RATE MAY SLOW.
[GRAPHIC OF CAPITAL]
Recent evidence indicates that the economy has indeed slowed. The consensus
among economists is that the U.S. economy appears poised for continued growth,
albeit at lower rates than those of the past few years.
The question is whether the slowdown is only a temporary condition prompted by a
build-up of manufacturing inventories or is in fact the "soft landing" sought by
the Fed. Through its aggressive tightening of short-term interest rates over the
last 12 months, the Fed has sought to usher in a comparatively stable period
characterized by slower growth. Factors to watch may include consumer spending
and employer competition for workers. If the slowdown is in fact the desired
"soft landing," we would expect to see a slackening in one or both of these
factors.
-----------------------------------------------------------------------------
Most economists expect that gross domestic product will grow at the rate of
about 2.5% to 3% in the second half of 2000.
-----------------------------------------------------------------------------
Source: Schwab.
YIELDS OF MUNICIPAL SECURITIES
Effective yields of five-year and 30-year municipal bonds
Flush with cash, municipalities issued less debt. This reduced the supply of
munis at a time demand was growing, driving muni prices higher and yields lower.
[YIELDS OF MUNICIPAL SECURITIES LINE GRAPH]
<TABLE>
<CAPTION>
30-Year Bond Five-Year
Buyer 40 Index AAA GO Bond
<S> <C> <C>
3/31/91 0.074 0.0585
4/30/91 0.0728 0.0567
5/31/91 0.0725 0.0558
6/30/91 0.0732 0.0588
7/31/91 0.0716 0.0575
8/31/91 0.07 0.0557
9/30/91 0.0689 0.0537
10/31/91 0.0685 0.0534
11/30/91 0.0696 0.0538
12/31/91 0.0665 0.0498
1/31/92 0.0677 0.0494
2/29/92 0.0685 0.0504
3/31/92 0.0688 0.0545
4/30/92 0.0683 0.0533
5/31/92 0.0668 0.051
6/30/92 0.0651 0.0492
7/31/92 0.0611 0.044
8/31/92 0.0648 0.0466
9/30/92 0.0657 0.047
10/31/92 0.0698 0.0481
11/30/92 0.065 0.0455
12/31/92 0.0645 0.0463
1/31/93 0.0634 0.0459
2/28/93 0.059 0.041
3/31/93 0.0609 0.0438
4/30/93 0.0603 0.0431
5/31/93 0.0599 0.0435
6/30/93 0.0579 0.0414
7/31/93 0.0587 0.0423
8/31/93 0.0561 0.0402
9/30/93 0.0551 0.0382
10/31/93 0.0559 0.0385
11/30/93 0.059 0.041
12/31/93 0.056 0.0396
1/31/94 0.0551 0.0384
2/28/94 0.0609 0.0415
3/31/94 0.0704 0.0486
4/30/94 0.0702 0.0494
5/31/94 0.0689 0.0489
6/30/94 0.0692 0.0496
7/31/94 0.0662 0.0481
8/31/94 0.0655 0.0483
9/30/94 0.0693 0.0504
10/31/94 0.0736 0.0523
11/30/94 0.0773 0.0549
12/31/94 0.0728 0.0542
1/31/95 0.0686 0.0523
2/28/95 0.0647 0.051
3/31/95 0.064 0.0493
4/30/95 0.0643 0.0493
5/31/95 0.0604 0.0456
6/30/95 0.0637 0.0467
7/31/95 0.0638 0.045
8/31/95 0.063 0.0441
9/30/95 0.0623 0.044
10/31/95 0.0599 0.0433
11/30/95 0.0574 0.0425
12/31/95 0.0565 0.0424
1/31/96 0.057 0.0419
2/29/96 0.0599 0.0419
3/31/96 0.0644 0.0448
4/30/96 0.065 0.0459
5/31/96 0.0645 0.0474
6/30/96 0.0626 0.0471
7/31/96 0.0618 0.0466
8/31/96 0.0621 0.0467
9/30/96 0.06 0.0458
10/31/96 0.0594 0.045
11/30/96 0.0573 0.0429
12/31/96 0.0587 0.0438
1/31/97 0.0602 0.0454
2/28/97 0.0596 0.0446
3/31/97 0.0626 0.0472
4/30/97 0.0615 0.0478
5/31/97 0.0588 0.0471
6/30/97 0.0579 0.0452
7/31/97 0.0538 0.0423
8/31/97 0.0573 0.0445
9/30/97 0.0561 0.0432
10/31/97 0.0559 0.0426
11/30/97 0.055 0.0427
12/31/97 0.0535 0.0417
1/31/98 0.053 0.0412
2/28/98 0.0544 0.0411
3/31/98 0.0546 0.0419
4/30/98 0.0568 0.0434
5/31/98 0.0534 0.042
6/30/98 0.0536 0.042
7/31/98 0.0541 0.0419
8/31/98 0.0519 0.0399
9/30/98 0.0509 0.0388
10/31/98 0.0534 0.0384
11/30/98 0.0525 0.0386
12/31/98 0.0534 0.0387
1/31/99 0.0521 0.0371
2/28/99 0.0533 0.0378
3/31/99 0.0539 0.0393
4/30/99 0.0547 0.0392
5/31/99 0.0562 0.0412
6/30/99 0.0591 0.045
7/31/99 0.0594 0.0441
8/31/99 0.0621 0.045
9/30/99 0.0631 0.0455
10/31/99 0.0653 0.0471
11/30/99 0.0642 0.0463
12/31/99 0.0655 0.0481
1/31/00 0.0668 0.05
2/29/00 0.0643 0.0505
3/31/00 0.0609 0.0497
4/30/00 0.0621 0.0505
5/31/00 0.0646 0.0523
6/30/00 0.0602 0.0495
7/31/00 0.0584 0.0477
8/31/00 0.0575 0.0455
</TABLE>
Yields, or interest rates, represent the cost of borrowing money. Rapid economic
growth or the expectation of higher inflation can drive rates up, while the
opposite conditions can push rates down. Municipal bonds tend to pay lower
interest rates than other types of bonds because interest from munis is free
from federal income tax (and sometimes state taxes) for many investors.
Source: Bloomberg L.P. 1 No earlier data available.
YIELD ADVANTAGE OF MUNIS OVER TREASURIES
Difference in yields for five-year bonds for the top federal and combined
federal/CA tax brackets.
On an after-tax basis, short-term municipal bonds continued to outperform
Treasuries during the report period for investors in the top tax bracket.
[YIELD ADVANTAGE OF MUNIS OVER TREASURIES LINE GRAPH]
<TABLE>
<CAPTION>
Federal Federal/CA
39.6% Bracket 45.2% Bracket
<S> <C> <C>
3/29/91 0.0117 0.016
4/30/91 0.0107 0.015
5/31/91 0.0093 0.0136
6/28/91 0.0112 0.0156
7/31/91 0.0108 0.0151
8/30/91 0.0114 0.0155
9/30/91 0.012 0.0159
10/31/91 0.0127 0.0165
11/29/91 0.0147 0.0183
12/31/91 0.014 0.0173
1/31/92 0.0106 0.0142
2/28/92 0.0108 0.0144
3/31/92 0.0127 0.0166
4/30/92 0.0117 0.0156
5/29/92 0.0111 0.0148
6/30/92 0.0113 0.0148
7/31/92 0.0088 0.0121
8/31/92 0.0129 0.0161
9/30/92 0.0148 0.0178
10/30/92 0.0125 0.0159
11/30/92 0.0079 0.0114
12/31/92 0.0101 0.0135
1/29/93 0.0124 0.0155
2/26/93 0.0095 0.0125
3/31/93 0.0122 0.0151
4/30/93 0.0123 0.0151
5/31/93 0.0111 0.0141
6/30/93 0.0109 0.0138
7/30/93 0.0112 0.0141
8/31/93 0.0113 0.014
9/30/93 0.0094 0.0121
10/29/93 0.0092 0.0119
11/30/93 0.0098 0.0127
12/31/93 0.0081 0.0111
1/31/94 0.0081 0.0109
2/28/94 0.0078 0.011
3/31/94 0.011 0.0145
4/29/94 0.0093 0.0131
5/31/94 0.0081 0.0119
6/30/94 0.0076 0.0115
7/29/94 0.0075 0.0112
8/31/94 0.0072 0.011
9/30/94 0.0064 0.0105
10/31/94 0.0071 0.0113
11/30/94 0.0079 0.0122
12/30/94 0.0069 0.0113
1/31/95 0.007 0.0112
2/28/95 0.0085 0.0124
3/31/95 0.0066 0.0106
4/28/95 0.0077 0.0116
5/31/95 0.009 0.0124
6/30/95 0.0107 0.014
7/31/95 0.0078 0.0113
8/31/95 0.0075 0.0109
9/29/95 0.0077 0.011
10/31/95 0.0082 0.0115
11/30/95 0.0092 0.0123
12/29/95 0.0099 0.0129
1/31/96 0.0103 0.0132
2/29/96 0.0073 0.0105
3/29/96 0.008 0.0115
4/30/96 0.0072 0.0108
5/31/96 0.0073 0.0111
6/28/96 0.0081 0.0117
7/31/96 0.0069 0.0106
8/30/96 0.0061 0.0099
9/30/96 0.0068 0.0104
10/31/96 0.0084 0.0118
11/29/96 0.0077 0.011
12/31/96 0.0063 0.0098
1/31/97 0.0077 0.0112
2/28/97 0.006 0.0096
3/31/97 0.0064 0.0102
4/30/97 0.0081 0.0118
5/30/97 0.0078 0.0115
6/30/97 0.0066 0.0102
7/31/97 0.0067 0.01
8/29/97 0.0069 0.0104
9/30/97 0.007 0.0104
10/31/97 0.0081 0.0113
11/28/97 0.0074 0.0107
12/31/97 0.0072 0.0104
1/30/98 0.0087 0.0117
2/27/98 0.0074 0.0105
3/31/98 0.008 0.0111
4/30/98 0.0094 0.0125
5/29/98 0.0085 0.0116
6/30/98 0.009 0.0121
7/31/98 0.0087 0.0118
8/31/98 0.0109 0.0136
9/30/98 0.0133 0.0157
10/30/98 0.0128 0.0152
11/30/98 0.0115 0.014
12/31/98 0.0113 0.0138
1/29/99 0.0096 0.0122
2/26/99 0.0063 0.0092
3/31/99 0.0085 0.0114
4/30/99 0.0077 0.0106
5/31/99 0.0075 0.0106
6/30/99 0.0109 0.0141
7/30/99 0.0091 0.0124
8/31/99 0.0096 0.0129
9/30/99 0.0107 0.014
10/29/99 0.0112 0.0145
11/30/99 0.0094 0.0128
12/31/99 0.0098 0.0133
1/31/00 0.0096 0.0134
2/29/00 0.0107 0.0144
3/31/00 0.0116 0.0151
4/28/00 0.011 0.0147
5/31/00 0.0129 0.0166
6/30/00 0.0121 0.0156
7/31/00 0.0106 0.014
8/31/00 0.0094 0.0128
</TABLE>
This chart shows how much more the average five-year muni yielded than the
average five-year Treasury after federal (or combined California and federal)
income tax. For example, if the line for the 39.6% bracket stood at 1% on a
given date, it would mean that five-year munis were effectively yielding 1% more
than five-year Treasuries for an investor in the 39.6% tax bracket.
Source: Bloomberg L.P. 1 No earlier data available.
4
<PAGE> 9
SCHWAB
SHORT/INTERMEDIATE TAX-FREE BOND FUND
[PHOTO OF JOANNE LARKIN]
"Focusing on high quality bonds with longer maturities allowed the fund to
benefit from price increases as the demand for these bonds soared."
Portfolio Manager
Joanne Larkin
JOANNE LARKIN, a vice president of the investment adviser, has had overall
management responsibility for the fund since its inception. Prior to joining the
firm in February 1992, she worked for more than eight years in fixed income
asset management and research.
TICKER SYMBOL SWITX
--------------------------------------------------------
INTEREST RATE
SENSITIVITY 1,2
LOW MEDIUM HIGH
CREDIT QUALITY 1,2
HIGH [X] [ ] [ ]
MEDIUM [ ] [ ] [ ]
LOW [ ] [ ] [ ]
Individuals in higher tax brackets who are seeking tax-free income along with
the potential for lower volatility may want to consider this fund.
--------------------------------------------------------------------------------
THE FUND SEEKS HIGH CURRENT INCOME THAT IS EXEMPT FROM FEDERAL INCOME TAX,
CONSISTENT WITH CAPITAL PRESERVATION. 3
MANAGER'S PERSPECTIVE
THE FUND PERFORMED VERY WELL DURING THE REPORT PERIOD, PACED BY THE MUNI BOND
MARKET'S RECOVERY. Although rising interest rates pushed down muni prices during
1999, the muni market surged ahead strongly in the first eight months of 2000.
The fund's returns for the period actually exceeded those for the average
short-term taxable bond fund, even before allowing for any tax advantages. 1
A ROBUST ECONOMY HELPED SHRINK THE SUPPLY OF MUNIS WHILE BOOSTING DEMAND FOR
THEM. Many muni issuers have seen increased revenues, reducing their need to
borrow money by issuing bonds. At the same time, investor demand for munis has
surged, driven by the appeal of the tax advantages as well as the historically
lower volatility of munis as compared with stocks. All of these factors helped
push muni prices higher.
THE FUND LENGTHENED ITS AVERAGE MATURITY within its allowable range, in order to
capitalize on attractive yields from longer maturity bonds. Performance may also
have benefited from the fund's decision to buy more bonds in the two highest
rating categories, where prices rose significantly.
1 Source: Morningstar, Inc.
2 Interest rate sensitivity and credit quality are two main components of bond
performance. The assessment reflects the fund's portfolio as of 8/31/00, which
may have changed since then, and is not a precise indication of risk or
performance -- past, present or future. Definitions of style box categories:
Sensitivity (measured as duration): Low, up to 4.5 years; Medium, more than
4.5 years to less than seven years; High, seven years or greater. Credit
quality: High, AA or better; Medium, A or BBB; Low, BB or lower.
3 The income you receive from the fund may be subject to state and local income
taxes. A portion of income also may be subject to the alternative minimum tax
(AMT).
5
<PAGE> 10
SCHWAB SHORT/INTERMEDIATE TAX-FREE BOND FUND
PERFORMANCE
AVERAGE ANNUAL TOTAL RETURNS as of 8/31/00
This chart compares performance of the fund with the Lehman Brothers 3-Year
Municipal Bond Index and the Morningstar Municipal Short Bond Fund category. As
of the end of the report period, the fund's 30-day SEC yield was 4.20% 1 and its
taxable-equivalent yield was 6.95%. 1,2
[AVERAGE ANNUAL TOTAL RETURNS]
<TABLE>
<CAPTION>
TOTAL RETURN 1
SINCE INCEPTION:
1 YEAR 5 YEAR 4/21/93
<S> <C> <C> <C>
Fund 4.50% 4.04% 4.17%
Lehmen 3-Year Muni Index 4.72% 4.59% 4.61%
Peer Group Average 3 3.87% 3.91% n/a
</TABLE>
PERFORMANCE OF A $10,000 INVESTMENT
Shows performance since inception of a hypothetical $10,000 investment in the
fund, compared with a similar investment in the Lehman Brothers 3-Year Municipal
Bond Index.
All figures on this page assume dividends and distributions were reinvested.
Index figures do not include trading and management costs, which would lower
performance. The index is unmanaged, and you cannot invest in it directly. The
fund's share price changes, and when you sell your shares they may be worth more
or less than what you paid for them. Keep in mind that past performance isn't an
indication of future results.
[PERFORMANCE OF A $10,000 INVESTMENT LINE GRAPH]
<TABLE>
<CAPTION>
LEHMAN 3-YEAR
FUND MUNI INDEX
<S> <C> <C>
4/21/93 10000 10000
4/29/93 9990 9993
5/30/93 10038 10020
6/29/93 10129 10085
7/30/93 10151 10090
8/30/93 10283 10184
9/29/93 10344 10228
10/30/93 10366 10250
11/29/93 10326 10237
12/30/93 10462 10344
1/30/94 10567 10428
2/27/94 10412 10331
3/30/94 10218 10206
4/29/94 10280 10267
5/30/94 10323 10315
6/29/94 10312 10318
7/30/94 10407 10403
8/30/94 10429 10440
9/29/94 10377 10414
10/30/94 10317 10389
11/29/94 10245 10370
12/30/94 10346 10415
1/30/95 10445 10501
2/27/95 10563 10612
3/30/95 10655 10707
4/29/95 10691 10743
5/30/95 10881 10908
6/29/95 10884 10934
7/30/95 10987 11050
8/30/95 11079 11136
9/29/95 11115 11167
10/30/95 11175 11221
11/29/95 11255 11293
12/30/95 11305 11340
1/30/96 11383 11429
2/28/96 11364 11431
3/30/96 11313 11403
4/29/96 11306 11417
5/30/96 11312 11427
6/29/96 11371 11496
7/30/96 11443 11559
8/30/96 11447 11577
9/29/96 11519 11647
10/30/96 11605 11729
11/29/96 11712 11838
12/30/96 11705 11844
1/30/97 11742 11896
2/27/97 11801 11954
3/30/97 11737 11892
4/29/97 11776 11943
5/30/97 11876 12040
6/29/97 11938 12111
7/30/97 12096 12255
8/30/97 12065 12230
9/29/97 12141 12319
10/30/97 12194 12373
11/29/97 12222 12409
12/30/97 12310 12493
1/30/98 12384 12575
2/27/98 12397 12602
3/30/98 12417 12622
4/29/98 12386 12604
5/30/98 12502 12722
6/29/98 12543 12765
7/30/98 12574 12811
8/30/98 12689 12935
9/29/98 12793 13018
10/30/98 12837 13080
11/29/98 12862 13112
12/30/98 12898 13143
1/30/99 13022 13263
2/27/99 12997 13277
3/30/99 13004 13289
4/29/99 13033 13330
5/30/99 13000 13312
6/29/99 12876 13232
7/30/99 12946 13297
8/30/99 12925 13313
9/29/99 12967 13363
10/30/99 12922 13365
11/29/99 12991 13423
12/30/99 12964 13402
1/30/00 12952 13426
2/28/00 12982 13468
3/30/00 13108 13536
4/29/00 13073 13539
5/30/00 13053 13553
6/29/00 13283 13725
7/30/00 13382 13836
8/30/00 13507 13943
</TABLE>
1 Fund yield and returns reflect expense reductions by the fund's investment
adviser (CSIM) and transfer agent and shareholder services agent (Schwab).
Without these reductions, the fund's yield and returns would have been lower.
2 This is the taxable-equivalent 30-day SEC yield for a hypothetical investor
in the highest federal tax bracket (39.6%). Your tax rate may be different.
3 Source: Morningstar, Inc. As of 8/31/00, there were 103 funds in the
Morningstar Municipal Short Bond Fund category that had track records of at
least one year.
6
<PAGE> 11
TOP 10 HOLDINGS 1 AS OF 8/31/00
<TABLE>
<CAPTION>
PERCENTAGE OF
SECURITY RATE MATURITY DATE INVESTMENTS
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 WASHINGTON CONVENTION CENTER AUTHORITY
Dedicated Tax Senior Lien Revenue 5.00% 10/01/06 5.4%
------------------------------------------------------------------------------------------------------
2 PUERTO RICO MUNICIPAL FINANCE AGENCY
General Obligation, Series 1999A 5.50% 08/01/08 4.3%
------------------------------------------------------------------------------------------------------
3 HOUSTON Refunding & Public Improvement
General Obligation, Series 1999A 5.00% 03/01/04 4.1%
------------------------------------------------------------------------------------------------------
4 NEW YORK CITY General Obligation, Series 1994H 4.75% 03/15/07 4.0%
------------------------------------------------------------------------------------------------------
5 CHARLESTON COUNTY, CARE ALLIANCE HEALTH SERVICES
Revenue, Series 1999A 4.25% 08/15/07 3.8%
------------------------------------------------------------------------------------------------------
6 PORT OF SEATTLE Revenue, Series 1996B 5.50% 09/01/02 3.8%
------------------------------------------------------------------------------------------------------
7 MARICOPA COUNTY UNIFIED SCHOOL DISTRICT NO. 93,
CAVE CREEK PROJECT General Obligation, Series 1997A 5.00% 07/01/03 3.1%
------------------------------------------------------------------------------------------------------
8 MARICOPA COUNTY ELEMENTARY SCHOOL DISTRICT NO. 068
General Obligation Refunding, Series 1994A 6.80% 07/01/12 2.9%
------------------------------------------------------------------------------------------------------
9 PRIVATE COLLEGES & UNIVERSITIES FACILITIES AUTHORITY,
EMORY UNIVERSITY PROJECT Revenue, Series 1992C 6.00% 10/01/05 2.8%
------------------------------------------------------------------------------------------------------
10 ALAMEDA PUBLIC FINANCING AUTHORITY Revenue 4.95% 09/02/07 2.8%
--------------------------------------------------------------------------------------------------------
TOTAL 37.0%
</TABLE>
DIVIDENDS PAID in each fiscal year
[DIVIDENDS PAID BAR CHART]
<TABLE>
<CAPTION>
Year Income Dividends per Share
<S> <C>
1993 2 0.13
1994 0.37
1995 0.4
1996 0.41
1997 0.41
1998 0.42
1999 0.4
2000 0.41
</TABLE>
1 This list is not a recommendation of any security by the adviser.
2 Period from the fund's inception on 4/21/93 through 8/31/93.
7
<PAGE> 12
SCHWAB SHORT/INTERMEDIATE TAX-FREE BOND FUND
COMPOSITION OF THE FUND'S PORTFOLIO as of 8/31/00
All figures are shown as a percentage of the fund's investments. Holdings may
have changed since the report date.
BY SECURITY TYPE
-------------------------------------------------------------------------------
[BY SECURITY TYPE PIE CHART]
(1) 100.0% Municipal Bonds
BY CREDIT QUALITY 1
--------------------------------------------------------------------------------
[BY CREDIT QUALITY PIE CHART]
(1) 63.8% AAA
(2) 17.9% AA
(3) 14.2% A
(4) 1.3% BBB
(5) 2.8% Short-Term Ratings
BY MATURITY
--------------------------------------------------------------------------------
[BY MATURITY PIE CHART]
(1) 10.0% 0-6 Months
(2) 31.3% 7-36 Months
(3) 17.3% 37-60 Months
(4) 41.4% More than 60 Months
FUND FACTS as of 8/31/00
<TABLE>
<CAPTION>
PEER GROUP 2
FUND AVERAGE
--------------------------------------------------------------------------------
<S> <C> <C>
Number of Issues 50 112
--------------------------------------------------------------------------------
Yield to Maturity 4.46% 3.99%
--------------------------------------------------------------------------------
Weighted Average Rate 4.40% 5.53%
--------------------------------------------------------------------------------
Weighted Average Maturity 4.2 yrs 5.1 yrs
--------------------------------------------------------------------------------
Weighted Average Duration 3.4 yrs 2.6 yrs
--------------------------------------------------------------------------------
Weighted Average Credit Quality AA AAA
--------------------------------------------------------------------------------
</TABLE>
EXPENSE RATIO as of 8/31/00
[EXPENSE RATIO BAR CHART]
<TABLE>
<S> <C>
FUND 0.49% 3
PEER GROUP AVERAGE 0.90% 2
</TABLE>
1 Based on ratings by Standard & Poor's and Moody's. Where ratings are
different, the chart uses the higher rating.
2 Source: Morningstar, Inc. As of 8/31/00, there were 103 funds in the
Morningstar Municipal Short Bond Fund category.
3 The actual expense ratio during the report period was 0.01% higher due to
certain non-routine expenses.
8
<PAGE> 13
SCHWAB SHORT/INTERMEDIATE TAX-FREE BOND FUND -- FINANCIALS
================================================================================
FINANCIAL TABLES
These pages provide additional data on the fund's performance, portfolio
holdings, expenses and business operations. These figures have been audited by
PricewaterhouseCoopers LLP.
Two other sections of this report provide context for the data in these
financials. THE FINANCIAL NOTES section contains information about the fund's
business structure, accounting practices and other matters, completing the data
given in these tables. The final section, HOW TO READ THIS REPORT, includes
guides designed to make the financials easy to read and understand.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
9/1/99- 9/1/98- 9/1/97- 9/1/96- 9/1/95-
8/31/00 8/31/99 8/31/98 8/31/97 8/31/96
=================================================================================================
<S> <C> <C> <C> <C> <C>
PER-SHARE DATA ($)
=================================================================================================
Net asset valueat beginning of period 10.05 10.26 10.16 10.04 10.12
------------------------------------------------
Income from investment operations:
Net investment income 0.41 0.40 0.42 0.41 0.41
Net realized and unrealized gains or losses 0.03 (0.21) 0.10 0.12 (0.08)
------------------------------------------------
Total income from investment operations 0.44 0.19 0.52 0.53 0.33
Less distributions:
Dividends from net investment income (0.41) (0.40) (0.42) (0.41) (0.41)
------------------------------------------------
NET ASSET VALUE AT END OF PERIOD 10.08 10.05 10.26 10.16 10.04
------------------------------------------------
Total return (%) 4.50 1.86 5.17 5.40 3.32
RATIOS/SUPPLEMENTAL DATA (%)
-------------------------------------------------------------------------------------------------
Ratio of net operating expenses to
average net assets 0.49 1 0.49 0.49 0.49 0.49
Expense reductions reflected in above ratio 0.25 0.32 0.36 0.47 0.41
Ratio of net investment income to
average net assets 4.11 3.87 3.99 4.08 4.06
Portfolio turnover rate 11 8 22 20 44
Net assets, end of period ($ x 1,000,000) 76 87 68 54 54
<FN>
1 Would have been 0.50% if non-routine expenses (proxy fees) had been included.
</FN>
</TABLE>
SEE THE FINANCIAL NOTES, WHICH 9
ARE INTEGRAL TO THIS INFORMATION. ======
<PAGE> 14
SCHWAB SHORT/INTERMEDIATE TAX-FREE BOND FUND -- FINANCIALS
================================================================================
PORTFOLIO HOLDINGS
As of August 31, 2000.
This table shows all the securities in the fund's portfolio and their market
value, as of the report date.
We use the symbols below to designate certain characteristics. With the top ten
holdings, the number in the circle is the security's rank among the top ten.
1 Top ten holding
+ Credit-enhanced security
o Certificate of Participation
For fixed-rate obligations, the rate shown is the coupon or discount rate (the
rate established when the obligation was issued). For variable-rate obligations,
the rate shown is the coupon rate as of the report date, and the maturity shown
is the date of the next rate reset (or the demand date, for securities that have
a demand date that's later than the reset date).
The pie chart below shows the fund's major asset categories and the market value
and cost of the securities in each category.
ALL DOLLAR VALUES ARE IN THOUSANDS.
[GRAPHIC OMITTED]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
100.0% MUNICIPAL BONDS
Market Value: $75,261
Cost: $75,697
OTHER INVESTMENT COMPANIES
Market Value: $27
Cost: $27
==================================================
100.0% TOTAL INVESTMENTS
Market Value: $75,288
Cost: $75,724
MUNICIPAL BONDS 100.0% OF INVESTMENTS
================================================================================
<TABLE>
<CAPTION>
ISSUER
PROJECT MATURITY FACE VALUE MKT. VALUE
TYPE OF SECURITY RATE DATE ($ x 1,000) ($ x 1,000)
FIXED-RATE OBLIGATIONS 97.1%
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ALABAMA 1.4%
BIRMINGHAM SPECIAL CARE FACILITIES HOSPITAL FINANCING AUTHORITY
DAUGHTERS OF CHARITY NATIONAL HEALTH SYSTEM -
ST. VINCENT'S HOSPITAL & PROVIDENCE
Revenue, Series 1995 7.00% 11/01/01 1,000 1,030
ARIZONA 7.4%
8+ MARICOPA COUNTY ELEMENTARY SCHOOL DISTRICT NO. 068
General Obligation Refunding, Series 1994A 6.80% 07/01/12 2,000 2,184
7+ MARICOPA COUNTY UNIFIED SCHOOL DISTRICT NO. 93
CAVE CREEK PROJECT
General Obligation, Series 1997A 5.00% 07/01/03 2,325 2,365
PHOENIX CIVIC IMPROVEMENT CORP.
AIRPORT PROJECT
Senior Lien Revenue Refunding 5.00% 07/01/04 1,000 1,016
---------
5,565
CALIFORNIA 2.7%
10 ALAMEDA PUBLIC FINANCING AUTHORITY
Revenue 4.95% 09/02/07 2,065 2,071
</TABLE>
10 SEE THE FINANCIAL NOTES, WHICH
====== ARE INTEGRAL TO THIS INFORMATION.
<PAGE> 15
<TABLE>
<CAPTION>
ISSUER
PROJECT MATURITY FACE VALUE MKT. VALUE
TYPE OF SECURITY RATE DATE ($ x 1,000) ($ x 1,000)
<S> <C> <C> <C> <C>
COLORADO 4.0%
GRAND JUNCTION
DAYTON HUDSON CORP. PROJECT
Industrial Development Revenue Refunding 5.25% 05/01/03 2,000 2,010
+ SUPERIOR DISTRICT NO. 2
Metropolitan Revenue Refunding 4.63% 12/01/13 1,000 985
--------
2,995
DISTRICT OF COLUMBIA 5.4%
1+ WASHINGTON CONVENTION CENTER AUTHORITY
Dedicated Tax Senior Lien Revenue 5.00% 10/01/06 4,000 4,082
FLORIDA 1.7%
+o ORANGE COUNTY SCHOOL BOARD
Series 1997A 4.80% 08/01/02 1,300 1,309
GEORGIA 2.8%
9 PRIVATE COLLEGES & UNIVERSITIES FACILITIES AUTHORITY
EMORY UNIVERSITY PROJECT
Revenue, Series 1992C 6.00% 10/01/05 2,000 2,100
ILLINOIS 2.9%
+ CHICAGO PUBLIC BUILDING COMMISSION
Building Revenue, Series 1999C 5.50% 02/01/06 1,000 1,039
ILLINOIS HEALTH FACILITIES AUTHORITY
OSF HEALTHCARE SYSTEM
Revenue, Series 1993 5.13% 11/15/00 1,145 1,146
--------
2,185
INDIANA 1.5%
+ MONROE COUNTY INDUSTRIAL HOSPITAL AUTHORITY
BLOOMINGTON HOSPITAL, INC. PROJECT
Hospital Revenue Refunding 4.60% 05/01/04 1,105 1,107
IOWA 3.6%
+ BLACK HAWK COUNTY HOSPITAL FACILITY
ALLEN MEMORIAL HOSPITAL
Revenue, Series 1990 7.38% 02/01/01 2,000 2,064
+ CEDAR RAPIDS HOSPITAL FACILITY
ST. LUKE'S METHODIST HOSPITAL PROJECT
Revenue, Series 1993 6.13% 08/15/03 600 639
--------
2,703
LOUISIANA 2.1%
+ NEW ORLEANS
General Obligation Refunding, Series 1998B 4.50% 12/01/05 1,600 1,598
</TABLE>
SEE THE FINANCIAL NOTES, WHICH 11
ARE INTEGRAL TO THIS INFORMATION. ======
<PAGE> 16
SCHWAB SHORT/INTERMEDIATE TAX-FREE BOND FUND -- FINANCIALS
================================================================================
PORTFOLIO HOLDINGS Continued
As of August 31, 2000.
<TABLE>
<CAPTION>
ISSUER
PROJECT MATURITY FACE VALUE MKT. VALUE
TYPE OF SECURITY RATE DATE ($ x 1,000) ($ x 1,000)
<S> <C> <C> <C> <C>
MASSACHUSETTS 1.3%
+ MASSACHUSETTS WATER RESOURCES AUTHORITY
Revenue, Series 1998A 5.00% 08/01/05 1,000 1,022
MICHIGAN 1.9%
+ DETROIT SCHOOL DISTRICT
General Obligation, Series 1998B 5.00% 05/01/04 1,390 1,415
MINNESOTA 5.9%
+ ARDEN HILLS HOUSING & HEALTH CARE FACILITIES
PRESBYTERIAN HOMES PROJECT
Revenue Refunding, Series 1999A 4.33% 09/01/01 1,500 1,500
+ MINNEAPOLIS COMMUNITY DEVELOPMENT AGENCY
Tax Increment Revenue 7.00% 09/01/00 1,000 1,000
+ MINNESOTA HOUSING FINANCE AGENCY
Rental Housing Revenue, Series 1995D 4.80% 08/01/01 1,935 1,942
--------
4,442
MISSISSIPPI 2.7%
+ MISSISSIPPI HOSPITAL EQUIPMENT & FACILITIES AUTHORITY
MISSISSIPPI BAPTIST MEDICAL CENTER
Revenue Refunding 5.25% 05/01/01 2,000 2,011
NEBRASKA 5.1%
+ AMERICAN PUBLIC ENERGY AGENCY
NEBRASKA PUBLIC GAS AGENCY PROJECT
Gas Supply Revenue, Series 1998C 4.00% 09/01/07 2,000 1,792
+ NEBRASKA PUBLIC POWER DISTRICT
Revenue, Series 1998A 5.25% 01/01/05 2,000 2,053
--------
3,845
NEW JERSEY 1.4%
+ BRICK TOWNSHIP MUNICIPAL UTILITIES AUTHORITY
Revenue, Series 1996 5.50% 12/01/03 1,000 1,033
NEW YORK 11.9%
+ FRANKLIN COUNTY
General Obligation 4.25% 11/01/06 715 706
NEW YORK CITY
4 General Obligation, Series 1994H 4.75% 03/15/07 3,000 3,003
General Obligation, Series 1997L 5.10% 08/01/02 800 810
NEW YORK CITY MUNICIPAL ASSISTANCE CORP.
Revenue, Series 1997L 5.50% 07/01/03 2,000 2,060
NEW YORK CITY TRANSITIONAL FINANCE AUTHORITY
Future Tax Secured Revenue, Series 1998B 5.25% 11/15/04 1,300 1,343
</TABLE>
12 SEE THE FINANCIAL NOTES, WHICH
====== ARE INTEGRAL TO THIS INFORMATION.
<PAGE> 17
<TABLE>
<CAPTION>
ISSUER
PROJECT MATURITY FACE VALUE MKT. VALUE
TYPE OF SECURITY RATE DATE ($ x 1,000) ($ x 1,000)
<S> <C> <C> <C> <C>
NEW YORK STATE URBAN DEVELOPMENT CORP.
CORRECTIONAL FACILITY SERVICE CONTRACT
Revenue, Series1998A 5.00% 01/01/05 1,000 1,014
--------
8,936
NORTH CAROLINA 2.7%
+ NORTH CAROLINA MUNICIPAL POWER AGENCY NO. 1
CATAWABA ELECTRIC
Revenue, Series 1995A 5.10% 01/01/07 2,000 2,034
OHIO 2.7%
+ OHIO PUBLIC FACILITIES COMMISSION
HIGHER EDUCATION CAPITAL FACILITIES
Revenue, Series 1996II-B 5.00% 11/01/01 2,000 2,016
PENNSYLVANIA 1.5%
+ PENNSYLVANIA INDUSTRIAL DEVELOPMENT AUTHORITY
Economic Development Revenue 7.00% 07/01/07 1,000 1,130
PUERTO RICO 4.3%
2+ PUERTO RICO MUNICIPAL FINANCE AGENCY
General Obligation, Series 1999A 5.50% 08/01/08 3,000 3,222
SOUTH CAROLINA 5.2%
5+ CHARLESTON COUNTY
CARE ALLIANCE HEALTH SERVICES
Revenue, Series 1999A 4.25% 08/15/07 3,000 2,850
+o CHARLESTON PUBLIC FACILITIES
PUBLIC IMPROVEMENT PROJECT
Series 1993 4.30% 09/01/00 1,085 1,085
--------
3,935
TEXAS 5.4%
HOUSTON
General Obligation Refunding, Series 1995A 5.30% 03/01/01 1,000 1,005
3 Refunding & Public Improvement
General Obligation, Series 1999A 5.00% 03/01/04 3,000 3,053
--------
4,058
WASHINGTON 7.0%
+ PORT OF SEATTLE
6 Revenue, Series 1996B 5.50% 09/01/02 2,775 2,830
PASSENGER FACILITY
Revenue, Series 1998B 5.00% 12/01/07 1,395 1,415
WASHINGTON STATE
General Obligation Refunding, Series 1991R-92B 6.30% 09/01/02 1,000 1,029
--------
5,274
</TABLE>
SEE THE FINANCIAL NOTES, WHICH 13
ARE INTEGRAL TO THIS INFORMATION. ======
<PAGE> 18
SCHWAB SHORT/INTERMEDIATE TAX-FREE BOND FUND -- FINANCIALS
Portfolio Holdings Continued
As of August 31, 2000.
<TABLE>
<CAPTION>
ISSUER
PROJECT MATURITY FACE VALUE MKT. VALUE
TYPE OF SECURITY RATE DATE ($ x 1,000) ($ x 1,000)
<S> <C> <C> <C> <C>
WISCONSIN 2.6%
WISCONSIN HEALTH & EDUCATIONAL FACILITIES AUTHORITY
+ AURORA MEDICAL GROUP, INC. PROJECT
Revenue, Series 1996 4.90% 11/15/02 1,000 1,010
CARROLL COLLEGE, INC. PROJECT
Revenue, Series 1998 4.80% 10/01/06 1,000 983
--------
1,993
VARIABLE-RATE OBLIGATIONS 2.9%
===============================================================================================================
CALIFORNIA 0.9%
+ CALIFORNIA POLLUTION CONTROL FINANCING AUTHORITY
PACIFIC GAS & ELECTRIC CO.
Pollution Control Revenue Refunding, Series 1996C 3.50% 09/01/00 200 200
SOUTHERN CALIFORNIA EDISON
Pollution Control Revenue, Series 1986B 3.60% 09/01/00 200 200
SOUTHERN CALIFORNIA EDISON
Pollution Control Revenue, Series 1986C 3.60% 09/01/00 50 50
+o ORANGE COUNTY SANITATION DISTRICTS
DISTRICTS NO. 1-3, 5-7,11,13 & 14 3.60% 09/01/00 200 200
--------
650
MISSISSIPPI 2.0%
+ JACKSON COUNTY POLLUTION CONTROL
CHEVRON U.S.A., INC. PROJECT
Revenue Refunding 4.30% 09/01/00 1,500 1,500
Other Investment Companies 0.0% of investments
===============================================================================================================
SECURITY AND NUMBER OF SHARES
PROVIDENT INSTITUTIONAL FUNDS --
MUNI FUND PORTFOLIO 27,442 27
===============================================================================================================
END OF PORTFOLIO HOLDINGS. FOR TOTALS, PLEASE SEE THE FIRST PAGE OF
HOLDINGS FOR THIS FUND.
</TABLE>
14 SEE THE FINANCIAL NOTES, WHICH
====== ARE INTEGRAL TO THIS INFORMATION.
<PAGE> 19
Statement of
Assets and Liabilities
As of August 31, 2000. All numbers x 1,000 except NAV.
ASSETS
====================================================================
Investments, at market value $75,288 a
Receivables:
Fund shares sold 1
Interest 1,064
Prepaid expenses + 19
------------
TOTAL ASSETS 76,372
LIABILITIES
====================================================================
Payables:
Fund shares redeemed 34
Dividends to shareholders 49
Transfer agent and shareholder service fees 3
Accrued expenses + 41
------------
TOTAL LIABILITIES 127
NET ASSETS
====================================================================
TOTAL ASSETS 76,372
TOTAL LIABILITIES - 127
------------
NET ASSETS $76,245
NET ASSETS BY SOURCE
Capital received from investors 77,254
Distributions in excess of net investment income (22)
Net realized capital losses (551)
Net unrealized capital losses (436)
NET ASSET VALUE (NAV)
SHARES
NET ASSETS (DIVIDE) OUTSTANDING = NAV
$76,245 7,560 $10.08
a. The fund's amortized cost for these securities was $75,724. Not counting
short-term obligations, the fund paid $8,435 for securities during the report
period, and received $17,043 from securities it sold or that matured. This
includes $48,609 in transactions with other SchwabFunds.(REGISTRATION MARK)
FEDERAL TAX DATA
================================================================================
COST BASIS OF PORTFOLIO $75,724
NET UNREALIZED DEPRECIATION:
Appreciated securities $316
Depreciated securities - 752
-----------
($436)
DEFERRED CAPITAL LOSSES $146
UNUSED CAPITAL LOSSES:
Expires 08/31 of: Loss amount
2003 $108
2004 + 296
----------
$404
SEE THE FINANCIAL NOTES, WHICH 15
ARE INTEGRAL TO THIS INFORMATION. ======
<PAGE> 20
SCHWAB SHORT/INTERMEDIATE TAX-FREE BOND FUND -- FINANCIALS
Statement of
OPERATIONS
For September 1, 1999 through August 31, 2000. All numbers x 1,000.
INVESTMENT INCOME
====================================================================
Interest $3,753
NET REALIZED LOSSES
====================================================================
Net realized losses on investments sold (146)
NET UNREALIZED GAINS
====================================================================
Net unrealized gains on investments 308
EXPENSES
====================================================================
Investment adviser and administrator fees 264 a
Transfer agent and shareholder service fees 204 b
Trustees' fees 7 c
Custodian and portfolio accounting fees 56
Professional fees 22
Registration fees 15
Shareholder reports 27
Proxy fees 6
Other expenses + 14
------------
Total expenses 615
Expense reduction - 209 d
------------
NET EXPENSES 406
INCREASE IN NET ASSETS FROM OPERATIONS
====================================================================
TOTAL INVESTMENT INCOME 3,753
NET EXPENSES - 406
------------
NET INVESTMENT INCOME 3,347
NET REALIZED LOSSES (146) e
NET UNREALIZED GAINS + 308 e
------------
INCREASE IN NET ASSETS FROM OPERATIONS $3,509
a. Calculated as a percentage of average daily net assets: 0.30% of the first
$500 million and 0.22% of assets beyond that. Before November 15, 1999, fees
were calculated at a rate of 0.41% of the fund's average daily net assets.
b. Calculated as a percentage of average daily net assets: for transfer agent
services, 0.05% of the fund's assets; for shareholder services, 0.20% of the
fund's assets.
c. For the fund's independent trustees only.
d. Reduced by the investment adviser (CSIM). This reduction reflects a guarantee
by CSIM and the transfer agent and shareholder service agent (Schwab) to
limit the operating expenses of this fund through at least October 31, 2000,
to 0.49% of average daily net assets. This limit doesn't include interest,
taxes and certain non-routine expenses.
e. These add up to a net gain on investments of $162.
16 SEE THE FINANCIAL NOTES, WHICH
====== ARE INTEGRAL TO THIS INFORMATION.
<PAGE> 21
Statements of
CHANGES IN NET ASSETS
For the current and previous report periods. All numbers x 1,000.
OPERATIONS
====================================================================
9/1/99-8/31/00 9/1/98-8/31/99
Net investment income $3,347 $ 3,074
Net realized gains or losses (146) 82
Net unrealized gains or losses + 308 (1,898)
------------------------------
INCREASE IN NET ASSETS FROM OPERATIONS 3,509 1,258
DISTRIBUTIONS PAID
====================================================================
Dividends from net investment income 3,353 3,125
TRANSACTIONS IN FUND SHARES
====================================================================
9/1/99-8/31/00 9/1/98-8/31/99
QUANTITY VALUE QUANTITY VALUE
Shares sold 3,264 $32,490 5,071 $51,955
Shares reinvested 248 2,477 232 2,374
Shares redeemed + (4,605) (45,846) (3,302) (33,775)
--------------------------------------------------------------------
NET INCREASE OR DECREASE (1,093) ($10,879) 2,001 $20,554
SHARES OUTSTANDING AND NET ASSETS
====================================================================
9/1/99-8/31/00 9/1/98-8/31/99
SHARES NET ASSETS SHARES NET ASSETS
Beginning of period 8,653 $86,968 6,652 $68,281
Total increase or
decrease + (1,093) (10,723) 2,001 18,687 a
--------------------------------------------------------------------
END OF PERIOD 7,560 $76,245 8,653 $86,968 b
a. Figures for shares represent the net changes in shares from the
transactions described above. Figures for net assets represent the changes
in net assets from operations plus the changes from the value of transactions
in fund shares, minus distributions paid.
b. Includes distributions that exceeded net investment income by $22 for the
current period and $16 for the prior period.
SEE THE FINANCIAL NOTES, WHICH 17
ARE INTEGRAL TO THIS INFORMATION. ======
<PAGE> 22
SCHWAB
LONG-TERM TAX-FREE BOND FUND
[PHOTO OF JOANNE LARKIN]
"During the report period, we added many high-quality bonds that were trading
at low prices in order to boost the fund's return."
Portfolio Manager
Joanne Larkin
JOANNE LARKIN, a vice president of the investment adviser, has had overall
management responsibility for the fund since its inception. Prior to joining the
firm in February 1992, she worked for more than eight years in fixed income
asset management and research.
TICKER SYMBOL SWNTX
----------------------------------------------------
INTEREST RATE
SENSITIVITY 1,2
LOW MEDIUM HIGH
CREDIT QUALITY 1, 2
HIGH [ ] [ ] [X]
MEDIUM [ ] [ ] [ ]
LOW [ ] [ ] [ ]
This fund is designed for individuals in higher tax brackets who are interested
in high current tax-free income and can accept a higher degree of risk to their
investment.
--------------------------------------------------------------------------------
THE FUND SEEKS HIGH CURRENT INCOME THAT IS EXEMPT FROM FEDERAL INCOME TAX,
CONSISTENT WITH CAPITAL PRESERVATION. 3
MANAGER'S PERSPECTIVE
THE FUND PERFORMED UNUSUALLY WELL DURING THE REPORT PERIOD, PACED BY THE MUNI
BOND MARKET'S RECOVERY. Although rising interest rates pushed down muni prices
during 1999, the muni market surged ahead strongly in the first eight months of
2000. The fund's returns for the period actually exceeded those for the average
long-term taxable bond fund, even before allowing for any tax advantages. 1
A ROBUST ECONOMY HELPED SHRINK THE SUPPLY OF MUNIS WHILE BOOSTING DEMAND FOR
THEM. Many muni issuers have seen increased revenues, reducing their need to
borrow money by issuing bonds. At the same time, investor demand for munis has
surged, driven by the appeal of the tax advantages as well as the historically
lower volatility of munis as compared with stocks. All of these factors helped
push muni prices higher.
THE FUND LENGTHENED ITS AVERAGE MATURITY within its allowable range, in order to
capitalize on attractive yields from longer maturity bonds. Performance may also
have benefited from the fund's decision to look for bonds that, in our opinion,
were likely to rise in price, although the fund still maintained a core of high
quality securities held for income.
1 Source: Morningstar, Inc.
2 Interest rate sensitivity and credit quality are two main components of bond
performance. The assessment reflects the fund's portfolio as of 8/31/00, which
may have changed since then, and is not a precise indication of risk or
performance -- past, present or future. Definitions of style box categories:
Sensitivity (measured as duration): Low, up to 4.5 years; Medium, more than
4.5 years to less than seven years; High, seven years or greater. Credit
quality: High, AA or better; Medium, A or BBB; Low, BB or lower.
3 The income you receive from the fund may be subject to state and local income
taxes. A portion of income also may be subject to the alternative minimum tax
(AMT).
18
<PAGE> 23
PERFORMANCE
AVERAGE ANNUAL TOTAL RETURNS as of 8/31/00
This chart compares performance of the fund with the Lehman Brothers General
Municipal Bond Index and the Morningstar Municipal National Long Bond Fund
category. As of the end of the report period, the fund's 30-day SEC yield was
5.01% 1 and its taxable-equivalent yield was 8.29%.1,2
[AVERAGE ANNUAL TOTAL RETURNS BAR CHART]
TOTAL RETURN 1
<TABLE>
<CAPTION>
SINCE INCEPTION:
1 YEAR 5 YEARS 9/11/92
<S> <C> <C> <C>
Fund 6.598% 5.34% 5.67%
Lehman General Muni Index 6.77% 6.03% 6.21%
Peer Group Average 3 4.47% 4.96% n/a
</TABLE>
PERFORMANCE OF A $10,000 INVESTMENT
Shows performance since inception of a hypothetical $10,000 investment in the
fund, compared with a similar investment in the Lehman Brothers General
Municipal Bond Index.
All figures on this page assume dividends and distributions were reinvested.
Index figures do not include trading and management costs, which would lower
performance. The indices are unmanaged, and you cannot invest in them directly.
The fund's share price changes, and when you sell your shares they may be worth
more or less than what you paid for them. Keep in mind that past performance
isn't an indication of future results.
[PERFORMANCE OF A $10,000 INVESTMENT BAR CHART]
<TABLE>
<CAPTION>
Lehman General
Fund Muni Index
<S> <C> <C>
9/11/92 10000 10000
9/29/92 9867 9923
10/30/92 9515 9826
11/29/92 9912 10002
12/30/92 10092 10104
1/30/93 10240 10221
2/27/93 10682 10591
3/30/93 10484 10479
4/29/93 10632 10585
5/30/93 10690 10644
6/29/93 10883 10822
7/30/93 10879 10836
8/30/93 11157 11062
9/29/93 11298 11188
10/30/93 11315 11209
11/29/93 11201 11111
12/30/93 11465 11345
1/30/94 11588 11475
2/27/94 11274 11177
3/30/94 10791 10722
4/29/94 10858 10813
5/30/94 10970 10907
6/29/94 10870 10840
7/30/94 11085 11044
8/30/94 11109 11083
9/29/94 10921 10920
10/30/94 10657 10726
11/29/94 10381 10532
12/30/94 10658 10764
1/30/95 11050 11072
2/27/95 11381 11394
3/30/95 11514 11524
4/29/95 11483 11538
5/30/95 11918 11906
6/29/95 11735 11802
7/30/95 11836 11914
8/30/95 11971 12065
9/29/95 12056 12141
10/30/95 12250 12317
11/29/95 12443 12521
12/30/95 12591 12642
1/30/96 12640 12738
2/28/96 12520 12651
3/30/96 12366 12489
4/29/96 12319 12454
5/30/96 12311 12449
6/29/96 12484 12585
7/30/96 12599 12699
8/30/96 12553 12697
9/29/96 12780 12875
10/30/96 12948 13020
11/29/96 13188 13258
12/30/96 13117 13203
1/30/97 13097 13228
2/27/97 13223 13350
3/30/97 12987 13172
4/29/97 13146 13283
5/30/97 13358 13482
6/29/97 13502 13626
7/30/97 13933 14004
8/30/97 13728 13872
9/29/97 13927 14037
10/30/97 14025 14127
11/29/97 14146 14210
12/30/97 14408 14418
1/30/98 14556 14566
2/27/98 14529 14571
3/30/98 14565 14584
4/29/98 14488 14518
5/30/98 14750 14747
6/29/98 14806 14805
7/30/98 14853 14842
8/30/98 15074 15072
9/29/98 15252 15260
10/30/98 15228 15260
11/29/98 15282 15314
12/30/98 15292 15352
1/30/99 15471 15535
2/27/99 15369 15466
3/30/99 15405 15488
4/29/99 15421 15527
5/30/99 15257 15437
6/29/99 14904 15214
7/30/99 14909 15269
8/30/99 14570 15147
9/29/99 14499 15153
10/30/99 14172 14989
11/29/99 14388 15148
12/30/99 14180 15035
1/30/00 14064 14970
2/28/00 14297 15144
3/30/00 14787 15475
4/29/00 14640 15384
5/30/00 14497 15304
6/29/00 15007 15710
7/30/00 15237 15928
8/30/00 15527 16173
</TABLE>
1 Fund yield and returns reflect expense reductions by the fund's investment
adviser (CSIM) and transfer agent and shareholder services agent (Schwab).
Without these reductions, the fund's yield and returns would have been lower.
2 This is the taxable-equivalent 30-day SEC yield for a hypothetical investor in
the highest federal tax bracket (39.6%). Your tax rate may be different.
3 Source: Morningstar, Inc. As of 8/31/00, there were 305 funds in the
Morningstar Municipal National Long Bond Fund category that had track records
of at least one year.
19
<PAGE> 24
SCHWAB LONG-TERM TAX-FREE BOND FUND
TOP 10 HOLDINGS 1 as of 8/31/00
<TABLE>
<CAPTION>
PERCENTAGE OF
SECURITY RATE MATURITY DATE INVESTMENTS
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 DALLAS FORT WORTH INTERNATIONAL AIRPORT
Revenue, Series 2000A 6.00% 11/01/24 4.8%
------------------------------------------------------------------------------------------------------
2 HOUSTON HIGHER EDUCATION FINANCING CORP.,
RICE UNIVERSITY PROJECT Revenue, Series 1999A 5.38% 11/15/29 4.5%
------------------------------------------------------------------------------------------------------
3 ILLINOIS HEALTH FACILITIES AUTHORITY, NORTHWESTERN
MEDICAL FACILITY FOUNDATION Revenue Refunding 5.13% 11/15/28 4.3%
------------------------------------------------------------------------------------------------------
4 WASHINGTON STATE HEALTH CARE FACILITIES AUTHORITY,
CATHOLIC HEALTH INITIATIVES Revenue, Series 2000A 6.00% 12/01/20 4.1%
------------------------------------------------------------------------------------------------------
5 CLARK COUNTY SCHOOL DISTRICT NO. 117 General Obligation 5.50% 12/01/17 4.0%
------------------------------------------------------------------------------------------------------
6 AUSTIN UTILITIES SYSTEM Revenue Refunding 5.13% 11/15/16 3.9%
------------------------------------------------------------------------------------------------------
7 MASSACHUSETTS PORT AUTHORITY Revenue, Series 1998D 5.00% 07/01/28 3.6%
------------------------------------------------------------------------------------------------------
8 AMERICAN PUBLIC ENERGY AGENCY, NEBRASKA PUBLIC GAS
AGENCY PROJECT Gas Supply Revenue, Series 1998C 4.00% 09/01/07 3.6%
------------------------------------------------------------------------------------------------------
9 ESCAMBIA COUNTY HEALTH FACILITIES AUTHORITY,
ASCENSION HEALTH CREDIT Revenue, Series 1999A-1 5.75% 11/15/29 3.4%
------------------------------------------------------------------------------------------------------
10 CHICAGO PARK DISTRICT General Obligation, Series 1999B 4.75% 01/01/26 3.2%
------------------------------------------------------------------------------------------------------
TOTAL 39.4%
</TABLE>
DIVIDENDS PAID in each fiscal year
[DIVIDENDS PAID IN EACH FISCAL YEAR BAR CHART]
<TABLE>
<CAPTION>
Income Dividends
Year per Share
<S> <C>
1992 2 0.17
1993 3 0.36
1994 0.52
1995 0.53
1996 0.52
1997 0.53
1998 0.53
1999 0.5
2000 0.5
</TABLE>
1 This list is not a recommendation of any security by the adviser.
2 Period from the fund's inception on 9/11/92 through 12/31/92.
3 For the eight-month period ended 8/31/93.
20
<PAGE> 25
COMPOSITION OF THE FUND'S PORTFOLIO as of 8/31/00
All figures are shown as a percentage of the fund's investments. Holdings may
have changed since the report date.
BY SECURITY TYPE
--------------------------------------------------------------------------------
[BY SECURITY TYPE PIE CHART]
(1) 99.9% Municipal Bonds
(2) 0.1% Other Investment Companies
BY CREDIT QUALITY 1
--------------------------------------------------------------------------------
[BY CREDIT QUALITY PIE CHART]
(1) 78.7% AAA
(2) 15.5% AA
(3) 5.7% A
(4) 0.1% Unrated Securities
BY MATURITY
--------------------------------------------------------------------------------
[BY MATURITY PIE CHART]
(1) 4.2% 0-1 Year
(2) 3.6% 2-10 Years
(3) 47.4% 11-20 Years
(4) 44.8% 21-30 Years
(5) 0.0% More than 30 Years
FUND FACTS as of 8/31/00
<TABLE>
<CAPTION>
PEER GROUP 2
FUND AVERAGE
--------------------------------------------------------------------------------
<S> <C> <C>
Number of Issues 46 154
--------------------------------------------------------------------------------
Yield to Maturity 5.29% 4.24%
--------------------------------------------------------------------------------
Weighted Average Rate 5.01% 5.79%
--------------------------------------------------------------------------------
Weighted Average Maturity 19.5 yrs 16.6 yrs
--------------------------------------------------------------------------------
Weighted Average Duration 10.5 yrs 8.4 yrs
--------------------------------------------------------------------------------
Weighted Average Credit Quality AAA AA
--------------------------------------------------------------------------------
</TABLE>
EXPENSE RATIO as of 8/31/00
[EXPENSE RATIO BAR CHART]
<TABLE>
<S> <C>
FUND 0.49% 3
PEER GROUP AVERAGE 1.12% 2
</TABLE>
1 Based on ratings by Standard & Poor's and Moody's. Where ratings are
different, the chart uses the higher rating.
2 Source: Morningstar, Inc. As of 8/31/00, there were 311 funds in the
Morningstar Municipal National Long Bond Fund category.
3 The actual expense ratio during the report period was 0.01% higher due to
certain non-routine expenses.
21
<PAGE> 26
SCHWAB LONG-TERM TAX-FREE BOND FUND -- FINANCIALS
================================================================================
FINANCIAL TABLES
These pages provide additional data on the fund's performance, portfolio
holdings, expenses and business operations. These figures have been audited by
PricewaterhouseCoopers LLP.
Two other sections of this report provide context for the data in these
financials. THE FINANCIAL NOTES section contains information about the fund's
business structure, accounting practices and other matters, completing the data
given in these tables. The final section, HOW TO READ THIS REPORT, includes
guides designed to make the financials easy to read and understand.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
9/1/99- 9/1/98- 9/1/97- 9/1/96- 9/1/95-
8/31/00 8/31/99 8/31/98 8/31/97 8/31/96
<S> <C> <C> <C> <C> <C>
PER-SHARE DATA ($)
============================================================================================================
Net asset valueat beginning of period 10.11 11.01 10.53 10.13 10.16
------------------------------------------------------------
Income from investment operations:
Net investment income 0.50 0.50 0.53 0.53 0.52
Net realized and unrealized gains or losses 0.13 (0.85) 0.48 0.40 (0.03)
------------------------------------------------------------
Total income from investment operations 0.63 (0.35) 1.01 0.93 0.49
Less distributions:
Dividends from net investment income (0.50) (0.50) (0.53) (0.53) (0.52)
Distributions from net realized gains -- (0.05) -- -- --
------------------------------------------------------------
Total distributions (0.50) (0.55) (0.53) (0.53) (0.52)
------------------------------------------------------------
NET ASSET VALUE AT END OF PERIOD 10.24 10.11 11.01 10.53 10.13
============================================================
Total return (%) 6.59 (3.34) 9.81 9.36 4.87
RATIOS/SUPPLEMENTAL DATA (%)
============================================================================================================
Ratio of net operating expenses to
average net assets 0.49 1 0.49 0.49 0.49 0.49
Expense reductions reflected in above ratio 0.26 0.32 0.37 0.53 0.45
Ratio of net investment income to
average net assets 5.11 4.59 4.76 5.09 5.06
Portfolio turnover rate 25 35 39 61 50
Net assets, end of period ($ x 1,000,000) 76 90 70 47 44
<FN>
1 Would have been 0.50% if certain non-routine expenses (proxy fees) had been
included.
</FN>
</TABLE>
22 SEE THE FINANCIAL NOTES, WHICH
====== ARE INTEGRAL TO THIS INFORMATION.
<PAGE> 27
PORTFOLIO HOLDINGS
As of August 31, 2000.
This table shows all the securities in the fund's portfolio and their market
value, as of the report date.
We use the symbols below to designate certain characteristics. With the top ten
holdings, the number in the circle is the security's rank among the top ten.
1 Top ten holding
+ Credit-enhanced security
o Certificate of Participation
For fixed-rate obligations, the rate shown is the coupon or discount rate (the
rate established when the obligation was issued). For variable-rate obligations,
the rate shown is the coupon rate as of the report date, and the maturity shown
is the date of the next rate reset (or the demand date, for securities that have
a demand date that's later than the reset date).
The pie chart below shows the fund's major asset categories and the market value
and cost of the securities in each category.
ALL DOLLAR VALUES ARE IN THOUSANDS.
[GRAPHIC OMITTED]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
99.9% MUNICIPAL BONDS
Market Value: $74,536
Cost: $75,191
0.1% OTHER INVESTMENT COMPANIES
Market Value: $100
Cost: $100
100.0% TOTAL INVESTMENTS
Market Value: $74,636
Cost: $75,291
MUNICIPAL BONDS 99.9% of investments
================================================================================
<TABLE>
<CAPTION>
ISSUER
PROJECT MATURITY FACE VALUE MKT. VALUE
TYPE OF SECURITY RATE DATE ($ x 1,000) ($ x 1,000)
<S> <C> <C> <C> <C>
FIXED-RATE OBLIGATIONS 95.9%
=================================================================================================================
CONNECTICUT 1.4%
CONNECTICUT
General Obligation, Series 2000A 5.50% 04/15/19 1,000 1,014
FLORIDA 4.6%
9+ ESCAMBIA COUNTY HEALTH FACILITIES AUTHORITY
ASCENSION HEALTH CREDIT
Revenue, Series 1999A-1 5.75% 11/15/29 2,500 2,538
TALLAHASSEE ENERGY SYSTEM
Revenue Refunding, Series 1998A 4.75% 10/01/21 1,000 892
--------
3,430
HAWAII 2.1%
+ HAWAII
General Obligation, Series 1999 5.88% 09/01/19 1,500 1,558
ILLINOIS 7.5%
10+ CHICAGO PARK DISTRICT
General Obligation, Series 1999B 4.75% 01/01/26 2,750 2,406
3+ ILLINOIS HEALTH FACILITIES AUTHORITY
NORTHWESTERN MEDICAL FACILITY FOUNDATION
Revenue Refunding 5.13% 11/15/28 3,500 3,174
--------
5,580
</TABLE>
SEE THE FINANCIAL NOTES, WHICH 23
ARE INTEGRAL TO THIS INFORMATION. ======
<PAGE> 28
SCHWAB LONG-TERM TAX-FREE BOND FUND -- FINANCIALS
================================================================================
PORTFOLIO HOLDINGS Continued
<TABLE>
<CAPTION>
ISSUER
PROJECT MATURITY FACE VALUE MKT. VALUE
TYPE OF SECURITY RATE DATE ($ x 1,000) ($ x 1,000)
<S> <C> <C> <C> <C>
INDIANA 2.8%
+ FORT WAYNE HOSPITAL AUTHORITY
PARKVIEW HEALTH SYSTEM, INC. PROJECT
Hospital Revenue 4.75% 11/15/28 2,500 2,115
KENTUCKY 1.3%
+ JEFFERSON COUNTY HEALTH FACILITIES
UNIVERSITY MEDICAL CENTER, INC. PROJECT
Revenue 5.25% 07/01/22 1,000 957
MARYLAND 0.5%
MARYLAND DEPARTMENT OF HOUSING & COMMUNITY DEVELOPMENT
Revenue, Series 1996A 5.88% 07/01/16 370 382
MASSACHUSETTS 3.6%
7 MASSACHUSETTS PORT AUTHORITY
Revenue, Series 1998D 5.00% 07/01/28 3,000 2,712
MICHIGAN 4.1%
+ EASTERN MICHIGAN UNIVERSITY BOARD OF REGENTS
Revenue 5.50% 06/01/17 2,000 2,034
+ WAYNE COUNTY COMMUNITY COLLEGE
COMMUNITY COLLEGE IMPROVEMENT
General Obligation 5.50% 07/01/19 1,000 1,010
--------
3,044
MISSISSIPPI 5.8%
+ MISSISSIPPI HOSPITAL EQUIPMENT & FACILITIES AUTHORITY
MISSISSIPPI BAPTIST MEDICAL CENTER
Revenue Refunding 6.00% 05/01/13 2,150 2,255
+o WALNUT GROVE CORRECTIONAL AUTHORITY 6.00% 11/01/19 2,000 2,091
--------
4,346
NEBRASKA 3.6%
8+ AMERICAN PUBLIC ENERGY AGENCY
NEBRASKA PUBLIC GAS AGENCY PROJECT
Gas Supply Revenue, Series 1998C 4.00% 09/01/07 3,000 2,689
NEW YORK 6.2%
+ LONG ISLAND POWER AUTHORITY
Electric System Revenue, Series 1998A 5.13% 12/01/22 1,500 1,415
NEW YORK CITY MUNICIPAL WATER FINANCE AUTHORITY
Water & Sewer System Revenue, Series 1997A 5.13% 06/15/21 1,275 1,206
NEW YORK STATE
General Obligation Refunding, Series 1996A 5.30% 07/15/15 2,000 2,001
--------
4,622
</TABLE>
24 SEE THE FINANCIAL NOTES, WHICH
====== ARE INTEGRAL TO THIS INFORMATION.
<PAGE> 29
<TABLE>
<CAPTION>
ISSUER
PROJECT MATURITY FACE VALUE MKT. VALUE
TYPE OF SECURITY RATE DATE ($ x 1,000) ($ x 1,000)
<S> <C> <C> <C> <C>
PENNSYLVANIA 7.5%
PENNSYLVANIA HIGHER EDUCATION FACILITIES AUTHORITY
UNIVERSITY OF PENNSYLVANIA HEALTH SERVICES
Revenue, Series 1996A 5.75% 01/01/17 2,000 1,849
+ PHILADELPHIA
General Obligation 4.75% 03/15/17 2,500 2,321
+ SENECA VALLEY SCHOOL DISTRICT
General Obligation Refunding, Series 1998AA 5.15% 02/15/20 1,500 1,443
--------
5,613
RHODE ISLAND 1.4%
RHODE ISLAND HOUSING & MORTGAGE FINANCE CORP.
HOMEOWNERSHIP OPPORTUNITY PROJECT
Revenue, Series 10A 6.50% 10/01/22 1,000 1,032
TEXAS 23.6%
6+ AUSTIN UTILITIES SYSTEM
Revenue Refunding 5.13% 11/15/16 3,000 2,921
+ BRAZOS RIVER AUTHORITY
HOUSTON INDUSTRIES, INC. PROJECT
Revenue, Series 1998A 5.13% 05/01/19 1,750 1,672
+ CONROE INDEPENDENT SCHOOL DISTRICT
General Obligation Refunding, Series 1997B 5.25% 02/15/21 1,000 961
1+ DALLAS FORT WORTH INTERNATIONAL AIRPORT
Revenue, Series 2000A 6.00% 11/01/24 3,500 3,601
+ ELGIN INDEPENDENT SCHOOL DISTRICT
General Obligation Refunding 5.25% 10/01/24 2,000 1,906
+ HARRIS COUNTY HOSPITAL DISTRICT
Revenue Refunding 6.00% 02/15/16 1,000 1,050
2 HOUSTON HIGHER EDUCATION FINANCING CORP.
RICE UNIVERSITY PROJECT
Revenue, Series 1999A 5.38% 11/15/29 3,500 3,373
+ TEXAS SOUTHERN UNIVERSITY
Revenue Refunding, Series 1998A-1 4.75% 11/01/17 1,545 1,415
UNIVERSITY OF TEXAS
Unrefunded Balance Revenue, Series 1991B 6.75% 08/15/13 680 705
--------
17,604
VERMONT 2.8%
+ VERMONT EDUCATIONAL & HEALTH BUILDINGS FINANCING AGENCY
FLETCHER ALLEN HEALTH
Hospital Revenue, Series 2000A 6.00% 12/01/23 2,000 2,073
VIRGINIA 1.9%
VIRGINIA PUBLIC BUILDING AUTHORITY
Public Facilities Revenue, Series 1997A 5.50% 08/01/16 1,350 1,373
</TABLE>
SEE THE FINANCIAL NOTES, WHICH 25
ARE INTEGRAL TO THIS INFORMATION. ======
<PAGE> 30
SCHWAB LONG-TERM TAX-FREE BOND FUND -- FINANCIALS
================================================================================
PORTFOLIO HOLDINGS Continued
As of August 31, 2000
<TABLE>
<CAPTION>
ISSUER
PROJECT MATURITY FACE VALUE MKT. VALUE
TYPE OF SECURITY RATE DATE ($ x 1,000) ($ x 1,000)
<S> <C> <C> <C> <C>
WASHINGTON 13.9%
5+ CLARK COUNTY SCHOOL DISTRICT NO. 117
General Obligation 5.50% 12/01/17 3,000 3,015
+ KING COUNTY
KING STREET CENTER PROJECT
Lease Revenue 5.13% 06/01/17 1,000 967
KING COUNTY SCHOOL DISTRICT NO. 415
General Obligation, Series 1993A 5.55% 12/01/11 500 524
WASHINGTON STATE
General Obligation, Series 1998A 4.75% 07/01/20 1,000 892
+ WASHINGTON STATE HEALTH CARE FACILITIES AUTHORITY
4 CATHOLIC HEALTH INITIATIVES
Revenue, Series 2000A 6.00% 12/01/20 3,000 3,095
SWEDISH HEALTH SYSTEM
Revenue 5.13% 11/15/18 2,000 1,901
--------
10,394
WISCONSIN 1.3%
WISCONSIN HEALTH & EDUCATION FACILITIES AUTHORITY
MEDICAL COLLEGE OF WISCONSIN, INC. PROJECT
Revenue 5.50% 03/01/17 1,000 998
VARIABLE-RATE OBLIGATIONS 4.0%
===============================================================================================================
CALIFORNIA 0.8%
+ CALIFORNIA POLLUTION CONTROL FINANCING AUTHORITY
SOUTHERN CALIFORNIA EDISON
Pollution Control Revenue, Series 1986A 3.60% 09/01/00 400 400
+o ORANGE COUNTY SANITATION DISTRICT
DISTRICTS 1-3, 5-7, 11, 13 & 14 3.60% 09/01/00 200 200
--------
600
MISSISSIPPI 0.3%
+ JACKSON COUNTY POLLUTION CONTROL
CHEVRON U.S.A., INC. PROJECT
Revenue Refunding 4.30% 09/01/00 200 200
NEW MEXICO 2.6%
+ FARMINGTON POLLUTION CONTROL
ARIZONA PUBLIC SERVICE CO.
Revenue Refunding, Series 1994A 4.35% 09/01/00 2,000 2,000
NEW YORK 0.3%
+ NEW YORK CITY MUNICIPAL WATER FINANCE AUTHORITY
Water & Sewer System Revenue, Series 1994G 4.30% 09/01/00 200 200
</TABLE>
26 SEE THE FINANCIAL NOTES, WHICH
====== ARE INTEGRAL TO THIS INFORMATION.
<PAGE> 31
<TABLE>
<CAPTION>
Other Investment Companies 0.1% of investments
========================================================================================================
MKT. VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
<S> <C>
PROVIDENT INSTITUTIONAL FUNDS --
MUNI FUND PORTFOLIO 99,617 100
========================================================================================================
END OF PORTFOLIO HOLDINGS. FOR TOTALS, PLEASE SEE THE FIRST PAGE OF HOLDINGS FOR THIS FUND.
</TABLE>
SEE THE FINANCIAL NOTES, WHICH 27
ARE INTEGRAL TO THIS INFORMATION. ======
<PAGE> 32
SCHWAB LONG-TERM TAX-FREE BOND FUND -- FINANCIALS
================================================================================
Statement of
ASSETS AND LIABILITIES
As of August 31, 2000. All numbers x 1,000 except NAV.
ASSETS
================================================================================
Investments, at market value $74,636 a
Receivables:
Fund shares sold 10
Interest 1,135
Prepaid expenses + 24
------------
TOTAL ASSETS 75,805
LIABILITIES
================================================================================
Payables:
Fund shares redeemed 14
Dividends to shareholders 60
Transfer agent and shareholder service fees 3
Accrued expenses + 30
------------
TOTAL LIABILITIES 107
NET ASSETS
================================================================================
TOTAL ASSETS 75,805
TOTAL LIABILITIES - 107
------------
NET ASSETS $75,698
NET ASSETS BY SOURCE
Capital received from investors 79,399
Distributions in excess of net investment income (20)
Net realized capital losses (3,026)
Net unrealized capital losses (655)
NET ASSET VALUE (NAV)
SHARES
NET ASSETS (DIVIDE) OUTSTANDING = NAV
$75,698 7,390 $10.24
a. The fund's amortized cost for these securities was $75,291. Not counting
short-term obligations, the fund paid $19,204 for securities during the
report period, and received $35,676 from securities it sold or that matured.
This includes $39,887 in transactions with other SchwabFunds.(REGISTRATION
MARK)
FEDERAL TAX DATA
==============================================
COST BASIS OF PORTFOLIO $75,291
NET UNREALIZED DEPRECIATION:
Appreciated securities $1,305
Depreciated securities - 1,960
------------
($655)
DEFERRED CAPITAL LOSSES $2,323
UNUSED CAPITAL LOSSES:
Expires 08/31 of: Loss amount
2008 $703
28 SEE THE FINANCIAL NOTES, WHICH
====== ARE INTEGRAL TO THIS INFORMATION.
<PAGE> 33
Statement of
OPERATIONS
For September 1, 1999 through August 31, 2000. All numbers x 1,000.
INVESTMENT INCOME
====================================================================
Interest $4,402
NET REALIZED LOSSES
====================================================================
Net realized losses on investments sold (2,898)
NET UNREALIZED GAINS
====================================================================
Net unrealized gains on investments 3,194
EXPENSES
====================================================================
Investment adviser and administrator fees 255 a
Transfer agent and shareholder service fees 196 b
Trustees' fees 7 c
Custodian and portfolio accounting fees 54
Professional fees 21
Registration fees 15
Shareholder reports 29
Proxy fees 6
Other expenses + 16
------------
Total expenses 599
Expense reduction - 208 d
------------
NET EXPENSES 391
INCREASE IN NET ASSETS FROM OPERATIONS
====================================================================
TOTAL INVESTMENT INCOME 4,402
NET EXPENSES - 391
------------
NET INVESTMENT INCOME 4,011
NET REALIZED LOSSES (2,898) e
NET UNREALIZED GAINS + 3,194 e
------------
INCREASE IN NET ASSETS FROM OPERATIONS $4,307
a. Calculated as a percentage of average daily net assets: 0.30% of the first
$500 million and 0.22% of assets beyond that. Before November 15, 1999, fees
were calculated at a rate of 0.41% of the fund's average daily net assets.
b. Calculated as a percentage of average daily net assets: for transfer agent
services, 0.05% of the fund's assets; for shareholder services, 0.20% of the
fund's assets.
c. For the fund's independent trustees only.
d. Reduced by the investment adviser (CSIM). This reduction reflects a guarantee
by CSIM and the transfer agent and shareholder service agent (Schwab) to
limit the operating expenses of this fund through at least October 31, 2000,
to 0.49% of average daily net assets. This limit doesn't include interest,
taxes and certain non-routine expenses.
e. These add up to a net gain on investments of $296.
SEE THE FINANCIAL NOTES, WHICH 29
ARE INTEGRAL TO THIS INFORMATION. ======
<PAGE> 34
SCHWAB LONG-TERM TAX-FREE BOND FUND -- FINANCIALS
Statements of
CHANGES IN NET ASSETS
For the current and previous report periods. All numbers x 1,000.
OPERATIONS
=======================================================================
9/1/99-8/31/00 9/1/98-8/31/99
Net investment income $ 4,011 $ 4,092
Net realized losses (2,898) (120)
Net unrealized gains or losses + 3,194 (7,494)
------------------------------
INCREASE OR DECREASE IN NET ASSETS
FROM OPERATIONS 4,307 (3,522)
DISTRIBUTIONS PAID
=======================================================================
Dividends from net investment income 4,005 4,162
Distributions from net realized gains + -- 395
------------------------------
TOTAL DISTRIBUTIONS PAID 4,005 4,557
TRANSACTIONS IN FUND SHARES
=======================================================================
9/1/99-8/31/00 9/1/98-8/31/99
QUANTITY VALUE QUANTITY VALUE
Shares sold 1,698 $16,746 5,077 $ 55,396
Shares reinvested 275 2,708 307 3,306
Shares redeemed + (3,467) (33,906) (2,852) (30,700)
---------------------------------------------
NET INCREASE OR DECREASE (1,494) ($14,452) 2,532 $ 28,002
SHARES OUTSTANDING AND NET ASSETS
=======================================================================
9/1/99-8/31/00 9/1/98-8/31/99
SHARES NET ASSETS SHARES NET ASSETS
Beginning of period 8,884 $89,848 6,352 $69,925
Total increase or
decrease + (1,494) (14,150) 2,532 19,923 a
---------------------------------------------
END OF PERIOD 7,390 $75,698 8,884 $89,848 b
a. Figures for shares represent the net changes in shares from the transactions
described above. Figures for net assets represent the changes in net assets
from operations plus the changes from the value of transactions in fund
shares, minus distributions paid.
b. Includes distributions that exceeded net investment income by $20 for the
current period and $26 for the prior period.
30 SEE THE FINANCIAL NOTES, WHICH
====== ARE INTEGRAL TO THIS INFORMATION.
<PAGE> 35
SCHWAB
CALIFORNIA
SHORT/INTERMEDIATE
TAX-FREE BOND FUND
[PHOTO OF JOANNE LARKIN]
"Focusing on high quality bonds with longer maturities allowed the fund to
benefit from price increases as the demand for these bonds soared."
Portfolio Manager
Joanne Larkin
JOANNE LARKIN, a vice president of the investment adviser, has had overall
management responsibility for the fund since its inception. Prior to joining the
firm in February 1992, she worked for more than eight years in fixed income
asset management and research.
TICKER SYMBOL SWCSX
-----------------------------------------------------------
INTEREST RATE
SENSITIVITY 1,2
LOW MEDIUM HIGH
CREDIT QUALITY 1,2
HIGH [X] [ ] [ ]
MEDIUM [ ] [ ] [ ]
LOW [ ] [ ] [ ]
California taxpayers who are seeking double tax-free income along with the
potential for lower volatility may want to consider this fund.
--------------------------------------------------------------------------------
THE FUND SEEKS HIGH CURRENT INCOME EXEMPT FROM FEDERAL AND CALIFORNIA PERSONAL
INCOME TAX THAT IS CONSISTENT WITH CAPITAL PRESERVATION. 3
MANAGER'S PERSPECTIVE
THE FUND PERFORMED UNUSUALLY WELL DURING THE REPORT PERIOD, PACED BY THE MUNI
BOND MARKET'S RECOVERY. Although rising interest rates pushed down muni prices
during 1999, the muni market surged ahead strongly in the first eight months of
2000, especially in California. The fund's returns for the period actually
exceeded those for the average short-term taxable bond fund, even before
allowing for any tax advantages, and also exceeded the average national
short-term tax-free bond fund. 1
A ROBUST ECONOMY HELPED SHRINK THE SUPPLY OF MUNIS WHILE BOOSTING DEMAND FOR
THEM. Many California muni issuers have seen increased revenues, reducing their
need to borrow money by issuing bonds. At the same time, investor demand for
munis has surged, driven by the appeal of the tax advantages (particularly among
those benefiting from tech growth) as well as the historically lower volatility
of munis as compared with stocks. All of these factors helped push muni prices
higher.
THE FUND LENGTHENED ITS AVERAGE MATURITY within its allowable range, in order to
capitalize on attractive yields from longer maturity bonds. Performance may also
have benefited from the fund's decision to buy more bonds from among the two
highest rating categories, where prices rose significantly.
1 Source: Morningstar, Inc.
2 Interest rate sensitivity and credit quality are two main components of bond
performance. The assessment reflects the fund's portfolio as of 8/31/00, which
may have changed since then, and is not a precise indication of risk or
performance--past, present or future. Definitions of style box categories:
Sensitivity (measured as duration): Low, up to 4.5 years; Medium, more than
4.5 years to less than seven years; High, seven years or greater. Credit
quality: High, AA or better; Medium, A or BBB; Low, BB or lower.
3 The income you receive from the fund may be subject to state and local income
taxes. A portion of income also may be subject to the alternative minimum tax
(AMT).
31
<PAGE> 36
SCHWAB CALIFORNIA SHORT/INTERMEDIATE TAX-FREE BOND FUND
PERFORMANCE
AVERAGE ANNUAL TOTAL RETURNS as of 8/31/00
This chart compares performance of the fund with the Lehman Brothers 3-Year
Municipal Bond Index and the Morningstar Municipal Short Bond Fund category. As
of the end of the report period, the fund's 30-day SEC yield was 3.80%1 and its
taxable-equivalent yield was 6.94%.1,2
[AVERAGE ANNUAL TOTAL RETURNS BAR CHART]
<TABLE>
<CAPTION>
TOTAL RETURN 1
SINCE INCEPTION:
1 YEAR 5 YEARS 4/21/93
<S> <C> <C> <C>
FUND 5.32% 4.46% 4.38%
LEHMAN 3-YEAR MUNI INDEX 4.72% 4.59% 4.61%
PEER GROUP AVERAGE 3 3.87% 3.91% n/a
</TABLE>
PERFORMANCE OF A $10,000 INVESTMENT
Shows performance since inception of a hypothetical $10,000 investment in the
fund, compared with a similar investment in the Lehman Brothers 3-Year Municipal
Bond Index.
All figures on this page assume dividends and distributions were reinvested.
Index figures do not include trading and management costs, which would lower
performance. The indices are unmanaged, and you cannot invest in them directly.
The fund's share price changes, and when you sell your shares they may be worth
more or less than what you paid for them. Keep in mind that past performance
isn't an indication of future results.
[PERFORMANCE OF A $10,000 INVESTMENT LINE GRAPH]
<TABLE>
<CAPTION>
Lehman 3-Year
Fund Muni Index
<S> <C> <C>
4/21/93 10000 10000
4/29/93 9990 9994
5/30/93 10037 10021
6/29/93 10136 10085
7/30/93 10157 10090
8/30/93 10257 10185
9/29/93 10328 10229
10/30/93 10340 10251
11/29/93 10310 10237
12/30/93 10444 10345
1/30/94 10517 10429
2/27/94 10372 10332
3/30/94 10188 10207
4/29/94 10239 10267
5/30/94 10272 10315
6/29/94 10253 10318
7/30/94 10356 10404
8/30/94 10390 10441
9/29/94 10350 10415
10/30/94 10280 10390
11/29/94 10167 10371
12/30/94 10227 10416
1/30/95 10350 10502
2/27/95 10503 10613
3/30/95 10598 10708
4/29/95 10614 10744
5/30/95 10826 10909
6/29/95 10809 10935
7/30/95 10925 11050
8/30/95 11030 11137
9/29/95 11090 11168
10/30/95 11174 11222
11/29/95 11256 11294
12/30/95 11296 11341
1/30/96 11366 11430
2/28/96 11358 11432
3/30/96 11308 11404
4/29/96 11325 11418
5/30/96 11332 11428
6/29/96 11393 11497
7/30/96 11466 11560
8/30/96 11483 11577
9/29/96 11557 11648
10/30/96 11634 11730
11/29/96 11742 11839
12/30/96 11737 11845
1/30/97 11776 11897
2/27/97 11837 11955
3/30/97 11762 11893
4/29/97 11815 11944
5/30/97 11916 12041
6/29/97 11991 12112
7/30/97 12139 12256
8/30/97 12120 12231
9/29/97 12196 12319
10/30/97 12227 12374
11/29/97 12268 12410
12/30/97 12346 12494
1/30/98 12433 12576
2/27/98 12459 12603
3/30/98 12467 12623
4/29/98 12435 12605
5/30/98 12540 12723
6/29/98 12568 12766
7/30/98 12635 12812
8/30/98 12749 12936
9/29/98 12863 13019
10/30/98 12892 13081
11/29/98 12931 13113
12/30/98 12942 13144
1/30/99 13054 13264
2/27/99 13054 13278
3/30/99 13073 13290
4/29/99 13088 13332
5/30/99 13067 13313
6/29/99 12966 13233
7/30/99 13034 13298
8/30/99 13024 13314
9/29/99 13090 13364
10/30/99 13042 13366
11/29/99 13108 13425
12/30/99 13027 13403
1/30/00 13092 13427
2/28/00 13145 13469
3/30/00 13257 13537
4/29/00 13193 13540
5/30/00 13238 13554
6/29/00 13440 13726
7/30/00 13579 13837
8/30/00 13717 13943
</TABLE>
1 Fund yield and returns reflect expense reductions by the fund's investment
adviser (CSIM) and transfer agent and shareholder services agent (Schwab).
Without these reductions, the fund's yield and returns would have been lower.
2 This is the taxable-equivalent 30-day SEC yield for a hypothetical investor in
the highest combined federal and California tax bracket (45.22%). Your tax
rate may be different.
3 Source: Morningstar, Inc. As of 8/31/00, there were 103 funds in the
Morningstar Municipal Short Bond Fund category that had track records of at
least one year.
32
<PAGE> 37
TOP 10 HOLDINGS 1 as of 8/31/00
<TABLE>
<CAPTION>
PERCENTAGE OF
SECURITY RATE MATURITY DATE INVESTMENTS
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 SAN DIEGO UNIFIED SCHOOL DISTRICT
Tax & Revenue Anticipation, Series 2000A 5.25% 10/04/01 4.2%
-------------------------------------------------------------------------------------------------------------------
2 LOS ANGELES UNIFIED SCHOOL DISTRICT General Obligation, Series 2000D 5.50% 07/01/10 3.6%
-------------------------------------------------------------------------------------------------------------------
3 CALIFORNIA HEALTH FACILITIES FINANCING AUTHORITY, MARSHALL HOSPITAL
Insured Hospital Revenue, Series 1992A 6.63% 11/01/02 3.5%
-------------------------------------------------------------------------------------------------------------------
4 LONG BEACH HARBOR Revenue Refunding, Series 1998A 5.50% 05/15/05 3.4%
-------------------------------------------------------------------------------------------------------------------
5 ALAMEDA COUNTY, REFERENCE & CAPITAL PROJECTS 5.00% 12/01/06 3.0%
-------------------------------------------------------------------------------------------------------------------
6 SANTA CLARA COUNTY FINANCING AUTHORITY, MULTI-FACILITIES PROJECTS
Lease Revenue, Series 2000B 5.50% 05/15/05 2.9%
-------------------------------------------------------------------------------------------------------------------
7 ORANGE COUNTY RECOVERY Series 1996A 6.00% 07/01/08 2.8%
-------------------------------------------------------------------------------------------------------------------
8 CALIFORNIA STATEWIDE COMMUNITY DEVELOPMENT AUTHORITY,
THE INTERNEXT GROUP 4.13% 04/01/04 2.7%
-------------------------------------------------------------------------------------------------------------------
9 LOS ANGELES COUNTY TRANSPORTATION COMMISSION,
Proposition C Sales Tax Revenue, Second Series 1992A 6.20% 07/01/04 2.6%
-------------------------------------------------------------------------------------------------------------------
10 CALIFORNIA PUBLIC WORKS BOARD, DEPARTMENT OF CORRECTIONS STATE
PRISONS IMPERIAL COUNTY Lease Revenue Refunding, Series 1998B 4.50% 09/01/05 2.5%
-------------------------------------------------------------------------------------------------------------------
TOTAL 31.2%
</TABLE>
DIVIDENDS PAID in each fiscal year
[DIVIDENDS PAID BAR CHART]
<TABLE>
<CAPTION>
Income Dividends
Year per Share
<S> <C>
1993 2 0.13
1994 0.37
1995 0.42
1996 0.43
1997 0.43
1998 0.42
1999 0.39
2000 0.39
</TABLE>
1 This list is not a recommendation of any security by the adviser.
2 Period from the fund's inception on 4/21/93 through 8/31/93.
33
<PAGE> 38
SCHWAB CALIFORNIA SHORT/INTERMEDIATE TAX-FREE BOND FUND
COMPOSITION OF THE FUND'S PORTFOLIO as of 8/31/00
All figures are shown as a percentage of the fund's investments. Holdings may
have changed since the report date.
BY SECURITY TYPE
--------------------------------------------------------------------------------
[BY SECURITY TYPE PIE CHART]
(1) 100.0% Municipal Bonds
BY CREDIT QUALITY 1
--------------------------------------------------------------------------------
[BY CREDIT QUALITY PIE CHART]
(1) 53.2% AAA
(2) 21.9% AA
(3) 17.8% A
(4) 2.7% BBB
(5) 4.4% Short-Term Ratings
BY MATURITY
--------------------------------------------------------------------------------
[BY MATURITY PIE CHART]
(1) 4.0% 0-6 Months
(2) 36.0% 7-36 Months
(3) 22.2% 37-60 Months
(4) 37.8% More than 60 Months
FUND FACTS as of 8/31/00
<TABLE>
<CAPTION>
PEER GROUP 2
FUND AVERAGE
-------------------------------------------------------------------------------
<S> <C> <C>
Number of Issues 70 112
Yield to Maturity 4.32% 3.99%
Weighted Average Rate 3.80% 5.53%
Weighted Average Maturity 4.2 yrs 5.1 yrs
Weighted Average Duration 3.7 yrs 2.6 yrs
Weighted Average Credit Quality AA AAA
</TABLE>
EXPENSE RATIO as of 8/31/00
<TABLE>
<S> <C>
FUND 0.49% 3
PEER GROUP AVERAGE 0.90% 2
</TABLE>
1 Based on ratings by Standard & Poor's and Moody's. Where ratings are
different, the chart uses the higher rating.
2 Source: Morningstar, Inc. As of 8/31/00, there were 103 funds in the
Morningstar Municipal Short Bond Fund category.
3 The actual expense ratio during the report period was 0.01% higher due to
certain non-routine expenses.
34
<PAGE> 39
SCHWAB CALIFORNIA SHORT/INTERMEDIATE TAX-FREE BOND FUND -- FINANCIALS
================================================================================
FINANCIAL TABLES
These pages provide additional data on the fund's performance, portfolio
holdings, expenses and business operations. These figures have been audited by
PricewaterhouseCoopers LLP.
Two other sections of this report provide context for the data in these
financials. THE FINANCIAL NOTES section contains information about the fund's
business structure, accounting practices and other matters, completing the data
given in these tables. The final section, HOW TO READ THIS REPORT, includes
guides designed to make the financials easy to read and understand.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
9/1/99- 9/1/98- 9/1/97- 9/1/96- 9/1/95-
8/31/00 8/31/99 8/31/98 8/31/97 8/31/96
================================================================================================
PER-SHARE DATA ($)
================================================================================================
<S> <C> <C> <C> <C> <C>
Net asset valueat beginning of period 10.09 10.26 10.16 10.04 10.06
-----------------------------------------------
Income from investment operations:
Net investment income 0.39 0.39 0.41 0.43 0.43
Net realized and unrealized gains or losses 0.13 (0.17) 0.11 0.12 (0.02)
-----------------------------------------------
Total income from investment operations 0.52 0.22 0.52 0.55 0.41
Less distributions:
Dividends from net investment income (0.39) (0.39) (0.42) (0.43) (0.43)
-----------------------------------------------
NET ASSET VALUE AT END OF PERIOD 10.22 10.09 10.26 10.16 10.04
===============================================
Total return (%) 5.32 2.16 5.19 5.54 4.11
RATIOS/SUPPLEMENTAL DATA (%)
================================================================================================
Ratio of net operating expenses to
average net assets 0.49 1 0.49 0.49 0.49 0.49
Expense reductions reflected in above ratio 0.21 0.28 0.30 0.40 0.38
Ratio of net investment income to
average net assets 3.91 3.81 4.02 4.21 4.23
Portfolio turnover rate 42 7 8 23 20
Net assets, end of period ($ x 1,000,000) 124 126 96 59 46
<FN>
1 Would have been 0.50% if non-routine expenses (proxy fees) had been included.
</FN>
</TABLE>
SEE THE FINANCIAL NOTES, WHICH 35
ARE INTEGRAL TO THIS INFORMATION. ======
<PAGE> 40
SCHWAB CALIFORNIA SHORT/INTERMEDIATE TAX-FREE BOND FUND -- FINANCIALS
================================================================================
PORTFOLIO HOLDINGS
As of August 31, 2000.
This table shows all the securities in the fund's portfolio and their market
value, as of the report date.
We use the symbols below to designate certain characteristics. With the top ten
holdings, the number in the circle is the security's rank among the top ten.
1 Top ten holding
+ Credit-enhanced security
o Certificate of Participation
For fixed-rate obligations, the rate shown is the coupon or discount rate (the
rate established when the obligation was issued). For variable-rate obligations,
the rate shown is the coupon rate as of the report date, and the maturity shown
is the date of the next rate reset (or the demand date, for securities that have
a demand date that's later than the reset date).
The pie chart below shows the fund's major asset categories and the market value
and cost of the securities in each category.
ALL DOLLAR VALUES ARE IN THOUSANDS.
[GRAPHIC OMITTED]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
100.0% MUNICIPAL BONDS
Market Value: $121,641
Cost: $120,763
OTHER INVESTMENT COMPANIES
Market Value: $26
Cost: $26
=================================================
100.0% TOTAL INVESTMENTS
Market Value: $121,667
Cost: $120,789
MUNICIPAL BONDS 100.0% of investments
================================================================================
<TABLE>
<CAPTION>
ISSUER
PROJECT MATURITY FACE VALUE MKT. VALUE
TYPE OF SECURITY RATE DATE ($ x 1,000) ($ x 1,000)
<S> <C> <C> <C> <C>
FIXED-RATE OBLIGATIONS 97.0%
=================================================================================================================
CALIFORNIA 95.4%
+ ADELANTO PUBLIC UTILITY AUTHORITY
UTILITY SYSTEM PROJECT
Revenue, Series 2000A 4.45% 11/01/01 2,375 2,383
5+o ALAMEDA COUNTY
REFERENCE & CAPITAL PROJECTS 5.00% 12/01/06 3,480 3,651
ALAMEDA PUBLIC FINANCING AUTHORITY
Revenue 4.85% 09/02/06 2,140 2,145
CALIFORNIA EDUCATIONAL FACILITIES AUTHORITY
LOYOLA MARYMOUNT UNIVERSITY
Revenue, Series 1992B 6.60% 10/01/02 1,450 1,550
MILLS COLLEGE
Revenue, Series 1992 6.88% 09/01/02 500 536
+ POOLED COLLEGE & UNIVERSITY PROJECTS
Revenue, Series 1997A 5.05% 04/01/05 1,010 1,052
STANFORD UNIVERSITY PROJECT
Revenue Refunding, Series 1997M 5.25% 12/01/01 1,600 1,627
+ UNIVERSITY OF SAN DIEGO
Revenue Refunding 4.50% 10/01/02 1,000 1,011
</TABLE>
36 SEE THE FINANCIAL NOTES, WHICH
====== ARE INTEGRAL TO THIS INFORMATION.
<PAGE> 41
<TABLE>
<CAPTION>
ISSUER
PROJECT MATURITY FACE VALUE MKT. VALUE
TYPE OF SECURITY RATE DATE ($ x 1,000) ($ x 1,000)
<S> <C> <C> <C> <C>
CALIFORNIA HEALTH FACILITIES FINANCING AUTHORITY
CATHOLIC HEALTH CARE WEST
Insured Revenue, Series 1997A 5.00% 07/01/03 2,000 2,048
KAISER PERMANENTE
Revenue, Series 1998B 5.00% 10/01/08 2,500 2,487
3+ MARSHALL HOSPITAL
Insured Hospital Revenue, Series 1992A 6.63% 11/01/02 4,000 4,289
+ CALIFORNIA
General Obligation, Series 1994 6.50% 03/01/03 2,000 2,118
CALIFORNIA PUBLIC WORKS BOARD
Energy Efficiency Revenue Refunding, Series 1998B 4.00% 09/01/06 1,155 1,149
10 DEPARTMENT OF CORRECTIONS STATE PRISONS - IMPERIAL COUNTY
Lease Revenue Refunding, Series 1998B 4.50% 09/01/05 3,000 3,060
+ VARIOUS UNIVERSITIES OF CALIFORNIA PROJECTS
Lease Revenue, Series 1992A 5.60% 12/01/01 2,000 2,042
Lease Revenue, Series 1992A 6.40% 12/01/02 2,000 2,139
UNIVERSITY OF CALIFORNIA REGENTS
Lease Revenue Refunding, Series 1998A 5.25% 12/01/07 2,000 2,130
CALIFORNIA STATEWIDE COMMUNITY DEVELOPMENT AUTHORITY
o ST. JOSEPH HEALTH SYSTEM
Series 1997 5.00% 07/01/04 750 758
8o THE INTERNEXT GROUP 4.13% 04/01/04 3,500 3,330
o CEDARS-SINAI MEDICAL CENTER
Series 1993 4.40% 11/01/00 1,235 1,235
+ SHERMAN OAKS PROJECT
Revenue Refunding, Series 1998A 5.00% 08/01/06 2,500 2,610
CENTRAL CONTRA COSTA SANITARY DISTRICT
Revenue Refunding 4.10% 09/01/09 1,435 1,418
+ CONTRA COSTA TRANSPORTATION AUTHORITY
Sales Tax Revenue, Series 1995A 6.00% 03/01/03 2,530 2,647
FAIRFIELD
Tax & Revenue Anticipation 5.25% 09/28/01 1,150 1,165
+ FONTANA
SENIOR COMMUNITY FACILITIES DISTRICT NO. 2-A
Special Tax Refunding, Series 1998 4.10% 09/01/04 1,120 1,124
FRESNO
+ COMMUNITY FACILITIES DISTRICT NO. 3
Special Tax, Series 1998 4.75% 09/01/05 1,890 1,893
HOLY CROSS HEALTH SYSTEM - ST. AGNES MEDICAL CENTER
Health Facility Revenue, Series 1991 6.50% 06/01/02 550 583
+ INGLEWOOD REDEVELOPMENT AGENCY
MERGED REDEVELOPED PROJECT
Tax Allocation Refunding, Series 1998A 3.88% 05/01/05 525 521
+o INTERCOMMUNITY HOSPITAL FINANCING AUTHORITY
NORTH BAY HEALTHCARE PROJECT 4.40% 11/01/06 1,745 1,736
</TABLE>
SEE THE FINANCIAL NOTES, WHICH 37
ARE INTEGRAL TO THIS INFORMATION. ======
<PAGE> 42
SCHWAB CALIFORNIA SHORT/INTERMEDIATE TAX-FREE BOND FUND -- FINANCIALS
PORTFOLIO HOLDINGS Continued
As of August 31, 2000.
<TABLE>
<CAPTION>
ISSUER
PROJECT MATURITY FACE VALUE MKT. VALUE
TYPE OF SECURITY RATE DATE ($ x 1,000) ($ x 1,000)
<S> <C> <C> <C> <C>
+ INTERMODAL CONTAINER TRANSFER FACILITY JOINT POWERS AUTHORITY
Revenue Refunding, Series 1999A 5.00% 11/01/08 1,210 1,276
Revenue Refunding, Series 1999A 5.00% 11/01/09 1,375 1,451
4+ LONG BEACH HARBOR
Revenue Refunding, Series 1998A 5.50% 05/15/05 3,985 4,188
+o LOS ANGELES
AMERICAN ACADEMY OF DRAMATIC ARTS
Series 2000A 4.70% 11/01/05 1,300 1,318
+ LOS ANGELES COMMUNITY REDEVELOPMENT POOLED FINANCING AUTHORITY
BEACON STREET PROJECT
Revenue Refunding, Series 1998F 5.00% 09/01/07 810 851
MONTEREY PROJECT
Revenue Refunding, Series 1998E 5.00% 09/01/07 1,570 1,650
9 LOS ANGELES COUNTY TRANSPORTATION COMMISSION
PROPOSITION C
Sales Tax Revenue, Second Series 1992A 6.20% 07/01/04 3,000 3,213
+ LOS ANGELES DEPARTMENT OF AIRPORTS
Airport Revenue Refunding, Series 1995B 6.50% 05/15/03 2,300 2,440
LOS ANGELES DEPARTMENT OF WATER & POWER
Electric Plant Revenue Refunding, Series 1994 4.50% 08/15/01 2,270 2,285
LOS ANGELES STATE BUILDING AUTHORITY
CALIFORNIA DEPARTMENT OF GENERAL SERVICES
Lease Revenue Refunding, Series 1995A 5.60% 05/01/04 1,000 1,050
2 LOS ANGELES UNIFIED SCHOOL DISTRICT
General Obligation, Series 2000D 5.50% 07/01/10 4,000 4,344
METROPOLITAN WATER DISTRICT OF SOUTHERN CALIFORNIA
Waterworks Revenue, Series 1991 6.63% 07/01/01 1,000 1,041
+ NORTHERN CALIFORNIA POWER AGENCY
GEOTHERMAL PROJECT NO. 3
Public Power Revenue, Series 1993A 5.60% 07/01/06 2,000 2,145
Public Power Revenue, Series 1998A 5.00% 07/01/04 2,000 2,070
7+o ORANGE COUNTY RECOVERY
Series 1996A 6.00% 07/01/08 3,000 3,346
+ RANCHO WATER DISTRICT FINANCING AUTHORITY
Revenue 4.70% 09/15/01 2,500 2,509
+o RIM OF THE WORLD UNIFIED SCHOOL DISTRICT
MEASURE V CAPITAL IMPROVEMENT PROJECTS
Series 1992 5.90% 09/01/01 1,490 1,519
</TABLE>
38 SEE THE FINANCIAL NOTES, WHICH
====== ARE INTEGRAL TO THIS INFORMATION.
<PAGE> 43
<TABLE>
<CAPTION>
ISSUER
PROJECT MATURITY FACE VALUE MKT. VALUE
TYPE OF SECURITY RATE DATE ($ x 1,000) ($ x 1,000)
<S> <C> <C> <C> <C>
RIVERSIDE COUNTY PUBLIC FINANCING AUTHORITY
OPEN SPACE
Lease Revenue, Series 2000A 5.00% 04/01/02 2,000 2,028
+ SACRAMENTO FINANCING AUTHORITY
STATE OF CALIFORNIA EPA BUILDING PROJECT
Lease Revenue, Series 1998A 3.90% 05/01/07 1,000 986
1 SAN DIEGO UNIFIED SCHOOL DISTRICT
Tax & Revenue Anticipation, Series 2000A 5.25% 10/04/01 5,000 5,068
+ SAN FRANCISCO BAY AREA TRANSIT FINANCING AUTHORITY
Bridge Toll Revenue, Series 1999 5.00% 02/01/07 500 514
+ SAN FRANCISCO CITY & COUNTY AIRPORT COMMISSION
International Airport Revenue, 2nd Series - Issue 15A 5.50% 05/01/09 2,000 2,142
+ SAN FRANCISCO STATE UNIVERSITY FOUNDATION, INC.
AUXILIARY ORGANIZATION
Student Housing Revenue 4.30% 07/01/05 540 540
Student Housing Revenue 5.00% 07/01/08 400 414
+ SAN JOAQUIN AREA FLOOD CONTROL AGENCY
IMPROVEMENT BOND ACT 1915
Flood Protection Restoration Assessment, Series 1996 5.10% 09/02/03 1,360 1,402
SAN JOSE FINANCING AUTHORITY
CONVENTION CENTER PROJECT
Revenue Refunding, Series 1993C 5.90% 09/01/04 2,500 2,595
+ SANTA CLARA COUNTY FINANCING AUTHORITY
6 MULTI-FACILITIES PROJECTS
Lease Revenue, Series 2000B 5.50% 05/15/05 3,290 3,477
VMC FACILITY REPLACEMENT PROJECT
Lease Revenue, Series 1994A 7.75% 11/15/10 1,000 1,267
SANTA MONICA WASTEWATER ENTERPRISE
HYPERION PROJECT
Revenue, Series 1991A 6.25% 01/01/02 1,250 1,309
+ SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY
SAN JUAN POWER PROJECT UNIT 3
Power Revenue, Series 1993A 5.00% 01/01/04 1,600 1,649
+ WEST & CENTRAL BASIN FINANCING AUTHORITY
Revenue Refunding 6.13% 08/01/02 1,425 1,507
--------
116,031
PUERTO RICO 1.6%
+ PUERTO RICO MUNICIPAL FINANCE AGENCY
General Obligation, Series 1999A 5.50% 08/01/08 1,820 1,955
</TABLE>
SEE THE FINANCIAL NOTES, WHICH 39
ARE INTEGRAL TO THIS INFORMATION. ======
<PAGE> 44
SCHWAB CALIFORNIA SHORT/INTERMEDIATE TAX-FREE BOND FUND -- FINANCIALS
PORTFOLIO HOLDINGS Continued
As of August 31, 2000.
<TABLE>
<CAPTION>
ISSUER
PROJECT MATURITY FACE VALUE MKT. VALUE
TYPE OF SECURITY RATE DATE ($ x 1,000) ($ x 1,000)
<S> <C> <C> <C> <C>
VARIABLE-RATE OBLIGATIONS 3.0%
=================================================================================================================
CALIFORNIA 3.0%
+ CALIFORNIA POLLUTION CONTROL FINANCING AUTHORITY
SOUTHERN CALIFORNIA EDISON PROJECT
Pollution Control Revenue, Series 1986A 3.60% 09/01/00 300 300
Pollution Control Revenue, Series 1986B 3.60% 09/01/00 300 300
+ IRVINE IMPROVEMENT BOND ACT 1915
ASSESSMENT DISTRICT NO. 87-8
Special Assessment 3.60% 09/01/00 500 500
ASSESSMENT DISTRICT NO. 94-15
Special Assessment 3.60% 09/01/00 400 400
ASSESSMENT DISTRICT NO. 94-13
Special Assessment 3.60% 09/01/00 700 700
ASSESSMENT DISTRICT NO. 97-17
Special Assessment 3.60% 09/01/00 700 700
+ IRVINE RANCH WATER DISTRICT
Revenue 3.60% 09/01/00 500 500
+o ORANGE COUNTY SANITATION DISTRICT
DISTRICTS 1-3, 5-7, 11, 13 & 14 3.60% 09/01/00 255 255
--------
3,655
Other Investment Companies 0.0% of investments
===============================================================================================================
SECURITY AND NUMBER OF SHARES
PROVIDENT INSTITUTIONAL FUNDS --
CALIFORNIA MONEY FUND PORTFOLIO 25,805 26
===============================================================================================================
END OF PORTFOLIO HOLDINGS. FOR TOTALS, PLEASE SEE THE FIRST PAGE OF HOLDINGS FOR THIS FUND.
</TABLE>
40 SEE THE FINANCIAL NOTES, WHICH
====== ARE INTEGRAL TO THIS INFORMATION.
<PAGE> 45
Statement of
ASSETS AND LIABILITIES
As of August 31, 2000. All numbers x 1,000 except NAV.
ASSETS
================================================================================
Investments, at market value $121,667 a
Receivables:
Fund shares sold 284
Interest 1,739
Prepaid expenses + 1
------------
TOTAL ASSETS 123,691
LIABILITIES
================================================================================
Payables:
Fund shares redeemed 5
Dividends to shareholders 77
Investment adviser and administrator fees 1
Transfer agent and shareholder service fees 4
Accrued expenses + 40
------------
TOTAL LIABILITIES 127
NET ASSETS
================================================================================
TOTAL ASSETS 123,691
TOTAL LIABILITIES - 127
------------
NET ASSETS $123,564
NET ASSETS BY SOURCE
Capital received from investors 123,525
Distributions in excess of net investment income (25)
Net realized capital losses (814)
Net unrealized capital gains 878
NET ASSET VALUE (NAV)
SHARES
NET ASSETS (DIVIDE) OUTSTANDING = NAV
$123,564 12,089 $10.22
a. The fund's amortized cost for these securities was $120,789. Not counting
short-term obligations, the fund paid $48,229 for securities during the
report period, and received $49,206 from securities it sold or that matured.
This includes $99,279 in transactions with other SchwabFunds.(REGISTRATION
MARK)
FEDERAL TAX DATA
------------------------------------------------
COST BASIS OF PORTFOLIO $120,789
NET UNREALIZED APPRECIATION:
Appreciated securities $1,314
Depreciated securities - 436
----------
$878
DEFERRED CAPITAL LOSSES $23
UNUSED CAPITAL LOSSES:
Expires 08/31 of: Loss amount
2003 $68
2004 696
2008 + 27
----------
$791
SEE THE FINANCIAL NOTES, WHICH 41
ARE INTEGRAL TO THIS INFORMATION. ======
<PAGE> 46
SCHWAB CALIFORNIA SHORT/INTERMEDIATE TAX-FREE BOND FUND -- FINANCIALS
================================================================================
Statement of
OPERATIONS
For September 1, 1999 through August 31, 2000. All numbers x 1,000.
INVESTMENT INCOME
====================================================================
Interest $5,180
NET REALIZED LOSSES
====================================================================
Net realized losses on investments sold (50)
NET UNREALIZED GAINS
====================================================================
Net unrealized gains on investments 1,514
EXPENSES
====================================================================
Investment adviser and administrator fees 381 a
Transfer agent and shareholder service fees 294 b
Trustees' fees 6 c
Custodian and portfolio accounting fees 73
Professional fees 33
Shareholder reports 26
Proxy fees 8
Other expenses + 16
------------
Total expenses 837
Expense reduction - 253 d
------------
NET EXPENSES 584
INCREASE IN NET ASSETS FROM OPERATIONS
====================================================================
TOTAL INVESTMENT INCOME 5,180
NET EXPENSES - 584
------------
NET INVESTMENT INCOME 4,596
NET REALIZED LOSSES (50) e
NET UNREALIZED GAINS + 1,514 e
------------
INCREASE IN NET ASSETS FROM OPERATIONS $6,060
a. Calculated as a percentage of average daily net assets: 0.30% of the first
$500 million and 0.22% of assets beyond that. Before November 15, 1999, fees
were calculated at a rate of 0.41% of the fund's average daily net assets.
b. Calculated as a percentage of average daily net assets: for transfer agent
services, 0.05% of the fund's assets; for shareholder services, 0.20% of the
fund's assets.
c. For the fund's independent trustees only.
d. Reduced by the investment adviser (CSIM). This reduction reflects a guarantee
by CSIM and the transfer agent and shareholder service agent (Schwab) to
limit the operating expenses of this fund through at least October 31, 2000,
to 0.49% of average daily net assets. This limit doesn't include interest,
taxes and certain non-routine expenses.
e. These add up to a net gain on investments of $1,464.
42 SEE THE FINANCIAL NOTES, WHICH
====== ARE INTEGRAL TO THIS INFORMATION.
<PAGE> 47
Statements of
CHANGES IN NET ASSETS
For the current and previous report periods. All numbers x 1,000.
OPERATIONS
========================================================================
9/1/99-8/31/00 9/1/98-8/31/99
Net investment income $4,596 $ 4,337
Net realized gains or losses (50) 24
Net unrealized gains or losses + 1,514 (2,238)
------------------------------
INCREASE IN NET ASSETS FROM OPERATIONS 6,060 2,123
DISTRIBUTIONS PAID
========================================================================
Dividends from net investment income 4,593 4,341
TRANSACTIONS IN FUND SHARES
========================================================================
9/1/99-8/31/00 9/1/98-8/31/99
QUANTITY VALUE QUANTITY VALUE
Shares sold 5,558 $55,787 7,935 $ 81,467
Shares reinvested 347 3,489 331 3,386
Shares redeemed + (6,276) (62,877) (5,151) (52,831)
---------------------------------------------
NET INCREASE OR DECREASE (371) ($3,601) 3,115 $32,022
SHARES OUTSTANDING AND NET ASSETS
========================================================================
9/1/99-8/31/00 9/1/98-8/31/99
SHARES NET ASSETS SHARES NET ASSETS
Beginning of period 12,460 $125,698 9,345 $95,894
Total increase or
decrease + (371) (2,134) 3,115 29,804 a
---------------------------------------------
END OF PERIOD 12,089 $123,564 12,460 $125,698 b
a. Figures for shares represent the net changes in shares from the transactions
described above. Figures for net assets represent the changes in net assets
from operations plus the changes from the value of transactions in fund
shares, minus total distributions paid.
b. Includes distributions that exceeded net investment income by $25 for the
current period and $28 for the prior period.
SEE THE FINANCIAL NOTES, WHICH 43
ARE INTEGRAL TO THIS INFORMATION. ======
<PAGE> 48
SCHWAB
CALIFORNIA LONG-TERM TAX-FREE BOND FUND
[PHOTO OF JOANNE LARKIN]
"During the report period, we added many high-quality bonds that were trading
at low prices in order to boost the fund's return."
Portfolio Manager
Joanne Larkin
JOANNE LARKIN, a vice president of the investment adviser, has had overall
management responsibility for the fund since its inception. Prior to joining the
firm in February 1992, she worked for more than eight years in fixed income
asset management and research.
TICKER SYMBOL SXCAX
-------------------------------------------------------
INTEREST RATE
SENSITIVITY 1,2
LOW MEDIUM HIGH
CREDIT QUALITY 1,2
HIGH [ ] [ ] [X]
MEDIUM [ ] [ ] [ ]
LOW [ ] [ ] [ ]
This fund is designed for California taxpayers who want double tax-free income
and can accept higher risk in exchange for potentially higher long-term returns.
--------------------------------------------------------------------------------
THE FUND SEEKS HIGH CURRENT INCOME EXEMPT FROM FEDERAL AND CALIFORNIA PERSONAL
INCOME TAX THAT IS CONSISTENT WITH CAPITAL PRESERVATION. 3
MANAGER'S PERSPECTIVE
THE FUND PERFORMED UNUSUALLY WELL DURING THE REPORT PERIOD, PACED BY THE MUNI
BOND MARKET'S RECOVERY. Although rising interest rates pushed down muni prices
during 1999, the muni market surged ahead strongly in the first eight months of
2000, especially in California. The fund's returns for the period actually
exceeded those for the average long-term taxable bond fund, even before allowing
for any tax advantages, and also exceeded the average national long-term
tax-free bond fund. 1
A ROBUST ECONOMY HELPED SHRINK THE SUPPLY OF MUNIS WHILE BOOSTING DEMAND FOR
THEM. Many California muni issuers have seen increased revenues, reducing their
need to borrow money by issuing bonds. At the same time, investor demand for
munis has surged, driven by the appeal of the tax advantages (particularly among
those benefiting from tech growth) as well as the historically lower volatility
of munis as compared with stocks. All of these factors helped push muni prices
higher.
THE FUND LENGTHENED ITS AVERAGE MATURITY within its allowable range, in order to
capitalize on attractive yields from longer maturity bonds. Performance may also
have benefited from the fund's decision to look for bonds that, in our opinion,
were likely to rise in price, although the fund still maintained a core of high
quality securities held for income.
1 Source: Morningstar, Inc.
2 Interest rate sensitivity and credit quality are two main components of bond
performance. The assessment reflects the fund's portfolio as of 8/31/00, which
may have changed since then, and is not a precise indication of risk or
performance--past, present or future. Definitions of style box categories:
Sensitivity (measured as duration): Low, up to 4.5 years; Medium, more than
4.5 years to less than seven years; High, seven years or greater. Credit
quality: High, AA or better; Medium, A or BBB; Low, BB or lower.
3 The income you receive from the fund may be subject to state and local income
taxes. A portion of income also may be subject to the alternative minimum tax
(AMT).
44
<PAGE> 49
PERFORMANCE
AVERAGE ANNUAL TOTAL RETURNS as of 8/31/00
This chart compares performance of the fund with the Lehman Brothers General
Municipal Bond Index and the Morningstar Municipal California Long Bond Fund
category. As of the end of the report period, the fund's 30-day SEC yield was
5.06% 1 and its taxable-equivalent yield was 9.24%. 1,2
[AVERAGE ANNUAL TOTAL RETURNS BAR CHART]
TOTAL RETURN 1
<TABLE>
<CAPTION>
SINCE INCEPTION:
1 YEAR 5 YEARS 2/24/92
<S> <C> <C> <C>
FUND 7.67% 6.2% 6.7%
LEHMAN GENERAL MUNI INDEX 6.77% 6.03% 6.69%
PEER GROUP AVERAGE 3 6.46% 5.55% n/a
</TABLE>
PERFORMANCE OF A $10,000 INVESTMENT
Shows performance since inception of a hypothetical $10,000 investment in the
fund, compared with a similar investment in the Lehman Brothers General
Municipal Bond Index.
All figures on this page assume dividends and distributions were reinvested.
Index figures do not include trading and management costs, which would lower
performance. The indices are unmanaged, and you cannot invest in them directly.
The fund's share price changes, and when you sell your shares they may be worth
more or less than what you paid for them. Keep in mind that past performance
isn't an indication of future results.
[PERFORMANCE OF A $10,000 INVESTMENT LINE GRAPH]
<TABLE>
<CAPTION>
Lehman General
Fund Muni Index
<S> <C> <C>
2/24/92 10000 10000
3/30/92 10099 10004
4/29/92 10217 10093
5/30/92 10410 10212
6/29/92 10633 10383
7/30/92 11082 10694
8/30/92 10786 10590
9/29/92 10835 10659
10/30/92 10474 10554
11/29/92 10921 10743
12/30/92 11110 10853
1/30/93 11256 10979
2/27/93 11775 11376
3/30/93 11561 11256
4/29/93 11674 11370
5/30/93 11736 11434
6/29/93 11969 11624
7/30/93 11957 11640
8/30/93 12235 11882
9/29/93 12371 12017
10/30/93 12412 12041
11/29/93 12263 11934
12/30/93 12541 12186
1/30/94 12671 12326
2/27/94 12304 12006
3/30/94 11683 11517
4/29/94 11768 11615
5/30/94 11867 11716
6/29/94 11747 11644
7/30/94 12008 11864
8/30/94 12026 11905
9/29/94 11824 11730
10/30/94 11508 11521
11/29/94 11235 11313
12/30/94 11420 11562
1/30/95 11901 11893
2/27/95 12295 12238
3/30/95 12414 12379
4/29/95 12407 12394
5/30/95 12825 12789
6/29/95 12613 12677
7/30/95 12685 12797
8/30/95 12866 12960
9/29/95 12972 13041
10/30/95 13228 13230
11/29/95 13507 13450
12/30/95 13690 13579
1/30/96 13785 13682
2/28/96 13664 13589
3/30/96 13436 13415
4/29/96 13369 13378
5/30/96 13379 13373
6/29/96 13550 13518
7/30/96 13700 13641
8/30/96 13693 13639
9/29/96 13920 13830
10/30/96 14073 13986
11/29/96 14365 14242
12/30/96 14283 14182
1/30/97 14294 14209
2/27/97 14429 14340
3/30/97 14175 14149
4/29/97 14316 14268
5/30/97 14581 14482
6/29/97 14706 14637
7/30/97 15266 15042
8/30/97 15056 14901
9/29/97 15253 15078
10/30/97 15359 15175
11/29/97 15475 15264
12/30/97 15717 15487
1/30/98 15918 15646
2/27/98 15906 15651
3/30/98 15879 15665
4/29/98 15802 15595
5/30/98 16078 15841
6/29/98 16124 15903
7/30/98 16145 15943
8/30/98 16405 16190
9/29/98 16645 16392
10/30/98 16638 16392
11/29/98 16728 16450
12/30/98 16725 16491
1/30/99 16903 16687
2/27/99 16846 16613
3/30/99 16888 16637
4/29/99 16879 16678
5/30/99 16727 16582
6/29/99 16438 16343
7/30/99 16418 16402
8/30/99 16144 16270
9/29/99 16135 16277
10/30/99 15756 16101
11/29/99 15957 16272
12/30/99 15699 16150
1/30/00 15540 16080
2/28/00 15850 16267
3/30/00 16384 16623
4/29/00 16191 16525
5/30/00 16125 16439
6/29/00 16659 16875
7/30/00 16951 17109
8/30/00 17382 17373
</TABLE>
1 Fund yield and returns reflect expense reductions by the fund's investment
adviser (CSIM) and transfer agent and shareholder services agent (Schwab).
Without these reductions, the fund's yield and returns would have been lower.
2 This is the taxable-equivalent 30-day SEC yield for a hypothetical investor in
the highest combined federal and California tax bracket (45.22%). Your tax
rate may be different.
3 Source: Morningstar, Inc. As of 8/31/00, there were 117 funds in the
Morningstar Municipal California Long Bond Fund category that had track
records of at least one year.
45
<PAGE> 50
SCHWAB CALIFORNIA LONG-TERM TAX-FREE BOND FUND
TOP 10 HOLDINGS 1 as of 8/31/00
<TABLE>
<CAPTION>
PERCENTAGE OF
SECURITY RATE MATURITY DATE INVESTMENTS
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 LOS ANGELES UNIFIED SCHOOL DISTRICT
General Obligation, Series 2000D 5.38% 07/01/25 4.7%
--------------------------------------------------------------------------------------------------------------------
2 SOUTH ORANGE COUNTY PUBLIC FINANCING AUTHORITY
Special Tax Revenue, Series 1999A 5.25% 08/15/18 3.5%
--------------------------------------------------------------------------------------------------------------------
3 SANTA ANA UNIFIED SCHOOL DISTRICT General Obligation 5.70% 08/01/29 3.5%
--------------------------------------------------------------------------------------------------------------------
4 CALIFORNIA HEALTH FACILITIES FINANCING AUTHORITY, CHILDREN'S HOSPITAL
OF SAN DIEGO Insured Hospital Revenue Refunding, Series 1996 5.38% 07/01/16 3.0%
--------------------------------------------------------------------------------------------------------------------
5 FOOTHILL EASTERN CORRIDOR AGENCY
Toll Road Revenue Refunding 5.13% 01/15/19 2.8%
--------------------------------------------------------------------------------------------------------------------
6 SAN JOAQUIN COUNTY, GENERAL HOSPITAL PROJECT Refunding 5.00% 09/01/20 2.8%
--------------------------------------------------------------------------------------------------------------------
7 CALIFORNIA STATEWIDE COMMUNITIES DEVELOPMENT AUTHORITY,
THE INTERNEXT GROUP 5.38% 04/01/17 2.6%
--------------------------------------------------------------------------------------------------------------------
8 CALIFORNIA EDUCATIONAL FACILITIES AUTHORITY,
UNIVERSITY OF SOUTHERN CALIFORNIA Revenue 5.50% 10/01/27 2.6%
--------------------------------------------------------------------------------------------------------------------
9 RIVERSIDE COUNTY PUBLIC FINANCING AUTHORITY,
REDEVELOPMENT PROJECTS Tax Allocation Revenue, Series 1997A 5.63% 10/01/33 2.6%
--------------------------------------------------------------------------------------------------------------------
10 CALIFORNIA HEALTH FACILITIES FINANCING AUTHORITY,
KAISER PERMANENTE HOSPITAL Revenue, Series 1998B 5.00% 10/01/18 2.6%
--------------------------------------------------------------------------------------------------------------------
TOTAL 30.7%
</TABLE>
DIVIDENDS PAID in each fiscal year
[DIVIDENDS PAID BAR CHART]
<TABLE>
<CAPTION>
Income Dividends
Year per Share
<S> <C>
1992 2 0.51
1993 3 0.38
1994 0.56
1995 0.56
1996 0.57
1997 0.56
1998 0.55
1999 0.54
2000 0.55
</TABLE>
1 This list is not a recommendation of any security by the adviser.
2 Period from the fund's inception on 2/24/92 through 12/31/92.
3 For the eight-month period ended 8/31/93.
46
<PAGE> 51
COMPOSITION OF THE FUND'S PORTFOLIO as of 8/31/00
All figures are shown as a percentage of the fund's investments. Holdings may
have changed since the report date.
BY SECURITY TYPE
--------------------------------------------------------------------------------
[BY SECURITY TYPE PIE CHART]
(1) 100.0% Municipal Bonds
BY CREDIT QUALITY 1
--------------------------------------------------------------------------------
[BY CREDIT QUALITY PIE CHART]
(1) 66.0% AAA
(2) 15.6% AA
(3) 12.3% A
(4) 6.1% BBB
BY MATURITY
--------------------------------------------------------------------------------
[BY MATURITY PIE CHART]
(1) 2.5% 0-1 Year
(2) 4.9% 2-10 Years
(3) 49.6% 11-20 Years
(4) 34.9% 21-30 Years
(5) 8.1% More than 30 Years
FUND FACTS as of 8/31/00
<TABLE>
<CAPTION>
PEER GROUP 2
FUND AVERAGE
-------------------------------------------------------------------------------
<S> <C> <C>
Number of Issues 82 138
-------------------------------------------------------------------------------
Yield to Maturity 5.32% 3.83%
-------------------------------------------------------------------------------
Weighted Average Rate 5.06% 5.56%
-------------------------------------------------------------------------------
Weighted Average Maturity 20.1 yrs 18.6 yrs
-------------------------------------------------------------------------------
Weighted Average Duration 9.2 yrs 8.9 yrs
-------------------------------------------------------------------------------
Weighted Average Credit Quality AA AA
-------------------------------------------------------------------------------
</TABLE>
EXPENSE RATIO as of 8/31/001
<TABLE>
<S> <C>
FUND 0.49% 3
PEER GROUP AVERAGE 1.09% 2
</TABLE>
1 Based on ratings by Standard & Poor's and Moody's. Where ratings are
different, the chart uses the higher rating.
2 Source: Morningstar, Inc. As of 8/31/00, there were 120 funds in the
Morningstar Municipal California Long Bond Fund category.
3 The actual expense ratio during the report period was 0.01% higher due to
certain non-routine expenses.
47
<PAGE> 52
SCHWAB CALIFORNIA LONG-TERM TAX-FREE BOND FUND -- FINANCIALS
================================================================================
FINANCIAL TABLES
These pages provide additional data on the fund's performance, portfolio
holdings, expenses and business operations. These figures have been audited by
PricewaterhouseCoopers LLP.
Two other sections of this report provide context for the data in these
financials. THE FINANCIAL NOTES section contains information about the fund's
business structure, accounting practices and other matters, completing the data
given in these tables. The final section, HOW TO READ THIS REPORT, includes
guides designed to make the financials easy to read and understand.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
9/1/99- 9/1/98- 9/1/97- 9/1/96- 9/1/95-
8/31/00 8/31/99 8/31/98 8/31/97 8/31/96
<S> <C> <C> <C> <C> <C>
PER-SHARE DATA ($)
Net asset valueat beginning of period 10.82 11.52 11.10 10.63 10.53
------------------------------------------------
Income from investment operations:
Net investment income 0.55 0.54 0.54 0.56 0.57
Net realized and unrealized gains or losses 0.24 (0.70) 0.43 0.47 0.10
------------------------------------------------
Total income from investment operations 0.79 (0.16) 0.97 1.03 0.67
Less distributions:
Dividends from net investment income (0.55) (0.54) (0.55) (0.56) (0.57)
------------------------------------------------
NET ASSET VALUE AT END OF PERIOD 11.06 10.82 11.52 11.10 10.63
================================================
Total return (%) 7.67 (1.57) 8.96 9.95 6.43
RATIOS/SUPPLEMENTAL DATA (%)
================================================================================================
Ratio of net operating expenses to
average net assets 0.49 1 0.49 0.49 0.49 0.49
Expense reductions reflected in above ratio 0.19 0.26 0.27 0.33 0.33
Ratio of net investment income to
average net assets 5.19 4.69 4.79 5.17 5.30
Portfolio turnover rate 36 55 28 35 36
Net assets, end of period ($ x 1,000,000) 179 202 190 125 102
<FN>
1 Would have been 0.50% if certain non-routine expenses (proxy fees) had been
included.
</FN>
</TABLE>
48 SEE THE FINANCIAL NOTES, WHICH
====== ARE INTEGRAL TO THIS INFORMATION.
<PAGE> 53
PORTFOLIO HOLDINGS
As of August 31, 2000.
This table shows all the securities in the fund's portfolio and their market
value, as of the report date.
We use the symbols below to designate certain characteristics. With the top ten
holdings, the number in the circle is the security's rank among the top ten.
1 Top ten holding
+ Credit-enhanced security
o Certificate of Participation
For fixed-rate obligations, the rate shown is the coupon or discount rate (the
rate established when the obligation was issued). For variable-rate obligations,
the rate shown is the coupon rate as of the report date, and the maturity shown
is the date of the next rate reset (or the demand date, for securities that have
a demand date that's later than the reset date).
The pie chart below shows the fund's major asset categories and the market value
and cost of the securities in each category.
ALL DOLLAR VALUES ARE IN THOUSANDS.
[GRAPHIC OMITTED]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
100.0% MUNICIPAL BONDS
Market Value: $176,609
Cost: $172,801
OTHER INVESTMENT COMPANIES
Market Value: $2
Cost: $2
100.0% TOTAL INVESTMENTS
Market Value: $176,611
Cost: $172,803
MUNICIPAL BONDS 100.0% of investments
================================================================================
<TABLE>
<CAPTION>
ISSUER
PROJECT MATURITY FACE VALUE MKT. VALUE
TYPE OF SECURITY RATE DATE ($ x 1,000) ($ x 1,000)
FIXED-RATE OBLIGATIONS 97.5%
=================================================================================================================
<S> <C> <C> <C> <C>
CALIFORNIA 96.3%
ABAG FINANCE AUTHORITY FOR NONPROFIT CORPORATIONS
+o LYTTON GARDENS, INC.
Insured Revenue 6.00% 02/15/30 3,000 3,052
SCHOOLS OF SACRED HEART
Revenue, Series 2000A 6.45% 06/01/30 1,500 1,572
o ALAMEDA COUNTY
ALAMEDA MEDICAL CENTER PROJECT
Series 1998 5.38% 06/01/18 3,400 3,445
+ BAY AREA GOVERNMENT ASSOCIATION
REDEVELOPMENT AGENCY POOL
Revenue Tax Allocation, Series 1997A-6 5.25% 12/15/17 1,200 1,215
+ BISHOP UNION HIGH SCHOOL DISTRICT
Joint General Obligation 5.50% 08/01/25 1,175 1,187
+ BREA OLINDA UNIFIED SCHOOL DISTRICT
General Obligation, Series 1999A 5.60% 08/01/20 1,000 1,027
CALIFORNIA EDUCATIONAL FACILITIES AUTHORITY
PEPPERDINE UNIVERSITY
Revenue 5.75% 09/15/30 3,000 3,066
SANTA CLARA UNIVERSITY
Revenue Refunding 5.25% 09/01/26 2,330 2,288
8 UNIVERSITY OF SOUTHERN CALIFORNIA
Revenue 5.50% 10/01/27 4,570 4,607
</TABLE>
SEE THE FINANCIAL NOTES, WHICH 49
ARE INTEGRAL TO THIS INFORMATION. ======
<PAGE> 54
SCHWAB CALIFORNIA LONG-TERM TAX-FREE BOND FUND-- FINANCIALS
================================================================================
PORTFOLIO HOLDINGS Continued
As of August 31, 2000.
<TABLE>
<CAPTION>
ISSUER
PROJECT MATURITY FACE VALUE MKT. VALUE
TYPE OF SECURITY RATE DATE ($ x 1,000) ($ x 1,000)
<S> <C> <C> <C> <C>
CALIFORNIA HEALTH FACILITIES FINANCING AUTHORITY
+ ASSOCIATION OF RETARDED CITIZENS
Insured Revenue, Series 1991 7.00% 05/01/01 455 470
CEDARS SINAI MEDICAL CENTER
Revenue, Series 1999A 6.13% 12/01/19 2,750 2,807
4+ CHILDREN'S HOSPITAL OF SAN DIEGO
Insured Hospital Revenue Refunding, Series 1996 5.38% 07/01/16 5,180 5,271
10 KAISER PERMANENTE HOSPITAL
Revenue, Series 1998B 5.00% 10/01/18 5,000 4,542
+ SUTTER HEALTH
Insured Revenue, Series 1999A 5.00% 08/15/19 1,000 976
CALIFORNIA HOUSING FINANCE AGENCY
Home Mortgage Revenue, Series 1994G 7.20% 08/01/14 3,000 3,195
+ Home Mortgage Revenue, Series 1995L 5.90% 08/01/17 1,000 1,031
Multi-Unit Rental Housing Revenue, Series 1992B-II 6.70% 08/01/15 1,000 1,047
+ Revenue, Series 1995J 6.00% 08/01/17 3,000 3,097
CALIFORNIA DEPARTMENT OF WATER RESOURCES
CENTRAL VALLEY PROJECT
Water Systems Revenue, Series 1997S 5.00% 12/01/22 1,200 1,138
+ CALIFORNIA PUBLIC WORKS BOARD LEASE
VARIOUS CALIFORNIA STATE UNIVERSITIES
Revenue Refunding, Series 1996A 5.38% 10/01/17 200 204
o CALIFORNIA STATEWIDE COMMUNITIES DEVELOPMENT AUTHORITY
CEDARS-SINAI MEDICAL CENTER
Hospital Revenue 6.50% 08/01/15 1,250 1,292
ST. JOSEPH HEALTH SYSTEMS GROUP 6.50% 07/01/04 2,000 2,207
7 THE INTERNEXT GROUP 5.38% 04/01/17 5,000 4,630
+ CHICO UNIFIED SCHOOL DISTRICT
General Obligation Refunding, Series 1998 5.00% 08/01/16 1,155 1,155
+ COLTON PUBLIC FINANCING AUTHORITY
Special Tax Revenue, Series 1996 5.45% 09/01/19 3,020 3,069
Tax Allocation Revenue, Series 1998A 5.00% 08/01/18 2,715 2,668
EAST BAY MUNICIPAL UTILITY DISTRICT
Water System Revenue, Series 1998 5.25% 06/01/19 2,600 2,602
+o ESCONDIDO
Revenue, Series 2000A 6.00% 09/01/31 2,000 2,087
5+ FOOTHILL EASTERN CORRIDOR AGENCY
Toll Road Revenue Refunding 5.13% 01/15/19 5,000 4,956
+ HUNTINGTON BEACH CALIFORNIA PUBLIC FINANCING AUTHORITY
CAPITAL IMPROVEMENT PROJECT
Lease Revenue, Series 2000A 5.50% 09/01/20 1,500 1,524
+ INGLEWOOD REDEVELOPMENT AGENCY
MERGED REDEVELOPMENT PROJECT
Tax Allocation, Series 1998A 5.25% 05/01/16 1,000 1,037
+o LAKE ELSINORE UNIFIED SCHOOL DISTRICT 4.75% 02/01/20 1,200 1,118
</TABLE>
50 SEE THE FINANCIAL NOTES, WHICH
====== ARE INTEGRAL TO THIS INFORMATION.
<PAGE> 55
<TABLE>
<CAPTION>
ISSUER
PROJECT MATURITY FACE VALUE MKT. VALUE
TYPE OF SECURITY RATE DATE ($ x 1,000) ($ x 1,000)
<S> <C> <C> <C> <C>
+ LOS ANGELES COUNTY PUBLIC WORKS FINANCING AUTHORITY
MASTER REFUNDING PROJECT
Lease Revenue Refunding, Series 1997A 5.25% 03/01/15 1,000 1,024
MULTIPLE CAPITAL FACILITIES PROJECT V
Lease Revenue, Series 1996A 5.13% 06/01/17 2,000 2,005
LOS ANGELES COUNTY TRANSPORTATION COMMISSION
Sales Tax Revenue Refunding, Series 1991B 6.50% 07/01/13 555 576
LOS ANGELES DEPARTMENT OF WATER & POWER
Electric Plant Revenue 6.00% 01/15/11 865 912
1 LOS ANGELES UNIFIED SCHOOL DISTRICT
General Obligation, Series 2000D 5.38% 07/01/25 8,330 8,333
+ MODESTO PUBLIC FINANCING AUTHORITY
CAPITAL IMPORTS & REFINING PROJECT
Lease Revenue 5.13% 09/01/20 3,740 3,673
+ NORTHERN CALIFORNIA POWER AGENCY
Multiple Capital Facilities Revenue, Series 1992A 6.50% 08/01/12 1,875 1,984
OAKLAND JOINT POWERS FINANCING AUTHORITY
Reassessment Revenue 5.50% 09/02/24 1,000 965
o OCEANSIDE BUILDING AUTHORITY
Refunding, Series 1993A 6.38% 04/01/12 1,250 1,320
+ POMONA PUBLIC FINANCING AUTHORITY
WATER FACILITIES PROJECT
Revenue, Series 1999AA 5.00% 05/01/19 3,000 2,929
+ PORT OF OAKLAND
Revenue Series 2000K 5.75% 11/01/29 3,500 3,586
+ RANCHO CUCAMONGA REDEVELOPMENT AGENCY
RANCHO REDEVELOPMENT PROJECT
Tax Allocation Refunding 5.25% 09/01/20 4,315 4,294
+ REDLANDS FINANCING AUTHORITY
Wastewater Revenue Refunding, Series 1999A 5.00% 09/01/17 2,600 2,577
+ RIVERSIDE COUNTY ASSET LEASING CORP.
RIVERSIDE COUNTY HOSPITAL PROJECT
Leasehold Revenue, Series 1997B 5.00% 06/01/19 3,000 2,911
9 RIVERSIDE COUNTY PUBLIC FINANCING AUTHORITY
REDEVELOPMENT PROJECTS
Tax Allocation Revenue, Series 1997A 5.63% 10/01/33 4,905 4,588
SACRAMENTO COUNTY SANITATION DISTRICT FINANCING AUTHORITY
Revenue, Series 2000A 5.88% 12/01/27 1,000 1,027
+ SACRAMENTO FINANCING AUTHORITY
SOLID WASTE & REDEVELOPMENT
Capital Improvement Revenue 5.88% 12/01/29 3,000 3,126
o SACRAMENTO REGIONAL TRANSIT DISTRICT
Series 1992A 6.38% 03/01/05 250 263
LIGHT RAIL TRANSPORTATION
Refunding 6.75% 07/01/07 2,000 2,079
</TABLE>
SEE THE FINANCIAL NOTES, WHICH 51
ARE INTEGRAL TO THIS INFORMATION. ======
<PAGE> 56
SCHWAB CALIFORNIA LONG-TERM TAX-FREE BOND FUND-- FINANCIALS
================================================================================
PORTFOLIO HOLDINGS Continued
As of August 31, 2000.
<TABLE>
<CAPTION>
ISSUER
PROJECT MATURITY FACE VALUE MKT. VALUE
TYPE OF SECURITY RATE DATE ($ x 1,000) ($ x 1,000)
<S> <C> <C> <C> <C>
o SAN BERNARDINO COUNTY
WEST VALLEY DETENTION CENTER 6.50% 11/01/12 420 449
+ SAN FRANCISCO BAY AREA RAPID TRANSIT DISTRICT
Sales Tax Revenue 5.25% 07/01/18 2,680 2,700
Sales Tax Revenue 5.50% 07/01/26 1,000 1,008
Sales Tax Revenue 5.50% 07/01/34 2,500 2,515
+ SAN FRANCISCO CITY & COUNTY AIRPORT COMMISSION
International Airport Revenue, 2nd Series, Issue 11 6.20% 05/01/19 2,000 2,098
International Airport Revenue, 2nd Series, Issue 12B 5.63% 05/01/21 2,000 2,034
International Airport Revenue, 2nd Series, Issue 23B 5.13% 05/01/30 2,000 1,913
SAN FRANCISCO DOWNTOWN PARKING CORP.
Revenue 6.65% 04/01/18 500 529
+ SAN FRANCISCO STATE UNIVERSITY FOUNDATION, INC.
AUXILIARY ORGANIZATION
Student Housing Revenue 5.20% 07/01/19 1,150 1,103
6+o SAN JOAQUIN COUNTY
GENERAL HOSPITAL PROJECT
Refunding 5.00% 09/01/20 5,065 4,867
+ SAN MATEO COUNTY JOINT POWERS AUTHORITY
CAPITAL PROJECTS
Lease Revenue Refunding, Series 1999A 4.75% 07/15/23 2,000 1,833
3+ SANTA ANA UNIFIED SCHOOL DISTRICT
General Obligation 5.70% 08/01/29 6,000 6,137
+ SANTA CLARA COUNTY FINANCING AUTHORITY
VMC FACILITY REPLACEMENT PROJECT
Lease Revenue, Series 1994A 6.88% 11/15/04 2,000 2,251
Lease Revenue, Series 1994A 7.75% 11/15/10 1,460 1,850
+ SANTA CLARA REDEVELOPMENT AGENCY
BAYSHORE NORTH PROJECT
Tax Allocation Refunding 7.00% 07/01/10 1,500 1,793
+ SOUTH GATE PUBLIC FINANCING AUTHORITY
HOUSING REDEVELOPMENT PROJECT NO. 1
Tax Allocation Revenue, Series 1998A 5.00% 09/01/19 1,415 1,381
2+ SOUTH ORANGE COUNTY PUBLIC FINANCING AUTHORITY
Special Tax Revenue, Series 1999A 5.25% 08/15/18 6,095 6,142
o TEMECULA COMMUNITY SERVICES DISTRICT
COMMUNITY RECREATION CENTER PROJECT
Series 1992 7.13% 10/01/12 1,000 1,067
+ TRI-CITY HOSPITAL DISTRICT
Insured Revenue Refunding, Series 1996A 5.63% 02/15/17 1,000 1,027
TRUCKEE PUBLIC FINANCING AUTHORITY
Lease Revenue, Series 2000A 5.88% 11/01/25 1,490 1,553
</TABLE>
52 SEE THE FINANCIAL NOTES, WHICH
====== ARE INTEGRAL TO THIS INFORMATION.
<PAGE> 57
<TABLE>
<CAPTION>
ISSUER
PROJECT MATURITY FACE VALUE MKT. VALUE
TYPE OF SECURITY RATE DATE ($ x 1,000) ($ x 1,000)
<S> <C> <C> <C> <C>
+ UNIVERSITY OF CALIFORNIA
UNIVERSITY OF CALIFORNIA HOSPITAL MEDICAL CENTER PROJECT
Hospital Revenue 5.75% 07/01/24 500 510
+ VALLEJO
WATER IMPROVEMENT PROJECT
Revenue Refunding, Series 1996A 5.70% 05/01/16 2,000 2,088
+o WEST BASIN COUNTY MUNICIPAL WATER DISTRICT
Revenue Refunding, Series 1997A 5.50% 08/01/17 500 515
Revenue Refunding, Series 1997A 5.50% 08/01/22 1,000 1,010
--------
170,127
PUERTO RICO 1.2%
+ PUERTO RICO HIGHWAY & TRANSPORTATION AUTHORITY
Transportation Revenue, Series 2000B 5.88% 07/01/35 2,000 2,087
VARIABLE-RATE OBLIGATIONS 2.5%
===============================================================================================================
CALIFORNIA 2.5%
+ IRVINE IMPROVEMENT BOND ACT 1915
ASSESSMENT DISTRICT NO. 87-8
Special Assessment 3.60% 09/01/00 400 400
ASSESSMENT DISTRICT NO. 89-10
Special Assessment 3.60% 09/01/00 1,500 1,500
ASSESSMENT DISTRICT NO. 97-17
Special Assessment 3.60% 09/01/00 1,000 1,000
+ IRVINE RANCH WATER DISTRICT
Consolidated Revenue Refunding, Series 1993A 3.35% 09/01/00 195 195
+o ORANGE COUNTY SANITATION DISTRICT
DISTRICTS 1-3, 5-7, 11, 13 & 14 3.60% 09/01/00 1,300 1,300
--------
4,395
Other Investment Companies 0.0% of investments
===============================================================================================================
SECURITY AND NUMBER OF SHARES
PROVIDENT INSTITUTIONAL FUNDS --
CALIFORNIA MONEY FUND PORTFOLIO 1,880 2
===============================================================================================================
END OF PORTFOLIO HOLDINGS. FOR TOTALS, PLEASE SEE THE FIRST PAGE OF HOLDINGS FOR THIS FUND.
</TABLE>
SEE THE FINANCIAL NOTES, WHICH 53
ARE INTEGRAL TO THIS INFORMATION. ======
<PAGE> 58
SCHWAB CALIFORNIA LONG-TERM TAX-FREE BOND FUND -- FINANCIALS
================================================================================
Statement of
ASSETS AND LIABILITIES
As of August 31, 2000. All numbers x 1,000 except NAV.
ASSETS
====================================================================
Investments, at market value $176,611 a
Receivables:
Fund shares sold 73
Interest 2,523
Prepaid expenses + 1
------------
TOTAL ASSETS 179,208
LIABILITIES
====================================================================
Payables:
Fund shares redeemed 132
Dividends to shareholders 141
Investment adviser and administrator fees 2
Transfer agent and shareholder service fees 6
Accrued expenses + 45
------------
TOTAL LIABILITIES 326
NET ASSETS
====================================================================
TOTAL ASSETS 179,208
TOTAL LIABILITIES - 326
------------
NET ASSETS 178,882
NET ASSETS BY SOURCE
Capital received from investors 179,768
Distributions in excess of net investment income (33)
Net realized capital losses (4,661)
Net unrealized capital gains 3,808
NET ASSET VALUE (NAV)
SHARES
NET ASSETS (DIVIDE) OUTSTANDING = NAV
$178,882 16,169 $11.06
a. The fund's amortized cost for these securities was $172,803. Not counting
short-term obligations, the fund paid $62,270 for securities during the
report period, and received $89,362 from securities it sold or that matured.
This includes $59,797 in transactions with other SchwabFunds.(REGISTRATION
MARK)
FEDERAL TAX DATA
------------------------------------------------
COST BASIS OF PORTFOLIO $172,803
NET UNREALIZED APPRECIATION:
Appreciated securities $5,229
Depreciated securities - 1,421
----------
$3,808
DEFERRED CAPITAL LOSSES $4,323
RECLASSIFICATIONS:
Net realized capital losses ($83)
Reclassified as:
Distributions in excess
of net investment income $22
Capital received from
investors $61
UNUSED CAPITAL LOSSES:
Expires 08/31 of: Loss amount
2004 $334
2006 + 4
----------
$338
54 SEE THE FINANCIAL NOTES, WHICH
====== ARE INTEGRAL TO THIS INFORMATION.
<PAGE> 59
================================================================================
Statement of
OPERATIONS
For September 1, 1999 through August 31, 2000. All numbers x 1,000.
INVESTMENT INCOME
================================================================================
Interest $9,947
NET REALIZED LOSSES
================================================================================
Net realized losses on investments sold (4,312)
NET UNREALIZED GAINS
================================================================================
Net unrealized gains on investments 7,046
EXPENSES
================================================================================
Investment adviser and administrator fees 568 a
Transfer agent and shareholder service fees 436 b
Trustees' fees 8 c
Custodian and portfolio accounting fees 91
Professional fees 28
Shareholder reports 40
Proxy fees 12
Other expenses + 20
------------
Total expenses 1,203
Expense reduction - 336 d
------------
NET EXPENSES 867
INCREASE IN NET ASSETS FROM OPERATIONS
================================================================================
TOTAL INVESTMENT INCOME 9,947
NET EXPENSES - 867
------------
NET INVESTMENT INCOME 9,080
NET REALIZED LOSSES (4,312) e
NET UNREALIZED GAINS + 7,046 e
------------
INCREASE IN NET ASSETS FROM OPERATIONS 11,814
a. Calculated as a percentage of average daily net assets: 0.30% of the first
$500 million and 0.22% of assets beyond that. Before November 15, 1999, fees
were calculated at a rate of 0.41% of the fund's average daily net assets.
b. Calculated as a percentage of average daily net assets: for transfer agent
services, 0.05% of the fund's assets; for shareholder services, 0.20% of the
fund's assets.
c. For the fund's independent trustees only.
d. Reduced by the investment adviser (CSIM). This reduction reflects a guarantee
by CSIM and the transfer agent and shareholder service agent (Schwab) to
limit the operating expenses of this fund through at least October 31, 2000,
to 0.49% of average daily net assets. This limit doesn't include interest,
taxes and certain non-routine expenses.
e. These add up to a net gain on investments of $2,734.
SEE THE FINANCIAL NOTES, WHICH 55
ARE INTEGRAL TO THIS INFORMATION. ======
<PAGE> 60
SCHWAB CALIFORNIA LONG-TERM TAX-FREE BOND FUND -- FINANCIALS
================================================================================
Statements of
CHANGES IN NET ASSETS
For the current and previous report periods. All numbers x 1,000.
OPERATIONS
=======================================================================
9/1/99-8/31/00 9/1/98-8/31/99
Net investment income $9,080 $ 9,620
Net realized gains or losses (4,312) 327
Net unrealized gains or losses + 7,046 (13,671)
------------------------------
INCREASE OR DECREASE IN NET ASSETS
FROM OPERATIONS 11,814 (3,724)
DISTRIBUTIONS PAID
=======================================================================
Dividends from net investment income 9,070 9,629
TRANSACTIONS IN FUND SHARES
=======================================================================
9/1/99-8/31/00 9/1/98-8/31/99
QUANTITY VALUE QUANTITY VALUE
Shares sold 3,649 $38,642 7,967 $ 91,493
Shares reinvested 545 5,755 556 6,339
Shares redeemed + (6,659) (69,941) (6,399) (72,994)
---------------------------------------------
NET INCREASE OR DECREASE (2,465) ($25,544) 2,124 $24,838
SHARES OUTSTANDING AND NET ASSETS
=======================================================================
9/1/99-8/31/00 9/1/98-8/31/99
SHARES NET ASSETS SHARES NET ASSETS
Beginning of period 18,634 $201,682 16,510 $190,197
Total increase or
decrease + (2,465) (22,800) 2,124 11,485 a
---------------------------------------------
END OF PERIOD 16,169 $178,882 18,634 $201,682 b
a. Figures for shares represent the net changes in shares from the transactions
described above. Figures for net assets represent the changes in net assets
from operations plus the changes from the value of transactions in fund
shares, minus total distributions paid.
b. Includes distributions that exceeded net investment income by $33 for the
current period and $65 for the prior period.
56 SEE THE FINANCIAL NOTES, WHICH
====== ARE INTEGRAL TO THIS INFORMATION.
<PAGE> 61
FINANCIAL NOTES
================================================================================
FINANCIAL NOTES
BUSINESS STRUCTURE OF THE FUNDS
EACH OF THE FUNDS DISCUSSED IN THIS REPORT IS A SERIES OF SCHWAB INVESTMENTS
(THE "TRUST"), A NO-LOAD, OPEN-END MANAGEMENT INVESTMENT COMPANY. The company is
organized as a Massachusetts business trust and is registered under the
Investment Company Act of 1940, as amended.
THE FUNDS OFFER ONE SHARE CLASS. For these funds, shares are bought and sold at
net asset value, or NAV, which is the price for all outstanding shares. Each
share has a par value of 1/1,000 of a cent, and the trustees may issue as many
shares as necessary.
THE TRUST AND ITS FUNDS
--------------------------------------------------------------------------------
This list shows all of the funds included in Schwab Investments. The funds
discussed in this report are highlighted.
SCHWAB INVESTMENTS
Organized October 26, 1990
Schwab 1000 Fund(REGISTRATION MARK)
Schwab Short-Term Bond Market Index Fund
Schwab Total Bond Market Index Fund
Schwab California Short/Intermediate
Tax-Free Bond Fund
Schwab California Long-Term Tax-Free Bond Fund
Schwab Short/Intermediate Tax-Free Bond Fund
Schwab Long-Term Tax-Free Bond Fund
Schwab YieldPlus Fund(TRADE MARK)
FUND OPERATIONS
Most of the funds' investments are described in the fund-by-fund sections
earlier in this report. However, there are certain other investments and
policies that may affect a fund's financials. The most signficant of these are
described below. Other policies concerning the funds' business operations are
also described here.
THE FUNDS DECLARE DIVIDENDS EVERY DAY THEY ARE OPEN FOR BUSINESS. These
dividends, which are substantially equal to a fund's net investment income for
that day, are paid out to shareholders once a month. The funds may make
distributions from any net realized capital gains once a year.
THE FUNDS MAY BUY SECURITIES ON A DELAYED- DELIVERY BASIS. In these
transactions, a fund agrees to buy a security for a stated price, with
settlement generally occurring within two weeks. If the security's value falls
before settlement occurs, a fund could end up paying more for the security than
its value at the time of the transaction. The funds have set aside sufficient
investment securities as collateral for securities purchased on a
delayed-delivery basis.
THE FUNDS PAY FEES FOR VARIOUS SERVICES. Through their Trust, the funds have
agreements with Charles Schwab Investment Management, Inc. (CSIM) to provide
investment advisory and administrative services and with Charles Schwab & Co.,
Inc. (Schwab) to provide transfer agent and shareholder services. Although these
agreements specify certain fees for these services, CSIM and Schwab have made
additional agreements with the funds that may limit the total expenses charged.
57
======
<PAGE> 62
FINANCIAL NOTES
================================================================================
The rates and limitations for these fees vary from fund to fund, and are
described in each fund's Statement of Operations.
TRUSTEES MAY INCLUDE PEOPLE WHO ARE OFFICERS AND/OR DIRECTORS OF THE INVESTMENT
ADVISER AND/OR SCHWAB. Federal securities law limits the percentage of such
"interested persons" who may serve on a trust's board, and the Trust was in
compliance with these limitations throughout the report period. The Trust did
not pay any of these persons for their service as trustees, but it did pay the
independent trustees, as noted in each fund's Statement of Operations.
THE FUNDS MAY ENGAGE IN CERTAIN TRANSACTIONS INVOLVING AFFILIATES. The funds may
make direct transactions with certain other SchwabFunds(REGISTRATION MARK) when
practical. When one fund is seeking to sell a security that another is seeking
to buy, an interfund transaction can allow both funds to benefit by reducing
transaction costs. This practice is limited to funds that share the same
investment adviser, trustees and officers.
THE FUNDS INTEND TO MEET FEDERAL INCOME AND EXCISE TAX REQUIREMENTS FOR
REGULATED INVESTMENT COMPANIES. Accordingly, the funds distribute substantially
all of their net investment income and realized net capital gains (if any) to
their respective shareholders each year. As long as a fund meets the tax
requirements, it is not required to pay federal income tax.
ACCOUNTING POLICIES
The following are the main policies the funds use in preparing their financial
statements.
THE FUNDS VALUE THE SECURITIES IN THEIR PORTFOLIOS EVERY BUSINESS DAY. The funds
use the following policies to value various types of securities:
BONDS AND NOTES: valued at halfway between the most recent bid and asked
quotes or, if such quotes are unavailable, at prices for securities of
comparable maturity, credit quality and type. Valuations for bonds and notes
are provided by an independent bond-pricing service.
SECURITIES FOR WHICH NO QUOTED VALUE IS AVAILABLE, INCLUDING RESTRICTED
SECURITIES: valued at fair value, as determined in good faith by the fund's
investment adviser using guidelines adopted by the fund's Board of Trustees.
SHORT-TERM SECURITIES (60 DAYS OR LESS TO MATURITY): valued at amortized
cost.
SECURITY TRANSACTIONS are recorded as of the date the order to buy or sell the
security is executed.
INCOME FROM INTEREST AND THE ACCRETION OF ORIGINAL ISSUE DISCOUNT is recorded as
it accrues. If a fund bought a bond at a premium (because the market value at
the time of purchase was greater than the face value), the fund reduces the
income it records from the bond. The reduction is determined by amortizing the
amount of the premium from the current date up to maturity. If the bond is
callable (meaning that the issuer has the option to pay it off before its
maturity date), then the fund amortizes the premium to the bond's call date and
call price rather than the bond's maturity date and maturity price.
58
======
<PAGE> 63
================================================================================
REALIZED GAINS AND LOSSES from security transactions are based on the identified
costs of the securities involved.
EXPENSES that are specific to a fund are charged directly to that fund. Expenses
that are common to all funds within the Trust are generally allocated among the
funds in proportion to their relative net assets.
EACH FUND MAINTAINS ITS OWN ACCOUNT FOR PURPOSES OF HOLDING ASSETS AND
ACCOUNTING, and is considered a separate entity for tax purposes. Within its
account, each fund also keeps certain assets in segregated accounts, as may be
required by securities laws.
THE ACCOUNTING POLICIES DESCRIBED ABOVE CONFORM WITH GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES. Notwithstanding this, shareholders should understand that
in order to follow these principles, fund management has to make estimates and
assumptions that affect the information reported in the financial statements.
It's possible that once the results are known, they may turn out to be different
from these estimates.
59
======
<PAGE> 64
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF:
Schwab Short/Intermediate Tax-Free Bond Fund
Schwab Long-Term Tax-Free Bond Fund
Schwab California Short/Intermediate Tax-Free Bond Fund
Schwab California Long-Term Tax-Free Bond Fund
In our opinion, the accompanying statements of assets and liabilities, including
the portfolio holdings, and the related statements of operations and of changes
in net assets and the financial highlights present fairly, in all material
respects, the financial position of Schwab Short/Intermediate Tax-Free Bond
Fund, Schwab Long-Term Tax-Free Bond Fund, Schwab California Short/Intermediate
Tax-Free Bond Fund, and Schwab California Long-Term Tax-Free Bond Fund (four of
the portfolios constituting Schwab Investments, hereafter referred to as the
"Funds") at August 31, 2000, the results of each of their operations for the
year then ended, the changes in each of their net assets for each of the two
years in the period then ended and the financial highlights for each of the five
years in the period then ended, in conformity with accounting principles
generally accepted in the United States of America. These financial statements
and financial highlights (hereafter referred to as "financial statements") are
the responsibility of the Funds' management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at August
31, 2000 by correspondence with the custodian, provide a reasonable basis for
our opinion.
PRICEWATERHOUSECOOPERS LLP
San Francisco, CA
October 2, 2000
60
======
<PAGE> 65
PROXY VOTING RESULTS (UNAUDITED)
SHAREHOLDERS OF THE FUNDS COVERED IN THIS REPORT APPROVED ALL PROPOSALS
DESCRIBED IN THE MOST RECENT SCHWABFUNDS PROXY SOLICITATION. A special meeting
of the shareholders of Schwab Investments was held on June 1, 2000. The number
of votes necessary to conduct the meeting and approve each proposal was
obtained. The results of the votes of shareholders are listed below by proposal.
<TABLE>
<CAPTION>
FOR WITHHELD
=========================================================================================================
PROPOSAL 1
ELECTION OF TRUSTEES
<S> <C> <C>
Charles R. Schwab 164,731,678 19,977,396
Mariann Byerwalter 164,731,678 19,977,396
Jeremiah H. Chafkin 164,731,678 19,977,396
Donald F. Dorward 164,731,678 19,977,396
William A. Hasler 164,731,678 19,977,396
Robert G. Holmes 164,731,678 19,977,396
Steven L. Scheid 164,731,678 19,977,396
Gerald B. Smith 164,731,678 19,977,396
Donald R. Stephens 164,731,678 19,977,396
Michael W. Wilsey 164,731,678 19,977,396
</TABLE>
<TABLE>
<CAPTION>
FOR AGAINST ABSTAINED 1
=========================================================================================================
PROPOSAL 2C1
TO APPROVE CHANGES TO RESTRICTIONS REGARDING BORROWING.
<S> <C> <C> <C>
Schwab Short/Intermediate Tax-Free Bond Fund 3,635,697 94,634 518,193
Schwab Long-Term Tax-Free Bond Fund 3,400,219 360,579 121,620
Schwab California Short/Intermediate Tax-Free Bond Fund 4,363,922 186,412 1,128,413
Schwab California Long-Term Tax-Free Bond Fund 7,341,208 300,707 238,318
PROPOSAL 2C2
TO APPROVE CHANGES TO RESTRICTIONS REGARDING LENDING.
Schwab Short/Intermediate Tax-Free Bond Fund 3,638,105 95,922 514,497
Schwab Long-Term Tax-Free Bond Fund 3,401,013 361,471 119,935
Schwab California Short/Intermediate Tax-Free Bond Fund 4,364,599 187,633 1,126,515
Schwab California Long-Term Tax-Free Bond Fund 7,320,238 331,912 228,083
<FN>
1 Includes broker non-votes.
</FN>
</TABLE>
61
======
<PAGE> 66
<TABLE>
<CAPTION>
FOR AGAINST ABSTAINED 1
=========================================================================================================
PROPOSAL 2C3
TO APPROVE CHANGES TO RESTRICTIONS REGARDING SENIOR SECURITIES.
<S> <C> <C> <C>
Schwab Short/Intermediate Tax-Free Bond Fund 3,615,852 116,389 516,283
Schwab Long-Term Tax-Free Bond Fund 3,394,759 364,273 123,387
Schwab California Short/Intermediate Tax-Free Bond Fund 4,368,941 179,903 1,129,903
Schwab California Long-Term Tax-Free Bond Fund 7,329,147 294,221 256,865
PROPOSAL 2F
TO APPROVE CHANGES TO RESTRICTIONS REGARDING RESTRICTED OR ILLIQUID SECURITIES.
Schwab Short/Intermediate Tax-Free Bond Fund 3,569,410 164,617 514,497
Schwab Long-Term Tax-Free Bond Fund 3,392,667 366,736 123,016
Schwab California Short/Intermediate Tax-Free Bond Fund 4,376,349 173,844 1,128,554
Schwab California Long-Term Tax-Free Bond Fund 7,284,228 366,784 229,221
PROPOSAL 2H
TO APPROVE CHANGES TO RESTRICTIONS REGARDING OWNERSHIP OF SECURITIES.
Schwab Short/Intermediate Tax-Free Bond Fund 3,606,993 125,677 515,854
Schwab Long-Term Tax-Free Bond Fund 3,391,634 366,052 124,733
Schwab California Short/Intermediate Tax-Free Bond Fund 4,374,312 177,069 1,127,366
Schwab California Long-Term Tax-Free Bond Fund 7,367,548 284,471 228,214
PROPOSAL 2I
TO APPROVE CHANGES TO RESTRICTIONS REGARDING INDUSTRY CONCENTRATION.
Schwab Short/Intermediate Tax-Free Bond Fund 3,633,612 99,002 515,910
Schwab Long-Term Tax-Free Bond Fund 3,397,741 359,718 124,960
Schwab California Short/Intermediate Tax-Free Bond Fund 4,397,494 152,201 1,129,052
Schwab California Long-Term Tax-Free Bond Fund 7,350,596 289,029 240,608
PROPOSAL 2J
TO APPROVE CHANGES TO RESTRICTIONS REGARDING COMMODITIES, FUTURES, AND REAL
ESTATE.
Schwab Short/Intermediate Tax-Free Bond Fund 3,599,294 134,964 514,266
Schwab Long-Term Tax-Free Bond Fund 3,401,076 361,481 119,862
Schwab California Short/Intermediate Tax-Free Bond Fund 4,364,097 186,763 1,127,887
Schwab California Long-Term Tax-Free Bond Fund 7,321,972 327,834 230,427
PROPOSAL 2K
TO APPROVE CHANGES TO RESTRICTIONS REGARDING UNDERWRITING OF SECURITIES.
Schwab Short/Intermediate Tax-Free Bond Fund 3,637,166 96,723 514,635
Schwab Long-Term Tax-Free Bond Fund 3,404,685 358,071 119,662
Schwab California Short/Intermediate Tax-Free Bond Fund 4,342,417 207,790 1,128,540
Schwab California Long-Term Tax-Free Bond Fund 7,317,187 327,259 235,787
<FN>
1 Includes broker non-votes.
</FN>
</TABLE>
62
======
<PAGE> 67
<TABLE>
<CAPTION>
FOR AGAINST ABSTAINED 1
=========================================================================================================
PROPOSAL 2L
TO APPROVE CHANGES TO RESTRICTIONS REGARDING CONTROL OF AN ISSUER.
<S> <C> <C> <C>
Schwab Short/Intermediate Tax-Free Bond Fund 3,665,541 67,343 515,640
Schwab Long-Term Tax-Free Bond Fund 3,407,157 354,678 120,584
Schwab California Short/Intermediate Tax-Free Bond Fund 4,381,509 168,186 1,129,052
Schwab California Long-Term Tax-Free Bond Fund 7,333,693 310,908 235,632
PROPOSAL 2N
TO APPROVE CHANGES TO RESTRICTIONS REGARDING NON-DIVERSIFICATION.
Schwab Short/Intermediate Tax-Free Bond Fund 3,659,908 72,595 516,021
Schwab Long-Term Tax-Free Bond Fund 3,408,717 351,483 122,219
Schwab California Short/Intermediate Tax-Free Bond Fund 4,389,688 164,505 1,124,554
Schwab California Long-Term Tax-Free Bond Fund 7,326,481 318,596 235,156
TAX DESIGNATIONS (UNAUDITED)
Pursuant to Section 852(b)(5)(A) of the Internal Revenue Code, the funds hereby
designate 100% of the dividends paid from net investment income for the year
ended August 31, 2000 as exempt-interest dividends.
<FN>
1 Includes broker non-votes.
</FN>
</TABLE>
63
======
<PAGE> 68
HOW TO READ THIS REPORT
This report, including the financial tables, has been designed to be EASY TO
READ. The next few pages provide additional information that can help you more
fully understand the financial tables and why they are important to ALL FUND
INVESTORS.
In this section, we take a closer look at the types of information presented in
the financial tables.
Brief CALLOUTS add context to some of the most important elements in the tables,
and help explain certain fund operations and accounting principles.
At the end, a GLOSSARY defines many of the technical financial terms that are
used in this report.
[GRAPHIC OF SAMPLE OF FINANCIAL HIGHLIGHTS TABLE]
The financial highlights summarize a fund's activities over the past five years
(or since inception, if the fund doesn't yet have five years of operating
history).
The figures in the first part of the table are for a single share of a fund that
was "outstanding," or in existence, during the periods indicated.
These lines show how much the fund earned per share, and where these earnings
came from: how much was from interest and dividends, and how much from capital
appreciation (that is, price increases of investments the fund owned). A fund
may show losses in this section if its expenses exceeded its income or its
capital losses exceeded its capital gains.
Some funds, such as money funds, typically receive all their earnings as
interest, while some equity funds may have only appreciation, or may receive
interest and dividends only occasionally.
Total return shows what an investor in a fund would have earned or lost during
each period indicated, assuming that all dividends and distributions were
reinvested. Because the numbers in the financial highlights are for a fund's
fiscal year, they will be different from calendar year numbers, except for funds
whose fiscal year is the same as the calendar year.
64
<PAGE> 69
[GRAPHIC OF SAMPLE OF FINANCIAL HIGHLIGHTS TABLE]
Table is for illustration only.
In some cases, such as with funds that started partway through their planned
fiscal year or have changed their fiscal year, the financial highlights may
contain a "stub period" that is less than 12 months.
In financial tables, parentheses around numbers are used to indicate a negative
number, such as a loss, or a number that is being subtracted, such as a
distribution paid by a fund to its shareholders.
The figures in this part of the table disclose a fund's annual operating
expenses. The expenses are shown as a percentage of a fund's average net assets
because they are paid from these assets.
For some funds, the annual expenses are capped at a certain level. With these
funds, there are two sets of expense figures: net expenses and the amounts of
any expense reductions. The net figures reflect what the expenses actually were,
after the reductions.
This shows you how much a fund netted in dividend and interest income (i.e.,
total dividends and interest minus expenses), expressed as a percentage of the
fund's average net assets.
The turnover rate tells you how actively a fund has traded securities. A rate of
100% would be the equivalent of replacing every security in the portfolio over
the period of a year.
Consistently high turnover can result in taxable distributions, which can lower
after-tax performance -- although this is not a concern if your investment is
held in an IRA, 401(k) or other tax-deferred account.
65
<PAGE> 70
HOW TO READ THIS REPORT Continued
[GRAPHIC OF SAMPLE OF PORTFOLIO HOLDINGS TABLE]
Table is for illustration only.
The Portfolio Holdings (sometimes also called the Schedule of Investments) is a
snapshot of all securities a fund held on the last day of the report period.
Symbols that may appear in the Portfolio Holdings:
1 Top 10 holding -- shows a fund's 10 largest positions, as measured by market
value.
+ Credit-enhanced security -- indicates a security that is backed by the
credit of a third party (usually a large financial institution). An issuer
uses credit enhancement to give its securities a higher credit rating, which
means that the issuer can pay a lower interest rate. From a fund's
standpoint, credit enhancements can help lower the risk of default on those
securities that carry them and may also make a security more liquid.
> Delayed-delivery security -- indicates a security a fund has arranged to buy
but has not yet received. A fund may incur a gain or loss if the value of
the security rises or falls between the time the purchase was arranged and
the time the security is delivered.
- Certificate of participation -- indicates a security that offers
"participation" in municipal lease revenues. A certificate of participation
typically is associated with a facility that is leased to (and was built
for) a municipal entity, and is generally considered somewhat riskier than a
general obligation bond.
< Collateral for open futures contracts -- indicates security the fund has set
aside in a separate account to cover possible losses that may result from a
futures contract. The fund is not permitted to sell a security while it is
pledged as collateral.
With most types of bonds (and other debt obligations), the interest rate is set
at the time of issue and doesn't change. However, some types of obligations are
structured so that the rate may be reset at certain times, typically to reflect
changes in market interest rates. A fund may own some of both types of
securities.
This shows a breakdown of holdings by asset type. To the right of the pie chart
are figures showing the total market value of securities of each asset type, and
also what a fund paid for those securities.
66
<PAGE> 71
During its lifetime, a bond may trade at a premium or a discount to its face
value, depending on interest rate trends and other factors. When a bond begins
to approach maturity, its market value typically moves closer to its face value.
[GRAPHIC OF SAMPLE OF ASSET-BACKED SECURITIES/OTHER INVESTMENT COMPANIES TABLE]
Table is for illustration only.
For all bonds, the report shows the issuer, the rate the security pays and the
maturity date. The maturity date is the date when the bond is retired and the
issuer returns the money borrowed ("principal" or "face value") to the
bondholder.
In some cases, securities are organized into sub-groups. For each sub-group,
there are figures showing the percentage of investments represented and the
total market value of the securities in the subgroup. Note that for all dollar
values, you need to add three zeroes after each number to get the approximate
value.
Most equity and bond funds keep at least a small percentage of assets in high
quality, liquid investments, in order to manage their cash flow needs.
In this example, the investment shown is one that seeks to maintain a stable
$1.00 share price, so the number of shares is typically the same as the market
value (allowing for rounding in the value column).
67
<PAGE> 72
HOW TO READ THIS REPORT Continued
[GRAPHIC OF SAMPLE OF STATEMENT ASSETS AND LIABILITIES TABLE]
Table is for illustration only.
The Statement of Assets and Liabilities is a snapshot of a fund's balance sheet
on the last day of the report period.
As with the Portfolio Holdings, the figures in these statements need to be
multiplied by 1,000. This includes the figures in the notes.
At any given time, a fund is likely to be owed money from various sources that
it has not yet received, and to owe money it hasn't yet paid.
The collateral is simultaneously counted as an asset (because the fund held it
as of the report date) and as a liability (because it is owned by the
institutions that provided it as collateral).
This section gathers the totals from the first two sections in order to compute
net assets.
This section shows where the assets described above came from. "Capital received
from investors" is money a fund received from investors buying its shares during
the report period, and is a net figure (meaning that money the fund remitted to
investors who redeemed their shares has already been subtracted from it).
[GRAPHIC OF FEDERAL TAX DATA TABLE]
Table is for illustration only.
Although a mutual fund doesn't expect to pay federal income tax, it does have to
file a return with the IRS. In some cases, the requirements of tax accounting
differ from the requirements of the accounting practices used in keeping a
fund's books, so the figures in this box may differ from those shown elsewhere
in the financials. These differences may require that some values be
reclassified in the financials, but this does not affect a fund's NAV.
A fund may treat capital losses that are realized after October 31 of a given
year as occurring at the beginning of the following fiscal year. This can help
avoid certain unintentional tax consequences created by the required timing of
dividend payments relative to the fund's fiscal year end.
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[GRAPHIC OF SAMPLE OF STATEMENT OF OPERATIONS TABLE]
Table is for illustration only.
The Statement of Operations tells you how much money a fund earned and spent
over the course of the report period, and how much it gained and lost on its
investments.
These are the capital gains or losses resulting from securities a fund sold
during the report period.
These represent the change in unrealized gains or losses over the report
period.
Covers most activities related to managing a fund's portfolio.
Covers most activities associated with shareholders, including processing
transactions in fund shares and providing services such as account statements
and information.
To safeguard the interests of shareholders, mutual funds must keep their
portfolio securities in accounts at a financial institution, whose tasks include
maintaining records of a fund's holdings.
This section gathers the totals from the first four sections in order to compute
the net earnings or losses that resulted from a fund's operations during the
report period. These figures also appear, in summary form, on the Statement of
Changes in Net Assets.
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HOW TO READ THIS REPORT Continued
[GRAPHIC OF SAMPLE OF STATEMENTS OF CHANGES IN NET ASSETS TABLE]
Table is for illustration only.
The Statement of Changes in Net Assets compares a fund's performance during the
current report period with its performance from the previous report period.
Keep in mind that if the current report is a semiannual report, its figures are
only for six months, whereas the figures for the previous period are generally
for a full year.
These are the figures for the current report period.
These are the figures for the previous report period.
From this section, you can see how the size of a fund was affected by investors
buying and selling shares (as opposed to changes due to fund performance, shown
above in "Operations").
The information shows how many shares the fund sold to investors, how many
shares the fund issued in connection with investors who reinvested their
dividends or distributions, and how many shares the fund redeemed (bought back
from investors).
In funds with more than one share class, these figures are reported by
class.
For mutual funds, the number of "shares outstanding" is the number of shares in
existence.
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<PAGE> 75
GLOSSARY
ASSET ALLOCATION The practice of dividing a portfolio among different asset
classes, with each asset class assigned a particular percentage.
ALTERNATIVE MINIMUM TAX (AMT) A federal income tax designed to limit the extent
to which high-income taxpayers (including individuals, estates, trusts and
corporations) can benefit from certain deductions and exemptions. For example,
some types of income that are exempt from regular federal income tax are not
exempt from the AMT.
ASSET-BACKED SECURITY A bond or other debt security that represents ownership in
a pool of debt obligations such as credit card debt.
ASSET CLASS A group of securities with similar structure and basic
characteristics. Stocks, bonds and cash are the three main examples of asset
classes.
AVERAGE RATE The average rate of interest paid annually by the fixed income
securities in a fund or portfolio.
BOND A security representing a loan from the investor to the issuer. A bond
typically pays interest at a fixed rate (the "coupon rate") until a specified
date (the "maturity date"), at which time the issuer returns the money loaned
("principal" or "face value") to the bondholder. Because of their structure,
bonds are sometimes called "fixed income securities" or "debt securities."
CALL An early repayment of a bond's principal by the issuer, usually done
because the issuer is able to refinance its bond debt at a lower rate.
CALL PROTECTION A term used in reference to a bond that cannot be called by the
issuer before maturity, or at least for many years from the present date. A bond
that offers call protection can more reliably be expected to provide a given
yield over a given number of years than a bond that could be called (assuming
both bonds are of the same credit quality).
CAPITAL GAIN, CAPITAL LOSS The difference between the amount paid for an
investment and its value at a later time. If the investment has been sold, the
capital gain or loss is considered a realized gain or loss. If the investment is
still held, the gain or loss is still "on paper" and is considered unrealized.
COUPON, COUPON RATE The annual rate of interest paid until maturity by the
issuer of a fixed-rate debt security.
CREDIT QUALITY The capacity of an issuer to make its interest and principal
payments. See sidebar.
CREDIT RISK The risk that a bond issuer may be unable to pay interest or
principal to its bondholders.
DISCOUNT RATE The implied rate on a debt security that does not pay interest but
is bought at a discount and redeemed at face value when it matures.
CREDIT RATINGS
--------------------------------------------------------------------------------
Most major bond issuers arrange with a recognized independent rating
organization, such as Standard & Poor's (S&P) or Moody's Investors Service, to
rate the creditworthiness of their bonds. The spectrum of these ratings is
divided into two major categories: investment grade and below investment grade
(sometimes called "junk bonds"). Bonds rated below investment grade range from
those that are considered to have some vulnerability to default to those that
appear on the brink of default or are in default.
[GRAPHIC OF CREDIT RATINGS]
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<PAGE> 76
GLOSSARY Continued
DIVIDEND Money from earnings that is distributed to shareholders as a given
amount per share.
DURATION A measure of a bond investment's sensitivity to interest rates.
Calculations of duration take into account the investment's yield, interest
payments, maturity date and call features. Like maturity, duration is expressed
in years, but typically is more accurate than maturity in determining the effect
of interest rate movements on a bond investment's price.
EXPENSE RATIO The amount that is taken from a mutual fund's assets each year to
cover the fund's operating expenses. An expense ratio of 0.50% means that a
fund's expenses amount to half of one percent of its average net assets a year.
GENERAL OBLIGATION BOND A municipal bond that is secured by the issuer's full
faith and credit, which typically is backed by the power of the issuer to levy
taxes.
INTEREST Payments to bondholders (usually made twice a year) as compensation for
loaning the bond principal to the issuer.
INTEREST RATE RISK The risk that a bond's value will fluctuate if market
interest rates change or are expected to change. Bond prices tend to move in the
opposite direction of interest rates: when interest rates rise, bond prices tend
to fall.
MARKET RISK Those elements of risk that are common to all securities in an asset
class, and therefore cannot be significantly reduced by diversification within
the asset class. Also known as "systematic risk."
MATURITY The date a bond is scheduled to be "retired" and its principal amount
returned to the bondholder.
MORTGAGE-BACKED SECURITY A bond or other debt security that represents ownership
in a pool of mortgage loans.
MUNI, MUNICIPAL BOND, MUNICIPAL SECURITY A bond or other debt security that is
issued by a municipality, or is issued by a third party on behalf of a
municipality or under its aegis. Municipal bonds are issued to fund civic
projects, such as building or improving roads, bridges, schools and other
facilities. The interest paid by munis typically is free from regular federal
income tax; for taxpayers in a given state who buy bonds issued in their state,
the interest may also be free from state and local income taxes. Interest from
some munis is subject to the AMT.
NET ASSET VALUE (NAV) The value of one share of a mutual fund. NAV is calculated
by taking the fund's total assets, subtracting liabilities, and dividing by the
number of shares outstanding.
OUTSTANDING SHARES When speaking of a company or mutual fund, indicates all
shares currently held by investors.
PREPAYMENT RISK The risk that a mortgage-backed security may be paid off early,
typically because the interest rates have fallen and the homeowners who hold the
underlying mortgages have refinanced those mortgages at lower rates. In this
type of situation, the investor who held the mortgage-backed security will
usually have to settle for a lower rate when reinvesting the principal.
REVENUE BOND A municipal bond that is issued to finance public works and is
secured by revenue from a public works project (such as a highway or stadium)
rather than the full faith and credit of the issuer.
TAXABLE-EQUIVALENT YIELD The yield an investor would need to get from a taxable
investment in order to match the yield paid by a given tax-exempt investment,
once the effect of all applicable taxes is taken into account. For example, if
your tax rate were 25%, a tax-exempt investment paying 4.5% would have a
taxable-equivalent yield for you of 6.0% (6.0% - [.25 x 6%] = 4.5%).
TOTAL RETURN The overall performance of an investment over a given period,
including any expenses, any income or distributions paid out and any capital
gain or loss (increases or decreases in portfolio value).
WEIGHTED AVERAGE For mutual funds, an average that gives the same weight to each
security as the security represents in the fund's portfolio.
WEIGHTED AVERAGE MATURITY For mutual funds, the maturity of all the bonds in its
portfolio, calculated as a weighted average. As a rule, the longer a fund's
weighted average maturity, the greater its interest rate risk.
YIELD The income paid out by an investment, expressed as a percentage of the
investment's market value.
YIELD TO MATURITY The annualized rate of return a bondholder could expect if the
bond were held to maturity. In addition to interest payments, yield to maturity
also factors in any difference between a bond's current price and its principal
amount, or face value.
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NOTES
<PAGE> 78
NOTES
<PAGE> 79
CONTACT SCHWAB
The SchwabFunds Family includes a variety of funds to help meet your investment
needs. You can diversify your portfolio in a single step with our asset
allocation funds. Or you can customize your portfolio with a combination of our
stock funds as well as our taxable and tax-advantaged bond and money market
funds.
Please call 800-435-4000 for a free prospectus and brochure for any of these
SchwabFunds.
This report must be preceded or accompanied by a current prospectus.
METHODS FOR PLACING ORDERS
The information below outlines how Schwab brokerage account investors can place
orders. If you are investing through a third-party investment provider, methods
for placing orders may be different.
PHONE
Call 800-435-4000, day or night (for TDD service, call 800-345-2550).
INTERNET
www.schwab.com/schwabfunds
MAIL
Write to SchwabFunds at:
P. O. Box 7575
San Francisco, CA 94120-7575
When selling or exchanging shares, be sure to include the signatures of at least
one of the persons whose name is on the account.
IN PERSON
Visit the nearest Charles Schwab office.
THE SCHWABFUNDS FAMILY
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)
QUANTITATIVE/SECTOR FUNDS
Schwab Analytics Fund(R)
Schwab Focus Funds
Communications Focus Fund
Financial Services Focus Fund
Health Care Focus Fund
Technology Focus Fund
ASSET ALLOCATION FUNDS
Schwab MarketTrack Portfolios(TM)
All Equity Portfolio
Growth Portfolio
Balanced Portfolio
Conservative Portfolio
Schwab MarketManager Portfolios(TM)
Growth Portfolio
Balanced Portfolio
Small Cap Portfolio
International Portfolio
BOND FUNDS
Schwab Short-Term Bond Market Index Fund
Schwab Total Bond Market Index Fund
Schwab YieldPlus Fund(TM)
Schwab Short/Intermediate Tax-Free Bond Fund
Schwab Long-Term Tax-Free Bond Fund
Schwab California Short/Intermediate Tax-Free Bond Fund
Schwab California Long-Term Tax-Free Bond Fund
SCHWAB MONEY FUNDS
Schwab offers an array of money market funds that seek high current income
consistent with safety and liquidity. 1 Choose from taxable or tax-advantaged
alternatives. Many can be linked to your Schwab account to "sweep" cash balances
automatically when you're between investments. Or, for your larger cash
reserves, choose one of our Value Advantage Investments.
1 Investments in money market funds are neither insured nor guaranteed by the
Federal Deposit Insurance Corporation (FDIC) or any other government agency
and, although they seek to preserve the value of your investment at $1 per
share, it is possible to lose money.
<PAGE> 80
[CHARLES SCHWAB LOGO]
INVESTMENT ADVISER
Charles Schwab Investment Management, Inc.
101 Montgomery Street, San Francisco, CA 94104
DISTRIBUTOR
Charles Schwab & Co., Inc.
PO Box 7575, San Francisco, CA 94120 - 7575
This report is not authorized for distribution to prospective investors unless
preceded or accompanied by a current prospectus.
(C) 2000 Charles Schwab & Co., Inc. All rights reserved.
Member SIPC/NYSE.
Printed on recycled paper. MKT3656-2 (10/2000)
