<PAGE> 1
IMPORTANT NOTICE
REGARDING DELIVERY OF
SHAREHOLDER DOCUMENTS
SCHWAB
BOND INDEX FUNDS
August 31, 2000
Annual Report enclosed
SCHWAB SHORT-TERM BOND MARKET
INDEX FUND
SCHWAB TOTAL BOND MARKET INDEX FUND
[CHARLES SCHWAB LOGO]
<PAGE> 2
IMPORTANT NOTICE REGARDING DELIVERY OF SHAREHOLDER DOCUMENTS
The Securities and Exchange Commission permits mutual funds to deliver only one
copy of shareholder documents, including prospectuses and shareholder reports,
to fund investors with multiple accounts at the same residential or post office
box address. This practice is commonly called "householding" and is intended to
eliminate duplicate mailings of shareholder documents.
MAILING OF YOUR SCHWABFUNDS SHAREHOLDER DOCUMENTS MAY BE HOUSEHOLDED
INDEFINITELY UNLESS YOU INSTRUCT US OTHERWISE.
ADDITIONAL COPIES OF SHAREHOLDER DOCUMENTS
All SchwabFunds prospectuses and shareholder reports are available free of
charge and may be requested at any time by calling Schwab as indicated below.
SchwabFunds prospectuses are also available on our Web site at
www.schwab.com/schwabfunds.
If you would prefer that your SchwabFunds mailings not be householded, please
contact:
SCHWAB SIGNATURE SERVICES CLIENTS
Schwab Signature Services.
INVESTMENT MANAGER CLIENTS
Schwab at 1-800-515-2157, or your investment manager.
ALL OTHER CLIENTS
Schwab at 1-800-435-4000.
Your instructions that householding not apply to your accounts holding
SchwabFunds will be effective within 30 days of receipt by Schwab.
<PAGE> 3
SCHWAB
BOND INDEX FUNDS
AUGUST 31, 2000
Annual Report
SCHWAB SHORT-TERM BOND MARKET
INDEX FUND
SCHWAB TOTAL BOND MARKET INDEX FUND
[GRAPHIC IMAGE] [CHARLES SCHWAB LOGO]
<PAGE> 4
SCHWAB
BOND INDEX 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-Term Bond Market Index Fund
Key factors during the report period included rising short-term interest
rates and strong demand for bonds.
15 Schwab Total Bond Market Index Fund
Rates for long-term bonds fell, resulting in an inverted yield curve.
26 Financial Notes
30 Proxy Results
----------------------------------------------------------------------------
31 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.
[GRAPHIC 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. bond U.S. small-cap stocks
market
MSCI-EAFE(R) INDEX: measures
S&P 500(R) INDEX: measures U.S. large-cap stocks in Europe,
large-cap stocks Australasia and the Far East
<TABLE>
<CAPTION>
Lehman
Aggregate MSCI EAFE Russell 2000
Bond Index Index Index S&P 500 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.
-------------------------------------------
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 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.
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>
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
STOCKS STUMBLE, RECOVER; MOST BONDS POST HEALTHY RETURNS.
The spring of 2000 brought bad news to equity investors, particularly those with
holdings in tech and small cap stocks. In March and April, the price/earnings
ratio (P/E) for the NASDAQ 100 Index fell by one-third in just 14 trading days.
Even so, stocks as a whole remained highly valued by traditional measures -- the
P/E of the NASDAQ 100 never went below 99 -- and stocks of all sizes, both in
the U.S. and overseas, posted respectable gains for the report period.
Sources: Bloomberg L.P., Schwab.
[GRAPHIC OF COMPUTER CHIP]
--------------------------------------------
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 gave a boost to bond prices and to the
returns of most bond 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 use some of the
budget surplus to buy back its own bonds. This resulted in an inverted yield
curve (chart, page 4), a situation in which short-term bonds actually pay higher
yields than long-term bonds.
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>
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 Employment
Price Index Cost Index
12-Month 12-Month
Change Change
(Monthly) (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
LOOKING AHEAD: GROWTH MAY CONTINUE, BUT RATE MAY SLOW.
[GRAPHIC OF CAPITOL]
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 U.S. TREASURY BONDS
Effective yields of five-year and 10-year Treasuries
With its buyback program, the Treasury suddenly emerged as a major customer for
its own bonds, driving prices up (and yields down) on long-term Treasuries.
[YIELDS OF U.S. TREASURY BONDS LINE GRAPH]
<TABLE>
<CAPTION>
Five-Year 10-Year
Treasury Treasury
Bond Yield Bond Yield
<S> <C> <C>
8/31/90 0.0844 0.0885
9/30/90 0.0846 0.088
10/31/90 0.0822 0.0862
11/30/90 0.0799 0.0825
12/31/90 0.0768 0.0807
1/31/91 0.0761 0.0801
2/28/91 0.077 0.0803
3/31/91 0.0775 0.0806
4/30/91 0.0761 0.0801
5/31/91 0.0771 0.0806
6/28/91 0.0788 0.0823
7/31/91 0.0774 0.0815
8/30/91 0.0734 0.0782
9/30/91 0.0691 0.0745
10/31/91 0.0674 0.0746
11/29/91 0.0648 0.0738
12/31/91 0.0593 0.067
1/31/92 0.0643 0.0727
2/28/92 0.0656 0.0725
3/31/92 0.0692 0.0753
4/30/92 0.0688 0.0758
5/29/92 0.066 0.0732
6/30/92 0.0627 0.0712
7/31/92 0.0582 0.0671
8/31/92 0.0558 0.066
9/30/92 0.0532 0.0635
10/30/92 0.0589 0.0679
11/30/92 0.0622 0.0694
12/31/92 0.0599 0.0669
1/29/93 0.0555 0.0636
2/26/93 0.0521 0.0602
3/31/93 0.0524 0.0602
4/30/93 0.0511 0.0601
5/31/93 0.0537 0.0615
6/30/93 0.0505 0.0578
7/30/93 0.0515 0.0581
8/31/93 0.0479 0.0545
9/30/93 0.0477 0.0538
10/29/93 0.0485 0.0543
11/30/93 0.0516 0.0582
12/31/93 0.0521 0.0579
1/31/94 0.0502 0.0564
2/28/94 0.0557 0.0613
3/31/94 0.0623 0.0674
4/29/94 0.0664 0.0704
5/31/94 0.0676 0.0715
6/30/94 0.0695 0.0732
7/29/94 0.0673 0.0711
8/31/94 0.068 0.0717
9/30/94 0.0728 0.076
10/31/94 0.0749 0.0781
11/30/94 0.0779 0.0791
12/30/94 0.0783 0.0782
1/31/95 0.0751 0.0758
2/28/95 0.0704 0.072
3/31/95 0.0707 0.072
4/28/95 0.0688 0.0706
5/31/95 0.0605 0.0628
6/30/95 0.0597 0.062
7/31/95 0.0616 0.0643
8/31/95 0.0607 0.0628
9/29/95 0.0602 0.0618
10/31/95 0.0581 0.0602
11/30/95 0.0552 0.0574
12/29/95 0.0538 0.0557
1/31/96 0.0524 0.0558
2/29/96 0.0573 0.061
3/29/96 0.0609 0.0633
4/30/96 0.0641 0.0667
5/31/96 0.0663 0.0685
6/28/96 0.0646 0.0671
7/31/96 0.0657 0.0679
8/30/96 0.0673 0.0694
9/30/96 0.0646 0.067
10/31/96 0.0607 0.0634
11/29/96 0.0583 0.0604
12/31/96 0.0621 0.0642
1/31/97 0.0625 0.0649
2/28/97 0.0639 0.0655
3/31/97 0.0675 0.069
4/30/97 0.0657 0.0672
5/30/97 0.065 0.0666
6/30/97 0.0638 0.065
7/31/97 0.059 0.0601
8/29/97 0.0622 0.0634
9/30/97 0.0599 0.061
10/31/97 0.0571 0.0583
11/28/97 0.0584 0.0587
12/31/97 0.0571 0.0574
1/30/98 0.0538 0.0551
2/27/98 0.0559 0.0562
3/31/98 0.0562 0.0565
4/30/98 0.0564 0.0567
5/29/98 0.0555 0.0555
6/30/98 0.0547 0.0545
7/31/98 0.055 0.0549
8/31/98 0.048 0.0498
9/30/98 0.0422 0.0442
10/30/98 0.0423 0.0461
11/30/98 0.0448 0.0471
12/31/98 0.0454 0.0465
1/29/99 0.0455 0.0465
2/26/99 0.0522 0.0529
3/31/99 0.051 0.0524
4/30/99 0.0521 0.0535
5/31/99 0.0558 0.0562
6/30/99 0.0565 0.0578
7/30/99 0.0579 0.059
8/31/99 0.0587 0.0597
9/30/99 0.0575 0.0588
10/29/99 0.0595 0.0602
11/30/99 0.0611 0.0619
12/31/99 0.0634 0.0644
1/31/00 0.0668 0.0667
2/29/00 0.066 0.0641
3/31/00 0.0631 0.06
4/28/00 0.0654 0.0621
5/31/00 0.0652 0.0627
6/30/00 0.0618 0.0603
7/31/00 0.0615 0.0603
8/31/00 0.0597 0.0572
</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. Other factors being equal, low interest
rates are positive for stock investors because low borrowing costs can help
boost corporate earnings.
Source: Bloomberg L.P.
YIELD CURVE
Average yields of AAA securities of seven maturities.
The report period saw the yield curve become inverted, with short-term interest
rates higher than long-term interest rates -- the reverse of the normal
situation.
[YIELD CURVE LINE GRAPH]
<TABLE>
<CAPTION>
As of As of
Maturity 9/1/99 8/31/00
<S> <C> <C>
3 Month 0.0494 0.063
6 Month 0.0519 0.0637
1 Year 0.0528 0.0621
2 Year 0.0572 0.0615
5 Year 0.0586 0.0596
10 Year 0.0598 0.0572
30 Year 0.0608 0.0567
</TABLE>
This chart shows where yields stood at the beginning of the report period and at
the end of the period. For debt securities of comparable quality, those with
longer maturities typically pay higher interest rates, because they are assumed
to carry higher risk. An inverted yield curve generally means that investors
expect rates to fall.
Source: Bloomberg L.P.
4
<PAGE> 9
SCHWAB
SHORT-TERM BOND MARKET INDEX FUND
[PHOTO OF KIM DAIFOTIS]
"Performance was helped by the fund's variable-rate securities, whose yields
rose along with interest rates during the report period."
Portfolio Manager
Kim Daifotis
KIM DAIFOTIS, CFA, a vice president of the investment adviser, has overall
responsibility for management of the fund. Prior to joining the firm in
September 1997, he worked for more than 17 years in research and asset
management.
TICKER SYMBOL SWBDX
----------------------------------------
INTEREST RATE
SENSITIVITY 1
LOW MEDIUM HIGH
CREDIT QUALITY 1
HIGH [X] [ ] [ ]
MEDIUM [ ] [ ] [ ]
LOW [ ] [ ] [ ]
Investors who are seeking a diversified source of current income and want
potentially lower volatility and lower returns, compared to a long-term fund,
may want to consider this fund.
--------------------------------------------------------------------------------
THE FUND SEEKS CURRENT INCOME BY TRACKING THE PERFORMANCE OF THE LEHMAN BROTHERS
MUTUAL FUND SHORT (1 - 5 YEAR) U.S. GOVERNMENT/CREDIT INDEX.
MANAGER'S PERSPECTIVE
THE FUND PERFORMED WELL IN AN ENVIRONMENT OF RISING SHORT-TERM INTEREST RATES.
Although an increase in interest rates tends to cause bond prices to fall (and
the fund's share price as well), other factors worked to the fund's benefit. As
a result, the fund was able to post strong performance for the report period,
closely matching its index.
THREE FACTORS WORKED TO CREATE ABOVE-AVERAGE DEMAND FOR BONDS (particularly
Treasury obligations), which helped to boost prices at a time when normally they
would have declined. Until the end of 1999, concern over possible Y2K
disruptions had some investors seeking safety in Treasuries. The U.S. Treasury's
bond buyback program helped boost prices throughout the bond market, as did
volatility in the stock market in the spring of 2000.
VARIABLE-RATE SECURITIES ALLOWED THE FUND TO BENEFIT FROM THE RISING RATES. The
fund includes a certain amount of variable-rate securities. Unlike fixed-rate
bonds, these pay interest at a rate that "resets" periodically. Typically, in a
rising rate environment this not only means that these securities will increase
in yield, but also that they won't decline substantially in price -- factors
that helped fund performance this period.
1 Source: Morningstar, Inc. 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 3.5 years;
Medium, more than 3.5 years to less than six years; High, six years or greater.
Credit quality: High, AA or better; Medium, A or BBB; Low, BB or lower.
5
<PAGE> 10
SCHWAB SHORT-TERM BOND MARKET INDEX FUND
PERFORMANCE
AVERAGE ANNUAL TOTAL RETURNS as of 8/31/00
This chart compares performance of the fund with the Lehman Brothers Mutual Fund
Short (1 - 5 Year) U.S. Government/Credit Index, the fund's benchmark index 1
and the Morningstar Short-Term Bond Fund category. As of the end of the report
period, the fund's 30-day SEC yield was 6.65%. 2
[AVERAGE ANNUAL TOTAL RETURNS BAR CHART]
<TABLE>
<CAPTION>
{TRACKING DIFFERENTIAL
between fund and benchmark}
LEHMAN 1-5 PEER GROUP
FUND BENCHMARK 1 YEAR INDEX AVERAGE 3
<S> <C> <C> <C> <C>
Total Return 2
(0.00)
<>
1 Year 5.97% 5.97% 5.97% 5.83%
(0.31)
<>
5 Years 5.51% 5.82% 5.82% 5.38%
(0.20)
<>
Since Inception: 11/5/91 5.62% 5.82% 5.84% 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 two indices: the Lehman Brothers
Mutual Fund Short (1 - 5 Year) U.S. Government/Credit Index and the fund's
benchmark index. 1
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
Mutual Fund
Short (1-5)
Gov't/Corp.
Fund Bond Index Benchmark 1
<S> <C> <C> <C>
11/5/91 10000 10000 10000
11/30/91 10117 10097 10098
12/31/91 10381 10287 10251
1/31/92 10241 10243 10238
2/29/92 10240 10272 10269
3/31/92 10190 10251 10265
4/30/92 10282 10349 10359
5/31/92 10440 10477 10455
6/30/92 10595 10614 10560
7/31/92 10794 10778 10682
8/31/92 10898 10884 10768
9/30/92 11053 11012 10869
10/31/92 10924 10903 10807
11/30/92 10868 10868 10791
12/31/92 11012 10990 10892
1/31/93 11202 11164 11006
2/28/93 11355 11298 11093
3/31/93 11395 11339 11127
4/30/93 11499 11428 11195
5/31/93 11462 11394 11168
6/30/93 11622 11518 11251
7/31/93 11661 11541 11276
8/31/93 11823 11679 11369
9/30/93 11851 11718 11406
10/31/93 11892 11748 11431
11/30/93 11819 11725 11433
12/31/93 11873 11773 11478
1/31/94 11973 11873 11550
2/28/94 11780 11754 11480
3/31/94 11628 11637 11422
4/30/94 11527 11569 11378
5/31/94 11485 11582 11394
6/30/94 11500 11602 11422
7/31/94 11599 11732 11525
8/31/94 11628 11770 11563
9/30/94 11585 11708 11537
10/31/94 11593 11722 11563
11/30/94 11528 11662 11515
12/31/94 11540 11688 11538
1/31/95 11697 11867 11694
2/28/95 11852 12072 11854
3/31/95 11919 12141 11920
4/30/95 12018 12268 12027
5/31/95 12232 12553 12232
6/30/95 12281 12627 12298
7/31/95 12308 12657 12347
8/31/95 12396 12747 12421
9/30/95 12470 12820 12481
10/31/95 12572 12943 12585
11/30/95 12696 13080 12692
12/31/95 12799 13194 12788
1/31/96 12900 13315 12896
2/29/96 12817 13225 12846
3/31/96 12778 13184 12837
4/30/96 12776 13173 12849
5/31/96 12777 13182 12878
6/30/96 12878 13298 12972
7/31/96 12917 13346 13022
8/31/96 12940 13380 13069
9/30/96 13072 13528 13188
10/31/96 13235 13717 13337
11/30/96 13368 13849 13436
12/31/96 13311 13813 13438
1/31/97 13378 13877 13502
2/28/97 13397 13904 13535
3/31/97 13355 13860 13524
4/30/97 13477 13994 13635
5/31/97 13575 14097 13730
6/30/97 13680 14208 13824
7/31/97 13874 14418 13975
8/31/97 13841 14398 13989
9/30/97 13964 14532 14096
10/31/97 14091 14663 14201
11/30/97 14130 14691 14236
12/31/97 14228 14798 14332
1/31/98 14383 14969 14469
2/28/98 14358 14969 14482
3/31/98 14415 15022 14532
4/30/98 14479 15095 14604
5/31/98 14563 15188 14693
6/30/98 14643 15273 14775
7/31/98 14697 15337 14838
8/31/98 14898 15551 15046
9/30/98 15152 15842 15326
10/31/98 15204 15887 15369
11/30/98 15175 15874 15357
12/31/98 15214 15928 15409
1/31/99 15258 16008 15486
2/28/99 15116 15871 15354
3/31/99 15232 15990 15470
4/30/99 15247 16043 15521
5/31/99 15188 15979 15459
6/30/99 15219 16024 15502
7/31/99 15254 16040 15517
8/31/99 15289 16075 15551
9/30/99 15402 16204 15675
10/31/99 15427 16247 15717
11/30/99 15448 16275 15743
12/31/99 15448 16262 15731
1/31/00 15409 16230 15699
2/29/00 15530 16353 15818
3/31/00 15678 16474 15934
4/30/00 15673 16477 15938
5/31/00 15739 16527 15987
6/30/00 15950 16755 16207
7/31/00 16051 16874 16322
8/31/00 16202 17035 16477
</TABLE>
1 The fund changed its benchmark on 2/28/98, when it changed from being a
government bond fund to its current strategy. Benchmark performance shown here
is the Lehman Brothers Short (1 - 3 Year) U.S. Government Bond Index from fund
inception through 2/28/98 and the Lehman Brothers Mutual Fund Short (1 - 5
Year) U.S. Government/Credit Index from 3/1/98 through the end of the report
period. Benchmark performance for the 1 year period is the Lehman 1-5 Year
Index.
2 Fund yield and returns reflect expense reductions by the fund's investment
adviser (CSIM) and Schwab. Without these reductions, the fund's yield and
returns would have been lower.
3 Source: Morningstar, Inc. As of 8/31/00, there were 213 funds in the
Morningstar Short-Term 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 U.S. TREASURY NOTES 6.75% 05/15/05 12.2%
2 U.S. TREASURY NOTES 5.25% 05/15/04 6.1%
3 U.S. TREASURY NOTES 5.88% 11/15/04 4.3%
4 VODAFONE AIR TOUCH, PLC 6.96% 09/21/00 4.2%
5 U.S. TREASURY NOTES 6.38% 06/30/02 3.7%
6 U.S. TREASURY NOTES 5.38% 06/30/03 3.2%
7 U.S. TREASURY NOTES 5.75% 11/30/02 2.7%
8 U.S. TREASURY NOTES 5.50% 05/31/03 2.6%
9 ROYAL BANK OF SCOTLAND, PLC 8.82% 03/31/05 2.4%
10 ALCOA, INC. 7.25% 08/01/05 2.3%
--------------------------------------------------------------------------------
TOTAL 43.7%
</TABLE>
DIVIDENDS PAID in each fiscal year
[DIVIDENDS PAID BAR CHART]
<TABLE>
<CAPTION>
Year Income Dividends per Share
<S> <C>
1991 2 0.1
1992 0.6
1993 3 0.37
1994 0.54
1995 0.59
1996 0.59
1997 0.59
1998 0.57
1999 0.5
2000 0.57
</TABLE>
1 This list is not a recommendation of any security by the adviser.
2 Period from the fund's inception on 11/5/91 through 12/31/91.
3 For the eight-month period ended 8/31/93.
7
<PAGE> 12
SCHWAB SHORT-TERM BOND MARKET INDEX 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) 53.1% U.S. Government Securities
(2) 46.5% Corporate Bonds
(3) 0.4% Other Investment Companies
BY CREDIT QUALITY 1
--------------------------------------------------------------------------------
[BY CREDIT QUALITY PIE CHART]
(1) 57.7% AAA
(2) 3.5% AA
(3) 21.6% A
(4) 16.7% BBB
(5) 0.5% Unrated Securities
BY MATURITY
--------------------------------------------------------------------------------
[BY MATURITY PIE CHART]
(1) 19.1% 0-6 Months
(2) 33.6% 7-36 Months
(3) 44.1% 37-60 Months
(4) 3.2% More than 60 Months
FUND FACTS as of 8/31/00
<TABLE>
<CAPTION>
FUND INDEX 2
--------------------------------------------------------------------------------
<S> <C> <C>
Number of Issues 50 1,983
--------------------------------------------------------------------------------
Yield to Maturity 6.86% 6.69%
--------------------------------------------------------------------------------
Weighted Average Rate 6.64% 6.56%
--------------------------------------------------------------------------------
Weighted Average Maturity 3.1 yrs 2.8 yrs
--------------------------------------------------------------------------------
Weighted Average Duration 2.4 yrs 2.4 yrs
--------------------------------------------------------------------------------
Weighted Average Credit Quality AA AAA
--------------------------------------------------------------------------------
</TABLE>
EXPENSE RATIO as of 8/31/00
[EXPENSE RATIO BAR CHART]
<TABLE>
<S> <C>
FUND 0.35% 3
PEER GROUP AVERAGE 0.83% 4
</TABLE>
1 Based on ratings by Standard & Poor's and Moody's. Where ratings are
different, the chart uses the higher rating.
2 Source for Index data: The Lehman Brothers Mutual Fund Short (1 - 5 Year) U.S.
Government/Credit Index.
3 The actual expense ratio during the report period was 0.01% higher due to
certain non-routine expenses.
4 Source: Morningstar, Inc. As of 8/31/00, there were 221 funds in the
Morningstar Short-Term Bond Fund category.
8
<PAGE> 13
SCHWAB SHORT-TERM BOND MARKET INDEX 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 9.66 9.90 9.74 9.67 9.84
---------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.57 0.50 0.56 0.59 0.59
Net realized and unrealized gains or losses (0.01) (0.24) 0.17 0.07 (0.17)
---------------------------------------------------------------------------------------------------
Total income from investment operations 0.56 0.26 0.73 0.66 0.42
Less distributions:
Dividends from net investment income (0.57) (0.50) (0.57) (0.59) (0.59)
---------------------------------------------------------------------------------------------------
NET ASSET VALUE AT END OF PERIOD 9.65 9.66 9.90 9.74 9.67
---------------------------------------------------------------------------------------------------
Total return (%) 5.97 2.66 7.64 6.96 4.39
RATIOS/SUPPLEMENTAL DATA (%)
---------------------------------------------------------------------------------------------------
Ratio of net operating expenses to
average net assets 0.35 1 0.35 0.46 0.49 0.49
Expense reductions reflected in above ratio 0.32 0.42 0.39 0.33 0.31
Ratio of net investment income to
average net assets 5.91 5.11 5.58 6.02 6.03
Portfolio turnover rate 129 195 128 71 80
Net assets, end of period ($ x 1,000,000) 219 218 157 127 134
<FN>
1 Would have been 0.36% if certain non-routine expenses (proxy fees) had been
included.
</FN>
</TABLE>
SEE THE FINANCIAL NOTES, WHICH
ARE INTEGRAL TO THIS INFORMATION.
9
<PAGE> 14
SCHWAB SHORT-TERM BOND MARKET INDEX 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 symbol below to designate the top ten holdings; the number in the
circle is the security's rank among the top ten.
1 Top ten holding
For fixed-rate obligations, the rate shown is the coupon or discount rate (the
rate established when the obligation was issued) and the maturity date shown is
the legal stated maturity. 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
53.1% U.S. GOVERNMENT SECURITIES
Market Value: $114,757
Cost: $115,110
46.5% CORPORATE BONDS
Market Value: $100,481
Cost: $100,545
0.4% OTHER INVESTMENT COMPANIES
Market Value: $216,206
Cost: $968
100.0% TOTAL INVESTMENTS
Market Value: $216,206
Cost: $216,623
SECURITY FACE VALUE MKT. VALUE
RATE, MATURITY DATE ($ x 1,000) ($x1,000)
-------------------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES
53.1% of investments
-------------------------------------------------------------------------------
AGENCY OBLIGATIONS 10.0%
-------------------------------------------------------------------------------
FEDERAL HOME LOAN BANK
6.00%, 05/17/04 5,000 4,850
FEDERAL HOME LOAN MORTGAGE CORPORATION
6.88%, 01/15/05 5,000 5,021
FEDERAL NATIONAL MORTGAGE ASSOCIATION
6.25%, 11/15/02 5,000 4,954
5.94%, 03/29/04 5,000 4,863
5.88%, 04/23/04 2,000 1,935
---------
21,623
U.S. TREASURY OBLIGATIONS 43.1%
-------------------------------------------------------------------------------
U.S. TREASURY NOTES
6.38%, 04/30/02 2,000 2,004
6.63%, 05/31/02 2,000 2,014
5 6.38%, 06/30/02 8,000 8,022
6.25%, 07/31/02 2,000 2,002
5.88%, 09/30/02 3,000 2,982
7 5.75%, 11/30/02 5,900 5,848
5.50%, 02/28/03 5,000 4,928
5.50%, 03/31/03 1,000 985
8 5.50%, 05/31/03 5,800 5,713
6 5.38%, 06/30/03 7,000 6,869
5.75%, 08/15/03 3,000 2,973
2 5.25%, 05/15/04 13,500 13,146
3 5.88%, 11/15/04 9,300 9,248
1 6.75%, 05/15/05 25,600 26,400
---------
93,134
-------------------------------------------------------------------------------
CORPORATE BONDS 46.5% of investments
-------------------------------------------------------------------------------
<PAGE> 15
-------------------------------------------------------------------------------
FIXED-RATE OBLIGATIONS 32.6%
-------------------------------------------------------------------------------
AIG SUNAMERICA GLOBAL FINANCING I
7.40%, 05/05/03 5,000 5,055
10 ALCOA, INC.
7.25%, 08/01/05 5,000 5,077
BANK ONE CORP.
7.25%, 08/01/02 2,000 2,004
CIT GROUP, INC.
7.38%, 03/15/03 2,000 2,003
SEE THE FINANCIAL NOTES, WHICH
ARE INTEGRAL TO THIS INFORMATION.
10
<PAGE> 16
SECURITY FACE VALUE MKT. VALUE
RATE, MATURITY DATE ($ x 1,000) ($x1,000)
COLUMBIA GAS SYSTEMS
6.39%, 11/28/00 2,000 1,995
DIME BANCORP, INC.
6.38%, 01/30/01 2,500 2,486
DUPONT (E.I.) DE NEMOURS & CO.
6.75%, 10/15/04 4,000 3,978
FORD MOTOR CREDIT CO.
6.70%, 07/16/04 5,000 4,880
GENERAL ELECTRIC CAPITAL CORP.
6.65%, 09/03/02 5,000 4,975
GEORGIA PACIFIC CORP.
9.88%, 11/01/21 2,400 2,492
HERTZ CORP.
7.00%, 05/01/02 2,000 1,992
KOREA DEVELOPMENT BANK
7.13%, 09/29/00 1,000 1,000
PEPSI BOTTLING HOLDINGS, INC.
5.38%, 02/17/04 5,000 4,739
PETRO MEXICANOS
9.50%, 09/15/27 2,500 2,603
PHILLIPS PETROLEUM CO.
8.50%, 05/25/05 2,000 2,095
QUEBEC PROVINCE
7.50%, 07/15/02 2,000 2,015
9 ROYAL BANK OF SCOTLAND, PLC
8.82%, 03/31/05 5,000 5,191
SKANDINAVISKA ENSKILDA
6.63%, 03/12/01 750 745
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
6.25%, 11/15/00 5,000 4,981
6.75%, 11/15/05 2,000 1,868
TCI COMMUNICATIONS, INC.
8.65%, 09/15/04 3,500 3,662
U.S. WEST COMMUNICATIONS
7.63%, 06/09/03 2,000 2,015
UNITED MEXICAN STATES
8.50%, 02/01/06 2,500 2,514
---------
70,365
VARIABLE-RATE OBLIGATIONS 13.9%
-------------------------------------------------------------------------
HUGHES ELECTRONICS CORP.
7.99%, 10/23/00 5,000 5,005
INDIANA MICHIGAN POWER
7.31%, 12/04/00 2,000 1,999
KIMCO REALTY CORP.
7.34%, 11/17/00 5,000 4,991
KOREA DEVELOPMENT BANK
7.63%, 10/18/00 5,000 4,999
RAYONIER, INC.
7.12%, 11/24/00 2,000 2,000
TXU ELECTRIC CAPITAL IV
7.51%, 11/01/00 2,250 2,112
4 VODAFONE AIR TOUCH, PLC
6.96%, 09/21/00 9,000 9,010
---------
30,116
-------------------------------------------------------------------------------
OTHER INVESTMENT COMPANIES
0.4% of investments
-------------------------------------------------------------------------------
SECURITY AND NUMBER OF SHARES
PROVIDENT INSTITUTIONAL FUNDS --
FED FUNDS PORTFOLIO 967,875 968
-------------------------------------------------------------------------------
END OF PORTFOLIO HOLDINGS. FOR TOTALS, PLEASE SEE
THE FIRST PAGE OF HOLDINGS FOR THIS FUND.
SEE THE FINANCIAL NOTES, WHICH
ARE INTEGRAL TO THIS INFORMATION.
11
<PAGE> 17
SCHWAB SHORT-TERM BOND MARKET INDEX FUND -- FINANCIALS
Statement of
ASSETs AND LIABILITIES
As of August 31, 2000. All numbers x 1,000 except NAV.
ASSETS
-------------------------------------------------------------------------------
Investments, at market value $216,206 a
Collateral for securities on loan 70,139 b
Receivables:
Fund shares sold 105
Interest 3,573
Investments sold 16,612
Prepaid expenses + 19
------------
TOTAL ASSETS 306,654
LIABILITIES
-------------------------------------------------------------------------------
Collateral for securities on loan 70,139 b
Payables:
Fund shares redeemed 98
Dividends to shareholders 219
Investments bought 17,346
Investment adviser and administrator fees 9
Transfer agent and shareholder service fees 7
Accrued expenses + 37
------------
TOTAL LIABILITIES 87,855
NET ASSETS
-------------------------------------------------------------------------------
TOTAL ASSETS 306,654
TOTAL LIABILITIES - 87,855
------------
NET ASSETS $218,799
NET ASSETS BY SOURCE
Capital received from investors 231,745
Distributions in excess of net investment income (66)
Net realized capital losses (12,463)
Net unrealized capital losses (417)
NET ASSET VALUE (NAV)
SHARES
NET ASSETS (DIVIDE) OUTSTANDING = NAV
$218,799 22,663 $9.65
a. The fund's amortized cost for these securities was $216,623. Not counting
short-term obligations and government securities, the fund paid $62,042 for
securities during the report period, and received $37,820 from securities it
sold or that matured. For long-term government securities, the fund paid
$182,387 during the report period and received $227,348 for securities it
sold or that matured. This includes $1,464 in transactions with other
SchwabFunds.(REGISTRATION MARK)
b. Market value of securities loaned: $69,253.
FEDERAL TAX DATA
COST BASIS OF PORTFOLIO $216,827
NET UNREALIZED DEPRECIATION:
Appreciated securities $836
Depreciated securities - 1,457
------------
($621)
DEFERRED CAPITAL LOSSES $1,551
UNUSED CAPITAL LOSSES:
Expires 08/31 of: Loss amount
2003 $7,078
2004 2,216
2005 174
2008 + 1,241
------------
$10,709
SEE THE FINANCIAL NOTES, WHICH
ARE INTEGRAL TO THIS INFORMATION.
12
<PAGE> 18
<PAGE> 19
Statement of
OPERATIONS
For September 1, 1999 through August 31, 2000. All numbers x 1,000.
INVESTMENT INCOME
-------------------------------------------------------------------------------
Interest $13,675
Lending of securities 4
------------
TOTAL INVESTMENT INCOME 13,679
NET REALIZED LOSSES
-------------------------------------------------------------------------------
Net realized losses on investments sold (2,110)
NET UNREALIZED GAINS
-------------------------------------------------------------------------------
Net unrealized gains on investments 1,937
EXPENSES
-------------------------------------------------------------------------------
Investment adviser and administrator fees 705 a
Transfer agent and shareholder service fees 545 b
Trustees' fees 7 c
Custodian and portfolio accounting fees 105
Professional fees 25
Registration fees 25
Shareholder reports 44
Proxy fees 18
Other expenses + 13
------------
Total expenses 1,487
Expense reduction - 706 d
------------
NET EXPENSES 781
INCREASE IN NET ASSETS FROM OPERATIONS
-------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME 13,679
NET EXPENSES - 781
------------
NET INVESTMENT INCOME 12,898
NET REALIZED LOSSES (2,110) e
NET UNREALIZED GAINS + 1,937 e
------------
INCREASE IN NET ASSETS FROM OPERATIONS $12,725
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. Includes $705 from the investment adviser (CSIM) and $1 from the transfer
agent and shareholder service agent (Schwab). These reductions reflect a
guarantee by CSIM and Schwab to limit the operating expenses of this fund
through at least October 31, 2000, to 0.35% of average daily net assets. This
limit doesn't include interest, taxes and certain non-routine expenses.
e. These add up to a net loss on investments of $173.
SEE THE FINANCIAL NOTES, WHICH
ARE INTEGRAL TO THIS INFORMATION.
13
<PAGE> 20
SCHWAB SHORT-TERM BOND MARKET INDEX 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 $12,898 $9,474
Net realized losses (2,110) (680)
Net unrealized gains or losses + 1,937 (4,340)
------------------------------
INCREASE IN NET ASSETS FROM OPERATIONS 12,725 4,454
DISTRIBUTIONS PAID
-------------------------------------------------------------------------------
Dividends from net investment income 12,896 9,475
TRANSACTIONS IN FUND SHARES
-------------------------------------------------------------------------------
9/1/99-8/31/00 9/1/98-8/31/99
QUANTITY VALUE QUANTITY VALUE
Shares sold 8,302 $79,702 13,551 $133,291
Shares reinvested 1,058 10,143 728 7,152
Shares redeemed + (9,277) (88,925) (7,598) (74,793)
---------------------------------------------
NET INCREASE 83 $920 6,681 $65,650
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 22,580 $218,050 15,899 $157,421
Total increase + 83 749 6,681 60,629 a
---------------------------------------------
END OF PERIOD 22,663 $218,799 22,580 $218,050 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 $66 for the
current period and $68 for the prior period.
SEE THE FINANCIAL NOTES, WHICH
ARE INTEGRAL TO THIS INFORMATION.
14
<PAGE> 21
SCHWAB
TOTAL BOND MARKET INDEX FUND
[PHOTO OF KIM DAIFOTIS]
"Above-average demand for long-term bonds helped raise bond prices, lifting the
fund's total return."
Portfolio Manager
Kim Daifotis
KIM DAIFOTIS, CFA, a vice president of the investment adviser, has overall
responsibility for management of the fund. Prior to joining the firm in
September 1997, he worked for more than 17 years in research and asset
management.
TICKER SYMBOL SWLBX
----------------------------------------
INTEREST RATE
SENSITIVITY 1
LOW MEDIUM HIGH
CREDIT QUALITY 1
HIGH [ ] [X] [ ]
MEDIUM [ ] [ ] [ ]
LOW [ ] [ ] [ ]
This fund is designed for investors seeking to fill the fixed income component
of their asset allocation plan, and who can accept higher risk in exchange for
potentially higher long-term returns compared to a short-term fund.
------------------------------------------------------------------------------
THE FUND SEEKS CURRENT INCOME BY TRACKING THE PERFORMANCE OF THE LEHMAN BROTHERS
U.S. AGGREGATE BOND INDEX.
MANAGER'S PERSPECTIVE
THE FUND PERFORMED WELL IN AN ENVIRONMENT OF RISING SHORT-TERM INTEREST RATES.
Although an increase in interest rates tends to cause bond prices to fall (and
the fund's share price as well), long-term rates actually fell, resulting in the
inverted yield curve discussed in the overview. As a result, the fund was able
to post strong performance for the report period, trailing its index by less
than the amount that would be expected based on the fund's expense ratio.
THREE FACTORS WORKED TO CREATE ABOVE-AVERAGE DEMAND FOR BONDS (particularly
Treasury obligations), which helped to boost prices and lower yields for
long-term bonds. Until the end of 1999, concern over possible Y2K disruptions
had some investors seeking safety in Treasuries. The U.S. Treasury's bond
buyback program helped boost prices throughout the bond market, as did
volatility in the stock market in the spring of 2000.
1 Source: Morningstar, Inc. 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 3.5 years;
Medium, more than 3.5 years to less than six years; High, six years or greater.
Credit quality: High, AA or better; Medium, A or BBB; Low, BB or lower.
15
<PAGE> 22
SCHWAB TOTAL BOND MARKET INDEX FUND
PERFORMANCE
AVERAGE ANNUAL TOTAL RETURNS as of 8/31/00
This chart compares performance of the fund with the Lehman Brothers U.S.
Aggregate Bond Index, the fund's benchmark index 1 and the Morningstar
Intermediate-term Bond Fund category. As of the end of the report period, the
fund's 30-day SEC yield was 6.87%. 2
[AVERAGE ANNUAL TOTAL RETURNS BAR CHART]
<TABLE>
<CAPTION>
<>TRACKING DIFFERENTIAL
between fund and benchmark
LEHMAN U.S.
AGGREGATE PEER GROUP
FUND BENCHMARK 1 BOND INDEX AVERAGE 3
<S> <C> <C> <C> <C>
Total Return 2
(0.19)
<>
1 YEAR 7.36% 7.55% 7.55% 5.96%
(0.21)
<>
5 YEARS 6.25% 6.46% 6.41% 5.59%
(0.02)
<>
SINCE INCEPTION: 3/5/93 6.17% 6.19% 6.12% 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 two indices: the Lehman Brothers
U.S. Aggregate Bond Market Index and the fund's benchmark index. 1
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 U.S.
AGGREGATE
FUND BOND INDEX BENCHMARK
<S> <C> <C> <C>
3/5/93 10000 10000 10000
3/31/93 9784 9979 10000
4/30/93 9890 10048 10077
5/31/93 9927 10061 10066
6/30/93 10314 10244 10289
7/31/93 10441 10302 10352
8/31/93 10863 10482 10583
9/30/93 10901 10511 10623
10/31/93 10952 10550 10663
11/30/93 10688 10460 10546
12/31/93 10738 10517 10587
1/31/94 10938 10659 10732
2/28/94 10544 10474 10505
3/31/94 10220 10216 10269
4/30/94 10112 10134 10188
5/31/94 10060 10133 10175
6/30/94 10027 10110 10151
7/31/94 10239 10311 10338
8/31/94 10233 10324 10340
9/30/94 10050 10172 10194
10/31/94 10036 10163 10187
11/30/94 10031 10140 10168
12/31/94 10122 10210 10230
1/31/95 10347 10412 10420
2/28/95 10647 10660 10645
3/31/95 10718 10726 10711
4/30/95 10887 10875 10851
5/31/95 11429 11296 11289
6/30/95 11445 11379 11376
7/31/95 11348 11354 11334
8/31/95 11566 11491 11467
9/30/95 11711 11602 11577
10/31/95 11931 11753 11754
11/30/95 12173 11929 11937
12/31/95 12395 12096 12106
1/31/96 12438 12176 12180
2/29/96 12075 11964 11932
3/31/96 11934 11881 11833
4/30/96 11766 11814 11757
5/31/96 11722 11790 11737
6/30/96 11885 11948 11889
7/31/96 11890 11981 11918
8/31/96 11830 11960 11892
9/30/96 12112 12168 12089
10/31/96 12451 12439 12355
11/30/96 12763 12651 12570
12/31/96 12537 12534 12442
1/31/97 12533 12572 12455
2/28/97 12556 12604 12473
3/31/97 12353 12464 12340
4/30/97 12606 12651 12519
5/31/97 12732 12771 12627
6/30/97 12918 12923 12768
7/31/97 13363 13272 13131
8/31/97 13152 13159 13001
9/30/97 13397 13354 13196
10/31/97 13687 13548 13425
11/30/97 13700 13610 13493
12/31/97 13778 13747 13634
1/31/98 13977 13923 13838
2/28/98 13938 13912 13828
3/31/98 13964 13959 13876
4/30/98 14035 14032 13948
5/31/98 14166 14165 14080
6/30/98 14263 14286 14200
7/31/98 14306 14316 14230
8/31/98 14575 14549 14462
9/30/98 14930 14890 14800
10/31/98 14844 14811 14722
11/30/98 14866 14895 14805
12/31/98 14937 14940 14850
1/31/99 15061 15046 14956
2/28/99 14770 14783 14695
3/31/99 14870 14864 14776
4/30/99 14874 14911 14823
5/31/99 14703 14780 14693
6/30/99 14649 14733 14646
7/31/99 14614 14671 14584
8/31/99 14594 14664 14577
9/30/99 14790 14834 14746
10/31/99 14832 14889 14800
11/30/99 14841 14887 14799
12/31/99 14782 14816 14728
1/31/00 14719 14767 14680
2/29/00 14886 14945 14857
3/31/00 15112 15143 15053
4/30/00 15019 15099 15010
5/31/00 14962 15091 15003
6/30/00 15300 15405 15315
7/31/00 15435 15545 15454
8/31/00 15666 15771 15678
</TABLE>
1 The fund changed its benchmark on 2/28/98, when it changed from being a
government bond fund to its current strategy. Benchmark performance shown here
is the Lehman Brothers General U.S. Government Bond Index from fund inception
through 2/28/98 and the Lehman Brothers U.S. Aggregate Bond Index from 3/1/98
through the end of the report period. Benchmark performance for the 1 year
period is the Lehman U.S. Aggregate Bond Index.
2 Fund yield and returns reflect expense reductions by the fund's investment
adviser (CSIM) and Schwab. Without these reductions, the fund's yield and
returns would have been lower.
3 Source: Morningstar, Inc. As of 8/31/00, there were 551 funds in the
Morningstar Intermediate-Term Bond Fund category that had track records of at
least one year.
16
<PAGE> 23
Top 10 Holdings 1 as of 8/31/00
<TABLE>
<CAPTION>
PERCENTAGE OF
SECURITY RATE MATURITY DATE INVESTMENTS
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 FEDERAL NATIONAL MORTGAGE ASSOCIATION 6.50% 09/01/2030 4.9%
-------------------------------------------------------------------------------------------------
2 AIRPLANES PASS THROUGH TRUST Series 1R, Class A8 6.99% 09/15/2000 3.2%
-------------------------------------------------------------------------------------------------
3 FEDERAL NATIONAL MORTGAGE ASSOCIATION 7.00% 09/01/2030 2.6%
-------------------------------------------------------------------------------------------------
4 FEDERAL NATIONAL MORTGAGE ASSOCIATION 7.50% 09/01/2030 2.6%
-------------------------------------------------------------------------------------------------
5 ARROW ELECTRONICS, INC. 6.70% 09/13/2000 2.3%
-------------------------------------------------------------------------------------------------
6 FEDERAL NATIONAL MORTGAGE ASSOCIATION 8.00% 09/01/2030 2.1%
-------------------------------------------------------------------------------------------------
7 U.S. TREASURY NOTES 6.50% 03/31/2002 2.1%
-------------------------------------------------------------------------------------------------
8 COMCAST CORP. 6.70% 09/11/2000 2.1%
-------------------------------------------------------------------------------------------------
9 U.S. TREASURY NOTES 6.25% 07/31/2002 1.9%
-------------------------------------------------------------------------------------------------
10 HSBC CAPITAL FUNDING L.P. 9.55% 12/31/2010 1.9%
-------------------------------------------------------------------------------------------------
TOTAL 25.7%
</TABLE>
DIVIDENDS PAID in each fiscal year
[DIVIDENDS PAID BAR CHART]
<TABLE>
<CAPTION>
Year Income Dividends per Share
<S> <C>
1993 2 0.31
1994 0.6
1995 0.69
1996 0.65
1997 0.65
1998 0.6
1999 0.55
2000 0.61
</TABLE>
1 This list is not a recommendation of any security by the adviser.
2 Period from the fund's inception on 3/5/93 through 8/31/93.
17
<PAGE> 24
SCHWAB TOTAL BOND MARKET INDEX 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) 49.8% U.S. Government Securities
(2) 28.1% Corporate Bonds
(3) 14.4% Commercial Paper and Other Corporate Obligations
(4) 5.2% Asset-Backed Securities
(5) 1.4% Preferred Stock
(6) 1.1% Other Investment Companies
BY CREDIT QUALITY 1
--------------------------------------------------------------------------------
[BY CREDIT QUALITY PIE CHART]
(1) 53.0% AAA
(2) 6.5% AA
(3) 13.6% A
(4) 10.9% BBB
(5) 0.5% BB
(6) 14.4% Short-Term Ratings
(7) 1.1% Unrated Securities
BY MATURITY
--------------------------------------------------------------------------------
[BY MATURITY PIE CHART]
(1) 26.6% 0-1 Year
(2) 64.5% 2-10 Years
(3) 1.8% 11-20 Years
(4) 6.0% 21-30 Years
(5) 1.1% More than 30 Years
FUND FACTS as of 8/31/00
<TABLE>
<CAPTION>
FUND INDEX 2
--------------------------------------------------------------------------------
<S> <C> <C>
Number of Issues 103 6,013
--------------------------------------------------------------------------------
Yield to Maturity 7.37% 7.02%
--------------------------------------------------------------------------------
Weighted Average Rate 7.08% 6.87%
--------------------------------------------------------------------------------
Weighted Average Maturity 8.8 yrs 8.8 yrs
--------------------------------------------------------------------------------
Weighted Average Duration 4.9 yrs 4.9 yrs
--------------------------------------------------------------------------------
Weighted Average Credit Quality AA AAA
--------------------------------------------------------------------------------
</TABLE>
EXPENSE RATIO as of 8/31/00
[EXPENSE RATIO BAR CHART]
<TABLE>
<S> <C> <C>
FUND 0.35% 3
PEER GROUP AVERAGE 0.97% 4
</TABLE>
1 Based on ratings by Standard & Poor's and Moody's. Where ratings are
different, the chart uses the higher rating.
2 Source for Index data: The Lehman Brothers U.S. Aggregate Bond Index.
3 The actual expense ratio during the report period was 0.01% higher due to
certain non-routine expenses.
4 Source: Morningstar, Inc. As of 8/31/00, there were 561 funds in the
Morningstar Intermediate-Term Bond Fund category
18
<PAGE> 25
SCHWAB TOTAL BOND MARKET INDEX 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.
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
-------------------------------------------------------------------------------------------------
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 9.58 10.18 9.75 9.38 9.80
-------------------------------------------------
Income from investment operations:
Net investment income 0.61 0.55 0.60 0.65 0.65
Net realized and unrealized gains or losses 0.07 (0.53) 0.43 0.37 (0.42)
-------------------------------------------------
Total income from investment operations 0.68 0.02 1.03 1.02 0.23
Less distributions:
Dividends from net investment income (0.61) (0.55) (0.60) (0.65) (0.65)
Distributions from net realized gains -- (0.07) -- -- --
-------------------------------------------------
Total distributions (0.61) (0.62) (0.60) (0.65) (0.65)
-------------------------------------------------
NET ASSET VALUE AT END OF PERIOD 9.65 9.58 10.18 9.75 9.38
-------------------------------------------------
Total return (%)
7.36 0.14 10.83 11.18 2.29
RATIOS/SUPPLEMENTAL DATA (%)
-------------------------------------------------------------------------------------------------
Ratio of net operating expenses to
average net assets 0.35 1 0.35 0.31 0.20 --
Expense reductions reflected in above ratio 0.27 0.39 0.51 0.98 1.17
Ratio of net investment income to
average net assets 6.42 5.55 5.86 6.74 6.67
Portfolio turnover rate 135 174 285 51 66
Net assets, end of period ($ x 1,000,000) 647 480 294 25 23
<FN>
1 Would have been 0.36% if non-routine expenses (proxy fees) had been
included.
</FN>
</TABLE>
SEE THE FINANCIAL NOTES, WHICH
ARE INTEGRAL TO THIS INFORMATION.
19
<PAGE> 26
SCHWAB TOTAL BOND MARKET INDEX 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
[caret] Delayed-delivery security
For fixed-rate obligations, the rate shown is the coupon or discount rate (the
rate established when the obligation was issued) and the maturity date shown is
the stated legal maturity. 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
49.8% U.S GOVERNMENT SECURITIES
Market Value: $424,043
Cost: $423,388
28.1% CORPORATE BONDS
Market Value: $239,436
Cost: $238,471
5.2% ASSET-BACKED OBLIGATIONS
Market Value: $44,205
Cost: $44,226
14.4% COMMERCIAL PAPER & OTHER
CORPORATE OBLIGATIONS
Market Value: $122,225
Cost: $122,225
1.4% PREFERRED STOCK
Market Value: $12,054
Cost: $12,506
1.1% OTHER INVESTMENT COMPANIES
Market Value: $9,766
Cost: $9,766
--------------------------------------
100.0% TOTAL INVESTMENTS
Market Value: $851,729
Cost: $850,582
SECURITY FACE VALUE MKT. VALUE
RATE, MATURITY DATE ($ x 1,000) ($x1,000)
------------------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES
49.8% of investments
------------------------------------------------------------------------------
U.S. TREASURY OBLIGATIONS 20.5%
------------------------------------------------------------------------------
U.S. TREASURY BONDS
5.25%, 02/15/29 14,065 12,966
6.13%, 08/15/29 14,250 14,932
U.S. TREASURY NOTES
6.38%, 01/31/02 9,000 9,011
6.50%, 02/28/02 10,500 10,536
7 6.50%, 03/31/02 18,100 18,162
6.63%, 05/31/02 6,000 6,041
6.38%, 06/30/02 12,000 12,034
9 6.25%, 07/31/02 16,450 16,471
6.13%, 08/31/02 5,000 4,997
5.75%, 11/30/02 6,250 6,196
5.50%, 02/28/03 8,000 7,885
5.38%, 06/30/03 5,700 5,593
5.25%, 08/15/03 10,850 10,609
4.25%, 11/15/03 4,500 4,262
<PAGE> 27
5.88%, 11/15/04 2,000 1,989
6.75%, 05/15/05 10,500 10,828
5.63%, 05/15/08 3,000 2,942
4.75%, 11/15/08 4,250 3,930
6.50%, 02/15/10 9,850 10,284
5.75%, 08/15/10 5,000 5,006
---------
174,674
AGENCY OBLIGATIONS 4.6%
-------------------------------------------------------------------------------
FEDERAL HOME LOAN MORTGAGE CORPORATION
5.25%, 02/16/01 5,000 4,966
6.88%, 01/15/05 5,000 5,021
6.63%, 09/15/09 10,000 9,820
FEDERAL NATIONAL MORTGAGE ASSOCIATION
5.75%, 04/15/03 5,000 4,888
5.63%, 02/20/04 10,000 9,675
5.88%, 04/23/04 5,000 4,838
---------
39,208
MORTGAGE-BACKED OBLIGATIONS 24.7%
-------------------------------------------------------------------------------
[caret] FEDERAL NATIONAL MORTGAGE ASSOCIATION
5.50%, 09/01/15 4,000 3,746
6.00%, 09/01/15 8,000 7,650
6.50%, 09/01/15 13,000 12,671
7.00%, 09/01/15 8,000 7,915
SEE THE FINANCIAL NOTES, WHICH
ARE INTEGRAL TO THIS INFORMATION.
20
<PAGE> 28
SECURITY FACE VALUE MKT. VALUE
RATE, MATURITY DATE ($ x 1,000) ($x1,000)
7.50%, 09/01/15 6,000 6,021
6.00%, 09/01/30 13,000 12,086
1 6.50%, 09/01/30 44,000 42,034
3 7.00%, 09/01/30 23,000 22,432
4 7.50%, 09/01/30 22,000 21,856
6 8.00%, 09/01/30 18,000 18,169
8.50%, 09/01/30 3,000 3,059
[caret] GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
6.00%, 09/01/30 2,000 1,871
6.50%, 09/01/30 7,000 6,726
7.00%, 09/01/30 16,000 15,715
7.50%, 09/01/30 14,000 14,004
8.00%, 09/01/30 14,000 14,206
---------
210,161
-------------------------------------------------------------------------------
CORPORATE BONDS 28.1% of investments
-------------------------------------------------------------------------------
FIXED-RATE OBLIGATIONS 23.1%
-------------------------------------------------------------------------------
ALCOA INC.
7.38%, 08/01/10 5,000 5,076
AXA FINANCIAL INC.
7.75%, 08/01/10 4,000 4,050
BANK OF TOKYO-MITSUBISHI, LTD.
8.40%, 04/15/10 5,000 5,122
CSC HOLDINGS, INC.
8.13%, 07/15/09 4,000 3,964
DELL COMPUTER CORP.
6.55%, 04/15/08 5,000 4,726
DIME BANCORP, INC.
6.38%, 01/30/01 9,000 8,951
DOW CHEMICAL CO.
7.38%, 11/01/29 3,000 2,941
DRESDNER FUNDING TRUST I
8.15%, 06/30/31 5,000 4,504
DUPONT (E.I.) DE NEMOURS
6.88%, 10/15/09 4,000 3,924
FIDELITY INVESTMENTS
7.57%, 06/15/29 10,000 9,719
FORD MOTOR CREDIT
6.70%, 07/16/04 7,000 6,832
GENERAL ELECTRIC CAPITAL CORP.
7.50%, 06/05/03 10,000 10,144
GTE CORP.
6.94%, 04/15/28 5,000 4,483
10 HSBC CAPITAL FUNDING L.P.
9.55%, 12/31/10 15,000 15,888
HVB FUNDING TRUST III
9.00%, 10/22/31 5,000 4,910
MERRILL LYNCH & CO., INC.
6.00%, 02/17/09 5,000 4,552
NEWCOURT CREDIT GROUP
7.13%, 12/17/03 4,900 4,862
NORDBANKEN
8.95%, 11/12/09 5,000 5,065
PEPSI BOTTLING HOLDINGS, INC.
5.63%, 02/17/09 7,000 6,251
PETROLEOS MEXICANOS
9.50%, 03/15/06 5,000 5,206
PHILLIPS PETROLEUM CO.
8.75%, 05/25/10 5,000 5,402
QWEST COMMUNICATIONS INTERNATIONAL
SERIES B
7.50%, 11/01/08 5,000 4,912
ROYAL BANK OF SCOTLAND PLC
9.12%, 03/31/10 15,000 15,841
SHAW COMMUNICATIONS, INC.
8.25%, 04/11/10 11,000 11,286
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
6.75%, 11/15/05 2,000 1,868
7.38%, 11/15/15 3,400 3,048
TEXAS UTILITIES ELECTRIC CAPITAL TRUST
PREFERRED V
8.18%, 01/30/37 5,000 5,191
UNITED MEXICAN STATES
9.88%, 02/01/10 10,000 10,775
VIACOM INC.
7.70%, 07/30/10 7,000 7,127
WELLS FARGO BANK, NA
7.80%, 06/15/10 10,000 10,144
---------
<PAGE> 29
196,764
SEE THE FINANCIAL NOTES, WHICH
ARE INTEGRAL TO THIS INFORMATION.
21
<PAGE> 30
SCHWAB TOTAL BOND MARKET INDEX FUND -- FINANCIALS
-------------------------------------------------------------------------------
Portfolio Holdings Continued
As of August 31, 2000.
SECURITY FACE VALUE MKT. VALUE
RATE, MATURITY DATE ($ x 1,000) ($x1,000)
VARIABLE-RATE OBLIGATIONS 5.0%
-------------------------------------------------------------------------------
CASE CREDIT CORP.
6.90%, 11/01/00 10,000 9,933
ERP OPERATING L.P.
7.34%, 11/21/00 5,000 5,006
HUGHES ELECTRONICS CORP.
7.99%, 10/23/00 10,000 10,010
INDIANA MICHIGAN POWER
7.31%, 12/04/00 4,500 4,498
LEHMAN BROTHERS HOLDINGS, INC.
7.17%, 09/05/00 5,000 4,998
7.53%, 10/16/00 3,200 3,227
RAYONIER INC.
6.99%, 11/24/00 5,000 5,000
---------
42,672
-------------------------------------------------------------------------------
ASSET-BACKED OBLIGATIONS
5.2% of investments
-------------------------------------------------------------------------------
+ ADVANTA MORTGAGE LOAN TRUST
SERIES 1998-1 A-7
6.83%, 09/25/00 2,122 2,118
2 AIRPLANES PASS THROUGH TRUST
SERIES 1R, CLASS A8
6.99%, 09/15/00 27,000 26,995
MBNA MASTER CREDIT CARD TRUST II
SERIES 2000-C, CLASS A
6.78%, 09/15/00 10,000 10,012
PROVIDENT BANK HOME EQUITY LOAN TRUST
SERIES 1997-2 CLASS A5
6.85%, 09/25/00 3,703 3,699
+ SOUTHERN PACIFIC SECURED ASSET CORP.
SERIES 1998 A-1
6.82%, 09/25/00 1,393 1,381
---------
44,205
-------------------------------------------------------------------------------
COMMERCIAL PAPER & OTHER CORPORATE OBLIGATIONS 14.4% of investments
-------------------------------------------------------------------------------
5 ARROW ELECTRONICS, INC.
6.70%, 09/13/00 20,000 19,955
8 COMCAST CORP.
6.70%, 09/11/00 18,000 17,966
INFINITY BROADCASTING CO.
6.65%, 09/01/00 4,500 4,500
6.72%, 09/08/00 14,500 14,481
INTERNATIONAL PAPER CO.
6.70%, 09/05/00 8,000 7,994
6.77%, 09/08/00 10,000 9,987
PPL CAPITAL FUNDING, INC.
6.72%, 09/01/00 5,500 5,500
6.90%, 09/01/00 1,000 1,000
6.72%, 09/06/00 4,500 4,496
6.75%, 09/08/00 6,993 6,984
QWEST COMMUNICATIONS INTERNATIONAL
6.71%, 09/07/00 7,100 7,092
SPRINT CAPITAL CORP.
6.70%, 09/07/00 12,000 11,987
TEXAS UTILITIES CO.
6.70%, 09/20/00 2,200 2,192
TYCO INTERNATIONAL
6.70%, 09/01/00 1,900 1,900
6.72%, 09/06/00 1,100 1,099
6.77%, 09/06/00 3,900 3,896
6.70%, 09/20/00 1,200 1,196
---------
122,225
-------------------------------------------------------------------------------
PREFERRED STOCK 1.4% of investments
-------------------------------------------------------------------------------
SECURITY AND NUMBER OF SHARES
CENTAUR FUNDING CORP. 144A 12,000 12,054
-------------------------------------------------------------------------------
OTHER INVESTMENT COMPANIES
<PAGE> 31
1.1% of investments
-------------------------------------------------------------------------------
SECURITY AND NUMBER OF SHARES
PROVIDENT INSTITUTIONAL FUNDS --
FED FUNDS PORTFOLIO 9,765,549 9,766
-------------------------------------------------------------------------------
END OF PORTFOLIO HOLDINGS. FOR TOTALS, PLEASE SEE THE FIRST PAGE OF
HOLDINGS FOR THIS FUND.
SEE THE FINANCIAL NOTES, WHICH
ARE INTEGRAL TO THIS INFORMATION.
22
<PAGE> 32
Statement of
ASSETs AND LIABILITIES
As of August 31, 2000. All numbers x 1,000 except NAV.
ASSETS
-------------------------------------------------------------------------------
Investments, at market value $851,729 a
Collateral for securities on loan 147,955 b
Receivables:
Fund shares sold 1,325
Interest 7,296
Investments sold 8,534
Prepaid expenses + 35
------------
TOTAL ASSETS 1,016,874
LIABILITIES
-------------------------------------------------------------------------------
Collateral for securities on loan 147,955 b
Payables:
Fund shares redeemed 409
Dividends to shareholders 683
Owed to counterparties 481 c
Investments bought 220,684
Investment adviser and administrator fees 56
Transfer agent and shareholder service fees 22
Accrued expenses + 49
------------
TOTAL LIABILITIES 370,339
NET ASSETS
-------------------------------------------------------------------------------
TOTAL ASSETS 1,016,874
TOTAL LIABILITIES - 370,339
------------
NET ASSETS $646,535
NET ASSETS BY SOURCE
Capital received from investors 662,185
Distributions in excess of net investment income (108)
Net realized capital losses (16,210)
Net unrealized capital gains 668 d
NET ASSET VALUE (NAV)
SHARES
NET ASSETS (DIVIDE) OUTSTANDING = NAV
$646,535 67,005 $9.65
a. The fund's amortized cost for these securities was $850,582. Not counting
short-term obligations and government securities, the fund paid $418,146 for
securities during the report period, and received $186,798 from securities it
sold or that matured. For long-term government securities, the fund paid
$468,737 during the report period and received $510,146 for securities it
sold or that matured. This includes $11,103 in transactions with other
SchwabFunds.(REGISTRATION MARK)
b. Market value of securities loaned: $146,250.
c. As of the report date, the fund held a swap agreement with Lehman Brothers
Special Finance, expiring on 9/1/00. The unrealized depreciation was $479.
Under the agreement, the fund swapped the one-month LIBOR rate for the
mortgage component of the Lehman Brothers U.S. Aggregate Bond Index, based on
a notional amount of $25,000.
d. These derive from investments and swap agreements. As of the report date, the
fund had an open swap agreement, as described above.
FEDERAL TAX DATA
-------------------------------------------
COST BASIS OF PORTFOLIO $852,865
NET UNREALIZED DEPRECIATION:
Appreciated securities $4,269
Depreciated securities - 5,884
------------
($1,615)
DEFERRED CAPITAL LOSSES $6,327
UNUSED CAPITAL LOSSES:
Expires 08/31 of: Loss amount
2008 $7,600
SEE THE FINANCIAL NOTES, WHICH
ARE INTEGRAL TO THIS INFORMATION.
<PAGE> 33
23
<PAGE> 34
SCHWAB TOTAL BOND MARKET INDEX FUND -- FINANCIALS
-------------------------------------------------------------------------------
Statement of
OPERATIONS
For September 1, 1999 through August 31, 2000. All numbers x 1,000.
INVESTMENT INCOME
-------------------------------------------------------------------------------
Interest $38,046
Lending of securities + 12
------------
TOTAL INVESTMENT INCOME 38,058
NET REALIZED LOSSES
-------------------------------------------------------------------------------
Net realized losses on investments sold (4,832)
Net realized losses on swap agreements + (1,092)
------------
NET REALIZED LOSSES (5,924)
NET UNREALIZED GAINS
-------------------------------------------------------------------------------
Net unrealized gains on investments 10,121
Net unrealized gains on swap agreements + 870
------------
NET UNREALIZED GAINS 10,991
EXPENSES
-------------------------------------------------------------------------------
Investment adviser and administrator fees 1,746 a
Transfer agent and shareholder service fees 1,404 b
Trustees' fees 8 c
Custodian and portfolio accounting fees 193
Professional fees 24
Registration fees 66
Shareholder reports 34
Proxy fees 42
Other expenses + 15
------------
Total expenses 3,532
Expense reduction - 1,525 d
------------
NET EXPENSES 2,007
INCREASE IN NET ASSETS FROM OPERATIONS
-------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME 38,058
NET EXPENSES - 2,007
------------
NET INVESTMENT INCOME 36,051
NET REALIZED LOSSES (5,924) e
NET UNREALIZED GAINS + 10,991 e
------------
INCREASE IN NET ASSETS FROM OPERATIONS $41,118
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 0.35% 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 $5,067.
SEE THE FINANCIAL NOTES, WHICH
ARE INTEGRAL TO THIS INFORMATION.
24
<PAGE> 35
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 $36,051 $ 21,311
Net realized losses (5,924) (9,470)
Net unrealized gains or losses + 10,991 (14,129)
-----------------------------------------
INCREASE OR DECREASE IN NET ASSETS
FROM OPERATIONS 41,118 (2,288)
DISTRIBUTIONS PAID
-------------------------------------------------------------------------------
Dividends from net investment income 36,076 21,326
Distributions from net realized gains+ -- 2,225
-----------------------------------------
TOTAL DISTRIBUTIONS PAID 36,076 23,551
TRANSACTIONS IN FUND SHARES
-------------------------------------------------------------------------------
9/1/99-8/31/00 9/1/98-8/31/99
QUANTITY VALUE QUANTITY VALUE
Shares sold 28,519 $272,107 30,255 $ 302,668
Shares reinvested 3,469 33,062 2,160 21,544
Shares redeemed + (15,074) (143,615) (11,218) (112,454)
---------------------------------------------
NET INCREASE 16,914 $161,554 21,197 $211,758
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 50,091 $479,939 28,894 $294,020
Total increase + 16,914 166,596 21,197 185,919 A
---------------------------------------------
END OF PERIOD 67,005 $646,535 50,091 $479,939 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 $108 for the
current period and $83 for the prior period. Percent of fund shares owned by
other SchwabFunds (REGISTRATION MARK) as of the end of the current period:
SCHWAB MARKETTRACK PORTFOLIOS (TRADE MARK)
Growth Portfolio 13.3%
Balanced Portfolio 27.1%
Conservative Portfolio 16.8%
SCHWAB ANNUITY PORTFOLIOS
Growth Portfolio II 0.5%
SEE THE FINANCIAL NOTES, WHICH
ARE INTEGRAL TO THIS INFORMATION.
25
<PAGE> 36
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 ENTER INTO SWAP AGREEMENTS. In these transactions, a fund and a
counterparty agree to swap payments that are based on two different rates. The
counterparty is typically a large financial institution, and the term of the
swap is specified in advance. For example, a fund may agree that for six months
it will pay the counterparty the equivalent of the interest on a given amount
invested at LIBOR (the London Interbank Offered Rate). In exchange, the
counterparty might agree to pay a fund the equivalent of the same amount
invested in a certain bond index during this same six months.
Swap agreements carry certain risks. Because the net gains or losses stemming
from a swap agreement depend on the movements of one rate relative to another, a
fund could experience unanticipated losses if one or both rates failed to behave
as expected. A fund also could lose money if a counterparty failed to honor the
terms of a swap agreement.
26
<PAGE> 37
THE FUNDS MAY LOAN SECURITIES TO CERTAIN BROKERS, DEALERS AND OTHER FINANCIAL
INSTITUTIONS WHO PAY THE FUNDS NEGOTIATED FEES. The funds receive cash, letters
of credit or U.S. Government securities as collateral on these loans. The value
of the collateral must be at least 102% of the market value of the loaned
securities as of the first day of the loan, and at least 100% each day
thereafter.
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 SCHWAB TOTAL BOND MARKET INDEX FUND MAY ENTER INTO MORTGAGE DOLLAR ROLL
TRANSACTIONS. In these transactions, the fund sells mortgage-backed securities
for delivery in the current month and simultaneously agrees to buy back, on a
given date in the future, securities of a similar type, coupon rate and
maturity.
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. 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. For instance,
a fund may let other SchwabFunds(REGISTRATION MARK) buy and sell fund shares,
particularly Schwab MarketTrack Portfolios(TRADE MARK).
The funds may make direct transactions with certain other SchwabFunds 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.
27
<PAGE> 38
FINANCIAL NOTES
-------------------------------------------------------------------------------
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.
SWAP AGREEMENTS: each open contract is valued at a formula that varies with
the specific terms of the agreement.
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 DISCOUNTS 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.
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.
28
<PAGE> 39
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF:
Schwab Short-Term Bond Market Index Fund
Schwab Total Bond Market Index 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-Term Bond Market Index Fund and
Schwab Total Bond Market Index Fund (two 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 and brokers, provide a reasonable basis for
our opinion.
PRICEWATERHOUSECOOPERS LLP
San Francisco, CA
October 2, 2000
29
<PAGE> 40
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.
FOR WITHHELD
-------------------------------------------------------------------------------
PROPOSAL 1
ELECTION OF TRUSTEES
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>
<CAPTION>
FOR AGAINST ABSTAINED 1
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PROPOSAL 2d
TO APPROVE CHANGES TO RESTRICTIONS REGARDING DIVERSIFICATION.
Schwab Short-Term Bond Market Index Fund 12,076,627 215,556 293,611
Schwab Total Bond Market Index Fund 43,012,207 266,284 222,033
PROPOSAL 2l
TO APPROVE CHANGES TO RESTRICTIONS REGARDING CONTROL OF AN ISSUER.
Schwab Short-Term Bond Market Index Fund 12,083,817 202,207 299,770
Schwab Total Bond Market Index Fund 43,019,456 253,513 227,555
<FN>
1 Includes broker non-votes.
</FN>
</TABLE>
30
<PAGE> 41
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.
31
<PAGE> 42
HOW TO READ THIS REPORT Continued
[GRAPHIC OF SAMPLE OF FINANCIAL HIGHLIGHTS TABLE]
The financial highlights summarize the 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 the 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 the 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.
32
<PAGE> 43
[GRAPHIC OF SAMPLE OF FINANCIAL HIGHLIGHTS TABLE CONTINUED]
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.
33
<PAGE> 44
HOW TO READ THIS REPORT Continued
[GRAPHIC OF SAMPLE OF PORTFOLIO HOLDINGS PAGE]
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.
34
<PAGE> 45
[GRAPHIC SAMPLE OF END OF PORTFOLIO HOLDINGS TABLE]
Table is for illustration only
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.
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).
35
<PAGE> 46
HOW TO READ THIS REPORT Continued
[GRAPHIC OF SAMPLE OF 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.
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.
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).
As with the Portfolio Holdings, the figures in these statements need to be
multiplied by 1,000. This includes the figures in the notes.
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).
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.
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.
[GRAPHIC OF SAMPLE OF FEDERAL TAX DATA TABLE]
Table is for illustration only.
36
<PAGE> 47
[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.
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.
Covers most activities associated with shareholders, including processing
transactions in fund shares and providing services such as account statements
and information.
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.
37
<PAGE> 48
HOW TO READ THIS REPORT Continued
[GRAPHIC OF SAMPLE OF STATEMENT 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.
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.
These are the figures for the current report period.
These are the figures for the previous report period.
For mutual funds, the number of "shares outstanding" is the number of shares in
existence.
38
<PAGE> 49
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]
39
<PAGE> 50
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.
40
<PAGE> 51
NOTES
<PAGE> 52
NOTES
<PAGE> 53
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> 54
[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. MKT3655-2 (10/2000)
