<PAGE>
SCHWAB FUNDS-REGISTERED TRADEMARK-
SCHWAB
YIELDPLUS FUND-TM-
SEMIANNUAL REPORT
AND
AN IMPORTANT NOTICE REGARDING
DELIVERY OF SHAREHOLDER
DOCUMENTS
Semiannual Report
February 29, 2000
<PAGE>
IMPORTANT NOTICE REGARDING DELIVERY OF SHAREHOLDER DOCUMENTS
The Securities and Exchange Commission has adopted a rule permitting 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.
As permitted by the rule, Schwab may begin indefinitely householding
prospectuses and shareholder reports for SchwabFunds.-Registered Trademark-
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.
If you would otherwise fall under our householding policy, but for any reason
prefer to receive multiple SchwabFunds prospectuses and shareholder reports,
please contact:
- - SCHWAB SIGNATURE SERVICES-TM- CLIENTS: Schwab Signature Services.
- - INVESTMENT MANAGER CLIENTS: Schwab at 800-515-2157, or your investment
manager.
- - ALL OTHER CLIENTS: Schwab at 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>
SCHWAB FUNDS-REGISTERED TRADEMARK-
SCHWAB
YIELDPLUS FUND-TM-
Semiannual Report
February 29, 2000
<PAGE>
SCHWAB YIELD PLUS FUND-TM-
We're pleased to bring you this report for the Schwab YieldPlus Fund for the
five-month period ended February 29, 2000.
During the reporting period, the fund attempted to provide a high level of
current income, consistent with the preservation of capital. In addition to
performance and portfolio information, this report contains information
regarding dividends paid by the fund since inception.
The SCHWAB YIELDPLUS FUND invests in fixed income securities, primarily general
corporate, collateralized mortgage obligations and asset-backed bonds. Under
normal market conditions, the fund seeks to maintain an average effective
maturity of one year or less.
CONTENTS
<TABLE>
<S> <C>
- ---------------------------------------------
A Message from the Chairman 1
- ---------------------------------------------
What Every Bond Fund Investor Should
Know 2
- ---------------------------------------------
Market Overview 4
- ---------------------------------------------
Schwab YieldPlus - Investor Shares
Fund Performance 8
Schwab YieldPlus - Select
Shares-Registered Trademark-
Fund Performance 10
Schwab YieldPlus Portfolio Snapshot 12
- ---------------------------------------------
Dividends Paid 14
- ---------------------------------------------
The Portfolio Management Team 15
- ---------------------------------------------
Fund Discussion 16
- ---------------------------------------------
Glossary 17
- ---------------------------------------------
Financial Statements and Notes 20
- ---------------------------------------------
</TABLE>
<PAGE>
A MESSAGE FROM THE CHAIRMAN
[PHOTO]
Dear Shareholder,
As we begin a new year, I'd like to take this opportunity to reflect on last
year's milestones at Charles Schwab Investment Management, Inc. (CSIM), the
investment adviser for the SchwabFunds-Registered Trademark- Family.
First of all, SchwabFunds-Registered Trademark- assets topped the $100 billion
mark in September. SchwabFunds continues to be among the largest and fastest
growing fund families in the nation, with the support of investors like you.
Secondly, in addition to launching the Schwab YieldPlus Fund-TM- in 1999, we
launched another new fund:
- - SCHWAB TOTAL STOCK MARKET INDEX FUND-TM- seeks to track the total return of
the entire U.S. stock market, as measured by the Wilshire 5000 Total Market
Index, the broadest measure of U.S. stock market performance. In one single,
low-cost investment, fund investors can benefit from exposure to U.S companies
of all types and sizes.
For more information on either of these funds, please call 800-435-4000 and
request a free prospectus. The prospectus contains more information on fund fees
and expenses. Please read it carefully before investing.
I encourage you to take a moment to read this semiannual report as it is
designed to provide timely information about your SchwabFunds investments. You
will find information on each fund's total returns and performance, as well as
commentary on market conditions provided by the portfolio management team. In
the section "What Every Bond Fund Investor Should Know", we've also provided
guidelines that can help you reach your goals by establishing--or
maintaining--an ongoing investment program.
As a leader in online brokerage, we recognize the value of the web as a means of
communicating timely, relevant information to investors. Regular updates on all
of the SchwabFunds, including performance data, are available on our Web site at
WWW.SCHWAB.COM/SCHWABFUNDS. We encourage you to take advantage of this valuable
resource which can help you keep track of your funds' performance.
I'd like to make all of you aware that March 3, 2000 was designated as the
record date for a proxy and shareholders' meeting for the entire SchwabFunds
complex. Every SchwabFund has at least one proposal up for a vote. No matter how
many shares you own, your vote is important. Your prompt response will help
reduce proxy costs -- which are paid by the funds and their shareholders. Voting
by internet or phone lowers proxy costs even further. If you have questions
about the proxy, would like help in voting, or if you did not receive the proxy
materials, please call the funds' proxy solicitor, D.F. King & Co., at
800-431-9633.
At Schwab our philosophy has always been that a combination of regular investing
and diversification is the best strategy over the long term. By investing in
SchwabFunds, you've already taken an important step in building a portfolio that
can help you meet your future goals. Thank you for your investment in
SchwabFunds.
Sincerely,
/s/ Charles R. Schwab
Charles R. Schwab
February 29, 2000
1
<PAGE>
WHAT EVERY BOND FUND INVESTOR SHOULD KNOW
WHY ASSET ALLOCATION MATTERS
As most investors know, one of the most compelling reasons to invest in a mutual
fund is diversification. By allocating your assets across many different
securities, a mutual fund helps reduce the risk that you might otherwise
encounter by owning just a few individual stocks or bonds.
Don't forget, however, that diversification across your portfolio is just as
important as diversification within the mutual funds you own. The Schwab
YieldPlus Fund-TM- is designed to fit into the cash portion of your asset
allocation plan. It's intended for longer term (one year minimum) cash needs. As
part of an asset allocation plan, this fund can be a good complement to both the
short-term cash portion and the overall bond portion of your plan. Just remember
that the NAV (share price) will vary, unlike a money market fund.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Stock 60.0%
Bond 25.0%
YeildPlus (Long Term Cash) 7.5%
Short Term Cash 7.5%
</TABLE>
THE ROLE OF BONDS IN A BALANCED PORTFOLIO
Maintaining the right mix of asset classes--stocks, bonds and cash--in your
portfolio is a smart strategy for every investor. In fact, asset allocation is
one of the most important factors in determining overall portfolio performance.
Over time, a portfolio composed of stocks and bonds can provide competitive
returns compared with an all-stock portfolio, but with less risk for you. And
over the long term, bond funds typically pay a higher return than even the
highest-yielding cash reserves, although with increased risk. Of course, past
performance is no guarantee of future results.
WHY BOND FUNDS?
Investing in bond funds can provide several advantages over investing in
individual bonds:
DIVERSIFICATION: Bond funds can invest across a broad segment of the bond market
and can provide automatic diversification within one asset class.
PROFESSIONAL MANAGEMENT: Bond funds are managed by investment professionals who
know and understand the intricacies of the bond market and its operations.
SIMPLICITY: Bond funds can be a good choice for investors who lack the time or
expertise to actively manage a bond portfolio.
LOW MINIMUM INITIAL INVESTMENT: At Schwab you can invest in a bond fund with
just $2,500.
CONVENIENCE: SchwabFunds-Registered Trademark- bond fund investors can make
purchases and redemptions at any time without transaction fees and without
having to wait until an individual bond matures.*
FLEXIBILITY: Dividends and/or capital gains can be reinvested or paid in cash.
LOW COSTS: By trading in large (institutional) blocks, funds can get much better
execution, which can lower trading costs and increase total returns.
*The Schwab YieldPlus Fund has a redemption fee of 0.25% on shares sold within
90 days of purchase.
2
<PAGE>
TAX CONSIDERATIONS
If you're in a high tax bracket, investing in tax-free or municipal bond funds
may help take a bite out of your tax bill. And, if you live in a state with a
high personal state income tax or other personal tax, you may be better served
by choosing a double tax-free fund that provides income free from federal, state
and, in some cases, local income taxes.*
SCHWAB BOND FUNDS
Schwab offers a variety of bond funds, summarized below. When evaluating a bond
fund for potential investment, you should consider your attitude toward risk and
return, as well as your income tax bracket.
TAXABLE BOND FUNDS
SCHWAB YIELDPLUS FUND-TM- seeks high current income with minimal changes in
share price and its overall portfolio is managed to maintain an average
effective maturity of one year or less.
SCHWAB SHORT-TERM BOND MARKET INDEX FUND seeks to track the Lehman Brothers
Short Mutual Fund (1-5 Year) Government/Corporate Bond Index. This index
represents the performance of U.S. government, U.S. corporate bonds and dollar
denominated foreign issues that have average maturities between one and five
years.
SCHWAB TOTAL BOND MARKET INDEX FUND seeks to track the Lehman Brothers Aggregate
Bond Index. This index is a broad-based index covering investment-grade bonds
with maturities greater than one year.
TAX-FREE BOND FUNDS
SCHWAB SHORT/INTERMEDIATE TAX-FREE BOND FUND invests primarily in municipal
bonds with dollar-weighted average maturities of two to five years. Its share
price will generally be less volatile than that of longer-term bond funds but
will generally provide lower returns.
- ---------------------------------------------
*Some investors may be subject to the alternative minimum tax (AMT); consult
your tax advisor.
- ------------------------------------------------------------
SCHWAB LONG-TERM TAX-FREE BOND FUND invests primarily in municipal bonds with
dollar-weighted average maturities of 10 years or more. It is designed to
provide higher tax-free income than is usually available with shorter-term
funds; however, its net asset value may be more volatile than that of
shorter-term bond funds.
SCHWAB CALIFORNIA SHORT/INTERMEDIATE TAX-FREE BOND FUND invests primarily in
California municipal bonds with dollar-weighted average maturities of two to
five years. Its share price will generally be less volatile than that of longer-
term bond funds but will generally provide lower returns.
SCHWAB CALIFORNIA LONG-TERM TAX-FREE BOND FUND
invests primarily in California municipal bonds with dollar-weighted average
maturities of 10 years or longer. It is designed to provide higher tax-free
income than is available with shorter-term funds; however, its net asset value
may be more volatile than that of shorter-term bond funds.
If you would like more information on any of these funds, please visit us at
WWW.SCHWAB.COM/SCHWABFUNDS or call us toll free at 800-435-4000 and request a
free prospectus, which contains more information, including fees and expenses.
Please be sure to read the prospectus before investing.
WE MAKE IT EASY TO INVEST
We try to make it easy and convenient for you to invest in
SchwabFunds-Registered Trademark-. Our automated methods allow you to invest or
transfer money to your Schwab account on a regular basis; you can invest through
our Web site at WWW.SCHWAB.COM/SCHWABFUNDS; through our automated touch-tone
telephone service, TeleBroker,-Registered Trademark- by calling 800-272-4922; or
you can also visit us in person at any of our nationwide branches.
KEEPING YOU INFORMED
One of our top priorities at Charles Schwab is to keep you informed about your
investments and potential opportunities in the marketplace. For a wealth of
information about our investment philosophy and funds, as well as about the
market and economic environment, visit our Web site:
WWW.SCHWAB.COM/SCHWABFUNDS.
3
<PAGE>
MARKET OVERVIEW
U.S. ECONOMIC GROWTH
February 2000 marked the 107th month of the current expansion, making it the
longest in U.S. history. Annualized GDP growth accelerated from 2.8% during the
first half of 1999 to 6.5% in the second half, averaging 4.2% for the year--the
fourth consecutive year at 4% or more. This rate is considered by most
economists and the Federal Reserve (Fed) to be in excess of what the economy can
absorb without experiencing inflationary pressures. High levels of consumer
spending and business capital investment, as well as rising real wages,
productivity, and strong gains in stock prices have been the principal factors
continuing this lengthy expansion.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
REAL GROSS DOMESTIC PRODUCT
QUARTERLY PERCENTAGE CHANGE (ANNUALIZED RATE)
<S> <C>
Q1 1990 5.00%
Q2 1990 1.00%
Q3 1990 -0.60%
Q4 1990 -3.00%
Q1 1991 -1.70%
Q2 1991 2.60%
Q3 1991 1.30%
Q4 1991 2.50%
Q1 1992 4.30%
Q2 1992 4.00%
Q3 1992 3.10%
Q4 1992 5.20%
Q1 1993 -0.70%
Q2 1993 2.10%
Q3 1993 1.50%
Q4 1993 6.00%
Q1 1994 3.60%
Q2 1994 5.70%
Q3 1994 2.20%
Q4 1994 5.10%
Q1 1995 1.50%
Q2 1995 0.80%
Q3 1995 3.20%
Q4 1995 3.30%
Q1 1996 2.90%
Q2 1996 6.90%
Q3 1996 2.20%
Q4 1996 4.90%
Q1 1997 4.90%
Q2 1997 5.10%
Q3 1997 4.00%
Q4 1997 3.10%
Q1 1998 6.70%
Q2 1998 2.10%
Q3 1998 3.80%
Q4 1998 5.90%
Q1 1999 3.70%
Q2 1999 1.90%
Q3 1999 5.70%
Q4 1999 7.30%
Source: BLOOMBERG L.P.
</TABLE>
The Commerce Department, after revising the GDP benchmark data for the past four
decades, has reported stronger growth, higher personal savings and lower
inflation than was previously calculated for the 1990s.
Looking ahead, the availability of increasingly scarce labor resources and the
behavior of domestic consumers in response to continued stock market volatility
may be key determinants of whether the economy continues on its current course
or softens throughout 2000. The consensus of most economists is that the U.S.
economy appears poised for continued strong growth and additional intervention
by the Fed (increases in the federal funds rate) until the growth rate of the
economy slows to a more sustainable level.
UNEMPLOYMENT
The unemployment rate dropped to 4.0% in January, a 29-year low, before inching
back up to 4.1% in February. Labor markets continue to be extremely tight in
many areas of the country and there has been some regional evidence of labor
shortages driving up wages. Growth in the labor force has slowed, and the Fed
has expressed its concern that a continuation of strong demand and tight labor
markets may put pressure on manufacturers and service providers to raise prices.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
U.S. UNEMPLOYMENT RATE
SOURCE: BLOOMBERG L.P.
<S> <C>
1/90 5.40%
2/90 5.30%
3/90 5.20%
4/90 5.40%
5/90 5.40%
6/90 5.20%
7/90 5.50%
8/90 5.70%
9/90 5.90%
10/90 5.90%
11/90 6.20%
12/90 6.30%
1/91 6.40%
2/91 6.60%
3/91 6.80%
4/91 6.70%
5/91 6.90%
6/91 6.90%
7/91 6.80%
8/91 6.90%
9/91 6.90%
10/91 7.00%
11/91 7.00%
12/91 7.30%
1/92 7.30%
2/92 7.40%
3/92 7.40%
4/92 7.40%
5/92 7.60%
6/92 7.80%
7/92 7.70%
8/92 7.60%
9/92 7.60%
10/92 7.30%
11/92 7.40%
12/92 7.40%
1/93 7.30%
2/93 7.10%
3/93 7.00%
4/93 7.10%
5/93 7.10%
6/93 7.00%
7/93 6.90%
8/93 6.80%
9/93 6.70%
10/93 6.80%
11/93 6.60%
12/93 6.50%
1/94 6.80%
2/94 6.60%
3/94 6.50%
4/94 6.40%
5/94 6.10%
6/94 6.10%
7/94 6.30%
8/94 6.00%
9/94 5.80%
10/94 5.80%
11/94 5.60%
12/94 5.50%
1/95 5.60%
2/95 5.40%
3/95 5.30%
4/95 5.80%
5/95 5.80%
6/95 5.60%
7/95 5.60%
8/95 5.70%
9/95 5.60%
10/95 5.50%
11/95 5.70%
12/95 5.60%
1/96 5.60%
2/96 5.50%
3/96 5.60%
4/96 5.50%
5/96 5.60%
6/96 5.30%
7/96 5.50%
8/96 5.10%
9/96 5.20%
10/96 5.20%
11/96 5.30%
12/96 5.40%
1/97 5.30%
2/97 5.30%
3/97 5.10%
4/97 5.00%
5/97 4.70%
6/97 5.00%
7/97 4.70%
8/97 4.90%
9/97 4.70%
10/97 4.70%
11/97 4.60%
12/97 4.70%
1/98 4.50%
2/98 4.60%
3/98 4.60%
4/98 4.30%
5/98 4.30%
6/98 4.50%
7/98 4.50%
8/98 4.50%
9/98 4.50%
10/98 4.50%
11/98 4.40%
12/98 4.30%
1/99 4.30%
2/99 4.40%
3/99 4.20%
4/99 4.30%
5/99 4.20%
6/99 4.30%
7/99 4.30%
8/99 4.20%
9/99 4.20%
10/99 4.10%
11/99 4.10%
12/99 4.10%
1/00 4.00%
2/00 4.10%
</TABLE>
4
<PAGE>
INFLATION
Price inflation continued to remain well contained, but trending upward. The CPI
rose 3.2% for the year ended February 29, 2000. Its core rate (which excludes
the more volatile food and energy components) rose just 2.1%. The Personal
Consumption Expenditures Index, a measure of inflation closely watched by the
Fed, rose 2.0% for the same period. The GDP price deflator, the broadest measure
of inflation, indicated prices rising at an annual rate of 1.4% for 1999.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
MEASURES OF INFLATION
SOURCE: BLOOMBERG L.P.
QUARTERLY EMPLOYMENT MONTHLY CONSUMER
COST INDEX PRICE INDEX
<S> <C> <C>
1/90 5.5% 5.2%
2/90 5.5% 5.3%
3/90 5.5% 5.2%
4/90 5.4% 4.7%
5/90 5.4% 4.4%
6/90 5.4% 4.7%
7/90 5.2% 4.8%
8/90 5.2% 5.6%
9/90 5.2% 6.2%
10/90 4.9% 6.3%
11/90 4.9% 6.3%
12/90 4.9% 6.1%
1/91 4.6% 5.7%
2/91 4.6% 5.3%
3/91 4.6% 4.9%
4/91 4.6% 4.9%
5/91 4.6% 5.0%
6/91 4.6% 4.7%
7/91 4.3% 4.4%
8/91 4.3% 3.8%
9/91 4.3% 3.4%
10/91 4.3% 2.9%
11/91 4.3% 3.0%
12/91 4.3% 3.1%
1/92 4.0% 2.6%
2/92 4.0% 2.8%
3/92 4.0% 3.2%
4/92 3.6% 3.2%
5/92 3.6% 3.0%
6/92 3.6% 3.1%
7/92 3.5% 3.2%
8/92 3.5% 3.1%
9/92 3.5% 3.0%
10/92 3.5% 3.2%
11/92 3.5% 3.0%
12/92 3.5% 2.9%
1/93 3.5% 3.3%
2/93 3.5% 3.2%
3/93 3.5% 3.1%
4/93 3.6% 3.2%
5/93 3.6% 3.2%
6/93 3.6% 3.0%
7/93 3.6% 2.8%
8/93 3.6% 2.8%
9/93 3.6% 2.7%
10/93 3.5% 2.8%
11/93 3.5% 2.7%
12/93 3.5% 2.7%
1/94 3.2% 2.5%
2/94 3.2% 2.5%
3/94 3.2% 2.5%
4/94 3.2% 2.4%
5/94 3.2% 2.3%
6/94 3.2% 2.5%
7/94 3.2% 2.8%
8/94 3.2% 2.9%
9/94 3.2% 3.0%
10/94 3.0% 2.6%
11/94 3.0% 2.7%
12/94 3.0% 2.7%
1/95 2.9% 2.8%
2/95 2.9% 2.9%
3/95 2.9% 2.9%
4/95 2.9% 3.1%
5/95 2.9% 3.2%
6/95 2.9% 3.0%
7/95 2.7% 2.8%
8/95 2.7% 2.6%
9/95 2.7% 2.5%
10/95 2.7% 2.8%
11/95 2.7% 2.6%
12/95 2.7% 2.5%
1/96 2.8% 2.7%
2/96 2.8% 2.7%
3/96 2.8% 2.8%
4/96 2.9% 2.9%
5/96 2.9% 2.9%
6/96 2.9% 2.8%
7/96 2.8% 3.0%
8/96 2.8% 2.9%
9/96 2.8% 3.0%
10/96 2.9% 3.0%
11/96 2.9% 3.3%
12/96 2.9% 3.3%
1/97 2.9% 3.0%
2/97 2.9% 3.0%
3/97 2.9% 2.8%
4/97 2.8% 2.5%
5/97 2.8% 2.2%
6/97 2.8% 2.3%
7/97 3.0% 2.2%
8/97 3.0% 2.2%
9/97 3.0% 2.2%
10/97 3.3% 2.1%
11/97 3.3% 1.8%
12/97 3.3% 1.7%
1/98 3.3% 1.6%
2/98 3.3% 1.4%
3/98 3.3% 1.4%
4/98 3.5% 1.4%
5/98 3.5% 1.7%
6/98 3.5% 1.7%
7/98 3.7% 1.7%
8/98 3.7% 1.6%
9/98 3.7% 1.5%
10/98 3.4% 1.5%
11/98 3.4% 1.5%
12/98 3.4% 1.6%
1/99 3.0% 1.7%
2/99 3.0% 1.6%
3/99 3.0% 1.7%
4/99 3.2% 2.3%
5/99 3.2% 2.1%
6/99 3.2% 2.0%
7/99 3.1% 2.1%
8/99 3.1% 2.3%
9/99 3.1% 2.6%
10/99 3.4% 2.6%
11/99 3.4% 2.6%
12/99 3.4% 2.7%
1/00 2.7%
2/00 3.2%
</TABLE>
In spite of the record length and strength of the current expansion, and labor
markets tighter than we have experienced in a generation, wage inflation has
remained largely subdued. The Employment Cost Index, which measures inflation in
wages, salaries and benefits, was well contained, increasing just 3.4% during
1999.
Although there is little evidence of accelerating core inflation, the Fed has
expressed concern that if labor markets continue to tighten, increases in wages
could outpace productivity growth. In such an environment, productivity growth
becomes particularly critical, as it enables companies to pay higher wages
without raising prices. Non-farm productivity grew 2.8% in 1998 and 3.0% during
1999, continuing a healthy trend that began in 1996.
ASSET CLASS PERFORMANCE
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
TOTAL RETURN PERFORMANCE
GROWTH OF A HYPOTHETICAL $1 INVESTMENT
COMPILED BY CHARLES SCHWAB & CO., INC.
RUSSELL 2000 LEHMAN AGGREGATE
S&P 500 SMALL-CAP INDEX MSCE EAFE (ND) INDEX BOND INDEX
<S> <C> <C> <C> <C>
8/99 $1.000 $1.000 $1.000 $1.000
9/99 $0.973 $1.000 $1.010 $1.012
10/99 $1.034 $1.004 $1.048 $1.015
11/99 $1.055 $1.064 $1.084 $1.015
12/99 $1.117 $1.185 $1.182 $1.010
1/00 $1.061 $1.166 $1.107 $1.007
2/00 $1.041 $1.358 $1.136 $1.019
</TABLE>
Reversing a five-year period of relative under performance, small-cap stocks
significantly outperformed both large-cap stocks and international stocks for
the six-month reporting period ended 2/29/00. Small-cap stocks as represented by
the Russell 2000 Index achieved a total return of 35.8%, leaving large caps, as
represented by the S&P 500 Index, well behind with a six-month return of 4.1%.
Within the S&P 500, the technology stocks' out-performance of the so-
5
<PAGE>
MARKET OVERVIEW (continued)
called "old economy" stocks was truly remarkable. For example, during 1999, the
performance of the technology-laden NASDAQ Composite was 85.6% versus 21.0% for
the S&P 500 (which itself had a 25.4% technology weighting as of 12/31/99).
Although dampened by relatively weak foreign currencies, international stocks,
as represented by the MSCI EAFE Index, achieved a strong return of 13.6% for the
period. Reflecting the rise in intermediate- and long-term interest rates, fixed
income returns were generally weak for the period. Bond returns, as represented
by the Lehman Brothers Aggregate Bond Index, were 1.9% for the year.
U.S. EQUITY VALUATION
The price/earnings ratio for the S&P 500-Registered Trademark- Index remained at
very high levels during the reporting period and ended the period at a lofty
28.6 times earnings, slightly less than twice its long-term average. The
price/earnings ratio, also known as a multiple, is the price of a stock divided
by its earnings per share, and generally indicates how much investors are
willing to pay for a company's earning potential. Based on other traditional
market valuation measures such as the price-to-book value ratio or dividend
yield, the U.S. stock market continues to remain at record high valuation
levels. Reflecting the extraordinary valuations of the technology sector, the
price/earnings ratio (12 months trailing) for the NASDAQ 100 Index was 144.2.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
S&P 500 PRICE/EARNINGS RATIO
SOURCE: BLOOMBERG L.P.
<S> <C> <C>
1/90 14.37
2/90 14.21
3/90 14.77
4/90 14.82
5/90 15.84
6/90 16.66
7/90 16.65
8/90 15.57
9/90 14.9
10/90 14.36
11/90 14.59
12/90 15.19
1/91 14.95
2/91 16.82
3/91 17.48
4/91 17.85
5/91 17.92
6/91 17.96
7/91 18.07
8/91 19.72
9/91 19.88
10/91 19.92
11/91 21.02
12/91 21.85
1/92 23.35
2/92 23.83
3/92 25.45
4/92 25.51
5/92 25.71
6/92 25.08
7/92 25.61
8/92 25.5
9/92 24.37
10/92 23.94
11/92 24.08
12/92 24.01
1/93 24.2
2/93 24.25
3/93 24.22
4/93 23.2
5/93 23.21
6/93 22.58
7/93 22.52
8/93 23.02
9/93 23.74
10/93 23.97
11/93 22.55
12/93 23.55
1/94 22.98
2/94 21.17
3/94 20.34
4/94 20.1
5/94 20.16
6/94 19.76
7/94 18.64
8/94 18.9
9/94 18.26
10/94 17.55
11/94 16.58
12/94 16.98
1/95 16.23
2/95 16.2
3/95 16.5
4/95 16.02
5/95 16.43
6/95 16.82
7/95 16.55
8/95 16.18
9/95 16.86
10/95 16.18
11/95 17.14
12/95 17.41
1/96 18.11
2/96 18.56
3/96 18.94
4/96 19.16
5/96 19.48
6/96 19.3
7/96 18.31
8/96 18.62
9/96 19.75
10/96 19.6
11/96 21.05
12/96 20.7
1/97 20.55
2/97 20.98
3/97 19.87
4/97 20.24
5/97 21.43
6/97 22.45
7/97 23.92
8/97 22.64
9/97 24
10/97 22.84
11/97 24.02
12/97 24.51
1/98 24.99
2/98 26.44
3/98 27.76
4/98 26.51
5/98 26.12
6/98 27.09
7/98 26.78
8/98 22.77
9/98 24.23
10/98 27.58
11/98 30.14
12/98 31.97
1/99 33.29
2/99 32.65
3/99 33.78
4/99 33.9
5/99 32.74
6/99 34.7
7/99 31.62
8/99 31.21
9/99 29.9
10/99 29.92
11/99 30.65
12/99 32.53
1/00 29.78
2/00 28.59
30-Year Mean 15.7
</TABLE>
TREASURY BOND YIELDS
Continuing a trend which began in October 1998, both long-term and intermediate
term rates continued to climb upward during the reporting period. The primary
driver of this upward trend was the continued strong growth of the domestic
economy, which shows no immediate signs of slowing.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
30-YEAR AND FIVE-YEAR TREASURY BOND YIELDS 30-YEAR TREASURY BOND YIELD FIVE-YEAR TREASURY NOTE YIELD
<S> <C> <C>
9/99 6.02% 5.77%
9/99 6.04% 5.78%
9/99 6.06% 5.75%
9/99 5.97% 5.66%
10/99 6.13% 5.86%
10/99 6.20% 5.95%
10/99 6.26% 5.97%
10/99 6.35% 6.10%
10/99 6.16% 5.95%
11/99 6.06% 5.86%
11/99 6.04% 5.86%
11/99 6.16% 5.99%
11/99 6.23% 6.05%
12/99 6.25% 6.07%
12/99 6.17% 5.98%
12/99 6.37% 6.19%
12/99 6.49% 6.31%
12/99 6.48% 6.34%
1/00 6.55% 6.41%
1/00 6.70% 6.58%
1/00 6.69% 6.63%
1/00 6.45% 6.66%
2/00 6.27% 6.65%
2/00 6.27% 6.70%
2/00 6.16% 6.68%
2/00 6.13% 6.47%
Source: BLOOMBERG L.P.
</TABLE>
6
<PAGE>
Typically the yields on 30-year treasury securities exceed those on five-year
securities to compensate investors for the additional interest rate risk
associated with longer duration securities. As shown in the graph above, late in
January, this normal relationship reversed resulting in what is referred to as a
negatively sloped yield curve. This situation is a result of the accumulating
budget surpluses, which are allowing the Federal government to downsize its
debt. The Treasury Department announced that it plans to buy back $30 billion in
debt in 2000 starting with longer-dated maturities since those payments carry
the steepest interest payment. The anticipated reduction in supply resulting
from this buyback program, as well as scaled back issuance, bid up the price of
the longer-term securities and resulted in a reduction in yields.
7
<PAGE>
SCHWAB YIELDPLUS-INVESTOR SHARES
FUND PERFORMANCE
TOTAL RETURNS FOR THE PERIODS ENDED 2/29/00
<TABLE>
<CAPTION>
FIVE
MONTHS
SINCE 30-DAY
INCEPTION(1) SEC
10/1/99 YIELD
<S> <C> <C>
- ---------------------------------------------------------------------------------------
SCHWAB YIELDPLUS-INVESTOR SHARES(2) 2.48% 6.60%
- ---------------------------------------------------------------------------------------
U.S. Treasury Bill 1-Year 1.46% N/A
- ---------------------------------------------------------------------------------------
</TABLE>
National Association of Securities Dealers (NASD) regulations require that we
report performance data as of the most recent calendar quarter--in this case,
the quarter ended 12/31/99. As of 12/31/99, the fund's since-inception total
return was 1.48%. The 30-day SEC yield as of 12/31/99 was 6.44%.(3)
(1) Actual, not annualized, since period is less than one year.
(2) A portion of the fund's expenses was reduced during the reporting period.
Without such reductions, as of 2/29/00, the fund's since-inception return
would have been lower. The 30-day SEC yield as of 2/29/00 would have been
6.35%.
(3) A portion of the fund's expenses was reduced during the reporting period.
Without such reductions, as of 12/31/99, the fund's since-inception return
would have been lower. The 30-day SEC yield as of 12/31/99 would have been
6.20%.
8
<PAGE>
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
SCHWAB YIELD US TREASURY
PLUS FUND - BILL 1-YEAR
INVESTOR SHARES
<S> <C> <C>
10/1/99 $10,000 $10,000
10/31/99 $10,050 $10,028
11/30/99 $10,092 $10,048
12/31/99 $10,148 $10,070
1/31/00 $10,184 $10,096
2/29/00 $10,248 $10,146
</TABLE>
The above graph compares the growth of a hypothetical $10,000 investment in the
Schwab YieldPlus-Investor Shares, made at its inception, with a similar
investment in the U.S. Treasury Bill 1-Year.
THE INFORMATION PRESENTED IS HISTORICAL AND DOES NOT REPRESENT FUTURE RESULTS.
TOTAL RETURNS ASSUME REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAIN
DISTRIBUTIONS. PRINCIPAL VALUE AND INVESTMENT RETURNS WILL FLUCTUATE, SO AN
INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL
COST. Indices are unmanaged and do not reflect advisory fees and other expenses
associated with an investment in the fund. Investors cannot invest in an index
directly.
ASSETS
<TABLE>
<S> <C>
- ----------------------------------------------------------------------
Total net assets as of 2/29/00 (000s) $ 37,035
- ----------------------------------------------------------------------
</TABLE>
9
<PAGE>
SCHWAB YIELDPLUS-SELECT SHARES-REGISTERED TRADEMARK-
FUND PERFORMANCE
TOTAL RETURNS FOR THE PERIODS ENDED 2/29/00
<TABLE>
<CAPTION>
FIVE
MONTHS
SINCE
INCEPTION(1) 30-DAY
(10/1/99) SEC YIELD
<S> <C> <C>
- --------------------------------------------------------------------------------------
SCHWAB YIELDPLUS-SELECT SHARES(2) 2.54% 6.75%
- --------------------------------------------------------------------------------------
U.S. Treasury Bill 1-Year 1.46% N/A
- --------------------------------------------------------------------------------------
</TABLE>
National Association of Securities Dealers (NASD) regulations require that we
report performance data as of the most recent calendar quarter--in this case,
the quarter ended 12/31/99. As of 12/31/99, the fund's since-inception total
return was 1.52%. The 30-day SEC yield as of 12/31/99 was 6.59%.(3)
(1) Actual, not annualized, since period is less than one year.
(2) A portion of the fund's expenses was reduced during the reporting period.
Without such reductions, as of 2/29/00, the fund's since-inception total
return would have been lower. The 30-day SEC yield as of 2/29/00 would have
been 6.50%.
(3) A portion of the fund's expenses was reduced during the reporting period.
Without such reductions, as of 12/31/99, the fund's since-inception total
return would have been lower. The 30-day SEC yield as of 12/31/99 would have
been 6.35%.
10
<PAGE>
GROWTH OF A HYPOTHETICAL $50,000 INVESTMENT
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
SCHWAB YIELDPLUS - US TREASURY BILL
SELECT SHARES 1-YEAR
<S> <C> <C>
10/01/1999 $50,000 $50,000
10/31/1999 $50,260 $50,142
11/30/1999 $50,470 $50,241
12/31/1999 $50,755 $50,348
1/31/2000 $50,945 $50,480
2/29/2000 $51,270 $50,729
</TABLE>
The above graph compares the growth of a hypothetical $50,000 investment in the
Schwab YieldPlus-Select Shares-Registered Trademark-, made at its inception,
with a similar investment in the U.S. Treasury Bill 1-Year.
THE INFORMATION PRESENTED IS HISTORICAL AND DOES NOT REPRESENT FUTURE RESULTS.
TOTAL RETURNS ASSUME REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAIN
DISTRIBUTIONS. PRINCIPAL VALUE AND INVESTMENT RETURNS WILL FLUCTUATE, SO AN
INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL
COST. Indices are unmanaged and do not reflect advisory fees and other expenses
associated with an investment in the fund. Investors cannot invest in an index
directly.
ASSETS
<TABLE>
<S> <C>
- ----------------------------------------------------------------------
Total net assets as of 2/29/00 (000s) $165,683
- ----------------------------------------------------------------------
</TABLE>
11
<PAGE>
SCHWAB YIELDPLUS FUND-TM-
PORTFOLIO SNAPSHOT
The Schwab YieldPlus Fund-TM- invests in fixed income securities, primarily
general corporate, collateralized mortgage obligations and asset-backed bonds.
The information below provides a snapshot of the fund's characteristics as of
2/29/00 and is not indicative of its composition after that date. The terms used
below are defined beginning on page 17. A complete list of the securities in the
fund's portfolio as of 2/29/00 is provided in the Schedule of Investments later
in this report.
FUND FACTS
<TABLE>
<CAPTION>
SCHWAB YIELDPLUS
FUND PEER GROUP AVERAGE++
<S> <C> <C>
- -------------------------------------------------------------------------------------------------------------
Number of Issues 39 86
- -------------------------------------------------------------------------------------------------------------
Yield to Maturity 7.32% N/A
- -------------------------------------------------------------------------------------------------------------
Average Weighted Coupon 7.02% 6.40%
- -------------------------------------------------------------------------------------------------------------
Weighted Average Effective Maturity 0.86 years 2.18 years
- -------------------------------------------------------------------------------------------------------------
Average Weighted Credit Quality A AA
- -------------------------------------------------------------------------------------------------------------
Average Weighted Effective Duration 0.92 years 0.80 years
- -------------------------------------------------------------------------------------------------------------
Expense Ratio - Investor Shares 0.55%* 0.47%
- -------------------------------------------------------------------------------------------------------------
Expense Ratio - Select Shares-Registered
Trademark- 0.40%* 0.47%
- -------------------------------------------------------------------------------------------------------------
</TABLE>
* Reflects a voluntary reduction by the Investment Adviser and Schwab, which is
guaranteed through at least 10/31/00.
++ Source: Lipper Ultra Short Obligations. This information is as of 2/29/00,
and is for illustrative purposes only. It is not intended to show, predict or
guarantee future composition of the fund. The Peer Group Average is based on
the funds in the Lipper Ultra-Short Obligations Index, compiled by Charles
Schwab & Co., Inc.
MATURITY SCHEDULE: WEIGHTED AVERAGE
EFFECTIVE MATURITY AS OF 2/29/00
<TABLE>
<CAPTION>
PERCENTAGE
PERCENTAGE OF FUND
OF FUND INVESTMENTS
MATURITY RANGE VALUE (000S) INVESTMENTS (CUMULATIVE)
<S> <C> <C> <C>
- ------------------------------------------------------------------
0 - 6 months $103,338 48.6% 48.6%
- ------------------------------------------------------------------
7 - 18 months $ 46,854 22.0% 70.6%
- ------------------------------------------------------------------
19 - 30 months $ 57,605 27.1% 97.7%
- ------------------------------------------------------------------
More than
30 months $ 4,785 2.3% 100.0%
- ------------------------------------------------------------------
</TABLE>
INVESTMENT STYLE BOX(1)
AS OF 2/29/00
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
WEIGHTED AVERAGE EFFECTIVE MATURITY
<S> <C> <C> <C>
Short Int Long Average Credit Quality
High
X Medium
Low
</TABLE>
(1) Source: Morningstar. The style box represents two of the main components of
bond performance: interest rate sensitivity and credit quality. It
illustrates the composition of the fund's portfolio as of 2/29/00. It is not
indicative of its holding after that date, nor does it represent a risk
rating or any type of forecast of future performance. Placement is based on
the fund's weighted average maturity and the average credit quality of its
portfolio. The fund's weighted average maturity is considered short if it is
less than four years, medium if it is greater than or equal to four years
but less than 10 years, and long if it is equal to or greater than 10 years.
Credit quality is defined on page 21. Average credit quality is considered
high if it is AA or better, medium if it is BBB or A, and low if it is below
BBB.
12
<PAGE>
PORTFOLIO COMPOSITION AS A PERCENTAGE
OF FUND INVESTMENTS(2)
as of 2/29/00
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Corporate Bonds 48.1%
Agency-Collateralized Mortgage Obligations 17.3%
Non-Agency-Collateralized Mortagage Obligations 16.1%
Commercial Paper and Other Corporate Obligations 15.9%
Preferred Stock 2.5%
Temporary Investments 0.1%
</TABLE>
PORTFOLIO COMPOSITION BY CREDIT QUALITY(3)
as of 2/29/00
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
AAA 33.3%
A 18.2%
BBB 30.1%
BB 2.4%
Short-Term Ratings 15.9%
Unrated Securities 0.1%
</TABLE>
The charts above illustrate the composition of the fund's portfolio as of
2/29/00, and are not indicative of its holdings after that date.
(2) These percentages do not take into account other assets and liabilities.
(3) Credit quality is based on published ratings from Standard & Poor's Ratings
Group and/or Moody's Investor Service, which are recognized rating services.
Categories reflect the higher published ratings for securities rated
differently by the two agencies, and percentages are dollar-weighted.
TOP 10 HOLDINGS
% OF TOTAL NET ASSETS
<TABLE>
<S> <C>
- -----------------------------------------------
Hughes Electronics Corp.
7.290%, 04/24/2000 6.6%
- -----------------------------------------------
Health & Retirement Properties
7.280%, 04/10/2000 4.9%
- -----------------------------------------------
Waste Management, Inc.
6.650%, 03/15/2000 3.8%
- -----------------------------------------------
Dime Bancorp, Inc.
6.375%, 01/30/2001 3.8%
- -----------------------------------------------
Countrywide Home Loans, Inc. 1999-12
7.500%, 07/19/2002 3.1%
- -----------------------------------------------
- -----------------------------------------------
Dime Bancorp, Inc.
7.000%, 07/25/2001 2.9%
- -----------------------------------------------
Residential Funding Mortgage Securities
I Trust Series 1993-S15
6.920%, 09/03/01 2.9%
- -----------------------------------------------
ICI Funding Corp. Secured Assets Corp.
Series 1997-1
7.750%, 07/27/01 2.7%
- -----------------------------------------------
Federal Home Loan Mortgage Corp. Series
1768PG
7.500%, 05/30/02 2.5%
- -----------------------------------------------
Countrywide Home Loans, Inc. 1997-8
6.750%, 08/16/01 2.5%
- -----------------------------------------------
</TABLE>
13
<PAGE>
DIVIDENDS PAID
During the reporting period, the funds attempted to provide a high level of
current income consistent with the preservation of capital. The chart below
illustrates the income dividends on a per-share basis paid since inception.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
DIVIDENDS PAID BY THE SCHWAB YIELDPLUS FUND -TM-
SCHWAB YIELDPLUS - SCHWAB YIELDPLUS -
INVESTOR SHARES SELECT SHARES -REGISTERED TRADMARK-
<S> <C> <C>
2000* $0.27 $0.27
INCOME DIVIDENDS PER SHARE
FISCAL YEAR
</TABLE>
* Period from the fund's inception on 10/1/99 through 2/29/00.
14
<PAGE>
PORTFOLIO MANAGEMENT
THE PORTFOLIO MANAGEMENT TEAM
STEPHEN B. WARD--Senior Vice President and Chief Investment Officer, has overall
responsibility for the management of the fund's portfolio. Steve joined CSIM as
Vice President and Portfolio Manager in April 1991, and was promoted to his
current position in August 1993. Prior to joining CSIM, Steve was Vice President
and Portfolio Manager at Federated Investors.
KIM DAIFOTIS--Vice President and Senior Portfolio Manager--has had primary
responsibility for the day-to-day management of the fund's portfolio since
inception. He joined CSIM in November 1997. Prior to joining CSIM, Kim spent
five years at Lehman Brothers where he served as Vice President and Fixed Income
Institutional Salesman, as well as Senior Portfolio Strategist. Prior to Lehman
Brothers, Kim spent three years as Senior Portfolio Manager for Barclays Global
Investors.
15
<PAGE>
FUND DISCUSSION
QUESTIONS TO THE
PORTFOLIO MANAGEMENT TEAM
Q. WHAT IS YOUR VIEW OF THE INTEREST RATE ENVIRONMENT?
A. During the reporting period the global economy continued its recovery from
the financial turmoil experienced over the last 18 months. The domestic economy,
fueled by technology breakthroughs and higher productivity, celebrated its ninth
consecutive year of expansion, the nation's longest growth period. The robust
economy contributed to soaring equity and real estate values and tight labor
markets, which in turn stimulated strong consumer spending.
During much of 1999 there was a great deal of concern about the potential impact
of Y2K on short-term interest rates. These concerns were largely controlled by
the Federal Reserve Board's (Fed's) willingness to provide liquidity and the
positive reports about Y2K preparations. As a result there was little pressure
on short-term rates as the year ended.
The Fed maintained its vigilant stance as the economy continued to grow at an
accelerating pace. During the third and fourth quarters of 1999, the U.S. gross
domestic product grew 5.7% and 6.9%, respectively, far above the Fed's target
rate of 3.0%. Concerned that inflationary pressure could derail the nation's
record-breaking economic expansion, the Fed took steps to slow growth by raising
the federal funds rate from 5.25% at the beginning of the period to 5.75% at the
end of the period.
Q. HOW HAS THE FUND PERFORMED DURING THE REPORTING PERIOD?
A. Despite a rising interest rate environment, the fund's NAV remained in a very
narrow range. During the five-month reporting period ended February 29, 2000,
the fund achieved a 2.48% total return for the Investor Shares and 2.54% for the
Select Shares-Registered Trademark-. While the NAVs for both classes of the fund
declined slightly by 0.2%, the Investor Shares reported dividend income of 2.68%
and the Select Shares generated dividend income of 2.74%.
Q. HOW WAS THE FUND MANAGED DURING THE REPORTING PERIOD?
A. As stated in the fund's investment objective our primary goal is to provide
high current income while maintaining a stable share price (NAV). In order to
reach the stated goal the Fund implemented the following strategy:
- - Maintained the dollar-weighted average effective maturity of the fund in a
range between 0.72 years and 0.91 years, which is slightly below the stated
1-year target. This tactic allowed the portfolio to benefit from higher yields
associated with securities which have longer maturities while maintaining a
stable share price.
- - The fund also invested a large portion of its assets in corporate debt and
mortgage securities, which provided the fund with a substantial yield
advantage over U.S. Government Securities.
We continue to approach the markets cautiously, carefully watching economic
indicators and monitoring Federal Reserve Bank communications regarding its
target for short-term interest rates. We expect to continue investing in
corporate debt and mortgage backed securities and seek to keep the average
effective maturity below one year.
16
<PAGE>
GLOSSARY
ALTERNATIVE MINIMUM TAX (AMT)--A federal tax designed to help ensure that at
least a minimum amount of income tax is paid by high-income corporate and
non-corporate taxpayers (including estates and trusts) who reap large tax
savings by making generous use of certain tax deductionsand exemptions. The AMT
functions as a recapture mechanism, reclaiming some of the tax breaks primarily
available to high-income taxpayers, who without the AMT might be able to escape
taxation entirely.
BOND--A bond can be thought of as a loan agreement in which the bondholder lends
a set amount of money to a corporation, government agency or municipality and
expects to be repaid with interest. Although bonds are loans and contain no
rights of ownership, they do embody a legally enforceable promise to repay.
CALL--The right of a bond's issuer to redeem a bond before its stated maturity
date. Bonds can be called for many reasons, but a call typically occurs when
interest rates drop and issuers are able to obtain lower interest rates to
finance their debts.
CALL PROTECTION--When managers seek call protection, they're looking for bonds
whose issuers cannot redeem them before their stated maturities, or who cannot
redeem them until a far-off date. Such bonds help protect yield but are subject
to interest rate sensitivity.
COUPON--The coupon rate is the annual rate of interest on the bond's face value
that the issuer agrees to pay the holder until maturity. The coupon is
established at the time of issue and is determined by the then prevailing level
of interest rates in the marketplace. AVERAGE COUPON is the average interest
rate paid on the securities held by a fund. It is expressed as a percentage of
face value.
CREDIT RATINGS--Bonds are generally rated by one or both of the two major credit
rating agencies accepted in the industry: Moody's Investor Service and the
Standard & Poor's Corporation. They assign ratings based on the issuer's ability
to make the scheduled interest and principal payments. These ratings are
reviewed periodically and may be revised at any time.
<TABLE>
<CAPTION>
MOODY'S S&P DESCRIPTION
<S> <C> <C>
- ------------------------------------------------------
INVESTMENT GRADE
Aaa AAA Strongest capacity to pay interest and
repay principal
Aa AA Very strong capacity to pay interest and
repay principal
A A Strong capacity to pay interest and
repay principal
Baa BBB Adequate capacity to pay interest and
repay principal
BELOW INVESTMENT GRADE
Ba BB Lowest degree of speculation with
respect to capacity to pay interest and
repay principal
B B Greater vulnerability to default but
currently has the capacity to meet
interest and principal payment
Caa CCC Currently vulnerable to default--
dependent on favorable conditions
Ca CC Highly speculative
C C Highest degree of speculation--no
interest is paid
- - D In payment default
</TABLE>
17
<PAGE>
GLOSSARY (continued)
CREDIT RISK--The risk that an issuer of a debt security or a borrower may
default on its obligation.
DIVIDEND--The portion of a company's earnings paid to investors on a per-share
basis.
DURATION--The common objective behind the different definitions of DURATION is
to measure the price sensitivity--and therefore market risk--of a fixed income
security to changes in its yield.
EXPENSE RATIO--Amount, expressed as a percentage of total net assets, that
shareholders pay annually for mutual fund operating expenses and
management fees.
GENERAL OBLIGATION BONDS (GOS)--General obligation bonds are backed by a pledge
of the issuer's full faith and credit with the timely payment of principal and
interest secured by the taxing power of the issuer.
INTEREST--Compensation, usually paid semiannually, to bondholders by the issuer.
Usually expressed as an annual percentage rate.
INTEREST RATE RISK--Risk associated with fluctuations of bond prices in response
to the general movement of interest rates and to changes in investor perceptions
of government monetary policy and economic data.
MARKET RISK--The possibility that the actual return of an investment will be
less than what's expected.
MATURITY--The maturity of a security is the date the issuer makes the final
payment to the security holder. WEIGHTED AVERAGE MATURITY is the average length
of time until the bonds held by a fund reach maturity (or are called) and are
repaid. In general, the longer the average maturity, the more a fund's share
price will fluctuate in response to changes in market interest rates.
MORTGAGE-BACKED SECURITIES--Represent an ownership interest in mortgage loans
made by financial institutions to finance the borrower's purchase of a home or
other real estate. The most basic mortgage securities, known as PASS-THROUGHS,
or participation certificates, represent a direct ownership interest in a trust
composed of a pool of mortgage loans. The majority of mortgage securities are
issued and/or guaranteed by the Government National Mortgage Association (Ginnie
Mae), the Federal National Mortgage Association (Fannie Mae) and the Federal
Home Loan Mortgage Corporation (Freddie Mac).
MUNICIPAL BONDS--Debt obligations of states, cities, towns, municipalities,
municipal authorities and governmental entities. They are issued to build
schools, tunnels and bridges or to finance infrastructure repairs or
improvements. The interest earned typically is free of federal income taxes and,
in some cases, also may be free of state and/or local income taxes if purchased
by residents of the issuing state. However, interest paid by certain municipal
bonds is subject to the AMT.
PREPAYMENT RISK--When interest rates are falling, many homeowners will refinance
their mortgages to take advantage of the new lower rates. As a result, when
interest rates decline, prepayments of mortgage-backed securities accelerate
beyond the initial pricing assumptions, which causes the average life and
maturity of the security to shorten.
REINVESTMENT RISK--The risk that a bondholder may be able to reinvest only at a
lower rate than originally
18
<PAGE>
planned. If yields fall, the reinvestment income and, consequently, the total
return from holding the bond may fall relative to the original yield.
Conversely, if yields rise, total return may also rise.
REVENUE BONDS--Bonds with interest that is payable from a specific source of
revenue. They are generally issued to finance public projects such as bridges,
tunnels and water treatment facilities. The interest payments on a revenue bond
are typically derived from the revenues produced by the facility.
TAXABLE-EQUIVALENT YIELD--The yield needed on a taxable investment in order to
match the return offered on a tax-exempt investment. This calculation is an
important resource for determining which investments--taxable or
tax-exempt--would yield more. The taxable-equivalent yield calculation can
determine which investment offers the better return when all taxes--federal,
state and local--are taken into consideration.
TOTAL RETURN--The sum of interest income, plus capital gains (or losses).
YIELD--The income generated by an investment, expressed as a percentage of its
price. Yield is only a measure of income and does not take into account the
appreciation (or depreciation) of a bond's value.
YIELD TO MATURITY--The overall rate of return an investor would receive if the
securities in a fund's portfolio were held to their maturity dates.
19
<PAGE>
SCHWAB YIELDPLUS FUND(TM)
SCHEDULE OF INVESTMENTS (in thousands)
February 29, 2000 (Unaudited)
Par Value
------- --------
CORPORATE BONDS -- 50.5% (a)
Bank of Boston (b)
6.87%, 03/15/00 $ 5,000 $ 4,909
Comcast Corp.
10.25%, 10/15/01 4,000 4,245
Conseco Inc.
7.60%, 06/21/01 5,000 4,962
Dime Bancorp, Inc.
6.38%, 01/30/01 7,750 7,663
7.00%, 07/25/01 6,000 5,948
ERP Operating L.P. (b)
6.86%, 05/22/00 5,000 5,012
Finova Capital Corp.
7.25%, 04/01/01 3,600 3,591
Foreningssparrbanken AB (b)
7.35%, 05/12/00 5,000 5,010
Health & Retirement Properties (b)
7.28%, 04/10/00 10,000 9,988
Hughes Electronics Corp. (b)
7.29%, 04/24/00 13,350 13,317
Kimco Realty Corp. (b)
6.74%, 05/17/00 5,000 5,029
Korea Development Bank (b)
6.94%, 04/18/00 5,000 4,997
Rayonier, Inc. (b)
6.41%, 05/23/00 5,000 4,999
Starwood Hotels & Resorts Worldwide, Inc.
6.25%, 11/15/00 5,000 4,931
Tyco International Group, S.A. (b)
6.82%, 03/06/00 5,000 4,998
Tyco International Group, S.A.
6.13%, 06/15/01 5,000 4,919
Waste Management, Inc.
6.65%, 05/15/00 7,750 7,721
--------
Total Corporate Bonds
(Cost $101,996) 102,239
--------
U.S. GOVERNMENT AGENCY SECURITIES -- 18.2% (a)
COLLATERALIZED MORTGAGE OBLIGATIONS -- 18.2%
Federal Home Loan Mortgage Corp.
Series 1350H
7.50%, 10/06/01 4,293 4,302
Federal Home Loan Mortgage Corp.
Series 1768PG
7.50%, 05/30/02 5,131 5,118
Par Value
------- --------
Federal Home Loan Mortgage Corp.
Series 62B
7.50%, 05/09/02 $ 5,000 $ 4,985
Federal National Mortgage Association
Series 1993-82D
6.35%, 12/17/01 5,000 4,907
Federal National Mortgage Association
Series 1996-35D
7.00%, 04/16/02 5,000 4,945
Federal National Mortgage Association
Series 1997-13AC
7.00%, 10/03/01 4,415 4,374
Federal National Mortgage Association
Series 1997-25E
7.00%, 10/28/01 3,952 3,916
Government National Mortgage Association
Series 1996-13A
7.00%, 07/28/01 4,329 4,283
--------
TOTAL U.S. GOVERNMENT AGENCY
SECURITIES
(Cost $37,256) 36,830
--------
NON-AGENCY MORTGAGE & ASSET-BACKED
SECURITIES -- 16.8% (a)
COLLATERALIZED MORTGAGE OBLIGATIONS -- 16.8%
Countrywide Home Loans, Inc.
6.75%, 08/16/01 5,090 5,052
7.50%, 07/19/02 6,176 6,212
General Electric Capital Mortgage Services, Inc.
6.00%, 08/23/02 5,000 4,785
ICI Funding Corp. Secured Assets Corp.
Series 1997-1
7.75%, 07/27/01 5,512 5,505
Residential Funding Mortgage Securities I
Trust Series 1993-S15
6.92%, 09/03/01 6,000 5,932
Residential Funding Mortgage Securities I
Trust Series 1997-S6
7.00%, 11/27/01 3,500 3,450
Vendee Mortgage Trust Series 1992-1
7.75%, 08/10/00 3,184 3,185
--------
TOTAL NON-AGENCY MORTGAGE &
ASSET-BACKED SECURITIES
(Cost $34,284) 34,121
--------
20
<PAGE>
Par Value
------- --------
COMMERCIAL PAPER AND OTHER CORPORATE
OBLIGATIONS -- 16.7% (d)
Enron Corp.
5.90%, 03/03/00 $10,000 $ 9,997
Kitty Hawk Funding Corp.
5.82%, 03/01/00 8,000 8,000
TRW, Inc.
5.88%, 03/01/00 2,000 2,000
5.91%, 03/06/00 7,000 6,994
VodaFone Airtouch, PLC
5.78%, 03/02/00 6,900 6,899
--------
TOTAL COMMERCIAL PAPER AND
OTHER CORPORATE OBLIGATIONS
(Cost $33,890) 33,890
--------
Shares
-------
PREFERRED STOCK -- 2.6%
Caisse National Credit Agricole 203 5,219
--------
TOTAL PREFERRED STOCK
(Cost $5,285) 5,219
--------
OTHER INVESTMENT COMPANIES -- 0.1% (c)
Provident Institutional Funds - Fed
Funds Portfolio
5.44% 283 283
--------
TOTAL OTHER INVESTMENT COMPANIES
(Cost $283) 283
--------
TOTAL INVESTMENTS -- 104.9%
(Cost $212,994) 212,582
--------
OTHER ASSETS AND LIABILITIES -- (4.9%)
Other assets 8,709
Liabilities (18,573)
--------
(9,864)
--------
TOTAL NET ASSETS -- 100.0% $202,718
========
SEE ACCOMPANYING NOTES TO SCHEDULE OF INVESTMENTS AND NOTES TO FINANCIAL
STATEMENTS.
21
<PAGE>
NOTES TO SCHEDULE OF INVESTMENTS
February 29, 2000 (Unaudited)
(all dollar amounts are in thousands unless otherwise noted)
(a) Interest rates represent coupon rate of security.
(b) Variable rate obligations -- Interest rates vary periodically based on
current market rates. Rates shown are the effective rates as of the report
date. Dates shown represent the later of the demand date or next interest
rate change date. For variable rate obligations without demand features, the
next interest reset date is shown. All dates shown are considered the
maturity date for financial reporting purposes.
(c) Interest rates represent the yield on report date.
(d) Yields shown are effective yields at time of purchase. Yields for each type
of security are stated according to the market convention for that security
type.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
22
<PAGE>
SCHWAB YIELDPLUS FUND(TM)
STATEMENT OF ASSETS AND LIABILITIES (in thousands)
February 29, 2000 (Unaudited)
ASSETS
Investments, at value (Cost: $212,994) $212,582
Receivables:
Interest 1,599
Investments sold 6,709
Fund shares sold 326
Prepaid expenses 75
--------
Total assets 221,291
--------
LIABILITIES
Payables:
Dividends 147
Investments purchased 18,110
Fund shares redeemed 245
Investment advisory and administration fees 3
Transfer agency and shareholder service fees 3
Other liabilities 65
--------
Total liabilities 18,573
--------
Net assets applicable to outstanding shares $202,718
========
NET ASSETS CONSIST OF:
Paid-in capital $203,054
Accumulated net realized gain on investments sold 76
Net unrealized depreciation on investments (412)
--------
$202,718
========
PRICING OF SHARES
Net asset value, offering and redemption price per share,
applicable to outstanding shares,
$0.00001 par value (unlimited shares authorized)
Investor Shares ($37,035/3,711) $9.98
Select Shares(REGISTRATION MARK)($165,683/16,603) $9.98
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
23
<PAGE>
SCHWAB YIELDPLUS FUND(TM)
STATEMENT OF OPERATIONS (in thousands)
For the period from October 1, 1999 (commencement of operations) to
February 29, 2000 (Unaudited)
Interest income $4,516
------
Expenses:
Investment advisory and administration fees 226
Transfer agency and shareholder service fees:
Investor Shares 31
Select Shares(REGISTRATION MARK) 52
Custodian and portfolio accounting fees 27
Registration fees 43
Professional fees 12
Shareholder reports 12
Trustees' fees 3
Other expenses 7
------
413
Less: expenses reduced (see Note 4) (135)
------
Total expenses incurred by fund 278
------
Net investment income 4,238
------
Net realized gain on investments sold 76
Net unrealized depreciation on investments (412)
------
Net loss on investments (336)
------
Increase in net assets resulting from operations $3,902
======
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
24
<PAGE>
SCHWAB YIELDPLUS FUND(TM)
STATEMENT OF CHANGES IN NET ASSETS (in thousands)
For the period from October 1, 1999 (commencement of operations) to
February 29, 2000 (Unaudited)
Operations:
Net investment income $ 4,238
Net realized gain on investments sold 76
Net unrealized depreciation on investments (412)
--------
Increase in net assets resulting from operations 3,902
--------
Distributions:
Dividends to shareholders from net investment
income (See Note 2):
Investor Shares (809)
Select Shares(REGISTRATION MARK) (3,429)
--------
Total dividends to shareholders (4,238)
--------
Capital share transactions:
Proceeds from shares sold 221,706
Net asset value of shares issued in reinvestment of dividends 3,542
Early withdrawal fees (See Note 6) 19
Payments for shares redeemed (22,213)
--------
Increase in net assets from capital share transactions 203,054
--------
Total increase in net assets 202,718
Net assets:
Beginning of period --
--------
End of period $202,718
========
Number of fund shares:
Sold 22,185
Reinvested 355
Redeemed (2,226)
--------
Net increase in shares outstanding 20,314
Shares outstanding:
Beginning of period --
--------
End of period 20,314
========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
25
<PAGE>
FINANCIAL HIGHLIGHTS
Schwab YieldPlus Fund(TM)
FOR THE PERIOD FROM OCTOBER 1, 1999 (COMMENCEMENT OF OPERATIONS) TO
FEBRUARY 29, 2000 (UNAUDITED)
INVESTOR SHARES
PER SHARE DATA ($)
- --------------------------------------------------------------------------------
Net asset value at beginning of period 10.00
------
From investment operations:
Net investment income 0.27
Net realized andunrealized loss on
investments (0.02)
------
Total from investment operations 0.25
Less distributions:
Dividends from net investment income (0.27)
------
NET ASSET VALUE AT END OF PERIOD 9.98
------
Total return (%) 2.48**
RATIOS/SUPPLEMENTAL DATA (%)
- --------------------------------------------------------------------------------
Ratio of net operating expenses to average net assets 0.55*
Reductions reflected in above expense ratio 0.25*
Ratio of net investment income to average net assets 6.42*
Portfolio turnover rate 11
Net assets, end of period ($ X 1,000) 37,035
FOR THE PERIOD FROM OCTOBER 1, 1999 (COMMENCEMENT OF OPERATIONS) TO
FEBRUARY 29, 2000 (UNAUDITED)
SELECT SHARES(REGISTRATION MARK)
PER SHARE DATA ($)
- --------------------------------------------------------------------------------
Net asset value at beginning of period 10.00
-------
From investment operations:
Net investment income 0.27
Net realized andunrealized loss on
investments (0.02)
-------
Total from investment operations 0.25
Less distributions:
Dividends from net investment income (0.27)
-------
NET ASSET VALUE AT END OF PERIOD 9.98
-------
Total return (%) 2.54**
RATIOS/SUPPLEMENTAL DATA (%)
- --------------------------------------------------------------------------------
Ratio of net operating expenses to average net assets 0.40*
Reductions reflected in above expense ratio 0.25*
Ratio of net investment income to average net assets 6.58*
Portfolio turnover rate 11
Net assets, end of period ($ X 1,000) 165,683
* Annualized
** Not annualized
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
26
<PAGE>
NOTES TO FINANCIAL STATEMENTS
For the period ended February 29, 2000 (Unaudited)
(All dollar amounts are in thousands unless otherwise noted)
1. DESCRIPTION OF THE FUNDS
The Schwab YieldPlus Fund(TM) (the "fund") is a series of Schwab Investments
(the "Trust"), a no-load, open-end, investment management company organized as a
Massachusetts business trust on October 26, 1990 and registered under the
Investment Company Act of 1940 (the "Act"), as amended.
The fund offers two classes of shares, the Investor Shares and the Select
Shares(REGISTRATION MARK). Both classes represent interest in the same portfolio
of investments and are substantially the same in all respects, except that the
classes are subject to different shareholder services fees (see Note 3) and
investment minimums.
In addition to the funds, the Trust also offers the Schwab 1000
Fund(REGISTRATION MARK), 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 Short-Term Bond
Market Index Fund, and Schwab Total Bond Market Index Fund. The assets of each
series are segregated and accounted for separately.
2. SIGNIFICANT ACCOUNTING POLICIES
The following significant accounting policies are in conformity with generally
accepted accounting principles. The preparation of financial statements in
accordance with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those estimates.
SECURITY VALUATION -- Bonds and notes are generally valued at prices obtained
from an independent bond-pricing service. These securities are valued at the
mean between the most recent bid and asked prices, or if such prices are not
available, at prices for securities of comparable maturity, quality and type.
Restricted securities are valued at fair value as determined in good faith
pursuant to guidelines and procedures adopted by the board of trustees.
Short-term securities with 60 days or less to maturity are stated at amortized
cost, which approximates market value.
SECURITY TRANSACTIONS, INTEREST INCOME AND REALIZED GAINS (LOSSES) -- Security
transactions are accounted for on a trade date basis (date the order to buy or
sell is executed). Interest income is accrued on a daily basis and includes
accretion of original issue discount and market discount and amortization of
market premium. For callable bonds purchased at a premium, the excess of the
purchase price over the call value is amortized against interest income through
the call date. If the call provision is not exercised, any remaining premium is
amortized through the final maturity date. Realized gains and losses from
security transactions are determined on an identified cost basis.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The fund declares a dividend
daily, substantially equal to its net investment income for that day, payable
monthly. Net realized capital gains, if any, are normally distributed annually.
27
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
EXPENSES -- Expenses arising in connection with a class are charged directly to
that class. Expenses attributable to all classes of shares are allocated daily
to each class based on the value of settle shares outstanding of each respective
class.
FEDERAL INCOME TAXES -- It is the fund's policy to meet the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its net investment income and realized net capital gains, if
any, to shareholders. Therefore, no federal income tax provision is required.
The fund is considered a separate entity for federal income tax purposes.
Net unrealized appreciation (depreciation) at February 29, 2000, (was
substantially the same for financial reporting and federal income tax purposes)
was as follows:
Net Unrealized Appreciated Depreciated
Depreciation Securities Securities
-------------- ----------- -----------
$(412) $366 $(778)
3. TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY AND ADMINISTRATION AGREEMENT -- The Trust has an investment
advisory and administration agreement with Charles Schwab Investment Management,
Inc. (the "investment adviser"). For advisory services and facilities furnished,
the fund pays a graduated annual fee, payable monthly, of 0.35% of average daily
net assets of the first $500 million and 0.30% of such assets over $500 million.
The investment adviser has reduced a portion of its fee for the period ended
February 29, 2000 (see Note 4).
TRANSFER AGENCY AND SHAREHOLDER SERVICE AGREEMENTS -- The Trust has transfer
agency and shareholder service agreements with Charles Schwab & Co., Inc.
("Schwab"). For transfer agency services, Schwab receives an annual fee, payable
monthly, of 0.05% of average daily net assets. For shareholder services, Schwab
receives an annual fee, payable monthly, of 0.20% of average daily net assets of
Investor Shares and 0.05% for Select Shares(REGISTRATION MARK). Schwab has
reduced a portion of its fee for the period ended February 29, 2000 (see Note
4).
OFFICERS AND TRUSTEES -- Certain officers and trustees of the Trust are also
officers and/or directors of the investment adviser and/or Schwab. During the
period ended February 29, 2000, the Trust made no direct payments to its
officers or trustees who are "interested persons" within the meaning of the Act,
as amended. The fund incurred fees aggregating $3 related to the Trust's
unaffiliated trustees.
4. EXPENSES REDUCED BY THE INVESTMENT ADVISER AND SCHWAB
The investment adviser and Schwab guarantee that, through at least October 31,
2000, the total operating expenses will not exceed 0.55% of average daily net
assets of Investor Shares and 0.40% for Select Shares, after reductions. For the
purpose of this guarantee, operating expenses do not include interest expenses,
extraordinary expenses, including proxy-related expenses, and taxes.
28
<PAGE>
For the period ended February 29, 2000, the total of such fees reduced by the
investment adviser and Schwab was as follows:
Fees reduced by Fees reduced
investment adviser by Schwab
-------------------------- ----------------------
$134 $1
5. INVESTMENT TRANSACTIONS
Purchases, sales and maturities of investment securities, other than U.S.
government securities and short-term obligations during the period ended
February 29, 2000, were as follows:
Purchases $79,331
Proceeds of sales and maturities $ 6,664
Purchases, sales and maturities of long-term U.S. government securities during
the period ended February 29, 2000, were as follows:
Purchases $39,143
Proceeds of sales and maturities $ 2,472
6. EARLY WITHDRAWAL FEES
The early withdrawal fees are retained by the fund and are treated as a
contribution to capital.
Early withdrawal fees on Early withdrawal fees
redemption proceeds* as of 2/29/00
-------------------------- ----------------------
Investor Shares 0.25% $ 6
Select Shares 0.25% 13
* Attributable to shares purchased and held less than 90 days.
7. CAPITAL SHARE TRANSACTIONS
The fund offers two classes of shares: Investor Shares and Select Shares
(REGISTRATION MARK). Shares of each class represent interest in the same
portfolio of investments of the fund. Transactions in capital shares for the
period ended February 29, 2000 were as follows:
Shares Dollars
------- ---------
Investor Shares
Sold 4,256 $ 42,535
Reinvested 70 694
Redeemed (615) (6,128)
------ --------
Net Increase 3,711 $ 37,101
------ --------
Select Shares
Sold 17,929 $179,171
Reinvested 285 2,848
Redeemed (1,611) (16,066)
------ --------
Net Increase 16,603 $165,953
------ --------
Total increase from capital
share transactions 20,314 $203,054
====== ========
29
<PAGE>
THIS SPACE RESERVED FOR YOUR COMMENTS AND QUESTIONS.
A SCHWAB REPRESENTATIVE WILL BE HAPPY TO ASSIST YOU.
<PAGE>
THIS SPACE RESERVED FOR YOUR COMMENTS AND QUESTIONS.
A SCHWAB REPRESENTATIVE WILL BE HAPPY TO ASSIST YOU.
<PAGE>
THIS SPACE RESERVED FOR YOUR COMMENTS AND QUESTIONS.
A SCHWAB REPRESENTATIVE WILL BE HAPPY TO ASSIST YOU.
<PAGE>
THE SCHWABFUNDS FAMILY-REGISTERED TRADEMARK-
The SchwabFunds Family includes a variety of funds to help meet your investment
needs. You can diversify your portfolio in a single step with our asset
allocation funds. Or you can customize your portfolio with a combination of our
stock funds as well as our taxable and tax-advantaged bond and money market
funds.
Please visit us at WWW.SCHWAB.COM/SCHWABFUNDS or 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-Registered Trademark- 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.
SCHWAB ASSET ALLOCATION FUNDS
Schwab MarketTrack All Equity Portfolio
Schwab MarketTrack Growth Portfolio
Schwab MarketTrack Balanced Portfolio
Schwab MarketTrack Conservative Portfolio
Schwab MarketManager Growth Portfolio
Schwab MarketManager Balanced Portfolio
SCHWAB STOCK FUNDS
Schwab S&P 500 Fund
Schwab 1000 Fund-Registered Trademark-
Shwab Total Stock Market Index Fund
Schwab Analytics Fund-Registered Trademark-
Schwab Small-Cap Index Fund-Registered Trademark-
Schwab MarketManager Small Cap Portfolio
Schwab International Index Fund-Registered Trademark-
Schwab MarketManager International Portfolio
SCHWAB BOND FUNDS
Schwab YieldPlus Fund-TM-
Schwab Total Bond Market Index Fund
Schwab Short-Term Bond Market Index Fund
Schwab Long-Term Tax-Free Bond Fund
Schwab Short/Intermediate Tax-Free Bond Fund
Schwab California Long-Term Tax-Free Bond Fund
Schwab California Short/Intermediate
Tax-Free Bond Fund
SCHWAB MONEY MARKET FUNDS
Schwab offers an array of money market funds(1) that seek high current income
consistent with safety and liquidity. Choose from taxable or tax-advantaged
alternatives. Many can be linked to your Schwab account to "sweep" cash balances
automatically when you're between investments. Or, for your larger cash
reserves, choose one of our Value Advantage Investments-Registered Trademark-.
(1) Investments in money market funds are neither insured nor guaranteed by
the 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>
[LOGO]
INVESTMENT ADVISER
Charles Schwab Investment Management, Inc.
101 Montgomery Street, San Francisco, CA 94104
DISTRIBUTOR
Charles Schwab & Co., Inc.
P.O. 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. MKT4567 (4/00)
