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STATEMENT OF ADDITIONAL INFORMATION
SCHWAB CAPITAL TRUST
101 Montgomery Street, San Francisco, CA 94104
FEBRUARY 28, 1995,
AS AMENDED JUNE 30, 1995
This Statement of Additional Information is not a prospectus. It
should be read in conjunction with the Prospectuses, which may be amended from
time to time, dated February 28, 1995, as amended June 30, 1995, for Schwab
International Index FundTM (the "International Index Fund") and Schwab Small-Cap
Index Fund(TM) (the "Small-Cap Index Fund") two separately managed investment
portfolios of Schwab Capital Trust (the "Trust"). To obtain a copy of either of
these Prospectuses, please contact Charles Schwab & Co., Inc. ("Schwab") at
800-2 NO-LOAD, 24 hours a day or 101 Montgomery Street, San Francisco, CA
94104.
SCHWABFunds(R)
800-2 NO-LOAD
TABLE OF CONTENTS
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INVESTMENT OBJECTIVES . . . . . . . . . . . . . . . . . . . . . . . . . 2
INVESTMENT SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . 2
INVESTMENT RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . . 14
MANAGEMENT OF THE TRUST . . . . . . . . . . . . . . . . . . . . . . . . 17
PORTFOLIO TRANSACTIONS AND TURNOVER . . . . . . . . . . . . . . . . . . 24
TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
SHARE PRICE CALCULATION . . . . . . . . . . . . . . . . . . . . . . . . 29
TOTAL RETURN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
THE BENEFITS OF INTERNATIONAL INVESTING . . . . . . . . . . . . . . . . 30
INDEXING AND THE SCHWAB INDEX FUNDS . . . . . . . . . . . . . . . . . 30
GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . 34
PURCHASE AND REDEMPTION OF SHARES . . . . . . . . . . . . . . . . . . . 36
OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . 38
APPENDIX A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
APPENDIX B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
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INVESTMENT OBJECTIVES
The investment objective of the International Index Fund is to track
the price and dividend performance (total return) of the Schwab International
IndexTM, (the "International Index"), an index created to represent the
performance of common stocks and other equity securities issued by large
publicly traded companies from countries around the world with major developed
securities markets, excluding the United States. The International Index Fund's
investment objective, along with certain investment restrictions adopted by the
International Index Fund (see "Investment Restrictions"), is fundamental and
cannot be changed without approval by holders of a majority of the International
Index Fund's outstanding voting shares, as defined in the Investment Company Act
of 1940 (the "1940 Act"). The investment objective of the Small-Cap Index Fund
is to attempt to track the price and dividend performance (total return) of the
Schwab Small-Cap IndexTM (the "Small-Cap Index"), an index created to represent
the performance of the second 1,000 publicly traded common stocks issued by
United States companies, ranked by market capitalization (share price times the
number of shares outstanding). The Small-Cap Index Fund's investment objective,
along with certain investment restrictions adopted by the Small-Cap Index Fund
(see "Investment Restrictions") is fundamental and cannot be changed without
approval by holders of a majority of the Small-Cap Index Fund's outstanding
voting shares, as defined in the 1940 Act.
INVESTMENT SECURITIES
FOREIGN INVESTMENTS
The International Index Fund expects to invest primarily in stocks of
foreign issuers. Investing in foreign issuers involves certain special
considerations, including those set forth below, which are not typically
associated with investing in U.S. issuers. Since investments in the securities
of foreign issuers are usually made and held in foreign currencies, and since
the International Index Fund may hold cash in foreign currencies, it may be
affected favorably or unfavorably by changes in currency rates and in exchange
control regulations and may incur costs in connection with conversions between
various currencies.
Since foreign companies are not subject to uniform accounting, auditing
and financial reporting standards, practices and requirements comparable to
those applicable to U.S. companies, there may be less publicly available
information about a foreign company than about a U.S. company. Volume and
liquidity in most markets are less than in the U.S. and securities of many
foreign companies are less liquid and more volatile than securities of
comparable U.S. companies.
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Fixed commissions on foreign securities exchanges are generally higher than
negotiated commissions on U.S. exchanges, although the International Index Fund
endeavors to achieve the most favorable net results on their portfolio
transactions. There is generally less government supervision and regulation of
foreign securities exchanges, brokers, dealers and listed companies than in the
U.S., thus increasing the risk of delayed settlements of portfolio transactions
or loss of certificates for portfolio securities.
Foreign markets also have different clearance and settlement
procedures, and in certain markets there have been times when settlements have
been unable to keep pace with the volume of securities transactions, making it
difficult to conduct such transactions. Such delays in settlement could result
in temporary periods when a portion of the assets of the International Index
Fund is uninvested and no return is earned thereon. The inability of the
International Index Fund to make intended security purchases due to settlement
problems could cause the International Index Fund to miss attractive investment
opportunities. Losses to the International Index Fund arising out of the
International Index Fund's inability to fulfill a contract to sell such
securities, could result in potential liability to the International Index
Fund.
In addition, with respect to those countries in which the International
Index Fund may invest or other countries which may have a significant impact on
the companies in which the International Index Fund may invest, there is the
possibility of expropriation or confiscatory taxation, political or social
instability, diplomatic developments, change of government or war which could
affect the International Index Fund's investments. Moreover, individual foreign
economies may differ favorably or unfavorably from the U.S. economy in such
respects as growth of gross national product, rate of inflation, capital
reinvestment, resource self- sufficiency and balance of payments position.
Hong Kong. In addition to the risks discussed above, it is impossible
to currently foresee what risk, if any, may exist to the International Index
Fund's investments as a result of the planned 1997 incorporation of the British
Crown Colony of Hong Kong into the People's Republic of China. Shareholders
should note that the risks discussed above may increase depending on political
and economic developments as the scheduled time for the change in government in
Hong Kong draws nearer.
OPTIONS ON SECURITIES
Writing Covered Options. The Funds may write (sell) covered call and
put options on any securities in which they may invest. The Funds may purchase
and write such options on securities that are listed on domestic or foreign
securities exchanges or traded in the over-the-counter market. All call options
written by the Funds are covered, which means that the Funds will own the
securities subject to the option so long as the option is
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outstanding. The purpose of writing covered call options is to realize greater
income than would be realized on portfolio securities transactions alone.
However, in writing covered call options for additional income, the Funds may
forego the opportunity to profit from an increase in the market price of the
underlying security.
All put options written by the Funds will be covered, which means that
each of the Funds will have deposited with its custodian cash, U.S. government
securities or other high-grade debt securities (i.e., securities rated in one of
the top three categories by Moody's Investor Service ("Moody's") or Standard &
Poor's Corporation ("S&P"), or, if unrated, determined by the Funds' advisers
to be of comparable credit quality) with a value at least equal to the exercise
price of the put option. The purpose of writing such options is to generate
additional income for the Funds. However, in return for the option premium, the
Funds accept the risk that they may be required to purchase the underlying
securities at a price in excess of the securities market value at the time of
purchase.
The Funds may terminate their obligations under a written call or put
option by purchasing an option identical to the one it has written. Such
purchases are referred to as "closing purchase transactions."
Purchasing Options. The Funds may purchase put and call options on any
securities in which they may invest or options on any securities index based on
securities in which they may invest. The Funds would also be able to enter into
closing sale transactions in order to realize gains or minimize losses on
options they have purchased.
The writer of an option may have no control over when the underlying
securities must be sold, in the case of a call option, or purchased, in the case
of a put option, since, with regard to certain options the writer may be
assigned an exercise notice at any time prior to the termination of the
obligation. Whether or not an option expires unexercised, the writer retains
the amount of the premium. This amount may, in the case of a covered call
option, be offset by a decline in the market value of the underlying security
during the option period. If a call option is exercised, the writer experiences
a profit or loss from the sale of the underlying security. If a put option is
exercised, the writer must fulfill its obligation to purchase the underlying
security at the exercise price, which will usually exceed the then market value
of the underlying security.
The purchase of a call option would entitle the Funds, in return for
the premium paid, to purchase specified securities at a specified price during
the option period. The Funds would ordinarily realize a gain if, during the
option period, the value of such securities exceeded the sum of the exercise
price, the premium paid and transaction costs, otherwise the
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Funds would realize either no gain or a loss on the purchase of the call
option.
Risks Associated With Options Transactions. There is no assurance that
a liquid secondary market on a domestic or foreign options exchange will exist
for any particular exchange-traded option or at any particular time. If the
Funds are unable to effect a closing purchase transaction with respect to
covered options they have written, the Funds will not be able to sell the
underlying securities or dispose of assets held in a segregated account until
the options expire or are exercised. Similarly, if the Funds are unable to
effect a closing sale transaction with respect to options they have purchased,
they would have to exercise the options in order to realize any profit and will
incur transaction costs upon the purchase or sale of underlying securities.
Reasons for the absence of a liquid secondary market on an exchange
include the following: (i) there may be insufficient trading interest in certain
options; (ii) restrictions may be imposed by an exchange on opening transaction
or closing transactions or both; (iii) trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or series of
options; (iv) unusual or unforeseen circumstances may interrupt normal
operations on an exchange; (v) the facilities of an exchange or the Options
Clearing Corporation (the "OCC") may not at all times be adequate to handle
current trading volume; or (vi) one or more exchanges could, for economic or
other reasons, decide or be compelled at some future date to discontinue the
trading of options (or a particular class or series of options), although
outstanding options on that exchange that had been issued by the OCC as a result
of trades on that exchange would continue to be exercisable in accordance with
their terms.
The Funds may purchase and sell both options that are traded on U.S.
and foreign exchanges and options traded over-the- counter with broker-dealers
who make markets in these options. The ability to terminate over-the-counter
options is more limited than with exchange-traded options and may involve the
risk that broker-dealers participating in such transactions will not fulfill
their obligations. Until such time as the staff of the Securities and Exchange
Commission (the "SEC") changes its position, the Funds will treat purchased
over-the-counter options and all assets used to cover written over-the-counter
options as illiquid securities, except that with respect to options written with
primary dealers in the U.S. government securities pursuant to an agreement
requiring a closing purchase transaction at a formula price, the amount of
illiquid securities may be calculated with reference to a formula approved by
the staff of the SEC.
FOREIGN CURRENCY TRANSACTIONS
Forward Foreign Currency Exchange Contracts. The International Index
Fund may enter into forward foreign currency exchange contracts in several
circumstances, as indicated in the International Index Fund's Prospectus.
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Although the contracts are not presently regulated by the Commodity Futures
Trading Commission (the "CFTC"), the CFTC may in the future assert authority to
regulate these contracts. In such event, the International Index Fund's ability
to utilize forward foreign currency exchange contracts may be restricted.
The International Index Fund generally will not enter into a forward
contract with a term of greater than one year.
While the International Index Fund will enter into forward contracts to
reduce currency exchange rate risks, transactions in such contracts involve
certain other risks. Thus, while the International Index Fund may benefit from
such transactions, unanticipated changes in currency prices may result in a
poorer overall performance for the International Index Fund than if it had not
engaged in any such transactions. Moreover, there may be imperfect correlation
between the International Index Fund's portfolio holdings of securities
denominated in a particular currency and forward contracts entered into by the
International Index Fund. Such imperfect correlation may cause the International
Index Fund to sustain losses which will prevent the International Index Fund
from achieving a complete hedge or expose the International Index Fund to risk
of foreign exchange loss.
Writing and Purchasing Currency Call and Put Options. The
International Index Fund may write covered put and call options and purchase put
and call options on foreign currencies for the purpose of protecting against
declines in the dollar value of portfolio securities and against increases in
the dollar cost of securities to be acquired. A call option written by the
International Index Fund obligates the International Index Fund to sell
specified currency to the holder of the option at a specified price at any time
before the expiration date. A put option written by the International Index
Fund would obligate the International Index Fund to purchase specified currency
from the option holder at a specified time before the expiration date. The
writing of currency options involves a risk that the International Index Fund
will, upon exercise of the option, be required to sell currency subject to a
call at a price that is less than the currency's market value or be required to
purchase currency subject to a put at a price that exceeds the currency's
market value.
The International Index Fund may terminate its obligations under a call
or put option by purchasing an option identical to the one it has written. Such
purchases are referred to as "closing purchase transactions." The International
Index Fund would also be able to enter into closing sale transactions in order
to realize gains or minimize losses on options purchased by the International
Index Fund.
The purchase of a call option would entitle the International Index
Fund, in return for the premium paid, to purchase specified currency at a
specified price during the option period. The
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International Index Fund would ordinarily realize a gain or a loss on the
purchase of the call option.
The purchase of a put option would entitle the International Index
Fund, in exchange for the premium paid, to sell specific currency at a specified
price during the option period. The purchase of protective puts is designed
merely to offset or hedge against a decline in the dollar value of the
International Index Fund's portfolio securities due to currency exchange rate
fluctuations. The International Index Fund would ordinarily realize a gain, if,
during the option period, the value of the underlying currency decreased below
the exercise price sufficiently to more than cover the premium and transaction
costs; otherwise the International Index Fund would realize either no gain or a
loss on the purchase of the put option. Gains and losses on the purchase of
protective put options would tend to be offset by countervailing changes in the
value of the underlying currency.
Special Risks Associated With Options on Foreign Currency. An exchange
traded option position may be closed out only on an options exchange which
provides a secondary market for an option of the same series. Although the
International Index Fund will generally purchase or write only those options for
which there appears to be an active secondary market, there is no assurance that
a liquid secondary market on an exchange will exist for any particular option,
or at any particular time. For some options, no secondary market on an exchange
may exist, In such event, it might not be possible to effect closing
transactions in particular options, with the result that the International Index
Fund would have to exercise its options in order to realize any profit and would
incur transaction costs upon the sale of underlying securities pursuant to the
exercise of put options. If the International Index Fund as a covered call
option writer is unable to effect a closing purchase transaction in a secondary
market, it will not be able to sell the underlying currency (or security
denominated in that currency) until the option expires or it delivers the
underlying currency upon exercise.
There is no assurance that higher than anticipated trading activity or
other unforeseen events might not, at times, render certain of the facilities of
the OCC inadequate, and thereby result in the institution by an exchange of
special procedures which may interfere with the timely execution of customers'
orders.
The International Index Fund may purchase and write over-the-counter
options to the extent consistent with its limitations on investments in
restricted securities, as described in the Prospectus. Trading in
over-the-counter options is subject to the risk that the other party will be
unable or unwilling to close-out purchasing and writing activities.
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FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
To hedge against changes in interest rates, securities prices or
currency exchange rates, the Funds may purchase and sell various kinds of
futures contracts. The Funds may also enter into closing purchase and sale
transactions with respect to any such contracts and options. The futures
contracts may be based on various securities (such as U.S. government
securities), securities indices, foreign currencies and other financial
instruments and indices. The Funds will engage in futures and related option
transactions only for bona fide hedging or other appropriate risk management
purposes as defined below. All futures contracts entered into by the Funds are
traded on U.S. exchanges or boards of trade that are licensed and regulated by
the CFTC or on foreign exchanges.
Futures Contracts. A futures contract may generally be described as an
agreement between two parties to buy and sell particular financial instruments
for an agreed upon price during a designated month (or to deliver the final cash
settlement price, in the case of a contract relating to an index or otherwise
not calling for physical delivery at the end of trading in the contract).
When interest rates are rising or securities prices are falling, the
Funds can seek, through the sale of futures contracts, to offset a decline in
the value of its current portfolio securities. When rates are falling or prices
are rising, the Funds, through the purchase of futures contracts, can attempt to
secure better rates or prices than might later be available in the market when
they affect anticipated purchases. Similarly, the International Index Fund can
sell futures contracts on a specified currency to protect against a decline in
the value of such currency and its portfolio securities which are denominated in
such currency. The International Index Fund can purchase futures contracts on
foreign currency to fix the price in U.S. dollars of a security denominated in
such currency that the International Index Fund has acquired or expects to
acquire.
Although futures contracts by their terms generally call for the actual
delivery or acquisition of underlying securities or the cash value of the index,
in most cases the contractual obligation is fulfilled before the date of the
contract without having to make or take such delivery. The contractual
obligation is offset by buying (or selling, as the case may be) on a commodities
exchange an identical futures contract calling for delivery in the same month.
Such a transaction, which is effected through a member of an exchange, cancels
the obligation to make or take delivery of the securities or the cash value of
the index underlying the contractual obligations. The Funds may incur brokerage
fees when it purchases or sells futures contracts.
Positions taken in the futures markets are not normally held to
maturity, but are instead liquidated through offsetting transactions which may
result in
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a profit or a loss. While the Funds' futures contracts on securities or
currency will usually be liquidated in this manner, the Funds may instead make
or take delivery of the underlying securities or currency whenever it appears
economically advantageous for them to do so. A clearing corporation associated
with the exchange on which futures on securities or currency are traded
guarantees that, if still open, the sale or purchase will be performed on the
settlement date.
Hedging Strategies With Futures. Hedging by use of futures contracts
seeks to establish more certainty than would otherwise be possible with respect
to the effective price, rate of return or currency exchange rate on portfolio
securities or securities that the Funds own or propose to acquire. Such futures
contracts may include contracts for the future delivery of securities held by
the Funds or securities with characteristics similar to those of the Funds'
portfolio securities. Similarly, the International Index Fund may sell futures
contracts on currency in which its portfolio securities are denominated or in
one currency to hedge against fluctuations in the value of securities
denominated in a different currency if there is an established historical
pattern of correlation between the two currencies. If, in the opinion of the
Funds' advisers, there is a sufficient degree of correlation between price
trends for the Funds' portfolio securities and futures contracts based on other
financial instruments, securities indices or other indices, the Funds may also
enter into such futures contracts as part of their hedging strategy. Although
under some circumstances, prices of securities in the Funds' portfolio may be
more or less volatile than prices of such futures contracts, the Funds' advisers
will attempt to estimate the extent of this difference in volatility based on
historical patterns and to compensate for it by having the Funds enter into a
greater or lesser number of futures contracts or by attempting to achieve only a
particular hedge against price changes affecting the Funds' portfolio
securities. When hedging of this character is successful, any depreciation in
the value of the portfolio securities will substantially be offset by
appreciation in the value of the futures position. On the other hand, any
unanticipated appreciation in the value of the Funds' portfolio securities would
be substantially offset by a decline in the value of the futures position.
On other occasions, the Funds may take "long" positions by purchasing
such futures contracts. This would be done, for example, when the Funds
anticipate the subsequent purchase of particular securities when they have the
necessary cash, but expects the prices or currency exchange rates then available
in the applicable market to be less favorable than prices that are currently
available.
Options on Futures Contracts. The acquisition of put and call options
on futures contracts will give the Funds the right (but not the obligation), for
a specified price, to sell or to purchase, respectively, the underlying futures
contract at any time during the option period. As the purchaser of an option on
a futures contract, the Funds obtain the
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benefit of the futures position if prices move in a favorable direction but
limit their risk of loss in the event of an unfavorable price movement to the
loss of the premium and transaction costs.
The writing of a call option on a futures contract generates a premium
which may partially offset a decline in the value of the Funds' assets. By
writing a call option, the Funds become obligated, in exchange for the premium,
to sell a futures contract, which may have a value lower than the exercise
price. Thus, the loss incurred by the Funds in writing options on futures is
potentially unlimited and may exceed the amount of the premium received. The
Funds will incur transaction costs in connection with the writing of options on
futures.
The holder or writer of an option on a futures contract may terminate
its position by selling or purchasing an offsetting option on the same series.
There is no guarantee that such closing transactions can be effected. The
Funds' ability to establish and close out positions on such options will be
subject to the development and maintenance of a liquid market.
The Funds may use options on futures contracts solely for bona fide
hedging or other appropriate risk management purposes as defined below.
Other Considerations. The Funds will engage in futures and related
options transactions only for bona fide hedging or other appropriate risk
management purposes in accordance with CFTC regulations which permit principals
of an investment company registered under the 1940 Act to engage in such
transactions without registering as commodity pool operators. "Appropriate risk
management purposes" means activities in addition to bona fide hedging which the
CFTC deems appropriate for operators of entities, including registered
investment companies, that are excluded from the definition of commodity pool
operator. The Funds are not permitted to engage in speculative futures trading.
The Funds will determine that the price fluctuations in the futures contracts
and options on futures used for hedging purposes are substantially related to
price fluctuations in securities held by the Funds or which they expect to
purchase. Except as stated below, the Funds' futures transactions will be
entered into for traditional hedging purposes--i.e., futures contracts will be
sold to protect against a decline in the price of securities, or the currency
will be purchased to protect the Fund against an increase in the price of
securities, or the currency in which they are denominated. As evidence of this
hedging intent, the Funds expect that on 75% or more of the occasions on which
it takes a long futures (or option) position (involving the purchase of futures
contracts), the Funds will have purchased, or will be in the process of
purchasing, equivalent amounts of related securities (or assets denominated in
the related currency) in the cash market at the time when the futures (or
option) position is closed out. However, in particular cases, when it is
economically advantageous for the Funds to do so, a long futures position
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may be terminated (or an option may expire) without the corresponding purchase
of securities or other assets. As an alternative to literal compliance with the
bona fide hedging definition, a CFTC regulation permits the Funds to elect to
comply with a different test, under which (i) the Funds' futures positions will
be used as part of its portfolio management strategy and will be incidental to
its activities in the underlying cash market and (ii) the underlying commodity
value of such positions will not exceed the sum of (a) cash or cash equivalents
segregated for this purpose, (b) cash proceeds on existing investments due
within 30 days, and (c) accrued profits on such futures or options positions.
Each of the Funds will engage in transactions in futures contracts and
related options only to the extent such transactions are consistent with the
requirements of the Internal Revenue Code of 1986, as amended (the "Code") for
maintaining its qualification as a regulated investment company for federal
income tax purposes.
The Funds may not purchase or sell futures contracts or purchase or
sell related options, except for closing purchase or sale transactions, if
immediately thereafter the sum of the amount of margin deposits on the Funds'
outstanding futures and related options positions and the amount of premiums
paid for outstanding options on futures would exceed 5% of the market value of
that Fund's total assets. These transactions involve brokerage costs, require
margin deposits and, in the case of futures contracts and options obligating the
Funds to purchase securities or currencies, require the Funds to segregate
assets to cover such contracts and options.
While transactions in futures contracts and options on futures may
reduce certain risks, such transactions themselves entail certain other risks.
Thus, while the Funds may benefit from the use of futures and options on
futures, unanticipated changes in interest rates, securities prices or currency
exchange rates may result in a poorer overall performance for the Funds than if
they had not entered into any futures contracts or options transactions. In the
event of an imperfect correlation between a futures position and portfolio
position which is intended to be protected, the desired protection may not be
obtained and the Funds may be exposed to risk of loss.
Perfect correlation between the Funds' futures positions and portfolio
positions may be difficult to achieve. In addition, it is not possible to hedge
fully or perfectly against currency fluctuations affecting the value of
securities denominated in foreign currencies because the value of such
securities is likely to fluctuate as a result of independent factors not related
to currency fluctuations.
CERTIFICATES OF DEPOSIT AND BANKERS' ACCEPTANCES
Certificates of deposit are certificates issued against funds deposited
in a banking institution for a specified
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period of time at a specified interest rate. Bankers' acceptances are credit
instruments evidencing a bank's obligation to pay a draft drawn on it by a
customer. These instruments reflect the obligation both of the bank and of the
drawer to pay the full amount of the instrument upon maturity. Each Fund will
only invest in certificates of deposit and bankers' acceptances of banks having
capital, surplus and undivided profits in excess of $100 million.
COMMERCIAL PAPER
Commercial paper consists of short-term, unsecured promissory notes
issued to finance short-term credit needs. The Funds will only invest in
commercial paper that at the time of purchase is rated Prime-1 or Prime-2 by
Moody's, A-1 or A-2 by S&P, "Duff 2" or higher by Duff & Phelps, Inc. ("Duff"),
or "F2" or higher by Fitch Investors Services, Inc. ("Fitch") or if unrated by
Moody's, S&P, Duff, or Fitch, is determined by Charles Schwab Investment
Management, Inc. (the "Investment Manager"), using guidelines approved by the
Board of Trustees, to be at least equal in quality to one or more of the above
ratings.
OTHER INVESTMENT POLICIES
Securities which are acquired by the International Index Fund outside
the U.S. and which are publicly traded in the U.S. or on a foreign securities
exchange or in a foreign securities market are not considered by the Fund to be
illiquid assets so long as the Fund acquires and holds the securities with the
intention of reselling the securities in the foreign trading market, the Fund
reasonably believes it can readily dispose of the securities in the foreign
trading market, the Fund reasonably believes it can readily dispose of the
securities for cash in the U.S., or foreign market and current market quotations
are readily available. Investments may be in securities of foreign issuers,
whether located in developed or undeveloped countries. Investments in foreign
securities where delivery takes place outside the U.S. will have to be made in
compliance with any applicable U.S. and foreign currency restrictions and tax
laws (including laws imposing withholding taxes on any dividend or interest
income) and laws limiting the amount and types of foreign investments. Changes
of government administrations or of economic or monetary policies, in the U.S.
or abroad, or changed circumstances convertibility or exchange rates could
result in investment losses for the Fund. Investments in foreign securities may
also subject the Fund to losses due to nationalization, expropriation or
differing accounting practices and treatments. Moreover, investors should
recognize that foreign securities are often traded with less frequency and
volume, and therefore may have greater price volatility, than is the case with
many U.S. securities. Notwithstanding the fact that the Fund generally intends
to acquire the securities of foreign issuers where there are public trading
markets, investments by the Fund in the securities of foreign issuers may tend
to increase the risks with respect to
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the liquidity of the Fund's portfolio and the Fund's ability to meet a large
number of shareholder redemption requests should there be economic or political
turmoil in a country in which the Fund has a substantial portion of its assets
invested or should relations between the U.S. and foreign countries deteriorate
markedly. Furthermore, the reporting and disclosure requirements applicable to
foreign issuers may differ from those applicable to domestic issuers, and there
may be difficulties in obtaining or enforcing judgments against foreign issuers.
Loans of Portfolio Securities. The Funds may loan securities to
qualified broker-dealers or other institutional investors provided that such
loans do not exceed one-third of the value of the Funds' total assets at the
time of the most recent loan, and that the borrower deposits and maintains with
the Funds cash collateral or U.S. government securities with a value equal to
102% of the value of the securities loaned. The lending of securities is a
common practice in the securities industry. The Funds will engage in security
lending arrangements with the primary objective of increasing the Funds' income
through investment of the cash collateral in short-term, interest-bearing
obligations, but will do so only to the extent that the Funds will not lose the
tax treatment available to regulated investment companies. The Funds will be
entitled to all dividends or interest on any loaned securities.
Repurchase Transactions. Repurchase agreements are instruments under
which a buyer acquires ownership of a security from a seller that agrees to
repurchase the security at a mutually agreed upon time and price (which price is
higher than the purchase price), thereby determining the yield during the
buyer's holding period. Under the 1940 Act, a repurchase agreement is deemed to
be the loan of money by a Fund to the seller, collateralized by the underlying
security. The interest rate is effective for the period of time in which the
Funds are invested in the agreement and is not related to the coupon rate on the
underlying security. Any repurchase agreements entered into by a Fund will
involve the Fund as the buyer and banks or broker-dealers as sellers (repurchase
agreements with broker-dealers will be limited to obligations of the U.S.
Government, its agencies or instrumentalities). The period of these repurchase
agreements will usually be short, from overnight to one week, and at no time
will the Funds invest in repurchase agreements for more than one year. However,
the securities which are subject to repurchase agreements may have maturity
dates in excess of one year from the effective date of the repurchase
agreements. The transaction requires the initial collateralization of the
seller's obligation with securities having a market value, including accrued
interest, equal to at least 102% of the dollar amount invested by the Funds,
with the value marked-to-market daily to maintain 100% coverage. A default by
the seller might cause the Funds to experience a loss or delay in the
liquidation of the collateral securing the repurchase agreement. The Funds might
also incur disposition costs in liquidating the collateral. The Funds will
13
<PAGE> 14
make payment for such securities only upon physical delivery or evidence of book
entry transfer to the account of its custodian bank. The Funds may not enter
into a repurchase agreement of more than seven days duration if, as a result,
the market value of the Funds' net assets, together with investments in other
securities deemed to be not readily marketable, would be invested in excess of
the Funds' policy on investments in illiquid securities.
In the event of a bankruptcy or other default of a repurchase
agreement's seller, a Fund might incur expenses in enforcing its rights, and
could experience losses, including a decline in the value of the underlying
securities and loss of income. Each Fund will not invest more than 10% of its
total assets at the time of purchase in repurchase agreements maturing in more
than seven days and other illiquid securities.
Illiquid Securities. Each Fund reserves the right to invest up to 10%
of their net assets in illiquid securities. Generally an "illiquid security" is
any security that cannot be disposed of promptly and in the ordinary course of
business at approximately the amount at which the Funds have valued the
instrument. Subject to this limitation, the Funds may invest in restricted
securities where such investment is consistent with the Funds' investment
objectives and such securities may be considered to be liquid to the extent the
Funds' Investment Manager determines that there is a liquid institutional or
other market for such securities. In determining whether a restricted security
is properly considered a liquid security, the Funds' advisers will take into
account the following factors: (i) the frequency of trades and quotes for the
security; (ii) the number of dealers willing to purchase or sell the security
and the number of potential purchasers; (iii) dealer undertakings to make a
market in the security; and (iv) the nature of the security and the nature of
the marketplace trades (e.g., the time needed to dispose of the security, the
method of soliciting offers, and the mechanics of transfer). To the extent the
Funds invest in restricted securities that are deemed liquid, the general level
of illiquidity in the Funds' portfolio may be increased if qualified
institutional buyers become uninterested in purchasing these securities
contracts.
INVESTMENT RESTRICTIONS
Except as otherwise noted, the restrictions below are fundamental and
cannot be changed without approval of the holders of a majority of the
outstanding voting securities (as defined in the 1940 Act). Each of the Funds
may not:
14
<PAGE> 15
1) As to 75% of its assets, purchase securities of any issuer
(other than obligations of, or guaranteed by, the United States Government, its
agencies or instrumentalities) if, as a result, more than 5% of the value of its
total assets would be invested in the securities of such issuer.
2) Purchase securities (other than securities issued or guaranteed
by the U.S. Government, its agencies or instrumentalities) if, as a result of
such purchase, 25% or more of the value of its total assets would be invested in
any industry (except that the Funds may purchase securities under such
circumstances only to the extent that the Schwab International Index(TM) or the
Schwab Small-Cap Index(TM) is also so concentrated).
3) Invest more than 10% of the total value of its assets in
illiquid securities, including repurchase agreements with maturities in excess
of seven days.
4) Purchase or retain securities of an issuer if any of the
officers, trustees or directors of the Trust, the Investment Manager
individually own beneficially more than 1/2 of 1% of the securities of such
issuer and together beneficially own more than 5% of the securities of such
issuer.
5) Purchase or sell commodities or real estate, including
interests in real estate limited partnerships, provided that each Fund may (i)
purchase securities of companies that deal in real estate or interests therein,
and (ii) purchase or sell futures contracts, options contracts, equity index
participations and index participation contracts.
6) Invest for the purpose of exercising control or management of
another issuer.
7) Purchase securities of other investment companies, except as
permitted by the 1940 Act.
8) Lend money to any person, except that each Fund may (i)
purchase a portion of an issue of short-term debt securities or similar
obligations (including repurchase agreements) that are publicly distributed or
customarily purchased by institutional investors, and (ii) lend its portfolio
securities.
9) Borrow money except from banks as a temporary measure to
satisfy redemption requests or for extraordinary or emergency purposes and then
only in an amount not to exceed one-third of the value of its total assets
(including the amount borrowed), provided that each Fund will not purchase
securities while borrowings represent more than 5% of its total assets.
15
<PAGE> 16
10) Pledge, mortgage or hypothecate any of its assets except that,
to secure allowable borrowings, each Fund may do so with respect to no more than
one-third of the value of its total assets.
11) Underwrite securities issued by others except to the extent it
may be deemed to be an underwriter, under the federal securities laws, in
connection with the disposition of securities from its investment portfolio.
In order to permit the sale of shares of each Fund in certain
jurisdictions, each Fund may make commitments more restrictive than the
fundamental operating restrictions described above. Should it do so and later
determine that any such commitment is no longer in the best interests of the
Fund and its shareholders, it will revoke the commitment(s) by terminating sales
of its shares in the jurisdiction(s) involved.
The following restrictions are non-fundamental and may be changed by
the Trust's Board of Trustees. Each of the Funds may not:
1) Purchase more than 10% of any class of securities of any issuer
if, as a result of such purchase, it would own more than 10% of such issuer's
outstanding voting securities.
2) Invest more than 5% of its total assets in securities of
issuers (other than obligations of, or guaranteed by the United States
Government, its agencies or instrumentalities) that with their predecessors have
a record of less than three years continuous operation.
3) Invest more than 5% of its net assets in warrants, valued at
the lower of cost or market, and no more than 40% of this 5% may be invested in
warrants that are not listed on the New York Stock Exchange or the American
Stock Exchange, provided, however, that for purposes of this restriction,
warrants acquired by a Fund in units or attached to other securities are deemed
to be without value.
4) Purchase puts, calls, straddles, spreads or any combination
thereof if by reason of such purchase the value of its aggregate investment in
such securities would exceed 5% of the Fund's total assets.
5) Make short sales, except for short sales against the box.
6) Purchase or sell interests in oil, gas or other mineral
development programs or leases, although it may invest in companies that own or
invest in such interests or leases.
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<PAGE> 17
7) Purchase securities on margin, except such short-term credits
as may be necessary for the clearance of purchases and sales of securities.
MANAGEMENT OF THE TRUST
OFFICERS AND TRUSTEES. The officers and trustees of the Trust, their
principal occupations over the past five years and their affiliations, if any,
with The Charles Schwab Corporation, Schwab, and Charles Schwab Investment
Management, Inc., are as follows:
<TABLE>
<CAPTION>
POSITION WITH
-------------
NAME THE TRUST PRINCIPAL OCCUPATION
- ---- --------- --------------------
<S> <C> <C>
CHARLES R. SCHWAB* Chairman and Trustee Founder, Chairman, Chief Executive Officer and
Age: 57 Director, The Charles Schwab Corporation;
Founder, Chairman and Director, Charles Schwab &
Co., Inc. and Charles Schwab Investment
Management, Inc.; Chairman and Director, The
Charles Schwab Trust Company and Mayer &
Schweitzer, Inc. (a securities brokerage
subsidiary of The Charles Schwab Corporation);
Director, The Gap, Inc. (a clothing retailer),
Transamerica Corporation (a financial services
organization) and AirTouch Communications (a
telecommunications company).
ELIZABETH G. SAWI ** President and Trustee Executive Vice President - Mutual Funds, Charles
Age: 43 Schwab & Co., Inc. and The Charles Schwab
Corporation; President, Charles Schwab
Investment Management, Inc. Prior to April
1994, Ms. Sawi was Executive Vice President -
Marketing and Advertising for Charles Schwab &
Co., Inc. and The Charles Schwab Corporation.
DONALD F. DORWARD Trustee President and Chief Executive Officer, Dorward &
Age: 63 Associates (advertising and
marketing/consulting).
ROBERT G. HOLMES Trustee Chairman, Chief Executive Officer and Director,
Age: 63 Semloh Financial, Inc. (international financial
services).
DONALD R. STEPHENS Trustee Managing Partner, D.R. Stephens & Co. (real
Age: 56 estate investment). Prior to 1993, Mr. Stephens
was Chairman and Chief Executive Officer of the
Bank of San Francisco.
</TABLE>
- -------------------------
*Mr. Schwab is an "interested person" of the Trust.
**Ms. Sawi is an "interested person" of the Trust.
17
<PAGE> 18
<TABLE>
<S> <C> <C>
MICHAEL W. WILSEY Trustee Chairman, Chief Executive Officer and Director,
Age: 51 Wilsey Bennett, Inc. (truck and air
transportation, real estate investment and
management, and investments).
A. JOHN GAMBS Treasurer and Principal Executive Vice President - Finance and Chief
Age: 49 Financial Officer Financial Officer, The Charles Schwab
Corporation; Executive Vice President, Chief
Financial Officer and Director, Charles Schwab &
Co., Inc.; Chief Financial Officer and Director,
Charles Schwab Investment Management, Inc.; and
Chief Financial Officer, The Charles Schwab
Trust Company.
WILLIAM J. KLIPP*** Senior Vice President, Senior Vice President, Charles Schwab & Co.,
Age: 39 Chief Operating Officer Inc. and Chief Operating Officer, Charles Schwab
and Trustee Investment Management, Inc. Prior to 1993, Mr.
Klipp was Treasurer of Charles Schwab & Co.,
Inc. and Mayer & Schweitzer, Inc. Prior to
1990, he was Vice President, Director Funding,
Merrill Lynch & Co., Inc.
STEPHEN B. WARD Senior Vice President & Senior Vice President, Charles Schwab Investment
Age: 39 Chief Investment Management, Inc. Prior to 1991, Mr. Ward was
Officer Vice President and Portfolio Manager for
Federated Investors.
FRANCES COLE Secretary Chief Counsel and Compliance Officer, Assistant
Age: 39 Corporate Secretary, Charles Schwab Investment
Management, Inc. Prior to 1991, Ms. Cole was
Senior Counsel for Equitec Securities Company.
TIMOTHY B. PAWLOSKI Assistant Treasurer Vice President of Finance- SchwabFunds(R), 1991
Age: 36 to 1993, Mr. Pawloski was Director of Finance
for Charles Schwab & Co., Inc. and from 1987 to
1991, he served as a Senior Manager at Price
Waterhouse.
PAMELA E. HERLICH Assistant Secretary Assistant Corporate Secretary, The Charles
Age: 41 Schwab Corporation and Charles Schwab & Co.,
Inc.; Corporate Secretary, Charles Schwab
Investment Management, Inc., Mayer & Schweitzer
and The Charles Schwab Trust Company. Prior to
1993, Ms. Herlich was Assistant Corporate
Secretary for Mayer & Schweitzer, Inc. and The
Charles Schwab Trust Company.
</TABLE>
- -------------------------
***Mr. Klipp is an "interested person" of the Trust.
18
<PAGE> 19
<TABLE>
<S> <C> <C>
DAVID H. LUI Assistant Secretary Senior Counsel - Charles Schwab Investment
Age: 34 Management, Inc. From 1991 to 1992, he was
Assistant Secretary and Assistant Corporate
Counsel for the Franklin Group of Mutual Funds.
Prior to 1991, he was an Associate for Thelen,
Marrin, Johnson & Bridges (a San Francisco law
firm).
CHRISTINA M. PERRINO Assistant Secretary Senior Counsel - Charles Schwab Investment
Age: 34 Management, Inc. Prior to 1994, she was
Counsel and Assistant Secretary for North
American Security Life Insurance Company and
Secretary for North American Funds.
</TABLE>
Each of the above-referenced Officers and/or Trustees also serves in
the same capacity as described for the Trust for Schwab Investments, The Charles
Schwab Family of Funds, Schwab Annuity Portfolios, and Schwab Advantage Trust
(which has not yet commenced operations). The address of each individual listed
above is 101 Montgomery Street, San Francisco, California 94104.
19
<PAGE> 20
COMPENSATION TABLE(1)
<TABLE>
<CAPTION>
Pension or
Retirement
Benefits Estimated
Accrued as Part Annual Benefits
of Fund Upon Total
Aggregate Expenses from Retirement from Compensation
Name of Person, Compensation the Fund the Fund from the Fund
Position from the Trust Complex(2) Complex(2) Complex(2)
- --------------- -------------- --------------- --------------- -------------
<S> <C> <C> <C> <C>
Charles R. Schwab, 0 N/A N/A 0
Chairman and Trustee
Elizabeth G. Sawi, 0 N/A N/A 0
President and Trustee
William J. Klipp, 0 N/A N/A 0
Sr. Vice President,
Chief Operating
Officer, and Trustee
Donald F. Dorward, 16,000 N/A N/A 55,000
Robert G. Holmes, 16,000 N/A N/A 55,000
Donald R. Stephens, 16,000 N/A N/A 55,000
Trustee
Michael W. Wilsey, 16,000 N/A N/A 55,000
</TABLE>
1. Figures are for the Trust's fiscal year ended October 31, 1994.
2. "Fund Complex" comprises all 19 funds of the Trust, The
Charles Schwab Family of Funds, Schwab Investments and
Schwab Annuity Portfolios.
Pursuant to exemptive relief received by the Trust from the Securities and
Exchange Commission, the Trust may enter into deferred fee arrangements (the
"Fee Deferral Plan" or the "Plan") with the Trust's trustees who are not
"interested persons" of any of the Funds of the Trust (the "Independent
Trustees" or the "Trustees").
As of the date of this Statement of Additional Information, none of the
Independent Trustees has elected to participate in the Fee Deferral Plan. In
20
<PAGE> 21
the event an Independent Trustee does elect to participate in the Plan, the Plan
would operate as described below.
Under the Plan, deferred Trustee's fees will be credited to a book reserve
account established by the Trust (the "Deferred Fee Account"), as of the date
such fees would have been paid to such Trustee. The value of the Deferred Fee
Account as of any date will be equal to the value the Account would have had as
of that date if the amounts credited to the Account had been invested and
reinvested in the securities of the SchwabFund(R) or SchwabFunds selected by the
participating Trustee (the "Selected SchwabFund Securities"). SchwabFunds
include the series or classes of shares of beneficial interest of the Trust,
The Charles Schwab Family of Funds, and Schwab Investments.
Pursuant to the exemptive relief granted to the Trust, each Fund will
purchase and maintain the Selected SchwabFund Securities in an amount equal to
the deemed investments in that Fund of the Deferred Fee Accounts of the
Independent Trustees. The exemptive relief granted to the Trust permits the
Funds and the Trustees to purchase the Selected SchwabFund Securities, which
transactions would otherwise be limited or prohibited by the investment policies
and/or restrictions of the Funds. See "Investment Restrictions."
INVESTMENT MANAGER
Charles Schwab Investment Management, Inc. (the "Investment Manager"),
a wholly-owned subsidiary of The Charles Schwab Corporation, serves as the
Funds' investment adviser and administrator pursuant to an Investment Advisory
and Administration Agreement (the "Advisory Agreement") between it and the
Trust. The Investment Manager is registered as an investment adviser under the
Investment Advisers Act of 1940, as amended, and currently provides investment
management services to the SchwabFunds(R), a family of 18 mutual funds with
approximately $27 billion in assets as of June 15, 1995. The Investment Manager
is an affiliate of Schwab, the Trust's distributor and shareholder services and
transfer agent. The Advisory Agreement will continue in effect until July 21,
1996 with respect to the Schwab International Index Fund and October 14, 1996
with respect to the Schwab Small-Cap Index Fund, and thereafter will continue
for one year terms subject to annual approval by: (1) the Trust's Board of
Trustees or (2) a vote of a majority (as defined in the 1940 Act) of the
outstanding voting securities of a Fund. In either event, the continuance must
also be approved by a majority of the Trust's Board of Trustees who are not
parties to the Agreement or interested persons (as defined in the 1940 Act) of
any such party by vote cast in person at a meeting called for the purpose of
voting on such approval. The Advisory Agreement may be terminated at any time
upon 60 days notice by either party, or by a majority
21
<PAGE> 22
vote of the outstanding shares of a Fund, and will terminate automatically upon
assignment.
International Index Fund. For its advisory and administrative services
to the International Index Fund, the Investment Manager is entitled to receive a
graduated annual fee, payable monthly, of 0.70% of the Fund's average daily net
assets not in excess of $300 million, and 0.60% of such assets over $300
million.
The Investment Manager and Schwab have guaranteed that, through at
least June 30, 1996, the total fund operating expenses for the International
Index Fund will not exceed 0.69% of that Fund's average daily net assets.
For the fiscal period from September 9, 1993 (commencement of
operations) to October 31, 1993, no investment advisory fees were paid by the
International Index Fund (fees were reduced by $97,986). For the fiscal year
ended October 31, 1994, the International Index Fund paid investment advisory
fees of $474,0000 (fees were reduced by $388,000).
Small-Cap Index Fund. For its advisory and administrative services to
the Small-Cap Index Fund, the Investment Manager is entitled to receive a
graduated annual fee, payable monthly, of 0.50% of the Fund's average daily net
assets not in excess of $300 million, and 0.45% of such assets over $300
million.
The Investment Manager and Schwab have guaranteed that, through June
30, 1996, the total fund operating expenses for the Small-Cap Index Fund will
not exceed 0.59% of that Fund's average daily net assets.
For the fiscal period from December 3, 1993 (commencement of
operations) to October 31, 1994, the Small-Cap Index Fund paid investment
advisory fees of $151,861 (fees were reduced by $106,533).
Additional Information. The Advisory Agreement provides that the fees
to be paid to the Investment Manager will be less than the amount that would
cause the aggregate operating expenses of a Fund (excluding interest, taxes, net
brokerage commissions and extraordinary expenses) in any year to exceed the most
stringent limits prescribed by any state in which shares of a Fund are offered
for sale. The most stringent current limit for such expenses is 2.5% of a
fund's first $30 million of average net assets, 2.0% of a fund's next $70
million of average net assets and 1.5% of a fund's average net assets in excess
of $100 million.
From time to time, each Fund may compare its total operating expense
ratio to the total operating expense ratio of other mutual funds or mutual fund
averages with similar investment objectives as reported by Lipper Analytical
Service, Inc., Morningstar, Inc. or other independent sources of such
information ("independent sources").
22
<PAGE> 23
SUB-ADVISER
As of May 1, 1995 and June 30, 1995, Dimensional Fund Advisors Inc.
("Dimensional") no longer served as the sub-adviser to the Schwab Small-Cap
Index Fund and the Schwab International Index Fund, respectively. As of the
same dates, the Investment Manager became responsible for providing all
investment advisory services to the Funds.
Expenses. Under the sub-advisory agreement between Dimensional and the
Investment Manager, the Investment Manager paid Dimensional the following
amounts for the fiscal periods indicated below.
International Index Fund: $20,999 and $185,000 for the fiscal period from
September 9, 1993 (commencement of operations) to October 31, 1993 and for the
fiscal year ended October 31, 1994, respectively.
Small-Cap Index Fund: $51,419 for the fiscal period from December 3, 1993
(commencement of operations) to October 31, 1994.
DISTRIBUTOR
Pursuant to a Distribution Agreement, Schwab is the principal
underwriter for shares of the Trust and is the Trust's agent for the purpose of
the continuous offering of the Funds' shares. Each Fund pays the cost for the
prospectuses and shareholder reports to be prepared and delivered to existing
shareholders. Schwab pays such costs when the described materials are used in
connection with the offering of shares to prospective investors and for
supplementary sales literature and advertising. Schwab receives no fee under
the Distribution Agreement. Terms of continuation, termination and assignment
under the Distribution Agreement are identical to those described above with
respect to the Advisory Agreement.
CUSTODIAN AND FUND ACCOUNTANT
State Street Bank and Trust Company, at 1 Heritage Drive, North
Quincy, Massachusetts 02171-2197, serves as Custodian and as Fund Accountant
for the Trust.
ACCOUNTANTS AND REPORTS TO SHAREHOLDERS
The Trust's independent accountants, Price Waterhouse LLP, audit and
report on the annual financial statements of each series of the Trust and review
certain regulatory reports and the Trust's federal income tax return. Price
Waterhouse LLP also performs other professional accounting, auditing, tax and
advisory services when engaged to do so by the Trust. Shareholders will be sent
audited annual and unaudited semi-annual financial statements. The address of
Price Waterhouse LLP is 555 California Street, San Francisco, California 94104.
23
<PAGE> 24
LEGAL COUNSEL
Ropes & Gray, 1001 Pennsylvania Avenue, N.W., Suite 1200 South,
Washington, D.C. 20004, is counsel to the Trust.
PORTFOLIO TRANSACTIONS AND TURNOVER
PORTFOLIO TRANSACTIONS
In effecting securities transactions for the Funds, the Investment
Manager seeks to obtain best price and execution. Subject to the supervision of
the Board of Trustees, the Investment Manager will generally select brokers and
dealers for the Funds primarily on the basis of the quality and reliability of
brokerage services, including execution capability and financial responsibility.
In assessing these criteria, the Investment Manager will, among other things,
monitor the performance of brokers effecting transactions for the Funds to
determine the effect, if any, the Funds' transactions through those brokers have
on the market prices of the stocks involved. This may be of particular
importance for the Funds' investments in relatively smaller companies whose
stocks are not as actively traded as those of their larger counterparts. The
Funds will seek to buy and sell securities in a manner that causes the least
possible fluctuation in the prices of those stocks in view of the size of the
transactions.
In an attempt to obtain best execution for the Funds, the Investment
Manager may also place orders directly with market makers or with third market
brokers, Instinet or brokers on an agency basis. Placing orders with third
market brokers or through Instinet may enable the Funds to trade directly with
other institutional holders on a net basis. At times, this may allow the Funds
to trade larger blocks than would be possible trading through a single market
maker.
When the execution and price offered by two or more broker-dealers are
comparable, the Investment Manager may, in its discretion, in agency
transactions (and not principal transactions) utilize the services of
broker-dealers that provide it with investment information and other research
resources. Such resources may also be used by the Investment Manager when
providing advisory services to other investment advisory clients, including
mutual funds.
In determining when and to what extent to use Schwab as its broker for
executing orders for the Funds on securities exchanges, the Investment Manager
will consider (if relevant) whether the compensation to be paid Schwab will be
(i) fair and reasonable, (ii) at least as favorable to the Funds as commissions
that would be charged by other qualified brokers having comparable execution
capabilities, and (iii) at least as favorable as commissions contemporaneously
24
<PAGE> 25
charged by Schwab on comparable transactions for its most favored unaffiliated
customers. The Funds do not consider it practicable or in the best interests of
their shareholders to solicit competitive bids for commission rates on each
transaction. However, the Board of Trustees, including a majority of the
trustees who are not "interested persons" of Schwab within the meaning of the
1940 Act, (i) has prescribed procedures designed to provide that the Funds do
not pay commissions that do not meet the standards described above, (ii) reviews
those procedures annually to determine whether they remain adequate, and (iii)
considers quarterly whether or not the commissions charged by Schwab have met
the standards.
Schwab's brokerage services to the Funds are also subject to Rule
11a2-2(T) under the Securities Exchange Act of 1934, as amended. Rule 11a2-2(T)
permits the Funds to use Schwab as a broker provided certain conditions are met.
Among these requirements are that the floor brokerage element of portfolio
transactions (that is, execution on the exchange floor or through use of
exchange facilities) be performed by members of the exchange not associated with
Schwab, that the orders to such members be transmitted from off the exchange
floor and that neither Schwab nor an associated person of Schwab participates in
the execution of the transaction after the order has been so transmitted. In
connection with transactions in which Schwab acts as broker for the Funds,
Schwab, while not permitted to perform floor brokerage (which is undertaken by
members selected by Schwab who are not associated with that firm), still
continues to bear principal responsibility for determining important elements of
overall execution such as timing and order size, and also clears and settles
such transactions. Schwab pays the fees charged by those persons performing the
described floor brokerage elements. Schwab will not trade directly with the
Funds in any transactions in which Schwab or an affiliate acts as principal.
Brokerage Commissions. For the fiscal period from December 3, 1993
(commencement of operations) to October 31, 1994, the Small-Cap Index Fund paid
brokerage commissions of $165,997. For the fiscal period from September 9, 1993
(commencement of operations) to October 31, 1993 and for the fiscal year ended
October 31, 1994, the International Index Fund paid brokerage commissions of
$170,195 and $86,127, respectively.
PORTFOLIO TURNOVER
For reporting purposes, each Fund's turnover rate is calculated by
dividing the value of purchases or sales of portfolio securities for the fiscal
year, whichever is less, by the monthly average value of portfolio securities
owned by the Fund during the fiscal year. When making the calculation, all
securities whose maturities at the time of acquisition were one year or less
("short- term securities") are excluded.
A 100% portfolio turnover rate would occur, for example, if all
portfolio
25
<PAGE> 26
securities (aside from short-term securities) were sold and either repurchased
or replaced once during the fiscal year. The Funds expect that their portfolio
turnover rate will not exceed 100% in any given year, a turnover rate lower than
that of most non-index mutual funds. A high portfolio turnover rate may
increase a Fund's transaction costs. The International Index Fund's portfolio
turnover rate for the fiscal period from September 9, 1993 (commencement of
operations) to October 31, 1993 and for the fiscal year ended October 31, 1994
was 2% and 6%, respectively. The Small-Cap Index Fund's portfolio turnover rate
for the fiscal period from December 3, 1993 (commencement of operations) to
October 31, 1994 was 16%.
From time to time, each Fund may compare its portfolio turnover rate
with that of other mutual funds as reported by independent sources.
TAXES
It is the policy of each Fund to qualify for taxation as a "regulated
investment company" by meeting the requirements of Subchapter M of the Code. By
following this policy, each Fund expects to eliminate or reduce to a nominal
amount the federal income tax to which it is subject.
In order to qualify as a regulated investment company, each of the
Funds must, among other things, (1) derive at least 90% of its gross income from
dividends, interest, payments with respect to securities loans and gains from
the sale or other disposition of stocks, securities, foreign currencies or other
income (including gains from options, futures or forward contracts) derived with
respect to its business of investing in stocks, securities or currencies; (2)
derive less than 30% of its gross income from gains from the sale or other
disposition of certain assets (including stocks and securities) held for less
than three months; and (3) diversify its holdings so that at the end of each
quarter of its taxable year (i) at least 50% of the market value of the Fund's
total assets is represented by cash or cash items, United States Government
securities, securities of other regulated investment companies and other
securities limited, in respect of any one issuer, to a value not greater than 5%
of the value of the Fund's total assets and 10% of the outstanding voting
securities of such issuer, and (ii) not more than 25% of the value of its assets
is invested in the securities of any one issuer (other than United States
Government securities or securities of any other regulated investment company)
or of two or more issuers that the Fund controls, within the meaning of the
Code, and that are engaged in the same, similar or related trades or businesses.
These requirements may restrict the degree to which a Fund may engage in
short-term trading and certain hedging transactions and may limit the range of a
Fund's investments. If
26
<PAGE> 27
a Fund qualifies as a regulated investment company, it will not be subject to
federal income tax on the part of its net investment income and net realized
capital gains, if any, which it distributes to shareholders, provided that the
Fund meets certain minimum distribution requirements. To comply with these
requirements, a Fund must distribute at least (a) 90% of its "investment company
taxable income" (as that term is defined in the Code) and (b) 90% of the excess
of its (i) tax-exempt interest income over (ii) certain deductions attributable
to that income (with certain exceptions), for its taxable year. Each Fund
intends to make sufficient distributions to shareholders to meet these
requirements.
The Code imposes a non-deductible excise tax on regulated investment
companies that do not distribute in a calendar year (regardless of whether they
otherwise have a non-calendar taxable year) an amount equal to 98% of their
"ordinary income" (as defined in the Code) for the calendar year plus 98% of
their capital gain net income for the one year period ending on October 31 of
such calendar year. The balance of such income must be distributed during the
next calendar year. For the foregoing purposes, a Fund is treated as having
distributed any amount on which it is subject to income tax for any taxable year
ending in such calendar year. If the distributions during a calendar year were
less than the required amount, the Fund is subject to a non-deductible excise
tax equal to 4% of the deficiency.
A Fund's transactions in futures contracts, forward contracts, foreign
currency transactions, options, and certain other investment and hedging
activities is subject to special tax rules. In a given case, these rules may
accelerate income to a Fund, defer its losses, cause adjustments in the holding
periods of the Fund's assets, convert short-term capital losses into long-term
capital losses or otherwise affect the character of the Fund's income. These
rules could therefore affect the amount, timing and character of distributions
to shareholders. The Funds will endeavor to make any available elections
pertaining to these transactions in a manner believed to be in the best interest
of the Funds and their shareholders.
Any dividends declared by the Funds in October, November or December to
shareholders of record during those months and paid during the following January
are treated, for tax purposes, as if they were received by each shareholder on
December 31 of the year declared.
A Fund will be required in certain cases to withhold and remit to the
United States Treasury 31% of taxable dividends paid to any shareholder (1) who
fails to provide a correct taxpayer identification number certified under
penalty of perjury; (2) who is subject to withholding by the Internal Revenue
Service for failure to properly report all payments of interest or dividends; or
(3) who fails to provide a certified statement that he or she is not subject to
"backup withholding." This "backup withholding" is not an additional tax and
any amounts withheld may be
27
<PAGE> 28
credited against the shareholder's ultimate U.S. tax liability.
The foregoing discussion relates only to federal income tax law as
applicable to U.S. citizens or residents. Foreign shareholders (i.e.,
nonresident alien individuals and foreign corporations, partnerships, trusts and
estates) generally are subject to U.S. withholding tax at the rate of 30% (or a
lower tax treaty rate) on distributions derived from net investment income and
short-term capital gains. Distributions to foreign shareholders of long-term
capital gains and any gains from the sale or other disposition of shares of the
Funds generally are not subject to U.S. taxation, unless the recipient is an
individual who meets the Code's definition of "resident alien." Different tax
consequences may result if the foreign shareholder is engaged in a trade or
business within the United States. In addition, the tax consequences to a
foreign shareholder entitled to claim the benefits of a tax treaty may be
different than those described above. Distributions by a Fund may also be
subject to state, local and foreign taxes, and its treatment under applicable
tax laws may differ from the federal income tax treatment.
Although the International Index Fund will attempt not to invest in any
non-U.S. corporation which could be treated as a passive Foreign investment
company ("PFIC"), or become a PFIC, under the Code, it might inadvertently do
so. This could result in adverse tax consequences upon the disposition of, or
the receipt of "excess distributions" with respect to, such equity investments.
To the extent the International Index Fund does invest in PFICs, it may adopt
certain tax strategies to reduce or eliminate the adverse effects of certain
federal tax provisions governing PFIC investments. Many non-U.S. banks and
insurance companies may not be treated as PFICs if they satisfy certain
technical requirements under the Code. To the extent that the International
Index Fund does invest in foreign securities which are determined to be PFIC
securities and is required to pay a tax on such investments, a credit for this
tax would not be allowed to be passed through to the International Index Fund's
shareholders. Therefore, the payment of this tax would reduce the International
Index Fund's economic return from its PFIC shares and excess distributions
received with respect to such shares are treated as ordinary income rather than
capital gains.
This discussion of federal income taxation presented above only
summarizes some of the important federal tax considerations generally affecting
purchasers of Fund shares. No attempt has been made to present a detailed
explanation of the federal income tax treatment of a Fund and its shareholders,
and the discussion is not intended as a substitute for careful tax planning.
Accordingly, prospective investors (particularly those not residing or domiciled
in the United States) should consult their own tax advisers regarding the
consequences of investing in a Fund.
28
<PAGE> 29
SHARE PRICE CALCULATION
Each Fund's net asset value per share is determined each day the New
York Stock Exchange is open for trading as of 4:00 p.m., Eastern time. The net
asset value of the International Index Fund is expressed in U.S. dollars by
translating the Fund's assets using the bid price for the U.S. dollar as quoted
by generally recognized, reliable sources. Currently, the New York Stock
Exchange is closed on the following holidays: New Year's Day (observed),
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
TOTAL RETURN
STANDARDIZED TOTAL RETURN
Average annual total return for a period is determined by calculating
the actual dollar amount of investment return on a $1,000 investment in the
Fund made at the beginning of the period, then calculating the average annual
compounded rate of return that would produce the same investment return on the
$1,000 over the same period. In computing average annual total return, the
Fund assumes the reinvestment of all distributions at net asset value on
applicable reinvestment dates. For the fiscal period from September 9, 1993
(commencement of operations) to October 31, 1993 and for the fiscal year ended
October 31, 1994, the International Index Fund's total return was 1.5% and
7.9%, respectively. For the fiscal period from December 3, 1993 (commencement
of operations) to October 31, 1994, the Small-Cap Index Fund's total return was
0.63%.
NONSTANDARDIZED TOTAL RETURN
Nonstandardized total return for a Fund differs from standardized
total return in that it relates to periods other than the period for
standardized total return and/or that it represents aggregate (rather than
average) total return.
In addition, an after-tax total return for each Fund may be calculated
by taking that Fund's standardized or non- standardized total return and
subtracting applicable federal taxes from the portions of each Fund's total
return attributable to capital gains distributions and ordinary income. This
after-tax total return may be compared to that of other mutual funds with
similar investment objectives as reported by independent sources.
Each Fund may also report the percentage of that Fund's standardized
or non-standardized total return which would
29
<PAGE> 30
be paid to taxes annually (at the applicable federal personal income and
capital gains tax rates) before redemption of Fund shares. This proportion may
be compared to that of other mutual funds with similar investment objectives as
reported by independent sources.
THE BENEFITS OF INTERNATIONAL INVESTING
INCREASED DIVERSIFICATION CAN LOWER RISK
To some extent, all U.S.-based investments -- stocks, bonds, mutual
funds and CDs -- are affected by the same economic forces. Tax cuts, interest
rate changes and the performance of the U.S. stock market can all influence
U.S. investments. Adding international (or overseas) investments to a
U.S.-based portfolio has historically reduced the portfolio's overall
volatility. Although U.S. and international markets may be interrelated, they
do not move in tandem -- so losses in one market can be offset by gains in
another.
POTENTIALLY HIGHER OVERALL PERFORMANCE
During the past 10 years ending December 31, 1994, international
equity markets outperformed the U.S. equity market and most other U.S.
securities investments -- corporate bonds, CDs and U.S. Treasuries. The
returns produced by the international markets have also kept investors well
ahead of inflation. This historical performance means that investors
diversified overseas earned a higher level of return.
BROADER GROWTH OPPORTUNITIES
Investors who limit their portfolios to U.S. securities are missing
these investment opportunities. Ten years ago, the United States made up more
than half of the world's equity investments. As of December 31, 1993, it
represented just over one- third.
INDEXING AND THE SCHWAB INDEX FUNDS
Because the unmanaged performance of a broad-based equity index has
often proven superior to that of many individually selected stock portfolios, a
growing percentage of assets invested in the equity markets are being placed in
"index" portfolios. Institutional investors often devote a substantial
percentage of their assets to indexed strategies.
An index typically tracks the performance of a group of securities
selected to represent a particular market, and is most often used to gauge that
market's performance. The Dow Jones
30
<PAGE> 31
Industrial Average ("DJIA") and Standard & Poor's 500 Index(R) ("S&P 500") are
two indices designed to measure the performance of United States stocks. When
investment managers invest indexed separate accounts or index fund assets, they
attempt to replicate the performance of the applicable target index by holding
all or a representative sample of the securities included in the index.
The Schwab International Index(TM) and the Schwab Small-Cap Index(TM)
performance data assume the reinvestment of dividends, but do not reflect
deductions for administrative and management expenses. The Funds will be
subject to these costs and expenses. In addition, various factors may cause
the Funds' performance to be higher or lower than that of the Index.
THE SCHWAB INTERNATIONAL INDEX(TM)
The Schwab International Index(TM) is a broad-based stock market index
which contains the common stocks of the 350 largest operating companies (i.e.,
non-investment companies) incorporated outside the United States. To reduce
undue risk, the Index represents equities only from countries that are
considered to have developed markets and economies. By tracking the largest
companies in developed markets, the Index represents the performance of the
"blue chips" of international markets. The Index is also designed to provide a
broad representation of the international market, by limiting each country to
no more than 35% of the total market capitalization of the Index. As the
stocks contained in the Index represent about 35% of the total market
capitalization of international companies, the Index provides a reliable
measure of market performance. The Schwab International Index(TM) was first
made available to the public on July 29, 1993.
THE SCHWAB SMALL-CAP INDEX(TM)
To be included in the Schwab Small-Cap Index, a company must satisfy
all of the following criteria: (1) it must be an "operating company" (i.e., not
an investment company) incorporated in the United States, its territories or
possessions; (2) a liquid market for its common shares must exist on the New
York Stock Exchange, American Stock Exchange or the NASDAQ/NMS, and (3) its
market value must place it among the second 1000 such companies as measured by
market capitalization (i.e., from the company with a rank of 1001 through the
company with a rank of 2000). Shareholders generally avoid exposure to the
smallest companies, whose shares are often thinly traded and very volatile,
because these stocks are not included in the Index.
A particular stock's weighting in the Schwab Small-Cap Index is based
on its relative total market value (i.e., its market price per share times the
number of shares outstanding), divided by the total market capitalization of
the Schwab Small-Cap Index. The returns produced by the United States stock
market during the 25 years ending December 31, 1990 have been
31
<PAGE> 32
exceeded by those of very few types of securities investments. Because the
unmanaged performance of the U.S. stock market has often proven superior to
that of many individually selected stock portfolios, a growing percentage of
assets invested in the equity markets are being placed in "index" portfolios.
From less than $9 billion in 1980, indexed institutional holdings have grown to
over $280 billion, a figure equal to approximately one-quarter of all
institutional assets. (Source: Callan Associates Survey, reported in Fall
1990 edition of The Journal of Portfolio Management).
Historically a long-term investment in a group of common stocks
representative of the stock market as a whole as well as a group of common
stocks representative of small-cap stocks has significantly exceeded that of
U.S. Treasury Bills, CDs, corporate bonds and inflation.
ASSET ALLOCATION STRATEGIES USING SCHWABFUNDS(R)
SchwabFund Shareholders may wish to invest in the SchwabFunds as part
of their personal asset allocation plan. An asset allocation program is
available through Schwab. This program may help shareholders select
investments, including investments in SchwabFunds, that match their individual
investment needs. The shareholders' personal investment plan is based on a
number of factors including personal financial situation, time horizon,
investment objectives and goals, and risk tolerance.
ACCESS TO SCHWAB'S MUTUAL FUND ONESOURCE SERVICE(TM)
With Schwab's Mutual Fund OneSource Service (TM) ("OneSource"), a
shareholder can invest in over 200 mutual funds from many fund companies,
subject to the following. If a shareholder makes five or more short-term
redemptions of OneSource mutual funds (other than the SchwabFunds) within any
12-month period, a fee will be charged on all future trades. A short-term
redemption in this context refers to the sale of mutual fund shares held for six
months or less. Some mutual funds available through OneSource may charge fees
permitted under Rule 12b-1 in excess of one quarter of one percent per year.
Schwab reserves the right to modify OneSource's terms and conditions at any
time. For more information, a shareholder should contact their Schwab office
during its regular business hours or 800-2 NO-LOAD, 24 hours a day.
From time to time, the Funds may include discussions in advertisements
of the income tax savings shareholders may experience as a result of their
policy of limiting portfolio trading in order to reduce capital gains. This
information may be supplemented by presentations of statistical data
illustrating the extent of such income tax savings and the impact of such
savings on the yield and/or total return of the Funds. In addition, such
advertisements may include comparisons of the Funds' performance against that
of investment products that do not employ the Funds' policy of seeking to limit
capital gains.
32
<PAGE> 33
The Funds are intended to make indexed investing easily available to
Schwab customers with the highest level of convenience and economy thereby
facilitating their ability to participate in the long-term performance of the
United States stock market.
SCHWABFunds(R). SchwabFunds offers a variety of series and classes of shares
of beneficial interest to help you with your investment needs.
EQUITY FUNDS
Schwab 1000 Fund(R)(1)
Schwab International Index Fund(TM)(2)
Schwab Small-Cap Index Fund(TM)(2)
FIXED INCOME FUNDS(1)
Schwab Short/Intermediate Government Bond Fund
Schwab Long-Term Government Bond Fund
Schwab Short/Intermediate Tax-Free Bond Fund
Schwab Long-Term Tax-Free Bond Fund
Schwab California Short/Intermediate Tax-Free Bond Fund(3)
Schwab California Long-Term Tax-Free Bond Fund(3)
MONEY MARKET FUNDS(4)
Schwab Money Market Fund
Schwab Government Money Fund
Schwab U.S. Treasury Money Fund
Schwab Value Advantage Money Fund(TM)
Schwab Tax-Exempt Money Fund--Sweep Shares
Schwab Tax-Exempt Money Fund--Value Advantage Shares(5)
Schwab California Tax-Exempt Money Fund--Sweep Shares(3)
Schwab California Tax-Exempt Money Fund--Value Advantage Shares(3),(5)
Schwab Retirement Money Fund(TM)(6)
Schwab Institutional Advantage Money Fund(TM)(6)
Schwab New York Tax-Exempt Money Fund--Sweep Shares(7)
Schwab New York Tax-Exempt Money Fund--Value Advantage Shares(5),(7)
(1) The Schwab 1000 Fund and all fixed income funds are separate investment
portfolios of Schwab Investments.
(2) The Schwab International Index Fund and the Schwab Small-Cap Index Fund are
separate investment portfolios of the Trust.
(3) Available only to California residents and residents of selected other
states.
(4) All listed money market funds are separate investment portfolios of The
Charles Schwab Family of Funds.
(5) As of June 30, 1995, the Schwab Tax-Exempt Money Fund--Advantage Shares,
Schwab California Tax-Exempt Money Fund--Value Advantage Shares, and the
Schwab New York Tax-Exempt Money Fund--Value Advantage Shares had not yet
commenced operations.
(6) Designed for institutional investors only.
(7) Available only to New York residents and residents of selected other
states.
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<PAGE> 34
OTHER INFORMATION
From time to time, the International Index Fund and the Small-Cap
Index Fund may compare the historical performance of the Schwab International
Index(TM) and the Schwab Small-Cap Index(TM) respectively, to the historical
performance of various other indices, including the S&P 500, as reported by
independent sources.
Each Fund is managed to offset capital gains with capital losses in
order to minimize that Fund's capital gains tax liability. This special
feature can make a real difference in an investor's after-tax return,
especially if the investor is in a high tax bracket. In addition, each Fund
has adopted a number of policies that should cause its portfolio turnover rate
to be below the portfolio turnover rate of many other mutual funds. A lower
portfolio turnover rate acts to minimize associated transaction costs as well
as the level of realized capital gains. By avoiding, where possible, the
distribution of capital gains to shareholders, the Funds help to build the
value of your shares and defer payment of capital gains taxes until you redeem
your shares. A shareholder's current tax liability for capital gains should be
reduced and the shareholder's total return increased by these policies.
Each Fund may, from time to time, refer to recent studies that
analyze certain techniques and strategies which either Fund may use. In
addition, each Fund may, from time to time, promote the advantages of investing
in a series that is part of a large, diverse mutual fund complex.
From time to time, either Fund may include discussions in
advertisements of the income tax savings shareholders may experience as a
result of that Fund's policy of limiting portfolio trading in order to reduce
capital gains. This information may be supplemented by presentations of
statistical data illustrating the extent of such income tax savings and the
impact of such savings on the yield and/or total return of either Fund. In
addition, such advertisements may include comparisons of each Fund's
performance against that of investment products that do not employ each Fund's
policy of seeking to limit capital gains.
GENERAL INFORMATION
The Trust is generally not required to hold shareholder meetings.
However, as provided in its Agreement and Declaration of Trust and Bylaws,
shareholder meetings will be held in connection with the following matters: (1)
election or removal of trustees if a meeting is requested in writing by a
shareholder or shareholders who beneficially own(s) 10% or more of the Trust's
shares; (2) adoption of any contract for which shareholder approval is required
by the 1940 Act; (3) any termination of the Trust to the extent and as provided
in the Declaration of Trust; (4) any amendment of the Declaration of Trust
(other than amendments changing the name of the Trust or any of its investment
portfolios, supplying any omission, curing any ambiguity or curing, correcting
or
34
<PAGE> 35
supplementing any defective or inconsistent provision thereof); (5) determining
whether a court action, proceeding or claim should or should not be brought or
maintained derivatively or as a class action on behalf of the Trust or the
shareholders, to the same extent as the stockholders of a Massachusetts
business corporation; and (6) such additional matters as may be required by
law, the Declaration of Trust, the Bylaws or any registration of the Trust with
the SEC or any state or as the Board of Trustees may consider desirable. The
shareholders also would vote upon changes to a Fund's fundamental investment
objective, policies or restrictions.
Each Trustee serves until the next meeting of shareholders, if any,
called for the purpose of electing trustees and until the election and
qualification of his or her successor or until death, resignation, retirement
or removal by a majority vote of the shares entitled to vote (as described
below) or of a majority of the Trustees. In accordance with the 1940 Act (i)
the Trust will hold a shareholder meeting for the election of trustees when
less than a majority of the trustees have been elected by shareholders, and
(ii) if, as a result of a vacancy in the Board of Trustees, less than
two-thirds of the trustees have been elected by the shareholders, that vacancy
will be filled by a vote of the shareholders.
Upon the written request of 10 or more shareholders who have been such
for at least six months and who hold shares constituting at least 1% of the
Trust's outstanding shares stating that they wish to communicate with the other
shareholders for the purpose of obtaining signatures necessary to demand a
meeting to consider removal of one or more trustees, the Trust has undertaken
to disseminate appropriate materials at the expense of the requesting
shareholders.
The Bylaws provide that the presence at a shareholder meeting in
person or by proxy of at least 30% of the shares entitled to vote on a matter
shall constitute a quorum, unless otherwise provided by the 1940 Act or other
applicable law. Thus, even if less than a majority of shareholders were
represented, a meeting of the Trust's shareholders could occur. Attending
shareholders would in such case be permitted to take action not requiring the
vote of more than a majority of a quorum. Some matters requiring a larger vote
under the Declaration of Trust, such as termination or reorganization of the
Trust, and certain amendments of the Declaration of Trust, could not be decided
at such a meeting, nor could matters which under the 1940 Act require the vote
of a "majority of the outstanding voting securities," as defined in the 1940
Act. The Declaration of Trust specifically authorizes the Board of Trustees to
terminate the Trust (or any of its investment portfolios) by notice to the
shareholders without shareholder approval.
Under Massachusetts law, shareholders of a Massachusetts business
trust could, under certain circumstances, be held personally liable for the
Trust's obligations. The Declaration of Trust,
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<PAGE> 36
however, disclaims shareholder liability for the Trust's acts or obligations
and requires that notice of such disclaimer be given in each agreement,
obligation or instrument entered into or executed by the Trust or the trustees.
In addition, the Declaration of Trust provides for indemnification out of the
property of an investment portfolio in which a shareholder owns or owned shares
for all losses and expenses of such shareholder or former shareholder if he or
she is held personally liable for the obligations of the Trust solely by reason
of being or having been a shareholder. Moreover, the Trust will be covered by
insurance which the trustees consider adequate to cover foreseeable tort
claims. Thus, the risk of a shareholder incurring financial loss on account of
shareholder liability is considered remote, because it is limited to
circumstances in which a disclaimer is inoperative and the Trust itself is
unable to meet its obligations.
For further information, please refer to the registration statement
and exhibits for the Trust on file with the SEC in Washington, D.C. and
available upon payment of a copying fee. The statements in the Prospectus and
this Statement of Additional Information concerning the contents of contracts
or other documents, copies of which are filed as exhibits to the registration
statement, are qualified by reference to such contracts or documents.
PURCHASE AND REDEMPTION OF SHARES
Each Fund's minimum initial investment requirement is $1,000 ($500 for
Custodial Accounts, Individual Retirement Accounts and certain other retirement
plans). Subsequent investments of $100 or more may be made. These minimum
investment requirements may be changed at any time and are not applicable to
certain types of investors. The Trust may waive the minimums for purchases by
trustees, directors, officers or employees of the Trust, Schwab or the
Investment Manager.
The Trust has made an election with the SEC to pay in cash all
redemptions requested by any shareholder of record limited in amount during any
90-day period to the lesser of $250,000 or 1% of its net assets at the
beginning of such period. This election is irrevocable without the SEC's prior
approval. Redemption requests in excess of the stated limits may be paid, in
whole or in part, in investment securities or in cash, as the Trust's Board of
Trustees may deem advisable; however, payment will be made wholly in cash
unless the Board of Trustees believes that economic or market conditions exist
that would make such a practice detrimental to the best interests of the Fund.
If redemption proceeds are paid in investment securities, such securities will
be valued as set forth in the Prospectus of the Fund affected under "Share
Price Calculation" and a redeeming shareholder would normally incur brokerage
expenses
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<PAGE> 37
if he or she converted the securities to cash.
OTHER INFORMATION
The Prospectuses of the Funds and this Statement of Additional
Information do not contain all the information included in the Registration
Statement filed with the SEC under the Securities Act of 1933, as amended, with
respect to the securities offered by the Prospectuses. Certain portions of the
Registration Statement have been omitted from the Prospectuses and this
Statement of Additional Information pursuant to the rules and regulations of
the SEC. The Registration Statement, including the exhibits filed therewith,
may be examined at the office of the SEC in Washington, D.C.
Statements contained in the Prospectuses or in this Statement of
Additional Information as to the contents of any contract or other document
referred to are not necessarily complete, and, in each instance, reference is
made to the copy of such contract or other document filed as an exhibit to the
Registration Statement of which the Prospectuses and this Statement of
Additional Information form a part, each such statement being qualified in all
respects by such reference.
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FINANCIAL STATEMENTS
38
<PAGE> 39
SchwabFunds(R) 1
- --------------------------------------------------------------------------------
SCHWAB INTERNATIONAL INDEX FUND(TM)
STATEMENT OF NET ASSETS
October 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- ------
<S> <C> <C>
COMMON STOCK--97.2%
AUSTRALIA--2.6%
Australia & New Zealand
Banking Group 49,700 $ 144
BTR Nylex 116,332 207
Broken Hill Proprietary Co. 70,134 1,075
CRA 24,700 351
Coles Myer 50,456 157
Commonwealth Bank 37,577 208
National Australia Bank 58,769 464
News Corp. 78,390 483
Western Mining Corp. 47,000 293
Westpac Banking Corp. 79,986 268
-------
3,650
-------
BELGIUM--0.6%
Electrabel 1,800 320
Electrabel, AFV1 300 54
Petrofina SA 1,000 307
Societe Generale de Belgique 2,640 184
-------
865
-------
CANADA--3.1%
Alcan Aluminum 8,845 237
American Barrick
Resources Corp. 14,800 353
BCE Inc. 13,564 474
Bank of Montreal 9,793 182
Bank of Nova Scotia 8,185 166
Canadian Imperial Bank
of Commerce 8,161 193
Canadian Pacific Ltd. 14,600 233
Imperial Oil 8,563 307
Newbridge Networks Corp. 3,300 92
Northern
Telecom 10,700 386
Nova Corp. 19,200 192
PanCanadian Petroleum 5,000 158
Placer Dome Inc. 9,200 199
Royal Bank of Canada 13,200 277
Seagram Co. 16,300 502
Thomson Corp. 23,700 285
Toronto-Dominion Bank 11,600 176
-------
4,412
-------
DENMARK--0.4%
D/S 1912 Series B 10 173
D/S Svendborg Series B 5 125
Tele Danmark AS Series B 5,290 305
-------
603
-------
FRANCE--7.4%
AXA Groupe SA 13,100 608
Alcatel Cable 1,723 201
Assurances Generales
de France 15,800 646
Banque Nationale de Paris 10,018 496
Canal Plus 819 135
Carrefour 1,100 485
Cie Financiere de
Paribas (Bearer) 4,681 312
Cie Generale des Eaux 4,803 440
Compagnie de
Saint-Gobain SA 3,273 415
Compagnie de Suez 6,400 306
Credit Lyonnais 1,800 163
Danone Groupe 3,000 423
GAN Group 1,900 105
L'Air Liquide 2,784 393
L'Air Liquide (Rights -
exp. 11/04/94)* 2,384 33
L'Oreal SA 2,650 576
LVMH Moet-Hennessy
Louis Vuitton 7,100 1,145
Lafarge Coppee SA 3,500 278
Lyonnaise des
Eaux-Dumez 2,430 221
Michelin Class B (Reg.) 4,450 186
Peugeot Citroen 2,200 330
Rhone-Poulenc SA
A Shares 13,500 333
Schneider SA 2,650 199
Societe Generale 3,473 392
Societe Nationale
Elf Aquitaine 11,256 832
TOTAL Compagnie
Francaise des Petroles
Class B 9,300 603
Union des Assurances
de Paris 12,650 334
-------
10,590
-------
GERMANY--7.5%
BASF AG 2,500 529
Bankgesellschaft Berlin 1,029 246
Bayer AG 2,866 671
Bayerische Hypotheken &
Wechsel Bank 913 240
Bayerische Hypotheken &
Wechsel Bank (New)* 91 23
Bayerische Motoren Werke AG 820 423
Bayerische Vereinsbank AG 924 274
Commerzbank AG 1,345 283
Daimler-Benz AG 2,721 1,399
Deutsche Bank AG 2,016 994
Dresdner Bank AG 1,897 508
Hoechst AG 2,550 559
Mannesmann AG 1,561 417
Muenchener
Rueckversicherung 11 18
Muenchener
Rueckversicherung (Reg.) 311 573
Preussag AG 615 180
RWE AG 1,370 420
SAP AG 242 156
Siemens AG 2,356 985
Thyssen AG 1,189 227
VEBA AG 2,018 676
VIAG AG 873 275
Vereinigte Elektrizitat
Westfalen Series B 807 203
Volkswagen AG 1,129 332
-------
10,611
-------
HONG KONG--4.3%
CITIC Pacific 85,000 256
Cathay Pacific
Airways 118,000 175
China Light & Power 77,400 403
Hang Seng Bank 81,100 588
Henderson Land
Development Co. 68,000 444
Hong Kong
Telecom 469,200 1,005
Hongkong Electric Holdings 84,000 264
</TABLE>
See accompanying Notes to Financial Statements.
39
<PAGE> 40
SchwabFunds(R) 2
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- ------
<S> <C> <C>
Hongkong Land Holdings 111,000 $284
Hutchison Whampoa 154,000 711
Jardine Matheson
Holdings (Reg.) 29,811 248
New World
Development Co. 69,709 222
Sun Hung Kai Properties 86,500 660
Swire Pacific Class A 68,000 519
Wharf Holdings 89,000 351
-------
6,130
-------
ITALY--2.4%
Alleanza Assicurazioni 22,500 235
Alleanza Assicurazioni
(Non-Convertible) 3,750 35
Assicurazioni Generali 35,200 882
Banco di Roma SpA 141,900 151
Fiat Finance SpA 65,000 266
Fiat Finance SpA
(Non-Convertible) 14,000 32
First Bank San Paolo
di Torino 27,700 165
IMI 24,800 162
INA* 161,000 233
RAS Assicurazioni 6,310 79
RAS Assicurazioni
(Non-Convertible) 2,790 19
STET 137,000 414
STET (Non-Convertible) 66,000 163
Telecom Italia 200,000 549
Telecom Italia
(Non-Convertible) 42,000 93
-------
3,478
-------
JAPAN--32.7%
Ajinomoto Co., Inc. 11,000 151
All Nippon Airways Co. 28,000 332
Asahi Bank 45,000 497
Asahi Breweries 8,000 88
Asahi Chemical
Industry Co. 28,000 227
Asahi Glass Co. 21,000 271
Ashikaga Bank 8,000 59
Bank of Fukuoka 11,000 103
Bank of Tokyo 39,000 600
Bank of Yokohama 20,000 184
Bridgestone Corp. 15,000 248
Canon Inc. 16,000 297
Chiba Bank 13,000 123
Chubu Electric Power Co. 14,300 366
Chugoku Electric
Power Co., Inc. 5,900 147
Cosmo Oil Co. 11,000 88
Dai Nippon Printing Co. 15,000 279
Dai-Ichi Kangyo Bank 54,000 987
Daiei Inc. 14,000 210
Daiichi Pharmaceutical Co. 5,000 76
Daiwa Bank 29,000 305
Daiwa House Industry Co. 9,000 125
Daiwa Securities Co. 26,000 378
East Japan Railway Co. 100 499
Ebara Corp. 5,000 91
Eisai Co. 5,000 86
FamilyMart Co. 1,000 65
Fanuc 5,000 243
Fuji Bank 50,000 1,110
Fuji Photo Film Co. 9,000 215
Fujitsu Ltd. 35,000 401
Furukawa Electric Co. 13,000 90
Gunma Bank 10,000 114
Hachijuni Bank 10,000 126
Hankyu Corp. 17,000 103
Hanwa Co. 5,000 20
Hiroshima Bank 13,000 83
Hitachi Ltd. 57,000 594
Hitachi Zosen 19,000 111
Hokkaido Electric Power Co. 4,000 100
Hokkaido Takushoku Bank 12,000 58
Hokuriku Bank 13,000 98
Hokuriku Electric Power Co. 4,000 99
Honda Motor Co. 18,000 314
Industrial Bank of Japan 46,000 1,425
Ishikawajima-Harima
Heavy Industries 25,000 120
Isuzu Motors 20,000 107
Ito-Yokado Co. 8,000 437
Itochu Corp. 28,000 218
Japan Airlines Co. 35,000 271
Japan Energy Co. 21,000 93
Joyo Bank 14,000 123
Jusco Co. 6,000 135
Kajima Corp. 16,000 152
Kandenko Co. 5,000 91
Kansai Electric Power Co. 18,800 474
Kao Corp. 12,000 142
Kawasaki Heavy Industries 25,000 123
Kawasaki Steel Co. 52,000 244
Keio Teito Railway Co. 8,000 46
Kinden Co. 3,000 49
Kinki Nippon Railway Co. 31,000 268
Kirin Brewery Co. 19,000 228
Kobe Steel 48,000 166
Kokusai Denki 1,100 113
Komatsu Ltd. 18,000 171
Kubota Co. 23,000 177
Kyocera Corp. 4,000 305
Kyowa Hakko Kogyo 6,000 61
Kyushu Electric Power Co. 8,500 214
Kyushu Matsushita
Electric Co. 3,000 76
Long-Term Credit Bank
of Japan 42,000 503
Marubeni Corp. 27,000 156
Marui Co. 7,000 128
Matsushita Communication
Industrial 4,000 111
Matsushita Electric
Industrial Co. 41,000 681
Matsushita Electric Works 12,000 133
Matsushita-Kotokuki
Electronics 3,000 85
Mazda Motor Corp. 21,000 125
Mitsubishi Bank 51,000 1,279
Mitsubishi Chemical Corp. 28,000 165
Mitsubishi Corp. 30,000 409
Mitsubishi Electric Corp. 39,000 292
Mitsubishi Estate Co. 25,000 294
Mitsubishi Heavy Industries 59,000 481
Mitsubishi Materials Co. 21,000 119
Mitsubishi Motors Co. 17,000 159
Mitsubishi Oil Co. 8,000 87
</TABLE>
See accompanying Notes to Financial Statements.
40
<PAGE> 41
SchwabFunds(R) 3
- --------------------------------------------------------------------------------
SCHWAB INTERNATIONAL INDEX FUND(TM)
STATEMENT OF NET ASSETS
October 31, 1994
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- ------
<S> <C> <C>
Mitsubishi Trust &
Banking Corp. 25,000 $ 387
Mitsui & Co. 30,000 269
Mitsui Fudosan Co. 16,000 180
Mitsui Marine & Fire
Insurance Co. 14,000 106
Mitsui O.S.K. Lines 14,000 61
Mitsui Trust & Banking Co. 22,000 254
Mitsukoshi 6,000 62
Murata Manufacturing Co. 4,400 180
NEC Corp. 28,000 358
NGK Insulators 5,000 53
NKK Corp. 57,000 176
Nagoya Railroad Co. 10,000 52
New Oji Paper Co. 12,000 134
Nichii Co. 4,000 56
Nikko Securities Co. 29,000 341
Nintendo Co. 3,000 168
Nippon Credit Bank 34,000 226
Nippon Express Co. 21,000 228
Nippon Fire & Marine
Insurance Co. 7,000 52
Nippon Oil Co. 21,000 152
Nippon Paper
Industries Co. 39,000 308
Nippon Steel Corp. 121,000 500
Nippon Telegraph &
Telephone Corp. 303 2,831
Nippon Yusen 21,000 143
Nippondenso Co. 15,000 321
Nissan Motor Co. 49,000 418
Nisshin Steel Co. 20,000 105
Nomura Securities Co. 38,000 796
Obayashi Corp. 10,000 71
Odakyu Electric
Railway Co. 14,000 103
Oki Electric Industry Co. 12,000 96
Ono Pharmaceutical Co. 2,000 94
Osaka Gas Co. 45,000 193
Pioneer Electronic Co. 4,000 104
Ricoh Co. 13,000 130
Sakura Bank 58,000 796
Sankyo Co. 7,000 182
Sanwa Bank 50,000 1,048
Sanyo Electric Co. 33,000 199
Secom Co. 2,000 134
Sega Enterprises 2,000 104
Seibu Railway Co. 11,000 477
Sekisui Chemical Co. 11,000 113
Sekisui House 11,000 125
Seven-Eleven Japan Co. 7,000 574
Sharp Co. 22,000 411
Shikoku Electric Power Co. 4,800 118
Shimizu Corp. 14,000 145
Shin-Etsu Chemical Co. 6,000 128
Shiseido Co. 8,000 97
Shizuoka Bank 16,000 218
Showa Shell Sekiyu 7,000 93
Sony Corp. 7,000 427
Sony Music Entertainment
(Japan) 2,100 119
Sumitomo Bank 56,000 1,052
Sumitomo Chemical Co. 29,000 171
Sumitomo Corp. 21,000 217
Sumitomo Electric Industries 12,000 180
Sumitomo Marine & Fire
Insurance Co. 13,000 118
Sumitomo Metal Industries 51,000 193
Sumitomo Metal Mining Co. 11,000 109
Sumitomo Trust &
Banking Co. 22,000 320
Suzuki Motor Co. 10,000 127
TDK 3,000 147
Taisei Corp. 19,000 127
Taisho Pharmaceutical Co. 6,000 110
Takeda Chemical Industries 17,000 211
Teijin Ltd. 19,000 113
Tobu Railway Co. 16,000 102
Tohoku Electric Power Co. 8,900 228
Tokai Bank 39,000 483
Tokio Marine & Fire
Insurance Co. 30,000 356
Tokyo Electric Power Co. 26,000 762
Tokyo Electron 3,000 100
Tokyo Gas Co. 50,000 236
Tokyo Steel Manufacturing 2,000 50
Tokyu Corp. 18,000 126
Tonen 13,000 207
Toppan Printing Co. 12,000 177
Toray Industries 24,000 190
Toshiba Corp. 56,000 442
Tostem Corp. 4,000 114
Toto 6,000 94
Toyo Seikan 4,000 134
Toyo Trust & Banking Co. 13,000 152
Toyoda Automatic Loom 4,000 84
Toyota Motor Corp. 66,000 1,458
Yamaichi Securities Co. 20,000 159
Yamanouchi
Pharmaceutical Co. 6,000 118
Yamazaki Baking Co. 5,000 104
Yasuda Fire & Marine
Insurance Co. 15,000 110
Yasuda Trust & Banking Co. 18,000 160
-------
46,554
-------
NETHERLANDS--5.1%
ABN-Amro Holding NV 12,240 435
AEGON NV 4,400 272
Akzo Nobel NV 3,000 379
Elsevier NV 29,000 296
Heineken NV 1,600 234
Internationale
Nederlanden Groep 11,582 542
Koninklijke PTT Nederland 19,700 628
Philips Electronics NV 13,300 441
PolyGram NV 7,900 352
Royal Dutch Petroleum Co.
(Bearer) 23,200 2,702
Unilever NV 6,700 798
Wolters Kluwer CVA 2,700 195
-------
7,274
-------
SINGAPORE--1.8%
OCBC Bank 35,833 386
Singapore Airlines 52,000 499
Singapore Telecom 640,000 1,395
United Overseas Bank 30,000 329
-------
2,609
-------
</TABLE>
See accompanying Notes to Financial Statements.
41
<PAGE> 42
SchwabFunds(R) 4
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- ------
<S> <C> <C>
SPAIN--1.7%
Argentaria 5,700 $220
Banco Central SA (Reg.) 5,500 132
Banco de Bilbao Vizcaya
SA (Reg.) 7,400 194
Banco de Santander 1,200 48
Banco de Santander
SA (Reg.) 5,600 228
Empresa Nacional
de Electricidad 10,000 458
Iberdrola SA 39,600 261
Repsol, SA 12,800 409
Telefonica de Espana, SA 35,800 484
-------
2,434
-------
SWEDEN--1.6%
ASEA AB Series A
Free shares 2,100 153
ASEA AB Series B
Free shares 800 58
Astra AB Series A
Free shares 19,400 524
Astra AB Series B
Free shares 3,400 91
BCP Branded Consumer
Products Series A
Free shares 5,300 57
BCP Branded Consumer
Products Series B
Free shares 2,800 31
L.M. Ericsson Series B
Free shares 9,300 565
Pharmacia AB Series A
Free shares 5,300 100
Pharmacia AB Series B
Free shares 2,800 52
Sandvik AB Series A
Free shares 8,600 146
Volvo AB Series A
Free shares 5,000 98
Volvo AB Series B
Free shares 20,700 408
-------
2,283
-------
SWITZERLAND--5.8%
BBC Brown
Boveri 331 284
BBC Brown Boveri (Reg.) 189 31
CS Holding (Bearer) 1,014 444
CS Holding (Reg.) 1,745 148
Ciba-Geigy AG (Bearer) 170 100
Ciba-Geigy AG (Reg.) 1,080 630
Cie Financiere Richemont
Series A (Bearer) 232 228
Nestle SA (Reg.) 1,669 1,562
Roche Holding AG 295 1,313
Roche Holding AG (Bearer) 70 631
SMH AG (Bearer) 156 87
SMH AG (Reg.) 682 90
Sandoz AG (Bearer) 91 48
Sandoz AG (Reg.) 1,673 835
Schweiz Bankgesellschaft
(Bearer) 886 831
Schweiz Bankgesellschaft
(Reg.) 950 202
Schweiz Bankverein (Bearer) 940 271
Schweiz Bankverein (Reg.) 1,030 142
Zurich Versicherung (Bearer) 150 137
Zurich Versicherung (Reg.) 206 189
-------
8,203
-------
UNITED KINGDOM--20.2%
Abbey National 56,600 385
Allied-Lyons PLC 43,900 429
Argyll Group PLC 44,593 190
BAA PLC 42,200 355
BAT Industries PLC 127,800 916
BOC Group 18,525 204
BTR PLC 148,712 746
Barclays PLC 70,097 667
Bass PLC 37,200 338
Boots Co. PLC 42,448 368
British Airways PLC 40,000 230
British Gas PLC 181,600 870
British Petroleum PLC 236,575 1,683
British Steel 80,800 212
Cable & Wireless PLC 146,900 1,009
Cadbury Schweppes PLC 33,655 239
Commercial Union 23,500 211
General Accident 17,300 166
General Electric Co. PLC 115,800 523
Glaxo Holdings PLC 133,126 1,303
Grand Metropolitan PLC 92,103 625
Great Universal Stores 43,000 394
Guinness PLC 84,200 643
HSBC Holdings PLC 36,191 430
HSBC Holdings PLC
(Hong Kong) 66,146 788
Hanson PLC 206,153 779
Imperial Chemical
Industries PLC 29,100 380
Inchcape 21,300 152
J. Sainsbury PLC 74,732 488
Kingfisher 28,500 221
Lloyds Abbey Life 26,700 153
Lloyds Bank 56,554 530
Marks & Spencer PLC 117,900 801
National Power 52,800 428
National Westminster
Bank PLC 73,299 603
New Rothmans (units) 62,400 428
Pearson PLC 21,837 226
Peninsular & Oriental
Steam Navigation 25,546 266
Powergen PLC 33,400 310
Prudential Corp. 82,019 428
RTZ Corp. PLC (Reg.) 44,900 631
Rank Organisation PLC 35,800 237
Redland 21,300 162
Reed International PLC 23,400 288
Reuters Holdings PLC 86,500 679
Royal Bank of
Scotland Group 30,100 216
Scot & Newcastle 20,100 170
Scottish Power 31,400 185
Shell Transport &
Trading Co. (Reg.) 143,700 1,723
SmithKline Beecham PLC
Series A 56,063 373
SmithKline Beecham units 54,100 329
Standard Chartered PLC 9,900 48
</TABLE>
See accompanying Notes to Financial Statements.
42
<PAGE> 43
SchwabFunds(R) 5
- --------------------------------------------------------------------------------
SCHWAB INTERNATIONAL INDEX FUND(TM)
STATEMENT OF NET ASSETS
October 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- ------
<S> <C> <C>
Sun Alliance Group 31,988 $172
TSB Group PLC 68,100 253
Tesco 83,900 322
Thorn-EMI PLC 17,500 278
Tomkins 46,100 159
Unilever PLC 34,600 644
Vendome (units) 29,850 253
Vodafone Group PLC 124,968 433
Waste Management
International* 16,000 133
Wellcome PLC 34,900 367
Zeneca Group 38,900 547
--------
28,719
--------
TOTAL COMMON STOCK
(Cost $128,564) 138,415
--------
PREFERRED STOCK--0.4%
GERMANY--0.4%
Henkel KGaA 542 213
RWE AG (Non Voting) 700 172
SAP AG (Non Voting) 161 93
Volkswagen AG (Non Voting) 201 47
--------
525
--------
ITALY--0.0%
Fiat Finance SpA 18,300 44
--------
TOTAL PREFERRED STOCK
(Cost $511) 569
--------
WARRANTS--0.0%
SWITZERLAND--0.0%
CS Holding expire 12/16/94* 2,759 11
--------
UNITED KINGDOM--0.0%
BTR Nylex expire 11/26/98* 4,019 3
--------
TOTAL WARRANTS
(Cost $16) 14
--------
Maturity Value
(000)s (000s)
-------- ------
<S> <C> <C>
REPURCHASE AGREEMENT--1.1%
UNITED STATES--1.1%
State Street Bank & Trust 4.25%
Dated 10/31/94
Due 11/01/94
Collateralized By:
U.S. Treasury Bill
$1,550,000 Par;
Due 4/30/95 $1,478 $ 1,478
--------
TOTAL REPURCHASE AGREEMENT
(Cost $1,478) 1,478
--------
TOTAL INVESTMENTS -- 98.7%
(Cost $130,569) 140,476
--------
OTHER ASSETS AND LIABILITIES -- 1.3%
Other Assets 4,564
Liabilities (2,685)
--------
1,879
--------
NET ASSETS -- 100.0%
Applicable to 13,066,324
outstanding $0.00001
par value shares
(unlimited shares authorized) $142,355
========
NET ASSET VALUE PER SHARE $10.89
======
</TABLE>
- ------------------
*Non-Income Producing Security
See accompanying Notes to Financial Statements.
43
<PAGE> 44
SchwabFunds(R) 6
- --------------------------------------------------------------------------------
SCHWAB INTERNATIONAL INDEX FUND(TM)
STATEMENT OF OPERATIONS (in thousands)
For the year ended October 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Investment income:
Dividends (net of foreign tax withheld of $350) $2,394
Interest 125
------
Total investment income 2,519
------
Expenses:
Investment advisory and administration fee 862
Transfer agency and shareholder service fees 308
Custodian fees 196
Registration fees 43
Professional fees 45
Shareholder reports 72
Trustees' fees 50
Amortization of deferred organization costs 24
Insurance and other expenses 6
------
1,606
Less expenses reduced (499)
------
Total expenses incurred by Fund 1,107
------
Net investment income 1,412
------
Net realized gain (loss) on investments and foreign currency transactions:
Proceeds from sales of investments 7,690
Cost of investments sold (8,384)
------
Net realized loss on investments from changes in market value (694)
Net realized gain on investments from changes in foreign
exchange rates 99
------
Net realized loss on investments sold (595)
Net realized gain on foreign currency transactions 15
------
Net realized loss on investments sold and foreign
currency transactions (580)
------
Change in net unrealized gain (loss) on investments and foreign
currency translation:
Changes in market value:
Beginning of period unrealized gain 4,200
End of period unrealized gain 413
------
Decrease in net unrealized gain in market value (3,787)
------
Changes in foreign exchange rates:
Beginning of period unrealized loss (3,131)
End of period unrealized gain 9,494
------
Increase in net unrealized gain in foreign exchange rates 12,625
------
Net increase in unrealized gain on investments from
changes in market value and foreign exchange rates 8,838
Net increase in unrealized gain on translating assets and
liabilities into the reporting currency 51
------
Net increase in unrealized gain on investments and
foreign currency translation 8,889
------
Net gain on investments 8,309
------
Net increase in net assets resulting from operations $9,721
======
</TABLE>
See accompanying Notes to Financial Statements.
44
<PAGE> 45
SchwabFunds(R) 7
- --------------------------------------------------------------------------------
SCHWAB INTERNATIONAL INDEX FUND(TM)
STATEMENT OF CHANGES IN NET ASSETS (in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the period
September 9, 1993
For the (commencement
year ended of operations) to
October 31, October 31,
1994 1993
------------ -----------------
<S> <C> <C>
Operations:
Net investment income $ 1,412 $ 301
Net realized gain (loss) on investments sold
and foreign currency transactions (580) 188
Net increase in unrealized gain on investments
and foreign currency translation 8,889 1,053
-------- --------
Net increase in net assets resulting from
operations 9,721 1,542
-------- --------
Distributions to Shareholders From:
Net investment income (433) --
Capital gains (188) --
-------- --------
Total distributions to shareholders (621) --
-------- --------
Capital Share Transactions:
Proceeds from shares sold 61,237 106,336
Net asset value of shares issued in
reinvestment of distributions 560 --
Early withdrawal fees 129 --
Less payments for shares redeemed (34,756) (1,793)
-------- --------
Increase in net assets from capital share
transactions 27,170 104,543
-------- --------
Total increase in net assets 36,270 106,085
Net Assets:
Beginning of period 106,085 --
-------- --------
End of period (including undistributed net invest-
ment income of $1,280 and $301, respectively) $142,355 $106,085
======== ========
Number of Fund Shares:
Sold 5,947 10,637
Reinvested 56 --
Redeemed (3,392) (182)
-------- --------
Net increase in shares outstanding 2,611 10,455
Shares Outstanding:
Beginning of period 10,455 --
-------- --------
End of period 13,066 10,455
======== ========
</TABLE>
See accompanying Notes to Financial Statements.
45
<PAGE> 46
SCHWABFUNDS(R) 8
- --------------------------------------------------------------------------------
SCHWAB INTERNATIONAL INDEX FUND(TM)
NOTES TO FINANCIAL STATEMENTS
For the year ended October 31, 1994
- --------------------------------------------------------------------------------
1. DESCRIPTION OF THE FUND
The Schwab International Index Fund (the "Fund") is a series of Schwab Capital
Trust (the "Trust"), an open-end, management investment company organized as a
Massachusetts business trust on May 7, 1993 and registered under the Investment
Company Act of 1940, as amended.
In addition to the Fund, the Trust also offers the Schwab Small-Cap Index
Fund(TM). The assets of each series are segregated and accounted for separately.
The investment objective of the Fund is to attempt to track the price and
dividend performance (total return) of the Schwab International Index(TM), an
index created to represent the performance of common stocks and other equity
securities issued by large, publicly traded companies from countries around the
world with major developed securities markets (excluding the United States and
South Africa).
2. SIGNIFICANT ACCOUNTING POLICIES
Security valuation -- Investments in securities traded on an exchange are valued
at the last quoted sale price for a given day, or if a sale is not reported for
that day, at the mean between the most recent quoted bid and asked prices.
Unlisted securities for which market quotations are readily available are valued
at the mean between the most recent bid and asked prices. Securities for which
no quotations are readily available are valued at fair value as determined in
good faith by the Fund's sub-advisor pursuant to Board of Trustees guidelines.
Short-term securities with 60 days or less to maturity are stated at amortized
cost, which approximates market value.
Security transactions and investment income -- Security transactions, in the
accompanying financial statements, are accounted for on a trade date basis (date
the order to buy or sell is executed). Dividend income and distributions to
shareholders are recorded on the ex-dividend date; interest income is recorded
on the accrual basis. Realized gains and losses from security transactions are
determined on an identified cost basis.
Repurchase agreements -- Repurchase agreements are fully collateralized by U.S.
Treasury or Government agency securities. All collateral is held by the Fund's
custodian and is monitored daily to ensure that its market value at least equals
the repurchase price under the agreement.
Foreign currency translation -- The accounting records of the Fund are
maintained in U.S. dollars. Investment securities and all other assets and
liabilities of the Fund denominated in a foreign currency are translated into
U.S. dollars at the exchange rates on October 31. Purchases and sales of
securities, income receipts and expense payments are translated into U.S.
dollars at the exchange rate in effect on the dates of the respective
transactions.
The Fund separates within its statement of operations the portion of realized
and unrealized gains and losses resulting from changes in foreign exchange rates
from that arising from changes in securities' market values.
Forward currency contracts -- A forward currency contract ("Forward") is an
agreement between two parties to buy and sell a currency at a set price on a
future date. The value of the Forward fluctuates with changes in currency
exchange rates. The Forward is marked-to-market daily and the change in value is
recorded by the Fund as an unrealized gain or loss. When the Forward is closed,
the Fund records a realized gain or loss equal to the difference between the
value at the time the
46
<PAGE> 47
SCHWABFUNDS(R) 9
- --------------------------------------------------------------------------------
SCHWAB INTERNATIONAL INDEX FUND(TM)
NOTES TO FINANCIAL STATEMENTS
For the year ended October 31, 1994
- --------------------------------------------------------------------------------
contract was opened and the value at the time the contract was closed. The Fund
engages in Forwards in connection with the purchase and sale of portfolio
securities to minimize the uncertainty of changes in future exchange rates (see
Note 9).
Deferred organization costs -- Costs incurred in connection with the
organization of the Fund, its initial registration with the Securities and
Exchange Commission and with various states are amortized on a straight-line
basis over a five year period from the Fund's commencement of operations.
Expenses -- Expenses arising in connection with the Fund are charged directly to
the Fund. Expenses common to all series of the Trust are allocated to each
series in proportion to their relative net assets.
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 substantially all 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 tax purposes.
At October 31, 1994, (for financial reporting and federal income tax purposes),
net unrealized gain aggregated $9,907,000, of which $13,741,000 related to
appreciated securities and $3,834,000 related to depreciated securities.
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 Manager"). For advisory services and facilities furnished,
the Fund pays an annual fee, payable monthly, of .70% of the first $300 million
of average daily net assets and .60% of such assets over $300 million. Under
this agreement, the Fund incurred investment advisory and administration fees of
$862,000 during the year ended October 31, 1994, before the Investment Manager
reduced its fee (see Note 5).
Sub-advisory agreement -- The Investment Manager has a sub-advisory agreement
with Dimensional Fund Advisors Inc. ("Dimensional") to perform day-to-day
portfolio management for the Fund. Dimensional does not receive compensation
directly from the Fund. However, the Investment Manager pays Dimensional an
annual fee, payable monthly, of .15% of the first $300 million of average daily
net assets and .05% of such assets over $300 million.
Transfer agency and shareholder service agreements -- The Trust has transfer
agency and shareholder service agreements with Charles Schwab & Co., Inc.
("Schwab"). For services provided under these agreements, Schwab receives an
annual fee, payable monthly, of .05% of average daily net assets for transfer
agency services and .20% of such assets for shareholder services. For the year
ended October 31, 1994, the Fund incurred transfer agency and shareholder
service fees of $308,000, before Schwab reduced its fees (see Note 5).
Officers and trustees -- During the period, certain officers and trustees of the
Trust were also officers or directors of the Investment Manager, Schwab or
Dimensional. During the year ended October 31, 1994, the Trust made no direct
payments to its officers or trustees who were "interested persons" within the
meaning of the Investment Company Act of 1940, as amended. The Fund incurred
fees of $50,000 related to the Trust's unaffiliated trustees.
47
<PAGE> 48
SCHWABFUNDS(R) 10
- --------------------------------------------------------------------------------
4. BORROWING AGREEMENT
The Trust has an arrangement with State Street Bank and Trust Company, the
Fund's custodian, whereby the Fund may borrow up to $10,000,000, on a temporary
basis, to fund redemptions. Amounts borrowed under this arrangement bear
interest at periodically negotiated rates and may be collateralized by the
assets of the Fund. During the year ended October 31, 1994, no borrowings were
made under this arrangement.
5. EXPENSES REDUCED BY THE INVESTMENT MANAGER AND SCHWAB
The Investment Manager and Schwab reduced a portion of their fees in
order to limit the Fund's ratio of operating expenses to average net
assets. During the year ended October 31, 1994, the total of such fees
reduced by the Investment Manager was $388,000 and the total of such
fees reduced by Schwab was $111,000.
6. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities, other than short-term obligations,
aggregated $36,420,000 and $7,690,000, respectively, during the year ended
October 31, 1994.
7. EARLY WITHDRAWAL FEES PAID TO THE FUND
The Fund assesses a .75% early withdrawal fee on redemption proceeds
attributable to shares purchased and held less than six months. The early
withdrawal fee is retained by the Fund and is treated as a contribution to
capital. For the year ended October 31, 1994, total early withdrawal fees
retained by the Fund amounted to $129,000.
8. COMPOSITION OF NET ASSETS
At October 31, 1994, net assets consisted of:
<TABLE>
<S> <C>
Capital paid in $131,687,000
Accumulated undistributed net investment income 1,306,000
Accumulated net realized loss on investments sold
and foreign currency transactions (580,000)
Net unrealized gain on investments 9,907,000
Net unrealized gain on translating assets and liabilities
into the reporting currency 35,000
------------
Total $142,355,000
============
</TABLE>
The Fund adopted Statement of Position 93-2 Determination, Disclosure, and
Financial Statement Presentation of Income, Capital Gain, and Return of Capital
Distributions by Investment Companies, which will generally present
undistributed income and realized gains on a tax basis. As a result of adoption,
certain reclassifications to increase undistributed net investment income and
decrease capital paid in by $26,000 have occurred. These reclassifications have
no impact on the net asset value of the Fund.
At October 31, 1994, the Fund's Statement of Net Assets included liabilities of
$896,000 for securities purchased, $280,000 for Fund shares redeemed, $52,000
for investment advisory and administration fee payable and $25,000 for transfer
agency and shareholder service fees payable.
48
<PAGE> 49
SCHWABFUNDS(R) 11
- --------------------------------------------------------------------------------
SCHWAB INTERNATIONAL INDEX FUND(TM)
NOTES TO FINANCIAL STATEMENTS
For the year ended October 31, 1994
- --------------------------------------------------------------------------------
9. COMMITMENTS
At October 31, 1994, the Fund had an open Forward contract which obligated the
Fund to deliver foreign currency in exchange for U.S. dollars at a specified
future date as follows:
<TABLE>
<CAPTION>
Contract In Exchange Settlement Unrealized
Currency Amount For Date Value Loss
-------- -------- ----------- ---------- ----- ----------
<S> <C> <C> <C> <C> <C>
British pound 770,000 $1,257,872 11/4/94 $1,259,405 $1,533
</TABLE>
10. FINANCIAL HIGHLIGHTS
Per share income and capital changes for a share outstanding throughout
the period:
<TABLE>
<CAPTION>
For the period
September 9, 1993
For the (commencement of
year ended operations) to
October 31, 1994 October 31, 1993
---------------- -----------------
<S> <C> <C>
Net asset value at beginning of period $ 10.15 $ 10.00
Income from Investment Operations
Net investment income .11 .03
Net realized and unrealized gain on investments
and foreign currency transactions .69 .12
-------- --------
Total from investment operations .80 .15
Less Distributions
Dividends from net investment income (.04) --
Distributions from net realized gain
on investments (.02) --
-------- --------
Total distributions (.06) --
-------- --------
Net asset value at end of period $ 10.89 $ 10.15
======== ========
Total return (%) 7.9 1.5
Ratios/Supplemental Data
Net assets, end of period (000s) $142,355 $106,085
Ratio of expenses to average net
assets (%) .90 .60*
Ratio of net investment income to
average net assets (%) 1.14 2.15*
Portfolio turnover rate (%) 6 2
</TABLE>
The Investment Manager and Schwab have reduced a portion of their fees and
absorbed certain expenses in order to limit the Fund's ratio of operating
expenses to average net assets. Had these fees and expenses not been reduced and
absorbed, the ratio of expenses to average net assets for the periods ended
October 31, 1994 and 1993, would have been 1.30% and 2.10%*, respectively, and
the ratio of net investment income to average net assets would have been .74%
and .65%*, respectively.
49
<PAGE> 50
SchwabFunds(R) 12
- --------------------------------------------------------------------------------
To the Board of Trustees
and Shareholders of the Schwab International Index Fund(TM)
In our opinion, the accompanying statement of net assets and the related
statements of operations and of changes in net assets present fairly, in all
material respects, the financial position of the Schwab International Index
Fund (one of the series constituting Schwab Capital Trust, hereafter referred
to as the "Trust") at October 31, 1994, the results of its operations and the
changes in its net assets for each of the periods presented, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Trust's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits, which included confirmation of securities at October 31, 1994 by
correspondence with the custodian and broker, provide a reasonable basis for
the opinion expressed above.
PRICE WATERHOUSE LLP
San Francisco, California
November 30, 1994
50
<PAGE> 51
SchwabFunds(R) 1
- --------------------------------------------------------------------------------
SCHWAB SMALL-CAP INDEX FUND(TM)
STATEMENT OF NET ASSETS
October 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares Value
--------- -----
<S> <C> <C>
COMMON STOCK--96.0%
A.L. Laboratories, Inc.
Class A 2,300 $41,113
AAR Corp. 2,600 32,175
ABM Industries, Inc. 1,800 37,800
ABT Building Products Corp.* 1,900 29,450
ACX Technologies, Inc.* 2,300 80,788
ADAC Laboratories 3,000 25,500
AGCO Corp. 2,500 137,500
AMC Entertainment Inc.* 500 5,750
AMCORE Financial, Inc. 1,500 28,688
AMETEK, Inc. 6,500 117,813
APS Holding Corp. Class A* 2,100 61,163
AST Research, Inc.* 10,400 131,950
Acclaim Entertainment, Inc. 6,800 118,575
Acordia, Inc. 2,500 70,625
Acuson Corp.* 4,900 90,038
Acxiom Corp.* 1,600 47,400
Addington Resources, Inc.* 3,100 32,550
Adelphia Communications
Corp. Class A* 2,000 24,500
Adesa Corp.* 1,800 24,300
Adia Personnel Services, Inc. 1,000 36,000
Adobe Systems Inc. 1,600 57,900
Advanced Technology
Laboratories, Inc.* 2,200 35,750
Advanced Tissue
Sciences, Inc.* 5,000 37,500
ADVO, Inc. 3,300 58,575
Air & Water Technologies
Corp. Class A* 9,500 66,500
Air Express
International Corp. 2,200 61,600
Airborne Freight Corp. 1,700 32,513
Airgas, Inc. 2,700 78,300
Alaska Air Group, Inc.* 2,100 36,750
ALBANK Financial Corp. 2,200 48,813
Albany International Corp.
Class A 3,800 75,050
Alberto-Culver Co. Class A 1,800 42,525
Alberto-Culver Co. Class B
(Convertible) 2,100 53,288
Aldila, Inc. 3,900 50,213
Alex. Brown Inc. 2,400 66,300
Alfa Farmers
Federation Corp. 6,900 75,900
Allen Group Inc. 3,700 89,725
Alliance Pharmaceutical Corp.* 3,600 27,675
Alliant Techsystems Inc.* 1,700 58,438
Allied Group, Inc. 1,500 43,313
Allwaste, Inc.* 5,600 35,700
Alpha-Beta Technology, Inc.* 400 3,750
Altera Corp.* 3,400 134,088
Amax Gold Inc. 14,500 97,875
Amcast Industrial Corp. 1,500 30,188
America Online, Inc. 1,300 92,300
American Annuity Group, Inc. 7,500 71,250
American Bankers
Insurance Group, Inc. 3,400 67,575
American Business
Information, Inc.* 5,100 89,250
American Business
Products, Inc. 1,300 28,925
American Classic Voyages 1,900 32,775
American Colloid Co. 3,400 53,550
American Freightways Corp. 1,600 33,800
American Heritage Life
Investment Corp. 5,200 91,650
American Income
Holding Inc. 2,500 87,344
American Maize-Products Co. 1,000 22,625
American Management
Systems, Inc. 4,500 71,156
American Medical
Response, Inc.* 2,600 70,525
American President
Companies, Ltd. 4,600 111,550
American Savings Bank of
Florida (New)* 4,800 96,300
Americredit Corp.* 5,300 35,113
Ameridata Technologies Inc.* 2,600 34,775
Amphenol Corp. Class A* 3,100 67,813
Amsco International, Inc.* 10,700 102,988
Amtech Corp. 2,300 23,000
Analogic Corp.* 2,100 36,750
Anchor Bancorp, Inc.* 3,800 56,525
Andrew Corp. 950 49,519
Angelica Corp. 1,100 29,150
AnnTaylor Stores Corp.* 700 29,050
Antec Corp.* 3,800 107,350
Anthem Electronics, Inc.* 2,300 75,613
Anthony Industries, Inc. 2,400 41,100
Apogee Enterprises, Inc. 2,300 41,113
Apple South, Inc. 4,650 74,981
Applebee's International, Inc. 3,300 60,638
Applied Magnetics Corp.* 2,600 9,425
Applied Power Inc. Class A 1,500 36,938
Aptargroup, Inc. 2,700 73,575
Aquarion Co. 900 21,150
Aquila Gas Pipeline Corp. 4,800 36,600
Arbor Drugs, Inc. 2,800 59,150
Arctco, Inc. 4,650 95,325
Argosy Gaming Corp.* 3,900 67,275
Arkansas Best Corp. 4,100 53,044
Armco Inc.* 17,000 121,125
Armor All Products Corp. 3,600 80,100
Arnold Industries Inc. 4,300 99,438
Arrow International, Inc. 4,100 114,288
Arthur J. Gallagher & Co. 2,300 75,325
Artisoft, Inc.* 2,000 19,500
Arvin Industries, Inc. 3,700 90,188
Ashland Coal, Inc. 2,500 76,250
Aspect
Telecommunications Corp.* 1,800 62,100
Associated Banc-Corp 2,200 74,250
Associated Natural
Gas Corp. 2,000 76,250
Atari Corp.* 18,600 125,550
Atmos Energy Corp. 2,400 39,300
Au Bon Pain Co., Inc.
Class A* 1,700 33,575
Augat Inc. 3,500 69,563
Aura Systems, Inc.* 5,700 26,363
Authentic Fitness Corp. 5,500 83,188
AutoFinance Group, Inc.* 3,100 31,388
Automotive Industries
Holding, Inc.* 2,800 68,600
Autotote Corp. Class A 5,000 87,500
</TABLE>
See accompanying Notes to Financial Statements.
51
<PAGE> 52
SchwabFunds(R) 2
- --------------------------------------------------------------------------------
SCHWAB SMALL-CAP INDEX FUND(TM)
STATEMENT OF NET ASSETS
October 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares Value
--------- -----
<S> <C> <C>
Avatar Holdings, Inc.* 1,500 $52,688
Aviall, Inc. 7,275 72,750
Avid Technology, Inc.* 1,700 64,175
Aztar Corp.* 7,400 44,400
BWIP Holding, Inc. Class A 4,100 72,775
BET Holdings, Inc. Class A* 1,500 24,750
BISYS Group, Inc.* 2,600 57,200
BJ Services Co.* 2,700 55,013
BMC West Corp. 1,400 23,800
Baldor Electric Co. 2,860 74,360
Baldwin & Lyons, Inc.
Class A 100 1,550
Baldwin & Lyons, Inc.
Class B 1,800 27,000
Ballard Medical Products 9,900 96,525
Bally Entertainment Corp.* 7,600 53,200
Baltimore Bancorp 2,800 57,050
BancTec, Inc.* 1,800 36,000
Bancorpsouth, Inc. 1,300 41,600
Bank of Montreal 1,180 21,919
Bankers Corp. 240 3,465
Banyan Systems, Inc.* 2,800 49,000
Barefoot Inc. 2,800 39,550
Barnes Group Inc. 700 26,250
Barr Laboratories, Inc.* 1,000 25,250
Barrett Resources Corp.* 1,900 37,288
Bassett Furniture
Industries, Inc. 2,500 67,500
Bay State Gas Co. 2,100 50,925
Bay View Capital Corp. 1,200 27,000
Bearings, Inc. 900 29,363
Belden Inc. 2,800 56,000
Bell Bancorp, Inc. 1,800 47,250
Bell Sports Corp.* 1,300 27,300
Benton Oil & Gas Co.* 4,500 35,156
Bergen Brunswig Corp.
Class A 6,175 101,888
Berkley (W.R.) Corp. 600 21,525
Berry Petroleum Co. Class A 2,900 27,550
Best Power Technology, Inc.* 1,100 15,538
Big B, Inc. 2,900 35,525
Bio-Technology
General Corp.* 3,800 7,363
Biocraft Laboratories, Inc. 1,700 30,388
Birmingham Steel Corp. 1,500 38,813
Black Box Corp. 3,000 42,000
Black Hills Corp. 2,300 47,150
Blair Corp. 1,400 58,800
Blanch (E.W.) Holdings, Inc. 2,200 44,825
Block Drug Co., Inc. Class A 1,900 67,450
Blount, Inc. Class A 1,300 55,413
Blount, Inc. Class B 500 21,750
Bolt Beranek and
Newman Inc.* 2,200 39,050
Bombay Company, Inc. 5,950 71,400
Books-A-Million, Inc. 3,000 42,563
Borg-Warner
Security Corp.* 3,400 35,275
Borland International, Inc.* 9,300 99,975
Boston Bancorp 1,000 30,750
Boston Technology, Inc.* 8,400 138,600
Bowne & Co., Inc. 2,800 44,800
Box Energy Corp. Class A* 500 6,000
Box Energy Corp. Class B
(Non Voting)* 3,000 27,000
Breed Technologies, Inc. 1,100 38,913
BroadBand
Technologies, Inc.* 1,900 49,400
Broadway Stores Inc.* 8,500 95,625
Broderbund Software, Inc. 1,400 89,950
Brown (Tom), Inc.* 3,000 38,250
Brown Group, Inc. 500 16,938
Bruno's, Inc. 14,200 135,788
Brush Wellman Inc. 2,700 45,225
Buffets, Inc. 5,000 51,563
Bush Industries, Inc. 800 20,900
C-TEC Corp.* 1,300 35,750
CCB Financial Corp. 1,500 60,750
CCP Insurance, Inc. 5,400 83,700
CDI Corp.* 3,400 57,800
CILCORP Inc. 2,400 73,200
CKE Restaurants Inc. 2,600 21,450
CLARCOR Inc. 2,400 48,300
CMAC Investment Corp. 2,100 57,750
CML Group, Inc. 8,250 81,469
CNB Bancshares, Inc. 2,200 75,625
COR Therapeutics, Inc.* 4,400 57,200
CPI Corp. 1,700 36,975
Cross (A.T.) Co. Class A 2,800 42,350
CSF Holdings, Inc.* 1,600 41,600
CSS Industries, Inc. 1,700 28,263
Cabot Oil & Gas Corp.
Class A 3,300 61,050
Cadence Design
Systems, Inc.* 1,800 36,000
CalMat Co. 4,300 89,225
Caldor Corp.* 3,000 85,875
Calgene, Inc.* 4,600 39,963
Calgon Carbon Corp. 6,600 74,250
California Energy Co., Inc.* 6,800 115,600
California Federal Bank 3,000 34,500
California Microwave, Inc.* 1,900 59,138
California Water Service Co. 800 25,100
Camco International, Inc. 4,600 94,875
Canandaigua Wine Co.,
Inc. Class A* 2,100 68,775
Canandaigua Wine Co.,
Inc. Class B* 400 13,500
Capital Re Corp. 5,400 118,800
Capitol American
Financial Corp. 6,500 144,625
Capsure Holdings Corp.* 2,800 37,100
Caraustar Industries, Inc. 4,200 82,950
Carlisle Companies Inc. 2,800 91,350
Carpenter Technology Corp. 1,200 67,800
Carr-Gottstein Food Co.* 2,000 13,750
Casey's General Stores, Inc. 4,700 62,275
Cash America
Investments, Inc. 3,400 28,050
Casino America, Inc. 850 9,350
Castle & Cooke Homes, Inc.* 9,300 145,313
Catalina Marketing Corp.* 1,500 76,313
Catellus Development Corp.* 13,300 88,113
Cato Corp. (New) Class A 4,500 42,750
Cell Genesys, Inc.* 2,300 17,250
CellPro, Inc.* 2,300 38,525
Cellular Communications
Class A (Redeemable)* 4,500 239,063
Centennial Cellular Corp. 4,100 70,725
</TABLE>
See accompanying Notes to Financial Statements.
52
<PAGE> 53
SchwabFunds(R) 3
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares Value
--------- -----
<S> <C> <C>
Centerbank Waterbury
Connecticut* 2,200 $27,775
Centocor, Inc.* 9,300 165,075
Central Hudson Gas &
Electric Corp. 3,100 75,950
Central Jersey Bancorp 1,500 48,750
Central Louisiana Electric
Co., Inc. (New) 4,100 88,663
Central Maine Power Co. 5,200 59,800
Central Vermont Public
Service Corp. 2,100 27,825
Centura Banks, Inc. 2,700 59,400
Century Communications
Corp. Class A 3,900 33,150
Cerner Corp.* 2,400 98,700
Chambers Development
Co., Inc.* 1,900 3,800
Chambers Development
Co., Inc. Class A* 9,400 18,800
Champion Enterprises, Inc.* 1,400 49,700
Chaparral Steel Co. 6,000 48,000
Charter Medical Corp.* 4,900 121,275
Charter One Financial, Inc. 4,000 81,000
Checkers Drive-In
Restaurants, Inc. 8,800 29,975
Checkpoint Systems, Inc.* 2,100 39,375
Cheesecake Factory, Inc. 1,600 30,600
Chemed Corp. 1,500 51,188
Chemical Financial Corp. 1,330 52,535
Chesapeake Corp. 4,300 133,300
Cheyenne Software, Inc. 6,250 69,531
Chipcom Corp. 1,800 108,450
Chiquita Brands
International, Inc. 8,200 101,475
Church & Dwight Co., Inc. 3,600 81,000
Circa Pharmaceuticals, Inc.* 3,500 52,063
Citizens Bancorp 2,100 59,325
Citizens Banking Corp. 2,400 63,600
Citizens First Bancorp, Inc. 7,500 72,656
City National Corp. 8,200 90,200
Claire's Stores, Inc. 3,300 38,363
Clear Channel
Communications, Inc. 575 28,966
Cleveland-Cliffs Inc. 1,800 68,625
Coast Savings
Financial, Inc.* 2,300 32,775
Coastal Healthcare
Group, Inc.* 3,400 106,250
Cobra Golf, Inc. 3,400 126,225
Coca-Cola Bottling Co.
Consolidated 1,300 34,288
Coeur d'Alene Mines Corp. 2,600 48,425
Cognex Corp. 2,700 66,825
Collagen Corp. 1,800 39,600
Collective Bancorp, Inc. 3,600 64,125
Colonial BancGroup, Inc. 1,600 36,800
Colonial Gas Co. 900 17,438
Colonial Group, Inc. Class A 1,300 44,688
Comair Holdings, Inc. 3,800 81,700
Commerce Clearing
House, Inc. Class A 2,800 49,350
Commerce Clearing
House, Inc. Class B
(Non Voting) 2,900 49,663
Commercial Federal Corp.* 2,200 46,338
Commercial Intertech Corp. 2,850 54,863
Commercial Metals Co. 2,733 74,474
Commonwealth Energy
System 1,900 71,725
Community Health
Systems, Inc. 1,800 47,250
Community Psychiatric
Centers 7,300 72,088
Comnet Cellular Inc.* 1,900 53,913
CompUSA, Inc.* 2,700 31,388
Comverse Technology Inc.* 3,000 37,125
Concord EFS Inc. 2,700 66,825
Cone Mills Corp.* 3,600 42,750
Connecticut Energy Corp. 900 19,125
Connecticut Natural
Gas Corp. 1,400 33,075
Conner Peripherals, Inc.* 4,500 51,750
Consolidated
Freightways, Inc.* 2,000 44,750
Consolidated Stores Corp.* 8,700 157,688
Consorcio G Grupo Dina* 4,202 42,545
Continental Airlines, Inc.
Class A* 800 13,300
Continental Airlines, Inc.
Class B* 3,600 59,400
Continental Medical
Systems, Inc.* 15,000 106,875
Continuum Company, Inc.* 3,500 94,063
Copley Pharmaceutical, Inc. 3,064 54,003
CopyTele, Inc.* 3,900 19,378
Coram Healthcare Corp.* 4,662 76,923
Cordis Corp.* 1,200 69,375
Coventry Corp. 4,600 114,425
Crawford & Co. Class A 2,300 35,650
Crawford & Co. Class B 2,100 32,813
Cray Research, Inc.* 4,300 82,238
Credence Systems Corp.* 4,500 113,625
Credit Acceptance Corp. 3,500 131,688
Cross Timbers Oil Co. 4,900 78,400
CrossComm Corp.* 1,000 10,250
Crown Central
Petroleum Corp.* 600 10,200
Cullen/Frost Bankers, Inc. 1,900 63,175
Cypress Semiconductor Corp.* 6,200 129,425
Cyrix Corp.* 3,100 127,681
Cyrk, Inc.* 1,500 58,875
Cytec Industries, Inc.* 2,100 86,100
CytRx Corp.* 3,200 7,700
Dallas Semiconductor Corp.* 9,500 133,000
Dames & Moore, Inc. 4,700 69,325
Daniel Industries, Inc. 1,400 18,900
Data General Corp.* 5,900 57,525
Datascope Corp.* 2,700 46,238
DeVRY Inc.* 3,500 101,938
Dell Computer Corp.* 3,150 140,569
Delphi Financial Group, Inc.
Class A* 700 13,738
Delta Woodside
Industries, Inc. 8,100 84,038
Department 56, Inc.* 400 14,650
Deposit Guaranty Corp. 3,000 86,250
Destec Energy, Inc.* 11,500 126,500
Detroit Diesel Corp.* 4,700 116,325
Devon Energy Corp. 3,400 74,375
Dexter Corp. 4,500 92,813
</TABLE>
See accompanying Notes to Financial Statements.
53
<PAGE> 54
SchwabFunds(R) 4
- --------------------------------------------------------------------------------
SCHWAB SMALL-CAP INDEX FUND(TM)
STATEMENT OF NET ASSETS
October 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares Value
--------- -----
<S> <C> <C>
Diagnostek, Inc.* 4,000 $63,000
Diagnostic Products Corp. 1,600 38,400
Dial Page, Inc.* 1,600 34,800
Dibrell Brothers, Inc. 2,000 44,000
Digi International, Inc.* 2,300 38,813
Digital Microwave Corp.* 800 11,900
Dime Bancorp Inc.* 10,400 91,000
Dionex Corp.* 1,500 56,063
Discount Auto Parts, Inc.* 2,600 39,650
Discovery Zone, Inc. 6,800 130,900
Donaldson Co., Inc. 4,800 110,400
Downey Savings and
Loan Association 1,900 35,863
Dress Barn, Inc.* 3,800 37,050
Dreyer's Grand Ice
Cream, Inc. 2,600 66,625
Dual Drilling Co.* 1,900 24,819
Duff & Phelps Corp. 4,200 74,025
Duriron Co., Inc. 3,000 53,625
Duty Free International, Inc. 5,300 70,888
Dynatech Corp.* 1,700 49,300
E'town Corp. 700 18,200
E-Z Serve Corp.* 4,300 7,659
ENVOY Corp.* 2,000 40,750
Eagle Hardware &
Garden, Inc.* 3,400 33,150
Eastern Enterprises 3,900 101,400
Eastern Utilities Associates 3,600 78,750
Eaton Vance Corp.
(Non Voting) 1,400 44,275
Edison Brothers Stores, Inc. 3,500 83,125
Education Alternatives, Inc.* 2,000 42,750
Elcor Corp.* 1,000 16,875
Electroglas Inc.* 1,400 55,825
Electronics for Imaging, Inc.* 2,300 60,375
Empire District Electric Co. 2,200 35,475
Energen Corp. 1,300 29,575
Energy Service Co., Inc. 2,275 32,988
Energy Ventures, Inc.* 1,400 20,300
Enhance Financial
Services Group, Inc. 3,100 56,188
Ennis Business Forms, Inc. 2,700 36,450
Enquirer/Star Group, Inc.
Class A 3,300 55,275
Enterra Corp.* 2,700 61,763
Envirotest Systems Corp.
Class A* 2,500 31,563
Ethan Allen Interiors, Inc.* 2,200 53,900
Evergreen Media Corp.
Class A* 700 12,600
Exabyte Corp.* 3,900 86,044
Exar Corp. 1,200 24,750
Excel Industries, Inc. 1,900 28,500
Expeditors International of
Washington, Inc. 2,300 47,438
Express Scripts, Inc. Class A 1,200 40,800
F & M National Corp. 2,255 36,644
FHP International Corp.* 1,056 30,624
FHP International Corp. 3,520 96,360
FMC Gold Co. 17,500 72,188
FTP Software Inc.* 3,600 90,000
Fab Industries, Inc. 900 27,788
Fair, Issac & Co. Inc. 1,000 40,250
Farmer Bros. Co. 300 38,400
Fastenal Co. 800 35,900
Fidelity National
Financial, Inc. 2,900 32,988
Fieldcrest Cannon, Inc.* 1,300 33,150
Figgie International Inc.
Class A 4,600 35,938
Figgie International Inc.
Class B 600 5,025
FileNet Corp.* 1,500 37,875
Filene's Basement Corp.* 3,900 29,738
Financial Trust Corp. 1,200 34,200
First Alert Inc. 3,800 80,275
First American
Financial Corp. 3,600 67,050
First Bancorporation of Ohio 900 21,713
First Citizens BancShares,
Inc. Class A 1,300 58,825
First Colonial Bankshares Corp.
Class A 1,500 34,031
First Commerce Corp. 1,162 30,793
First Commercial Corp. 2,800 58,450
First Commonwealth
Financial Corp. 3,000 42,750
First Financial Bancorp 1,600 61,400
First Financial Corp. 4,000 56,000
First Michigan Bank Corp. 2,959 69,537
First Midwest Bancorp, Inc. 2,100 57,488
First Mississippi Corp. 3,200 67,200
First National Bancorp 2,700 52,650
First Pacific Networks, Inc.* 1,100 7,425
FirstFed Financial Corp.* 200 2,850
FirstFed Michigan Corp. 3,300 68,888
Firstbank of Illinois Co. 1,000 38,250
Fisher Scientific
International, Inc. 2,600 72,475
Flagstar Companies, Inc.* 7,200 59,400
Florida East Coast
Industries, Inc. 1,400 106,575
Florida Rock Industries, Inc. 1,400 37,275
Fluke Corp. 1,100 32,588
Foamex International Inc.* 4,300 38,431
Foodmaker, Inc. (New)* 11,100 59,663
Foote, Cone & Belding
Communications, Inc. 1,900 85,025
Foothill Group, Inc. Class A 2,400 36,000
Foremost Corp. of America 1,800 58,500
Forest City Enterprises, Inc.
Class A 900 27,338
Forest City Enterprises, Inc.
Class B (Convertible) 500 17,781
Fort Wayne National Corp. 1,800 49,725
Fossil, Inc.* 2,200 61,325
FoxMeyer Health Corp.* 5,473 90,989
Franklin Electric Co., Inc. 1,100 34,650
Franklin Quest Co.* 1,700 60,138
Fremont General Corp. 2,800 68,950
Fritz Companies, Inc.* 1,800 69,750
Frontier Insurance
Group, Inc. 2,350 64,331
Frozen Food Express
Industries, Inc. 2,100 34,650
Fuller (H.B.) Co. 2,400 79,200
Fulton Financial Corp. 3,300 62,700
G&K Services, Inc. Class A 2,950 47,938
GAINSCO, Inc. 2,315 20,256
GC Companies, Inc.* 1,280 36,160
</TABLE>
See accompanying Notes to Financial Statements.
54
<PAGE> 55
SchwabFunds(R) 5
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares Value
--------- -----
<S> <C> <C>
Galey & Lord, Inc.* 1,800 $28,350
Gartner Group Inc. Class A 4,000 128,500
Gaylord Container Corp.
Class A* 8,700 73,950
GenCare Health Systems, Inc.* 1,700 78,838
GenCorp Inc. 5,800 69,600
General Binding Corp. 2,900 62,350
General DataComm
Industries, Inc.* 3,100 103,463
Genesco Inc.* 2,800 6,300
Genesis Health
Ventures, Inc.* 2,100 61,950
Genetic Therapy, Inc.* 2,400 16,200
Geneva Steel Class A* 2,200 38,775
Gensia Pharmaceuticals, Inc.* 5,400 25,650
Gentex Corp. 2,900 70,325
Geon Co. 700 21,000
Geotek Communications Inc.* 10,300 88,838
Gerber Scientific, Inc. 3,900 52,163
Germantown Savings Bank 500 30,500
Gerrity Oil & Gas Corp.* 1,600 9,400
Getty Petroleum Corp.* 1,800 20,475
Gibson Greetings, Inc. 2,600 39,000
Giddings & Lewis, Inc. 6,200 95,325
Gilead Sciences, Inc.* 1,200 10,500
Glendale Federal Bank (New) 5,400 58,725
Global Natural
Resources Inc.* 4,400 33,000
Good Guys, Inc., The* 2,300 26,306
Goody's Family
Clothing, Inc.* 2,700 28,688
Goulds Pumps, Inc. 3,600 78,075
Graco Inc. 1,350 24,975
GranCare, Inc.* 5,000 77,500
Grand Casinos, Inc.* 3,800 51,300
Granite Construction Inc. 1,900 41,563
Greenfield Industries, Inc. 2,700 64,125
Grenada Sunburst
System Corp. 1,300 40,300
Grey Advertising Inc. 100 15,450
Grow Group, Inc. 2,000 28,750
Guaranty National
Corp. (New) 1,500 25,125
Guilford Mills, Inc. 1,600 33,000
Gupta Corp.* 600 6,675
Gymboree Corp. 4,000 131,000
HBO & Co. 2,600 84,825
HS Resources, Inc.* 2,100 43,050
Hach Co. 2,075 28,531
Haemonetics Corp.* 5,300 106,000
Haggar Corp. 1,200 28,500
Hancock Fabrics, Inc. 4,000 30,500
Hancock Holding Co. 1,300 37,700
Handleman Co. 6,300 70,875
Handy & Harman 1,700 28,263
Hanover Direct, Inc.* 13,300 54,031
Harleysville Group Inc. 4,600 111,550
Harman International
Industries, Inc. 2,200 78,650
Harnischfeger
Industries Corp. 5,100 127,500
Harper Group, Inc. 2,800 37,800
Harry's Farmers Market, Inc.
Class A* 400 3,550
Hartmarx Corp.* 5,300 30,475
Haverty Furniture
Companies, Inc. 3,000 36,750
Hawkeye Bancorporation 2,000 40,750
Hayes Wheels International, Inc. 3,200 75,200
Health Care and
Retirement Corp.* 2,500 67,188
Health Systems
International Inc.* 4,700 126,313
HealthCare Compare Corp.* 5,600 155,400
Healthsouth
Rehabilitation Corp.* 2,500 95,000
Heart Technology, Inc.* 2,900 68,875
Heartland Express, Inc. 2,000 58,500
Hechinger Co. Class A 4,900 55,125
Hechinger Co. Class B
(Convertible) 2,300 26,163
Hecla Mining Co.* 7,800 87,750
Helene Curtis Industries, Inc. 1,800 63,675
Herbalife International, Inc. 1,000 16,625
Heritage Media Corp.
Class A* 1,900 46,075
Hibernia Corp. Class A 2,900 23,200
Hilb, Rogal and Hamilton Co. 2,700 32,063
Hillhaven Corp. 12,500 278,125
Holly Corp. 1,000 24,625
Home Beneficial Corp.
Class B 1,700 35,063
Homedco Group, Inc.* 2,300 82,800
Hometown Buffet, Inc. 2,800 31,850
Horizon Healthcare Corp.* 4,100 113,263
Hornbeck Offshore
Services, Inc.* 2,200 33,000
Houghton Mifflin Co. 900 41,400
Hovnanian Enterprises,
Inc. Class A* 1,400 8,400
Hudson Foods, Inc. 1,300 28,600
Huffy Corp. 2,200 33,000
Hunt Manufacturing Co. 3,000 48,375
Huntco, Inc. Class A 700 15,400
ICN Pharmceuticals, Inc.* 3,900 45,338
IDEX Corp.* 2,300 100,050
IDEXX Laboratories, Inc. 2,600 72,800
IHOP Corp.* 1,500 41,250
INDRESCO, Inc.* 3,800 47,500
INTERCO Inc. (New)* 2,100 30,450
IVAX Corp. 2,092 40,010
Immunex Corp. (New)* 7,100 96,738
Immunomedics, Inc.* 3,600 15,525
Imperial Bancorp 2,000 32,000
Independent Insurance
Group, Inc. (Non Voting) 800 9,400
Indiana Energy, Inc. 4,100 79,950
Information Resources, Inc.* 4,200 61,950
Ingles Markets Inc. 1,100 12,100
Input/Output, Inc. 2,800 60,550
Insignia Financial Group
Class A (New)* 1,700 34,213
Insilco Corp.* 1,500 39,750
Insituform Technologies, Inc.
Class A* 2,600 33,800
Instrument Systems Corp.* 5,300 39,750
Insurance Auto Auctions, Inc.* 1,600 51,800
Integon Corp. 2,800 42,000
</TABLE>
See accompanying Notes to Financial Statements.
55
<PAGE> 56
SchwabFunds(R) 6
- --------------------------------------------------------------------------------
SCHWAB SMALL-CAP INDEX FUND(TM)
STATEMENT OF NET ASSETS
October 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares Value
--------- -----
<S> <C> <C>
Integrated Device
Technology, Inc.* 1,000 $28,500
Integrated Health
Services, Inc.* 3,200 130,400
Intelligent Electronics, Inc. 6,400 99,200
Inter-Regional Financial
Group, Inc. 1,400 32,900
Interface Systems, Inc.
Class A 2,400 27,750
Intergraph Corp.* 11,900 102,638
Intergroup Healthcare Corp.* 1,600 101,200
Intermet Corp. 9,200 63,250
International Dairy Queen,
Inc. Class A* 2,600 43,225
International Dairy Queen,
Inc. Class B* 1,800 30,825
International Family
Entertainment, Inc.
Class B* 5,700 74,813
International Multifoods Corp. 2,900 52,200
International Rectifier Corp.* 3,500 81,375
Interneuron
Pharmaceuticals, Inc.* 500 2,813
Interpool, Inc.* 2,100 28,875
Interstate Bakeries Corp. 4,000 51,500
Interstate Power Co. 1,500 33,375
Intuit, Inc.* 600 42,225
Invacare Corp. 1,600 48,600
Ionics, Inc.* 1,000 53,750
Iowa-Illinois Gas &
Electric Co. 4,800 98,400
J. Baker, Inc. 2,200 37,400
JSB Financial, Inc. 1,800 44,775
Jacobs Engineering
Group Inc.* 4,500 96,188
Jacor Communications,
Inc. Class A* 3,700 51,800
Jan Bell Marketing, Inc.* 10,100 55,550
Jason Inc. 3,125 28,516
Jefferies Group, Inc. 1,000 34,250
Jefferson Bankshares, Inc. 2,500 47,969
John Wiley & Sons, Inc.
Class A 1,600 70,000
Johnson Worldwide
Associates, Inc. Class A* 1,200 27,450
Johnstown America
Industries, Inc.* 1,500 29,813
Jones Intercable, Inc.* 1,300 18,200
Jones Intercable, Inc.
Class A* 2,300 31,769
Joslyn Corp. 1,200 32,400
Joy Technologies Inc.* 7,200 99,900
Juno Lighting, Inc. 2,900 54,738
Justin Industries, Inc. 4,300 56,975
K N Energy, Inc. 4,268 105,100
KCS Energy, Inc. 1,900 31,825
KLA Instruments Corp.* 700 36,750
Kaiser Aluminum Corp.* 10,600 119,250
Kaman Corp. Class A 3,200 31,000
Kasler Corp. 1,300 6,663
Kaufman & Broad
Home Corp. 5,700 74,100
Kaydon Corp. 2,700 63,113
Keane, Inc. 4,500 92,250
Kelley Oil Corp.* 700 4,375
Kellwood Co. 3,300 66,413
Kemet Corp.* 2,700 58,050
Kendall Square
Research Corp.* 1,700 186
Kennametal Inc. 800 22,500
Keystone Financial, Inc. 3,500 96,688
Kimball International, Inc.
Class B 2,200 52,800
Kinder-Care Learning
Centers, Inc. (New)* 3,400 45,050
Kirby Corp.* 3,900 65,325
Komag, Inc.* 3,700 92,038
L.A. Gear, Inc.* 2,700 18,900
LCI International, Inc. 2,400 58,200
La Quinta Inns, Inc. 2,700 67,838
La-Z-Boy Chair Co. 3,000 90,750
LabOne, Inc. 2,100 36,225
Laclede Gas Co. 2,500 52,188
Lance Inc. 5,100 90,525
Landmark Graphics Corp.* 2,100 43,050
Landstar Systems, Inc.* 2,200 72,600
Lattice Semiconductor Corp. 2,900 49,119
Lawson Products, Inc. 2,300 59,513
Lawter International, Inc. 7,600 95,950
Leader Financial Corp.* 2,000 47,750
Lechters, Inc.* 2,900 51,113
Legg Mason, Inc. 1,900 39,900
Lennar Corp. 4,800 72,600
Level One
Communications, Inc. 2,150 38,700
Levitz Furniture Inc.* 11,000 96,250
Libbey, Inc. 2,400 38,100
Liberty Bancorp, Inc. 1,200 38,100
Liberty Corp. 3,600 94,950
Life Partners Group, Inc. 3,800 82,650
Life Re Corp. 2,000 36,500
Life Technologies, Inc. 2,500 46,875
Life USA Holding, Inc.* 2,900 23,744
Lilly Industries, Inc. Class A 3,750 50,625
Lincare Holdings, Inc. 4,800 129,600
Lincoln
Telecommunications Co. 5,500 90,750
Liposome Technology, Inc.* 2,200 14,300
Liqui-Box Corp. 1,000 34,500
Littelfuse, Inc.* 3,400 88,400
Living Centers of
America, Inc.* 1,900 57,238
Logicon, Inc. 1,100 33,825
Lone Star Industries Inc.* 2,300 44,563
Lone Star Steakhouse &
Saloon, Inc.* 6,100 156,313
Lottery Enterprises, Inc. 45 293
Louis Dreyfus Natural
Gas Corp.* 7,400 108,225
Loyola Capital Corp. 2,800 56,000
Luby's Cafeterias, Inc. 4,700 108,688
Lukens Inc. 2,450 77,481
M.S. Carriers, Inc.* 2,100 49,088
M/A-COM., Inc.* 3,000 21,000
MAXXAM Inc.* 1,500 50,438
MDU Resources Group, Inc. 3,200 86,800
MICROS Systems, Inc. 1,100 40,975
Mac Frugal's
Bargains-Close-outs, Inc.* 4,800 99,000
</TABLE>
See accompanying Notes to Financial Statements.
56
<PAGE> 57
SchwabFunds(R) 7
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares Value
--------- -----
<S> <C> <C>
Madison Gas and Electric Co. 1,500 $49,875
Magma Copper Co. (New)* 1,900 33,963
Magna Group, Inc. 4,600 95,163
MagneTek, Inc.* 4,100 60,988
Manitowoc Co., Inc. 1,600 41,200
Marcus Corp. 1,200 31,500
Marine Drilling
Companies, Inc.* 12,400 50,375
Mariner Health Group, Inc.* 3,100 69,944
Mark Twain Bancshares, Inc. 2,500 67,813
Markel Corp.* 900 37,013
Marquette Electronics, Inc.
Class A* 1,900 36,575
Marsam
Pharmaceuticals Inc.* 2,300 30,619
Marshall Industries 2,700 70,538
Masland Corp. 2,100 33,731
Material Sciences Corp. 1,800 28,575
Maxim Integrated
Products, Inc.* 1,200 80,700
Maybelline, Inc. 2,500 45,313
McClatchy Newspapers,
Inc. Class A 600 13,950
Measurex Corp. 2,900 62,713
Medaphis Corp.* 2,500 95,625
Medicine Shoppe
International, Inc. 900 21,150
Medusa Corp. 2,800 63,700
Men's Wearhouse, Inc. 2,300 57,213
Mentor Graphics Corp. 8,000 107,500
Meredith Corp. 1,200 58,800
Merisel, Inc.* 5,500 50,188
Merrill Corp. 900 16,650
Mesa Airlines, Inc.* 6,000 49,500
MESA Inc.* 10,300 52,788
Methode Electronics, Inc.
Class A 4,000 75,000
Methode Electronics, Inc.
Class B (Convertible) 200 4,175
Metricom, Inc.* 2,100 27,300
Metropolitan Financial Corp. 5,600 134,400
Michael Foods, Inc. 2,300 23,000
Michaels Stores, Inc.* 3,900 158,438
Micom Communications* 1,599 22,986
Micro Warehouse, Inc. 6,300 219,713
MicroAge Computer
Centers, Inc. 1,950 24,131
Microchip Technology, Inc. 1,700 79,900
Mid Atlantic Medical
Services Inc. 2,000 46,250
Mid-Am, Inc. 2,200 32,450
Midwest Grain Products, Inc. 1,600 42,200
Mine Safety Appliances Co. 1,200 54,150
Minerals Technologies, Inc. 800 23,800
Mohawk Industries, Inc. 5,300 85,463
Molten Metal Technology, Inc.* 3,800 84,550
Money-Store Inc., The 2,300 47,150
Monk-Austin, Inc. 2,900 42,413
Moorco International, Inc. 1,800 26,325
Morgan Keegan, Inc. 2,100 26,775
Mosinee Paper Corp. 900 24,413
Mueller Industries, Inc.* 1,500 47,438
Multicare Companies, Inc.* 3,200 65,800
Musicland Group, Inc.* 6,200 84,475
Mutual Assurance, Inc. 1,550 45,144
Mycogen Corp.* 3,200 32,800
Myers Industries, Inc. 2,500 42,500
N.S. Bancorp, Inc. 1,300 35,994
NAC Re Corp. 3,200 83,200
NACCO Industries, Inc.
Class A 1,300 76,700
NBB Bancorp, Inc. 1,300 62,075
NCH Corp. 1,400 93,275
NL Industries, Inc.* 8,700 110,925
NUI Corp. 1,500 23,063
NYMAGIC, Inc. 1,400 23,450
Nabors Industries, Inc.* 11,900 87,763
Nash Finch Co. 2,000 32,000
Nashua Corp. 700 15,925
National Auto Credit Inc.* 4,100 49,969
National Bancorp of
Alaska, Inc. 1,400 72,100
National Commerce Bancorp 4,100 95,325
National Computer
Systems, Inc. 1,800 25,650
National Data Corp. 2,400 49,800
National Gypsum Co. (New)* 3,500 118,125
National Penn
Bancshares, Inc. 1,155 31,329
National Presto
Industries, Inc. 1,100 43,313
National RE Holdings Corp. 3,100 75,950
National Steel Corp. Class B* 2,300 40,825
Nautica Enterprises, Inc. 2,300 66,700
Navigators Group, Inc. 600 9,750
Neiman Marcus Group, Inc. 6,400 92,000
Nellcor Inc.* 3,000 93,000
Netmanage, Inc. 5,400 152,550
Network General Corp.* 3,000 64,313
Network Systems Corp.* 4,800 33,300
New England Business
Service, Inc. 2,400 45,300
New Jersey
Resources Corp. 3,200 69,600
Noble Drilling Corp.* 18,975 138,755
Noise Cancellation
Technologies, Inc.* 15,400 20,213
Norand Corp.* 1,200 47,100
North American
Mortgage Co. 2,800 50,400
North Carolina Natural
Gas Corp. 700 15,750
North Fork Bancorp, Inc. 3,000 45,750
Northwest Natural Gas Co. 2,000 60,750
Northwestern Public
Service Co. 900 23,400
Northwestern Steel & Wire* 3,900 23,888
NovaCare, Inc.* 4,280 42,800
Novellus Systems, Inc.* 2,800 152,950
Noven Pharmaceuticals, Inc.* 2,600 39,325
Nuevo Energy Co.* 1,300 29,088
O'Reilly Automotive, Inc.* 1,400 35,350
O'Sullivan Corp. 2,000 19,000
OEA, Inc. 3,500 86,188
OM Group, Inc. 2,000 39,875
OMI Corp. 3,600 23,400
ONBANCorp, Inc. 2,100 55,125
Oak Industries Inc.* 2,900 74,675
</TABLE>
See accompanying Notes to Financial Statements.
57
<PAGE> 58
SchwabFunds(R) 8
- --------------------------------------------------------------------------------
SCHWAB SMALL-CAP INDEX FUND(TM)
STATEMENT OF NET ASSETS
October 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
--------- -------
<S> <C> <C>
Oakwood Homes Corp. 3,700 $87,875
Oceaneering International, Inc.* 3,600 46,350
Octel Communications Corp.* 4,400 95,150
Offshore Logistics, Inc.* 2,800 36,225
Offshore Pipelines, Inc.* 2,100 42,788
Ogden Projects, Inc.* 600 10,500
Omega Environmental, Inc.* 5,000 30,000
Omnicare, Inc. 1,100 40,150
One Valley Bancorp of West Virginia, Inc. 2,800 83,650
Oneok Inc. 4,300 75,788
OrNda Heathcorp* 6,660 106,560
Orange & Rockland Utilities, Inc. 2,500 75,938
Orbital Sciences Corp.* 2,500 53,438
Oregon Steel Mills, Inc. 6,300 107,888
Orion Capital Corp. 2,300 70,438
Oshkosh B'Gosh, Inc. Class A 2,400 35,700
Oshkosh B'Gosh, Inc. Class B 200 2,975
Otter Tail Power Co. 1,600 52,200
Outboard Marine Corp. 3,400 70,125
Owens & Minor, Inc. 5,100 75,863
Oxford Health Plans, Inc. 1,300 107,250
Oxford Industries, Inc. 1,600 40,800
PAXAR Corp. 2,750 29,219
PLATINUM technology, inc.* 3,200 71,200
PXRE Corp. 1,100 27,225
Pacific Crest Capital, Inc.* 126 725
Papa John's International* 1,900 60,563
Paragon Trade Brands* 1,800 43,200
Park Communications, Inc.* 3,100 87,188
Park National Corp. 800 31,600
Parker Drilling Co.* 11,100 67,988
Patterson Dental Co. 3,850 72,669
Penn Traffic Co.* 1,900 78,375
PennCorp Financial Group, Inc. 2,900 45,675
Pentair, Inc. 700 29,488
People's Bank Bridgeport Connecticut 5,200 67,925
PeopleSoft, Inc.* 1,900 117,800
Peoples Choice TV Corp.* 1,100 21,725
Peoples Heritage Financial Group, Inc. 2,800 39,550
PerSeptive Biosystems, Inc.* 2,000 22,125
Petroleum Heat and Power Co., Inc. Class A 3,200 28,400
Petrolite Corp. 1,900 56,525
Pharmaceutical Resources, Inc.* 1,800 17,100
Philadelpia Suburban Corp. 1,300 23,075
PhyCor, Inc.* 1,600 54,800
Physicians Health Services, Inc.* 600 15,225
PictureTel Corp.* 2,300 44,850
Piedmont Natural Gas Co., Inc. 4,800 96,600
Pier 1 Imports, Inc. 5,600 43,400
Pikeville National Corp. 1,200 27,600
Pilgrim's Pride Corp. 4,500 45,000
Pillowtex Corp.* 2,100 25,725
Pioneer Group, Inc. 2,000 94,000
Pioneer-Standard Electronics, Inc. 2,550 46,219
Piper Jaffray Inc. 4,600 53,475
Pittston Minerals Group 900 21,600
Pittway Corp. 300 11,213
Pittway Corp. Class A 1,400 51,100
Plains Petroleum Co. 1,200 32,400
Platinum Software Corp. 1,500 17,906
Playboy Enterprises, Inc. Class B* 2,100 17,325
Players International, Inc.* 2,800 62,825
Ply-Gem Industries, Inc. 2,200 47,300
Poe & Brown, Inc. 1,500 32,063
Pogo Producing Co. 700 15,663
Policy Management Systems Corp.* 2,000 94,000
Pope & Talbot, Inc. 1,800 31,950
Powersoft Corp.* 1,500 95,250
Precision Castparts Corp. 3,300 75,488
Premier Bancorp, Inc. 4,600 75,325
President Riverboat Casinos, Inc. 4,700 38,188
Presidential Life Corp. 6,800 40,375
Presstek, Inc. 1,125 37,898
Primark Corp.* 3,500 45,500
Prime Hospitality Corp.* 5,500 42,625
Production Operators Corp. 1,600 41,000
Proffitt's, Inc.* 1,600 28,800
Progress Software Corp.* 900 28,238
Protective Life Corp. 2,200 99,000
Protein Design Labs, Inc.* 2,500 43,438
Provident Bancorp, Inc. 2,800 94,850
Public Service Co. of New Mexico* 6,300 77,963
Public Service Co. of North Carolina, Inc. 3,300 48,263
Pulitzer Publishing Co. 2,100 75,075
Puritan-Bennett Corp. 4,200 108,938
Purolator Products Co. 1,600 39,800
Quaker State Corp. 4,100 55,863
Quality Food Centers, Inc. 3,100 66,650
Quanex Corp. 2,100 52,238
Quantum Corp.* 8,100 123,525
Quantum Health Resources, Inc.* 2,600 94,900
Queens County Bancorp 1,200 31,200
Quick & Reilly Group, Inc. 1,680 43,260
REN Corporation-USA* 2,200 27,500
Raymond James Financial, Inc. 2,800 42,000
Read-Rite Corp.* 5,900 102,144
Reading & Bates Corp. (New)* 10,600 71,550
Recognition International, Inc.* 1,800 13,275
Recoton Corp. 1,900 35,625
Regal-Beloit Corp. 2,800 39,200
Regency Health Services* 3,300 37,538
Reinsurance Group of America, Inc. 3,000 66,750
Reliance Group Holdings, Inc. 18,600 113,925
Republic Bancorp Inc. 2,750 33,000
Rexall Sundown, Inc. 2,700 28,181
Richfood Holdings, Inc. 3,500 56,000
</TABLE>
See accompanying Notes to Financial Statements.
58
<PAGE> 59
SchwabFunds(R) 9
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
--------- -------
<S> <C> <C>
Riggs National Corp.* 11,100 $101,288
Rio Hotel and Casino, Inc.* 3,900 50,700
Rival Co. 1,500 38,250
River Forest Bancorp, Inc. 1,200 40,350
RoTech Medical Corp.* 1,800 46,125
Robert Half International Inc. 4,600 98,900
Roberts Pharmaceutical Corp.* 3,100 82,538
Rochester Community Savings Bank 2,300 42,263
Rohr Inc.* 6,600 60,225
Rollins Environmental Services, Inc. 11,500 67,563
Rollins Leasing Corp. 8,400 98,700
Roosevelt Financial Group, Inc. 3,300 49,913
Roper Industries, Inc. 2,600 63,050
Ross Stores, Inc. 4,000 56,000
Ruddick Corp. 4,200 81,900
Russ & Berrie Co., Inc. 3,500 47,688
Ryan's Family Steak Houses, Inc.* 21,100 134,513
Ryland Group, Inc. 2,900 46,763
S & T Bancorp, Inc. 2,000 40,250
S.E. Rykoff & Co.* 1,400 28,175
S3, Inc. 2,500 35,625
SCI Systems, Inc.* 4,800 87,000
SCIMED Life Systems, Inc.* 2,800 134,050
SCOR Reinsurance U.S. Corp. 2,200 24,475
SEI Corp. 2,900 60,175
SFFed Corp. 1,400 24,150
SLM Interational, Inc. 3,350 20,519
SPI Pharmaceuticals, Inc. 3,107 71,461
SPX Corp. 2,300 39,963
SafeCard Services, Inc. 3,700 59,200
Safeskin Corp.* 2,200 35,750
Sanifill, Inc.* 2,500 56,875
Santa Cruz Operation, Inc.* 5,500 59,813
Savannah Foods & Industries, Inc. 4,900 61,250
Savoy Pictures Entertainment, Inc.* 4,200 37,275
Sbarro, Inc. 3,000 74,625
Scholastic Corp.* 2,800 128,100
Schuler Homes, Inc.* 3,300 51,563
Scios Nova, Inc.* 5,200 34,450
Scotts Co. Class A* 7,400 114,700
Seabord Corp. 200 36,250
Seafield Capital Corp. 1,100 39,188
Sealed Air Corp.* 3,700 126,263
Sealright Co., Inc. 1,300 22,100
Security Capital Bancorp 2,100 32,550
Seitel, Inc.* 1,000 28,000
Selective Insurance Group, Inc. 4,400 110,550
Sequa Corp. Class A 1,100 26,950
Sequa Corp. Class B 700 19,600
Sequent Computer Systems, Inc.* 5,400 103,275
Shared Medical Systems Corp. 3,900 115,294
Shoe Carnival, Inc. 500 3,250
ShopKo Stores, Inc. 8,800 86,900
Shorewood Packaging Corp.* 2,800 56,350
Showboat, Inc. 2,400 28,800
Sierra Health Services, Inc.* 2,000 65,000
Sierra Pacific Resources 5,400 103,950
Silicon Valley Group, Inc.* 1,000 19,500
Simpson Industries, Inc. 3,000 39,000
Sizzler International, Inc. 11,500 69,000
SkyWest Airlines, Inc. 1,900 38,950
Skyline Corp. 1,300 25,675
Smart & Final Inc. 3,800 56,525
Smith (A.O.) Corp. Class A 1,000 24,500
Smith (A.O.) Corp. Class B 2,600 63,375
Smith International, Inc.* 7,100 118,925
Smith's Food & Drug Centers, Inc. Class B 3,200 82,800
Smithfield Foods, Inc.* 2,600 75,400
Smucker (J.M.) Co. Class B 500 10,688
Snyder Oil Corp. 4,300 74,175
Sodak Gaming Inc.* 1,700 24,013
Sofamor Danek Group, Inc.* 4,600 77,050
Sonat Inc. 5,200 103,350
Sotheby's Holdings, Inc. Class A 700 8,488
South Jersey Industries, Inc. 1,200 20,850
Southdown, Inc.* 6,400 111,200
Southeastern Michigan Gas Enterprises, Inc. 1,890 35,201
Southern California Water Co. 900 14,063
Southern Indiana Gas & Electric Co. 2,866 76,666
Southern Union Co. (New) 2,000 33,750
Southwest Gas Corp. 3,400 58,225
Southwestern Energy Co. 4,200 72,450
Southwestern Life Insurance Co.* 7,200 31,500
Sovereign Bancorp, Inc. 6,280 57,305
SpaceLabs Medical Inc.* 1,700 35,913
Spectravision, Inc.* 1,300 1,381
Spectrum Information Technologies, Inc.* 8,100 13,542
Spelling Entertainment Group, Inc. 12,300 147,600
Sports & Recreation, Inc. 3,000 84,750
Springs Industries, Inc. 3,200 129,200
St. John's Knits, Inc. 1,300 39,650
St. Paul Bancorp, Inc. 3,500 71,969
Standard Microsystems Corp.* 1,900 46,669
Standard Motor Products, Inc. 2,500 45,625
Standard Pacific Corp. 5,800 39,875
Standard Products Co. 2,700 65,138
Standard Register Co. 4,800 85,200
Standex International Corp. 1,800 58,275
Stanhome Inc. 400 13,450
Stant Corp. 2,600 29,250
Starbucks Corp. 1,100 29,838
Starter Corp.* 4,900 36,138
State Auto Financial Corp. 2,100 29,925
Station Casinos Inc.* 4,800 63,600
Steel Technologies Inc. 2,100 25,988
Stein Mart, Inc. 3,600 63,900
Sterling Chemicals, Inc. 10,100 122,463
Sterling Software, Inc.* 3,700 115,625
Stewart Enterprises, Inc. Class A 3,700 89,725
</TABLE>
See accompanying Notes to Financial Statements.
59
<PAGE> 60
SchwabFunds(R) 10
- --------------------------------------------------------------------------------
SCHWAB SMALL-CAP INDEX FUND(TM)
STATEMENT OF NET ASSETS
October 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
--------- -------
<S> <C> <C>
Stone & Webster, Inc. 2,700 $87,413
Stone Container Corp.* 6,112 102,376
Stratacom Inc.* 3,100 175,150
Stratus Computer, Inc.* 2,000 74,500
Strawbridge & Clothier Class A 1,700 36,975
Structural Dynamics Research Corp.* 4,300 20,694
Student Loan Corp. 2,800 53,550
Sturm, Ruger & Co., Inc. 2,000 53,000
Summa Four, Inc.* 500 10,375
Summit Bancorp 4,600 96,888
Summit Technology, Inc.* 2,800 79,800
Sun Healthcare Group, Inc.* 3,608 82,984
Sunglass Hut International, Inc.* 1,600 66,600
Sunrise Medical Inc.* 3,300 85,800
Sunshine Mining Co. 23,000 48,875
Supercuts, Inc.* 1,200 13,200
Surgical Care Affiliates, Inc. 7,150 140,319
Susquehanna Bancshares, Inc. 1,700 39,525
Swift Transportation Co. 2,100 90,825
SyStemix, Inc.* 1,200 18,750
Sybron Corp.* 1,900 65,788
Symantec Corp.* 6,000 107,250
Symbol Technologies, Inc.* 4,300 145,125
Symmetricom, Inc.* 1,600 19,300
Syncor International Corp.* 700 5,950
Synergen, Inc.* 6,800 36,975
Synetic, Inc.* 3,300 54,038
Synopsys, Inc.* 300 13,838
Syratech Corp.* 1,600 29,400
System Software Associates, Inc. 4,600 57,213
Systems & Computer Technology Corp.* 1,700 33,788
TBC Corp.* 4,300 41,656
TCA Cable TV, Inc. 4,000 94,000
TCF Financial Corp. 2,000 78,000
TJ International 3,100 55,800
TNP Enterprises, Inc. 1,300 18,038
TNT Freightways Corp. 3,500 89,688
Taco Cabana Class A 2,500 19,844
Tandycrafts, Inc.* 1,900 22,800
Tech Data Corp. 9,000 176,625
Tecnol Inc.* 3,200 50,800
Tejas Gas Corp.* 1,800 81,450
Tejon Ranch Co. 1,900 25,888
Teleflex Inc. 2,450 94,938
Telxon Corp. 2,500 33,125
Tencor Instruments* 1,900 83,600
Tennant Co. 900 41,063
Terra Industries, Inc. 25,800 274,125
Tesoro Petroleum Corp.* 4,600 43,125
Tetra Tech, Inc. (New) 3,125 60,156
Texas Industries, Inc. 1,800 57,600
Thermedics Inc. 4,800 72,600
Thermo Cardiosystems Inc. 3,300 58,163
Thermo Fibertek, Inc.* 10,700 164,513
Thermotrex Corp. 2,700 41,175
Thiokol Corp. 3,000 73,875
Thomas Nelson, Inc. 2,100 40,163
Thor Industries, Inc. 1,200 24,600
Tiffany & Co. (New) 2,700 105,300
Timberland Co. Class A* 1,400 47,425
Titan Wheel International, Inc. 200 5,750
Toll Brothers, Inc.* 5,700 62,700
Topps Co., Inc. 7,500 43,594
Toro Co. 2,100 58,275
Transco Energy Co. 1,100 15,813
Trenwick Group Inc. 1,100 40,563
TriMas Corp. 2,500 57,813
Triarc Cos., Inc. Class A* 3,900 45,338
Trident NGL Holding, Inc. 6,000 63,750
Trimble Navigation Ltd.* 3,100 44,369
Trust Co. of New Jersey (New) 3,900 57,525
TrustCo Bank Corp NY 2,420 47,190
Trustmark Corp. 5,300 94,075
Tuscon Electric Power Co.* 26,000 91,000
Tyco Toys, Inc. 5,900 38,350
U.S. Bioscience, Inc.* 7,600 55,100
U.S. Can Corp.* 1,800 29,025
U.S. Home Corp. (New)* 1,200 19,050
U.S. Robotics, Inc.* 2,100 83,738
U.S. Trust Corp. 1,500 90,750
UMB Financial Corp. 3,240 104,895
UNR Industries, Inc. 9,700 58,806
USAir Group, Inc.* 9,800 42,875
USLICO Corp. 2,800 56,000
UST Corp.* 3,200 36,400
UniFirst Corp. 3,000 35,625
Unilab Corp. (New)* 6,600 32,588
Union Planters Corp. 2,700 62,100
Union Switch & Signal* 2,600 41,275
United Bankshares, Inc. 1,900 46,550
United Carolina Bancshares Corp. 2,400 62,100
United Companies Financial Corp. 2,200 72,325
United Fire & Casualty Co. 700 29,400
United Illuminating Co. 2,300 70,150
United Insurance Companies, Inc.* 1,500 46,125
United International Holdings Inc. 1,600 24,200
United Meridian Corp.* 3,900 57,038
United States Shoe Corp. 4,000 71,500
United Stationers Inc. 6,000 59,250
United Television, Inc.* 1,500 79,313
United Waste Systems, Inc.* 3,400 81,175
United Water Resources Inc. 6,000 82,500
United Wisconsin Services, Inc. 2,200 80,850
Unitog Co. 1,650 30,319
Unitrode Corp.* 1,600 30,800
Univar Corp. 2,300 31,913
Universal Health Services, Inc. Class B* 1,800 47,925
VISX, Inc.* 1,800 21,825
VLSI Technology, Inc.* 5,900 76,331
Valassis Communications, Inc. 2,900 44,225
Valence Technology, Inc.* 2,700 8,775
Valhi, Inc. 21,000 141,750
Valmont Industries, Inc. 1,600 27,400
</TABLE>
See accompanying Notes to Financial Statements.
60
<PAGE> 61
SchwabFunds(R) 11
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
--------- -------
<S> <C> <C>
Value City Department Stores, Inc.* 5,900 $67,113
Value Health, Inc.* 1,232 47,740
Value Line, Inc. 1,700 53,550
Varco International, Inc.* 9,900 69,300
Vencor, Inc. 4,650 138,919
Ventritex, Inc.* 3,700 96,200
Venture Stores, Inc. 2,900 44,950
VeriFone, Inc.* 4,300 95,675
Vertex Pharmaceuticals, Inc.* 2,500 33,438
Vesta Insurance Group 1,500 39,563
Vicor Corp.* 3,600 100,800
Victoria Bankshares, Inc. 1,000 25,750
ViewLogic Systems, Inc.* 2,300 50,600
Vigoro Corp. 3,300 101,475
Vintage Petroleum, Inc. 3,700 71,688
Viratek, Inc. 2,295 26,679
Vivra Inc. 2,800 79,100
W.H. Brady Co. Class A 900 2,975
WD-40 Co. 1,200 51,450
WHX Corp.* 11,000 165,000
WICOR, Inc. 2,300 65,838
WLR Foods, Inc. 1,800 47,250
WMS Industries Inc.* 4,000 70,500
Waban, Inc.* 6,000 106,500
Wabash National Corp. 3,000 104,250
Walbro Corp. 1,400 25,025
Wall Data, Inc.* 1,500 54,938
Wallace Computer Services, Inc. 1,400 38,850
Washington Energy Co. 3,800 51,775
Washington National Corp. 4,900 105,963
Waterhouse Securities, Inc. 1,600 25,800
Watson Pharmaceuticals, Inc.* 2,600 68,250
Watts Industries, Inc. Class A 3,100 74,400
Weatherford International Inc.* 3,500 39,813
Webb (Del) Corp. 2,100 33,863
Weirton Steel Corp.* 4,300 37,088
Welbilt Corp.* 1,500 37,313
Wellman, Inc. 500 16,438
Werner Enterprises, Inc. 500 12,688
WesBanco, Inc. 1,400 38,325
West Company, Inc. 3,000 84,375
Westamerica Bank 1,000 32,000
Westcorp Financial Services 4,130 39,235
Westcott Communications, Inc. 2,900 39,875
Western Co. of North America* 2,900 51,475
Western Digital Corp.* 8,200 139,400
Western Waste Industries* 2,400 42,000
WestPoint Stevens, Inc.* 5,600 82,600
Westwood One, Inc.* 5,000 47,813
White River Corp.* 1,000 32,875
Whitney Holding Corp. 2,400 54,300
Whole Foods Market, Inc. 1,900 29,213
Williams-Sonoma, Inc. 4,200 145,950
Winnebago Industries, Inc. 4,100 36,388
Wisconsin Central Transportation Corp. 2,800 129,150
Wolverine Tube, Inc.* 2,000 50,250
Wolverine World Wide, Inc. 1,700 41,650
Worthen Bank & Trust Co. 2,500 71,563
Wyle Laboratories 2,300 42,550
X-Rite, Inc. 1,600 58,600
XCL Limited* 20,500 28,188
Xircom, Inc.* 2,500 43,438
Yankee Energy System, Inc. 1,900 42,513
Yellow Corp. 5,100 99,131
Younkers, Inc.* 1,000 19,625
Zebra Technologies Corp. Class A* 900 36,563
Zenith Electronics Corp.* 7,700 107,800
Zenith Laboratories, Inc. (New) 2,400 57,000
Zenith National Insurance Corp. 3,100 73,238
Zero Corp. 1,900 24,463
Zilog, Inc.* 400 11,600
Zions Bancorp 2,300 86,408
Zurn Industries, Inc. 2,000 36,500
1st Source Corp. 1,145 28,482
3DO Co.* 3,200 53,200
-----------
TOTAL COMMON STOCK(Cost $64,786,151) 65,383,543
Maturity -----------
--------
REPURCHASE AGREEMENT--4.0%
State Street Bank & Trust 4.25%
Dated 10/31/94
Due 11/01/94
Collateralized By:
U.S. Treasury Bill
$2,860,000 Par;
Due 4/30/95 $2,730,000 2,730,000
-----------
TOTAL REPURCHASE AGREEMENT
(Cost $2,730,000) 2,730,000
-----------
TOTAL INVESTMENTS -- 100.0%
(Cost $67,516,151) 68,113,543
-----------
OTHER ASSETS AND LIABILITIES -- 0.0%
Other Assets 230,704
Liabilities (216,246)
-----------
14,458
-----------
NET ASSETS -- 100.0%
Applicable to 6,779,517
outstanding $0.00001
par value shares
(unlimited shares authorized) $68,128,001
===========
NET ASSET VALUE PER SHARE $ 10.05
===========
</TABLE>
- ---------------
*Non-Income Producing Security
See accompanying Notes to Financial Statements.
61
<PAGE> 62
SchwabFunds(R) 12
- --------------------------------------------------------------------------------
SCHWAB SMALL-CAP INDEX FUND(TM)
STATEMENT OF OPERATIONS
For the period December 3, 1993 (commencement of operations) to October 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Investment income:
Dividends $ 588,017
Interest 112,525
-----------
Total investment income 700,542
-----------
Expenses:
Investment advisory and administration fee 258,394
Transfer agency and shareholder service fees 129,197
Custodian fees 82,467
Registration fees 32,217
Professional fees 28,173
Shareholder reports 48,377
Trustees' fees 18,495
Amortization of deferred organization costs 13,320
Insurance and other expenses 4,609
-----------
615,249
Less expenses reduced and absorbed (267,476)
-----------
Total expenses incurred by Fund 347,773
-----------
Net investment income 352,769
-----------
Net realized gain (loss) on investments:
Proceeds from sales of investments 8,478,561
Cost of investments sold (9,006,296)
-----------
Net realized loss on investments sold (527,735)
-----------
Net unrealized appreciation on investments:
Beginning of period --
End of period 597,392
-----------
Net unrealized appreciation on investments 597,392
-----------
Net gain on investments 69,657
-----------
Net increase in net assets resulting from operations $ 422,426
===========
</TABLE>
See accompanying Notes to Financial Statements.
62
<PAGE> 63
SchwabFunds(R) 13
- --------------------------------------------------------------------------------
SCHWAB SMALL-CAP INDEX FUND(TM)
STATEMENT OF CHANGES IN NET ASSETS
For the period December 3, 1993 (commencement of operations) to October 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Operations:
Net investment income $ 352,769
Net realized loss on investments sold (527,735)
Net unrealized appreciation on investments 597,392
------------
Net increase in net assets resulting from operations 422,426
------------
Dividends to shareholders from net investment income (56,830)
Capital Share Transactions:
Proceeds from shares sold 78,645,543
Net asset value of shares issued in reinvestment of dividends 52,690
Early withdrawal fees 27,385
Less payments for shares redeemed (10,963,213)
------------
Increase in net assets from capital share transactions 67,762,405
------------
Total increase in net assets $ 68,128,001
Net Assets:
Beginning of period --
------------
End of period (including undistributed net
Investment income of $295,939) $ 68,128,001
============
Number of Fund Shares:
Sold 7,883,827
Reinvested 5,322
Redeemed (1,109,632)
------------
Net increase in shares outstanding 6,779,517
Shares Outstanding:
Beginning of period --
------------
End of period 6,779,517
============
</TABLE>
See accompanying Notes to Financial Statements.
63
<PAGE> 64
SchwabFunds(R) 14
- --------------------------------------------------------------------------------
SCHWAB SMALL-CAP INDEX FUND(TM)
NOTES TO FINANCIAL STATEMENTS
For the period December 3, 1993 (commencement of operations) to October 31, 1994
- --------------------------------------------------------------------------------
1. DESCRIPTION OF THE FUND
The Schwab Small-Cap Index Fund (the "Fund") is a series of Schwab Capital Trust
(the "Trust"), an open-end, management investment company organized as a
Massachusetts business trust on May 7, 1993 and registered under the Investment
Company Act of 1940, as amended. The Fund commenced operations on December 3,
1993.
In addition to the Fund, the Trust also offers the Schwab International Index
Fund(TM). The assets of each series are segregated and accounted for separately.
The investment objective of the Fund is to attempt to track the price and
dividend performance (total return) of the Schwab Small-Cap Index(TM), an index
created to represent the performance of the second 1,000 largest publicly traded
common stocks issued by United States companies.
2. SIGNIFICANT ACCOUNTING POLICIES
Security valuation -- Investments in securities traded on an exchange are valued
at the last quoted sale price for a given day, or if a sale is not reported for
that day, at the mean between the most recent quoted bid and asked prices.
Unlisted securities for which market quotations are readily available are valued
at the mean between the most recent bid and asked prices. Securities for which
no quotations are readily available are valued at fair value as determined in
good faith by the Fund's sub-advisor pursuant to Board of Trustees guidelines.
Short-term securities with 60 days or less to maturity are stated at amortized
cost, which approximates market value.
Security transactions and investment income -- Security transactions, in the
accompanying financial statements, are accounted for on a trade date basis (date
the order to buy or sell is executed). Dividend income and distributions to
shareholders are recorded on the ex-dividend date; interest income is recorded
on the accrual basis. Realized gains and losses from security transactions are
determined on an identified cost basis.
Repurchase agreements -- Repurchase agreements are fully collateralized by U.S.
Treasury or Government agency securities. All collateral is held by the Fund's
custodian and is monitored daily to ensure that its market value at least equals
the repurchase price under the agreement.
Deferred organization costs -- Costs incurred in connection with the
organization of the Fund, its initial registration with the Securities and
Exchange Commission and with various states are amortized on a straight-line
basis over a five year period from the Fund's commencement of operations.
Expenses -- Expenses arising in connection with the Fund are charged directly to
the Fund. Expenses common to all series of the Trust are allocated to each
series in proportion to their relative net assets.
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 substantially all 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 tax purposes.
64
<PAGE> 65
SchwabFunds(R) 15
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
At October 31, 1994, (for financial reporting and federal income tax purposes),
net unrealized appreciation aggregated $597,392 of which $7,021,886 related to
appreciated securities and $6,424,494 related to depreciated securities.
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 Manager"). For advisory services and facilities furnished,
the Fund pays an annual fee, payable monthly, of .50% of the first $300 million
of average daily net assets and .45% of such assets over $300 million. Under
this agreement, the Fund incurred investment advisory and administration fees of
$258,394 during the period from December 3, 1993 (commencement of operations) to
October 31, 1994, before the Investment Manager reduced its fee (see Note 5).
Sub-advisory agreement -- The Investment Manager has a sub-advisory agreement
with Dimensional Fund Advisors Inc. ("Dimensional") to perform day-to-day
portfolio management for the Fund. Dimensional does not receive compensation
directly from the Fund. However, the Investment Manager pays Dimensional an
annual fee, payable monthly, of .10% of the first $300 million of average daily
net assets and .05% of such assets over $300 million.
Transfer agency and shareholder service agreements -- The Trust has transfer
agency and shareholder service agreements with Charles Schwab & Co., Inc.
("Schwab"). For services provided under these agreements, Schwab receives an
annual fee, payable monthly, of .05% of average daily net assets for transfer
agency services and .20% of such assets for shareholder services. For the period
from December 3, 1993 (commencement of operations) to October 31, 1994, the Fund
incurred transfer agency and shareholder service fees of $129,197, before Schwab
reduced its fees (see Note 5).
Officers and trustees -- During the period, certain officers and trustees of the
Trust were also officers or directors of the Investment Manager, Schwab or
Dimensional. During the period ended October 31, 1994, the Trust made no direct
payments to its officers or trustees who were "interested persons" within the
meaning of the Investment Company Act of 1940, as amended. The Fund incurred
fees of $18,495 related to the Trust's unaffiliated trustees.
4. BORROWING AGREEMENT
The Trust has an arrangement with State Street Bank and Trust Company, the
Fund's custodian, whereby the Fund may borrow up to $10,000,000, on a temporary
basis, to fund redemptions. Amounts borrowed under this arrangement bear
interest at periodically negotiated rates and may be collateralized by the
assets of the Fund. During the period December 3, 1993 (commencement of
operations) to October 31, 1994, no borrowings were made under this arrangement.
65
<PAGE> 66
SchwabFunds(R) 16
- --------------------------------------------------------------------------------
SCHWAB SMALL-CAP INDEX FUND(TM)
NOTES TO FINANCIAL STATEMENTS
For the period December 3, 1993 (commencement of operations) to October 31, 1994
- --------------------------------------------------------------------------------
5. EXPENSES REDUCED AND ABSORBED BY THE INVESTMENT MANAGER AND SCHWAB
The Investment Manager and Schwab reduced a portion of their fees and absorbed
certain expenses in order to limit the Fund's ratio of operating expenses to
average net assets. For the period from December 3, 1993 (commencement of
operations) to October 31, 1994, the total of such fees and expenses reduced and
absorbed by the Investment Manager was $153,640 and the total of such fees
reduced by Schwab was $113,836.
6. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities, other than short-term obligations,
aggregated $73,792,447 and $8,478,561, respectively, for the period from
December 3, 1993 (commencement of operations) to October 31, 1994.
7. EARLY WITHDRAWAL FEES PAID TO THE FUND
The Fund assesses a .50% early withdrawal fee on redemption proceeds
attributable to shares purchased and held less than six months. The early
withdrawal fee is retained by the Fund and is treated as a contribution to
capital. For the period from December 3, 1993 (commencement of operations) to
October 31, 1994, total early withdrawal fees retained by the Fund amounted to
$27,385.
8. COMPOSITION OF NET ASSETS
At October 31, 1994, net assets consisted of:
<TABLE>
<S> <C>
Capital paid in $67,762,405
Accumulated undistributed net investment income 295,939
Accumulated net realized loss on investments sold (527,735)
Net unrealized appreciation on investments 597,392
-----------
Total $68,128,001
===========
</TABLE>
At October 31, 1994, the Fund's Statement of Net Assets included liabilities of
$106,248 for Fund shares redeemed and $24,610 for investment advisory and
administration fee payable.
66
<PAGE> 67
SchwabFunds(R) 17
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
9. FINANCIAL HIGHLIGHTS
Per share income and capital changes for a share outstanding throughout the
period, from December 3, 1993 (commencement of operations) to October 31, 1994:
<TABLE>
<S> <C>
Net asset value at beginning of period $ 10.00
Income from Investment Operations
Net investment income .06
Net realized and unrealized gain (loss) on investments --
-----------
Total from investment operations .06
Less Distributions
Dividends from net investment income (.01)
Distributions from realized gain on investments --
-----------
Total distributions (.01)
Net asset value at end of period $ 10.05
===========
Total return (%) .63
Ratios/Supplemental Data
Net assets, end of period $68,128,001
Ratio of expenses to average net assets (%)* .67
Ratio of net investment income to average net assets (%)* .68
Portfolio turnover rate (%) 16
</TABLE>
The Investment Manager and Schwab have reduced a portion of their fees and
absorbed certain expenses in order to limit the Fund's ratio of operating
expenses to average net assets. Had these fees and expenses not been reduced and
absorbed, the ratio of expenses to average net assets for the period ended
October 31, 1994, would have been 1.19%*, and the ratio of net investment income
to average net assets would have been .16%*.
* Annualized
67
<PAGE> 68
SchwabFunds(R) 18
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
To the Board of Trustees
and Shareholders of the Schwab Small-Cap Index Fund(TM)
In our opinion, the accompanying statement of net assets and the related
statements of operations and of changes in net assets present fairly, in all
material respects, the financial position of the Schwab Small-Cap Index Fund(TM)
(one of the series constituting Schwab Capital Trust, hereafter referred to as
the "Trust") at October 31, 1994, the results of its operations and the changes
in its net assets for the period presented, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Trust's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our audit
of these financial statements in accordance with generally accepted auditing
standards 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
audit, which included confirmation of securities at October 31, 1994 by
correspondence with the custodian, provides a reasonable basis for the opinion
expressed above.
PRICE WATERHOUSE LLP
San Francisco, California
November 30, 1994
1994 SPECIAL TAX INFORMATION (UNAUDITED)
Notice to Corporate Shareholders
- -------------------------------------------------------------------------------
100% of the Fund's distributions for the fiscal year ended October 31, 1994
qualify for the corporate dividends received deduction.
- -------------------------------------------------------------------------------
68
<PAGE> 69
APPENDIX A
The following is a list of Companies whose securities were included in
the Schwab International Index(TM) calculation as of the date of this Statement
of Additional Information:
<TABLE>
<S> <C>
ABBEY NATIONAL United Kingdom
ABN-AMRO HOLDING Netherlands
AEGON Netherlands
AGF France
AIR LIQUIDE France
AJINOMOTO CO Japan
AKZO NOBEL Netherlands
ALCAN ALUMINIUM Canada
ALCATEL CABLE France
ALCATEL ALSTHOM France
ALL NIPPON AIRWAYS CO Japan
ALLEANZA ASSICUR. Italy
ALLIED DOMECQ(ALD-LYONS) United Kingdom
AMERICAN BARRICK RES. Canada
ARGENTARIA Spain
ARGYLL GROUP United Kingdom
ASAHI BREWERIES Japan
ASAHI BANK Japan
ASAHI GLASS CO Japan
ASAHI CHEMICAL IND CO Japan
ASEA Sweden
ASHIKAGA BANK Japan
ASSICURAZIONI GENERALI Italy
ASTRA Sweden
AXA France
BAA United Kingdom
BANCO SANTANDER Spain
BANCO BILBAO VIZCAYA Spain
BANCO ESPANOL DE CREDITO Spain
BANK TOKYO Japan
BANK YOKOHAMA Japan
BANK MONTREAL Canada
BANK FUKUOKA Japan
BANKGESELLSCHAFT BERLIN Germany
BARCLAYS United Kingdom
</TABLE>
69
<PAGE> 70
<TABLE>
<S> <C>
BASF Germany
BASS United Kingdom
BAT INDUSTRIES United Kingdom
BAYER Germany
BAYER VEREINSBANK STAMM Germany
BAYER HYPOTHEKEN BANK Germany
BBC BROWN BOVERI Switzerland
BCE INC Canada
BMW Germany
BNP France
BOC GROUP United Kingdom
BOOTS CO United Kingdom
BRIDGESTONE CORP Japan
BRITISH AIRWAYS United Kingdom
BRITISH GAS United Kingdom
BRITISH PETROLEUM United Kingdom
BRITISH TELECOM United Kingdom
BRITISH STEEL United Kingdom
BROKEN HILL PROP CO Australia
BTR United Kingdom
BTR NYLEX Australia
CABLE & WIRELESS United Kingdom
CADBURY SCHWEPPES United Kingdom
CANADIAN IMPERIAL BANK Canada
CANADIAN PACIFIC LTD Canada
CANON INC Japan
CARREFOUR France
CATHAY PACIFIC AIRWAYS Hong Kong
CHIBA BANK Japan
CHINA LIGHT & POWER Hong Kong
CHUBU ELECTRIC POWER CO Japan
CHUGOKU ELECTRIC POWER Japan
CIBA-GEIGY Switzerland
CITIC PACIFIC Hong Kong
COMMERCIAL UNION United Kingdom
COMMERZBANK AKTIE Germany
COMMONWEALTH BANK Australia
COSMO OIL CO Japan
CRA Australia
CS HOLDING Switzerland
DAI-ICHI KANGYO BANK Japan
</TABLE>
70
<PAGE> 71
<TABLE>
<S> <C>
DAI NIPPON PRINTING CO Japan
DAIEI Japan
DAIMLER-BENZ Germany
DAIWA HOUSE IND CO Japan
DAIWA BANK Japan
DAIWA SECURITIES CO Japan
DANONE (BSN) France
DEUTSCHE BANK Germany
DEVELOPMENT BK SINGAPORE Singapore
DRESDNER BANK Germany
EAST JAPAN RAILWAY CO Japan
EBARA CORP Japan
EISAI CO Japan
ELECTRABEL Belgium
ELF AQUITAINE France
ELSEVIER Netherlands
ENDESA Spain
ERICSSON (LM) Sweden
FANUC Japan
FIAT Italy
FUJI BANK Japan
FUJI PHOTO FILM CO Japan
FUJITSU LTD Japan
FURUKAWA ELECTRIC CO Japan
GENERAL ELECTRIC PLC United Kingdom
GENERALE BELGIQUE Belgium
GENERALE EAUX France
GLAXO HOLDINGS United Kingdom
GRAND METROPOLITAN United Kingdom
GREAT UNIVERSAL ST. ORD United Kingdom
GUINNESS United Kingdom
GUNMA BANK Japan
HACHIJUNI BANK Japan
HANG SENG BANK Hong Kong
HANKYU CORP Japan
HANSON United Kingdom
HEINEKEN NV Netherlands
HENDERSON LAND DEV. Hong Kong
HENKEL VORZUG Germany
HITACHI ZOSEN CORP Japan
HITACHI Japan
</TABLE>
71
<PAGE> 72
<TABLE>
<S> <C>
HOECHST Germany
HOKKAIDO ELECTRIC POWER Japan
HOKURIKU ELECTRIC POWER Japan
HOKURIKU BANK Japan
HONDA MOTOR CO Japan
HONGKONG LAND HOLDINGS Hong Kong
HONGKONG ELECTRIC HLDGS Hong Kong
HONGKONG TELECOM Hong Kong
HSBC HOLDINGS United Kingdom
HUTCHISON WHAMPOA Hong Kong
IBERDROLA Spain
IMPERIAL OIL Canada
IMPERIAL CHEMICAL ICI United Kingdom
INA Italy
INDUSTRIAL BANK OF JAPAN Japan
INT'LE NEDERLANDEN GROEP Netherlands
ISHIKAWAJIMA-HARIMA Japan
ISUZU MOTORS Japan
ITO-YOKADO CO Japan
ITOCHU CORP Japan
JAPAN AIRLINES CO Japan
JAPAN ENERGY(NIKKO KYODO Japan
JARDINE MATHESON HLDGS Hong Kong
JOYO BANK Japan
JUSCO CO Japan
KAJIMA CORP Japan
KANSAI ELECTRIC POWER CO Japan
KAO CORP Japan
KAWASAKI STEEL CORP Japan
KAWASAKI HEAVY IND Japan
KDD Japan
KINGFISHER United Kingdom
KINKI NIPPON RAILWAY CO Japan
KIRIN BREWERY CO Japan
KOBE STEEL Japan
KOMATSU Japan
KON. PTT NEDERLAND Netherlands
KUBOTA CORP Japan
KYOCERA CORP Japan
KYUSHU ELECTRIC POWER CO Japan
KYUSHU MATSUSHITA ELECT Japan
</TABLE>
72
<PAGE> 73
<TABLE>
<S> <C>
LAFARGE COPPEE France
LLOYDS BANK United Kingdom
LONG-TERM CREDIT BANK Japan
LOREAL France
LVMH France
LYONNAISE DES EAUX France
MANNESMANN Germany
MARKS & SPENCER United Kingdom
MARUBENI CORP Japan
MARUI CO Japan
MATSUSHITA COMMUNICATION Japan
MATSUSHITA-KOTOBUKI ELEC Japan
MATSUSHITA ELECT WORKS Japan
MATSUSHITA ELECT IND'L Japan
MAZDA MOTOR CORP Japan
MICHELIN France
MITSUBISHI KASEI CORP Japan
MITSUBISHI MOTORS CORP Japan
MITSUBISHI OIL CO Japan
MITSUBISHI TRUST Japan
MITSUBISHI MATERIALS Japan
MITSUBISHI BANK Japan
MITSUBISHI CORP Japan
MITSUBISHI ESTATE CO Japan
MITSUBISHI HEAVY IND Japan
MITSUBISHI ELECTRIC Japan
MITSUI MARINE & FIRE Japan
MITSUI & CO Japan
MITSUI FUDOSAN CO Japan
MITSUI TRUST & BANK CO Japan
MITSUKOSHI Japan
MONTEDISON Italy
MUNCHENER RUCK Germany
MURATA MANUFACTURING CO Japan
NATIONAL WESTMINSTER BK United Kingdom
NATIONAL POWER United Kingdom
NATIONAL AUSTRALIA BANK Australia
NEC CORP Japan
NESTLE Switzerland
NEW WORLD DEVELOPMENT Hong Kong
NEW OJI PAPER CO Japan
</TABLE>
73
<PAGE> 74
<TABLE>
<S> <C>
NEWS CORP Australia
NIKKO SECURITIES CO Japan
NINTENDO CO Japan
NIPPON OIL CO Japan
NIPPON CREDIT BANK Japan
NIPPON EXPRESS CO Japan
NIPPON YUSEN K.K Japan
NIPPON STEEL CORP Japan
NIPPON PAPER IND CO Japan
NIPPONDENSO CO Japan
NISSAN MOTOR CO Japan
NISSHIN STEEL CO Japan
NKK CORP Japan
NOMURA SECURITIES CO Japan
NORTHERN TELECOM Canada
NOVA CORP Canada
NTT CORP Japan
OBAYASHI CORP Japan
OCBC BANK Singapore
ODAKYU ELECTRIC RAILWAY Japan
OKI ELECTRIC INDUSTRY CO Japan
ONO PHARMACEUTICAL CO Japan
OSAKA GAS CO Japan
PARIBAS(CIE FINANCIERE)A France
PEARSON United Kingdom
PEN & ORIENTAL STEAM United Kingdom
PETROFINA Belgium
PEUGEOT SA France
PHILIPS ELECTRONICS Netherlands
PIONEER ELECTRONIC CORP Japan
PLACER DOME Canada
POLYGRAM Netherlands
POWERGEN United Kingdom
PREUSSAG Germany
PRUDENTIAL CORP United Kingdom
RANK ORGANISATION United Kingdom
REED INTERNATIONAL United Kingdom
REPSOL Spain
REUTERS HOLDINGS United Kingdom
RHONE-POULENC France
RICHEMONT (FIN) A UNIT Switzerland
</TABLE>
74
<PAGE> 75
<TABLE>
<S> <C>
RICOH CO Japan
ROCHE HOLDING Switzerland
ROYAL BANK OF SCOTLAND United Kingdom
ROYAL DUTCH PETROLEUM CO Netherlands
ROYAL BANK OF CANADA Canada
RTZ CORP United Kingdom
RWE Germany
SAINSBURY (J) United Kingdom
SAINT-GOBAIN France
SAKURA BANK Japan
SANDOZ Switzerland
SANKYO CO Japan
SANWA BANK Japan
SANYO ELECTRIC CO Japan
SAP Germany
SCHNEIDER (EX-SPEP) France
SCHWEIZ BANKGESELL Switzerland
SCHWEIZ BANKVEREIN Switzerland
SCOTTISH POWER United Kingdom
SEAGRAM CO Canada
SECOM CO Japan
SEGA ENTREPRISES Japan
SEIBU RAILWAY CO Japan
SEKISUI CHEMICAL CO Japan
SEKISUI HOUSE Japan
SEVEN-ELEVEN JAPAN CO Japan
SHARP CORP Japan
SHELL T & T United Kingdom
SHIKOKU ELECTRIC POWER Japan
SHIMIZU CORP Japan
SHIN-ETSU CHEMICAL CO Japan
SHISEIDO CO Japan
SHIZUOKA BANK Japan
SHOWA SHELL SEKIYU K.K Japan
SIEMENS Germany
SINGAPORE AIRLINES Singapore
SINGAPORE TELECOM Singapore
SMITHKLINE BEECHAM PLC United Kingdom
SOCIETE GENERALE France
SONY CORP Japan
SONY MUSIC ENTERTAINMENT Japan
</TABLE>
75
<PAGE> 76
<TABLE>
<S> <C>
STET Italy
SUEZ (COMPAGNIE DE) France
SUMITOMO BANK Japan
SUMITOMO TRUST & BANK Japan
SUMITOMO METAL MINING CO Japan
SUMITOMO METAL IND Japan
SUMITOMO MARINE & FIRE Japan
SUMITOMO CHEMICAL CO Japan
SUMITOMO ELECTRIC IND Japan
SUMITOMO CORP Japan
SUN HUNG KAI PROPERTIES Hong Kong
SUZUKI MOTOR CORP Japan
SWIRE PACIFIC A Hong Kong
TAISEI CORP Japan
TAISHO PHARMACEUTICAL CO Japan
TAKEDA CHEMICAL IND Japan
TDK CORP Japan
TEIJIN Japan
TELE DANMARK Denmark
TELECOM ITALIA (SIP) Italy
TELEFONICA DE ESPANA Spain
TESCO United Kingdom
THOMSON CORP Canada
THORN-EMI United Kingdom
THYSSEN Germany
TOBU RAILWAY CO Japan
TOHOKU ELECTRIC POWER CO Japan
TOKAI BANK Japan
TOKIO MARINE & FIRE Japan
TOKYO ELECTRIC POWER CO Japan
TOKYO GAS CO Japan
TOKYO ELECTRON Japan
TOKYU CORP Japan
TONEN CORP Japan
TOPPAN PRINTING CO Japan
TORAY INDUSTRIES Japan
TORONTO-DOMINION BANK Canada
TOSHIBA CORP Japan
TOSTEM CORP Japan
TOTAL SA France
TOTO Japan
</TABLE>
76
<PAGE> 77
<TABLE>
<S> <C>
TOYO SEIKAN KAISHA Japan
TOYO TRUST & BANKING CO Japan
TOYODA AUTOMATIC LOOM Japan
TOYOTA MOTOR CORP Japan
TSB GROUP United Kingdom
UAP (COMPAGNIE) France
UNILEVER PLC United Kingdom
UNILEVER NV Netherlands
UNITED OVERSEAS BANK Singapore
VEBA Germany
VENDOME LUXURY GRP UNITS United Kingdom
VEREIN EL WESTFALEN Germany
VIAG Germany
VODAFONE GROUP United Kingdom
VOLKSWAGEN Germany
VOLVO Sweden
WELLCOME United Kingdom
WESTERN MINING CORP HLDG Australia
WESTPAC BANKING Australia
WHARF (HOLDINGS) Hong Kong
WOLTERS KLUWER Netherlands
YAMAICHI SECURITIES CO Japan
YAMANOUCHI PHARM. Japan
YAMAZAKI BAKING CO Japan
YASUDA FIRE & MARINE Japan
YASUDA TRUST & BANK CO Japan
ZENECA GROUP United Kingdom
ZURICH VERS. Switzerland
</TABLE>
77
<PAGE> 78
APPENDIX B
The following is a list of Companies whose securities were included in
the Schwab Small-Cap Index(TM) calculation as of the date of this Statement of
Additional Information:
A L PHARMA INC
AAR CORP
ABBEY HEALTHCARE GROUP
ABM INDS INC
ACCLAIM ENTMT INC
ACME METALS INC
ACORDIA INC
ACUSON CORP
ACX TECHNOLOGIES INC
ACXIOM CORP
ADELPHIA COMMUNICATIONS
ADIA SVCS INC
ADVANCED TECH LABS
ADVANCED TISSUE SCIENCES
ADVANTAGE HEALTH CORP
ADVO INC
AGCO CORP
AIR & WTR TECHNOLOGIES
AIR EXPRESS INTL
AIRBORNE FREIGHT
ALANTEC CORP
ALASKA AIR GROUP INC
ALBANK FINL CORP
ALBANY INTL CORP
ALDILA INC
ALEX BROWN INC
ALEXANDERS INC
ALFA CORP
ALLEN GROUP INC
ALLIANCE SEMICONDUCT
ALLIANT TECHSYSTEMS
ALLIED GROUP INC
ALLWASTE INC
AMAX GOLD INC
AMC ENTMT INC
AMCAST INDUSTRIAL CORP
AMCORE FINANCIAL INC
AMERICA WEST AIRLINES
AMERICAN ANNUITY GROUP
AMERICAN BANKERS INSURANCE
AMERICAN BUSINESS INFORMATION
AMERICAN BUSINESS PRODUCTS
AMERICAN CLASSC VOYAGES
AMERICAN COLLOID CO
AMERICAN FREIGHTWAYS
AMERICAN HERITAGE LIFE INVESTMENT
AMERICAN MAIZE PRODUCTS
AMERICAN MEDIA INC
AMERICAN MEDICAL RESPONSE
AMERICAN MGMT SYSTEMS
AMERICAN MOBILE SATELLITE
AMERICAN SAVINGS BK OF FLORIDA
AMERICAN SUPERCONDUCTOR
AMETEK
AMSCO INTL
ANALOGIC CORP
ANCHOR BANCORP
ANGELICA
ANTEC
ANTHONY INDUSTRIES
APOGEE ENTERPRISES
APPLE SOUTH
APPLEBEE'S INTERNATIONAL
APPLIED POWER
APS HLDG CORP
APTARGROUP
AQUILA GAS PIPELINE
ARBOR DRUGS
ARCTCO
ARGOSY GAMING CORP
ARKANSAS BEST
78
<PAGE> 79
ARMOR ALL PRODUCTS
ARNOLD INDUSTRIES
ARVIN INDUSTRIES
ASHLAND COAL
ASPECT TELECOMMUNICATIONS
ASSOCIATED BANC-CORP
AST RESEARCH
ATARI CORP
ATLANTIC SOUTHEAST AIRLINES
ATMOS ENERGY CORP
AU BON PAIN
AUGAT
AUTHENTIC FITNESS CORP
AUTOMOTIVE INDUSTRIES HOLDING
AUTOTOTE CORP
AVATAR HOLDINGS
AVID TECHNOLOGY
AZTAR CORP
BAKER J INC
BALDOR ELEC CO
BALDWIN & LYONS
BALLARD MEDICAL PRODUCTS
BALLY ENTMT CORP
BANCORPSOUTH INC
BANCTEC INC
BANTA CORP
BANYAN SYSTEMS
BAREFOOT
BARNES GROUP
BARR LABS
BARRETT RESOURCES
BASSETT FURNITURE
BAY ST GAS CO
BEARINGS
BELDEN INC
BELL BANCORP
BENTON OIL & GAS CO
BERKLEY W R CORP
BERRY PETE
BET HLDGS
BIG B
BIO RAD LABS
BIOCRAFT LABS
BIRMINGHAM STEEL
BISYS GROUP
BJ SERVICES
BLACK BOX CORP
BLACK HILLS CORP
BLAIR CORP
BLANCH E W HOLDINGS
BLOCK DRUG CO
BLOUNT INC
BMC INDS INC
BOLT BERANEK & NEWMAN
BOMBAY CO
BOOKS-A-MILLION
BOOLE & BABBAGE
BORG WARNER SECURITY
BORLAND INTL
BOSTON TECHNOLOGY
BOWNE & CO
BOX ENERGY CORP
BOYD GAMING CORP
BRADY WH CO
BROADBAND TECHNOLOGIES
BROADWAY & SEYMOUR
BROADWAY STORES
BROWN GROUP INC
BROWN TOM INC
BRUNOS INC
BRUSH WELLMAN INC
BUFFETS INC
BURLINGTON COAT FACTORY
BUSINESS RECORDS CP HLDGS
BW/IP INC
C COR ELECTRONICS
C D I CORP
C TEC CORP
CABOT OIL & GAS CORP
CAERE CORP
CALDOR CORP
CALGENE INC
79
<PAGE> 80
CALGON CARBON CORP
CALIFORNIA ENERGY
CALIFORNIA FED BK
CALIFORNIA MICROWAVE
CALIFORNIA WTR SVC CO
CALMAT
CAMCO INTERNATIONAL
CANANDAIGUA WINE
CAPITAL RE CORP
CAPITOL AMERN FINL CORP
CAPSURE HLDGS CORP
CARAUSTAR INDS INC
CARLISLE COS INC
CARMIKE CINEMAS INC
CARPENTER TECHNOLOGY
CARTER WALLACE
CASEYS GEN STORES
CASH AMER INTL INC
CATALINA MARKETING
CATELLUS DEV CORP
CATO CORP
CCB FINL CORP
CCP INS INC
CELLULAR COMMUNICATIONS
CENTENNIAL CELLULAR
CENTEX CORP
CENTRAL HUDSON GAS&ELEC
CENTRAL JERSEY BANCORP
CENTRAL LA ELEC INC
CENTRAL MAINE PWR CO
CENTURA BKS
CENTURY COMMUNICATIONS
CERNER
CHAMBERS DEV INC
CHAMPION ENTERPRISES
CHAPARRAL STEEL
CHARTER MEDICAL
CHARTER ONE FINANCIAL
CHECKPOINT SYSTEMS
CHEMED
CHEMICAL FINANCIAL
CHERRY CORP
CHEYENNE SOFTWARE
CHRONIMED
CHURCH & DWIGHT
CIDCO
CILCORP
CIRCA PHARMACEUTICALS
CITIZENS BANCORP
CITIZENS BANKING CORP
CITIZENS CORP
CITY NATIONAL CORP
CLAIRE'S STORES
CLARCOR
CLEVELAND CLIFFS
CMAC INVT CORP
CML GROUP
CNB BANCSHARES
COAST SAVINGS FINANCIAL
COASTAL HEALTHCARE
COBRA GOLF INC
COCA-COLA BOTTLING
COEUR D'ALENE MINES
COGNEX
COHERENT
COLLAGEN
COLLECTIVE BANCORP
COLONIAL BANCGROUP
COLONIAL DATA TECH
COLONIAL GROUP
COMAIR HOLDINGS
COMMERCE CLEARING HOUSE
COMMERCIAL FEDERAL
COMMERCIAL INTERTECH
COMMERCIAL METALS CO
COMMNET CELLULAR
COMMONWEALTH ENERGY
COMMUNITY HEALTH SYSTEMS
COMMUNITY PSYCHIATRIC CENTERS
COMPUSA
COMPUTERVISION
COMVERSE TECHNOLOGY
80
<PAGE> 81
CONCORD COMPUTING
CONE MILLS
CONNECTICUT NATURAL GAS
CONNER PERIPHERALS
CONTINENTAL AIRLINES
CONTINENTAL MED SYS
CONTINUUM INC
CONVERSE INC
CONVEX COMPUTER CORP
COPLEY PHARMACEUTICAL
COR THERAPEUTICS
CORRECTIONS CORP OF AMERICA
CPI
CRAIG JENNY
CRAWFORD & CO
CRAY RESEARCH
CREDENCE SYSTEMS
CROSS A T CO
CROSS TIMBERS OIL CO
CSF HOLDINGS
CSS INDUSTRIES
CULLEN FROST BANKERS
CURTISS WRIGHT CORP
CYRIX CORP
CYRK INC
CYTEC INDUSTRIES
DALLAS SEMICONDUCTOR
DAMES & MOORE INC
DATA GENERAL CORP
DATASCOPE
DAVIDSON & ASSOC INC
DELPHI FINL GROUP
DELTA WOODSIDE INDUSTRIES
DEPOSIT GUARANTY CORP
DESTEC ENERGY
DETROIT DIESEL
DEVON ENERGY CORP
DEVON GROUP INC
DEVRY INC
DEXTER CORP
DIAGNOSTEK INC
DIAGNOSTIC PRODS
DIAL PAGE
DIBRELL BROS INC
DIGI INTERNATIONAL
DIGIDESIGN INC
DIGITAL LINK
DIGITAL MICROWAVE
DIME BANCORP
DIONEX CORP
DISCOUNT AUTO PARTS
DISCOVERY ZONE
DONALDSON
DOWNEY SVGS & LN ASSN
DRAVO CORP
DRESS BARN
DREYERS GRAND ICE CREAM
DSP GROUP
DURACRAFT
DURIRON
DUTY FREE INTERNATIONAL
DYNATECH CORP
EAGLE HARDWARE&GARDEN
EASTERN ENTERPRISES
EASTERN UTILS ASSOCIATES
EATON VANCE
EDISON BROS STORES
EGGHEAD
ELECTROGLAS
ELECTRONICS FOR IMAGING
EMPIRE DIST ELEC
ENERGEN CORP
ENHANCE FINANCIAL SERVICES GRP
ENNIS BUSINESS FORMS
ENTERRA CORP
ENVOY CORP
ENZO BIOCHEM
EPITOPE
EQUICREDIT
ETHAN ALLEN INTERIORS
EXABYTE CORP
EXAR CORP
81
<PAGE> 82
EXPEDITORS INTL OF WASHINGTON
EXPRESS SCRIPTS
F & M NATL CORP
FAB INDS INC
FAIR ISAAC & CO
FARMER BROS CO
FEDDERS CORP
FIELDCREST CANNON
FILENET CORP
FINANCIAL TRUST CORP
FIRST ALERT
FIRST AMERICAN FINANCIAL CP
FIRST CITIZENS BANCSHARES
FIRST COLONIAL BANCSHARES
FIRST COMMERCE CORP
FIRST COMMERCIAL CORP
FIRST COMWLTH FINL
FIRST FINANCIAL BANCORP
FIRST FINANCIALL CORP
FIRST MICHIGAN BANK CORP
FIRST MIDWEST BANCORP
FIRST MISSISSIPPI CORP
FIRST NATIONAL BANCORP
1ST SOURCE CORP
FIRSTBANK OF ILLINOIS
FIRSTFED MICHIGAN CORP
FIRSTIER FINANCIAL
FISHER SCIENTIFIC
FLAGSTAR COS INC
FLORIDA EAST COAST
FLORIDA ROCK INDUSTRIES
FLUKE CORP
FMC GOLD
FOAMEX INTL
FOOTHILL GROUP INC
FOREMOST CORP
FOREST CITY ENTERPRI
FOXMEYER HEALTH CORP
FRAME TECHNOLOGY
FRANKLIN ELECTRIC
FRANKLIN QUEST
FREMONT GENERAL
FRESENIUS USA
FRITZ COS INC
FRONTIER INS GROUP
FROZEN FOOD EXPRESS
FT WAYNE NATIONAL CORP
FULLER H B CO
FULTON FINL CORP
FUND AMERN ENTRPR HLDG
FURON
FUTURE HEALTHCARE
G & K SVCS INC
GALLAGHER (ARTHUR J &) CO
GAYLORD CONTAINER
GC COMPANIES
GENCARE HEALTH SYSTEM
GENCORP
GENERAL BINDING CORP
GENERAL DATACOMM INDUSTRIES
GENESIS HEALTH VENTURES
GENEVA STEEL
GENTEX CORP
GEOTEK COMMUNICATIONS
GERBER SCIENTIFIC
GIBSON GREETINGS
GIDDINGS&LEWIS
GILEAD SCIENCES
GLENDALE FED BK
GLOBAL MARINE
GLOBAL NAT RES
GOULDS PUMPS
GRACO
GRANCARE
GRAND CASINOS
GRANITE CONSTRUCTION
GREENFIELD INDUSTRIES
GRENADA SUNBURST SYSTEM
GROW GROUP
GUARANTY NATIONAL
GUILFORD MILLS
HAEMONETICS
82
<PAGE> 83
HAGGAR
HANCOCK FABRICS
HANCOCK HOLDING
HANDLEMAN CO
HANDY & HARMAN
HANOVER DIRECT
HARLAND JOHN H
HARLEYSVILLE GROUP
HARMAN INTL INDS
HARPER GROUP
HARTMARX CORP
HAWKEYE BANCORPORATION
HAYES WHEELS INTL
HCC INS HLDGS INC
HEALTH MGMT SYS INC
HEART TECHNOLOGY INC
HEARTLAND EXPRESS
HECHINGER CO
HECLA MINING
HELENE CURTIS INDUSTRIES
HELMERICH & PAYNE
HERBALIFE INTERNATIONAL
HERITAGE MEDIA
HILB ROGAL & HAMILTON
HILLHAVEN CORP
HILLS STORES
HOLLY CORP
HOLLYWOOD ENTERTAINMENT
HOME BENEFICIAL CORP
HOME HOLDINGS
HOMEDCO GROUP INC
HORACE MANN EDUCATORS
HORSEHEAD RESOURCE DEVELOPMENT
HOUGHTON MIFFLIN CO
HS RESOURCES INC
HUDSON FOODS
HUFFY
HUNT JB TRANS SVC
HUNT MFG
HUNTCO INC
I-STAT CORP
ICN PHARMACEUTICAL
IDEX CORP
IDEXX LABS CORP
IHOP CORP
IMMUNEX CORP
IMO INDS INC
IMRS INC
IN FOCUS SYSTEMS
INDIANA ENERGY
INDRESCO
INFORMATION RESOURCES
INFOSOFT INTERNATIONAL
INGLES MARKETS
INPUT/OUTPUT INC
INSIGNIA FINANCIAL
INSILCO
INSTRUMENT SYSTEMS
INSURANCE AUTO AUCTIONS
INTEGON
INTELLIGENT ELECTRONICS
INTER REGL FINL GROUP
INTERCO
INTERDIGITAL COMMUNICATIONS
INTERGRAPH
INTERIM SVCS
INTERNATIONAL DAIRY QUEEN
INTERNATIONAL MULTIFOODS
INTERNATIONAL RECTIFIER
INTERPOOL
INTERSOLV INC
INTERSTATE BAKERIES
INTERSTATE PWR CO
INTERVOICE INC
INTL CABLETEL INC
INTL FAMILY ENTMT
INTL IMAGING MATERIALS
INVACARE CORP
IONICS INC
IOWA ILL GAS & ELEC
JACOBS ENGR GROUP
83
<PAGE> 84
JACOR COMMUNICATIONS
JASON
JEFFERIES GROUP
JEFFERSON BANKSHARES
JONES INTERCABLE INC
JOSLYN CORP
JSB FINANCIAL INC
JUNO LTG INC
JUSTIN INDUSTRIES
KAISER ALUMINUM CORP
KAMAN CORP
KAUFMAN&BROAD HOME
KAYDON CORP
KCS ENERGY INC
KEANE INC
KELLWOOD CO
KEMET CORP
KENNAMETAL INC
KENT ELECTRS CORP
KEYSTONE INTL INC
KIMBALL INTL INC
KINDER-CARE LR
KINETIC CONCEPTS INC
KIRBY CORP
KN ENERGY INC
KOMAG INC
LA Z BOY CHAIR CO
LABONE INC
LACLEDE GAS CO
LANCE INC
LANDMARK GRAPHICS CO
LANDS END INC
LANDSTAR SYS INC
LATTICE SEMICONDUCTOR
LAWSON PRODS INC
LAWTER INTL INC
LCI INTL INC
LEADER FINL CORP
LEARNING CO
LECHTERS CORP
LEGG MASON INC
LENNAR CORP
LEVEL ONE COMMUNICATIONS
LEVITZ FURNITURE
LIBBEY INC
LIBERTY BANCORP
LIBERTY CORP
LIFE PARTNERS GRP
LIFE RE CORP
LIFE TECHNOLOGIES
LILLY INDS INC
LIN TELEVISION CORP
LINCOLN TELECOMMICATIONS
LIPOSOME CO
LIQUI-BOX CORP
LITTELFUSE INC
LIVING CTRS AMER INC
LOGICON INC
LONE STAR INDS
LONGS DRUG STORES
LOUIS DREYFUS NATURAL GAS
LUBYS CAFETERIAS
LUKENS INC
LYDALL INC
M A COM INC
M S CARRIERS INC
MACFRUGALS BARGAINS
MACROMEDIA INC
MADISON GAS & ELECTRIC
MAGNA GROUP
MAGNETEK INC
MARCUS CORP
MARINER HEALTH GROUP
MARK TWAIN BANCSHARE
MARKEL CORP
MARSHALL INDUSTRIES
MASLAND CORP
MATERIAL SCIENCES
MAXUS ENERGY CORP
MAXXAM INC
MAYBELLINE INC
MCAFEE ASSOCS INC
84
<PAGE> 85
MCCLATCHY NEWSPAPERS
MDU RES GROUP INC
MEASUREX CORP
MEDIC COMPUTER SYSTEMS
MEDICINE SHOPPE INTL
MEDUSA CORP
MENS WEARHOUSE
MENTOR CORP
MEREDITH CORP
MERISEL INC
MESA AIRLINES
MESA INC
METHODE ELECTRONICS
METRICOM INC
MICHAEL FOODS INC
MICROS SYSTEMS
MICROTEST
MICROTOUCH SYSTEMS
MID AM INC
MIDWEST GRAIN PRODUCTS
MILLER HERMAN INC
MINE SAFETY APPLIANCES
MINERALS TECHNOLOGIES
MK RAIL CORP
MOHAWK INDUSTRIES
MOLTEN METAL TECHNOLOGY
MONEY STORE
MONK AUSTIN INC
MOORCO INTL INC
MORRISON KNUDSEN
MOSINEE PAPER CORP
MUELLER INDS INC
MULTICARE COS INC
MUSICLAND STORES
MUTUAL ASSURN INC
MYERS INDS INC
N S BANCORP INC
NABORS INDS INC
NAC RE CORP
NACCO INDS INC
NASH FINCH CO
NATIONAL AUTO CREDIT
NATIONAL BANCORP
NATIONAL COMMERCE BANCORP
NATIONAL COMPUTER SYSTEMS
NATIONAL DATA CORP
NATIONAL PRESTO INDS
NATIONAL STL CORP
NATL PENN BANCSHARES
NATL RE CORP
NAUTICA ENTERPRISES
NBB BANCORP
NCH CORP
NEIMAN MARCUS
NELLCOR INC
NELSON THOMAS INC
NETWORK EQUIPMENT TECHNOLOGIES
NETWORK GENERAL CORP
NETWORK SYSTEMS CORP
NEW ENG BUSINESS SERVICE
NEW JERSEY RESOURCES
NEWFIELD EXPLORATION
NEWPARK RESOURCES
NL INDUSTRIES
NOBLE DRILLING CORP
NORAM ENERGY CORP
NORAND CORP
NORTH AMERICAN MORTGAGE
NORTH FORK BANCORP
NORTHWEST NAT GAS CO
NORTHWESTERN PUB SVC
NOVACARE CORP
NOVEN PHARMACEUTICAL
NU-KOTE HLDG INC
NUEVO ENERGY CO
NYMAGIC INC
O REILLY AUTOMOTIVE
OAK INDS INC
OAKWOOD HOMES CORP
OCEANEERING INTL INC
OCTEL COMMUNICATIONS
85
<PAGE> 86
OEA INC
OFFSHORE LOGISTICS
OFFSHORE PIPELINES
OM GROUP INC
OMI CORP
OMNICARE INC
ONBANCORP INC
ONE VALLEY BANCORP OF WV
ONECOMM CORP
ONEOK INC
OPTICAL DATA SYS
ORANGE & ROCKLAND
ORBITAL SCIENCES
OREGON STEEL MILLS
ORGANOGENESIS
ORION CAP CORP
ORNDA HEALTHCORP
OSHKOSH B GOSH
OSMONICS
OTTER TAIL POWER
OUTBOARD MARINE CORP
OWENS & MINOR INC
OXFORD INDS INC
PACIFIC PHYSICIAN SERVICES
PACIFIC SCIENTIFIC
PAIRGAIN TECHNOLOGIES
PAPA JOHNS INTL INC
PARK COMMUNICATIONS
PARK NATL CORP
PARKER DRILLING
PATTERSON DENTAL
PAXAR CORP
PENN TRAFFIC
PENNCORP FINL GROUP
PEOPLES BK OF BRIDGEPORT
PEOPLES HERITAGE FINL GRP
PETROLEUM HEAT&PWR
PETROLITE CORP
PHH CORP
PHILADELPHIA SUBURBAN
PHILLIPS VAN HEUSEN
PHOENIX RESOURCE
PHOTRONICS
PHYCOR
PHYSICIANS HEALTH SERVICES
PICTURETEL
PIEDMONT NAT GAS
PIER 1 IMPORTS
PIKEVILLE NATL CORP
PILGRIMS PRIDE CORP
PIONEER GROUP INC
PIONEER STANDARD ELECTRONICS
PIPER JAFFRAY
PITTSTON MINERALS GROUP
PITTWAY CORP
PLAINS PETE CO
PLANAR SYS INC
PLATINUM TECHNOLOGY
PLAYERS INTL INC
PLY GEM INDS INC
POE & BROWN INC
POGO PRODUCING CO
POPE & TALBOT INC
PRATT & LAMBERT UNIT
PRECISION CASTPARTS
PREMIER BANCORP INC
PRESIDENT RIVERBOAT CASINOS
PRESIDENTIAL LIFE
PRESSTEK INC
PRIMARK CORP
PRIME HOSPITALITY CO
PRODUCTION OPERATORS
PROFFITTS INC
PROGRESS SOFTWARE
PROTEIN DESIGN LABS
PROVIDENT BANCORP
PROXIMA CORP
PUBLIC SVC CO OF N C
PUBLIC SVC CO OF N MEX
PULITZER PUBG CO
PULTE CORP
PURITAN BENNETT CORP
86
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PXRE CORP
PYRAMID TECHNOLOGY
QUAKER STATE
QUALITY FOOD CTRS
QUANEX CORP
QUANTUM HEALTH RES
QUEENS CNTY BANCORP
QUICK&REILLY GROUP
RAYMOND JAMES FINL
READING & BATES CORP
RECOTON CORP
REGAL BELOIT CORP
REGAL CINEMAS INC
REGENCY HEALTH SVCS
REINSURANCE GROUP OF AMERICA
RELIANCE GROUP HLDGS
REN CORP-USA
RESPIRONICS
REXALL SUNDOWN
REXENE CORP
RICHFOOD HLDGS INC
RIGGS NATL
RIO HOTEL & CASINO
RIVER FOREST BANCORP
ROBERT HALF INTL
ROBERTS PHARMACEUTIC
ROCHESTER CMNTY SVGS BK
ROGERS CORP
ROHR INC
ROLLINS ENVIRMTL SVC
ROLLINS TRUCK LEASIN
ROOSEVELT FINL GROUP
ROPER INDS
ROSS STORES INC
ROTECH MED CORP
ROWAN COS INC
RUDDICK CORP
RUSS BERRIE & CO
RYANS FAMILY STEAK HOUSE
RYKOFF-SEXTON INC
RYLAND GROUP INC
S & T BANCORP INC
S3 INC
SAFECARD SVCS INC
SAFESKIN CORP
SAFETY 1ST INC
SALICK HEALTH CARE
SANDERSON FARMS INC
SANIFILL INC
SANTA CRUZ OPERATION
SAVANNAH FOODS & IND
SBARRO INC
SCHULER HOMES
SCI SYS INC
SCIOS NOVA INC
SCOTTS CO
SEABOARD CORP
SEAFIELD CAP CORP
SEALRIGHT CO
SECURITY CAP BANCORP
SECURITY-CONN CORP
SEI CORP
SELECTIVE INS GROUP
SEQUA CORPORATION
SEQUENT COMPUTER SYSTEMS
SERVICE MERCHANDISE
SHONEYS INC
SHOPKO STORES INC
SHOREWOOD PACKAGING
SHOWBOAT INC
SIERRA HEALTH SERVICES
SIERRA ON-LINE INC
SIERRA PACIFIC RESOURCES
SILICON VALLEY GROUP
SITHE ENERGIES INC
SKYLINE CORP
SMART & FINAL
SMITH A O
SMITH INTL INC
SMITHFIELD FOODS
SNYDER OIL CORP
SODAK GAMING INC
87
<PAGE> 88
SOFAMOR/DANEK GROUP
SONAT OFFSHORE DRILL
SOTHEBYS HLDGS
SOUTH JERSEY INDUSTRIES
SOUTHDOWN INC
SOUTHERN IND GAS & ELECTRIC
SOUTHERN UNION CO
SOUTHESTN MICH GAS ENTERPRISES
SOUTHWEST GAS CORP
SOUTHWESTERN ENERGY
SOVEREIGN BANCORP
SPACELABS MEDICAL
SPECTRUM HOLOBYTE
SPORTS & RECREATION
SPRINGS INDUSTRIES
SPX CORP
ST JOHN KNITS
ST PAUL BANCORP INC
STANDARD MICROSYSTEMS
STANDARD MOTOR PRODUCTS
STANDARD PACIFIC
STANDARD PRODS CO
STANDARD REGISTER CO
STANDEX INTL CORP
STANHOME INC
STANT CORP
STARTER CORP
STATION CASINOS
STEIN MART INC
STERIS CORP
STEWART ENTERPRISES
STONE & WEBSTER INC
STRAWBRIDGE & CLOTHIER
STRIDE RITE CORP
STUDENT LOAN
STURM RUGER & CO
SUMMIT BANCORP
SUMMIT TECHNOLOGY
SUNGLASS HUT INTL
SUNRISE MED INC
SUNSHINE MINING
SUSQUEHANNA BKSHS
SWIFT TRANSN CO
SYMANTEC CORP
SYMMETRICOM INC
SYNETIC INC
SYQUEST TECHNOLOGY
SYRATECH CORP
SYSTEM SOFTWARE ASSOCIATES
SYSTEMS & COMPUTER TECHNOLOGY
TARGET THERAPEUTICS
TBC CORP
TCA CABLE TV
TCF FINL CORP
TECH DATA CORP
TECNOL MED PRODS
TEJAS GAS CORP
TELEFLEX INC
TELXON CORP
TENCOR INSTRS
TENNANT CO
TESORO PETE CORP
TEXAS INDS
THERMEDICS
THERMO CARDIOSYSTEMS
THERMO FIBERTEK
THERMOTREX CORP
THIOKOL CORP
3DO CO
THREE FIVE SYSTEMS
TIFFANY & CO
TIMBERLAND CO
TITAN WHEEL INTL INC
TJ INTL INC
TNT FREIGHTWAYS CORP
TOLL BROTHERS INC
TOOTSIE ROLL INDS
TOP SOURCE TECH INC
TOPPS INC
TORO CO
TRACTOR SUPPLY CO
TRENWICK GROUP INC
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<PAGE> 89
TRIARC COS INC
TRIDENT NGL HOLDING
TRIMBLE NAVIGATION LTD
TRUE NORTH COMMUNICATIONS
TRUST CO OF NJ
TRUSTCO BANK CORP
TRUSTMARK CORP
TUCSON ELEC PWR CO
20TH CENTURY INDUSTRIES
TYCO TOYS
U S CAN CORP
U S ROBOTICS
U S TRUST CORP
UGI CORP
ULTRATECH STEPPER INC
UMB FINL CORP
UNIFIRST CORP
UNION PLANTERS CORP
UNITED BANKSHARES
UNITED CAROLINA BANCSHARES
UNITED COS FINL CORP
UNITED FIRE & CASUALTY CO
UNITED ILLUMINATING
UNITED INS COS INC
UNITED INTL HLDGS IN
UNITED MERIDIAN CORP
UNITED STATES FILTER
UNITED STATIONERS
UNITED TELEVISION
UNITED WASTE SYSTEMS
UNITED WISCONSIN SERVICES
UNITED WTR RES INC
UNITRODE CORP
UNIVAR CORP
UNIVERSAL HLTH SVCS
UNR INDS INC
USA WASTE SVCS INC
USAIR GROUP INC
USLICO CORP
UST CORP
VALASSIS COMMUNICATIONS
VALMONT INDUSTRIES
VALUE CITY DEPT STORES
VALUE LINE INC
VARCO INTERNATIONAL
VENTRITEX
VENTURE STORES
VERIFONE
VERTEX PHARMACEUTICALS
VESTA INS GROUP
VICOR CORP
VICTORIA BANKSHARES
VIEWLOGIC SYSTEMS
VIGORO CORP
VINTAGE PETE
VITALINK PHARMACY SERVICES
VIVRA INC
VLSI TECHNOLOGY
WABAN INC
WALL DATA INC
WALLACE COMPUTER SERVICES
WASHINGTON ENERGY
WASHINGTON NATL CORP
WATKINS JOHNSON
WATSON PHARMACEUTICALS
WATTS INDUSTRIES
WD-40
WEATHERFORD INTL INC
WEBB (DEL) CORP
WEIRTON STEEL
WELBILT CORP
WERNER ENTERPRISES
WESBANCO INC
WEST
WESTAMERICA BANCORP
WESTCORP
WESTCOTT COMMUNICATIONS
WESTERN CO OF NORTH AMERICA
WESTERN GAS RESOURCES
WESTERN PUBLISHING
WESTERN WASTE INDS
WESTPOINT STEVENS
89
<PAGE> 90
WESTWOOD ONE
WHITE RIVER CORP
WHITNEY HLDG CORP
WHX CORP
WICOR INC
WILEY JOHN & SONS
WINNEBAGO INDUSTRIES
WLR FOODS INC
WMS INDS INC
WOLVERINE TUBE INC
WOLVERINE WORLD WIDE
WONDERWARE CORP
WORTHEN BKG CORP
WPS RESOURCES CORP
WYLE LABS
WYMAN GORDON CO
X-RITE INC
XCL LTD
XIRCOM INC
YANKEE ENERGY SYSTEM
ZALE CORP
ZEBRA TECHNOLOGIES
ZENITH ELECTRS CORP
ZENITH LABS
ZENITH NATL INS CORP
ZERO CORP
ZILOG INC
ZIONS BANCORPORATION
ZURN INDUSTRIES
THIS STATEMENT OF ADDITIONAL INFORMATION DOES NOT CONSTITUTE AN OFFERING BY THE
TRUST, ANY SERIES THEREOF, OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT BE LAWFULLY MADE.
90
