<PAGE> 1
SCHWABFUNDS(R)
[LOGO]
SCHWAB
INTERNATIONAL
INDEX FUND(TM)
SEMI-ANNUAL REPORT
APRIL 30, 1996
[Photo of the Schwab Building, San Francisco, California]
<PAGE> 2
Dear Shareholder,
[Photo of I'd like to take this opportunity to share some thoughts on
Charles mutual fund investing and tell you how we're working to
R. Schwab] expand our offerings and services to keep pace with
your changing needs.
First, however, I want to extend a personal welcome to the many thousands of new
shareholders who've joined the SchwabFunds Family(R) in the last six months.
With your support, we've become one of the largest and fastest-growing
organizations in the mutual fund industry. Today, Charles Schwab Investment
Management, Inc. serves over 1.8 million shareholders with total assets under
management in excess of $35 billion. In six years, SchwabFunds(R) has grown from
just a few funds to a mutual fund complex of 24 funds covering a broad range of
financial markets and investing styles.
NEW INVESTING STRATEGIES. Since our last report, we've introduced five new
funds, each built on specific, time-tested strategies. The Schwab Asset
Director(R) Funds help you diversify your portfolio through asset allocation,
the Schwab S&P 500 Fund seeks to track U.S. stock market performance through
indexing, and the Schwab Analytics Fund uses advanced quantitative methods to
identify new investment opportunities. Along with our other offerings, these new
funds give you powerful tools you can use to help construct a custom investment
portfolio that matches your individual goals. And, of course, they also allow
you to tap into the combined investing expertise of our highly experienced team
of professional portfolio managers.
TIME-TESTED INVESTING STRATEGIES THAT OFFER YOU AN EXPANDING RANGE OF
OPPORTUNITIES
ENHANCING SHAREHOLDER COMMUNICATIONS. Our commitment to shareholders goes beyond
simply offering you new investment opportunities. We also want to help you
become a more informed mutual fund investor by providing the in-depth
information you need to help manage your portfolio more effectively. Toward that
end, we've changed the format of this report to make it more accessible and
informative.
WE NEED YOUR INPUT. We've also included a postage-paid reply card you can use to
give us your feedback on the new report format. Please take a few minutes to
complete it. Your responses will help us communicate even more effectively with
you in the future. If you'd like more information on any of the funds in the
SchwabFunds Family, contact your financial advisor or call 1-800-2 NO-LOAD
(1-800-266-5623).
Our representatives will be happy to provide you with a free prospectus, which
contains more complete information on fund risks, charges and expenses. Please
read it carefully before investing.
Thank you for placing your trust in us. We value your confidence in our efforts
to date, and we'll continue working hard to offer you an even broader range of
strategic investment opportunities in the future.
/s/ Charles R. Schwab
Charles R. Schwab
Chairman
Cover: The Schwab Building, San Francisco, California
<PAGE> 3
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<PAGE> 5
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
GROWTH IN NET ASSETS AND NUMBER OF SHAREHOLDERS.......................... 1
PERFORMANCE.............................................................. 2
TAX-SMART INVESTMENT..................................................... 2
TOP TEN HOLDINGS......................................................... 3
INTERNATIONAL DIVERSIFICATION............................................ 3
QUESTIONS TO THE PORTFOLIO MANAGEMENT TEAM............................... 4
FINANCIAL STATEMENTS AND NOTES........................................... 9
</TABLE>
We are pleased to report on the performance of the Schwab International Index
Fund(TM) (the Fund) for the six-month period from November 1, 1995 to April 30,
1996. During the period, the Fund achieved its primary objective of tracking the
price and dividend performance of the Schwab International Index(R) (the Index).
It also succeeded in maintaining the tax efficiencies and low costs designed to
help maximize long-term performance results as explained below.
GROWTH IN NET ASSETS AND NUMBER OF SHAREHOLDERS.
[The following is a line graph comparing the growth of net assets to the number
of shareholder accounts.]
<TABLE>
<CAPTION> SCHWAB INTERNATIONAL SCHWAB INTERNATIONAL
INDEX FUND(TM) INDEX FUND(TM)
DATE TOTAL NET ASSETS TOTAL ACCOUNTS
- ---- ---------------- --------------
<S> <C> <C>
Sep-93* $ 95,552,841 16,797
Oct-93 $106,085,381 17,611
Nov-93 $101,303,954 18,059
Dec-93 $112,844,304 18,940
Jan-94 $123,270,658 19,955
Feb-94 $125,079,990 19,763
Mar-94 $120,531,855 19,880
Apr-94 $123,635,860 19,854
May-94 $124,443,798 19,988
Jun-94 $125,369,671 20,113
Jul-94 $129,558,872 20,307
Aug-94 $135,579,362 21,304
Sep-94 $132,774,107 20,747
Oct-94 $142,355,062 21,680
Nov-94 $137,713,287 21,972
Dec-94 $138,099,459 21,944
Jan-95 $133,088,705 21,888
Feb-95 $134,445,191 21,805
Mar-95 $143,514,912 21,763
Apr-95 $154,062,498 22,244
May-95 $160,198,618 22,832
Jun-95 $161,420,288 23,174
Jul-95 $174,669,999 23,775
Aug-95 $172,981,666 24,182
Sep-95 $179,408,413 24,422
Oct-95 $179,611,854 24,599
Nov-95 $186,260,214 24,767
Dec-95 $195,889,123 25,138
Jan-96 $208,604,044 26,321
Feb-96 $216,433,443 27,075
Mar-96 $225,800,585 27,784
Apr-96 $236,184,000 28,495
</TABLE>
*Commencement of Fund Operations
1
<PAGE> 6
FUND PERFORMANCE
The table below compares total returns for various periods for the Schwab
International Index Fund(TM), the Schwab International Index(R) and the Morgan
Stanley Capital International -- Europe, Australia, Far East Index (MSCI EAFE
Index).
TOTAL RETURN
<TABLE>
<CAPTION>
CUMULATIVE SINCE AVERAGE ANNUAL
SIX-MONTHS ENDED ONE-YEAR ENDED FUND INCEPTION SINCE FUND INCEPTION
4/30/96 4/30/96 (9/9/93-4/30/96) (9/9/93-4/30/96)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SCHWAB INTERNATIONAL
INDEX FUND(TM) 10.71% 12.43% 25.30% 8.91%
- --------------------------------------------------------------------------------------------------------------
SCHWAB INTERNATIONAL
INDEX(R) 11.90% 13.04% 28.26%
- --------------------------------------------------------------------------------------------------------------
MSCI EAFE INDEX 13.21% 11.41% 24.78%
- --------------------------------------------------------------------------------------------------------------
</TABLE>
As of March 31, 1996, the one-year total return for the Schwab International
Index Fund was 13.69% and the average annual total return since inception was
8.18%.
- -------------------------------------------------------------------------------
TOTAL RETURN ASSUMES REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAIN
DISTRIBUTIONS, IF ANY. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
PRINCIPAL VALUE AND INVESTMENT RETURNS WILL FLUCTUATE SO THAT AN INVESTOR'S
SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. The
Investment Manager and Schwab waived a portion of their fees during the
reporting period and have guaranteed that maximum total operating expenses will
not exceed 0.69% through at least 2/28/97. Without fee waivers and guarantees,
for the period ended April 30, 1996, the Fund's total return for the six-month,
one-year, cumulative since-inception, and average annual since-inception
periods would have been 10.44%, 11.97%, 23.96%, and 8.46%, respectively. For the
period ended March 31, 1996, the Fund's one-year total return and average annual
total return since inception, without fee waivers and guarantees, would have
been 13.22% and 7.72%, respectively. Indices are unmanaged, and unlike the Fund,
do not reflect advisory and other fees associated with an investment in the
Fund. Investors cannot invest in an index directly.
- -------------------------------------------------------------------------------
TAX-SMART INVESTMENT STRATEGY
The Schwab International Index Fund seeks to maximize its after-tax performance
for investors by keeping capital gain distributions to a minimum. This strategy
is designed to help you keep more of what your money earns. The following chart
illustrates the effects of this strategy.
ONE-YEAR TOTAL RETURN AS OF APRIL 30, 1996
<TABLE>
<CAPTION>
BEFORE-TAX AFTER-TAX % LOST TO TAXES
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
SCHWAB INTERNATIONAL INDEX FUND(TM) 12.43% 11.93% 0.50%
- --------------------------------------------------------------------------------------
AVERAGE INTERNATIONAL FUND 14.41% 13.52% 0.89%
- --------------------------------------------------------------------------------------
</TABLE>
Source for average international fund is Morningstar, Inc. for 373 international
funds as of 4/30/96. After-tax returns assume the maximum Federal tax rate of
39.6% on dividends and 28% on capital gain distributions. Tax rates vary and may
be higher or lower than those shown. TOTAL RETURN ASSUMES REINVESTMENT OF ALL
DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS, IF ANY. PAST PERFORMANCE IS NO
GUARANTEE OF FUTURE RESULTS. PRINCIPAL VALUE AND INVESTMENT RETURNS WILL
FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS
THAN THEIR ORIGINAL COST. The Investment Manager and Schwab waived a portion of
their fees during the reporting period and have guaranteed that maximum total
operating expenses will not exceed 0.69% through at least 2/28/97. Without fee
waivers and guarantees, the Fund's total return would have been lower.
- --------------------------------------------------------------------------------
2
<PAGE> 7
FUND HOLDINGS
The Fund's portfolio is diversified across 15 countries, approximately 350 of
the world's largest publicly traded companies and a broad range of sectors and
industries. Below is a list of the Fund's ten largest holdings as well as a
chart showing the percentage of the portfolio invested in each country, as of
April 30, 1996. The following information is shown as a percentage of Fund
investments and not as a percentage of Fund net assets. A complete listing of
the Fund's portfolio holdings as of April 30, 1996 can be found in the Statement
of Net Assets section of this report.
FUND'S TOP TEN HOLDINGS AS A PERCENTAGE OF FUND INVESTMENTS
<TABLE>
<CAPTION>
<S> <C> <C>
Nippon Telegraph & Telephone Corp. Japan 1.97%
Royal Dutch Petroleum Co. Netherlands 1.81%
Roche Group Holdings AG Switzerland 1.73%
Toyota Motor Corp. Japan 1.30%
British Petroleum Co. United Kingdom 1.20%
Shell Transportation & Trading Co. United Kingdom 1.05%
Sumitomo Bank Japan 1.03%
Glaxo Wellcome United Kingdom 1.02%
Nestle SA Switzerland 1.00%
Dai-Ichi Kangyo Bank, Ltd. Japan 0.97%
</TABLE>
THE FUND PROVIDES INTERNATIONAL EQUITY OPPORTUNITIES
Schwab International Index Fund(TM) Equity Holdings as of April 30, 1996
[The following table is a representation of a picture graph showing
the following information.]
<TABLE>
<CAPTION>
<S> <C>
Canada 2.9%
Belgium 0.8%
Netherlands 5.7%
Germany 7.5%
Denmark 0.3%
Sweden 1.8%
Japan 33.9%
United Kingdom 19.4%
Spain 2.1%
France 6.7%
Switzerland 6.6%
Italy 2.2%
Singapore 2.4%
Australia 2.1%
Hong Kong 3.6%
</TABLE>
3
<PAGE> 8
QUESTIONS TO THE PORTFOLIO MANAGEMENT TEAM OF
CHARLES SCHWAB INVESTMENT MANAGEMENT, INC.
Stephen B. Ward - Senior Vice President and Chief Investment Officer
Geri Hom - Portfolio Manager
Q. HOW DID THE PERFORMANCE OF THE SCHWAB INTERNATIONAL INDEX(R) COMPARE TO THAT
OF THE MSCI EAFE INDEX DURING THE SIX-MONTH REPORTING PERIOD?
A. During the six-month period ended April 30, 1996, the total return of the
Schwab International Index was 11.90%, slightly lower than the 13.21% return of
the MSCI EAFE Index. The returns of both indices were above the long-term
average for international stocks. For example, the six-month average total
return for the 20-year period ended December 31, 1995 was 6.95% for the MSCI
EAFE Index.
The MSCI EAFE Index includes over 900 stocks and measures the performance of
stocks in Europe, Australia, and the Far East, with the objective of
representing 60% of the market capitalization of each included nation's market.
The Schwab International Index is made up of the stocks of the 350 largest
publicly traded companies (excluding investment companies), by market
capitalization, in the 15 countries with developed securities markets covered by
the Index. Since the two indices are constructed differently, differences in
performance between them are a normal and an anticipated occurrence.
The chart on the next page illustrates the cumulative total return of the Schwab
International Index, the Schwab International Index Fund(TM), and its industry
benchmark, the MSCI EAFE Index, since the Fund's inception on September 9, 1993.
4
<PAGE> 9
[The following is a line graph depicting the Comparison of Change in Value
of a Hypothetical $10,000 Investment from 9/9/93 through 4/30/96]
COMPARISON OF CHANGE IN VALUE OF A HYPOTHETICAL $10,000 INVESTMENT (IN THE
SCHWAB INTERNATIONAL INDEX FUND("), THE SCHWAB INTERNATIONAL INDEX([]) AND THE
MSCI EAFE INDEX)
<TABLE>
<CAPTION>
Schwab MSCI
Date Schwab International Index Fund(TM) International Index(R) EAFE Index
- ---- ----------------------------------- ------------------- ----------
<S> <C> <C> <C>
9/9/93 $10,000 $10,000 $10,000
9/30/93 $ 9,767 $ 9,786 $ 9,776
10/31/93 $10,150 $10,167 $10,079
11/30/93 $ 9,420 $ 9,454 $ 9,200
12/31/93 $10,146 $10,137 $ 9,867
1/31/94 $10,769 $10,823 $10,703
2/28/94 $10,558 $10,623 $10,676
3/31/94 $10,156 $10,172 $10,218
4/30/94 $10,458 $10,544 $10,654
5/31/94 $10,408 $10,448 $10,593
6/30/94 $10,488 $10,508 $10,743
7/31/94 $10,649 $10,692 $10,846
8/31/94 $10,941 $10,999 $11,103
9/30/94 $10,559 $10,621 $10,753
10/31/94 $10,951 $11,026 $11,113
11/30/94 $10,428 $10,478 $10,579
12/31/94 $10,484 $10,564 $10,645
1/31/95 $10,108 $10,254 $10,237
2/28/95 $10,189 $10,282 $10,207
3/31/95 $10,759 $10,964 $10,847
4/30/95 $11,145 $11,346 $11,255
5/31/95 $11,176 $11,303 $11,121
6/30/95 $11,064 $11,168 $10,926
7/31/95 $11,623 $11,826 $11,607
8/31/95 $11,237 $11,384 $11,165
9/30/95 $11,470 $11,661 $11,382
10/31/95 $11,318 $11,461 $11,076
11/30/95 $11,562 $11,782 $11,384
12/31/95 $11,975 $12,238 $11,843
1/31/96 $12,006 $12,277 $11,891
2/29/96 $12,026 $12,300 $11,932
3/31/96 $12,232 $12,529 $12,185
4/30/96 $12,530 $12,826 $12,478
</TABLE>
SCHWAB INTERNATIONAL INDEX FUND
Average Annual Total Returns Through April 30, 1996
One Year 10.71% Since Inception 8.91%
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. PRINCIPAL VALUE AND
INVESTMENT RETURNS WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED,
MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
The performance graph compares a hypothetical $10,000 investment in the Schwab
International Index Fund since inception with hypothetical investments in the
Schwab International Index and the MSCI EAFE Index. Total return assumes
reinvestment of all dividends and capital gain distributions, if any. Indices
are unmanaged and investors cannot invest in an index directly; therefore,
indices, unlike Funds, do not reflect advisory fees and other expenses
associated with an investment in a Fund. The Investment Manager and Schwab
waived a portion of their fees during the reporting period and have guaranteed
that maximum total operating expenses will not exceed 0.69% through at least
2/28/97. Without fee waivers and guarantees the Fund's total return would have
been lower.
- --------------------------------------------------------------------------------
Q. WHAT ACCOUNTS FOR THE DIFFERENCE BETWEEN THE PERFORMANCES OF THE SCHWAB
INTERNATIONAL INDEX(R) AND THE SCHWAB INTERNATIONAL INDEX FUND(TM)?
A. The performance of the Schwab International Index is a theoretical return of
the 350 largest international stocks from major developed securities markets
outside the United States, ranked by market capitalization, which comprise the
Index. Unlike the Fund, the Index does not incur management and other Fund costs
which reduce returns to the shareholders. In addition, the Fund, unlike the
Index, holds a small portion of its assets in cash to meet shareholder
redemptions and pay expenses. The cash portion earns interest at money market
rates, which may be more or less than the returns of the Index during a given
period. Also, the weighting of any security in the Fund may vary from the
weighting in the Index.
5
<PAGE> 10
Another factor responsible for the difference in performance between the Index
and the Fund is that the Fund seeks to minimize capital gain distributions. To
avoid excessive realization of capital gains, the Fund may continue to hold
certain stocks that are no longer in the Index. Depending on the performance of
these non-Index stocks, this practice can contribute positive or negative
"tracking error" to the Fund. Combined, these factors cause the difference in
the returns of the Fund compared to the Index, a difference referred to as the
Fund's tracking error.
The tracking error for the Fund during the reporting period was 1.19%. The
average annual tracking error for the Fund since its inception, September 9,
1993, has been 0.93%, which is within the Fund's objectives given the components
of tracking error discussed above.
Q. WHAT IMPACT HAVE FLUCTUATING VALUES OF THE U.S. DOLLAR AND INTERNATIONAL
CURRENCIES HAD ON THE PERFORMANCE OF THE FUND DURING THE REPORTING PERIOD?
A. Since your investment in the Fund is denominated in U.S. dollars, the return
you receive as a U.S. investor from international equities is made up of two
primary components -- the market movement of securities and the value of the
dollar in relation to the local currency in foreign countries (local
currencies). As a result, fluctuations in the exchange rate between the U.S.
dollar and local currencies will affect the U.S. dollar-denominated returns the
Fund earns on international equities. If the U.S. dollar rises against the local
currency, the return on your investment in the Fund will decrease; if the U.S.
dollar falls against the local currency, the return on your Fund investment will
increase.
During the reporting period, the U.S. dollar increased in value against the
local currencies. This caused the total return of the Fund for a U.S.
dollar-denominated investor to lag behind the return of the Fund measured in
local currency. When purchased, the Fund's investments are denominated in local
currency, but when the Fund's returns are translated to U.S. dollars for pricing
and reporting purposes, the negative effect of the currency fluctuations on the
portfolio during the reporting period can be seen. However, the strong
performance of international equities during the reporting period more than
offset the negative currency impact, and allowed the Fund to post a positive
return.
6
<PAGE> 11
The following graph illustrates how currency fluctuations affected Index
performance. The black line represents U.S. dollar-denominated Index returns.
The blue line represents Index returns in local currency prior to conversion to
U.S. dollars.
[The following is a line graph illustrating the total return of a hypothetical
$10,000 investment from 11/1/95 through 4/30/96 expressed in U.S. Dollars and
local currency.]
SCHWAB INTERNATIONAL INDEX(R) TOTAL RETURN EXPRESSED IN U.S. DOLLARS AND
LOCAL CURRENCY.
<TABLE>
<CAPTION>
LOCAL CURRENCY U.S. DOLLARS
-------------- -------------
<S> <C> <C>
11/1/95 $10,000 $10,000
11/30/95 $10,403 $10,280
12/31/95 $10,790 $10,677
1/31/96 $11,172 $10,712
2/29/96 $11,043 $10,732
3/31/96 $11,306 $10,932
4/30/96 $11,664 $11,190
</TABLE>
The graph above compares a hypothetical $10,000 investment in the Schwab
International Index, valued in U.S. dollars to the same investment valued in
local currency. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. TOTAL RETURN
ASSUMES REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS. Indices
are unmanaged and investors cannot invest in an index directly; therefore
indices, unlike Funds, do not reflect payment of advisory fees and other
expenses associated with an investment in a Fund.
- -------------------------------------------------------------------------------
Q. WHICH FOREIGN COUNTRIES' EQUITIES PROVIDED THE GREATEST RETURN FOR U.S.
INVESTORS DURING THE REPORTING PERIOD?
A. Based on the MSCI EAFE Index, the Malaysia equity market was the strongest
performing country during the reporting period and achieved an overall total
return of 28%. Other countries that exhibited strong performance during the
reporting period were Spain, which achieved a total return of 24.6%, and Japan,
which achieved a total return of 18.2%.(1)
(1) Returns are U.S. dollars denominated for the MSCI EAFE Index and provided by
Morgan Stanley Capital International. The returns are not those of the Schwab
International Index Fund nor the Schwab International Index. TOTAL RETURN
ASSUMES REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS. PAST
PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. Indices are unmanaged and do not
reflect advisory fees and other expenses associated with an investment in a fund
and cannot be invested in directly.
7
<PAGE> 12
Q. WHAT IS THE DIFFERENCE BETWEEN INTERNATIONAL AND DOMESTIC EQUITY INVESTING,
AND WHAT ROLE SHOULD AN INTERNATIONAL INDEX FUND PLAY IN AN INVESTMENT
PORTFOLIO?
A. Investing in international stocks with an index fund as the investment
vehicle offers the advantages of broad company diversification, typically a low
operating expense ratio and, in the case of the Schwab International Index
Fund(TM), a tax-efficient management strategy that seeks to minimize portfolio
turnover and capital gain distributions, if any.
International stocks also manifest certain characteristics which make them an
attractive element of a well-diversified investment portfolio. Historically,
international stocks have demonstrated high return potential and correlations of
return which differ significantly from domestic stock returns. For example, for
the 20-year period ended December 1995, international stocks, as measured by the
MSCI EAFE Index, provided an average return of 14.40%. During the same period,
international stocks had total return correlations of 0.43, 0.35 and 0.24 when
compared to domestic large-cap stocks, domestic small-cap stocks, and long-term
U.S. Government bonds, respectively. (2) A correlation of 1.0 between returns
of different asset classes means that the returns move together perfectly in
relation to each other. A correlation of 0 means that the returns of the asset
classes have no relationship whatsoever. A negative correlation means that the
returns of the asset classes move in opposite directions in relation to each
other. Combining asset classes with low or even negative return correlations
will result in lower total portfolio return volatility.
Typically, investors with higher risk tolerances and longer-term investment
horizons may be able to consider a larger allocation to international stocks.
Investors with lower risk tolerances and shorter-term investment horizons may
want to consider a smaller or no allocation to international stocks. Investing
internationally involves additional risk, which includes currency fluctuations,
political instability and foreign regulations.
(2) Source: As reported by Symphony Asset Management, Inc. Specific sources for
performance data are the MSCI EAFE Index for International stocks, the Standard
& Poor's 500(R) Index (S&P 500) for large company stocks, Ibbotson and BARRA
Small-Cap Index for small company stocks, and the Lehman General Municipal Bond
Index for long-term U.S. Government bonds. TOTAL RETURN ASSUMES REINVESTMENT OF
ALL DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS. PAST PERFORMANCE DOES NOT
GUARANTEE FUTURE RESULTS. Indices are unmanaged and do not reflect advisory
fees and other expenses associated with an investment in a fund and cannot be
invested in directly.
8
<PAGE> 13
SchwabFunds(R)
- --------------------------------------------------------------------------------
SCHWAB INTERNATIONAL INDEX FUND(TM)
STATEMENT OF NET ASSETS
April 30, 1996 (Unaudited)
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- --------
<S> <C> <C>
COMMON STOCK--97.1%
AUSTRALIA--2.0%
Australia & New Zealand
Banking Group 74,852 $ 358
Broken Hill Proprietary
Co., Ltd. 104,612 1,610
Commonwealth Bank Group 56,568 464
National Australia Bank 74,258 666
News Corp., Ltd. 110,631 648
Western Mining Corp. 53,600 391
Westpac Banking Corp. 99,986 485
--------
4,622
--------
BELGIUM--0.8%
Electrabel 3,100 695
Electrabel, VVPR Strip 500 1
Generale de Banque 840 296
Petrofina SA 1,100 325
Societe Generale de
Belgique 3,040 237
Tractebel Investor
International 600 244
--------
1,798
--------
CANADA--2.9%
Alcan Aluminum Ltd. 15,313 487
BCE Inc. 20,435 804
Bank of Montreal 16,475 396
Bank of Nova Scotia,
Halifax 19,192 435
Barrick Gold Corp. 16,500 506
Canadian Imperial Bank
of Commerce 13,180 409
Canadian Pacific Ltd. 16,700 340
Imperial Oil Ltd. (New) 11,681 475
Northern Telecom Ltd. 14,053 724
Placer Dome Inc. 21,200 590
Royal Bank of Canada,
Montreal Quebec 15,200 360
Seagram Co. Ltd. 17,400 586
Thomson Corp. 33,900 564
Toronto-Dominion Bank 14,000 243
--------
6,919
--------
DENMARK--0.3%
Novo Nordisk A/S
Series B 2,102 273
Tele Danmark A/S
Series B 7,910 398
--------
671
--------
FRANCE--6.7%
AXA Groupe SA 15,275 910
Alcatel Alsthom CGE SA 8,154 767
BQE National de Paris 10,161 424
Carrefour 1,432 1,119
Christian Dior 2,353 314
Cie Financiere de
Paribas (Bearer) 5,425 349
Cie Generale de Eaux 6,721 731
Compagnie de Saint-
Gobain SA 3,931 471
Danone Groupe 3,350 506
Elf Aquitaine 14,835 1,103
<CAPTION>
Number Value
of Shares (000s)
--------- --------
<S> <C> <C>
L'Air Liquide 3,073 $ 558
L'Oreal SA 2,900 896
LVMH Moet Hennessy Louis
Vuitton 7,100 1,816
Lafarge Coppee SA 8,596 551
Lyonnaise des Eaux-Dumez 2,780 279
Michelin (CGDE)
Class B (Reg.) 5,300 263
PSA Peugeot Citroen 2,200 307
Pinault Printemps
Redoute SA 1,255 381
Renault (Regie
Nationale) 14,500 440
Rhone-Poulenc SA A
Shares 15,400 370
Roussel Uclaf 1,526 360
Sanofi 6,110 493
Schneider SA 8,900 415
Societe Generale 4,778 555
Suez Group 7,455 309
TOTAL Class B 12,404 842
Union des Assurances
de Paris 14,389 312
--------
15,841
--------
GERMANY--7.2%
BASF AG 3,153 861
Bankgesell Berlin 1,206 248
Bayer AG 3,767 1,213
Bayerische Hypotheken &
Wechsel Bank AG 11,380 283
Bayerische Motoren Werke
AG 910 491
Bayerische
Vereinsbank AG 11,590 341
Commerzbank AG 2,150 466
Daimler-Benz AG 2,721 1,490
Deutsche Bank AG 27,823 1,333
Dresdner Bank AG 23,930 602
Hoechst AG 3,262 1,099
Linde AG 400 245
Lufthansa AG 1,600 254
Mannesmann AG 1,734 592
Muenchener
Rueckversicherung 11 18
Muenchener
Rueckversicherung
(Reg.) 812 1,475
RWE AG* 18,210 709
RWE AG (Non Voting)* 18,320 533
Sap AG 2,840 368
Siemens AG 3,125 1,711
Thyssen AG 1,411 256
Veba AG 26,470 1,316
Vereinigte
Elektrizitatswerke
Westfalen Series B 903 260
Viag AG 970 380
Viag AG (New)* 277 109
Volkswagen AG 1,246 430
--------
17,083
--------
HONG KONG--3.6%
CITIC Pacific 98,000 385
Cathay Pacific Airways 100,000 175
Cheung Kong Holdings 104,000 743
</TABLE>
9
<PAGE> 14
SchwabFunds(R)
- --------------------------------------------------------------------------------
SCHWAB INTERNATIONAL INDEX FUND(TM)
STATEMENT OF NET ASSETS
April 30, 1996 (Unaudited)
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- --------
<S> <C> <C>
China Light & Power 94,900 $ 448
Hang Seng Bank Ltd. 95,900 973
Henderson China 304 1
Henderson Land
Development Co. 76,000 545
Hongkong Electric
Holdings Ltd. 99,000 315
Hongkong
Telecommunications
Ltd. 631,067 1,203
Hutchison Whampoa Ltd. 190,000 1,179
New World
Development Co. 91,317 410
Sun Hung Kai Properties 123,500 1,177
Swire Pacific Ltd. Class
A 75,500 644
Wharf Holdings 101,000 374
--------
8,572
--------
ITALY--2.1%
Alleanza Assicurazioni 22,500 212
Alleanza Assicurazioni
di Risp
(Non-Convertible) 3,750 26
Assicurazioni Generali 43,700 1,090
Fiat SpA 168,000 573
Fiat SpA, di Risp
(Non-Convertible) 42,000 76
INA 201,000 309
STET 207,000 700
STET di Risp
(Non-Convertible) 66,000 173
Telecom Italia 320,000 652
Telecom Italia di Risp
(Non-Convertible) 165,000 274
Telecom Italia Mob 320,000 707
Telecom Italia Mob di
Risp 195,000 273
--------
5,065
--------
JAPAN--33.7%
Ajinomoto Co., Inc. 26,000 326
All Nippon Airways
Co., Ltd. 41,000 466
Asahi Bank 79,000 1,020
Asahi Breweries 8,000 97
Asahi Chemical
Industry Co. 41,000 312
Asahi Glass Co., Ltd. 33,000 401
Bank of Fukuoka 11,000 97
Bank of Tokyo Mitsubishi
(Bank of Tokyo shares) 52,000 1,198
Bank of Tokyo Mitsubishi
(Mitsubishi Bank
shares) 93,450 2,162
Bank of Yokohama 44,000 395
Bridgestone Corp. 22,000 408
Canon Inc. 25,000 497
Chiba Bank 31,000 280
Chubu Electric Power Co. 21,100 535
Chugoku Electric Power
Co., Inc. 14,300 340
DDI Corp. 100 859
Dai Nippon Printing Co. 21,000 395
Dai-Ichi Kangyo Bank,
Ltd. 112,000 2,281
Daiei Inc. 24,000 326
Daiwa Bank 48,000 374
Daiwa House
Industries Co. 11,000 176
<CAPTION>
Number Value
of Shares (000s)
--------- --------
<S> <C> <C>
Daiwa Securities Co. 47,000 $ 723
East Japan Railway Co. 150 802
Eisai Co. 5,250 104
Fanuc 8,000 348
Fuji Bank, Ltd. 93,000 2,036
Fuji Photo Film Co. 14,000 436
Fujitsu Ltd. 51,000 527
Gunma Bank 10,000 116
Hachijuni Bank 13,000 150
Hankyu Corp. 17,000 104
Hitachi Ltd. 111,000 1,199
Hitachi Zosen Corp. 19,000 104
Hokkaido Electric
Power Co. 4,000 96
Hokuriku Electric
Power Co. 9,500 227
Honda Motor Co., Ltd. 34,000 777
Industrial Bank of
Japan, Ltd. 76,000 2,034
Ishikawajima-Harima
Heavy Industries 53,000 263
Isuzu Motors Ltd. 39,000 223
Ito-Yokado Co., Ltd. 12,000 708
Itochu Corp. 43,000 328
Japan Air Lines Co.,
Ltd. 50,000 400
Japan Telecom Co. 10 210
Japan Tobacco Inc. 100 925
Joyo Bank 18,000 147
Jusco Co. 12,000 372
Kajima Corp. 34,000 384
Kansai Electric Power
Co. 33,700 818
Kao Corp. 24,000 321
Kawasaki Heavy
Industries 55,000 284
Kawasaki Steel Co. 112,000 410
Kinki Nippon Railway Co. 56,650 441
Kirin Brewery Co., Ltd. 32,000 416
Kobe Steel 104,000 323
Kokusai Denki 1,500 148
Komatsu Ltd. 38,000 367
Kubota Corp. 42,000 293
Kyocera Corp. 5,000 377
Kyushu Electric Power
Co. 13,700 341
Long-Term Credit Bank
of Japan 67,000 581
Marubeni Corp. 34,000 204
Marui Co. 14,000 309
Matsushita Communication
Industrial Co., Ltd. 4,000 107
Matsushita Electric
Industrial Co., Ltd. 70,000 1,238
Matsushita Electric
Works 30,000 341
Mitsubishi Chemical
Corp. 62,000 340
Mitsubishi Corp. 56,000 798
Mitsubishi Electric
Corp. 60,000 473
Mitsubishi Estate Co. 37,000 520
Mitsubishi Heavy
Industries 110,000 982
Mitsubishi Materials Co. 46,000 277
Mitsubishi Motors 37,000 334
Mitsubishi Trust &
Banking Corp. 45,000 779
Mitsui & Co. 45,000 429
Mitsui Fudosan Co. 26,000 343
</TABLE>
10
<PAGE> 15
SchwabFunds(R)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- --------
<S> <C> <C>
Mitsui Marine &
Fire Insurance 14,000 $ 119
Mitsui Trust &
Banking Co. 35,000 422
Murata Manufacturing Co. 9,000 349
NEC Corp. 55,000 699
NKK Corp. 97,000 304
New Oji Paper Co. 16,000 148
Nikko Securities Co. 41,000 521
Nikon Corp. 11,000 148
Nintendo Co., Ltd. 4,200 324
Nippon Credit Bank 69,000 282
Nippon Express Co. 31,000 323
Nippon Oil Co. 48,000 333
Nippon Paper
Industries Co. 39,000 286
Nippon Steel Corp. 238,000 860
Nippon Telegraph &
Telephone Corp. 596 4,621
Nippon Yusen Kabushiki
Kaisha 27,000 164
Nippondenso Co. 24,000 523
Nissan Motor Co., Ltd. 89,000 752
Nomura Securities
Co., Ltd. 63,000 1,373
Obayashi Corp. 17,000 158
Odakyu Electric
Railway Co. 14,420 103
Oki Electric Industry
Co., Ltd. 12,000 95
Omron Corp. 8,000 180
Ono Pharmaceutical Co. 3,000 113
Osaka Gas Co. 93,000 373
Ricoh Co., Ltd. 27,000 317
Rohm Co. 4,000 255
Sakura Bank 113,000 1,329
Sankyo Co. 13,000 316
Sanwa Bank 92,000 1,865
Sanyo Electric Co., Ltd. 60,000 383
Secom Co. 3,000 212
Seibu Railway Co. 14,000 787
Sekisui Chemical Co. 21,000 265
Sekisui House 26,000 323
Seven-Eleven Japan Co. 13,200 935
Sharp Corp. 31,000 539
Shikoku Electric
Power Co. 6,200 152
Shimizu Corp. 31,000 356
Shin-Etsu Chemical Co. 13,650 299
Shizuoka Bank 26,000 353
Sony Corp. 12,500 813
Sony Music Entertainment 4,600 249
Sumitomo Bank 113,000 2,420
Sumitomo Chemical Co. 63,000 335
Sumitomo Corp. 31,000 370
Sumitomo Electric
Industries 27,000 387
Sumitomo Marine & Fire
Insurance Co. 28,000 267
Sumitomo Metal
Industries 90,000 289
Sumitomo Metal
Mining Co. 11,000 111
Sumitomo Trust & Banking
Co. 35,000 512
<CAPTION>
Number Value
of Shares (000s)
--------- --------
<S> <C> <C>
Suzuki Motor Corp. 10,000 $ 127
TDK 3,000 172
Taisei Corp. 40,000 310
Taisho Pharmaceutical
Co. 8,000 175
Takeda Chemical
Industries 25,000 433
Teijin Ltd. 19,000 104
Tobu Railway Co. 16,000 111
Tohoku Electric Power
Co. 15,100 375
Tokai Bank 67,000 858
Tokio Marine & Fire
Insurance Co. 55,000 757
Tokyo Electric Power
Co., Inc. 43,000 1,172
Tokyo Electron 3,000 112
Tokyo Gas & Electric
Industrial 82,000 322
Tokyu Corp. 43,000 351
Tonen Corp. 23,000 343
Toppan Printing Co. 27,000 397
Toray Industries Inc. 54,000 368
Toshiba Corp. 105,000 817
Tostem Corp. 5,000 155
Toto 8,000 119
Toyo Seikan 8,000 284
Toyo Trust &
Banking Co. 30,000 327
Toyoda Automatic Loom 6,000 124
Toyota Motor Corp. 134,000 3,062
Yamaichi Securities Co. 45,000 356
Yamanouchi
Pharmaceutical Co. 13,000 308
Yasuda Fire & Marine
Insurance Co. 20,000 158
Yasuda Trust &
Banking Co. 23,000 153
--------
79,644
--------
NETHERLANDS--5.7%
ABN Amro Holdings NV 17,167 889
Aegon NV 15,115 720
Akzo Nobel NV 4,185 486
Dordtsche Petrol 1,962 293
Elsevier NV 38,508 580
Heineken NV 3,050 638
ING NV 16,839 1,300
Koninklijke Ahold NV 6,961 343
Koninklijke PTT
Nederland 24,971 937
Philips Electronics NV 19,400 685
PolyGram NV 10,409 620
Royal Dutch Petroleum, Co.
(Bearer) 29,926 4,263
Unilever NV, CVA 8,700 1,187
Wolters Kluwer NV, CVA 4,036 441
--------
13,382
--------
SINGAPORE--2.3%
City Developments 36,000 315
Development Bank of
Singapore (alien
market) 45,000 570
Hong Kong Land Holdings 237,806 509
</TABLE>
11
<PAGE> 16
SchwabFunds(R)
- --------------------------------------------------------------------------------
SCHWAB INTERNATIONAL INDEX FUND(TM)
STATEMENT OF NET ASSETS
April 30, 1996 (Unaudited)
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- --------
<S> <C> <C>
Jardine Matheson
Holdings Ltd. 35,811 $ 286
Keppel Corp. 28,000 253
Overseas Chinese Bank
(alien market) 41,833 574
Singapore Airlines Ltd.
(alien market) 62,000 626
Singapore
Telecommunications 824,000 2,028
United Overseas Bank
(alien market) 39,600 386
--------
5,547
--------
SPAIN--2.1%
Argentaria Corp. 8,052 326
Banco Bilbao-Vizcaya SA
(Reg.) 13,766 523
Banco Popular Espanol
(Reg.) 1,620 268
Banco de Santander SA
(Reg.) 8,600 400
Empresa Nacional de
Electricidad 15,328 963
Gas Natural SDG SA 2,091 380
Iberdrola SA 49,800 487
Repsol, SA 16,600 609
Telefonica Internacional
de Espana, SA 55,184 983
--------
4,939
--------
SWEDEN--1.8%
ASEA AB 3,300 338
ASEA AB Series B 800 81
Astra AB Series A 25,700 1,143
Astra AB Series B 6,700 296
L.M. Ericsson Telephone
Series B 69,080 1,401
Pripps Ringnaes Series
A* 5,300 73
Pripps Ringnaes Series
B* 2,800 38
Sandvik AB Series A 8,600 190
Volvo AB Series A 5,000 115
Volvo AB Series B 20,700 475
--------
4,150
--------
SWITZERLAND--6.6%
BBC Brown Boveri
(Bearer) 420 506
BBC Brown Boveri (Reg.) 189 44
CS Holding (Reg.) 13,670 1,241
Ciba-Geigy Ltd. (Bearer) 170 196
Ciba-Geigy Ltd. (Reg.) 1,275 1,480
Cie Financiere Richemont
Series A (Bearer) 309 453
Nestle Ltd. (Reg.) 2,123 2,361
Roche Group Holding AG 370 2,910
Roche Group Holding AG
(Bearer) 85 1,150
Sandoz Ltd. (Bearer) 491 535
Sandoz Ltd. (Reg.) 1,673 1,827
Schweizerische
Bankgesellschaft
(Bearer) 1,144 1,137
Schweizerische
Bankgesellschaft
(Reg.) 1,150 250
Schweizerische
Bankverein (Bearer) 1,129 423
<CAPTION>
Number Value
of Shares (000s)
--------- --------
<S> <C> <C>
Schweizerische
Bankverein (Reg.) 1,251 $ 234
Winterthur (Reg.) 500 314
Zurich Versicherung (Reg.) 2,095 586
--------
15,647
--------
UNITED KINGDOM--19.3%
Abbey National 72,619 621
Allied Domecq PLC 62,820 486
Argyll Group 55,415 277
Associated British Foods 42,000 252
BAA 60,860 500
BAT Industries 177,692 1,343
BOC Group 22,181 308
BTR 217,579 1,048
Barclays 87,223 968
Bass 51,821 611
Boots Co. 56,881 542
British Aerospace 23,848 313
British Airways 58,777 459
British Gas 241,400 858
British Petroleum Co. 312,203 2,817
British Sky Broadcast 101,400 730
British Steel 94,600 283
British Telecom 354,739 1,946
Cable & Wireless 147,895 1,161
Cadbury Schweppes 58,616 454
Commercial Union
Assurance Co. 31,950 277
General Electric Co. 151,200 816
Glaxo Wellcome 196,965 2,388
Granada Group 35,703 443
Grand Metropolitan, Inc. 120,101 790
Great University Stores 56,903 621
Guinness 108,800 783
HSBC Holdings 47,063 697
HSBC Holdings (Hong
Kong) 101,438 1,502
Hanson Industries 284,416 843
Imperial Chemical
Industries 40,411 547
J. Sainsbury PLC 104,051 573
Kingfisher 29,682 266
Legal & General Group 27,514 297
Lloyds Abbey Life 26,700 215
Lloyds TSB Group 289,004 1,386
Marks & Spencer PLC 152,500 1,018
National Grid Group 94,774 292
National Power
Development 59,600 503
National Westminster
Bancorp 101,036 932
Pearson, Inc. 25,137 266
Powergen 37,400 314
Prudential Corp. 107,865 743
RTZ Corporation PLC 60,025 945
Rank Organisation PLC 40,800 327
Reed International 31,845 548
Rentokil Group 54,815 316
Reuters Holdings PLC 95,074 1,076
Royal Bank of Scotland 37,152 290
Scot & Newcastle 30,100 312
Shell Transport &
Trading Co. (Reg.) 186,721 2,464
</TABLE>
12
<PAGE> 17
SchwabFunds(R)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- --------
<S> <C> <C>
Siebe 24,030 $ 311
SmithKline Beecham PLC
Series A 74,769 793
SmithKline Beecham PLC
(New) 72,974 774
Standard Chartered PLC 56,012 524
Tesco 119,768 506
Thorn Emi 23,982 665
Tomkins 464 2
Unilever 44,900 822
Vendome Lux Group/ SA
(units) 34,050 300
Vodafone Group 176,316 705
Whitbread 26,922 304
Zeneca Group 51,108 1,065
--------
45,538
--------
TOTAL COMMON STOCK
(Cost $196,132) 229,418
--------
PREFERRED STOCK--0.4%
AUSTRALIA--0.1%
News Corp. (Limited
Voting Shares) 60,981 314
--------
GERMANY--0.3%
Henkel KGaA 629 241
Sap AG (Non-Voting) 2,010 267
Volkswagen AG
(Non-Voting) 350 89
--------
597
--------
ITALY--0.0%
Fiat SpA 38,800 74
--------
TOTAL PREFERRED STOCK
(Cost $805) 985
--------
WARRANTS--0.0%
UNITED KINGDOM--0.0%
BTR (expire 11/26/98)* 4,019 1
--------
TOTAL WARRANTS
(Cost $3) 1
--------
<CAPTION>
Maturity Value
(000s) (000s)
--------- --------
<S> <C> <C>
CASH EQUIVALENTS--2.0%
REPURCHASE AGREEMENT--2.0%
State Street Bank 4.75%
Dated 04/30/96
Due 05/01/96
Collateralized By:
U.S. Treasury Note
$4,750,000 Par; 8.00%
Due 10/15/96 $ 4,724 $ 4,723
--------
TOTAL CASH EQUIVALENTS
(Cost $4,723) 4,723
--------
TOTAL INVESTMENTS--99.5%
(Cost $201,663) 235,127
--------
OTHER ASSETS AND
LIABILITIES--0.5%
Other Assets 7,947
Liabilities (6,890)
--------
1,057
--------
NET ASSETS--100.0%
Applicable to 19,382,890
outstanding $0.00001
par value shares
(unlimited shares authorized) $236,184
========
NET ASSET VALUE PER SHARE $12.19
========
</TABLE>
- ------------------
*Non-Income Producing Security
See accompanying Notes to Financial Statements.
13
<PAGE> 18
SchwabFunds(R)
- --------------------------------------------------------------------------------
SCHWAB INTERNATIONAL INDEX FUND(TM)
STATEMENT OF OPERATIONS (in thousands)
Six months ended April 30, 1996 (Unaudited)
<TABLE>
<S> <C>
Investment income:
Dividends (net of foreign tax withheld of $269) $ 1,693
Interest 113
-------
Total investment income 1,806
-------
Expenses:
Investment advisory and administration fee 718
Transfer agency and shareholder service fees 257
Custodian fees 123
Registration fees 25
Professional fees 30
Shareholder reports 33
Trustees' fees 16
Amortization of deferred organization costs 13
Insurance and other expenses 3
-------
1,218
Less expenses reduced (510)
-------
Total expenses incurred by Fund 708
-------
Net investment income 1,098
-------
Net realized gain (loss) on investments and foreign
currency transactions: 15,415
Proceeds from sales of investments (17,035)
Cost of investments sold -------
(1,620)
Net realized loss from changes in market value 361
Net realized gain from changes in foreign exchange rates -------
(1,259)
Net realized loss on investments sold (72)
Net realized loss on foreign currency transactions -------
Net realized loss on investments sold and foreign (1,331)
currency transactions -------
Change in net unrealized gain (loss) on investments and foreign
currency translation:
Changes in market value: 4,832
Beginning of period unrealized gain 33,223
End of period unrealized gain -------
Increase in net unrealized gain from changes in market 28,391
value -------
Changes in foreign exchange rates: 7,646
Beginning of period unrealized gain 241
End of period unrealized gain -------
Decrease in net unrealized gain from changes in foreign (7,405)
exchange rates -------
Increase in net unrealized gain on investments from
changes 20,986
in market value and foreign exchange rates
Decrease in net unrealized gain on translating assets and (35)
liabilities into the reporting currency -------
Increase in net unrealized gain on investments and 20,951
foreign currency translation -------
19,620
Net gain on investments -------
$ 20,718
Increase in net assets resulting from operations =======
</TABLE>
See accompanying Notes to Financial Statements.
14
<PAGE> 19
SchwabFunds(R)
- --------------------------------------------------------------------------------
SCHWAB INTERNATIONAL INDEX FUND(TM)
STATEMENT OF CHANGES IN NET ASSETS (in thousands)
<TABLE>
<CAPTION>
Six months
ended Year
April 30, ended
1996 October 31,
(Unaudited) 1995
----------- -----------
<S> <C> <C>
Operations:
Net investment income $ 1,098 $ 2,238
Net realized gain (loss) on investments sold
and foreign currency transactions (1,331) 193
Increase in net unrealized gain on investments
and foreign currency translation 20,951 2,557
-------- --------
Increase in net assets resulting from
operations 20,718 4,988
-------- --------
Dividends to shareholders from net investment
income (2,089) (1,532)
-------- --------
Capital share transactions:
Proceeds from shares sold 59,810 73,349
Net asset value of shares issued in
reinvestment
of dividends 1,809 1,372
Early withdrawal fees 26 49
Less payments for shares redeemed (23,702) (40,969)
-------- --------
Increase in net assets from capital share
transactions 37,943 33,801
-------- --------
Total increase in net assets 56,572 37,257
Net assets:
Beginning of period 179,612 142,355
-------- --------
End of period (including undistributed net
investment income of $1,041 and $2,051,
respectively) $ 236,184 $ 179,612
======== ========
Number of Fund shares:
Sold 5,118 6,778
Reinvested 155 134
Redeemed (2,028) (3,840)
-------- --------
Net increase in shares outstanding 3,245 3,072
Shares outstanding:
Beginning of period 16,138 13,066
-------- --------
End of period 19,383 16,138
======== ========
</TABLE>
See accompanying Notes to Financial Statements.
15
<PAGE> 20
SchwabFunds(R)
- --------------------------------------------------------------------------------
SCHWAB INTERNATIONAL INDEX FUND(TM)
NOTES TO FINANCIAL STATEMENTS
Six months ended April 30, 1996 (Unaudited)
1. DESCRIPTION OF THE FUND
The Schwab International Index Fund (the "Fund") is a series of Schwab Capital
Trust (the "Trust"), a no-load, open-end, investment management 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(R), Schwab Asset Director(R)-High Growth Fund, Schwab Asset
Director-Conservative Growth Fund, Schwab Asset Director-Balanced Growth Fund
and Schwab S&P 500 Fund. 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(R), 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.
2. SIGNIFICANT ACCOUNTING POLICIES
The following significant accounting policies are in conformity with generally
accepted accounting principles for investment companies. The preparation of
financial statements in accordance with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts and disclosures in the financial statements. Actual results could differ
from those estimates.
Security valuation -- 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 by
the Fund's investment manager pursuant to guidelines adopted in good faith by
the Board of Trustee. 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 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.
16
<PAGE> 21
SchwabFunds(R)
- --------------------------------------------------------------------------------
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 April 30. 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 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. The Fund could be exposed to risk if counterparties to the
contracts are unable to meet the terms of the contracts or if the value of the
foreign currency changes unfavorably.
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 April 30, 1996, (for financial reporting and federal income tax purposes),
net unrealized gain aggregated $33,464,000, of which $37,810,000 related to
appreciated securities and $4,346,000 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
$718,000 during the six months ended April 30, 1996, before the Investment
Manager reduced its fee (see Note 4).
17
<PAGE> 22
SchwabFunds(R)
- --------------------------------------------------------------------------------
SCHWAB INTERNATIONAL INDEX FUND(TM)
NOTES TO FINANCIAL STATEMENTS
Six months ended April 30, 1996 (Unaudited)
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 six
months ended April 30, 1996, the Fund incurred transfer agency and shareholder
service fees of $257,000, before Schwab reduced its fees (see Note 4).
Officers and trustees -- Certain officers and trustees of the Trust were also
officers or directors of the Investment Manager and/or Schwab. During the six
months ended April 30, 1996, 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 $16,000 related to
the Trust's unaffiliated trustees.
4. 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. For the six
months ended April 30, 1996, the total of such fees reduced by the Investment
Manager and Schwab was $314,000 and $196,000, respectively.
5. 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 six months ended April 30, 1996, no borrowings
were made under this arrangement.
6. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities, other than short-term obligations,
aggregated (in thousands) $49,937 and $15,415, respectively, for the six months
ended April 30, 1996.
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 six months ended April 30, 1996, total early withdrawal fees
retained by the Fund amounted to $26,000.
18
<PAGE> 23
SchwabFunds(R)
- --------------------------------------------------------------------------------
8. COMPOSITION OF NET ASSETS
At April 30, 1996, net assets consisted of:
<TABLE>
<S> <C>
Capital paid in $203,460,000
Accumulated undistributed net investment income 1,041,000
Accumulated net realized loss on investments sold and
foreign currency transactions (1,767,000)
Net unrealized gain on investments 33,464,000
Net unrealized loss on translating assets and liabilities
into the reporting currency (14,000)
------------
Total $236,184,000
============
</TABLE>
The Fund follows 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, certain
reclassifications have occurred which decreased undistributed net investment
income by $19,000 and increased net realized loss on investments sold and
foreign currency transactions and capital paid in by $34,000 and $53,000,
respectively. These reclassifications have no impact on the net asset value of
the Fund.
At April 30, 1996, the Fund's Statement of Net Assets included: $3,700,000
payable for investments purchased, $765,000 payable for Fund shares redeemed,
$29,000 payable for investment advisory and administration fee and $576,000
receivable for Fund shares sold.
9. COMMITMENTS
At April 30, 1996, the Fund had various open Forward contracts which obligated
the Fund to deliver U.S. dollars in exchange for foreign currencies at specified
future dates as follows:
<TABLE>
<CAPTION>
Contract In Exchange Settlement Unrealized
Currency Amount For Date Value Gain (Loss)
- ---------------------- ----------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Hong Kong dollar 350,000 $ 45,248 05/01/96 $ 45,245 ($ 3)
Netherlands guilder 750,000 438,853 05/03/96 437,700 (1,153)
Pound sterling 760,000 1,145,320 05/07/96 1,144,061 (1,259)
Spanish peseta 51,000,000 402,366 05/08/96 400,943 (1,423)
French franc 521,000 101,165 05/31/96 100,822 (343)
---------- ---------- -------
$2,132,952 $2,128,771 ($4,181)
========== ========== =======
</TABLE>
19
<PAGE> 24
SchwabFunds(R)
- --------------------------------------------------------------------------------
SCHWAB INTERNATIONAL INDEX FUND(TM)
NOTES TO FINANCIAL STATEMENTS
Six months ended April 30, 1996 (Unaudited)
10. FINANCIAL HIGHLIGHTS
Per share income and capital changes for a share outstanding throughout the
period:
<TABLE>
<CAPTION>
Period ended
April 30, Year ended Period ended
1996 October 31, October 31,
(Unaudited) 1995 1994 1993(1)
------------ -------- -------- ------------
<S> <C> <C> <C> <C>
Net asset value at beginning of
period.............................. $ 11.13 $ 10.89 $ 10.15 $ 10.00
Income from investment operations
- -----------------------------------
Net investment income............... .18 .14 .11 .03
Net realized and unrealized gain on
investments and foreign currency
transactions...................... 1.01 .22 .69 .12
-------- -------- -------- --------
Total from investment operations.... 1.19 .36 .80 .15
Less distributions
- ------------------
Dividends from net investment
income............................ (.13) (.12) (.04) --
Distributions from realized gain on
investments....................... -- -- (.02) --
-------- -------- -------- --------
Total distributions................. (.13) (.12) (.06) --
-------- -------- -------- --------
Net asset value at end of period...... $ 12.19 $ 11.13 $ 10.89 $ 10.15
======== ======== ======== ========
Total return (%) 10.71 3.35 7.89 1.50
- ----------------
Ratios/Supplemental data
- ------------------------
Net assets, end of period (000s).... $236,184 $179,612 $142,355 $106,085
Ratio of expenses to
average net assets (%)............ .69* .85 .90 .60*
Ratio of net investment income to
average net assets (%)............ 1.07* 1.45 1.14 2.15*
Portfolio turnover rate (%)......... 4 0 6 2
Average commission rate............. $ .01
</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
April 30, 1996, October 31, 1995, 1994 and 1993, would have been 1.19%*, 1.22%,
1.30% and 2.10%*, respectively, and the ratio of net investment income to
average net assets would have been .57%*, 1.08%, .74% and .65%*, respectively.
(1) For the period September 9, 1993 (commencement of operations) to October 31,
1993.
* Annualized
20
<PAGE> 25
THE SCHWABFUNDS FAMILY(R)
The SchwabFunds Family includes a variety of funds to help meet your investment
needs. You can diversify your portfolio with one investment in any of the three
Asset Director(R) Funds, or choose from several equity markets with our equity
funds, including two new funds, the Schwab S&P 500 Fund and the Schwab Analytics
Fund(TM). You can also select from different maturities with our bond fund
choices, and take advantage of an array of money market funds.
SCHWAB ASSET ALLOCATION FUNDS
Schwab Asset Director-High Growth Fund
Schwab Asset Director-Balanced Growth Fund
Schwab Asset Director-Conservative Growth Fund
SCHWAB EQUITY FUNDS
Schwab 1000 Fund(R)
Schwab S&P 500 Fund
Schwab Small-Cap Index Fund(R)
Schwab International Index Fund(TM)
Schwab Analytics Fund(TM)
SCHWAB BOND FUNDS
Schwab Government Bond Funds-
Long-Term and Short/Intermediate Term
Schwab Tax-Free Bond Funds-
Long-Term and Short/Intermediate Term
Schwab California Tax-Free Bond Funds-
Long-Term and Short/Intermediate Term
SCHWAB MONEY MARKET FUNDS
Schwab offers several money market funds that seek high current income with
safety and liquidity. (1) Choose from taxable or tax-exempt alternatives. Many
can be linked to your Schwab account to "sweep" cash balances automatically when
you're between investments. Or, for your larger cash reserves, choose one of our
Value Advantage Investments(TM).
Please call the number below for a free prospectus and brochure for any of the
SchwabFunds(R). Each prospectus provides more complete information, including
charges and expenses. Please read it carefully before investing.
1-800-2 NO-LOAD
1-800-266-5623
1. Investments in money market funds are neither insured nor guaranteed by the
U.S. government, and there is no assurance that the Funds will be able to
maintain a stable share price of $1.
<PAGE> 26
--------------
BULK RATE
U.S. POSTAGE
PAID
CHARLES SCHWAB
--------------
[SCHWABFUNDS FAMILY(R) LOGO]
101 Montgomery Street
San Francisco, California 94104
INVESTMENT ADVISER
Charles Schwab Investment Management, Inc.
101 Montgomery Street, San Francisco, CA 94104
DISTRIBUTOR
Charles Schwab & Co., Inc.
101 Montgomery Street, San Francisco, CA 94104
This report is not authorized for distribution to prospective investors unless
preceded or accompanied by a current prospectus.
TF4137R(6/96) CRS 10323 Printed on recycled paper.