<PAGE> 1
SCHWABFUNDS(R)
[LOGO]
SCHWAB
INTERNATIONAL
INDEX FUND(R)
Semi-Annual Report
April 30, 1997
<PAGE> 2
Dear Shareholder,
[Photo of With the support of investors like you, SchwabFunds(R)
Charles continues to be among the largest and fastest-growing mutual
R. Schwab] fund complexes in the nation. Charles Schwab Investment
Management, Inc. (CSIM) manages over $47 billion in assets
for more than 2.5 million SchwabFunds shareholders. Today,
CSIM offers investors 30 funds spanning a spectrum of
financial markets and investing styles.
You'll find in-depth information on the performance of your SchwabFunds
investment in the following pages.
LONG-TERM INVESTMENT STRATEGIES
When it comes to investing, patience is a virtue. Given the recent market
volatility, it is important to maintain the discipline to adhere to your asset
allocation plan and to ensure you have a diversified investment portfolio. We
created the SchwabFunds Family to offer time-tested strategies for long-term
investing -- Indexing, Asset Allocation, Quantitative Models and Fund-of-Funds
- -- and to provide investors with easy, cost-efficient options to help achieve
portfolio diversification. Furthermore, the tax-efficient strategy employed by
our index funds can help you retain more of what your investments earn.
COMMITMENT TO VALUE
In our ongoing commitment to provide cost-efficient ways for you to invest, we
recently reduced the operating expense ratios and introduced a new class of
shares -- Select Shares -- for each of our four index funds. Select Shares have
among the lowest fund expenses in the industry and offer investors even greater
savings through significantly lower expense ratios.
EXPANDING CHANNELS OF COMMUNICATION
If you're among the millions of people exploring the Internet, I encourage you
to visit our Web site at WWW.SCHWAB.COM/FUNDS. There you'll find a wealth of
online information on SchwabFunds as well as other resources available at
Schwab. You can also access mutual fund performance data, chart daily net asset
values, request a free fund prospectus, trade funds and more -- all from the
comfort of your home or office, 24 hours a day. Continuing our efforts to
provide you with up-to-date, useful information, we have recently added monthly
portfolio manager commentaries on selected SchwabFunds to our Web site. In these
commentaries, our expert portfolio managers offer insights into market trends
and the effects of those trends on fund performance.
Thank you for placing your trust in SchwabFunds. We will continue to explore new
strategies to help meet your investment needs and to provide you with timely
information on SchwabFunds.
/s/ Charles R. Schwab
---------------------
Charles R. Schwab
<PAGE> 3
KEEP YOUR
MONEY WORKING
HARDER!
----------------------------
USE THIS ENVELOPE TO EASILY
ADD TO YOUR SCHWAB FUNDS.
CHARLES SCHWAB
<PAGE> 4
WE'VE MADE IT EASIER FOR YOU! TAKE ADVANTAGE OF THIS OPPORTUNITY TO ADD TO YOUR
SCHWABFUNDS(R) INVESTMENT.
Now, you can add to your account by using this convenient Schwab investment
envelope. It's a simple, easy way to increase your investment. You can also
have money transferred to your fund directly from your bank account or payroll
check using Schwab's free Automatic Investment Plan (AIP). If you'd like more
information on AIP, just check the appropriate box on the coupon. We'll send
you everything you need to get started.
DON'T DELAY. USE THIS CONVENIENT INVESTMENT ENVELOPE AND SEND YOUR CHECK TODAY!
THE AUTOMATIC INVESTMENT PLAN DOES NOT INSURE PROFIT OR PROTECT AGAINST LOSS IN
DECLINING MARKETS.
- --------------------------------------------------------------------------------
PLEASE DETACH HERE
SCHWABFUNDS(R)
INVESTMENT COUPON
- --------------------------------------------------------------------------------
Please enclose your check and this completed investment coupon in the attached
postage-paid envelope.
________________________________________________________________________________
NAME
$_______________________________________________________________________________
AMOUNT OF INVESTMENT
________________________________________________________________________________
SIGNATURE
[ ] Check here if you would like more investment coupons for future use.
[ ] Check here if you would like more information on Schwab's Automatic
Investment Plan (AIP).
__________-__________
SCHWAB ACCOUNT NUMBER
Please indicate to which SchwabFund your investment should go:
[ ] Schwab S&P 500 Fund
[ ] Schwab Small-Cap Index Fund(R)
[ ] Schwab International Index Fund(R)
[ ] Schwab Analytics Fund(TM)
[ ] Schwab OneSource Portfolios - International
[ ] Schwab OneSource Portfolios - Growth Allocation
[ ] Schwab OneSource Portfolios - Balanced Allocation
[ ] Schwab Asset Director(R) - High Growth Fund
[ ] Schwab Asset Director(R) - Balanced Growth Fund
[ ] Schwab Asset Director(R) - Conservative Growth Fund
IF NO FUND IS INDICATED, YOUR INVESTMENT WILL GO INTO THE SWEEP ACCOUNT YOU'VE
DESIGNATED.
*This envelope may not be used for initial investments. Subsequent investment
minimum is $100.
(C) 1997 Charles Schwab & Co., Inc. All rights reserved. Member SIPC/NYSE
Printed on recycled paper. TF4794C(5/97) CRS 20061
(LIFT HERE FOR MORE INFORMATION)
<PAGE> 5
CHARLES SCHWAB
JUST FOLLOW THESE EASY STEPS TO INVEST IN YOUR SCHWABFUNDS(R) ACCOUNT:
1. Fill out the Schwab investment coupon completely, including your name,
account number, amount of your check and signature. Please use one coupon
for each account.
2. Make your check payable to CHARLES SCHWAB & CO., INC., and enclose your
check with the completed coupon in this postage-paid envelope.
3. Then just drop your SchwabFunds investment envelope in the mail today -
and start putting your money to work. If you have any questions, don't
hesitate to call 1-800-2 NO-LOAD.
This envelope is intended for shareholders who have already received a current
SchwabFunds prospectus.
<PAGE> 6
ATTN: Dept. AIP333-4 NO POSTAGE
NECESSARY IF
MAILED IN THE
BUSINESS REPLY MAIL UNITED STATES
FIRST-CLASS MAIL PERMIT NO. 18125 SAN FRANCISCO, CA
POSTAGE WILL BE PAID BY ADDRESSEE
CHARLES SCHWAB & CO INC
PO BOX 7778
SAN FRANCISCO CA 94120-9419
<PAGE> 7
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
A WORD FROM SCHWABFUNDS(R) ................................ 2
FUND PERFORMANCE .......................................... 3
TAX-SMART INVESTMENT STRATEGY ............................. 4
FUND HOLDINGS ............................................. 5
THE PORTFOLIO MANAGEMENT TEAM ............................. 7
MARKET OVERVIEW ........................................... 8
QUESTIONS TO THE PORTFOLIO MANAGEMENT TEAM ................ 14
FINANCIAL STATEMENTS AND NOTES ............................ 19
</TABLE>
1
<PAGE> 8
A WORD FROM SCHWABFUNDS(R)
We are pleased to report on the performance of the Schwab International Index
Fund(R) (the Fund) for the six-month period ended April 30, 1997. 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 on the following pages.
NEW LOWER EXPENSE RATIOS
In their tradition of providing low-cost investing, Schwab and Charles Schwab
Investment Management, Inc. (CSIM) lowered the operating expense ratio (OER) for
the Fund from 0.69% to 0.58% (effective February 28, 1997). In addition to
lowering the Fund's OER, Schwab and CSIM have created a new class of shares for
the Fund, Select Shares, with an even lower OER.
SCHWAB INTERNATIONAL INDEX FUND
GROWTH IN NET ASSETS AND NUMBER OF ACCOUNTS
[LINE GRAPH]
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
INTERNATIONAL INDEX FUND
- --------------------------------------------------------------------------------
TOTAL ASSETS TOTAL # OF 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
May-96 $237,643,000 28,853
Jun-96 $241,982,000 29,098
Jul-96 $240,603,000 29,188
Aug-96 $240,603,000 29,186
Sep-96 $246,328,000 29,190
Oct-96 $246,777,000 29,190
Nov-96 $259,864,837 29,118
Dec-96 $259,641,721 29,195
Jan-97 $251,115,733 29,255
Feb-97 $254,507,152 29,156
Mar-97 $298,574,125 29,064
Apr-97 $300,813,199 29,070
- --------------------------------------------------------------------------------
</TABLE>
2
<PAGE> 9
Select Shares, which became available on May 19, 1997, were created to give
investors a more cost-effective way to invest. This new class of shares offers a
significantly lower expense ratio and requires a minimum initial deposit of
$50,000. With an OER of only 0.47%, the expense ratio for the International
Index Fund -- Select Shares is among the lowest for international funds. 1 All
the OERs for the Fund are guaranteed through at least February 29, 2000.
FUND PERFORMANCE
The table below compares total returns for various periods ended April 30, 1997
for the Schwab International Index Fund(R), the Schwab International Index(R)
and the Morgan Stanley Capital International Europe, Australasia, Far East Index
(MSCI EAFE).
<TABLE>
<CAPTION>
TOTAL RETURNS
===============================================================================
Cumulative Since Average Annual
Fund Inception Since Fund Inception
Six-Month One-Year (9/9/93) (9/9/93)
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Schwab
International
Index Fund 3.61% 3.95% 30.25% 7.52%
- -------------------------------------------------------------------------------
Schwab
International
Index 3.74% 4.04% 33.44% 8.24%
- -------------------------------------------------------------------------------
MSCI EAFE 1.57% -0.89% 23.69% 6.01%
- -------------------------------------------------------------------------------
</TABLE>
As of March 31, 1997, the six-month, one-year, cumulative since fund inception,
and average annual since fund inception total returns for the Schwab
International Index Fund were 2.70%, 5.72%, 29.32%, and 7.49%, respectively.
TOTAL RETURN ASSUMES REINVESTMENT OF ALL DIVIDEND 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 0.58% through at least 2/29/2000. Without fee waivers and guarantees,
for the period ended 4/30/97, the Fund's six-month, one-year, cumulative since
fund inception, and average annual since fund inception total returns would have
been 3.36%, 3.46%, 28.03%, and 7.01%, respectively. For the period ended
3/31/97, the Fund's six-month, one-year, cumulative since fund inception, and
average annual since fund inception total returns would have been 2.45%, 5.23%,
27.38%, and 7.03%, 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.
1 Source: Morningstar, Inc. Based on the average OER of 1.72% for 437
international funds as of 4/30/97.
3
<PAGE> 10
TAX-SMART INVESTMENT STRATEGY
The Schwab International Index Fund(R) 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.
<TABLE>
<CAPTION>
ONE-YEAR TOTAL RETURN AS OF APRIL 30, 1997
=======================================================================
Before-Tax After-Tax % Lost to Taxes
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Schwab International
Index Fund 3.95% 3.38% 0.57%
- -----------------------------------------------------------------------
Average International
Fund 5.53% 4.28% 1.25%
- -----------------------------------------------------------------------
</TABLE>
Source for average international fund is Morningstar, Inc. for 437 international
funds as of 4/30/97. 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
DIVIDEND 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 0.58% through at least 2/29/2000. Without
this fee waiver and guarantee, the Fund's total return would have been lower.
4
<PAGE> 11
FUND HOLDINGS
The Fund's portfolio is diversified across 15 countries, representing
approximately 350 of the world's largest publicly traded companies and a broad
range of sectors and industries. Following 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. Both are as of April 30, 1997 and are not necessarily indicative
of the Fund's future holdings. A complete listing of the Fund's portfolio
holdings, also as of April 30, 1997, can be found in the Statement of Net Assets
section of this report. Unlike the Statement of Net Assets, information is shown
here as a percentage of the Fund's investments, not as a percentage of the
Fund's net assets.
FUND'S TOP TEN HOLDINGS AS A
PERCENTAGE OF FUND INVESTMENTS
=====================================================================
<TABLE>
<CAPTION>
INVESTMENT COUNTRY %
- ---------------------------------------------------------------------
<S> <C> <C>
Royal Dutch Petroleum Co. Netherlands 2.12
- ---------------------------------------------------------------------
Novartis AG Switzerland 1.90
- ---------------------------------------------------------------------
Nippon Telegraph & Telephone Corp. Japan 1.78
- ---------------------------------------------------------------------
Toyota Motor Corp. Japan 1.73
- ---------------------------------------------------------------------
Glaxo Wellcome PLC United Kingdom 1.59
- ---------------------------------------------------------------------
British Petroleum Co. United Kingdom 1.50
- ---------------------------------------------------------------------
Roche Group Holdings AG Switzerland 1.40
- ---------------------------------------------------------------------
Shell Transport & Trading Co. United Kingdom 1.34
- ---------------------------------------------------------------------
Lloyds TSB Group PLC United Kingdom 1.19
- ---------------------------------------------------------------------
Nestle, SA Switzerland 1.12
=====================================================================
TOTAL 15.67%
</TABLE>
5
<PAGE> 12
SCHWAB INTERNATIONAL INDEX FUND(R) EQUITY HOLDINGS
AS OF APRIL 30, 1997
<TABLE>
<S> <C>
Canada 3.52%
Belgium 0.97%
Netherlands 6.80%
Germany 9.36%
Denmark 0.61%
Sweden 2.00%
Japan 25.71%
United Kingdom 23.30%
Spain 2.36%
France 7.29%
Switzerland 7.71%
Italy 2.34%
Singapore 1.60%
Australia 2.34%
Hong Kong 4.09%
</TABLE>
6
<PAGE> 13
THE PORTFOLIO MANAGEMENT TEAM
STEPHEN B. WARD -- Senior Vice President and Chief Investment Officer, has
overall responsibility for the management of the Fund's portfolio. Steve joined
CSIM as Vice President and Portfolio Manager in April 1991 and was promoted to
his current position in August 1993. Prior to joining CSIM, Steve was the Vice
President and Portfolio Manager at Federated Investors.
GERI HOM -- Vice President and Senior Portfolio Manager, has primary
responsibility for the day-to-day management of the Fund's portfolio. Geri
joined CSIM in March 1995 as Portfolio Manager and was promoted to her current
position in December 1996. She currently manages approximately $4 billion in
assets. Prior to joining CSIM, Geri was a Principal for Wells Fargo Nikko
Investment Advisors and Vice President and Manager of the Domestic Equity
Portfolio Management Group for Wells Fargo Nikko.
The following market overview and answers to questions are provided by the
Portfolio Management Team.
7
<PAGE> 14
MARKET OVERVIEW
REAL GDP GROWTH RATE
[BAR CHART]
REAL GROSS DOMESTIC PRODUCT
CHAIN WEIGHTED
PERCENT CHANGE FROM PRECEEDING QUARTER, SEASONALLY ADJUSTED AT ANNUAL RATES
SOURCE: BLOOMBERG
<TABLE>
<CAPTION>
Real GDP
<S> <C>
Q1 1990 4.1%
Q2 1990 1.3%
Q3 1990 -1.9%
Q4 1990 -4.1%
Q1 1991 -2.2%
Q2 1991 1.7%
Q3 1991 1.0%
Q4 1991 1.0%
Q1 1992 4.7%
Q2 1992 2.5%
Q3 1992 3.0%
Q4 1992 4.3%
Q1 1993 -0.1%
Q2 1993 1.9%
13 1993 2.3%
Q4 1993 4.8%
Q1 1994 2.5%
Q2 1994 4.9%
Q3 1994 3.5%
Q4 1994 3.0%
Q1 1995 0.4%
Q2 1995 0.7%
Q3 1995 3.8%
Q4 1995 0.3%
Q1 1996 2.0%
Q2 1996 4.7%
Q3 1996 2.1%
Q4 1996 3.8%
Q1 1997 5.8%
</TABLE>
- - The economy continued to expand at a healthy rate during the reporting
period. The GDP growth rate was 3.2% for the 1996 calendar year and a very
strong 5.8% for the first quarter of 1997 -- the highest level since the
fourth quarter of 1987.
- - These strong growth rates resulted in a focus on the apparent strength of
the economy, its potential impact on future inflation, and the potential
for more restrictive Federal Reserve policy.
- - At the time of this writing, the economy appears to be on track for
moderate growth, continuing the six-year expansion which began in 1991.
8
<PAGE> 15
U.S. UNEMPLOYMENT RATE
[LINE GRAPH]
US UNEMPLOYMENT RATE
SOURCE: BLOOMBERG
<TABLE>
<CAPTION>
UNEMPLOYMENT RATE
<S> <C>
Jan-90 5.3%
Feb-90 5.3%
Mar-90 5.2%
Apr-90 5.4%
May-90 5.3%
Jun-90 5.1%
Jul-90 5.4%
Aug-90 5.6%
Sep-90 5.7%
Oct-90 5.8%
Nov-90 6.0%
Dec-90 6.2%
Jan-91 6.3%
Feb-91 6.5%
Mar-91 6.8%
Apr-91 6.6%
May-91 6.8%
Jun-91 6.8%
Jul-91 6.7%
Aug-91 6.8%
Sep-91 6.8%
Oct-91 6.9%
Nov-91 6.9%
Dec-91 7.1%
Jan-92 7.1%
Feb-92 7.3%
Mar-92 7.3%
Apr-92 7.3%
May-92 7.4%
Jun-92 7.7%
Jul-92 7.6%
Aug-92 7.6%
Sep-92 7.5%
Oct-92 7.4%
Nov-92 7.3%
Dec-92 7.3%
Jan-93 7.1%
Feb-93 7.0%
Mar-93 7.0%
Apr-93 7.0%
May-93 6.9%
Jun-93 6.9%
Jul-93 6.8%
Aug-93 6.7%
Sep-93 6.7%
Oct-93 6.7%
Nov-93 6.5%
Dec-93 6.4%
Jan-94 6.7%
Feb-94 6.6%
Mar-94 6.5%
Apr-94 6.4%
May-94 6.0%
Jun-94 6.0%
Jul-94 6.1%
Aug-94 6.1%
Sep-94 5.9%
Oct-94 5.6%
Nov-94 5.6%
Dec-94 5.4%
Jan-95 5.6%
Feb-95 5.4%
Mar-95 5.8%
Apr-95 5.7%
May-95 5.7%
Jun-95 5.6%
Jul-95 5.7%
Aug-95 5.3%
Sep-95 5.6%
Oct-95 5.5%
Nov-95 5.6%
Dec-95 5.6%
Jan-96 5.8%
Feb-96 5.5%
Mar-96 5.6%
Apr-96 5.4%
May-96 5.6%
Jun-96 5.3%
Jul-96 5.4%
Aug-96 5.1%
Sep-96 5.2%
Oct-96 5.2%
Nov-96 5.3%
Dec-96 5.3%
Jan-97 5.4%
Feb-97 5.3%
Mar-97 5.2%
Apr-97 4.9%
</TABLE>
- - The unemployment rate during 1996 remained near its lows for the decade,
and declined further to 4.9% in April 1997, the lowest rate since December
1973. Many economists have questioned how long such low levels of
unemployment can continue without generating inflationary pressures on
wages and, ultimately, prices.
9
<PAGE> 16
MEASURES OF INFLATION
[BAR CHART]
CONSUMER PRICE INDEX - ALL ITEMS YOY % CHANGE
EMPLOYMENT COST INDEX SA (INCLUDES BOTH WAGES AND SALARIES AND BENEFITS
COMPONENTS) - YOY % CHANGE
SOURCE: BLOOMBERG L.P.
RED = DATA INPUTS
DATA FOR GRAPH
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Monthly Quarterly
Consumer Price Employment Cost
Index - YOY % Index - YOY %
Change Change
- --------------------------------------------------------------------------------
<S> <C> <C>
Jan-90 5.2% 5.3%
Feb-90 5.3% 5.3%
Mar-90 5.2% 5.3%
Apr-90 4.7% 5.4%
May-90 4.4% 5.4%
Jun-90 4.7% 5.4%
Jul-90 4.8% 5.1%
Aug-90 5.6% 5.1%
Sep-90 6.2% 5.1%
Oct-90 6.3% 4.8%
Nov-90 6.3% 4.8%
Dec-90 6.1% 4.8%
Jan-91 5.7% 4.6%
Feb-91 5.3% 4.6%
Mar-91 4.9% 4.6%
Apr-91 4.9% 4.5%
May-91 5.0% 4.5%
Jun-91 4.7% 4.5%
Jul-91 4.4% 4.3%
Aug-91 3.8% 4.3%
Sep-91 3.4% 4.3%
Oct-91 2.9% 4.2%
Nov-91 3.0% 4.2%
Dec-91 3.1% 4.2%
Jan-92 2.6% 4.1%
Feb-92 2.8% 4.1%
Mar-92 3.2% 4.1%
Apr-92 3.2% 3.5%
May-92 3.0% 3.5%
Jun-92 3.1% 3.5%
Jul-92 3.2% 3.4%
Aug-92 3.1% 3.4%
Sep-92 3.0% 3.4%
Oct-92 3.2% 3.5%
Nov-92 3.0% 3.5%
Dec-92 2.9% 3.5%
Jan-93 3.3% 3.4%
Feb-93 3.2% 3.4%
Mar-93 3.1% 3.4%
Apr-93 3.2% 3.6%
May-93 3.2% 3.6%
Jun-93 3.0% 3.6%
Jul-93 2.8% 3.6%
Aug-93 2.8% 3.6%
Sep-93 2.7% 3.6%
Oct-93 2.8% 3.4%
Nov-93 2.7% 3.4%
Dec-93 2.7% 3.4%
Jan-94 2.5% 3.2%
Feb-94 2.5% 3.2%
Mar-94 2.5% 3.2%
Apr-94 2.4% 3.1%
May-94 2.3% 3.1%
Jun-94 2.5% 3.1%
Jul-94 2.8% 3.1%
Aug-94 2.9% 3.1%
Sep-94 3.0% 3.1%
Oct-94 2.6% 3.0%
Nov-94 2.7% 3.0%
Dec-94 2.7% 3.0%
Jan-95 2.8% 3.0%
Feb-95 2.9% 3.0%
Mar-95 2.9% 3.0%
Apr-95 3.1% 3.0%
May-95 3.2% 3.0%
Jun-95 3.0% 3.0%
Jul-95 2.8% 2.8%
Aug-95 2.6% 2.8%
Sep-95 2.5% 2.8%
Oct-95 2.8% 2.8%
Nov-95 2.6% 2.8%
Dec-95 2.5% 2.8%
Jan-96 2.7% 2.9%
Feb-96 2.7% 2.9%
Mar-96 2.8% 2.9%
Apr-96 2.9% 2.9%
May-96 2.9% 2.9%
Jun-96 2.8% 2.9%
Jul-96 3.0% 2.9%
Aug-96 2.9% 2.9%
Sep-96 3.0% 2.9%
Oct-96 3.0% 3.0%
Nov-96 3.3% 3.0%
Dec-96 3.3% 3.0%
Jan-97 3.0% 2.8%
Feb-97 3.0% 2.8%
Mar-97 2.8% 2.8%
Apr-97 2.5%
- --------------------------------------------------------------------------------
</TABLE>
- - Both the Employment Cost Index and Consumer Price Index (CPI) remained in
check throughout 1996 as well as the first quarter of 1997, reflecting
continued low levels of inflation.
- - CPI rose 3.3% in 1996, the highest annual rate since 1990. However, the
core rate (which excludes the more volatile food and energy components)
rose just 2.6%, the lowest rate since 1965.
- - The Federal Reserve has indicated its belief that the economy remains at
risk to inflation and that it is poised to act preemptively by raising
interest rates if necessary. The Federal Reserve did take action in March,
increasing the Fed Funds Rate by 0.25% to 5.50%.
10
<PAGE> 17
TOTAL RETURN OF A HYPOTHETICAL DOLLAR INVESTED
IN FOUR BROAD MARKET INDICES
[LINE GRAPH]
PLOT POINTS
<TABLE>
<CAPTION>
Growth of a $ Investment
------------------------
Lehman
MF
Schwab Schwab General
Small Cap International US Govt.
S&P 500 Index Index Index
------- --------- ------------- --------
<S> <C> <C> <C> <C>
$1.000 $1.000 $1.000 $1.000
Nov-96 $1.076 $1.040 $1.046 $1.017
Dec-96 $1.054 $1.059 $1.037 $1.007
Jan-97 $1.120 $1.084 $1.003 $1.008
Feb-97 $1.129 $1.058 $1.019 $1.010
Mar-97 $1.083 $1.006 $1.026 $0.999
Apr-97 $1.147 $1.009 $1.037 $1.013
</TABLE>
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. Total return assumes
reinvestment of all dividend and capital gain distributions, if any. 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.
- - Large-cap domestic stocks, as represented by the S&P 500 Index, were
clearly the strongest performing asset class -- achieving a 14.71% return
during the six-month reporting period.
- - Although positive, domestic small cap stocks (as represented by the Schwab
Small-Cap Index) and international stocks (as represented by the Schwab
International Index) both lagged the S&P 500 Index significantly, with
six-month returns of 0.92% and 3.74%, respectively.
- - The six-month total return for U.S. Government bonds (as represented by the
Lehman Brothers General U.S. Government Index) was 1.32%.
11
<PAGE> 18
S&P 500 Price/Earnings Ratio
[LINE GRAPH]
S&P 500 P/E Ratio
Source Bloomberg
<TABLE>
<CAPTION>
S&P 500 PRICE EARNINGS RATIO
<S> <C>
Jan-90 14.37
Feb-90 14.21
Mar-90 14.77
Apr-90 14.82
May-90 15.84
Jun-90 16.66
Jul-90 16.65
Aug-90 15.57
Sep-90 14.9
Oct-90 14.36
Nov-90 14.59
Dec-90 15.19
Jan-91 14.95
Feb-91 16.82
Mar-91 17.48
Apr-91 17.85
May-91 17.92
Jun-91 17.96
Jul-91 18.07
Aug-91 19.72
Sep-91 19.88
Oct-91 19.92
Nov-91 21.02
Dec-91 21.85
Jan-92 23.35
Feb-92 23.83
Mar-92 25.45
Apr-92 25.51
May-92 25.71
Jun-92 25.08
Jul-92 25.61
Aug-92 25.5
Sep-92 24.37
Oct-92 23.94
Nov-92 24.08
Dec-92 24.01
Jan-93 24.2
Feb-93 24.25
Mar-93 24.22
Apr-93 23.2
May-93 23.21
Jun-93 22.58
Jul-93 22.52
Aug-93 23.02
Sep-93 23.74
Oct-93 23.97
Nov-93 22.55
Dec-93 23.55
Jan-94 22.98
Feb-94 21.17
Mar-94 20.34
Apr-94 20.1
May-94 20.16
Jun-94 19.76
Jul-94 18.64
Aug-94 18.9
Sep-94 18.26
Oct-94 17.55
Nov-94 16.58
Dec-94 16.98
Jan-95 16.23
Feb-95 16.2
Mar-95 16.5
Apr-95 16.02
May-95 16.43
Jun-95 16.82
Jul-95 16.55
Aug-95 16.18
Sep-95 16.86
Oct-95 16.18
Nov-95 17.14
Dec-95 17.41
Jan-96 18.11
Feb-96 18.56
Mar-96 18.94
Apr-96 19.16
May-96 19.48
Jun-96 19.3
Jul-96 18.31
Aug-96 18.62
Sep-96 19.75
Oct-96 19.6
Nov-96 21.05
Dec-96 20.7
Jan-97 20.55
Feb-97 20.98
Mar-97 19.87
Apr-97 20.24
</TABLE>
The price/earnings ratio, also known as a multiple, is the price of a stock
divided by its earnings per share and generally indicates how much investors are
willing to pay for a company's earning potential.
- - The price/earnings ratio for the S&P 500 Index was 20 at the close of the
reporting period, well above its 30-year mean of 15, but below its 1991 and
1987 highs of 26 and 22, respectively.
- - Based on other traditional measures such as the price-to-book value ratio
or dividend yield, the U.S. stock market valuation reached historical highs
during the reporting period.
12
<PAGE> 19
EAFE COUNTRY US$ RETURN
(FOR THE SIX-MONTH PERIOD ENDED 4/30/97)
[BAR CHART]
<TABLE>
<CAPTION>
EAFE Country Returns for 6 mos ended 4/30/97 6 Month US$ Return Ended 4/30/97
- -------------------------------------------- --------------------------------
<S> <C> <C> <C>
Australia 3.53% Spain 23.39%
Austria -3.65% Finland 18.15%
Belgium 8.75% Netherlands 12.64%
Denmark 10.42% Norway 11.35%
Finland 18.15% Germany 11.23%
France 7.35% Switzerland 11.19%
Germany 11.23% Denmark 10.42%
Hong Kong -1.75% United Kingdom 10.39%
Ireland 0.07% Italy 10.25%
Italy 10.25% Belgium 8.75%
Japan -13.58% France 7.35%
Malaysia -6.91% Australia 3.53%
Netherlands 12.64% Ireland 0.07%
New Zealand -6.47% Hong Kong -1.75%
Norway 11.35% Austria -3.65%
Singapore -7.26% New Zealand -6.47%
Spain 23.39% Malaysia -6.91%
Switzerland 11.19% Singapore -7.26%
United Kingdom 10.39% Japan -13.58%
</TABLE>
- - Returns for the reporting period were generally strong for European
countries, with the highest returns in Spain, Finland and the Netherlands.
Asian country returns were generally negative for the period, with the
weakest returns in Japan, Singapore and Malaysia.
13
<PAGE> 20
QUESTIONS TO THE PORTFOLIO MANAGEMENT TEAM
Q. HOW DID INTERNATIONAL EQUITIES PERFORM DURING THE REPORTING PERIOD? WHAT
IMPACT DID FLUCTUATIONS IN CURRENCY EXCHANGE RATES HAVE ON THE PERFORMANCE OF
INTERNATIONAL EQUITIES?
A. As shown in the Market Overview section, international stock returns were
dwarfed by the returns of large-cap domestic stocks during the reporting period.
When expressed in local currency terms, international equity returns were quite
strong, especially for European countries. Despite the strong market movement
during the period, gains in the value of the U.S. dollar relative to local
currencies diminished returns of U.S. dollar-denominated investments. The chart
below illustrates the impact of fluctuations in exchange rates on the Schwab
International Index(R) during the reporting period.
SCHWAB INTERNATIONAL INDEX TOTAL RETURN
EXPRESSED IN U.S. DOLLARS AND LOCAL CURRENCY
[LINE GRAPH]
<TABLE>
<CAPTION>
Returns
---------------------------------
Date U.S. Dollars Local Currency U.S. Dollars Local Currency
- ---- ------------ -------------- ------------ --------------
<S> <C> <C> <C> <C>
Oct-96 10,000 10,000
Nov-96 10,464 10,463 4.64% 4.63%
Dec-96 10,372 10,429 -0.88% -0.33%
Jan-97 10,027 10,602 -3.32% 1.66%
Feb-97 10,195 10,854 1.67% 2.38%
Mar-97 10,263 10,935 0.67% 0.74%
Apr-97 10.374 11,308 1.08% 3.41%
</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 DIVIDEND AND CAPITAL GAIN DISTRIBUTIONS, IF ANY.
Indices are unmanaged, and unlike funds, do not reflect advisory and other fees
associated with investments in funds. Investors cannot invest in an index
directly.
14
<PAGE> 21
The upper line, with an ending value of $11,308, represents the value of a
hypothetical $10,000 investment in the Index at the end of the reporting period
expressed in local currency, while the lower line, with an ending value of
$10,374, represents that value converted to U.S. dollars. 2 As detailed in the
Market Overview section, individual country returns were mixed, with European
countries posting the strongest returns for the period and Asian countries the
weakest.
Q. HOW DID THE PERFORMANCE OF THE SCHWAB INTERNATIONAL INDEX(R), THE SCHWAB
INTERNATIONAL INDEX FUND(R) (THE FUND), AND THE MSCI EAFE COMPARE DURING THE
SIX-MONTH REPORTING PERIOD?
A. The 3.74% total return for the Schwab International Index exceeded the 1.57%
total return of the MSCI EAFE. Returns of both indices were below the long-term
averages for international equity returns and, as previously noted, were
negatively impacted by the strength of the U.S. dollar.
The chart on the following page illustrates the cumulative total return since
the Fund's inception on September 9, 1993 for the Schwab International Index,
the Fund, and the MSCI EAFE. Both the Schwab International Index and the Fund
continue to outperform the MSCI EAFE on an inception to date basis. The average
annual total return since inception for the Schwab International Index is 8.24%,
versus 6.01% for the MSCI EAFE. It is important to note that investors cannot
invest in either index directly.
2 Past performance is no guarantee of future results. Indices are unmanaged
and investors cannot invest directly in an index.
15
<PAGE> 22
COMPARISON OF CHANGE IN VALUE OF A HYPOTHETICAL
$10,000 INVESTMENT IN SCHWAB INTERNATIONAL INDEX FUND(R),
SCHWAB INTERNATIONAL INDEX(R), AND MSCI EAFE
[LINE GRAPH]
SEMI-ANNUAL REPORT / 4/30/97
SCHWAB INTERNATIONAL INDEX FUND
GRAPH AREA (PLOT POINTS)
VALUE OF $10,000 INVESTMENT
Schwab International Index Fund
Average Annual Total Returns
Through April 30, 1997
----------------------------
One Year Since Inception
3.95% 7.52%
<TABLE>
<CAPTION>
Date Fund Index EAFE
---- ---- ----- ----
<S> <C> <C> <C>
9/9/93 $10,000 $10,000 $10,000
9/30/93 $ 9,770 $9,786 $ 9,749
10/31/93 $10,150 $10,167 $10,049
11/30/93 $ 9,420 $ 9,454 $ 9,171
12/31/93 $10,096 $10,137 $ 9,833
1/31/94 $10,769 $10,823 $10,664
2/28/94 $10,558 $10,623 $10,634
3/31/94 $10,156 $10,172 $10,176
4/30/94 $10,458 $10,544 $10,607
5/31/94 $10,407 $10,448 $10,547
6/30/94 $10,488 $10,508 $10,695
7/31/94 $10,649 $10,692 $10,798
8/31/94 $10,941 $10,999 $11,054
9/30/94 $10,559 $10,621 $10,706
10/31/94 $10,950 $11,026 $11,062
11/30/94 $10,428 $10,478 $10,530
12/31/94 $10,484 $10,564 $10,597
1/31/95 $10,108 $10,254 $10,190
2/28/95 $10,189 $10,282 $10,160
3/31/95 $10,759 $10,964 $10,794
4/30/95 $11,145 $11,346 $11,200
5/31/95 $11,176 $11,303 $11,067
6/30/95 $11,064 $11,168 $10,873
7/31/95 $11,623 $11,826 $11,551
8/31/95 $11,237 $11,384 $11,1?1
9/30/95 $11,470 $11,661 $11,327
10/31/95 $11,318 $11,461 $11,023
11/30/95 $11,562 $11,782 $11,329
12/31/95 $11,975 $12,238 $11,786
1/31/96 $12,006 $12,277 $11,834
2/29/96 $12,026 $12,300 $11,874
3/31/96 $12,232 $12,529 $12,126
4/30/96 $12,530 $12,826 $12,479
5/31/96 $12,396 $12,674 $12,249
6/30/96 $12,489 $12,761 $12,318
7/31/96 $12,139 $12,430 $11,958
8/31/96 $12,253 $12,538 $11,985
9/30/96 $12,592 $12,907 $12,303
10/31/96 $12,571 $12,863 $12,178
11/30/96 $13,136 $13,460 $12,663
12/31/96 $13,067 $13,341 $12,499
1/31/97 $12,640 $12,898 $12,062
2/28/97 $12,827 $13,114 $12,260
3/31/97 $12,932 $13,202 $12,304
4/30/97 $13,025 $13,344 $12,369
</TABLE>
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 a hypothetical investment in the Schwab
International Index, and the MSCI EAFE. Total return assumes reinvestment of all
dividend and capital gain distributions, if any. 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. The
Investment Manager and Schwab waived a portion of their fees during the period,
and have guaranteed that maximum total operating expenses will not exceed 0.58%
through at least 2/29/2000. Without fee waivers and guarantees, the Fund's total
returns would have been lower.
16
<PAGE> 23
Q. WHAT ACCOUNTS FOR THE DIFFERENCE BETWEEN THE PERFORMANCE OF THE SCHWAB
INTERNATIONAL INDEX FUND(R) (THE FUND) AND THE SCHWAB INTERNATIONAL INDEX(R)
(THE INDEX)?
A. Unlike the Fund, the Index does not incur management and other Fund operating
expenses which reduce returns to the shareholders. Additionally, the Fund,
unlike the Index, holds a small portion of its assets in cash to meet
shareholder redemptions and to pay Fund expenses. This 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 precise weighting of any particular
security in the Fund can be greater or less than in the Index.
Another factor accounting for the difference in performance is the Fund's goal
of minimizing capital gain distributions. In order to minimize capital gain
distributions, the Fund may avoid selling certain stocks that are no longer in
the Index. Depending on the performance of these non-Index stocks, this practice
may have a positive or negative impact on the Fund's performance. Lastly, unlike
the Index, the Fund incurs trading costs when it buys or sells stocks. Recently,
the frequency of the rebalancing of the Index was changed from semi-annually to
annually. As a result of this procedural change, it is anticipated that the
Fund's trading costs may decrease and shareholder returns may be enhanced.
Taken together, these factors cause the difference in the return 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 0.13%, and the
average annual tracking error since 9/9/93, the Fund's inception, was 0.72%.
Given the Fund's current operating expense ratio of 0.58%, and the components of
the tracking error as discussed above, we are satisfied with this level of
tracking error.
17
<PAGE> 24
Q. ARE INDEX FUNDS LESS RISKY THAN ACTIVELY MANAGED FUNDS? HOW DO INDEX FUNDS
BEHAVE IN A BEAR MARKET?
A. While broad-based index funds like the Schwab International Index Fund(R)
help reduce the risk associated with investing in individual stocks or in a
specific industry sector, they do not provide protection against market risk.
It's important to realize that both domestic and international stock markets can
fluctuate significantly. Furthermore, investing internationally presents
additional risk, including currency fluctuations, political instability, and
foreign regulations. Because equity index funds are designed to track stock
market performance in both directions, down as well as up, their values will
fall and rise with the markets they seek to track.
We feel the most meaningful way for investors to think about their exposure to
market risk is not on a fund by fund basis, but on the basis of their overall
investment portfolio. One of the greatest risks of a bear market is the risk of
selling at the bottom of a market downturn. It is for this reason that you
should set your asset allocation strategy and total portfolio market exposure at
an appropriate level for you -- one that can help you to "ride out" bear markets
over the long term. When used as part of a long-term strategy, index funds offer
an excellent way to achieve exposure to the equity markets; however, each
individual investor has a different tolerance for risk and should have a
portfolio with a risk profile that reflects the tolerance level.
18
<PAGE> 25
SCHWAB INTERNATIONAL INDEX FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
April 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- --------
<S> <C> <C>
COMMON STOCK--98.3%
AUSTRALIA--2.2%
Australia & New Zealand Banking Group 89,149 $ 569
Broken Hill Proprietary Co., Ltd 134,238 1,894
Coca Cola Amatil 33,396 382
Commonwealth Bank 68,251 741
Commonwealth Bank (Installment Receipts) 15,149 113
National Australia Bank, Ltd. 97,832 1,339
News Corp., Ltd 126,647 584
Western Mining Corp. 74,660 442
Westpac Banking Corp. 115,210 621
------
6,685
------
BELGIUM--1.0%
Electrabel 3,679 836
Electrabel, VVPR Strip 575 0
Fortis AG 2,621 468
Fortis AG NPV VVPR Strip 201 0
Generale de Banque SA 1,073 445
Petrofina SA 1,380 491
Societe Generale de Belgique 3,608 321
Tractebel Investor International Capital 740 317
Tractebel VVPR Strip 51 0
------
2,878
------
CANADA--3.5%
Alcan Aluminum Ltd. 17,347 589
Bank of Montreal, Quebec 18,984 689
Bank of Nova Scotia, Halifax 21,649 822
Barrick Gold Corp. 23,986 533
BCE Inc. 23,981 1,123
Canadian Imperial Bank of Commerce 30,819 708
Canadian Pacific Ltd. 23,326 570
Imperial Oil, Ltd 13,542 620
INCO Ltd. 9,640 308
Noranda Inc. 2,064 44
Northern Telecom, Ltd 16,250 1,175
Placer Dome Inc. 23,086 378
Royal Bank of Canada, Montreal, Quebec 17,897 715
Seagram Co., Ltd 23,985 919
Thomson Corp. 38,664 805
Toronto-Dominion Bank 16,378 463
------
10,461
------
</TABLE>
19
<PAGE> 26
SCHWAB INTERNATIONAL INDEX FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
April 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- --------
<S> <C> <C>
DENMARK--0.6%
D/S 1912 Series B 14 $ 444
D/S Svendborg Series B 10 454
Novo Nordisk A/S Series B 4,804 475
Tele Danmark A/S Series B 9,010 433
------
1,806
------
FRANCE--7.2%
Air Liquide (Prime Fidelite) (Reg.) 3,324 501
Alcatel Alsthom SA 9,645 1,072
AXA Groupe SA 24,192 1,488
Banque Nationale de Paris 11,928 509
Canal Plus 1,550 280
Carrefour SA 3,385 2,115
Cie Financiere de Paribas (Bearer) 6,469 408
Cie Generale de Eaux 8,094 1,127
Compagnie de Saint-Gobain SA 5,914 792
Compagnie de Suez 9,166 445
Danone Groupe 4,039 588
L'Air Liquide 4,691 706
L'Oreal SA 4,538 1,610
Lafarge Coppee SA 9,658 633
LVMH Moet-Hennessy Louis Vuitton 8,050 1,965
Lyonnaise des Eaux-Dumez 3,340 302
Michelin (CDGE) Class B (Reg.) 6,263 350
Peugeot Citroen 2,630 262
Pinault Printemps Redoute SA 1,635 688
Renault (Reg.) 16,799 398
Rhone-Poulenc SA A Shares 18,383 618
Sanofi 7,098 663
Schneider SA 10,122 571
Societe Generale 5,682 637
Societe Nationale Elf Aquitaine 17,472 1,694
Compagnie Francaise des Petroles Class B 15,048 1,248
------
21,670
------
GERMANY--8.8%
BASF AG 42,207 1,628
Bayer AG 43,614 1,735
Bayerische Hypotheken & Wechsel Bank AG 17,101 533
Bayerische Motoren Werke AG 1,452 1,189
Bayerische Vereinsbank AG 17,100 671
Commerzbank AG 24,380 654
Daimler Benz AG 35,544 2,639
Daimler Benz AG Rights Exp 13may97+ 523 0
Deutsche Bank AG 32,644 1,723
Dresdner Bank AG 27,494 $ 880
Hoechst AG 38,246 1,502
</TABLE>
20
<PAGE> 27
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- --------
<S> <C> <C>
Linde AG 663 484
Lufthansa AG 29,260 408
Mannesmann AG 2,512 988
Metro AG 5,638 547
Muenchener Rueckversicherung 21 35
Muenchener Rueckversicherung (Reg.) 1,074 2,602
RWE AG 22,847 950
SAP AG 4,280 779
Siemens AG 36,059 1,953
Thyssen AG 2,308 503
Veba AG 30,651 1,579
Vereinigte Elektrizitat Westfalen Series B 1,506 432
VIAG AG 1,629 724
VIAG AG (Rfd 1/1/96)+ 277 122
Volkswagen AG 1,944 1,236
------
26,496
------
HONG KONG--4.0%
Cathay Pacific Airways 120,000 187
Cheung Kong Holdings 141,000 1,238
China Light & Power 138,900 626
CITIC Pacific 146,000 790
Hang Seng Bank Ltd 122,700 1,382
Henderson China 40 0
Henderson Land Development Co. 103,000 868
Hong Kong Electric Holdings Ltd. 139,500 493
Hong Kong Telecommunications Ltd. 742,698 1,275
Hutchison Whampoa Ltd 239,000 1,773
New World Development Co. 113,351 654
Sun Hung Kai Properties 150,500 1,632
Swire Pacific, Ltd. Class A 101,500 783
Wharf Holdings 124,000 469
------
12,170
------
ITALY--2.3%
Assicurazioni Generali 54,762 916
Fiat Finance SPA 192,932 637
Fiat Finance SPA (Non-Convertible) 54,789 100
First Bank San Paolo di Torino 6,541 44
INA 227,375 305
Seat SPA di Risp+ 74,422 15
Seat SPA+ 236,668 72
STET 236,668 1,119
STETdi Risp (Non-Convertible) 74,422 276
Telecom Italia 446,371 1,174
</TABLE>
21
<PAGE> 28
SCHWAB INTERNATIONAL INDEX FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
April 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- --------
<S> <C> <C>
Telecom Italia (Non-Convertible) 180,378 $ 389
Telecom Italia Mob 446,823 1,405
Telecom Italia Mob di Risp 223,802 414
-----
6,866
-----
JAPAN--25.5%
Ajinomoto Co., Inc. 29,000 265
All Nippon Airways Co., Ltd. 57,000 336
Asahi Bank 92,000 563
Asahi Chemical Industry Co. 47,000 274
Asahi Glass Co., Ltd. 48,000 435
Bank of Tokyo--Mitsubishi, Ltd. 211,500 3,349
Bank of Yokohama 49,000 200
Bridgestone Corp. 33,000 702
Canon Inc. 36,000 854
Chiba Bank 34,000 182
Chubu Electric Power Co. 31,100 507
Chugoku Electric Power Co., Inc. 16,300 261
Dai Nippon Printing Co. 31,000 559
Dai-Ichi Kangyo Bank, Ltd. 132,000 1,445
Daiei Inc. 27,000 129
Daiwa Bank 56,000 181
Daiwa House Industries Co. 14,000 157
Daiwa Securities Co. 55,000 366
DDI Corp 118 784
East Japan Railway Co. 373 1,613
Eisai Co. 250 4
Fanuc 12,100 413
Fuji Bank, Ltd. 129,000 1,453
Fuji Photo Film Co. 25,000 955
Fujitsu Ltd. 78,000 811
Gunma Bank 12,000 91
Hachijuni Bank 17,000 153
Hitachi Ltd. 141,000 1,277
Honda Motor Co., Ltd. 41,000 1,273
Industrial Bank of Japan, Ltd. 123,680 1,315
Ishikawajima-Harima Heavy Industries 60,000 224
Isuzu Motors Ltd. 45,000 169
Ito-Yokado Co., Ltd. 22,000 1,056
Itochu Corp. 49,000 232
Japan Airlines Co., Ltd. 72,000 286
Japan Telecom Co. 24 391
Japan Tobacco Inc. 115 733
Joyo Bank 23,000 104
Joyo Bank (New)+ 2,100 10
Jusco Co. 15,000 461
Kajima Corp. 39,000 178
</TABLE>
22
<PAGE> 29
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- --------
<S> <C> <C>
Kansai Electric Power Co. 41,300 $ 722
Kao Corp. 28,000 326
Kawasaki Heavy Industries 62,000 245
Kawasaki Steel Co. 126,000 372
Kinki Nippon Railway Co. 64,830 360
Kirin Brewery Co., Ltd 46,000 399
Kobe Steel 121,000 220
Kokusai Denki 6,500 341
Komatsu Ltd. 43,000 314
Kubota Corp. 48,000 222
Kyocera Corp. 9,000 539
Kyushu Electric Power Co. 22,700 372
Long-Term Credit Bank of Japan 97,000 261
Marubeni Corp. 40,000 148
Marui Co. 17,000 280
Matsushita Electric Industrial Co., Ltd. 91,000 1,455
Matsushita Electric Works 33,000 335
Mazda Motor Corp. 56,000 157
Mitsubishi Chemical Corp. 72,000 242
Mitsubishi Corp. 65,000 609
Mitsubishi Electric Corp. 90,000 493
Mitsubishi Estate Co. 53,000 668
Mitsubishi Heavy Industries 141,000 931
Mitsubishi Materials Co. 57,000 213
Mitsubishi Motors 40,000 277
Mitsubishi Trust & Banking Corp. 52,000 557
Mitsui & Co. 65,000 496
Mitsui Trust & Banking Co. 50,000 285
Murata Manufacturing Co. 12,000 442
NEC Corp. 64,000 782
New Oji Paper Co. 18,000 91
Nikko Securities Co. 59,000 329
Nintendo Co., Ltd. 7,600 556
Nippon Credit Bank 80,000 145
Nippon Express Co. 36,000 248
Nippon Oil Co. 53,000 250
Nippon Paper Industries Co. 45,000 207
Nippon Steel Corp. 278,000 793
Nippon Telegraph & Telephone Corp. 757 5,339
Nippon Yusen Kabushiki Kaisha 35,000 127
Nippondenso Co. 41,000 933
Nissan Motor Co., Ltd. 102,000 600
NKK Corp. 112,000 242
Nomura Securities Co., Ltd. 85,000 951
NTT Data Corp. 11 322
Obayashi Corp. 21,000 107
Odakyu Electric Railway Co. 510 3
Osaka Gas Co. 105,000 251
</TABLE>
23
<PAGE> 30
SCHWAB INTERNATIONAL INDEX FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
April 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- --------
<S> <C> <C>
Ricoh Co., Ltd. 30,000 $ 357
Rohm Co. 6,000 465
Sakura Bank 145,000 766
Sankyo Co. 22,000 589
Sanwa Bank 122,000 1,307
Sanyo Electric Co., Ltd. 68,000 262
Secom Co. 7,000 416
Seibu Railway Co. 21,000 1,009
Sekisui Chemical Co. 24,000 231
Sekisui House 30,000 267
Seven-Eleven Japan Co. 22,500 1,427
Sharp Co. 47,000 611
Shikoku Electric Power Co. 8,200 124
Shimizu Corp. 34,000 162
Shin-Etsu Chemical Co. 15,700 317
Shizuoka Bank 30,000 267
Sony Corp. 18,200 1,325
Sumitomo Bank 147,000 1,679
Sumitomo Chemical Co. 71,000 294
Sumitomo Corp. 45,000 303
Sumitomo Electric Industries 31,000 420
Sumitomo Marine & Fire Insurance Co. 31,000 191
Sumitomo Metal Industries 103,000 256
Sumitomo Trust & Banking Co. 51,000 422
Suzuki Motor Corp. 13,000 138
Taisei Corp. 44,000 161
Taisho Pharmaceutical Co. 17,000 421
Takeda Chemical Industries 37,000 854
TDK Corp. 8,000 577
Tobu Railway Co. 21,000 89
Tohoku Electric Power Co. 18,600 286
Tokai Bank 80,000 596
Tokio Marine & Fire Insurance Co. 64,000 625
Tokyo Electric Power Co., Inc. 58,700 1,040
Tokyo Gas Co. 95,000 227
Tokyu Corp. 48,000 252
Tonen Corp. 27,000 253
Toppan Printing Co. 31,000 401
Toray Industries Inc. 60,000 373
Toshiba Corp. 137,000 768
Tostem Corp. 11,000 258
Toyo Seikan 13,200 242
Toyo Trust & Banking Co. 34,000 227
Toyoda Automatic Loom 8,000 144
Toyota Motor Corp. 179,000 5,189
Yamaichi Securities Co. 50,000 131
</TABLE>
24
<PAGE> 31
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- --------
<S> <C> <C>
Yamanouchi Pharmaceutical Co. 15,000 $ 320
Yasuda Fire & Marine Insurance Co. 24,000 111
Yasuda Trust & Banking Co. 33,000 77
------
76,535
------
NETHERLANDS--6.7%
ABN-Amro Holding NV 20,632 1,418
Aegon NV 17,693 1,253
Akzo Nobel NV 4,896 631
Dordtsche Petrol 2,417 458
Elsevier NV 44,195 708
Fortis Amev NV CVA 1,019 38
Heineken NV 3,581 600
ING Groep NV, CVA 49,986 1,963
Koninklijke Ahold NV 10,518 718
Koninklijke PTT Nederland 30,120 1,070
Philips Electronics NV 22,367 1,168
PolyGram NV 11,954 586
Royal Dutch Petroleum Co. (Bearer) 35,529 6,349
SGS-Thomson Microelectronics NV+ 8,849 682
Unilever NV, CVA 10,475 2,037
Wolters Kluwer NV CVA 4,643 550
------
20,229
------
SINGAPORE--1.6%
City Developments 52,000 420
Hong Kong Land Holdings 270,176 562
Jardine Matheson Holdings Ltd. 1,052 6
Oversea-Chinese Banking Corp., Ltd. (alien
market) 63,839 745
Singapore Airlines Ltd. (alien market) 86,000 760
Singapore Telecommunications 1,022,000 1,723
United Overseas Bank (alien market) 58,600 551
------
4,767
------
SPAIN--2.3%
Argentaria Corp. 9,106 406
Banco de Bilbao--Vizcaya SA (Reg.) 15,697 1,056
Banco de Santander SA (Reg.) 9,946 748
Empresa Nacional de Electricidad 17,558 1,227
Gas Natural SDG SA 2,490 529
Iberdrola SA 57,259 646
Repsol, SA 19,011 797
Telefonica Internacional de Espana, SA 62,733 1,608
------
7,017
------
</TABLE>
25
<PAGE> 32
SCHWAB INTERNATIONAL INDEX FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
April 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- --------
<S> <C> <C>
SWEDEN--2.0%
ABB AB Series A 40,230 $ 490
ABB AB Series B 10,040 122
Astra AB Series A 34,071 1,394
Astra AB Series B 7,658 304
L.M. Ericsson Telephone Series B 77,301 2,444
Sandvik AB Series A 10,501 259
Sandvik AB Series B 4,349 107
Swedish Match Company 27,533 90
Volvo AB Series A 6,441 162
Volvo AB Series B 22,969 578
------
5,950
------
SWITZERLAND--7.6%
ABB AG 505 612
ABB AG (Reg.) 259 60
Cie Financiere Richemont Series A (Bearer) 372 539
CS Holding (Reg.) 15,477 1,743
Holderbank Financiere Glaris (Bearer) 17 13
Holderbank Financiere Glaris (Reg.) 82 13
Nestle SA (Reg.) 2,773 3,367
Novartis AG (Bearer) 913 1,203
Novartis AG (Reg.) 4,319 5,690
Roche Group Holding AG 495 4,181
Roche Group Holding AG (Bearer) 105 1,254
Schweizerische Bankgesellschaft (Bearer) 1,363 1,290
Schweizerische Bankgesellschaft (Reg.) 1,394 265
Schweizerische Bankverein (Reg.) 5,192 1,134
Winterthur (Reg.) 775 556
Zurich Versicherung (Reg.) 3,109 1,021
------
22,941
------
UNITED KINGDOM--23.0%
Abbey National 84,072 1,172
Allied-Lyons PLC 74,694 527
Asda Group 7,862 15
Associated British Foods 64,007 552
BAA PLC 70,714 586
Barclays PLC 106,143 1,973
Bass PLC 58,366 753
BAT Industries PLC 206,852 1,740
BG PLC 276,262 797
BOC Group PLC 34,233 524
Boots Co. 64,382 724
British Aerospace 27,694 588
British Airways 68,083 778
British Petroleum Co. 391,868 4,497
British Sky Broadcast 115,063 1,063
</TABLE>
26
<PAGE> 33
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- --------
<S> <C> <C>
British Steel 139,865 $ 315
British Telecommunications 408,446 2,992
BTR PLC 255,071 1,042
Cable & Wireless 169,353 1,304
Cadbury Schweppes 68,513 569
Centrica PLC+ 241,400 221
Commercial Union Assurance Co. 39,457 435
EMI Group 28,201 560
Energy Group+ 28,907 229
General Electric Co. 173,285 1,029
GKN 23,403 361
Glaxo Wellcome PLC 242,851 4,774
Granada Group 41,746 603
Grand Metropolitan, Inc 138,756 1,158
Great Universal Stores 64,838 673
Guinness 124,259 1,027
Hanson Industries+ 42,611 207
HSBC Holdings 56,280 1,477
HSBC Holdings (Hong Kong) 120,541 3,036
Imperial Chemical Industries 46,630 530
Imperial Tobacco+ 33,172 217
J. Sainsbury PLC 122,221 656
Kingfisher 47,394 513
Legal & General Group 78,007 523
Lloyds TSB Group PLC 389,211 3,551
Marks & Spencer PLC 176,607 1,400
National Power Development 68,681 592
National Westminster Bancorp 119,959 1,419
Pearson, Inc. 39,203 452
Peninsular & Oriental Steam Navigation 23 0
Powergen 44,045 461
Prudential Corp. 127,462 1,237
Rank Group 102,265 704
Reed International 36,696 676
Rentokil Group 64,344 421
Reuters Holdings PLC 109,468 1,125
Royal Bank of Scotland PLC 57,823 545
RTZ Corp. PLC (Reg.) 69,242 1,100
Safeway PLC 66,762 370
Scot & Newcastle 42,611 461
Scottish Power 13,824 84
Shell Transport & Trading Co. (Reg.) 226,143 3,999
Siebe PLC 28,123 416
Smithkline Beecham PLC (New) 172,236 2,768
Standard Chartered PLC 64,712 975
Tesco PLC 140,132 813
Thorn EMI 23,982 66
Tomkins PLC 12 0
</TABLE>
27
<PAGE> 34
SCHWAB INTERNATIONAL INDEX FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
April 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- --------
<S> <C> <C>
Unilever PLC 53,279 $ 1,400
United News & Media PLC 1,488 18
Vendome Lux Group SA (units) 47,926 397
Vodafone Group PLC 203,835 912
Whitbread PLC 30,836 385
Zeneca Group 60,471 1,834
-------
69,321
-------
TOTAL COMMON STOCK
(Cost $255,255) 295,792
-------
PREFERRED STOCK--0.6%
AUSTRALIA--0.1%
News Corporation (Limited Voting Shares) 69,780 266
-------
GERMANY--0.5%
Metro AG (Non-Voting) 186 13
Metro AG (Non-Voting) Series 2 6 0
RWE AG (Non-Voting) 20,391 686
SAP AG (Non-Voting) 2,336 430
Volkswagen AG (Non-Voting) 422 209
-------
1,338
-------
ITALY--0.0%
Fiat Finance SPA 56,770 98
-----
TOTAL PREFERRED STOCK
(Cost $1,280) 1,702
-------
WARRANTS--0.0%
BELGIUM--0.0%
Generale de Banque (expire 11/15/99)+ 600 6
-------
FRANCE--0.0%
AXA UAP CVG (expire 01/07/99)+ 5,916 27
-------
SWITZERLAND--0.0%
Schweizerische Bankverein (expire 6/30/2000)+ 425 2
-------
UNITED KINGDOM--0.0%
BTR (expire 11/26/98)+ 4,019 0
----
TOTAL WARRANTS
(Cost $3) 35
----
</TABLE>
28
<PAGE> 35
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- --------
<S> <C> <C>
CASH EQUIVALENTS--0.4%
MSTC Cash Reserve Liquid Asset Fund*
5.33%, 05/07/97 1,244 $ 1,244
-------
TOTAL CASH EQUIVALENTS
(Cost $1,244) 1,244
-------
TOTAL INVESTMENTS--99.3%
(Cost $257,782) 298,773
OTHER ASSETS AND LIABILITIES--0.7%
Other Assets 2,589
Liabilities (542)
-------
2,047
-------
NET ASSETS--100.0% (see Note 7)
Applicable to 24,075,070 outstanding $0.00001
par value shares (unlimited shares
authorized) $300,820
=======
NET ASSET VALUE PER SHARE $12.50
=====
</TABLE>
- ---------------
+ Non-Income Producing Security.
* Interest rate represents the yield on report date.
See accompanying Notes to Financial Statements.
29
<PAGE> 36
SCHWAB INTERNATIONAL INDEX FUND(R)
- ------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS (in thousands)
Six months ended April 30, 1997 (Unaudited)
<TABLE>
<S> <C>
Investment income:
Dividends (net of foreign taxes withheld of $317) $ 2,108
Interest 49
--------
Total investment income 2,157
--------
Expenses:
Investment advisory and administration fee 907
Transfer agency and shareholder service fees 326
Custodian fees 142
Portfolio accounting fees 9
Professional fees 37
Registration fees 19
Shareholder reports 31
Trustees' fees 9
Amortization of deferred organization costs 12
Insurance and other expenses 3
--------
1,495
Less expenses reduced (see Note 4) (650)
--------
Total expenses incurred by Fund 845
--------
Net investment income 1,312
--------
Net realized gain (loss) on investments and foreign currency
transactions:
Net realized gain from changes in market value 233
Net realized loss from changes in foreign exchange rates (51)
--------
Net realized gain on investments sold 182
Net realized loss on foreign currency transactions (68)
--------
Net realized gain on investments sold and foreign currency
transactions 114
--------
Change in net unrealized gain (loss) on investments and
foreign currency translation:
Net unrealized gain from changes in market value 26,547
Net unrealized loss from changes in foreign exchange rates (18,139)
--------
Net unrealized gain on investments 8,408
Net unrealized loss on translating assets and liabilities
into the reporting currency (53)
--------
Net unrealized gain on investments and foreign currency
translation 8,355
--------
Net gain on investments 8,469
--------
Increase in net assets resulting from operations $ 9,781
========
</TABLE>
See accompanying Notes to Financial Statements.
30
<PAGE> 37
SCHWAB INTERNATIONAL INDEX FUND(R)
- ------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS (in thousands)
<TABLE>
<CAPTION>
Six months
ended
April 30, 1997 Year ended
(Unaudited) October 31, 1996
-------------- ----------------
<S> <C> <C>
Operations:
Net investment income $ 1,312 $ 3,349
Net realized gain (loss) on investments
sold and foreign currency transactions 114 (1,781)
Net unrealized gain on investments and
foreign currency translation 8,355 20,098
-------- -------
Increase in net assets resulting from
operations 9,781 21,666
-------- -------
Dividends to shareholders from net investment
income (3,464) (2,089)
-------- -------
Capital Share Transactions:
Proceeds from shares sold 83,590 100,434
Net asset value of shares issued in
reinvestment of dividends 3,084 1,809
Early withdrawal fees 25 54
Less payments for shares redeemed (38,974) (54,708)
-------- -------
Increase in net assets from capital share
transactions 47,725 47,589
-------- -------
Total increase in net assets 54,042 67,166
Net Assets:
Beginning of period 246,778 179,612
-------- -------
End of period (including undistributed net
investment income of $1,140 and $3,292,
respectively) $300,820 $246,778
======== =======
Number of Fund shares:
Sold 6,810 8,493
Reinvested 250 155
Redeemed (3,166) (4,605)
-------- -------
Net increase in shares outstanding 3,894 4,043
Shares outstanding:
Beginning of period 20,181 16,138
-------- -------
End of period 24,075 20,181
======== =======
</TABLE>
See accompanying Notes to Financial Statements.
31
<PAGE> 38
SCHWAB INTERNATIONAL INDEX FUND(R)
- ------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
Six months ended April 30, 1997 (Unaudited)
1. DESCRIPTION OF THE FUND
The Schwab International Index Fund(R) (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 -- Balanced Growth Fund, Schwab Asset Director -- Conservative Growth
Fund, Schwab S&P 500 Fund, Schwab Analytics Fund(TM), Schwab OneSource
Portfolios -- International, Schwab OneSource Portfolios -- Growth Allocation
and Schwab OneSource Portfolios -- Balanced Allocation. The assets of each
series are segregated and accounted for separately.
2. SIGNIFICANT ACCOUNTING POLICIES
The following significant accounting policies are in conformity with generally
accepted accounting principles 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 and
unlisted securities 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. 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 Trustees.
Short-term securities with 60 days or less to maturity are stated at amortized
cost, which approximates market value.
32
<PAGE> 39
- ------------------------------------------------------------------------------
Security transactions and investment income -- Security transactions are
accounted for on a trade date basis (date the order to buy or sell is executed).
Realized gains and losses from security transactions are determined on an
identified cost basis. Dividend income and distributions to shareholders are
recorded on the ex-dividend date; interest income is accrued on a daily 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 April 30, 1997. 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.
33
<PAGE> 40
SCHWAB INTERNATIONAL INDEX FUND(R)
- ------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
Deferred organization costs -- Costs incurred in connection with the
organization of the Fund 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 generally 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 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, 1997 (for financial reporting and federal income tax purposes), net
unrealized gain aggregated $40,991,000, of which $66,790,000 related to
appreciated securities and $25,799,000 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 0.70% of the first $300 million
of average daily net assets and 0.60% of such assets over $300 million. The
Investment Manager has reduced a portion of its fee for the six months ended
April 30, 1997 (see Note 4).
Transfer agency and shareholder service agreements -- The Trust has transfer
agency and shareholder service agreements with Charles Schwab & Co., Inc.
("Schwab"). For services provided under these agreements, Schwab receives an
annual fee, payable monthly, of 0.05% of average daily net assets for transfer
agency services and 0.20% of such assets for shareholder services. Schwab has
reduced a portion of its fee for the six months ended April 30, 1997 (see Note
4).
34
<PAGE> 41
- ------------------------------------------------------------------------------
Officers and trustees -- Certain officers and trustees of the Trust are also
officers and/or directors of the Investment Manager and/or Schwab. During the
six months ended April 30, 1997, the Trust made no direct payments to its
officers or trustees who are "interested persons" within the meaning of the
Investment Company Act of 1940, as amended. The Fund incurred fees of $9,000
related to the Trust's unaffiliated trustees.
Other affiliate parties and transactions -- As of April 30, 1997, 8%, 5% and 1%
of the outstanding shares of the Fund were owned by Schwab Asset
Director(R) -- High Growth Fund, Schwab Asset Director(R) -- Balanced Growth
Fund, Schwab Asset Director(R) -- Conservative Growth Fund, respectively.
Interfund transactions -- During the period ended April 30, 1997, the Fund
engaged in purchase transactions with funds that have a common investment
advisor, common trustees, and common officers. These purchase transactions, made
at current market value pursuant to Rule 17a-7 under the Act, were $42,665,000.
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, 1997, the total of such fees reduced by the Investment
Manager and Schwab was $497,000 and $153,000, respectively (see Note 8).
5. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities, other than short-term obligations,
aggregated (in thousands) $52,772 and $7,133, respectively, during the six
months ended April 30, 1997.
6. EARLY WITHDRAWAL FEES PAID TO THE FUND
The Fund assesses a 0.75% 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, 1997, total early withdrawal fees
retained by the Fund amounted to $25,000.
35
<PAGE> 42
SCHWAB INTERNATIONAL INDEX FUND(R)
- ------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
7. COMPOSITION OF NET ASSETS
At April 30, 1997, net assets consisted of (in thousands):
<TABLE>
<S> <C>
Paid-in-capital $260,831
Undistributed net investment income 1,140
Accumulated net realized loss on investments sold and
foreign currency transactions (2,103)
Net unrealized gain on investments and [translating
assets and liabilities into the reporting currency] 40,952
--------
Total $300,820
========
</TABLE>
At April 30, 1997, the Fund's Statement of Net Assets included: $164,000 payable
for Fund shares redeemed, $20,000 payable for transfer agent fees, $15,000
payable for investment advisory and administration fee and $171,000 receivable
for Fund shares sold.
36
<PAGE> 43
- ------------------------------------------------------------------------------
8. FINANCIAL HIGHLIGHTS
For a share outstanding throughout each period:
<TABLE>
<CAPTION>
Six months
ended Period
April 30, ended
1997 Year ended October 31, October 31,
(Unaudited) 1996 1995 1994 1993++
------------ -------- -------- -------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period $ 12.23 $ 11.13 $ 10.89 $ 10.15 $ 10.00
Income from investment operations
- -----------------------
Net investment income 0.05 0.16 0.14 0.11 0.03
Net realized and unrealized gain on
investments
and foreign currency transactions 0.39 1.07 0.22 0.69 0.12
-------- -------- -------- -------- --------
Total from investment operations 0.44 1.23 0.36 0.80 0.15
Less distributions
- ------------
Dividends from net investment income (0.17) (0.13) (0.12) (0.04) --
Distributions from realized gain on
investments -- -- -- (0.02) --
-------- -------- -------- -------- --------
Total distributions (0.17) (0.13) (0.12) (0.06) --
-------- -------- -------- -------- --------
Net asset value at end of period $ 12.50 $ 12.23 $ 11.13 $ 10.89 $ 10.15
======== ======== ======== ======== ========
Total return (not annualized) 3.61% 11.07% 3.35% 7.89% 1.50%
- -------
Ratios/Supplemental data
- ------------------
Net assets, end of period (000s) $300,820 $246,778 $179,612 $142,355 $ 106,085
Ratio of expenses to average net assets+ 0.65%* 0.69% 0.85% 0.90% 0.60%*
Ratio of net investment income to average
net assets+ 1.01%* 1.50% 1.45% 1.14% 2.15%*
Portfolio turnover rate 3% 6% 0% 6% 2%
Average commission rate $ 0.04 $ 0.01 -- -- --
</TABLE>
- ---------------
+ The information contained in the above table is based on actual expenses for
the period, after giving effect to the portion of expenses reduced and
absorbed by the Investment Manager and Schwab. Had these expenses not been
reduced and absorbed, the Fund's expense and net investment income ratios
would have been:
<TABLE>
<S> <C> <C> <C> <C> <C>
Ratio of expenses to average net assets 1.15%* 1.17% 1.22% 1.30% 2.10%*
Ratio of net investment income to average
net assets 0.51%* 1.02% 1.08% 0.74% 0.65%*
</TABLE>
* Annualized
++ For the period September 9, 1993 (commencement of operations) to October
31, 1993.
37
<PAGE> 44
THIS SPACE RESERVED FOR YOUR COMMENTS AND QUESTIONS.
A SCHWAB REPRESENTATIVE WILL BE HAPPY TO ASSIST YOU.
<PAGE> 45
THIS SPACE RESERVED FOR YOUR COMMENTS AND QUESTIONS.
A SCHWAB REPRESENTATIVE WILL BE HAPPY TO ASSIST YOU.
<PAGE> 46
THIS SPACE RESERVED FOR YOUR COMMENTS AND QUESTIONS.
A SCHWAB REPRESENTATIVE WILL BE HAPPY TO ASSIST YOU.
<PAGE> 47
SCHWABFUNDS FAMILY(R)
The SchwabFunds Family includes a variety of funds to help meet your investment
needs. You can diversify your portfolio in a single step with our asset
allocation funds. Or you can customize your portfolio with a combination of our
stock funds as well as our taxable and tax-advantaged bond and money funds.
SCHWAB ASSET ALLOCATION FUNDS
Schwab Asset Director(R) -- High Growth Fund
Schwab Asset Director -- Balanced Growth Fund
Schwab Asset Director -- Conservative Growth Fund
Schwab OneSource Portfolios -- Growth Allocation
Schwab OneSource Portfolios -- Balanced Allocation
SCHWAB STOCK FUNDS
Schwab 1000 Fund(R)
Schwab S&P 500 Fund
Schwab Analytics Fund(TM)
Schwab Small-Cap Index Fund(R)
Schwab International Index Fund(R)
Schwab OneSource Portfolios -- International
SCHWAB BOND FUNDS
Schwab Government Bond Funds -- Long-Term and Short/Intermediate
Schwab Tax-Free Bond Funds -- Long-Term and Short/Intermediate
Schwab California Tax-Free Bond Funds -- Long-Term and Short/Intermediate
SCHWAB MONEY MARKET FUNDS
Schwab offers an array of money market funds* that seek high current income with
safety and liquidity. Choose from taxable or tax-advantaged alternatives. Many
can be linked to your Schwab account to "sweep" cash balances automatically when
you're between investments. Or, for your larger cash reserves, choose one of our
Value Advantage Investments(R).
Please call 1-800-2 NO-LOAD 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.
This report must be preceded or accompanied by a current prospectus.
*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> 48
==============
BULK RATE
U.S. POSTAGE
PAID
CHARLES SCHWAB
==============
SCHWABFUNDS
FAMILY(R)
101 Montgomery Street
San Francisco, California 94104
INVESTMENT ADVISOR
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.
(C)1997 Charles Schwab & Co., Inc. All rights reserved.
Member SIPC/NYSE.
TF4728R(5/97) CRS 20064 Printed on recycled paper.
