<PAGE> 1
SCHWABFUNDS(R)
SCHWAB
ONESOURCE
PORTFOLIOS
- International
- Growth Allocation
- Balanced Allocation
- Small Company
Annual Report
October 31, 1997
<PAGE> 2
October 31, 1997
Dear Shareholder,
With the support of investors like you, SchwabFunds(R) continues to be
among the largest and fastest-growing mutual fund families in the nation.
Charles Schwab Investment Management, Inc. (CSIM) now manages over $53 billion
in assets for nearly 3 million SchwabFunds shareholders and offers 31 funds
spanning a spectrum of financial markets and investing styles.
MAINTAINING A LONG-TERM PERSPECTIVE
The recent volatility in both domestic and international markets reminds us that
investments can move in both directions, down as well as up, especially in the
short term. For this reason, it is extremely important that you develop and
stick with a long-term investment plan that is appropriate for your personal
goals, time horizon and tolerance for risk. While it's a good idea to
periodically review your portfolio, I would encourage you to avoid making
changes merely in response to short-term market movements.
If you have any questions about your own investment plan, or need help getting
started, contact your local Schwab branch to set up a free consultation with one
of our representatives. Additionally, I encourage you to visit our Web site at
www.schwab.com/schwabfunds where you'll find online resources and tools to help
you evaluate or develop your investment plan.
NEW INVESTMENT OPPORTUNITIES
We recently introduced the Schwab OneSource Portfolios - Small Company Fund -- a
professionally managed portfolio of small company mutual funds in one convenient
investment. If you're looking for an easy, cost-effective way to tap into the
growth potential of small companies, this Fund may be an appropriate investment
for you. For a free prospectus, which contains more information, including fees
and expenses, please call our toll-free line, 1-800-435-4000. Please be sure to
read the prospectus before investing.
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
CONTENTS
A Word from SchwabFunds(R) 2
The Portfolio Management Team 3
Market Overview 4
Schwab OneSource Portfolios -- International Fund 10
Schwab OneSource Portfolios --
Growth Allocation and Balanced Allocation Funds 14
Schwab OneSource Portfolios -- Small Company Fund 19
Financial Statements and Notes 24
<PAGE> 4
A WORD FROM SCHWABFUNDS(R)
We are pleased to provide you with the annual report for the Schwab OneSource
Portfolios for the fiscal year ended October 31, 1997. In this report, you will
find performance statistics and other useful information for each of the four
Schwab OneSource Portfolios -- International, Growth Allocation, Balanced
Allocation, and Small Company.
We would like to take this opportunity to especially welcome shareholders of our
newest OneSource Portfolio -- Small Company Fund, which commenced operations on
September 16, 1997, following a very successful subscription offering of $165
million. As of October 31, 1997, combined total net assets for the four
OneSource Portfolios were $473 million, and the number of shareholder accounts
exceeded 71,000.
We're pleased that our investors recognize that these Portfolios are a smart and
efficient way to participate in a professionally managed portfolio of actively
managed mutual funds through a single investment. Senior portfolio manager
Cynthia Liu and her team, with data provided by the Schwab Mutual Fund Research
Group, use sophisticated quantitative tools and techniques to provide a level of
day-to-day portfolio analysis and management that few investors could replicate.
INFORMING INVESTORS
One of our top priorities continues to be keeping you informed about your
investments. For each of the OneSource Portfolios, in addition to this annual
report, we offer a wealth of information on our web site at
WWW.SCHWAB.COM/SCHWABFUNDS. Alternatively, you can call our shareholder
information line at 1-888-9 NO LOAD (1-888-966-5623) each month for current fund
and market information. Our quarterly newsletter, Market Views, gives you
firsthand insight to the opinions of some of today's most respected portfolio
managers, as well as quarterly performance updates and top holdings for the
OneSource Portfolios. For a free prospectus, call our toll-free line at
1-800-435-4000. The prospectus contains more information, including fees and
expenses. Please read the prospectus carefully before investing.
SMART INVESTMENT STRATEGIES
Investing the same amount of money on a regular basis -- every month or quarter,
for example, without regard to overall market condition -- may help minimize the
effects of market volatility on your long-term investment plan. With this
investment strategy, better known as dollar-cost averaging, you automatically
buy more shares when prices dip and fewer shares when prices rise.
Consider a simple hypothetical example: Let's say you decide to invest $400 on a
regular basis in a single mutual fund, as shown in the table to the left. In
this example, your average cost basis would be lower than the average share
price during the period by $0.51 per share. 1
<TABLE>
<CAPTION>
Number of
Fixed Investment Share Price Shares Purchased
<S> <C> <C> <C>
Purchase #1 $400.00 $10.00 40
Purchase #2 $400.00 $8.00 50
Purchase #3 $400.00 $5.00 80
Purchase #4 $400.00 $8.00 50
Purchase #5 $400.00 $10.00 40
Total $2,000.00 $41.00 260
Average share price ($41/5 periods): $8.20
Your average cost basis ($2,000/260 shares): $7.69
Per-share advantage: $0.51
</TABLE>
1 This example is for illustrative purposes only and is not intended to
predict or guarantee the performance of any particular fund available
through Schwab.
2
<PAGE> 5
Of course, in this hypothetical example, you would have been better off buying
$2,000 worth at a share price of $5 -- but you'd have to be pretty lucky to know
that in advance. Dollar-cost averaging requires very little effort, especially
if you take advantage of free Schwab programs that make it easy and convenient
to invest regularly:
- - AUTOMATIC INVESTMENT PLAN (AIP) lets you make subsequent purchases of
mutual funds you already own, including SchwabFunds(R), on a regular
basis, for as little as $100 per fund. You can use the cash or sweep
shares of your Schwab Money Fund already available in your Schwab
account, 2 or you can enroll in Schwab's free MoneyLink Transfer
Service(R) to automatically fund your Schwab account.
- - MONEYLINK TRANSFER SERVICE(R) allows you to make periodic cash
transfers of just $50 or more to your Schwab Account automatically from
your bank account or payroll or government check and helps put your
money to work faster. 3
Please remember that these programs do not ensure a profit or protect against
losses in a declining market, but if you invest for the long term, dollar-cost
averaging through regular investing can help smooth the effects of market
volatility. For more information on these services, call 1-800-435-4000.
Thank you for investing with us.
2 Includes uninvested cash and margin cash available. If sufficient cash
is not available, your automatic purchases will not be made.
3 The terms of your specific Schwab account will dictate when your Schwab
MoneyLink transfers are swept into a money market fund and begin
earning money market dividend income.
THE PORTFOLIO MANAGEMENT TEAM
STEPHEN B. WARD, Senior Vice President and Chief Investment Officer, has overall
responsibility for the management of the Funds' portfolios. Steve joined Charles
Schwab Investment Management (CSIM) as Vice President and Portfolio Manager in
April 1991 and was promoted to his current position in August 1993. Prior to
joining CSIM, Steve was Vice President and Portfolio Manager at Federated
Investors. He holds an M.B.A. from the Wharton School and a B.A. in economics
from Virginia Tech and has been a chartered financial analyst since 1985.
CYNTHIA LIU, Vice President and Senior Portfolio Manager, has primary
responsibility for day-to-day management of the Funds. Cynthia joined CSIM in
July 1996 and currently manages the four Schwab OneSource Portfolios. Prior to
joining CSIM, Cynthia was Director of Investment Strategy at Jardine Fleming
Unit Trust in Hong Kong. She was honored with the Alfred Dunhill Award of
Excellence in the 1995 Fund Manager of the Year awards, sponsored by the South
China Morning Post. Cynthia holds a B.A. in economics from National Cheng-chi
University in Taiwan and is a chartered financial analyst.
The following Market Overview as well as the answers to questions for each fund
are provided by the Portfolio Management Team.
3
<PAGE> 6
MARKET OVERVIEW
REAL GDP GROWTH RATE
Quarterly percentage change in annual rate
<TABLE>
<CAPTION>
<S> <C>
Q1 1990 0.041
Q2 1990 0.013
Q3 1990 -0.019
Q4 1990 -0.041
Q1 1991 -0.022
Q2 1991 0.017
Q3 1991 0.01
Q4 1991 0.01
Q1 1992 0.047
Q2 1992 0.025
Q3 1992 0.03
Q4 1992 0.043
Q1 1993 -0.001
Q2 1993 0.019
Q3 1993 0.023
Q4 1993 0.048
Q1 1994 0.025
Q2 1994 0.049
Q3 1994 0.035
Q4 1994 0.03
Q1 1995 0.004
Q2 1995 0.007
Q3 1995 0.038
Q4 1995 0.003
Q1 1996 0.02
Q2 1996 0.047
Q3 1996 0.021
Q4 1996 0.038
Q1 1997 0.049
Q2 1997 0.033
Q3 1997 0.033
</TABLE>
Source: Bloomberg L.P.
- - The economy, as measured by the growth of real GDP, continues to expand
at a healthy rate. The real GDP growth rate was 3.2% for the 1996
calendar year and 3.9% (on an annualized basis) for the first nine
months of 1997.
- - The strength of the economy and tight labor markets (refer to page 5)
continue to lead to speculation regarding potential acceleration in
both wage and price inflation and whether more restrictive Federal
Reserve policy is imminent. The Federal Reserve has indicated that it
is "on alert" for signs of accelerating inflation whether caused by
tight labor markets or by consumer spending fueled by a strong stock
market.
- - At the time of this writing, the economy appears poised for continued
growth, extending the current economic expansion that began in 1991.
4
<PAGE> 7
U.S. UNEMPLOYMENT RATE
<TABLE>
<CAPTION>
Rate
<S> <C>
Jan-90 0.053
Feb-90 0.053
Mar-90 0.052
Apr-90 0.054
May-90 0.053
Jun-90 0.051
Jul-90 0.054
Aug-90 0.056
Sep-90 0.057
Oct-90 0.058
Nov-90 0.06
Dec-90 0.062
Jan-91 0.063
Feb-91 0.065
Mar-91 0.068
Apr-91 0.066
May-91 0.068
Jun-91 0.068
Jul-91 0.067
Aug-91 0.068
Sep-91 0.068
Oct-91 0.069
Nov-91 0.069
Dec-91 0.071
Jan-92 0.071
Feb-92 0.073
Mar-92 0.073
Apr-92 0.073
May-92 0.074
Jun-92 0.077
Jul-92 0.076
Aug-92 0.076
Sep-92 0.075
Oct-92 0.074
Nov-92 0.073
Dec-92 0.073
Jan-93 0.071
Feb-93 0.07
Mar-93 0.07
Apr-93 0.07
May-93 0.069
Jun-93 0.069
Jul-93 0.068
Aug-93 0.067
Sep-93 0.067
Oct-93 0.067
Nov-93 0.065
Dec-93 0.064
Jan-94 0.067
Feb-94 0.066
Mar-94 0.065
Apr-94 0.064
May-94 0.06
Jun-94 0.06
Jul-94 0.061
Aug-94 0.061
Sep-94 0.059
Oct-94 0.056
Nov-94 0.056
Dec-94 0.054
Jan-95 0.056
Feb-95 0.054
Mar-95 0.058
Apr-95 0.057
May-95 0.057
Jun-95 0.056
Jul-95 0.057
Aug-95 0.053
Sep-95 0.056
Oct-95 0.055
Nov-95 0.056
Dec-95 0.056
Jan-96 0.058
Feb-96 0.055
Mar-96 0.056
Apr-96 0.054
May-96 0.056
Jun-96 0.053
Jul-96 0.054
Aug-96 0.051
Sep-96 0.052
Oct-96 0.052
Nov-96 0.053
Dec-96 0.053
Jan-97 0.054
Feb-97 0.053
Mar-97 0.052
Apr-97 0.049
May-97 0.048
Jun-97 0.05
Jul-97 0.048
Aug-97 0.049
Sep-97 0.049
Oct-97 0.047
</TABLE>
Source: Bloomberg L.P.
- - Job growth has remained robust and the unemployment rate has reached a
new low for this decade. In fact, the October rate of 4.7% represents
the lowest rate in 24 years.
- - The combination of a tight labor market, as evidenced by low
unemployment rates and strong economic growth, typically leads to
inflationary pressures on wages and, ultimately, prices. In this
environment, productivity growth becomes particularly important. Strong
productivity gains, as we experienced in the second and third quarters,
allow manufacturers to keep a lid on prices in the face of rising wages
without trimming profit margins.
5
<PAGE> 8
MARKET OVERVIEW (continued)
MEASURES OF INFLATION
- ----- = Monthly Consumer Price Index
<TABLE>
<CAPTION>
<S> <C>
Jan-90 0.052
Feb-90 0.053
Mar-90 0.052
Apr-90 0.047
May-90 0.044
Jun-90 0.047
Jul-90 0.048
Aug-90 0.056
Sep-90 0.062
Oct-90 0.063
Nov-90 0.063
Dec-90 0.061
Jan-91 0.057
Feb-91 0.053
Mar-91 0.049
Apr-91 0.049
May-91 0.05
Jun-91 0.047
Jul-91 0.044
Aug-91 0.038
Sep-91 0.034
Oct-91 0.029
Nov-91 0.03
Dec-91 0.031
Jan-92 0.026
Feb-92 0.028
Mar-92 0.032
Apr-92 0.032
May-92 0.03
Jun-92 0.031
Jul-92 0.032
Aug-92 0.031
Sep-92 0.03
Oct-92 0.032
Nov-92 0.03
Dec-92 0.029
Jan-93 0.033
Feb-93 0.032
Mar-93 0.031
Apr-93 0.032
May-93 0.032
Jun-93 0.03
Jul-93 0.028
Aug-93 0.028
Sep-93 0.027
Oct-93 0.028
Nov-93 0.027
Dec-93 0.027
Jan-94 0.025
Feb-94 0.025
Mar-94 0.025
Apr-94 0.024
May-94 0.023
Jun-94 0.025
Jul-94 0.028
Aug-94 0.029
Sep-94 0.03
Oct-94 0.026
Nov-94 0.027
Dec-94 0.027
Jan-95 0.028
Feb-95 0.029
Mar-95 0.029
Apr-95 0.031
May-95 0.032
Jun-95 0.03
Jul-95 0.028
Aug-95 0.026
Sep-95 0.025
Oct-95 0.028
Nov-95 0.026
Dec-95 0.025
Jan-96 0.027
Feb-96 0.027
Mar-96 0.028
Apr-96 0.029
May-96 0.029
Jun-96 0.028
Jul-96 0.03
Aug-96 0.029
Sep-96 0.03
Oct-96 0.03
Nov-96 0.033
Dec-96 0.033
Jan-97 0.03
Feb-97 0.03
Mar-97 0.028
Apr-97 0.025
May-97 0.022
Jun-97 0.023
Jul-97 0.022
Aug-97 0.022
Sep-97 0.022
Oct-97 0.021
</TABLE>
_____ Quarterly Employment Cost Index
<TABLE>
<S> <C>
Jan-90 0.053
Feb-90 0.053
Mar-90 0.053
Apr-90 0.054
May-90 0.054
Jun-90 0.054
Jul-90 0.051
Aug-90 0.051
Sep-90 0.051
Oct-90 0.048
Nov-90 0.048
Dec-90 0.048
Jan-91 0.046
Feb-91 0.046
Mar-91 0.046
Apr-91 0.045
May-91 0.045
Jun-91 0.045
Jul-91 0.043
Aug-91 0.043
Sep-91 0.043
Oct-91 0.042
Nov-91 0.042
Dec-91 0.042
Jan-92 0.041
Feb-92 0.041
Mar-92 0.041
Apr-92 0.035
May-92 0.035
Jun-92 0.035
Jul-92 0.034
Aug-92 0.034
Sep-92 0.034
Oct-92 0.035
Nov-92 0.035
Dec-92 0.035
Jan-93 0.034
Feb-93 0.034
Mar-93 0.034
Apr-93 0.036
May-93 0.036
Jun-93 0.036
Jul-93 0.036
Aug-93 0.036
Sep-93 0.036
Oct-93 0.034
Nov-93 0.034
Dec-93 0.034
Jan-94 0.032
Feb-94 0.032
Mar-94 0.032
Apr-94 0.031
May-94 0.031
Jun-94 0.031
Jul-94 0.031
Aug-94 0.031
Sep-94 0.031
Oct-94 0.03
Nov-94 0.03
Dec-94 0.03
Jan-95 0.03
Feb-95 0.03
Mar-95 0.03
Apr-95 0.03
May-95 0.03
Jun-95 0.03
Jul-95 0.028
Aug-95 0.028
Sep-95 0.028
Oct-95 0.028
Nov-95 0.028
Dec-95 0.028
Jan-96 0.029
Feb-96 0.029
Mar-96 0.029
Apr-96 0.029
May-96 0.029
Jun-96 0.029
Jul-96 0.029
Aug-96 0.029
Sep-96 0.029
Oct-96 0.03
Nov-96 0.03
Dec-96 0.03
Jan-97 0.028
Feb-97 0.028
Mar-97 0.028
Apr-97 0.028
May-97 0.028
Jun-97 0.028
Jul-97 0.03
Aug-97 0.03
Sep-97 0.03
Oct-97
</TABLE>
Source: Bloomberg L.P.
- - Both the Employment Cost Index and Consumer Price Index (CPI) remained
in check throughout the first three quarters of 1997, reflecting
continued low levels of inflation.
- - For the one-year period ended October 1997, the CPI rose 2.1%, the
lowest rate since February 1987. Its core rate (which excludes the more
volatile food and energy components) rose 2.3%, the lowest rate since
1965.
- - Even though current levels of inflation are very low, the Federal
Reserve has indicated its belief that the economy remains in the zone
where inflation risks are on the upside and that it is poised to act
preemptively by raising interest rates if necessary. The Federal
Reserve did take action in March, increasing the Federal Funds Rate by
0.25% to 5.50%.
6
<PAGE> 9
Total Return Performance
Value of a Hypothetical $1 investment
<TABLE>
<CAPTION>
LEHMAN
BROTHERS
SCHWAB SCHWAB GENERAL
SMALL CAP INTERNATIONAL U.S. GOV'T
S&P 500(R) INDEX(R) INDEX(R) INDEX
<S> <C> <C> <C> <C>
1 1 1 1
Nov-96 1.076 1.04 1.046 1.017
Dec-96 1.054 1.059 1.037 1.007
Jan-97 1.12 1.084 1.003 1.008
Feb-97 1.129 1.058 1.019 1.01
Mar-97 1.083 1.006 1.026 0.999
Apr-97 1.147 1.009 1.037 1.013
May-97 1.217 1.132 1.114 1.022
Jun-97 1.271 1.191 1.179 1.033
Jul-97 1.373 1.259 1.21 1.063
Aug-97 1.296 1.288 1.123 1.052
Sep-97 1.367 1.389 1.194 1.068
Oct-97 1.321 1.328 1.097 1.086
</TABLE>
Total return assumes reinvestment of all dividend and capital gain
distributions. Past performance is no guarantee of future results. The indices
are representative returns of specific market sectors during the one-year
reporting period and do not reflect the performance of any fund. Indices are
unmanaged and, unlike a fund, do not reflect the payment of advisory fees and
other expenses associated with an investment in a fund. Investors cannot invest
in an index directly.
- - Despite corrections in March, August, and October, domestic equity
investments continued to be the best performing asset class and
achieved strong returns for the one-year reporting period. Large-cap
domestic stocks, as represented by the S&P 500 Index, achieved a total
return of 32.1%, while small-cap stocks, as represented by the Schwab
Small-Cap Index, achieved a total return of 32.8%.
- - International stocks, as represented by the Schwab International Index,
achieved a return of 9.7% for the one-year reporting period, following
an Asian-led correction of 9.7% during the month of October.
- - U.S. Government bonds, as represented by the Lehman Brothers General
U.S. Government Index, achieved a lower, albeit less-volatile, return
of 8.6% for the one-year reporting period.
7
<PAGE> 10
MARKET OVERVIEW (continued)
S&P 500(R) PRICE/EARNINGS RATIO
<TABLE>
<CAPTION>
S&P 500 PRICE
<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 21.86
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-90 24.2
Feb-90 24.25
Mar-90 24.22
Apr-90 23.2
May-90 23.21
Jun-90 22.58
Jul-90 22.52
Aug-90 23.02
Sep-90 23.74
Oct-93 23.97
Nov-93 22.25
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-94 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
May-97 21.43
Jun-97 22.45
Jul-97 23.92
Aug-97 22.64
Sep-97 24
Oct-97 22.84
</TABLE>
Source: Bloomberg L.P.
- - 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 was 22.8 at the close of the
reporting period, well above its 30-year average of 14.7.
- - Based on other traditional measures such as the price-to-book value
ratio or dividend yield, the U.S. stock market valuation, as measured
by the S&P 500, reached historical highs during the reporting period.
- - Although low inflation and interest rates and strong flows into mutual
funds have helped the U.S. equity markets reach these levels, Federal
Reserve Chairman Greenspan has warned that current stock market values
make sense only if the outlook for corporate earnings growth remains
positive, an assumption which, as always, will be widely debated by
market participants.
8
<PAGE> 11
MSCI-EAFE(R) COUNTRY US$ RETURN
for the one-year period ended 10/31/97
<TABLE>
<S> <C>
Finland 0.4835
Spain 0.3907
Norway 0.3433
Denmark 0.3427
Netherlands 0.33
United Kingdom 0.3038
Switzerland 0.2938
Sweden 0.2666
Italy 0.2381
Germany 0.2023
Ireland 1.1764
France 0.1339
Belgium 0.1224
Austria 0.051
New Zealand -0.0309
Australia -0.0664
Hong Kong -0.1688
Japan -0.2418
Singapore -0.3048
Malaysia -0.5688
</TABLE>
Source: Datastream
- - Returns for the reporting period were generally strong for European
countries, with the highest returns in Finland, Spain, Norway, and
Denmark. Asian country returns were generally negative for the period,
with the weakest returns in Malaysia, Singapore, Japan, and Hong Kong.
- - The total return expressed in U.S. dollars for the MSCI-EAFE Index for
the one-year reporting period was 4.6%. For the same period, the total
return expressed in local currencies was 12.0%, reflecting the relative
strength of the U.S. dollar versus most foreign currencies.
9
<PAGE> 12
SCHWAB ONESOURCE PORTFOLIOS -- INTERNATIONAL FUND
The Schwab OneSource Portfolios -- International offers broad international
diversification with the convenience of a single investment. The Fund can be
used to fulfill all or part of the international equity component of your asset
allocation plans.
TOP TEN HOLDINGS 1
<TABLE>
<CAPTION>
- ---------------------------------------------------------
MUTUAL FUND % OF FUND INVESTMENTS
- ---------------------------------------------------------
<S> <C>
BT International Equity Fund 10.3
- ---------------------------------------------------------
SoGen Overseas Fund 9.5
- ---------------------------------------------------------
Janus Overseas Fund 9.3
- ---------------------------------------------------------
American Century -- Twentieth
Century International Growth Fund 9.3
- ---------------------------------------------------------
Oppenheimer International
Growth Fund -- Class A 7.6
- ---------------------------------------------------------
Ivy International Fund -- Class A 7.0
- ---------------------------------------------------------
Excelsior Pan European Fund 6.5
- ---------------------------------------------------------
Hotchkis & Wiley International Fund 6.2
- ---------------------------------------------------------
Scudder Japan Fund 6.2
- ---------------------------------------------------------
Oakmark International Fund 6.1
- ---------------------------------------------------------
TOTAL 78.0%
- ---------------------------------------------------------
</TABLE>
TOP FIVE COUNTRIES 1
<TABLE>
<CAPTION>
- ---------------------------------------------------
COUNTRY % OF FUND INVESTMENTS
- ---------------------------------------------------
<S> <C>
Japan 14.4
- ---------------------------------------------------
United Kingdom 12.7
- ---------------------------------------------------
France 9.6
- ---------------------------------------------------
Switzerland 6.1
- ---------------------------------------------------
The Netherlands 5.7
- ---------------------------------------------------
TOTAL 48.5%
- ---------------------------------------------------
</TABLE>
ASSET MIX 1
<TABLE>
<CAPTION>
- ---------------------------------------------------
TYPE OF INVESTMENT % OF FUND INVESTMENTS
- ---------------------------------------------------
<S> <C>
International mutual funds 76.9
- ---------------------------------------------------
Global mutual funds 1.0
- ---------------------------------------------------
European region mutual funds 8.6
- ---------------------------------------------------
Single-country mutual funds 7.4
- ---------------------------------------------------
Cash equivalents 6.1
- ---------------------------------------------------
TOTAL 100.0%
- ---------------------------------------------------
</TABLE>
REGIONAL DIVERSIFICATION 1
<TABLE>
<CAPTION>
- ---------------------------------------------------
REGION % OF FUND INVESTMENTS
- ---------------------------------------------------
<S> <C>
Developed Europe(2) 55.4
- ---------------------------------------------------
Developed Pacific(3) 17.9
- ---------------------------------------------------
Emerging Markets 8.6
- ---------------------------------------------------
Other Investments 6.6
- ---------------------------------------------------
Cash Equivalents 6.1
- ---------------------------------------------------
Canada 2.8
- ---------------------------------------------------
United States 2.6
- ---------------------------------------------------
TOTAL 100.0%
- ---------------------------------------------------
</TABLE>
1 This information is as of 10/31/97 and may not be indicative of current
or future investments. A complete listing of the Fund's holdings as of
10/31/97 can be found in the Schedule of Investments later in this
report.
2 Developed Europe includes the following countries: Austria, Belgium,
Denmark, Finland, France, Germany, Ireland, Italy, Netherlands, Norway,
Portugal, Spain, Sweden, Switzerland, and the United Kingdom.
3 Developed Pacific includes the following countries: Australia, Hong
Kong, Indonesia, Japan, Malaysia, New Zealand, Singapore, and Thailand.
10
<PAGE> 13
FUND PERFORMANCE
The graph to the right compares the growth of a hypothetical $10,000 investment
in the Schwab OneSource Portfolios -- International, made at inception, with a
similar investment in the Morgan Stanley Capital International Europe,
Australasia, Far East(R) Index (MSCI-EAFE). A detailed analysis of the
respective performances of the Fund and the Index is provided in the Questions
to the Portfolio Management Team section.
THIS INFORMATION IS HISTORICAL AND DOES NOT REPRESENT FUTURE RESULTS. TOTAL
RETURNS ASSUME REINVESTMENT OF ALL DIVIDEND AND CAPITAL GAIN DISTRIBUTIONS.
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.
Indices are unmanaged and do not reflect advisory fees and other expenses
associated with an investment in the Fund. Investors cannot invest in an index
directly.
ONESOURCE PORTFOLIOS -- INTERNATIONAL
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
<TABLE>
<CAPTION>
ONESOURCE PORTFOLIO- MSCI-EAFE
DATE INTERNATIONAL INDEX
- ------ --------------------------- ---------
<S> <C> <C>
10/16/96 $10,000 $10,000
10/31/96 $9,910 $9,836
11/30/96 $10,220 $10,228
12/31/96 $10,313 $10,096
1/31/97 $10,426 $9,742
2/28/97 $10,599 $9,902
3/31/97 $10,558 $9,938
4/30/97 $10,609 $9,991
5/31/97 $11,209 $10,641
6/30/97 $11,697 $11,227
7/31/97 $11,962 $11,409
8/31/97 $11,199 $10,557
9/30/97 $11,830 $11,148
10/31/97 $11,046 $10,291
</TABLE>
______ = OneSource Portfolios--International
- ------ = MSCI-EAFE Index
AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED 10/31/97
<TABLE>
<CAPTION>
One Year Since inception (10/16/96)
<S> <C> <C>
- ---------------------------------------------------------------------------------------
ONESOURCE PORTFOLIOS -- INTERNATIONAL 4 11.47% 10.00%
- ---------------------------------------------------------------------------------------
MSCI-EAFE Index 4.63% 2.78%
- ---------------------------------------------------------------------------------------
Average foreign fund 5 8.82% 7.48%
- ---------------------------------------------------------------------------------------
</TABLE>
CUMULATIVE TOTAL RETURN FOR THE PERIOD ENDED 9/30/97
<TABLE>
<CAPTION>
Since inception (10/16/96)
- ---------------------------------------------------------------------------------------
<S> <C>
ONESOURCE PORTFOLIOS -- INTERNATIONAL 4 18.30%
- ---------------------------------------------------------------------------------------
</TABLE>
4 The Investment Manager and Schwab waived a portion of their fees during
the period, and have guaranteed through at least 2/28/99 that total
operating expenses will not exceed 0.50%. Without fee waivers and
guarantees, as of 10/31/97, the average annual one-year and since
inception total returns would have been 10.56% and 9.14%, respectively.
As of 9/30/97, the cumulative since inception total return would have
been 17.42%.
5 Based on data provided by Morningstar, Inc. Average total returns for
407 and 401 foreign funds, respectively, for the one-year and since
inception periods (load-adjusted).
11
<PAGE> 14
Schwab OneSource Portfolios -- International Fund
QUESTIONS TO THE PORTFOLIO MANAGEMENT TEAM
Q: HOW DID THE FUND'S PERFORMANCE DURING THE ONE-YEAR REPORTING PERIOD COMPARE
TO THAT OF ITS BENCHMARK, THE MSCI-EAFE(R) INDEX?
A: As shown on the table and graph in the Fund Performance section, the Fund
achieved a total return of 11.47% vs. 4.63% for the MSCI-EAFE Index for the
one-year period ended October 31, 1997. The Fund's outperformance of its
benchmark index is attributable to a combination of strong performance in
underlying funds as well as to our strategy to underweight our exposure to Japan
and to overweight our holdings in funds with substantial exposure to Europe.
Q: WHICH SECTORS OR REGIONS PERFORMED WELL FOR THE FUND?
A: As shown in the Market Overview section, the developed (non-emerging)
European markets achieved the strongest total returns for the reporting period.
Exposure to emerging markets in Latin America and Eastern Europe during the
first half of the period also contributed to the Fund's performance. The
Japanese market represented the worst-performing sector for the Fund, although
the portion of the Fund's portfolio allocated to Japan throughout the reporting
period ranged just between 12% and 18%.
Q: WHAT IMPACT DID FLUCTUATIONS IN CURRENCY EXCHANGE RATES HAVE ON THE
PERFORMANCE OF INTERNATIONAL EQUITIES AND THE FUND?
A: Although the U.S. dollar exhibited significant strength relative to most
foreign currencies during the reporting period, many of the underlying funds
employed currency hedging strategies to varying degrees. While some hedging
strategies were more successfully employed than others, the net impact of the
strengthening U.S. dollar on the Fund was not substantial.
Q: HOW DID THE FUND'S STRATEGY CHANGE DURING THE REPORTING PERIOD, AND HOW WAS
THE FUND POSITIONED VERSUS ITS BENCHMARK AT THE CLOSE OF THE PERIOD?
A: The chart on the following page depicts the asset mix for the Fund during the
reporting period. During the first half of the reporting period, we reduced the
cash position which resulted in the Fund being close to fully invested. We also
reduced our exposure to North America by replacing our positions in global funds
(which include investments in North America) with international and region
specific funds. We also made a style shift towards large-cap stocks and away
from small-cap stocks. In July, we eliminated our direct exposure to emerging
market funds of Latin America, Eastern Europe, and Greater China and increased
exposure to the developed markets in Europe.
As of October 31, 1997, the Fund had no direct emerging market exposure;
however, it maintained some indirect exposure through holdings in some of the
underlying funds, as shown on the opposite page. We believe the turmoil in the
Asian emerging markets, caused by the currency devaluations, could increase the
risk premium of all emerging markets, and thereby have a potentially negative
impact on equity valuations for those countries.
12
<PAGE> 15
ONESOURCE PORTFOLIOS - INTERNATIONAL
ACTUAL ASSET MIX
Regional Exposure
Reporting Summary-
Report as of
<TABLE>
<CAPTION>
10/31/96 11/30/96 12/31/96 1/31/97 2/28/97 3/31/97 4/30/97 5/31/97 6/30/97 7/31/97 8/31/97 9/30/97 10/31/97
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Cash 11.30% 4.71% 2.37% 4.58% 3.99% 2.63% 1.50% 2.90% 3.00% 4.17% 4.48% 1.95% 1.95%
Other Investments 8.33% 7.32% 6.08% 8.16% 7.48% 9.86% 10.50% 8.70% 7.36% 5.98% 6.73% 6.20% 6.20%
Emerging Markets 10.54% 7.43% 9.74% 11.16% 11.53% 11.26% 13.00% 13.90% 14.66% 11.93% 11.26% 12.57% 12.57%
Developed Pacific 26.13% 29.81% 32.33% 30.00% 31.63% 29.95% 26.60% 27.60% 31.54% 27.63% 22.63% 22.39% 22.39%
Developed Europe 37.23% 43.32% 44.58% 43.17% 43.25% 44.43% 45.60% 44.40% 40.97% 47.65% 51.84% 53.83% 53.63%
North America 6.46% 7.40% 2.89% 2.94% 2.12% 1.66% 2.60% 2.50% 2.27% 2.64% 2.86% 3.06% 3.06%
-----------------------------------------------------------------------------------------------------------
100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
</TABLE>
* = North America
** = Developed Europe
*** = Developed Pacific
+ = Emerging Markets
++ = Other investments
+++ = Cash
Q. WHAT IMPACT DID THE TURMOIL IN THE ASIAN EMERGING MARKETS HAVE ON THE FUND?
A: Although we had some exposure to the Asian emerging markets through holdings
of some of the underlying funds, we had no direct exposure during the reporting
period. Since we liquidated all of our emerging market funds of other regions,
as well as our position in a fund invested predominantly in China, Hong Kong and
Taiwan, immediately after the currency devaluation in Emerging Asia, the impact
on the Fund's performance was minor.
13
<PAGE> 16
SCHWAB ONESOURCE PORTFOLIOS -- GROWTH ALLOCATION AND BALANCED ALLOCATION FUNDS
Schwab OneSource Portfolios -- Growth Allocation Fund seeks capital growth with
less volatility than a portfolio comprised entirely of stock funds. The Balanced
Allocation Fund seeks capital growth and income with less volatility than the
Growth Allocation Fund. The allocations of the Funds' portfolios will vary as
the Investment Manager adjusts their respective asset mixes based on changing
market conditions. Of the two Funds, the Growth Fund offers the greatest
potential for return and risk due to its larger target allocation to equity
funds.
ONESOURCE PORTFOLIOS -- GROWTH ALLOCATION FUND
ASSET MIX 1 TOP TEN HOLDINGS 1
---------------------------------------------------
MUTUAL FUND % OF FUND INVESTMENTS
---------------------------------------------------
[PIE CHART] Strong Advantage Fund 7.4
---------------------------------------------------
Equity Funds: 72% Sound Shore Fund 6.6
Bond Funds: 14% ---------------------------------------------------
Cash Equivalents: 14% Janus Overseas Fund 6.1
---------------------------------------------------
Franklin California Growth Fund 5.7
---------------------------------------------------
[PIE CHART] Longleaf Partners Realty Fund 5.6
---------------------------------------------------
International: 20% American Century -- Twentieth Century
Aggressive Growth: 18% International Growth Fund 5.5
Growth: 14% ---------------------------------------------------
Fixed Income: 14% Barr Rosenberg
Cash: 14% U.S. Small Capitalization Fund 4.8
Value: 13% ---------------------------------------------------
Sector Funds: 7% Oakmark Small Capital Fund 4.8
---------------------------------------------------
Baron Asset Fund 4.7
---------------------------------------------------
White Oak Growth Stock Fund 4.2
---------------------------------------------------
TOTAL 55.4%
---------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------
MIX AS OF MIX AS OF TARGET MIX IN
10/31/97 4/30/97 NEUTRAL MARKETS
- --------------------------------------------------------
<S> <C> <C> <C>
Equity funds 72% 87% 80%
- --------------------------------------------------------
Bond funds 14% 10% 15%
- --------------------------------------------------------
Cash equivalents 14% 3% 5%
- --------------------------------------------------------
TOTAL 100% 100% 100%
- --------------------------------------------------------
</TABLE>
1 This information is as of 10/31/97 and may not be indicative of current or
future investments. A complete listing of the Fund's holdings as of
10/31/97 can be found in the Schedule of Investments later in this report.
14
<PAGE> 17
ONESOURCE PORTFOLIOS -- BALANCED ALLOCATION FUND
ASSET MIX 2 TOP TEN HOLDINGS 2
---------------------------------------------------
MUTUAL FUND % OF FUND INVESTMENTS
---------------------------------------------------
Equity Funds: 55% Strong Advantage Fund 12.9
Bond Funds: 25% ---------------------------------------------------
Cash Equivalents: 20% Janus Overseas Fund 5.4
---------------------------------------------------
American Century -- Benham
Intermediate Term Treasury Fund 4.9
Fixed Income: 25% ---------------------------------------------------
Cash: 20% Federated U.S. Government Securities
Aggressive Growth: 13% Fund 1 - 3 yrs. -- Institutional Shares 4.8
International: 16% ---------------------------------------------------
Value: 9% Sound Shore Fund 4.6
Growth: 9% ---------------------------------------------------
Sector Funds: 4% Longleaf Partners Realty Fund 4.6
Balanced: 4% Thornburg Limited Term
---------------------------------------------------
U.S. Government Fund -- Class I 4.0
---------------------------------------------------
Oakmark Small Capital Fund 3.8
---------------------------------------------------
Franklin California Growth Fund 3.7
---------------------------------------------------
Baron Asset Fund 3.7
---------------------------------------------------
TOTAL 52.4%
---------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------
Mix as of Mix as of Target mix in
10/31/97 4/30/97 Neutral Markets
- --------------------------------------------------------
<S> <C> <C> <C>
Equity funds 55% 66% 60%
- --------------------------------------------------------
Bond funds 25% 18% 35%
- --------------------------------------------------------
Cash equivalents 20% 16% 5%
- --------------------------------------------------------
TOTAL 100% 100% 100%
- --------------------------------------------------------
</TABLE>
2 This information is as of 10/31/97 and may not be indicative of current or
future investments. A complete listing of the Fund's holdings as of
10/31/97 can be found in the Schedule of Investments later in this report.
15
<PAGE> 18
Schwab OneSource Portfolios -- Growth Allocation and Balanced Allocation Funds
FUND PERFORMANCE
The graph to the right compares the growth of a hypothetical $10,000 investment
in the Schwab OneSource Portfolios -- Growth Allocation and Balanced Allocation
Funds, made at their inception, with similar investments in the S&P 500(R) Index
and the Lehman Brothers General U.S. Government Index (Lehman Government Bond
Index). A detailed analysis of the respective performances of the Funds and the
indices is provided in the Questions to the Portfolio Management Team section.
THIS INFORMATION IS HISTORICAL AND DOES NOT REPRESENT FUTURE RESULTS. TOTAL
RETURNS ASSUME REINVESTMENT OF ALL DIVIDEND AND CAPITAL GAIN DISTRIBUTIONS.
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.
Indices are unmanaged and do not reflect advisory fees and other expenses
associated with an investment in the Fund. Investors cannot invest in an index
directly.
OneSource Portfolios --
Growth Allocation and Balanced Allocation Funds
Growth of a Hypothetical $10,000 Investment
<TABLE>
<CAPTION>
Date Growth Allocation Fund Balanced Allocation Fund S&P 500 Index Lehman Gov't Bond Index
- ---- ---------------------- ------------------------ ------------- -----------------------
<S> <C> <C> <C> <C>
11/18/96 $10,000 $10,000 $10,000 $10,000
11/30/96 $10,120 $10,100 $10,271 $10,075
12/31/96 $10,077 $10,059 $10,068 $9,972
01/31/97 $10,371 $10,322 $10,696 $9,983
02/28/97 $10,310 $10,271 $10,780 $9,997
03/31/97 $10,016 $10,018 $10,338 $9,891
04/30/97 $10,229 $10,200 $10,955 $10,033
05/31/97 $10,848 $10,676 $11,621 $10,120
06/30/97 $11,274 $11,041 $12,141 $10,233
07/31/97 $11,841 $11,517 $13,106 $10,524
08/31/97 $11,547 $11,284 $12,372 $10,419
09/30/97 $12,145 $11,770 $13,049 $10,576
10/31/97 $11,760 $11,527 $12,613 $10,759
</TABLE>
_____ = Growth Allocation Fund
- ----- = Balanced Allocation Fund
===== = S&P 500 Index
+++++ = Lehman Gov't Bond Index
CUMULATIVE TOTAL RETURNS FOR THE PERIOD ENDED 10/31/97
<TABLE>
<CAPTION>
Since inception (11/18/96)
- --------------------------------------------------------------------------------
<S> <C>
OneSource Portfolios -- Growth Allocation Fund 1 17.60%
- --------------------------------------------------------------------------------
OneSource Portfolios -- Balanced Allocation Fund 1 15.27%
- --------------------------------------------------------------------------------
S&P 500 Index 26.13%
- --------------------------------------------------------------------------------
Lehman Government Bond Index 7.59%
- --------------------------------------------------------------------------------
</TABLE>
CUMULATIVE TOTAL RETURNS FOR THE PERIOD ENDED 9/30/97
<TABLE>
<CAPTION>
Since inception (11/18/96)
- --------------------------------------------------------------------------------
<S> <C>
OneSource Portfolios -- Growth Allocation Fund 1 21.45%
- --------------------------------------------------------------------------------
OneSource Portfolios -- Balanced Allocation Fund 1 17.70%
- --------------------------------------------------------------------------------
</TABLE>
1 The Investment Manager and Schwab waived a portion of their fees during the
reporting period and have guaranteed through at least 2/28/99 that total
operating expenses will not exceed 0.50%. Without fee waivers and
guarantees, as of 10/31/97, the cumulative since inception total returns
would have been 16.81% and 14.23%, respectively, for the Growth Allocation
and the Balanced Allocation Funds. As of 9/30/97, the cumulative since
inception total returns would have been 20.64% and 16.73%, respectively,
for the Growth Allocation and Balanced Allocation Funds.
16
<PAGE> 19
Schwab OneSource Portfolios -- Growth Allocation and Balanced Allocation Funds
QUESTIONS TO THE PORTFOLIO MANAGEMENT TEAM
Q: HOW DID THE FUNDS PERFORM DURING THE ONE-YEAR REPORTING PERIOD?
A: As shown in the table on page 16, the Growth Allocation Fund and the Balanced
Allocation Fund produced respective total returns of 17.60% and 15.27% for the
period from inception (11/18/96) through October 31, 1997. Bear in mind that the
target equity allocations are 80% and 60%, respectively, for the Growth and
Balanced Allocation Funds. Given the stronger performance of the equity asset
class relative to that of bonds, the relative performances of the two Funds and
the indices remain consistent with our long-term expectations. However, we
anticipate there may be future periods in which the short-term results could be
reversed in markets where bonds may outperform equities.
Q: WHICH ASSET CLASSES OR FUNDS PERFORMED WELL FOR THE FUNDS?
A: As shown in the Market Overview section, large-cap and small-cap domestic
equities represented the strongest performing asset classes during the reporting
period. The strong performance of these sectors has been the primary factor
determining the relative performances of the two OneSource Portfolio Allocation
Funds and their performances relative to other indices.
Actively managed stock funds had a difficult time outperforming the various
benchmark indices, such as the S&P 500 Index, because much of the growth during
the reporting period was concentrated within a narrow group of large-cap stocks.
Funds with greater allocations to equities, particularly to large-cap domestic
equities, produced the best performance. Keep in mind that the target equity
allocations are 80% for the Growth Allocation Fund and 60% for the Balanced
Allocation Fund.
Q: HOW DID THE FUNDS' STRATEGIES CHANGE DURING THE REPORTING PERIOD? RELATIVE TO
THEIR NEUTRAL TARGETS, HOW WERE THE FUNDS POSITIONED AT THE CLOSE OF THE
REPORTING PERIOD?
Q: The graphs on the following page show the two Funds' actual asset mixes
during the reporting period. Our strategy in both portfolios is still very much
value oriented and prompted us to increase our exposure to small-cap stock funds
(based on a more favorable one-year return outlook) and decrease our exposure to
large-cap stock funds in the latter part of the reporting period. Both Funds,
particularly the Balanced Allocation Fund, remained underweighted in bonds and
overweighted in cash equivalents reflecting our assessment that as the spread
between these two asset classes narrowed, cash equivalents became more
attractive relative to bonds on a risk/reward basis and our continued cautionary
stance.
Q: HOW DO THE ONESOURCE ALLOCATION PORTFOLIOS ATTEMPT TO MINIMIZE VOLATILITY?
WHAT IMPACT SHOULD THE RECENT MARKET VOLATILITY HAVE ON MY INVESTMENT ALLOCATION
TO THE ONESOURCE ALLOCATION PORTFOLIOS?
A: A primary objective of the OneSource Allocation Portfolios is to combine
asset classes to enhance the return and risk profile of a total portfolio, based
on the prevailing market outlook. Over the long term, we anticipate that the
performance of the Balanced Allocation Fund, with a higher proportion of its
assets allocated to bonds, should exhibit less volatility than that of the
Growth Allocation Fund. This expectation is based on the fact that bonds
historically have exhibited less volatility than stocks; therefore, as the
proportion of the portfolio allocated to bonds increases, volatility should
decrease.
17
<PAGE> 20
Schwab OneSource Portfolios -- Growth Allocation and Balanced Allocation Funds
QUESTIONS TO THE PORTFOLIO MANAGEMENT TEAM (continued)
ONESOURCE PORTFOLIOS -- GROWTH ALLOCATION
ACTUAL ASSET MIX
<TABLE>
<CAPTION>
ONESOURCE - GROWTH
11/29/96 12/31/96 1/31/97 2/28/97 3/31/97 4/30/97 5/31/97 6/30/97 7/31/97 8/31/97 9/30/97 10/31/97
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CASH 20.41% 11.63% 9.28% 8.40% 14.71% 9.67% 11.62% 13.17% 10.97% 14.27% 11.12% 13.85%
BONDS 5.93% 2.99% 2.84% 6.01% 6.10% 6.14% 7.87% 7.87% 10.84% 11.09% 9.23% 14.29%
INTERNATIONAL EQUITY 17.65% 18.89% 17.90% 17.49% 20.03% 23.67% 23.27% 25.73% 24.96% 23.88% 23.11% 20.43%
SMALL CAP EQUITY 10.20% 11.00% 11.92% 9.59% 4.96% 6.96% 9.59% 10.10% 12.95% 17.91% 18.16% 18.18%
LARGE CAP EQUITY 45.81% 55.49% 58.06% 58.51% 54.20% 53.56% 47.65% 43.13% 40.28% 32.65% 38.38% 33.25%
100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
</TABLE>
* = Large-cap equity
** = Small-cap equity
*** = International equity
+ = Bonds
++ = Cash Equivalents
ONESOURCE PORTFOLIOS -- BALANCED ALLOCATION
ACTUAL ASSET MIX
<TABLE>
<CAPTION>
ONESOURCE - BALANCED
11/29/96 12/31/96 1/31/97 2/28/97 3/31/97 4/30/97 5/31/97 6/30/97 7/31/97 8/31/97 9/30/97 10/31/97
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CASH 27.26% 22.74% 19.37% 21.65% 22.62% 22.26% 21.75% 16.59% 14.36% 17.09% 15.84% 19.80%
BONDS 13.76% 6.90% 9.58% 12.21% 13.14% 13.12% 15.00% 19.90% 27.90% 28.11% 25.46% 24.94%
INTERNATIONAL 13.19% 13.86% 13.52% 12.48% 16.36% 18.91% 17.90% 20.06% 20.11% 19.01% 18.11% 15.83%
EQUITY
SMALL CAP EQUITY 7.60% 6.53% 11.20% 8.28% 4.02% 5.30% 6.76% 7.58% 6.69% 12.93% 12.74% 12.89%
LARGE CAP EQUITY 38.19% 47.97% 46.33% 45.36% 43.86% 40.42% 38.59% 35.87% 28.94% 22.86% 27.83% 26.44%
.00% 0.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
</TABLE>
* = Large-cap equity
** = Small-cap equity
*** = International equity
+ = Bonds
++ = Cash Equivalents
As a result of their respective asset allocation strategies, both OneSource
Allocation Portfolios should exhibit less volatility than an all stock fund such
as an S&P 500(R) Index fund. For example, on October 27, 1997, the S&P 500 Index
lost 6.87% -- the largest single day decline during the reporting period. By
comparison, on that same day, the OneSource Portfolios -- Growth Allocation and
Balanced Allocation Funds lost only 3.71% and 2.69%, respectively.
Although both domestic and international markets experienced significant
volatility during, and especially towards the end of the reporting period, it is
important to maintain a long-term perspective. Even with correc-
18
<PAGE> 21
tions of 10.8% during the month of October 1997, both the S&P 500 Index and the
MSCI-EAFE Index achieved positive returns for the one-year period ended October
31, 1997. In fact, market declines of at least 10% are not particularly unusual
and occur on average about once every three years. 1 These corrections,
however, may not be so apparent over a longer period, which tends to smooth out
the impacts of short-term volatility.
We think the most meaningful way for investors to evaluate their exposure to
domestic as well as international market risk is not on an individual fund
basis, but with regard to 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 your asset allocation strategy and total
portfolio exposure should be set at an appropriate level for you -- one that
allows you to "ride out" market downturns over the long term. The different risk
and potential return profiles of the two OneSource Allocation Portfolios offer
one way to achieve long-term exposure to the equity markets, taking into
consideration that each individual investor has a different tolerance for risk
and should have a portfolio with a risk profile that reflects that tolerance
level.
1 Source: Mark W. Riepe and Derek A. Sasveld, "Equity Investments," in Scott
L. Lummer and Mark W. Riepe (ed.), Pension Investment Handbook 1998
Supplement, New York: Panel Publishing, 1998.
19
<PAGE> 22
SCHWAB ONESOURCE PORTFOLIOS -- SMALL COMPANY FUND
We are pleased to present the first report to shareholders of the Schwab
OneSource Portfolios -- Small Company Fund, which commenced operations on
September 16, 1997. The Fund seeks long-term capital appreciation, investing
primarily in small company equity funds.
ASSET MIX 1 TOP TEN HOLDINGS 1
---------------------------------------------------
MUTUAL FUND % OF FUND INVESTMENTS
---------------------------------------------------
Neuberger & Berman Fund 10.7
---------------------------------------------------
Oakmark Small Capital Fund 10.2
---------------------------------------------------
Managers Special Equity Fund 8.4
---------------------------------------------------
State Street Research Aurora Fund --
Cash Equivalents: 6% Class A 6.3
---------------------------------------------------
Mid-Cap Funds: 4% Longleaf Partners Small Cap Fund 5.9
---------------------------------------------------
Micro-Cap Funds: 11% Munder Small Company Growth Fund --
Class Y 5.9
Small-Cap Funds: 79% ---------------------------------------------------
Royce Premier Fund 5.8
---------------------------------------------------
Compass Small Cap Value Equity Portfolio 5.7
---------------------------------------------------
Heritage Small Cap Stock Fund 4.3
---------------------------------------------------
State Street Research Global Energy
Fund -- Class A 4.0
---------------------------------------------------
TOTAL 67.2%
---------------------------------------------------
1 This information is as of 10/31/97 and may not be indicative of current or
future investments. A complete listing of the Fund's holdings as of
10/31/97 can be found in the Schedule of Investments later in this report.
20
<PAGE> 23
Schwab OneSource Portfolios -- Small Company Fund
FUND PERFORMANCE
The graph to the right compares the growth of a hypothetical $10,000 investment
in the Schwab OneSource Portfolios -- Small Company Fund, made at its inception,
with a similar investment in the Russell 2000 Index. A detailed analysis of the
respective performance of the Fund and the index is provided in the Questions to
the Portfolio Management Team section.
THIS INFORMATION IS HISTORICAL AND DOES NOT REPRESENT FUTURE RESULTS. TOTAL
RETURNS ASSUME REINVESTMENT OF ALL DIVIDEND AND CAPITAL GAIN DISTRIBUTIONS.
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.
Indices are unmanaged and do not reflect advisory fees and other expenses
associated with an investment in the Fund. Investors cannot invest in an index
directly.
ONESOURCE PORTFOLIOS -- SMALL COMPANY FUND
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
<TABLE>
<CAPTION>
SMALL COMPANY FUND RUSSELL 2000
------------------ ------------
<S> <C> <C>
9/16/97 $10,000 $10,000
9/30/97 $10,260 $10,201
10/31/97 $ 9,930 $ 9,753
</TABLE>
- --------- = Small Company Fund
_________ = Russell 2000 Index
CUMULATIVE TOTAL RETURNS FOR THE PERIOD ENDED 10/31/97
<TABLE>
<CAPTION>
Since inception (9/16/97)
- --------------------------------------------------------------------------------
<S> <C>
ONESOURCE PORTFOLIOS -- SMALL COMPANY FUND 1 -0.70%
- --------------------------------------------------------------------------------
Russell 2000 Index -2.47%
- --------------------------------------------------------------------------------
</TABLE>
CUMULATIVE TOTAL RETURN FOR THE PERIOD ENDED 9/30/97
<TABLE>
<CAPTION>
Since inception (9/16/97)
- --------------------------------------------------------------------------------
<S> <C>
ONESOURCE PORTFOLIOS -- SMALL COMPANY FUND 1 2.60%
- --------------------------------------------------------------------------------
</TABLE>
1 The Investment Manager and Schwab waived a portion of their fees during the
reporting period and have guaranteed through at least 2/28/99 that total
operating expenses will not exceed 0.50%. Without fee waivers and
guarantees, as of 10/31/97 and as of 9/30/97, the cumulative since
inception total returns would have been -0.79% and 2.57%, respectively.
21
<PAGE> 24
Schwab OneSource Portfolios -- Small Company Fund
QUESTIONS TO THE PORTFOLIO MANAGEMENT TEAM
Q: HOW DID THE FUND'S PERFORMANCE DURING THE REPORTING PERIOD COMPARE TO THAT OF
ITS BENCHMARK, THE RUSSELL 2000 INDEX?
A: The Fund commenced operations on September 16, 1997, and as a result, its
entire operating history as of the end of its October 31 fiscal year was
approximately six weeks. Although it is a requirement that we report the Fund's
performance to you for this short period, we also think it is important to
caution investors about such short-term performance comparisons. Simply put,
they just typically are not very useful and it might not be prudent to use them
to draw any meaningful conclusions.
The Fund had an inception-to-date total return of -0.70% which, although
negative, still compared favorably to the Russell 2000 Index total return of
- -2.47% for the same period. The reason for the Fund's better performance was a
slight tilt towards value funds. Additionally, the Fund's limited exposure to
aggressive growth funds and those with heavy technology exposure as well as a
significant exposure to micro-cap funds also helped.
Q: HOW WERE THE INITIAL FUNDS SELECTED? WHAT WERE THE PORTFOLIO CONSTRUCTION
OBJECTIVES?
A: The underlying funds were selected based on the same criteria as those for
the other OneSource Portfolios -- an expectation of superior risk-adjusted
return and a history of style consistency. It is our objective to achieve
superior performance when compared to the Fund's benchmark, the Russell 2000
Index, through better risk control and an emphasis on funds that overweight the
style, sector, and capitalization attributes that we anticipate should provide
the most attractive opportunities based on our risk/return outlook for
small-company stocks.
Q: WHY ARE SMALL-COMPANY STOCKS AN ATTRACTIVE INVESTMENT OPTION? HOW SHOULD THEY
FIT INTO AN ASSET ALLOCATION PLAN?
A: Small-company stocks have certain characteristics that may make them
attractive elements of a well-diversified investment portfolio. Historically,
small company stocks have exhibited among the highest return potential and
volatility characteristics of all major classes of investment assets.
For the 20-year period ended 1996, small-company stocks provided an average
annual return of 16.6% as compared to the 14.5% returns produced by
large-company stocks (as measured by the S&P 500 Index(R)) and the 14.6% returns
of international stocks (as measured by the MSCI-EAFE Index). However, during
that same period, small-company stocks also exhibited the greatest volatility,
as measured by the annual standard deviation of 19.4%. Large-company and
international stocks had lower deviations of 14.4% and 17.0%, respectively, for
the same period. 1
Small-company stocks can be added to a diversified, long-term investment plan
and may enhance the portfolio's long-term total return potential. However, there
is also greater price volatility associated with small-company stocks which may
be the result of their
1 Source: As reported by BARRA, Inc. Specific sources for data are the S&P
500 for large-company stocks, Ibbotson and BARRA Small-Cap Indexes for
small company stocks, and the MSCI-EAFE Index for international stocks.
22
<PAGE> 25
having less market liquidity or publicly available information than
large-company stocks. There may also be fewer investors who monitor the
activities of small companies than investors who monitor the activities of large
companies. Typically, because of the volatility characteristics of small-company
stocks, investors with higher risk tolerances and longer-term investment
horizons may be able to consider a larger allocation to small-company stocks.
Investors with lower risk tolerances and shorter-term investment horizons may
want to consider a lower allocation to small-company stocks. Since small-company
stock returns are not perfectly correlated with returns of other major asset
classes (such as large-company stocks, international stocks, or bonds),
combining small-company stocks in a portfolio with other asset classes may
provide total portfolio returns with lower return volatility characteristics
than those of an all small-company stock portfolio.
Q: HOW HAS THE RECENT PERFORMANCE OF SMALL-CAP STOCKS COMPARED TO THAT OF
LARGE-CAP STOCKS?
A: As shown on the following graphs, the total returns for domestic large-cap
and small-cap stocks have been fairly comparable during the decade of the '90s.
However, as has been characteristic of these asset classes in the past, there
have been sub-periods of relative under and overperformance. As the second graph
shows, small-cap stocks generally outperformed large-cap stocks for the period
from 1991 to 1993. Large-cap stocks have been the clear winner from 1994 through
the second quarter of 1997. Although not readily apparent from viewing these
graphs, small-cap stocks also have exhibited a higher level of volatility thus
far in the 1990s.
LARGE-CAP AND SMALL-CAP RETURNS IN THE '90S
______ = Large-Cap Returns
------ = Small-Cap Returns
<TABLE>
<CAPTION>
1.000 1.000
LARGE-CAP SMALL-CAP
--------- ---------
<S> <C> <C>
Jan-90 93.3% 91.7%
Feb-90 94.5% 94.2%
Mar-90 97.0% 97.2%
Apr-90 94.6% 93.6%
May-90 103.8% 101.0%
Jun-90 103.0% 101.0%
Jul-90 102.7% 97.4%
Aug-90 93.5% 85.7%
Sep-90 88.9% 78.8%
Oct-90 88.6% 75.1%
Nov-90 94.3% 81.5%
Dec-90 96.8% 85.1%
Jan-91 101.1% 91.9%
Feb-91 108.4% 101.3%
Mar-91 110.9% 106.8%
Apr-91 111.2% 106.6%
May-91 116.0% 111.5%
Jun-91 110.7% 105.6%
Jul-91 115.9% 111.6%
Aug-91 118.6% 115.8%
Sep-91 116.6% 115.8%
Oct-91 118.2% 118.4%
Nov-91 113.4% 113.6%
Dec-91 126.4% 124.9%
Jan-92 124.0% 131.1%
Feb-92 125.6% 134.5%
Mar-92 123.2% 130.2%
Apr-92 126.8% 127.6%
May-92 127.5% 128.8%
Jun-92 125.6% 124.3%
Jul-92 130.7% 129.0%
Aug-92 128.0% 125.6%
Sep-92 129.5% 127.7%
Oct-92 130.0% 131.5%
Nov-92 134.3% 140.2%
Dec-92 136.1% 145.1%
Jan-93 137.1% 148.6%
Feb-93 138.9% 146.5%
Mar-93 142.0% 152.0%
Apr-93 138.5% 147.6%
May-93 142.2% 153.5%
Jun-93 142.7% 155.1%
Jul-93 142.0% 156.1%
Aug-93 147.4% 163.0%
Sep-93 146.3% 166.1%
Oct-93 149.3% 168.1%
Nov-93 148.0% 162.7%
Dec-93 149.8% 169.1%
Jan-94 154.8% 174.4%
Feb-94 150.6% 173.8%
Mar-94 144.1% 165.3%
Apr-94 146.0% 166.3%
May-94 148.4% 164.6%
Jun-94 144.7% 159.5%
Jul-94 149.5% 163.8%
Aug-94 155.6% 172.6%
Sep-94 151.9% 170.9%
Oct-94 155.3% 171.2%
Nov-94 149.6% 163.7%
Dec-94 151.8% 167.3%
Jan-95 155.8% 166.9%
Feb-95 161.8% 175.3%
Mar-95 166.5% 179.6%
Apr-95 171.4% 182.8%
May-95 178.2% 186.7%
Jun-95 182.4% 195.6%
Jul-95 188.5% 207.2%
Aug-95 189.0% 210.5%
Sep-95 197.0% 214.5%
Oct-95 196.3% 207.7%
Nov-95 205.0% 216.6%
Dec-95 208.9% 220.3%
Jan-96 216.0% 221.9%
Feb-96 218.2% 228.6%
Mar-96 220.3% 233.2%
Apr-96 223.7% 244.0%
May-96 229.4% 250.6%
Jun-96 230.3% 242.9%
Jul-96 220.1% 225.1%
Aug-96 224.9% 238.1%
Sep-96 237.5% 248.4%
Oct-96 244.0% 246.8%
Nov-96 262.5% 258.7%
Dec-96 257.4% 262.2%
Jan-97 273.5% 269.5%
Feb-97 275.7% 265.5%
Mar-97 264.2% 253.5%
Apr-97 280.0% 256.7%
May-97 297.2% 280.3%
Jun-97 310.3% 291.8%
Jul-97 335.0% 308.9%
Aug-97 316.5% 313.2%
Sep-97 333.8% 333.6%
Oct-97 322.8% 318.6%
</TABLE>
LARGE-CAP AND SMALL-CAP RELATIVE PERFORMANCE
LARGE-CAP STRONG RELATIVE PERFORMANCE
SMALL-CAP STRONG RELATIVE PERFORMANCE
<TABLE>
<CAPTION>
<S> <C>
Q190 -0.3%
Q290 2.3%
Q390 8.2%
Q490 1.0%
Q191 -10.9%
Q291 0.0%
Q391 -3.2%
Q491 0.5%
Q192 -6.8%
Q292 6.5%
Q392 0.4%
Q492 -8.5%
Q193 -0.4%
Q293 -1.6%
Q393 -4.5%
Q493 0.6%
Q194 -1.6%
Q294 4.0%
Q394 -2.2%
Q494 2.1%
Q195 2.3%
Q295 0.6%
Q395 -1.6%
Q495 3.3%
Q196 -0.4%
Q296 0.4%
Q396 0.9%
Q496 2.8%
Q197 6.0%
Q297 2.3%
Q397 -6.8%
</TABLE>
23
<PAGE> 26
SCHWAB ONESOURCE PORTFOLIOS--INTERNATIONAL
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
October 31, 1997
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
---------- -------
<S> <C> <C>
MUTUAL FUNDS--93.9%
American Century-Twentieth
Century International
Discovery Fund+ 304,961 $ 2,678
American Century-Twentieth
Century International
Growth Fund 809,270 7,486
Berger/Biam International
Core Fund+ 221,885 2,376
BT International Equity Fund 407,699 8,361
Excelsior Pan European Fund 430,970 5,266
Federated International Small
Company Fund+ 293,686 4,314
Hotchkis & Wiley
International Fund 213,711 5,061
Invesco European Small
Company Fund 107,877 1,729
Ivy International Fund
Class A 147,086 5,700
Janus Overseas Fund 417,564 7,491
Oakmark International Fund 295,016 4,959
Oppenheimer International
Growth Fund Class A+ 425,338 6,163
<CAPTION>
Number Value
of Shares (000s)
---------- -------
<S> <C> <C>
Scudder Japan Fund 617,450 $ 5,014
SoGen Overseas Fund 550,253 7,704
Swiss Helvetia Fund Inc. 40,000 955
Van Eck Global Hard Assets
Fund Class A 46,927 834
-------
TOTAL MUTUAL FUNDS
(Cost $72,528) 76,091
-------
</TABLE>
<TABLE>
<CAPTION>
Par
----------
<S> <C> <C>
CASH EQUIVALENTS--6.1%
MSTC Cash Reserve Liquid
Asset Fund
5.38%*, 11/07/97 $4,924,802 4,925
-------
TOTAL CASH EQUIVALENTS
(Cost $4,925) 4,925
-------
TOTAL INVESTMENTS--100.0%
(Cost $77,453) $81,016
=======
</TABLE>
See accompanying Notes to Schedules of Investments and Notes to Financial
Statements.
24
<PAGE> 27
SCHWAB ONESOURCE PORTFOLIOS--GROWTH ALLOCATION
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
October 31, 1997
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- --------
<S> <C> <C>
MUTUAL FUNDS--93.6%
American Century-Twentieth
Century International
Discovery Fund+ 212,540 $ 1,866
American Century-Benham
Intermediate Term Treasury
Fund 289,238 3,043
American Century-Benham Long
Term Treasury Fund 190,146 1,970
American Century-Benham
Target 2020+ 133,075 3,846
American Century-Twentieth
Century International
Growth Fund 756,086 6,994
Baron Asset Fund 129,028 5,983
Barr Rosenberg U.S. Small
Capitalizaton Fund 655,129 6,112
BT International Equity Fund 171,095 3,509
Excelsior Long Term Supply
Fund 97,784 1,406
Federated U.S. Government
Securities Fund 1-3 Years
Institutional Shares 290,266 3,022
Franklin California Growth
Fund 303,817 7,200
Ivy International Fund
Class A 56,719 2,198
Janus Overseas Fund 434,470 7,794
Kemper Short Intermediate
Government Fund Class A 160,690 1,257
Longleaf Partners Realty Fund 401,033 7,154
Oakmark Small Capital Fund+ 307,343 6,039
Oppenheimer Bond Fund for
Growth Class A 159,625 2,568
<CAPTION>
Number Value
of Shares (000s)
--------- --------
<S> <C> <C>
Papp American Abroad Fund 83,731 $ 2,109
PIMCO Long Term U.S.
Government Fund 71,444 745
Robertson Stephens Partners
Fund+ 271,192 4,936
Scudder Japan Fund 440,349 3,576
Sound Shore Fund 292,473 8,362
Strong Advantage Fund 931,155 9,396
Strong Schafer Value Fund 55,172 3,553
Thornburg Limited Term U.S.
Government Fund Class I 136,131 1,685
Torray Fund 147,139 4,655
Westwood Equity Retail Fund 259,389 2,402
White Oak Growth Stock Fund 183,130 5,364
--------
TOTAL MUTUAL FUNDS
(Cost $108,420) 118,744
--------
</TABLE>
<TABLE>
<CAPTION>
Par
----------
<S> <C> <C>
CASH EQUIVALENTS--6.4%
MSTC Cash Reserve Liquid
Asset Fund
5.38%*, 11/07/97 $8,163,128 8,163
--------
TOTAL CASH EQUIVALENTS
(Cost $8,163) 8,163
--------
TOTAL INVESTMENTS--100.0%
(Cost $116,583) $126,907
========
</TABLE>
See accompanying Notes to Schedules of Investments and Notes to Financial
Statements.
25
<PAGE> 28
SCHWAB ONESOURCE PORTFOLIOS--BALANCED ALLOCATION
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
October 31, 1997
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- -------
<S> <C> <C>
MUTUAL FUNDS--93.1%
American Century-Twentieth
Century International
Discovery Fund+ 82,359 $ 723
American Century-Benham
Intermediate Term Treasury
Fund 289,238 3,043
American Century-Benham Long
Term Treasury Fund 188,502 1,953
American Century-Benham Target
2020+ 64,914 1,876
American Century-Twentieth
Century International Growth
Fund 245,015 2,266
Baron Asset Fund 49,998 2,318
Barr Rosenberg U.S. Small
Capitalizaton Fund 197,551 1,843
BT International Equity Fund 83,551 1,714
Federated U.S. Government
Securities Fund 1-3 Years
Institutional Shares 290,266 3,022
Franklin California Growth
Fund 98,412 2,332
Ivy International Fund Class A 13,687 530
Janus Overseas Fund 188,232 3,377
Kemper Short Intermediate
Government Fund Class A 78,384 613
Longleaf Partners Realty Fund 162,452 2,898
Oakmark Small Capital Fund+ 119,319 2,345
Oppenheimer Bond Fund for
Growth Class A 115,426 1,857
Papp American Abroad Fund 40,909 $ 1,030
<CAPTION>
Number Value
of Shares (000s)
--------- -------
<S> <C> <C>
PIMCO Long Term U.S.
Government Fund 70,827 739
Robertson Stephens Partners
Fund+ 85,523 1,557
Scudder Japan Fund 166,191 1,349
Sound Shore Fund 101,646 2,906
Strong Advantage Fund 800,988 8,083
Strong Schafer Value Fund 17,852 1,149
Thornburg Limited Term U.S.
Government Fund Class I 202,431 2,506
Torray Fund 53,185 1,683
Westwood Balanced Fund 196,753 2,231
Westwood Equity Retail Fund 105,464 977
White Oak Growth Stock Fund 46,167 1,352
-------
TOTAL MUTUAL FUNDS
(Cost $54,125) 58,272
-------
</TABLE>
<TABLE>
<CAPTION>
Par
----------
<S> <C> <C>
CASH EQUIVALENTS--6.9%
MSTC Cash Reserve Liquid
Asset Fund
5.38%*, 11/07/97 $4,301,789 4,302
-------
TOTAL CASH EQUIVALENTS
(Cost $4,302) 4,302
-------
TOTAL INVESTMENTS--100.0%
(Cost $58,427) $62,574
=======
</TABLE>
See accompanying Notes to Schedules of Investments and Notes to Financial
Statements.
26
<PAGE> 29
SCHWAB ONESOURCE PORTFOLIOS--SMALL COMPANY
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
October 31, 1997
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- --------
<S> <C> <C>
MUTUAL FUNDS--94.3%
Accessor Small to Mid Cap
Portfolio 168,728 $ 4,083
Baron Asset Fund 62,134 2,881
Barr Rosenberg U.S. Small
Capitalizaton Fund 133,175 1,243
Compass Small Cap Value
Equity Portfolio 592,523 11,702
Eclipse Equity Fund 312,145 5,453
Federated Mini Cap Fund 236,147 3,939
Fremont U.S. Micro Cap Fund 180,734 4,101
Heritage Small Cap Stock
Fund+ 295,837 8,990
Jurika & Voyles Mini Cap Fund 64,241 1,504
Lazard Bantam Value Portfolio
Retail Shares+ 117,371 1,991
Longleaf Partners Small Cap
Fund 548,354 12,239
Managers Special Equity Fund 281,304 17,455
Munder Small Company Growth
Fund Class Y+ 485,962 12,193
Neuberger & Berman Fund+ 1,326,191 22,082
Nicholas Applegate Mini Cap
Growth Institutional
Portfolio+ 110,103 2,602
Oakmark Small Capital Fund+ 1,077,367 21,170
Perritt Growth Fund+ 33,426 593
Robertson Stephens Micro Cap
Growth Fund+ 205,028 2,983
Royce Premier Fund+ 1,275,326 12,090
Royce Total Return Fund+ 312,907 $ 2,397
<CAPTION>
Number Value
of Shares (000s)
--------- --------
<S> <C> <C>
Schroder Small Capitalization
Value Fund+ 158,211 2,797
Scudder Micro Cap Fund 156,225 2,793
Skyline Special Equities II
Portfolio+ 293,542 4,394
State Street Research Aurora
Fund Class A 640,736 12,975
State Street Research Global
Energy Fund Class A 317,523 8,310
Strong Advantage Fund 687 7
Turner Small Cap Fund+ 179,135 4,455
Wachovia Special Values Fund
Class Y+ 183,585 3,488
Wasatch Micro Cap Fund+ 1,024,390 4,333
--------
TOTAL MUTUAL FUNDS
(Cost $198,033) 195,243
--------
</TABLE>
<TABLE>
<CAPTION>
Par
-----------
<S> <C> <C>
CASH EQUIVALENTS--5.7%
MSTC Cash Reserve Liquid
Asset Fund
5.38%*, 11/07/97 $11,766,924 11,767
--------
TOTAL CASH EQUIVALENTS
(Cost $11,767) 11,767
--------
TOTAL INVESTMENTS--100.0%
(Cost $209,800) $207,010
========
</TABLE>
- ---------------
NOTES TO SCHEDULES OF INVESTMENTS
+ Non-Income Producing Security.
* Interest rate represents the yield on report date.
See accompanying Notes to Financial Statements.
27
<PAGE> 30
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES (in thousands)
October 31, 1997
<TABLE>
<CAPTION>
Schwab OneSource Portfolios
--------------------------------------------------
Growth Balanced Small
International Allocation Allocation Company
------------- ---------- ---------- --------
<S> <C> <C> <C> <C>
ASSETS
Investments at value (Cost $77,453, $116,583, $58,427 and $209,800,
respectively) $81,016 $126,907 $ 62,574 $207,010
Receivable for fund shares sold 118 105 114 387
Dividends receivable -- 94 95 358
Interest receivable 5 17 11 23
Miscellaneous assets 55 14 14 11
------- -------- ------- --------
Total Assets 81,194 127,137 62,808 207,789
------- -------- ------- --------
LIABILITIES
Payable for investments purchased -- 3,090 1,593 358
Payable for fund shares redeemed 48 61 20 323
Payable for investment advisory fee -- 5 1 --
Payable to advisor -- -- -- 27
Custodian fee payable 24 6 4 6
Deferred organization costs payable 2 3 3 11
Accrued expenses 34 95 54 14
------- -------- ------- --------
Total Liabilities 108 3,260 1,675 739
------- -------- ------- --------
Net Assets applicable to outstanding shares $81,086 $123,877 $ 61,133 $207,050
======= ======== ======= ========
NET ASSETS CONSIST OF:
Paid-in-capital $75,514 $109,274 $ 54,840 $209,671
Undistributed (overdistributed) net investment income (43) 840 889 316
Accumulated net realized gain (loss) on investments sold 2,052 3,439 1,257 (147)
Net unrealized appreciation (depreciation) on investments 3,563 10,324 4,147 (2,790)
------- -------- ------- --------
$81,086 $123,877 $ 61,133 $207,050
======= ======== ======= ========
PRICING OF SHARES:
Outstanding shares, $0.00001 par value (unlimited shares
authorized) 7,465 10,681 5,371 20,857
Net asset value, offering and redemption price per share $10.86 $11.60 $11.38 $9.93
</TABLE>
See accompanying Notes to Financial Statements.
28
<PAGE> 31
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS (in thousands)
<TABLE>
<CAPTION>
Schwab OneSource Portfolios
----------------------------------------------------------
Growth Balanced Small
International Allocation Allocation Company
------------- ------------ ------------ ------------
Year ended Period ended Period ended Period ended
October 31, October 31, October 31, October 31,
1997 1997+ 1997+ 1997++
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Investment income:
Dividends $ 1,383 $ 2,307 $1,553 $ 399
Interest 80 160 89 41
------ ------- ------ -------
Total investment income 1,463 2,467 1,642 440
------ ------- ------ -------
Expenses:
Investment advisory and administration fee 589 733 357 192
Transfer agency and shareholder service fees 193 240 116 61
Custodian fees 44 25 25 6
Registration fees 81 123 92 24
Professional fees 22 39 28 14
Shareholder reports 48 42 42 10
Trustees' fees 7 8 6 1
Amortization of deferred organization costs 14 3 3 --
Insurance and other expenses 3 4 4 1
------ ------- ------ -------
1,001 1,217 673 309
Less expenses reduced and absorbed (Note 4) (616) (738) (440) (185)
------ ------- ------ -------
Total expenses incurred by Fund 385 479 233 124
------ ------- ------ -------
Net investment income 1,078 1,988 1,409 316
------ ------- ------ -------
Net realized gain (loss) on investments sold 1,075 2,349 804 (159)
Net realized gain received from underlying funds 977 1,090 453 12
Net unrealized appreciation (depreciation) on investments 4,087 10,324 4,147 (2,790)
------ ------- ------ -------
Net gain (loss) on investments 6,139 13,763 5,404 (2,937)
------ ------- ------ -------
Increase (decrease) in net assets resulting from operations $ 7,217 $ 15,751 $6,813 $ (2,621)
====== ======= ====== =======
</TABLE>
- ---------------
+ For the period from November 18, 1996 (commencement of operations) to October
31, 1997.
++ For the period from September 16, 1997 (commencement of operations) to
October 31, 1997.
See accompanying Notes to Financial Statements.
29
<PAGE> 32
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS (in thousands)
<TABLE>
<CAPTION>
Schwab OneSource Portfolios
-------------------------------------------------------------------
Growth Balanced Small
International Allocation Allocation Company
------------------------- ----------- ----------- -----------
Year Period
----------- ----------- Periods ended
ended ended ---------------------------------------
October 31, October 31, October 31, October 31, October 31,
1997 1996+ 1997++ 1997++ 1997+++
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Operations:
Net investment income $ 1,078 $ 12 $ 1,988 $ 1,409 $ 316
Net realized gain (loss) on investments 1,075 -- 2,349 804 (159)
Net realized gain received from underlying funds 977 -- 1,090 453 12
Net unrealized appreciation (depreciation) on
investments sold 4,087 (524) 10,324 4,147 (2,790)
-------- -------- -------- -------- ----------
Increase (decrease) in net assets resulting from
operations 7,217 (512) 15,751 6,813 (2,621)
-------- -------- -------- -------- ----------
Dividends to shareholders from net investment
income (1,090) -- (1,148) (520) --
Dividend in excess of net investment income (43) -- -- -- --
-------- -------- -------- -------- ----------
(1,133) -- (1,148) (520) --
-------- -------- -------- --------
Capital Share Transactions:
Proceeds from shares sold 46,429 59,980 140,642 69,114 218,803
Net asset value of shares issued in reinvestment
of dividends 1,062 -- 1,078 488 --
Less payments for shares redeemed (31,669) (288) (32,446) (14,762) (9,132)
-------- -------- -------- -------- ----------
Increase in net assets from capital share
transactions 15,822 59,692 109,274 54,840 209,671
-------- -------- -------- -------- ----------
Total increase in net assets 21,906 59,180 123,877 61,133 207,050
Net Assets:
Beginning of period 59,180 -- -- -- --
-------- -------- -------- -------- ----------
End of period (including undistributed
(overdistributed) net investment income of
$(43), $12, $840, $889, and $316, respectively) $ 81,086 $59,180 $ 123,877 $ 61,133 $ 207,050
======== ======== ======== ======== ==========
Number of Fund shares:
Sold 4,299 5,999 13,607 6,715 21,761
Reinvested 105 -- 112 49 --
Redeemed (2,909) (29) (3,038) (1,393) (904)
-------- -------- -------- -------- ----------
Net increase in shares outstanding 1,495 5,970 10,681 5,371 20,857
======== ======== ======== ======== ==========
</TABLE>
- ---------------
+ For the period from October 16, 1996 (commencement of operations) to
October 31, 1996.
++ For the period from November 18, 1996 (commencement of operations) to
October 31, 1997.
+++ For the period from September 16, 1997 (commencement of operations) to
October 31, 1997.
See accompanying Notes to Financial Statements.
30
<PAGE> 33
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
For a share outstanding throughout each period ended:
<TABLE>
<CAPTION>
Growth Balanced Small
International Allocation Allocation Company
------------------------- ----------- ----------- -----------
October 31, October 31, October 31, October 31, October 31,
1997 1996+ 1997++ 1997++ 1997+++
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period $ 9.91 $ 10.00 $ 10.00 $ 10.00 $ 10.00
Income from investment operations
Net investment income 0.17 -- 0.08 0.17 0.02
Net realized and unrealized gain (loss) on
investments 0.95 (0.09) 1.66 1.34 (.09)
----------- ----------- ----------- ----------- -----------
Total from investment operations 1.12 (0.09) 1.74 1.51 (0.07)
Less distributions
Dividends from net investment income (0.17) -- (0.14) (0.13) --
Dividends in excess of net investment income** -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Total distributions (0.17) -- (0.14) (0.13) --
----------- ----------- ----------- ----------- -----------
Net asset value at end of period $ 10.86 $ 9.91 $ 11.60 $ 11.38 $ 9.93
========== ========== ========== ========== ==========
Total return (not annualized) 11.47% (0.90)% 17.60% 15.27% (0.70)%
Ratios/Supplemental data
Net assets, end of period (in thousands) $81,086 $59,180 $ 123,877 $61,133 $ 207,050
Ratio of expenses to average net assets++ 0.50% 0.50%* 0.50%* 0.50%* 0.50%*
Ratio of net investment income to average net
assets++ 1.40% 0.52%* 2.07%* 3.03%* 1.29%*
Portfolio turnover rate 179% 0% 192% 171% 10%
</TABLE>
- ---------------
++ The information contained in the above table is based on actual expenses
for each 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 Funds' expense and net investment income ratios
would have been:
<TABLE>
<S> <C> <C> <C> <C> <C>
Ratio of expenses to average net assets 1.30% 3.41%* 1.27%* 1.45%* 1.25%*
Ratio of net investment income to average net
assets 0.60% (2.39)%* 1.30%* 2.08%* 0.54%*
</TABLE>
* Annualized
** Amount per share does not round to a full penny for the International Fund
as of October 31, 1997.
+ Period from October 16, 1996 (commencement of operations) to October 31,
1996.
++ Period from November 18, 1996 (commencement of operations) to October 31,
1997.
+++ Period from September 16, 1997 (commencement of operations) to October 31,
1997.
See accompanying Notes to Financial Statements.
31
<PAGE> 34
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
October 31, 1997
1. DESCRIPTION OF THE FUNDS
The Schwab OneSource Portfolios -- International, Growth Allocation, Balanced
Allocation, and Small Company (the "Funds") are 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 (the "1940 Act").
The investment objective for the International is to seek long-term capital
appreciation. The investment objective for the Growth Allocation is to provide
capital growth with less volatility than a portfolio comprised entirely of stock
funds. The investment objective for the Balanced Allocation is to provide
capital growth and income with less volatility than the Growth Allocation Fund.
The investment objective for the Small Company is to seek long-term capital
appreciation.
In addition to the Funds, the Trust also offers the Schwab International Index
Fund(R), 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 and Schwab Analytics Fund(R). 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 underlying funds are valued at their
respective net asset values as determined by those funds, in accordance with the
1940 Act, for a given day. Investments in securities traded on an exchange and
unlisted securities are valued at the last quoted sale price on the exchange on
which such securities are primarily traded, or if a sale is not reported for
that day, at the mean between the most recent bid and asked prices. Other
investments, for which no quotations are readily available, are valued at fair
value as determined by the Funds' investment manager pursuant to guidelines
adopted in good faith by the Board of Trustees.
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.
Deferred organization costs -- Costs incurred in connection with the
organization of the Funds and their initial registration with the Securities and
Exchange Commission are amortized on a straight-line basis over a five-year
period from each Fund's commencement of operations.
32
<PAGE> 35
- --------------------------------------------------------------------------------
Expenses -- Expenses arising in connection with a Fund are charged directly to
that 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 each 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. Each Fund
is considered a separate entity for tax purposes.
At October 31, 1997, (for financial reporting and federal income tax purposes),
net unrealized appreciation (depreciation) for the International, Growth
Allocation, Balanced Allocation, and Small Company aggregated $3,563,000,
$10,324,000, $4,147,000, and ($2,790,000) respectively, of which $4,195,000,
$10,762,000, $4,270,000, and $580,000 respectively, related to appreciated
securities and $630,000, $438,000, $123,000, and $3,370,000 respectively,
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") whereby the Investment Manager manages the
Funds' business affairs and provides underlying fund analysis, selection,
ongoing monitoring, and investment management services. For these services, each
Fund pays an annual fee, payable monthly, of 0.74% of the first $1 billion of
average daily net assets, 0.69% of the next $1 billion and 0.64% of such assets
over $2 billion. The Investment Manager reduced a portion of its fees during the
periods ended October 31, 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 each Fund's average daily net assets
for transfer agency services and 0.20% of such assets for shareholder services.
Schwab has waived its fees for the periods ended October 31, 1997 (See Note 4).
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
periods ended October 31, 1997, the Trust made no direct payments to its
officers or trustees who are "interested persons" within the meaning of the 1940
Act, as amended. The Funds incurred fees aggregating $22,000 related to the
Trust's unaffiliated trustees.
4. EXPENSES REDUCED AND ABSORBED BY THE INVESTMENT MANAGER AND SCHWAB
The Investment Manager and Schwab guarantee that, through at least February 28,
1999, each Fund's total operating expenses will not exceed 0.50% of the Fund's
average daily net assets, after waivers and reimbursements. For purpose of this
guarantee, operating expenses do not include interest expenses,
33
<PAGE> 36
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
extraordinary expenses, taxes, foreign taxes and capital items. Schwab has
agreed to waive its Transfer Agent and Shareholder Services fees through at
least December 31, 2001.
For the periods ended October 31, 1997, the totals of such fees and expenses
reduced and absorbed by the Investment Manager were $423,000, $498,000,
$321,000, and $124,000 for the International, Growth Allocation, Balanced
Allocation and Small Company, respectively. The totals of such fees reduced by
Schwab were $193,000, $240,000, $119,000, and $61,000 for the International,
Growth Allocation, Balanced Allocation and Small Company, respectively (see
Financial Highlights).
5. BORROWING AGREEMENT
The Trust has an arrangement with Bank of New York Trust Company whereby the
Funds may borrow, in aggregate, up to $100,000,000, 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
Funds. During the periods ended October 31, 1997, no borrowings were made under
this arrangement.
6. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities, other than short-term obligations,
for the periods ended October 31, 1997, were as follows (in thousands):
<TABLE>
<CAPTION>
Growth Balanced
International Allocation Allocation Small Company
---------- ----------- ----------- -------------
October 31, October 31, October 31, October 31,
1997 1997+ 1997+ 1997++
------------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Purchases $ 150,941 $ 291,967 $ 134,418 $ 217,592
Proceeds of sales $ 132,555 $ 188,892 $ 81,097 $ 19,399
</TABLE>
- ---------------
+ Period from November 18, 1996 (commencement of operations) to October 31,
1997.
++ Period from September 16, 1997 (commencement of operations) to October 31,
1997.
34
<PAGE> 37
- --------------------------------------------------------------------------------
To the Trustees and Shareholders of
Schwab OneSource Portfolios -- International,
Schwab OneSource Portfolios -- Growth Allocation,
Schwab OneSource Portfolios -- Balanced Allocation and
Schwab OneSource Portfolios -- Small Company
In our opinion, the accompanying statements of assets and liabilities, including
the schedules of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Schwab OneSource
Portfolios -- International, Schwab OneSource Portfolios -- Growth Allocation,
Schwab OneSource Portfolios -- Balanced Allocation and Schwab OneSource
Portfolios -- Small Company (four series constituting part of Schwab Capital
Trust, hereafter referred to as the "Trust") at October 31, 1997, the results of
each of their operations, the changes in each of their net assets and the
financial highlights for each of the periods presented, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Trust's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at October 31, 1997 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PRICE WATERHOUSE LLP
San Francisco, California
December 5, 1997
35
<PAGE> 38
THIS SPACE RESERVED FOR YOUR COMMENTS AND QUESTIONS.
A SCHWAB REPRESENTATIVE WILL BE HAPPY TO ASSIST YOU.
<PAGE> 39
THIS SPACE RESERVED FOR YOUR COMMENTS AND QUESTIONS.
A SCHWAB REPRESENTATIVE WILL BE HAPPY TO ASSIST YOU.
<PAGE> 40
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(R)
Schwab Small-Cap Index Fund(R)
Schwab OneSource Portfolios - Small Company
Schwab International Index Fund(R)
Schwab OneSource Portfolios - International
SCHWAB BOND FUNDS
Schwab Bond Index Funds - Total and Short-Term Bond Market Index Funds*
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 1-800-435-4000 for a free prospectus and brochure for any of the
SchwabFunds(R).
Each prospectus provides more complete information, including fees and expenses.
Please read it carefully before investing.
This report must be preceded or accompanied by a current prospectus.
*Formerly known as the Schwab Government Bond Funds - Long-Term and
Short/Intermediate.
+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> 41
SCHWABFUNDS BULK RATE
FAMILY(R) U.S. POSTAGE
PAID
101 Montgomery Street CHARLES SCHWAB
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.
Printed on recycled paper. CRS 20204 TF5270R(12/97)
