<PAGE> 1
SCHWAB ONESOURCE PORTFOLIOS --
BALANCED ALLOCATION, GROWTH
ALLOCATION, INTERNATIONAL,
AND SMALL COMPANY
SCHWAB ONESOURCE PORTFOLIOS -- BALANCED ALLOCATION (THE "BALANCED ALLOCATION
FUND"), SCHWAB ONESOURCE PORTFOLIOS -- GROWTH ALLOCATION (THE "GROWTH ALLOCATION
FUND"), SCHWAB ONESOURCE PORTFOLIOS -- INTERNATIONAL (THE "INTERNATIONAL FUND"),
AND SCHWAB ONESOURCE PORTFOLIOS -- SMALL COMPANY (THE "SMALL COMPANY FUND";
TOGETHER THE "FUNDS") are four portfolios of mutual funds that offer investors
easy access to actively managed funds from well-known fund families for a
minimum initial investment of $1,000.
The Balanced Allocation Fund seeks capital growth and income with less
volatility than the Growth Allocation Fund. The Growth Allocation Fund seeks
capital growth with less volatility than a portfolio comprised entirely of stock
funds. The Funds are diversified by asset class and feature a core component of
domestic and international equity funds for growth potential, combined with bond
funds and money market funds for greater price stability. Charles Schwab
Investment Management, Inc. ("CSIM" or "Investment Manager") has the flexibility
to take full advantage of changing market conditions and favorable asset
classes. To achieve each Fund's goals, the Investment Manager monitors hundreds
of mutual funds to identify and select a mix of underlying funds. The primary
difference between the two Allocation Funds is the proportion of assets invested
in stock funds, providing investors with a choice in the level of risk exposure.
The International Fund and the Small Company Fund are mutual funds that seek
long-term capital appreciation. To achieve these goals, the Investment Manager
will attempt to identify and select a diversified portfolio of equity funds
which present the greatest capital growth potential based on an analysis of many
factors, including the underlying funds' investment objective, history of
portfolio manager(s), total return, volatility and expenses. The International
Fund invests primarily in international equity funds and the Small Company Fund
invests primarily in small company equity funds.
BY INVESTING IN THE FUNDS, YOU BEAR NOT ONLY THE FUNDS' EXPENSES, BUT ALSO THE
EXPENSES OF THE UNDERLYING FUNDS. THIS RESULTS IN GREATER EXPENSES THAN YOU
WOULD INCUR IF YOU WERE TO INVEST IN THE SAME FUNDS DIRECTLY. The Funds are
diversified multi-fund investment portfolios of Schwab Capital Trust, a no-load,
open-end management investment company.
ABOUT THIS PROSPECTUS: THIS PROSPECTUS PROVIDES YOU WITH CONCISE INFORMATION
THAT YOU SHOULD KNOW BEFORE INVESTING IN THE FUNDS. READ IT CAREFULLY AND RETAIN
IT FOR FUTURE REFERENCE. You can find more detailed information in the Statement
of Additional Information ("SAI") dated August 3, 1997 (as amended from time to
time). The SAI has been filed with the Securities and Exchange Commission
("SEC") and is incorporated into this Prospectus by reference (which means that
it is legally considered part of this Prospectus even though it is not printed
here). This Prospectus is available electronically by visiting our World Wide
Web address: http://www.schwab.com/funds. This Prospectus, the SAI, material
incorporated by reference, and other information regarding Schwab is also
available at the SEC's World Wide Web site at this address: http://www.sec.gov.
To receive a free paper copy of this Prospectus or the SAI, call Schwab at 800-2
NO-LOAD, 24 hours a day, or write Schwab at 101 Montgomery Street, San
Francisco, CA 94104.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
PROSPECTUS AUGUST 3, 1997
<PAGE> 2
CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Key Features of the Funds............. 3
Summary of Expenses................... 5
Financial Highlights.................. 7
Matching the Funds to Your Investment
Needs............................... 8
Investment Objectives, Policies,
Techniques and Risk Factors......... 9
Organization and Management of the
Funds............................... 19
Distributions and Taxes............... 21
Share Price Calculation............... 23
How the Funds Report Performance...... 23
Tax Advantaged Retirement Plans....... 23
Shareholder Guide..................... 24
How to Buy Shares................... 25
How to Sell or Exchange Shares...... 27
Other Important Information........... 28
Glossary of Important Terms........... 30
</TABLE>
TO PLACE ORDERS AND FOR ACCOUNT INFORMATION: Contact Schwab at 800-2 NO-LOAD.
TDD users may contact Schwab at 800-345-2550, 24 hours a day.
2
<PAGE> 3
KEY FEATURES OF THE FUNDS
The Funds are actively managed portfolios of mutual funds. The two Allocation
Funds seek growth with less volatility than an all stock investment through
diversification among major asset categories. The Allocation Funds can provide
you with different levels of exposure to the growth potential of the stock
market. The International Fund and the Small Company Fund both seek long-term
capital appreciation.
Each Fund's multi-fund portfolio seeks to reduce the risk associated with
investing in a single underlying fund with a single manager. Holding a
diversified multi-fund portfolio can provide access to a wider range of
management talent, companies, industries, countries and markets than would
generally be available through any one underlying fund.
ALLOCATION FUNDS STRATEGY: Each Allocation Fund seeks to meet its investment
objective by investing in a different mix of stock funds, bond funds and money
market funds. Research shows that the greatest impact on investment returns is
due to the asset allocation decision (the mix of stocks, bonds and
cash-equivalents) rather than market timing or individual stock and bond
selection. A study of the performance of pension funds indicated that over 90%
of the performance was determined by asset mix. 1
The Allocation Funds seek to reduce overall risk by diversifying investments
among major asset categories. However, you are still exposed to the risks
associated with investing in each particular asset class, including stock and
bond risk. Stock risk is the possibility that stock prices, and therefore stock
funds, will decline over short or even extended periods. Small company,
international and emerging market stocks, and therefore the underlying funds
that invest in these instruments, pose additional risks. Bond risk is the
potential for decline in the market value of bonds and bond funds due to
interest rate changes or the ability of an issuer to meet its obligations.
A neutral market position, representing a static market model without
adjustments for prevailing market conditions and other considerations, has been
established for each asset class in each Allocation Fund. See "Schwab OneSource
Portfolios -- Balanced Allocation" and "Schwab OneSource Portfolios -- Growth
Allocation" below.
Quantitative techniques and tools will be used to assess and rank the relative
growth potential of each asset class. The Investment Manager emphasizes a
particular asset class by allocating some portion of each Allocation Fund's
assets to underlying funds which invest primarily in that asset class. The
Allocation Funds will also invest mainly in funds which participate in Schwab's
Mutual Fund OneSource(R) service, certain other funds Schwab makes available
without a transaction fee and Schwab's family of proprietary SchwabFunds(R) (if
and to the extent permitted by SEC order or interpretation) (collectively
"OneSource -- Funds").
INTERNATIONAL FUND STRATEGY: Under normal market conditions, at least 65% of the
International Fund's total assets will be invested in international equity
funds. The International Fund will also invest mainly in OneSource Funds. The
International Fund is designed to
- ---------------
1 Financial Analysts Journal: Brinson, Singer, Beebower: May-June 1991.
3
<PAGE> 4
give shareholders a single investment that offers broad international
diversification. International securities markets and underlying funds are
subject to currency rate fluctuations and potentially greater price volatility
and liquidity considerations than U.S. securities. Investors have historically
sought to reduce these risks through multi-country diversification.
SMALL COMPANY FUND STRATEGY: Under normal market conditions, at least 65% of the
Small Company Fund's total assets will be invested in small company equity
funds. The Small Company Fund will also invest mainly in OneSource Funds. The
Small Company Fund is designed to give shareholders a single investment that
offers broad diversification of smaller company funds. However, investing in
small company funds may involve greater risk and volatility than investing in
larger company funds. The Small Company Fund's broad diversification attempts to
minimize some of the risks of investing in small company funds. The smaller
companies that these funds invest in often have rates of sales, earnings, growth
and share price appreciation that exceed those of larger companies. The stocks
of small companies tend to be more volatile and less liquid than stocks of
larger companies.
FUND SELECTION STRATEGY: The Investment Manager will seek to enhance the overall
return of all four Funds by applying quantitative analytical techniques to
select a diversified portfolio of underlying funds with the greatest long-term
capital growth potential. The Investment Manager has the flexibility to take
advantage of changing markets and will evaluate funds using skill, experience
and information often not readily available to a typical investor. Underlying
funds will be selected based on their investment objective, practices and
policies, their management and other factors. The Investment Manager also
performs style analysis on the underlying funds and their managers. Selection of
underlying funds will also be based on quantifiable factors such as historic
total returns, volatility, expenses and size.
Additional quantitative techniques and tools are used to assess and rank the
relative growth potential of individual countries, geographic regions and
emerging markets for the International Fund. As opportunities are identified,
the Investment Manager may allocate some portion of the International Fund's
assets to underlying funds which invest primarily in individual countries,
geographic regions or emerging markets.
For more details on the Funds' and the underlying funds' investments and the
risks associated with them, see "Investment Objectives, Policies, Techniques and
Risk Factors."
MANAGEMENT. The Investment Manager currently manages 31 funds with over $50
billion in assets. For more details about the Investment Manager, see
"Organization and Management of the Funds."
FEES AND EXPENSES. You pay no sales fees or charges when you buy or sell shares
of the Funds. In addition, the Investment Manager and Schwab guarantee that each
Fund's total operating expenses will not exceed 0.50% through at least February
28, 1999. By investing in a Fund, you bear not only that Fund's total operating
expenses, but the operating expenses of the underlying funds as well. For more
details, see "Organization and Management of the Funds -- Fees and Expenses."
SHAREHOLDER SERVICES. Schwab's professional representatives are available
toll-free 24 hours a day at 800-2 NO-LOAD to service your account. TDD users may
contact Schwab at
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<PAGE> 5
800-345-2550, 24 hours a day. Schwab also enables you to execute your trading
requests through electronic products and services such as StreetSmart(R),
e.Schwab(TM), The Equalizer(R), TeleBroker(R) and the World Wide Web
(http://www.schwab.com). See "Shareholder Guide" for more information.
CONVENIENT REPORTING. You receive regular Schwab statements that combine all
your investment activity, including mutual funds, in one report.
FREE AUTOMATIC INVESTMENT PLAN. Schwab's free Automatic Investment Plan allows
you to make regular investments in the Funds in amounts and at intervals that
you select. For more details, see "How to Buy Shares -- Schwab's Automatic
Investment Plan."
RETIREMENT PLANS. Schwab offers tax-advantaged retirement plans for which the
Funds may be an appropriate investment. For more information, see
"Tax-Advantaged Retirement Plans."
SUMMARY OF EXPENSES
SHAREHOLDER TRANSACTION EXPENSES are charges you pay when you buy or sell shares
of a fund.
<TABLE>
<CAPTION>
BALANCED GROWTH SMALL
ALLOCATION ALLOCATION INTERNATIONAL COMPANY
FUND FUND FUND FUND
---------- ---------- ------------- -------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES
Sales Charge on Purchases
and Reinvested
Dividends............... None None None None
Deferred Sales Charge or
Redemption Fees......... None None None None
Exchange Fees............ None None None None
</TABLE>
ANNUAL FUND OPERATING EXPENSES are paid out of each Fund's assets. Each Fund
pays a management fee to the Investment Manager. Each Fund also incurs other
expenses for services such as maintaining shareholder records and furnishing
shareholder statements and financial reports. A Fund's expenses are factored
into its share price or dividends and are not charged directly to shareholder
accounts. See "Organization and Management of the Funds -- Fees and Expenses".
The following are based on each Fund's historical expenses, adjusted to reflect
current fees, and are calculated as a percentage of average net assets.
<TABLE>
<CAPTION>
BALANCED GROWTH SMALL
ALLOCATION ALLOCATION INTERNATIONAL COMPANY
FUND FUND FUND FUND
---------- ---------- -------------- -------
<S> <C> <C> <C> <C>
ANNUAL FUND OPERATING
EXPENSES
Fund Selection and
Investment Management
Fee (after fee
reduction)............. 0.50% 0.50% 0.50% 0.50%
12b-1 Fees............. None None None None
Other Expenses (after
fee reduction and
expense
reimbursement)....... None None None None
TOTAL FUND OPERATING
EXPENSES (AFTER FEE
REDUCTIONS AND EXPENSE
REIMBURSEMENT)......... 0.50% 0.50% 0.50% 0.50%
</TABLE>
By investing in a Fund, you bear not only that Fund's expenses, but also the
expenses of the underlying funds. This results in greater expenses than you
would incur if you were to invest in the same funds directly.
EXAMPLES: Based on the expenses above, you would pay the following expenses on a
$1,000 investment if you redeemed your shares at the end of each period
indicated, assuming a hypothetical 5% annual return.
<TABLE>
<CAPTION>
FUND 1 YEAR 3 YEARS
- ------------------------------------------- ------ -------
<S> <C> <C>
Balanced Allocation........................ $5 $16
Growth Allocation.......................... $5 $16
International.............................. $5 $16
Small Company.............................. $5 $16
</TABLE>
5
<PAGE> 6
THESE ARE EXAMPLES TO ILLUSTRATE THE EFFECT OF EXPENSES, AND ARE NOT INTENDED TO
REPRESENT ACTUAL OR EXPECTED COSTS OR RETURNS, ALL OF WHICH MAY VARY.
The Investment Manager has voluntarily guaranteed to limit each Fund's
Investment Management and Fund Selection fee to 0.50% through at least February
28, 1999.
Schwab has voluntarily guaranteed, through at least December 31, 2001, to waive
the Funds' Transfer Agent and Shareholder Service fees.
Schwab and the Investment Manager have also voluntarily guaranteed to limit each
Fund's total operating expenses to 0.50% of its average net assets through at
least February 28, 1999. Expenses eligible for reimbursement under these
guarantees do not include interest, taxes, brokerage commissions or
extraordinary expenses.
If these agreements were not in effect, the management fees, estimated other
expenses, and total operating expenses for each Fund would be the following (as
a percentage of average net assets): 0.74%, 0.66% and 1.40% for both the
Balanced Allocation and Small Company Funds, 0.74%, 0.46% and 1.20% for the
Growth Allocation Fund, and 0.74%, 0.52% and 1.26% for the International Fund.
See "Tax-Advantaged Retirement Plans" and "Shareholder Guide" for information on
Schwab account minimums and fees.
6
<PAGE> 7
FINANCIAL HIGHLIGHTS
The following information covering the period from October 16, 1996
(commencement of operations) to October 31, 1996 for the International Fund has
been audited by Price Waterhouse LLP, the Trust's independent accountants, whose
unqualified report appears with the financial statements in the SAI. The
information covering the period from November 18, 1996 (commencement of
operations) to April 30, 1997 for the Allocation Funds and November 1, 1996 to
April 30, 1997 for the International Fund has not been audited. This information
should be read in conjunction with the unaudited financial statements and
accompanying notes which are incorporated by reference from the SAI. A free copy
of the SAI may be obtained by calling the telephone number or writing to the
address on the first page of this Prospectus.
<TABLE>
<CAPTION>
ONESOURCE PORTFOLIOS
--------------------------------------------------------------
BALANCED GROWTH
INTERNATIONAL 1 INTERNATIONAL 2 ALLOCATION 3 ALLOCATION 3
(AUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
-------------- -------------- ----------- -----------
<S> <C> <C> <C> <C>
Net asset value at beginning of period........... $ 10.00 $ 9.91 $ 10.00 $ 10.00
Income from investment operations
- ------------------------------------
Net investment income.......................... -- 0.18 0.20 0.17
Net realized and unrealized gain (loss) on
investments.................................. (0.09) 0.51 0.00 0.06
----------- --------- -- --------- -- --------- --
Total from investment operations............... (0.09) 0.69 0.20 0.23
Less distributions
- -----------------
Dividends from net investment income........... -- (0.17) (0.13) (0.14)
Distributions from realized gain on
investments.................................. -- -- -- --
----------- --------- -- --------- -- --------- --
Total distributions............................ -- (0.17) (0.13) (0.14)
----------- --------- -- --------- -- --------- --
Net asset value at end of period................. $ 9.91 $ 10.43 $ 10.07 $ 10.09
=========== =========== =========== ===========
Total return (not annualized).................... (0.90)% 7.05% 2.00% 2.29%
- -----------
Ratios/Supplemental data
- --------------------------
Net assets, end of period (in thousands)....... $ 59,180 $ 73,558 $45,883 $92,539
Ratio of expenses to average net assets+....... 0.50%* 0.50%* 0.50%* 0.50%*
Ratio of net investment income to average net
assets +...................................... 0.52%* 3.41%* 4.43%* 3.68%*
Portfolio turnover rate........................ 0% 98% 93% 109%
Average commission rate........................ $ 0.00 $ 0.00 $ 0.00 $ 0.00
</TABLE>
- ---------------
+ The information contained in the above table is based on actual expenses for
the period, after giving effect to the portion of fees and expenses reduced by
the Investment Manager and Schwab. Had these fees and expenses not been
reduced and absorbed, the Funds' expense and net investment income ratios
would have been:
<TABLE>
<S> <C> <C> <C> <C>
Ratio of expenses to average net assets........ 3.41%* 1.26%* 1.42%* 1.22%*
Ratio of net investment income (loss) to
average net assets........................... (2.39)%* 2.65%* 3.51%* 2.96%*
</TABLE>
* Annualized
1 Period from October 16, 1996 through October 31, 1996.
2 Period from November 1, 1996 through April 30, 1997.
3 Period from November 18, 1996 through April 30, 1997.
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<PAGE> 8
MATCHING THE FUNDS TO YOUR
INVESTMENT NEEDS
If you are looking for broad diversification among actively managed mutual funds
in a single, convenient investment, or for a simple means of investing
internationally or in small companies, the Schwab OneSource Portfolios may be
appropriate for you. Our expert professional management team reviews, analyzes,
selects and monitors each portfolio of underlying funds for you.
ALLOCATION FUNDS. The Balanced Allocation Fund and Growth Allocation Fund are
for investors who prefer to be invested in a comprehensive portfolio diversified
across major asset classes and want professional, active management of a
multi-fund portfolio of mutual funds from well-known fund families. The Funds
are suitable for intermediate or long-term investing, as well as retirement
savings (including IRAs and other retirement plans). Both Funds are designed to
provide exposure to the growth potential of the stock market with different
levels of risk. The primary difference between the two Funds is the proportion
typically invested in domestic and international stock funds, providing you with
a choice in the level of risk exposure to equity markets.
A primary feature of each Allocation Fund is diversification among asset
classes. Commonly referred to as "asset allocation," this strategy can minimize
the risks of investing in a single security or asset class of securities while
potentially increasing returns. Because the performance of asset categories does
not always move in the same direction at the same time, investing in a mix of
asset classes can help improve performance and reduce volatility. In fact,
studies have indicated that the mix of asset classes has accounted for as much
as 90% of a pension fund portfolio's performance.
INTERNATIONAL FUND. The International Fund offers broad international
diversification with the convenience of a single investment. United States
investors have historically increased their returns and reduced their overall
portfolio volatility by diversifying internationally. 2 International
diversification is appropriate for most investors. The Fund can be used to
fulfill all or a part of the international equity component of your asset
allocation plans. For example, the Fund may be an appropriate investment for a
portion of an account invested for your child's education; or for retirement
savings in your personal account, in your IRA or other retirement plan. An
international fund is not a complete investment plan.
SMALL COMPANY FUND. The Small Company Fund offers the growth potential of
smaller companies with broad diversification among funds and companies. Small
company stocks have historically provided a higher return than
- ---------------
2 According to a presentation given in February 1996, by Rex A. Sinquefield,
Chairman and Chief Investment Officer of Dimensional Fund Advisers, Inc., a
long-term portfolio having 70% U.S. securities consisting of all the securities
in the Standard & Poor's Composite Index of 500 Stocks (the "S&P 500"(R)) and
30% international securities consisting of all the securities in the Morgan
Stanley Capital International EAFE Index ("EAFE") historically has produced
approximately 1% greater return per year with a slightly lower overall portfolio
volatility than a portfolio comprised entirely of S&P 500 stocks. The
International Fund has not independently verified the accuracy of this
information. See generally, Investments, Second Edition, by Bodie, Kane, and
Marcus.
8
<PAGE> 9
large company stocks (see "Investment Objectives, Policies, Techniques and Risk
Factors -- Market Performance" below). The Fund's broad diversification across
small companies seeks to reduce the risk that is normally associated with
investing in one, or just a few, smaller companies or funds. This Fund provides
professional, active management of a portfolio of small company equity funds
from well-known fund families. The Fund is appropriate for use as the small
company component of your asset allocation plans.
ACTIVE MANAGEMENT. Another primary feature of all four Funds is the skill and
experience of the mutual fund portfolio manager. The Investment Manager has the
flexibility to take advantage of changing markets and will evaluate funds using
information often not available to a typical investor, including data supplied
by Schwab's Mutual Fund Research Department. See "Organization and Management of
the Funds" for more information.
The Funds are designed for long-term investors. Investors with market timing or
short-term trading objectives should not invest in these Funds. Because
short-term trading activities can disrupt our investment strategy, operations
and expenses, we reserve the right to refuse purchase orders in accounts with a
pattern of these transactions.
INVESTMENT OBJECTIVES, POLICIES,
TECHNIQUES AND RISK FACTORS
The investment objective of the Balanced Allocation Fund is to provide you with
capital growth and income with less volatility than the Growth Allocation Fund.
The investment objective of the Growth Allocation Fund is to provide you with
capital growth with less volatility than a portfolio comprised entirely of stock
funds. The investment objective of the International Fund and the Small Company
Fund is to seek long-term capital appreciation.
Each Fund's investment objective is fundamental and may be changed only with
shareholder approval. While there is no assurance that the Funds will achieve
their investment objectives, they will attempt to do so by following the
investment policies and techniques described below and on the following pages.
The Funds will normally invest in open-end management investment companies, or
"mutual funds." The Funds may also invest in closed-end management investment
companies and/or unit investment trusts. An underlying fund may concentrate its
investments within one industry. Because the scope of investment alternatives
within an industry is limited, the value of the shares of such an underlying
fund may be subject to greater market fluctuation than an investment in a fund
which invests in a broader range of securities. Although the Funds will not
directly concentrate their assets in a single industry, they may indirectly do
so if the underlying funds invest their assets in the same industries. By
investing in a Fund, you bear not only its total operating expenses, but the
operating expenses of the underlying funds as well.
The Investment Manager will attempt to identify and select a multi-fund
diversified portfolio based on an analysis of many factors for each Fund. The
selection process involves an initial review of potential underlying funds'
investment objectives and policies. The Investment Manager also will perform an
analysis of the investment styles employed by each underlying fund's investment
adviser (such as value investing or growth investing) and will select an
appropriate mix of investment styles to seek to achieve the Fund's investment
objective.
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<PAGE> 10
Also, the Investment Manager will apply sophisticated quantitative techniques,
valuation formulas and optimization procedures to assess the relative
attractiveness of individual countries, geographic regions and/or emerging
markets (International Fund), industries (Small Company Fund) and of each asset
class (Allocation Funds). After identifying the most and least attractive
countries or regions, industries or asset classes, consideration will be given
to the expected returns and risks before deciding which areas, if any, to
overweight or underweight.
In succeeding steps of the process, the Investment Manager will use quantitative
techniques to analyze and rank these potential underlying funds based on their
historic total return, volatility and operating expenses over various time
periods. Potential underlying funds ranking highest by these criteria will then
be subject to further evaluation of size, management, portfolio holdings,
investment practices and policies, and other factors prior to their purchase for
the Fund. Much of the data used in making these evaluations is supplied by
Schwab's Mutual Fund Research Department. The Funds are diversified investment
companies, and many of the underlying funds will also be diversified funds. The
level of diversification the Funds obtain from being invested in a number of
underlying funds reduces the risk associated with an investment in a single
underlying fund. This risk is further reduced because each underlying fund's
investments are also spread over a range of issuers, industries and, for the
International Fund, countries. The underlying funds may use certain investment
strategies, such as trading in options and futures, which also involve risks.
INTERNATIONAL FUND. Under normal market conditions, the International Fund will
invest at least 65% of its total assets in underlying funds that are
international equity funds. International equity funds are those that invest,
under normal market conditions, primarily in equity securities of companies
located in one or more countries, other than the United States, with a developed
securities market. The assets not invested in international equity funds may be
invested in non-mutual fund investments in domestic and foreign securities, and
other instruments.
Many of the underlying funds in which the International Fund invests may invest
up to 100% of their total assets in international equity securities, which may
have greater price volatility and illiquidity than U.S. equity securities. In
addition, the underlying funds may use certain investment strategies such as
foreign currency exchange transactions and trading in options and futures which
also may involve increased risks to the Fund.
SMALL COMPANY FUND. Under normal market conditions, the Small Company Fund will
invest at least 65% of its total assets in underlying funds that are small
company equity funds. Small company equity funds are those which invest
primarily in equity securities of smaller companies, which are generally those
companies not included in the top 500 companies in terms of sales, market
capitalization, revenues or other standard measures (see the Glossary). The
smaller companies that these funds invest in are usually in the emerging or
developing stages of their life cycle, and they often have rates of sales,
earnings, growth and share price appreciation that exceed those of larger
companies. However, investing in small company funds may involve greater risk
and volatility than investing in larger company funds. The Small Company Fund's
diversification attempts to minimize the risks of investing in small company
funds and small companies. The stocks of small companies tend to be more
volatile and less liquid than stocks of larger companies. These companies
10
<PAGE> 11
may have a shorter history of operations, may not have as great an ability to
raise additional capital, may have a less diversified product line, and may have
a smaller public market for their securities.
ALLOCATION FUNDS. These Funds are asset allocation funds that consist of
actively managed portfolios of funds from well-known fund families. They provide
diversification among funds investing in major asset categories. Each Fund seeks
to meet its investment objective by investing in a different mix of stock funds,
bond funds and money market funds. Both Funds are designed to provide exposure
to the growth potential of the stock market in varying degrees.
A neutral market position and defined ranges have been established for each of
the Funds in each asset category. Assets will be allocated within the defined
ranges among stock funds, bond funds and money market funds, emphasizing
investment in the asset category the Investment Manager's model determines to be
most attractive.
MARKET PERFORMANCE. For the 20 years ended 1996, the asset categories in which
the Funds and underlying funds invest have provided the following average annual
returns*:
<TABLE>
<S> <C>
Large company stocks (S&P 500 Index(R))............ 14.49%
Small company stocks (Ibbotson and BARRA small cap
index)............................................ 16.60%
International stocks (MSCI EAFE)................... 14.62%
Bonds (Ibbotson and Lehman long-term government
bond index)....................................... 9.52%
Cash-equivalents (commercial paper A1P1)........... 8.39%
</TABLE>
- ---------------
*Source: BARRA, Inc. Indices do not include fees such as those charged by the
Funds. Past performance of indices does not necessarily reflect future
performance results of the Funds.
The Investment Manager uses various qualitative and quantitative techniques to
measure the relative value of each asset category and to select specific
underlying funds to meet what is considered an appropriate asset allocation mix
within the defined ranges. In an attempt to improve returns and minimize risk,
the Funds may make investments that do not fall within the specified asset
categories, such as other types of funds and direct investments in domestic and
foreign securities. Each type of such investment will be limited to no more than
5% of a Fund's net assets, except as described below.
SCHWAB ONESOURCE PORTFOLIOS -- BALANCED ALLOCATION
This Fund represents a more balanced approach between stock funds and bond
funds. The Balanced Allocation Fund's neutral market position is shown in the
pie chart; the Fund's neutral market position and the defined ranges for the
different asset categories are shown in the table that follows:
<TABLE>
<CAPTION>
[pie chart]
NEUTRAL
MARKET DEFINED
POSITION RANGES
-------- ---------
<S> <C> <C>
Stock funds 60% 50% - 70%
Bond funds 35% 25% - 45%
Money market funds 5% 0% - 25%
</TABLE>
11
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SCHWAB ONESOURCE PORTFOLIOS -- GROWTH ALLOCATION
Of the two Allocation Funds being offered by this Prospectus, the Growth
Allocation Fund provides greater exposure to various stock fund categories,
including domestic large and small company stock funds and international stock
funds. The Growth Allocation Fund's neutral market position is shown in the pie
chart; the Fund's neutral market position and the defined ranges for the
different asset categories are shown in the table that follows:
<TABLE>
<CAPTION>
[pie chart]
NEUTRAL
MARKET DEFINED
POSITION RANGES
-------- ---------
<S> <C> <C>
Stock funds 80% 65% - 95%
Bond funds 15% 0% - 30%
Money market funds 5% 0% - 35%
</TABLE>
Under normal market conditions, the Allocation Funds will invest at least 65% of
their total assets in stock funds, bond funds and money market funds. Stock
funds are funds which invest primarily in common stocks or securities
convertible into or exchangeable for common stock, including domestic stocks and
stocks of foreign issuers from developed or emerging countries. Bond funds are
funds which invest primarily in long or short-term government or corporate bonds
and other fixed income securities, including securities issued, guaranteed or
insured by the U.S. Government or its agencies or instrumentalities. Money
market funds are funds which invest in short-term money market instruments. At
times, under the Investment Manager's model, a substantial amount of the Funds'
assets may be invested in shares of a single investment company, including money
market funds. To the extent the Funds focus their investment in only a few
investment companies, the Funds may be exposed to greater risk than if the Funds
were to invest in a greater number of investment companies. Assets that are not
invested in stock funds, bond funds and money market funds may be invested in
other types of funds and directly in domestic and foreign securities and other
instruments.
SCHWAB ONESOURCE PORTFOLIOS' POLICIES AND RISK FACTORS. The 1940 Act currently
provides that each Fund may not purchase the securities of an underlying fund
if, as a result, the Fund, together with its affiliates, would own more than 3%
of the total outstanding securities of that underlying fund. Thus, each Fund's
ability to invest in shares of certain underlying funds could be restricted and
the Investment Manager may have to select alternative investments.
Also, under normal market conditions, each Fund will mainly be invested in
OneSource Funds (see the Glossary). With their remaining assets, the Funds may
purchase underlying funds other than OneSource Funds, and make direct
investments in domestic and foreign securities and other instruments. For a
discussion of Schwab's remuneration and compensation from OneSource Funds and
Schwab's waiver of transfer agent and shareholder service fees, see
"Organization and Management of the Funds -- Fees and Expenses."
Schwab's family of proprietary low-cost money market funds, index funds, bond
funds and
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stock funds (see a complete list in the Glossary under "SchwabFunds(R)") are
included in the universe of OneSource Funds in which the Funds may invest (to
the extent permitted by SEC order or interpretation). The Schwab index funds may
be used as an interim investment to be fully invested while selecting an
appropriate underlying fund. CSIM provides investment management and other
services to all of Schwab's proprietary SchwabFunds and receives compensation
from them. The selection of SchwabFunds will be subject to the Investment
Manager's insight and judgment and the same conditions and criteria that apply
to the selection of other funds, except that the Funds will ordinarily invest
all of their assets allocated to money market funds to Schwab's proprietary
money market funds. The remuneration Schwab receives from the fund companies
participating in Schwab's Mutual Fund OneSource(R) service will often be less
than the compensation Schwab receives from the proprietary SchwabFunds. Because
of these differences in potential compensation to itself and its affiliates, to
the extent that the Funds may invest in SchwabFunds, the Investment Manager may
be subject to conflicts of interest in selecting between Schwab's proprietary
SchwabFunds and other funds and deciding on the percentage of the Funds' assets
invested in each. The Investment Manager's objective for selecting all funds
will be to select the most suitable funds, taking into consideration the best
interest of each Fund's investors.
Under certain circumstances, an underlying fund may determine to make payment of
a redemption by the Funds wholly or in part by a distribution in-kind of
securities from its portfolio in lieu of cash. In such cases, the Funds may hold
securities distributed by an underlying fund until the Investment Manager
determines that it is appropriate to dispose of such securities. Investment
decisions for the underlying funds are made independently of the Funds and the
Investment Manager. Therefore, one underlying fund may be purchasing shares of
an issuer whose shares are being sold by another underlying fund. The result
would be an indirect cost to the Funds without accomplishing any investment
purpose. The Funds may purchase shares of no-load funds that are available
without a transaction fee and load funds that are available to the Funds without
a sales charge.
STOCK FUNDS. Stock funds are those which invest primarily in domestic or foreign
common stocks or securities convertible into or exchangeable for common stock.
The underlying stock funds may include large company stock funds, small company
equity funds and international equity funds. The underlying funds that invest in
stocks, and therefore the Funds, are exposed to stock market risk. Prices of
many stocks or of a single stock may decline over short or even long periods.
Large company stock funds are those which normally select their investments from
a universe of U.S. companies with large and mid-size market capitalization. Many
of these companies' stocks are included in the Standard & Poor's 500(R) Index, a
widely recognized, unmanaged index of common stock prices. While past
performance is no guarantee of future results, a diverse portfolio of large
company stock funds, each with a diverse portfolio of stocks representing
various industries, tends to reduce stock market risk.
Small company equity funds are funds which generally select their investments
from a universe of companies with a market capitalization below that of the
large and mid-size company universe. Small company stocks have historically been
characterized by greater total
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<PAGE> 14
returns, greater volatility of returns and lower dividend yields than large
company stocks. The greater price volatility of small company stocks may be the
result of their 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. While past performance is no guarantee of future results, a diverse
portfolio of small company stock funds, each with a diverse portfolio of stocks
representing various industries, tends to reduce market risk.
International equity funds normally invest up to 100% of their assets in the
stocks or securities of foreign issuers. Therefore, the Funds' investment in
international equity funds involves risks similar to those of investing in a
portfolio of foreign equity securities. International stocks are issued by
publicly traded companies from countries around the world, excluding the United
States. The underlying funds' investments will often be denominated in foreign
currency, and the value of these investments will be affected by changes in
currency exchange rates versus the U.S. dollar in addition to normal market
fluctuations. The rate of exchange between the U.S. dollar and other currencies
is determined by the forces of supply and demand in the foreign exchange market,
by changes in interest rates, as well as by political and economic factors.
Other risks and considerations of international investing include: differences
in accounting, auditing and financial reporting standards; generally higher
transaction costs on foreign portfolio transactions; small trading volumes and
generally lower liquidity of foreign stock markets, which may result in greater
price volatility; foreign withholding taxes payable on portfolio holdings, which
may reduce dividend income payable to shareholders; the possibility of
expropriation, nationalization or confiscatory taxation; adverse changes in
investment or exchange control regulations; political instability, which could
affect U.S. investment in foreign countries; and potential restrictions on the
flow of international capital. These international investment risks are present
when investing in both developed and developing emerging markets. Some of the
underlying funds may attempt to hedge against currency fluctuations by entering
into currency futures, options or forward contracts. The risks of such
investments are discussed below.
As a portion of their international equity fund allocations, the International
Fund may invest in, and the Allocation and Small Company Funds may invest up to
10% of their net assets in underlying funds which invest primarily in developing
or emerging market countries. These countries tend to have economic structures
that are less diverse and mature and political systems that are less stable than
developed market countries. A developing or emerging market country generally is
considered to be in the initial stages of industrialization. The risks of
investing in developing or emerging markets are similar to but greater than the
risks of investing in developed international markets.
As a part of their stock fund allocations, the Funds may also invest in
underlying funds which invest primarily in equity securities of issuers located
throughout the world, including the United States (global funds). As these funds
may invest in both developed and emerging market countries, the risks associated
with investments in both markets, as discussed above, are present when investing
in these funds. In addition, because these funds may also invest in the United
States, they may
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<PAGE> 15
expose a Fund to the risks associated with investing in the United States.
BOND FUNDS. Bond funds are those which seek current income and which invest
primarily in short or long-term U.S. Government obligations, investment grade
corporate debt obligations and highly rated asset-backed securities.
The U.S. Government debt securities in which the underlying funds may invest are
obligations issued or guaranteed by the U.S. Government, its agencies and
instrumentalities, including bills, notes, bonds, discount notes, stripped
government securities and other newly-created debt securities as may be further
described. Not all obligations issued or guaranteed by U.S. Government agencies
are backed by the full faith and credit of the United States.
The underlying funds may also invest in domestic and foreign issues of corporate
debt obligations having floating or fixed rates of interest. The Funds will only
select underlying funds that invest primarily in government and/or investment
grade corporate debt obligations.
Asset-backed securities, including mortgage-related securities, may also be
included in the underlying funds' portfolios. Asset-backed securities are
secured by company receivables, home equity loans, truck and auto loans, leases
and credit card receivables. The collateral backing asset-backed securities
cannot be foreclosed upon. Mortgage-backed securities are securities
collateralized by pools of mortgage loans and are assembled by various
governmental agencies and organizations, such as GNMA, FNMA and FHLMC. When
interest rates decline, there is an increased likelihood that the mortgages
underlying a mortgage-backed security will be pre-paid, resulting in the loss of
any unamortized premium paid for the securities and the probability of having to
reinvest the proceeds at lower rates. The bond category also includes repurchase
agreements collateralized by eligible investments. The Funds will not select
underlying funds that invest primarily in non-investment grade asset-backed
obligations.
The market value of the underlying funds' debt investments will change in
response to interest rate fluctuations and other factors. During periods of
falling interest rates, the values of outstanding debt securities generally
rise; conversely, during periods of rising interest rates, the values of such
securities generally decline. While securities with longer maturities tend to
produce higher yields, the prices of longer maturity securities are also subject
to greater market fluctuations as a result of changes in interest rates. Changes
in the rating of any debt security by a NRSRO and in the ability of an issuer to
make payments of interest and principal also affect the value of these
investments. Except under condition of default, changes in the value of
portfolio securities will not affect cash income derived from these securities
but will affect the underlying funds' net asset values.
A portion of the Funds' assets may be invested in "balanced funds," which must
invest at least 25% of their assets in fixed income senior securities, or other
funds that hold substantial portions of both common stocks and debt securities
or preferred stock. A Fund's investment in a "balanced fund" will expose the
Fund to the risks, described above, of an investment in a stock fund and a bond
fund, because "balanced funds" invest in both stocks and bonds. The stock
portion of a balanced fund has the risks associated with a stock fund; the bond
portion has the risks associated with a bond fund. The Funds may
15
<PAGE> 16
invest more than 5% of their net assets in these funds.
MONEY MARKET FUNDS. The Funds may invest in underlying money market funds that
invest in U.S. dollar denominated short-term money market instruments that the
underlying funds' investment manager has determined present minimal credit risk.
Under normal circumstances, and to the extent permitted by SEC order or
interpretation, the Funds will invest their money market fund investments in
Schwab's family of money market funds. A current list of Schwab's entire family
of proprietary mutual funds is in the Glossary under the heading
"SchwabFunds(R)." The Funds may also invest directly in these same instruments.
The eligible instruments include:
1. Bank certificates of deposit, time deposits or bankers' acceptances of
domestic banks (including their foreign branches), U.S. branches of foreign
banks and foreign branches of foreign banks, having capital, surplus and
undivided profits in excess of $100 million.
2. Commercial paper rated in one of the two highest rating categories by an
NRSRO, or commercial paper or notes of issuers with an unsecured debt issue
outstanding currently rated in one of the two highest rating categories by any
NRSRO where the obligation is on the same or a higher level of priority and
collateralized to the same extent as the rated issue.
3. Obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities.
4. Repurchase agreements involving obligations that are suitable for investment
under the categories set forth above.
CLOSED-END FUNDS. A closed-end fund is a fund with a fixed number of shares.
While an open-end investment company must redeem its shares at net asset value
when they are tendered for redemption by a shareholder, the shares of a
closed-end investment company trade on exchanges and over the counter like
conventional stocks. Shares of a closed-end investment company may, and
typically do, trade at a discount. However, investments in closed-end funds may
also involve the payment of a substantial premium above the net asset value of
the issuer's portfolio securities. In addition, there may not be a readily
available market for closed-end investment company shares, in which case the
shares will generally be considered illiquid and subject to the Funds'
restriction on holding illiquid securities.
ILLIQUID AND RESTRICTED SECURITIES. Each Fund may invest up to 15% of its net
assets in illiquid securities. Generally, an "illiquid security" is any security
that cannot be disposed of within seven days at approximately the amount at
which a Fund has valued the instrument. Subject to this limitation, each Fund
may invest in restricted securities when such investment is consistent with the
Fund's investment objectives, and such securities may be considered to be liquid
to the extent that the Investment Manager determines that there is a liquid
institutional or other market for such securities. "Restricted securities" are
securities with legal or contractual restrictions on resale.
The 1940 Act currently provides that any underlying fund is not required to
redeem any shares held by the Funds in excess of 1% of the underlying fund's
outstanding shares in any 30-day period, and any of the Funds' holdings in
excess of that amount may be considered illiquid. However, since the Funds have
elected to reserve the right to pay redemption
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<PAGE> 17
requests in investment securities, these positions may be treated as liquid by
the Funds.
UNREGISTERED INVESTMENT FUNDS. The Funds may also invest in privately placed
funds and unregistered investment vehicles, such as hedge funds and offshore
funds. These funds are not subject to many of the 1940 Act restrictions and may
make investments and employ investment techniques that are substantially riskier
than those permitted for funds registered under the 1940 Act. For example,
unlike registered funds, these funds may leverage up to 100% of their portfolio
and may invest a substantial percentage of assets in illiquid securities.
Consequently, the risk of loss, as well as the potential for return, is
substantially higher when investing in unregistered investment funds.
Unregistered investment funds are likely to be illiquid and therefore subject to
the Funds' restrictions on investments in illiquid securities, as described
above. (See "Illiquid Securities" in the SAI.) These funds are also often
restricted securities. In addition, they are unregulated and not designed to be
covered by U.S. securities laws. To the extent that unregistered investment
funds invest in the instruments described above, e.g., stocks (particularly,
international stocks for offshore funds) or bonds, they will be subject to the
risks associated with these investments.
REPURCHASE AGREEMENTS. The Funds may engage in repurchase agreements as a cash
management technique. In a repurchase agreement, the Funds buy a security at one
price and simultaneously agree to sell it back at a higher price. In the event
of a bankruptcy or other default of a repurchase agreement counterparty, the
Funds may incur expenses in enforcing their rights and could experience losses,
including a decline in the value of the underlying securities and loss of
income. The underlying funds may also engage in repurchase agreements and
thereby incur similar expenses and risks.
BORROWING POLICY. Each Fund may borrow money only for temporary purposes to meet
redemption requests. A Fund may borrow up to one-third of its total assets or
pledge up to one-third of its total assets to secure such borrowings to the
extent allowed under the securities laws. A Fund may not borrow to leverage.
Each Fund's borrowing and pledging policy is fundamental. The underlying funds
may also engage in borrowing, including borrowing to leverage their portfolio.
As a result, each Fund's overall exposure to borrowing may be greater than their
direct exposure.
SECURITIES LENDING. As a means of increasing income, each Fund may lend
securities it owns worth up to one-third of its total assets. Loans must be
fully collateralized by the borrower at all times. If the borrower defaults or
becomes insolvent, the Funds may incur expenses or losses. The Funds may not
recover the loaned securities immediately and may even lose them entirely. The
underlying funds may lend portfolio securities under similar conditions and with
similar risk of loss.
FUTURES AND OPTIONS. Each Fund may buy futures contracts on stocks, stock
indices and options contracts (including options on futures contracts) to
accommodate cash flows when, in the opinion of the Investment Manager, available
cash balances do not permit economically efficient purchases. Futures are
agreements to buy or sell a specific amount of a commodity or financial
instrument at a certain price on a certain date in the future. Moreover, each
Fund may sell futures and options to "close out" futures and options it
purchased or to protect against a decrease in the price of securities it owns
but intends to
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<PAGE> 18
sell. Futures contracts and options may also be used to: maintain cash reserves
while simulating full investment; facilitate trading; seek higher investment
returns; or simulate full investment when a futures contract is considered more
advantageous than the underlying security or index. A Fund may enter into
futures contracts and options on futures contracts provided that the aggregate
deposits required on these contracts do not exceed 5% of a Fund's total assets.
Futures contracts and options pose certain risks. The risk of loss in trading
futures contracts and options in some strategies can be substantial, due both to
the low margin deposits required and the extremely high degree of leverage that
can be involved in futures and options pricing. As a result, a relatively small
price movement in a futures contract or an option may result in immediate and
substantial loss (or gain) to the investor. While futures contracts and options
can be used as leveraged instruments, the Funds may not use futures contracts or
options to leverage their portfolios. When investing in futures contracts and
options, the Funds will segregate cash, cash-equivalents or liquid, high quality
debt instruments in the amount of the underlying obligation.
The underlying funds may purchase futures contracts and option contracts for a
variety of reasons under similar conditions and with similar risk of loss.
The Funds' investment policies and restrictions apply at the time the Funds make
an investment. Except with respect to futures, options, borrowing and illiquid
securities, later changes, such as changed market values, do not require the
Funds to sell the investment even if the Funds could not then make the same
investment.
CURRENCY HEDGING. The International Fund and the underlying funds, and in
certain circumstances the Allocation and Small Company Funds may engage in
foreign currency exchange transactions to protect against uncertainty in the
level of future exchange rates. The International Fund expects to engage in
foreign currency exchange transactions in connection with the purchase and sale
of portfolio securities ("transaction hedging") and to protect the value of
specific portfolio positions ("position hedging").
For transaction hedging purposes, a Fund enters into foreign currency
transactions with respect to specific receivables or payables of the Fund
arising in connection with the purchase or sale of its portfolio securities. By
transaction hedging, the Fund attempts to protect itself against a possible loss
resulting from an adverse change in the relationship between the U.S. dollar and
the applicable foreign currency during the period between the date on which the
security is purchased or sold, and the transaction's settlement date.
When it engages in position hedging, a Fund enters into foreign currency
exchange transactions to protect against a decline in the values of the foreign
currencies in which its portfolio securities are denominated (or against an
increase in the value of currency for securities which the Fund expects to
purchase).
When it engages in portfolio and/or transaction hedging, a Fund may buy or sell
a foreign currency on a spot (or cash) basis at the prevailing spot rate, enter
into contracts to buy or sell foreign currencies at a future date ("forward
contracts") and buy or sell foreign currency futures contracts ("futures
contracts"). A Fund may also buy exchange-listed and over-the-counter call and
put options on futures contracts and on foreign currencies.
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Hedging transactions involve costs and may result in losses, and a Fund's
ability to engage in hedging transactions may be limited by tax considerations.
Transaction and position hedging do not eliminate fluctuations in the prices of
the underlying securities that a Fund owns or expects to buy or sell. They
simply establish a rate of exchange which one can achieve at some future point
in time. Additionally, although these techniques tend to minimize the risk of
loss due to a decline in the value of the hedged currency, they tend to limit
any potential gain that might result from an increase in the value of such
currency. Transaction and position hedging by an underlying fund would entail
similar risks. See "Investment Securities" in the Trust's SAI for more
information.
OTHER INVESTMENTS. Each Allocation Fund may invest up to 10% of net assets in
the following instruments: 1) depositary receipts or other similar global
instruments; 2) preferred stock; 3) real estate-related investments; and 4)
precious metal-related investments. Depositary receipts represent ownership of
shares of a foreign-based issuer and therefore entail risks associated with
foreign investments. Preferred stock is usually limited to a definitive
percentage and usually has limited voting rights. Real estate-related
investments are generally sensitive to changes in taxes and tax laws, interest
rates, overbuilding, and regulatory requirements, as well as the management and
creditworthiness of the issuer. Precious metal-related investments are generally
sensitive to changes in inflation rates and to perceptions of economic and
political instability and have been subject to extreme fluctuations. The
International Fund may purchase U.S. Government securities including U.S.
Government "mortgage-backed" securities. See "Investment Securities" in the SAI
for more information.
The underlying funds may also engage in foreign currency transactions with
respect to foreign securities investments; invest in restricted securities;
invest in warrants; lend their portfolio securities; sell securities short;
write (sell) or purchase call or put options on securities or on stock indices;
and invest in master demand notes. The risks associated with these investments
are described in the SAI under the headings "Investment Securities" and
"Underlying Fund Investment Techniques."
ORGANIZATION AND
MANAGEMENT OF THE FUNDS
Responsibility for overall management of the Funds rests with the Trustees and
officers of the Trust. Professional investment management for each Fund is
provided by the Investment Manager, Charles Schwab Investment Management, Inc.
or CSIM. In addition to providing day-to-day management of each Fund, the
Investment Manager provides general investment advice regarding a Fund's
investment strategies and performs expense management, accounting and
recordkeeping, and other administrative services necessary to the operation of a
Fund, and is also responsible for overall management of the Funds' investments.
The Investment Manager, founded in 1989, is a wholly owned subsidiary of The
Charles Schwab Corporation. The Investment Manager serves as the investment
adviser and administrator of the mutual funds in The SchwabFunds Family(R), a
family of 27 mutual funds with aggregate net assets exceeding $50 billion as of
July 15, 1997.
Schwab serves as shareholder services agent and transfer agent for each Fund.
Schwab provides information and services to shareholders, which include
reporting share owner-
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<PAGE> 20
ship, sales and dividend activity and associated tax information, responding to
daily inquiries, effecting the transfer of a Fund's shares and facilitating
effective cash management of shareholders' Schwab account balances. It also
furnishes such office space and equipment, telephone facilities, personnel and
informational literature distribution as necessary and appropriate in providing
the described shareholder and transfer agency information and services.
Schwab is also each Fund's distributor but receives no compensation for this
service.
Schwab was established in 1971 and is America's largest discount broker. The
firm provides low-cost securities brokerage and related financial services to
approximately 4.1 million active customer accounts and has over 230 branch
offices. Schwab also offers convenient access to financial information services
and provides products and services that help investors make investment
decisions. Schwab and the Investment Manager are wholly owned subsidiaries of
The Charles Schwab Corporation. Charles R. Schwab is the founder, Chairman,
Chief Executive Officer and a Director of The Charles Schwab Corporation. As a
result of his beneficial ownership interests in and other relationships with The
Charles Schwab Corporation and its affiliates, Mr. Schwab may be deemed to be a
controlling person of Schwab and the Investment Manager.
Cynthia Liu is the portfolio manager for the Funds and a Vice President of CSIM.
She is responsible for day-to-day portfolio management of the Funds and any
other CSIM-managed mutual funds that will invest primarily in other mutual
funds. Before joining Schwab, Ms. Liu was most recently Director of Investment
Services at Jardine Fleming Unit Trust Limited in Hong Kong, where she was
responsible for overall investment strategy. She has held portfolio management
and investment research positions at several major firms, including Mees Pierson
Securities (Asia) Limited and Union Bank of Switzerland, and has more than
fifteen years experience in international investments, investment research and
portfolio management. She holds a B.A. in economics from the National Cheng-Chi
University, Taiwan and is a Chartered Financial Analyst.
Stephen B. Ward, CSIM's Senior Vice President and Chief Investment Officer, has
overall management responsibility for CSIM's portfolio management group. He
holds an M.B.A. from the Wharton School and a B.A. in economics from Virginia
Tech. He has been a Chartered Financial Analyst since 1985.
FEES AND EXPENSES. The Investment Manager provides underlying fund analysis,
selection, ongoing monitoring and investment management services under the terms
of its Investment Advisory and Administration Agreement with the Trust. For
these services, it is entitled to a graduated annual fee payable monthly from
each Fund. The rate is 0.74% of the first $1 billion of each Fund's average
daily net assets; 0.69% of the next $1 billion; and 0.64% of net assets over $2
billion. The Investment Manager guarantees that, through at least February 28,
1999, the management fees for each Fund will not exceed 0.50% of its average
daily net assets.
For its services as Transfer Agent and Shareholder Services Agent, Schwab is
entitled to receive annual fees from each Fund of 0.05% and 0.20%, respectively,
of its average daily net assets. Schwab currently receives remuneration from
fund companies participating in its Mutual Fund OneSource(R) service equal to
0.25% to 0.35% per annum of assets invested
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in OneSource funds and is also entitled to remuneration in connection with the
purchase of shares of fund companies participating in Schwab's Mutual Fund
Marketplace(R). In light of this remuneration, Schwab has agreed, through at
least December 31, 2001, to waive its Transfer Agent and Shareholder Services
fees, which normally total 0.25%. Additionally, CSIM and Schwab provide
investment management and other services to all of Schwab's proprietary
SchwabFunds(R) and receive compensation from them.
The Investment Manager and Schwab also guarantee that, through at least February
28, 1999, total fund operating expenses will not exceed 0.50% of each Fund's
average daily net assets (after waivers and reimbursements). For purposes of
this guarantee, "operating expenses" do not include interest expenses,
extraordinary expenses, taxes, foreign taxes withheld or paid and capital items
such as the cost of purchase or sale of portfolio securities, including
brokerage fees or commissions. The effect of this voluntary expense limitation
is to maintain or increase the Funds' total return to shareholders.
The operating costs and investment advisory fees of the underlying funds are not
included in the discussion of the Funds' fees and expenses above. By investing
in the Funds, you bear not only the Funds' expenses, but also similar expenses
of the underlying funds. You would not incur the Funds' expenses if you were to
invest in the underlying funds directly.
OTHER EXPENSES. The Trust pays the expenses of the Funds' operations, including
the fees and expenses of independent auditors, legal counsel and custodian; the
costs of calculating net asset values, maintaining books and records of account;
taxes; registration fees; the fees and expenses of qualifying the Trust and its
shares for distribution under federal and state securities laws; and industry
association membership dues. The Funds seek to keep transaction costs and other
expenses low.
The Trust generally allocates these expenses among the individual investment
portfolios or series of the Trust, including the Funds. This allocation is based
on the relative net assets of each series at the time the expenses are incurred.
However, expenses directly attributable to a particular series are charged to
that series.
PORTFOLIO BROKERAGE. As discussed above, under normal market conditions the
Funds will be mainly invested in OneSource Funds. Orders for transactions in
these underlying funds are generally placed with Schwab directly.
When placing orders for the Funds' other securities or for funds not available
at Schwab, the Investment Manager uses its judgment to obtain the best price and
execution. It considers the full range and quality of brokerage services
available in making these determinations. For securities transactions in which
Schwab is not a principal, the Investment Manager may use Schwab or other
qualified affiliated brokers or dealers to execute the Funds' transactions. To
do so, it must reasonably believe that commissions (or prices) paid to and
transaction quality received from Schwab or other qualified affiliated brokers
or dealers will be at least comparable to those available from qualified
non-affiliated brokers or dealers.
DISTRIBUTIONS AND TAXES
DIVIDENDS AND OTHER DISTRIBUTIONS. Each Fund will distribute substantially all
of its net investment income and net capital gains, if any, on
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an annual basis, as determined by the Trust's Board of Trustees.
FEDERAL INCOME TAX INFORMATION. The following is only a brief summary for
general information purposes of how some of the federal income tax laws affect
you and the Funds. Thus, you should consult with your own tax adviser about your
particular tax situation.
The Funds have qualified or intend to qualify as regulated investment companies
under the Code. To qualify, each Fund will distribute substantially all of its
investment company taxable income and net capital gain (if any) each year and
meet certain other requirements. As regulated investment companies, the Funds
will pay no federal income taxes insofar as their earnings are distributed to
their shareholders.
Dividends that the Funds pay to you from net investment income are generally
taxable to you as ordinary income. So are distributions of the Funds' net
short-term capital gains in excess of any net long-term capital losses.
Distributions that the Funds designate as long-term capital gains (net of
capital losses) are generally taxable to you as long-term capital gains no
matter how long you have owned your shares of the Funds. However, any loss on
the sale or exchange of shares held for six months or less shall, to the extent
of any long-term capital gain distributions received with respect to such
shares, be treated as a long-term capital loss. These tax rules apply whether
the distributions are received in cash or reinvested.
If you are not subject to tax on your income, you may have different tax
treatment. In general, you will not pay tax on the Funds' distributions to you.
For corporate shareholders of the Allocation Funds and the Small Company Fund,
dividend distributions designated by the Allocation Funds and the Small Company
Fund to be from dividends received from qualifying domestic corporations will be
eligible for the 70% corporate dividends received deduction to the extent they
would qualify if the Allocation Funds and the Small Company Fund were regular
corporations. Dividend distributions from the International Fund will not be
eligible for the dividends received deduction if, as expected, none of that
Fund's income consists of dividends received from qualifying domestic
corporations.
Income received by the underlying funds from sources within various foreign
countries may be subject to foreign income taxes withheld at the source. Since
less than 50% of the value of each Fund's total assets at the close of its
taxable year are expected to consist of foreign securities, the Funds are not
permitted to elect to "pass through" to their shareholders the amount of foreign
income taxes paid by the underlying funds. Each shareholder's respective pro
rata share of foreign taxes paid by the underlying funds will, therefore, be
netted against his or her share of the underlying fund's gross income.
A Fund's transactions in foreign currencies and hedging activities may give rise
to ordinary income or loss to the extent such income or loss results from
fluctuations in value of the foreign currency concerned. In addition, such
activities will likely produce a difference between book income and taxable
income. This difference may cause a portion of a Fund's income distributions to
constitute a return of capital for tax purposes or require a Fund to make
distributions exceeding book income to
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qualify as a regulated investment company for tax purposes.
The foregoing discussion relates only to U.S. federal income tax law as
applicable to U.S. citizens or residents. Distributions by the Funds may also be
subject to state, local and foreign taxes and their treatment under applicable
tax laws may differ from the federal income tax treatment.
We will provide you with a record of all distributions, purchases and sales on
your Schwab brokerage account statement. Each year we will notify you of the
federal income tax status of all distributions made that year to your account.
SHARE PRICE CALCULATION
The price of a single share of each Fund on any given day is its net asset value
(NAV). We determine NAVs each Business Day as of the close of trading on the New
York Stock Exchange (the "Exchange"), generally at 4:00 p.m. Eastern time. We
determine the price by valuing a Fund's total assets, subtracting any
liabilities, and then dividing the balance by the number of shares outstanding.
In accordance with the 1940 Act, we value the underlying funds at their
respective net asset values they determine. The Investment Manager assigns fair
values to the other investments of the Funds in good faith under guidelines
adopted by the Board of Trustees, which reviews these values regularly. Purchase
or redemption orders and exchange requests will be executed at the NAV next
determined after their receipt by the Transfer Agent or its authorized agent.
HOW THE FUNDS REPORT PERFORMANCE
From time to time the Funds may advertise their total return and yield. These
figures reflect past results and are not intended to predict future performance.
We will often compare our performance to Morgan Stanley Capital International's
EAFE and World ex-U.S. indexes, Standard & Poor's 500(R) Index, Lehman Bond
Indexes, other indexes and combinations of indexes.
Total return of a Fund measures its overall change in value over a period,
including share price movements, and assumes all dividends and capital gains
have been reinvested. Average annual total return reflects the hypothetical
annually compounded return mandated by the SEC. Other total return figures we
show may differ in that they may report non-standard periods or represent
aggregate or cumulative return over a stated length of time.
A Fund's yield refers to the income generated by an investment in the Fund over
a given period of time, expressed as an annualized percentage rate. Yields are
calculated according to a standard that is required for all stock and bond
funds. Because this differs from other accounting methods, the quoted yield may
not equal the income actually paid to shareholders.
TAX-ADVANTAGED
RETIREMENT PLANS
Schwab offers tax-advantaged retirement plans for which the Funds may be an
appropriate investment. Schwab's retirement plans allow participants to defer
taxes while helping them build their retirement savings.
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SCHWAB IRA. The Schwab IRA is a retirement plan with a wide choice of
investments offering people with earned income the opportunity to compound
earnings on a tax-deferred basis. Currently, Schwab's $29 annual IRA account fee
is assessed on September 15th of each year and Schwab IRA accounts with balances
of $10,000 or more on or before that date will not be charged the fee for the
life of the account.
SCHWAB KEOGH. The Schwab Keough is a tax-advantaged plan for self-employed
individuals and their employees that permits the employer to make annual
tax-deductible contributions of up to $30,000. Schwab Keogh plans are currently
charged an annual fee of $45.
SCHWAB CORPORATE RETIREMENT PLANS. A well designed retirement program can help a
company attract and retain valuable employees. Call 800-2 NO-LOAD, 24 hours a
day, for more information.
SHAREHOLDER GUIDE
You may buy shares through an account maintained with Schwab or through any
other entity that has been designated by Schwab. The following information
regarding the purchase, exchange and redemption of shares of the Funds through a
Schwab account relates solely to transactions through Schwab accounts and should
not be read to apply to transactions through other designated entities. For more
information, see "Purchase and Redemption of Shares" in the SAI.
New investors to Schwab need to open a Schwab account by completing and signing
an account application. Mail it, together with your check, to the address
indicated on the application. You may also open your account as described under
"How to Buy Shares" below.
Existing Schwab investors must have funds in their Schwab account in order to
buy shares of the Funds. Schwab will charge your Schwab brokerage account a $15
service fee for any check returned because of insufficient or uncollected funds
or because of a stop payment order.
Within your Schwab account, you have access to other investments available at
Schwab, such as stocks, bonds and other mutual funds. The Securities Investor
Protection Corporation ("SIPC") will provide account protection in an amount up
to $500,000 for securities, including Fund shares, that you hold in a Schwab
account. Of course, SIPC account protection does not protect you from share
price fluctuations.
SCHWAB ACCOUNT MINIMUMS AND FEES
- ----------------------------------------------
<TABLE>
<S> <C>
SCHWAB ACCOUNT MINIMUM BALANCE:
Brokerage account.............. $1,000
Custodial account.............. $500
- ---------------------------------------------
</TABLE>
A quarterly fee of $7.50 will be charged on Schwab brokerage accounts that fall
below the minimum. This fee, if applicable, will be charged at the end of each
quarter and will be waived if there has been at least one commissionable trade
within the last six months, or if the shareholder's combined account balances at
Schwab total $10,000 or more.
Schwab currently imposes no fee for opening a Schwab One(R) account with a
minimum balance of $5,000. Schwab will charge Schwab One accounts with balances
below $5,000 a $5 per month fee if there have been fewer than 2 commissionable
trades within the last 12 months.
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FUNDS MINIMUMS
- ------------------------------------------------------
<TABLE>
<S> <C>
FUNDS INITIAL PURCHASE:
Brokerage account.............. $1,000
IRA, other retirement plan and
custodial account............ $500
FUNDS ADDITIONAL PURCHASE:
All accounts................... $100
- ---------------------------------------------
</TABLE>
Each Fund, in its sole discretion and without prior notice to you, reserves the
right to reject orders to buy shares, to change or waive the minimum investment
requirements and to withdraw or suspend any part of that Fund's offering made by
this Prospectus. Orders to buy shares must be accepted by a Fund to be effective
and are not binding until the Fund confirms or accepts them in writing.
HOW TO BUY SHARES
You may place purchase and redemption orders for shares of the Funds as well as
request exchanges by calling 800-2 NO-LOAD, where trained representatives are
available to answer questions about the Funds and your account. The privilege to
initiate transactions by telephone, as discussed below, is available
automatically through your Schwab account. TDD users may contact Schwab at
800-345-2550, 24 hours a day.
Schwab also enables you to execute your trading requests through electronic
products and services such as StreetSmart(R), e.Schwab(TM), The Equalizer(R),
TeleBroker(R) and the World Wide Web (http://www.schwab.com/funds). Some of the
information and services available at this Web site are portfolio information,
on-line trading of mutual funds, stocks and other securities, as well as access
to the Mutual Fund Center where you can view current mutual fund performance and
other important information about funds.
We will follow reasonable procedures to confirm that your telephone instructions
are genuine. If we do not follow reasonable procedures to confirm that your
telephone order is genuine, we may be liable for any losses you may suffer from
unauthorized or fraudulent orders. These procedures may include requiring a form
of personal identification, providing written confirmation of your telephone
instructions and recording all telephone transactions. You should be aware that
telephone transactions may be difficult to implement during periods of drastic
economic or market changes. If you experience difficulties in reaching us by
telephone, you can mail your orders or place them in person as set forth below.
METHODS OF BUYING SHARES. Whether by phone, by mail or electronically, you must
always provide the following information:
- - your Schwab account number;
- - the name of the Fund you wish to buy;
- - the amount you wish to invest;
- - the distribution option you have selected (see below).
BY PHONE
- - Call 800-2 NO-LOAD.
- - Place a buy order for your account.
- - TDD users may contact Schwab at 800-345-2550, 24 hours a day.
BY MAIL
- - Include a letter of instruction with the information requested above, signed
by one of the registered account holders in the exact form specified on the
account.
- - Make your check payable to Charles Schwab & Co., Inc.
- - Mail to 101 Montgomery Street,
San Francisco, CA 94104.
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<PAGE> 26
- - Once you mail your letter, you may not modify or cancel your instructions.
ELECTRONICALLY
- - Refer to product information on StreetSmart(R), e.Schwab(TM), The Equalizer(R)
and TeleBroker(R) for details.
- - World Wide Web address: http://www.schwab.com/funds
BY WIRE
- - Call 800-2 NO-LOAD for instructions.
AUTOMATICALLY
- - Use Schwab's Automatic Investment Plan.
- - Sign up for this service when opening your account.
SELECTING A DISTRIBUTION OPTION. You may select from the three distribution
options listed below when you first become a shareholder in the Funds.
1. AUTOMATIC REINVESTMENT: Both income dividends and any capital gain
distributions will be reinvested in additional shares of the Funds. This option
will be selected automatically unless you specify another option. If you are
purchasing shares of the Funds through Schwab's Automatic Investment Plan, you
must choose this distribution option.
2. CASH DIVIDENDS/REINVESTED CAPITAL GAINS: Income dividends will be paid in
cash, and any capital gains will be reinvested in additional shares of the
Funds.
3. ALL CASH: Income dividends and any capital gain distributions will both be
paid in cash.
Dividends and distributions will be reinvested at the net asset value determined
on the ex-dividend date. We credit your cash distributions to your Schwab
account on the date distributions are payable. We leave them there or mail them
to you, depending on your standing account instructions.
If you already are a shareholder and wish to change your distribution option,
please call 800-2 NO-LOAD for assistance.
SCHWAB'S AUTOMATIC INVESTMENT PLAN ("AIP") allows you to make periodic
investments in the Funds and other non-money market SchwabFunds(R) (and certain
other funds available through Schwab) automatically and conveniently. You can
make automatic investments in any amount, from $100 to $50,000, once you meet
the Funds' investment minimum. Automatic investments are made from your Schwab
account, and you may select from the following methods to make automatic
investments: using the uninvested cash in your Schwab account; using the
proceeds of redemption of shares of the Schwab Money Fund linked to your Schwab
account; or using the Schwab MoneyLink(R) Transfer Service. As long as you are
purchasing a Fund's shares through AIP, all distributions paid by the Fund must
be reinvested in additional shares of that Fund and may not be received in cash.
For more detailed information about this service, or to establish your AIP, call
800-2 NO-LOAD, 24 hours a day.
SPECIAL SUBSCRIPTION OFFERING. The distributor, Schwab, is soliciting
subscriptions for shares of the Small Company Fund during an initial offering
period, currently scheduled to end September 15, 1997, subject to extension by
the Fund and Schwab. Shares are being offered at the initial NAV of $10 per
share. The Fund and Schwab reserve the right to withdraw, cancel or modify the
offering without notice and to refuse any order in whole or in part. The Fund
expects to commence a continuous offering of its shares immediately fol-
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<PAGE> 27
lowing the settlement of the subscription offering.
HOW TO SELL OR EXCHANGE SHARES
You can sell your shares of the Funds by telephone, electronically or by mail at
any time. When you sell your shares, you may receive more or less than the
amount you invested.
EXCHANGE OF SHARES. The exchange privilege allows you to exchange your
SchwabFunds(R) shares for shares of any other SchwabFunds class or series
available to investors in your state if your purchase meets the class or Fund's
eligibility requirements. Thus, you can conveniently modify your investments if
your goals or market conditions change. An exchange of shares will be treated as
a sale of the shares for federal income tax purposes. Note that you must meet
the minimum initial or subsequent investment requirements applicable to the
shares you wish to receive in an exchange. The Funds reserve the right on 60
days' written notice to modify, limit or terminate the exchange privilege.
METHODS OF SELLING OR EXCHANGING SHARES. Whether by phone, by mail or
electronically, the following information is always needed:
- - your Schwab account number;
- - the number of shares you wish to sell or exchange;
- - the name of the Fund from which you wish to sell or exchange shares;
- - the name of the Fund and class of shares (if applicable) into which shares are
to be exchanged; and
- - if exchanging shares, the distribution option you select.
BY PHONE
- - Call 800-2 NO-LOAD.
- - Place a sell or exchange request for your account.
- - TDD users may contact Schwab at 800-345-2550, 24 hours a day.
BY MAIL
- - Include a letter of instruction with the information requested above, signed
by one of the registered account holders in the exact form specified on the
account.
- - Mail to 101 Montgomery Street,
San Francisco, CA 94104.
- - Once your letter is mailed, you may not modify or cancel your instructions.
ELECTRONICALLY
- - Refer to product information on StreetSmart(R), e.Schwab(TM), The Equalizer(R)
and TeleBroker(R) for details.
- - World Wide Web address: http://www.schwab.com/funds
PAYMENT. Payment for redeemed shares will be credited directly to your Schwab
account no later than 7 days after the Transfer Agent or its authorized agent
receives your sell instructions in proper form. Proceeds will then be held in
your Schwab account or mailed to you depending on the account standing
instructions you have selected. For information on how to wire funds from your
Schwab account to your bank, call 800-2 NO-LOAD.
If you purchased shares by check, your sales proceeds may be held in your Schwab
account until your check clears (which may take up to 15 days). Depending on the
type of Schwab account you have, your money may earn interest during any holding
period.
The Funds may suspend redemption rights or postpone payments when trading on the
Exchange is restricted or is closed for any reason other than its customary
weekend or holiday closings, emergency circumstances as deter-
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<PAGE> 28
mined by the SEC exist or for such other circumstances as the SEC may permit.
Although the Funds normally expect to make all redemption requests in cash,
under certain circumstances the Funds may elect to make redemptions in-kind by
distributing portfolio securities, including underlying fund shares, rather than
cash. Although underlying fund shares are readily redeemable or marketable, you
would normally incur brokerage expenses in converting any other securities into
cash. See "Purchase and Redemption of Shares" in the SAI for more information.
OTHER IMPORTANT INFORMATION
The Trust is a business trust formed under the laws of Massachusetts on May 7,
1993. It may issue an unlimited number of shares of beneficial interest in one
or more series or classes. Currently it offers shares of 11 series. The Board of
Trustees may authorize the issuance of shares of additional series or classes,
if it deems it desirable. Shares within each series have equal, noncumulative
voting rights, and have equal rights as to distributions, assets and liquidation
of such series except to the extent that such voting rights or rights as to
distributions, assets and liquidation vary among classes of a series.
Due to the relatively high cost of maintaining accounts with smaller holdings,
the Funds reserve the right to redeem your shares if, as a result of
redemptions, the aggregate value of your account drops below the Funds' $500
minimum balance requirement ($250 in the case of IRAs, other retirement plans
and custodial accounts). You will be given 30 days' advance written notice and a
chance to increase your Fund's balance to the minimum requirement before your
shares are redeemed. Fund shares will be redeemed automatically should the
Schwab account in which they are carried be closed.
SHAREHOLDER MEETINGS. The Trust is not required to hold annual shareholders'
meetings and does not intend to do so. The Trust may, however, hold special
meetings in connection with certain matters. These include changing a Fund's
fundamental policies, electing or removing Trustees, or approving or amending
any investment advisory agreement. In addition, shareholders may remove a
Trustee at a special meeting called upon written request of shareholders owning
in the aggregate at least 10% of the outstanding shares of the Trust.
YOUR VOTING RIGHTS. If we were to make changes to the Funds' management or
fundamental policies, we would ask you to vote as a shareholder. If we hold a
meeting and you cannot attend, you can vote by proxy. Before the meeting, the
Funds will send you proxy materials that explain the issues to be decided and
include a voting card for you to return. Shareholders have one vote for each
share owned. Unless permitted by the 1940 Act, shareholders will vote by series
and not in the aggregate. For example, when voting to approve an investment
advisory agreement for a series, only shareholders of that series may vote. When
voting to elect Trustees, shareholders of all the series vote in the aggregate.
In addition, holders of shares will vote exclusively as a class on any matter
relating solely to their arrangement as a class and on any matter in which the
interests of that class differ from the interests of any other class in that
Fund.
ANNUAL AND SEMI-ANNUAL REPORT MAILINGS. Twice a year, the Funds provide you a
report showing its performance and outlining its investments. To reduce mailing
costs, we combine these mailings by household. If a house-
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<PAGE> 29
hold has multiple accounts and the same record address for all the accounts, we
send mailings for all accounts at that address in a single package. If you do
not want us to combine mailings for your account, please write to SchwabFunds(R)
at the address on the front of this Prospectus. To request a free copy of the
Funds' Annual or Semi-Annual Report, call Schwab at 800-2 NO-LOAD.
SHARE CERTIFICATES. To assist in minimizing administrative costs, share
certificates will not be issued. Records regarding share ownership are
maintained by the Transfer Agent.
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<PAGE> 30
GLOSSARY OF IMPORTANT TERMS
BALANCED FUNDS: funds that invest in both stock and bonds or preferred stock.
These funds must invest at least 25% of their assets in fixed income senior
securities.
BOND FUNDS: funds which seek current income by investing in long-term or
short-term bonds and other fixed income securities, including securities insured
or guaranteed or insured by the U.S. Government, its agencies or
instrumentalities.
BUSINESS DAY: any day the New York Stock Exchange is open for business. A
Business Day normally begins at 9:30 a.m. Eastern time when the Exchange opens,
and usually ends at 4 p.m. Eastern time when it closes.
CAPITAL GAIN OR LOSS: the increase or decrease in the value of a security
relative to the original purchase price. A gain is realized when the security
that has increased in value is sold. An unrealized gain or loss occurs when the
value of a security increases or decreases but the security is not sold. If a
security is held for more than 12 months and then sold at a profit, that profit
is a realized long-term capital gain. If it is sold at a profit after being held
for less than 12 months, that profit is a realized short-term capital gain.
CODE: the Internal Revenue Code of 1986, as amended.
CSIM: the Funds' Investment Manager, Charles Schwab Investment Management, Inc.,
101 Montgomery Street, San Francisco, California 94104.
DEVELOPED SECURITIES MARKETS: as of the date of this prospectus, the countries
usually considered to have "developed" securities markets include Australia,
Austria, Belgium, Canada, Denmark, Finland, France, Germany, Hong Kong, Ireland,
Italy, Japan, Malaysia, Netherlands, New Zealand, Norway, Singapore, Spain,
Sweden, Switzerland, Thailand, United Kingdom and the United States.
DISTRIBUTION: payment the Funds make to shareholders. There are two kinds of
distributions: dividends, or the profits (after expenses) from the Funds'
investments, and capital gains distributions.
DIVERSIFIED: under the 1940 Act, a diversified fund generally may not invest
more than 5% of its assets in the securities of any one issuer and may not hold
more than 10% of the voting shares of any one issuer with respect to 75% of the
value of its total assets. As described in the SAI, investments in U.S.
Government securities and other investment companies are excepted from this
policy.
EMERGING MARKET FUND: an investment company that invests primarily in equity
securities of companies located in countries with an undeveloped securities
market.
FUND: any investment company, which may include open-end mutual funds,
closed-end funds and unit investment trusts.
FUNDAMENTAL: a policy which cannot be changed without the approval of a majority
of the shareholders of the Fund.
GLOBAL FUND: an investment company that invests primarily in equity securities
of companies around the world, including the United States.
FHLMC: Federal Home Loan Mortgage Corporation.
FNMA: Federal National Mortgage Association.
GNMA: Government National Mortgage Association.
INTERNATIONAL EQUITY FUND: a fund that invests, under normal market conditions,
primarily in
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<PAGE> 31
equity securities of companies located in one or more countries, other than the
United States, with a developed securities market.
INVESTMENT GRADE: investment grade bonds are usually considered to be bonds
which are rated in one of the four highest categories ("BBB" or "Baa" or better)
by a NRSRO, or bonds which are unrated but deemed by the underlying funds
investment manager to be of comparable quality.
INVESTMENT MANAGER: Charles Schwab Investment Management, Inc. (or CSIM), 101
Montgomery Street, San Francisco, California 94104.
MARKET CAPITALIZATION: a corporation's value as determined by multiplying its
total outstanding shares by the current market price of a share.
MONEY MARKET FUNDS: funds which seek as high a level of current income as is
consistent with preservation of capital and liquidity by investing in a broad
range of high quality, short-term money market instruments.
NET ASSET VALUE (NAV): on a per share basis, the value of one share in a fund.
This value is determined by adding the total assets, subtracting all
liabilities, and then dividing the resulting amount by the number of shares
outstanding.
1940 ACT: the Investment Company Act of 1940, as amended.
NRSRO: a nationally recognized statistical rating organization.
ONESOURCE FUNDS: funds that participate in Schwab's Mutual Fund OneSource(R)
service, certain other funds Schwab makes available without a transaction fee
and Schwab's family of proprietary SchwabFunds (if and to the extent permitted
by SEC order or interpretation).
PORTFOLIO: the total stocks, bonds and other securities held by an individual
investor, a mutual fund or a financial institution.
RISK: the possibility of losing all or part of an investment, that the value of
the investment will decrease or that the investor will receive little or no
return on the investment.
STATEMENT OF ADDITIONAL INFORMATION OR SAI: the Trust's Statement of Additional
Information, as amended from time to time.
SCHWAB: Charles Schwab & Co., Inc. 101 Montgomery Street, San Francisco,
California 94104.
SCHWABFUNDS(R): Schwab's family of proprietary funds, currently consisting of
the following funds:
Equity and Allocation Funds:
Schwab 1000 Fund(R) -- Investor Shares
Schwab 1000 Fund -- Select Shares(TM)
Schwab International Index Fund(R) -- Investor Shares
Schwab International Index Fund -- Select Shares(TM)
Schwab Small-Cap Index Fund(R) -- Investor Shares
Schwab Small-Cap Index Fund -- Select Shares
Schwab S&P 500 Fund -- Investor Shares
Schwab S&P 500 Fund -- e.Shares(TM)
Schwab S&P 500 Fund -- Select Shares
Schwab Asset Director(R) -- High Growth Fund
Schwab Asset Director -- Balanced Growth Fund
Schwab Asset Director -- Conservative Growth Fund
Schwab Analytics Fund(TM)
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<PAGE> 32
Schwab OneSource Portfolios -- Balanced Allocation
Schwab OneSource Portfolios -- Growth Allocation
Schwab OneSource Portfolios -- International
Schwab OneSource Portfolios -- Small Company
Bond Funds:
Schwab Short/Intermediate Government Bond Fund
Schwab Long-Term Government Bond Fund
Schwab Short/Intermediate Tax-Free Bond Fund
Schwab Long-Term Tax-Free Bond Fund
Schwab California Short/Intermediate Tax-Free Bond Fund
Schwab California Long-Term Tax-Free Bond Fund
Money Market Funds:
Schwab Money Market Fund
Schwab Government Money Fund
Schwab U.S. Treasury Money Fund
Schwab Value Advantage Money Fund(R) -- Investor Shares
Schwab Municipal Money Fund -- Sweep Shares
Schwab Municipal Money Fund -- Value Advantage Shares(TM)
Schwab California Municipal Money Fund -- Sweep Shares
Schwab California Municipal Money Fund -- Value Advantage Shares(TM)
Schwab Retirement Money Fund(R)
Schwab Institutional Advantage Money Fund(R)
Schwab New York Municipal Money Fund -- Sweep Shares
Schwab New York Municipal Money Fund -- Value Advantage Shares(TM)
SECURITIES AND EXCHANGE COMMISSION (SEC): established by Congress to administer
the Securities Act of 1933, the Investment Company Act of 1940 and other
securities-related laws.
SMALL COMPANY EQUITY FUNDS: funds which invest primarily in domestic common
stocks or securities convertible into or exchangeable into common stock of small
companies. Small companies are usually companies in the emerging or developing
stages of their life cycle. Small companies are generally not included in the
top 500 companies in terms of sales, market capitalization, revenues or other
standard measures.
STOCK FUNDS: funds which invest primarily in domestic or foreign common stocks
or securities convertible into or exchangeable for common stock and which seek
long-term capital growth or appreciation.
STOCK RISK: the possibility that stock prices in general or particular will
decline over short or even extended periods.
TOTAL RETURN: the change in value of an investment in the Fund over a given
period, assuming reinvestment of any dividends and capital gains. Cumulative
total return reflects actual performance over a stated period of time. Average
annual total return is a hypothetical rate of return that would have produced
the same cumulative total return if performance had been constant over the
entire period. Average annual total returns smooth out variations in
performance; they are not the same as actual year-by-year results.
TRANSFER AGENT: Charles Schwab & Co., Inc., 101 Montgomery Street, San
Francisco, California 94104.
TRUST: Schwab Capital Trust, a no-load open-end management investment company.
VOLATILITY: a measure of the magnitude and frequency of changes in securities
values.
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Statistically, volatility is the measure of the spread of the prices or yields
around the mean of the prices or yields.
- ------------------------------------------------------
NO ONE HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY STATEMENTS
ABOUT THIS OFFERING NOT CONTAINED IN THIS PROSPECTUS. IF ANYONE GIVES ANY OTHER
INFORMATION OR MAKES ANY OTHER REPRESENTATIONS, DO NOT RELY ON SUCH INFORMATION
OR REPRESENTATIONS AS HAVING BEEN AUTHORIZED BY THE TRUST OR ITS DISTRIBUTOR.
- ------------------------------------------------------
THIS PROSPECTUS IS NOT AN OFFER IN ANY STATE IN WHICH SUCH AN OFFER MAY NOT
LAWFULLY BE MADE, NOR IS IT AN OFFER TO ANY PERSON TO WHOM SUCH AN OFFER MAY NOT
LAWFULLY BE MADE.
- ------------------------------------------------------
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<PAGE> 34
THIS SPACE RESERVED FOR YOUR COMMENTS AND QUESTIONS.
A SCHWAB REPRESENTATIVE WILL BE HAPPY TO ASSIST YOU.
<PAGE> 35
THIS SPACE RESERVED FOR YOUR COMMENTS AND QUESTIONS.
A SCHWAB REPRESENTATIVE WILL BE HAPPY TO ASSIST YOU.
<PAGE> 36
SCHWABFUNDS(R)
101 Montgomery Street
San Francisco, CA 94104
(C)1997 Charles Schwab & Co., Inc. All rights reserved Member SIPC/NYSE. (8/97)
2984-1
SCHWAB ONESOURCE PORTFOLIOS
GROWTH ALLOCATION
BALANCED ALLOCATION
INTERNATIONAL
SMALL COMPANY
SCHWABFUNDS(R)
- -------------------------
PROSPECTUS AUGUST 3, 1997
<PAGE> 37
STATEMENT OF ADDITIONAL INFORMATION
SCHWAB CAPITAL TRUST
101 Montgomery Street, San Francisco, CA 94104
AUGUST 3, 1997
This Statement of Additional Information is not a prospectus. It should
be read in conjunction with the joint Prospectus dated May 19, 1997 (as amended
from time to time) for the Select Shares of Schwab International Index Fund(R)
(the "International Index Fund"), Schwab Small-Cap Index Fund(R) (the "Small-Cap
Index Fund") and Schwab S&P 500 Fund (the "S&P 500 Fund"); the joint Prospectus
dated May 19, 1997 (as amended from time to time) for all classes of the
International Index Fund, the Small-Cap Index Fund and the S&P 500 Fund, the
Prospectus dated February 28, 1997 for Schwab Analytics(TM) Fund (the "Analytics
Fund"); the joint Prospectus dated February 28, 1997 as amended July 14, 1997
(as amended from time to time) for Schwab Asset Director(R)-High Growth Fund
(the "High Growth Fund"), Schwab Asset Director-Balanced Growth Fund (the
"Balanced Growth Fund") and Schwab Asset Director-Conservative Growth Fund (the
"Conservative Growth Fund" and jointly, the "Asset Director Funds"); and the
joint Prospectus dated August 3, 1997 (as amended from time to time) for Schwab
OneSource Portfolios-International, Schwab OneSource Portfolios-Growth
Allocation (the "Growth Allocation"), Schwab OneSource Portfolios-Balanced
Allocation (the "Balanced Allocation") and Schwab OneSource Portfolios-Small
Company ("Small Company Fund" and jointly, the "OneSource Portfolios"), eleven
separately managed investment portfolios (collectively the "Funds") of Schwab
Capital Trust (the "Trust").
Prior to May 19, 1997 the International Index Fund and the Small-Cap
Index Fund were not offered in multiple classes of shares. The existing shares
of these funds are redesignated as Investor Shares. Prior to May 19, 1997, the
S&P 500 Fund was only offered in two classes (Investor Shares and e.Shares). The
other Funds of the Trust are not offered in multiple classes of shares.
To obtain a copy of any of these Prospectuses, please contact Charles
Schwab & Co., Inc. ("Schwab") at 800-2 NO-LOAD, 24 hours a day, or 101
Montgomery Street, San Francisco, California 94104. TDD users may contact Schwab
at 800-345-2550, 24 hours a day. These Prospectuses are also available
electronically by using our World Wide Web address: http://www.schwab.com/funds.
<PAGE> 38
SCHWABFUNDS(R)
800-2 NO-LOAD
TABLE OF CONTENTS
Page
INVESTMENT OBJECTIVES.........................................................3
INVESTMENT SECURITIES.........................................................4
INVESTMENT RESTRICTIONS......................................................27
MANAGEMENT OF THE TRUST......................................................32
PORTFOLIO TRANSACTIONS AND TURNOVER..........................................42
TAXES........................................................................45
SHARE PRICE CALCULATION......................................................48
HOW THE FUNDS REFLECT PERFORMANCE............................................49
THE BENEFITS OF INTERNATIONAL INVESTING......................................51
INDEXING AND ASSET ALLOCATION --THE SCHWAB
INDEX FUNDS AND THE SCHWAB ASSET ALLOCATION FUNDS.......................52
GENERAL INFORMATION..........................................................57
PURCHASE AND REDEMPTION OF SHARES............................................58
OTHER INFORMATION............................................................59
FINANCIAL STATEMENTS........................................................F-1
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INVESTMENT OBJECTIVES
INTERNATIONAL INDEX FUND-INVESTOR SHARES
INTERNATIONAL INDEX FUND-SELECT SHARES
The investment objective of the International Index Fund is to attempt
to track the price and dividend performance (total return) of the Schwab
International Index(R) (the "International Index"), an index created to
represent the performance of common stocks and other equity securities issued by
large publicly traded companies from countries around the world with major
developed securities markets, excluding the United States.
SMALL-CAP INDEX FUND INVESTOR-SHARES
SMALL-CAP INDEX FUND SELECT-SHARES
The investment objective of the Small-Cap Index Fund is to attempt to
track the price and dividend performance (total return) of the Schwab Small-Cap
Index(R) (the "Small-Cap Index"), an index created to represent the performance
of common stocks of the second 1,000 largest United States companies, ranked by
market capitalization (share price times the number of shares outstanding).
HIGH GROWTH FUND
The investment objective of the High Growth Fund is to provide high
capital growth with less volatility than an all-stock portfolio. This Fund
provides the greatest exposure to various stock categories, including domestic
large and small company stocks and international stocks.
BALANCED GROWTH FUND
The investment objective of the Balanced Growth Fund is to provide
maximum total return, including both capital growth and income. This Fund
represents a more balanced approach to stocks and bonds.
CONSERVATIVE GROWTH FUND
The investment objective of the Conservative Growth Fund is to provide
income and more growth potential than an all-bond portfolio. This Fund's stock
component is designed to help offset inflation.
Each Asset Director(R) Fund may seek to achieve its investment
objective by investing directly in portfolio securities or by investing
indirectly in underlying affiliated mutual funds ("underlying Schwab Funds"), as
described herein.
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S&P 500 FUND-INVESTOR SHARES
S&P 500 FUND-e.SHARES(TM)
S&P 500 FUND SELECT SHARES(TM)
The Fund's investment objective is to track the price and dividend
performance (total return) of common stocks of U. S. companies, as represented
by Standard & Poor's 500 Composite Stock Price Index (the "S&P 500(R)").
ANALYTICS FUND(TM)
The investment objective of the Analytics Fund is to achieve long-term
capital growth.
SCHWAB ONESOURCE PORTFOLIOS-INTERNATIONAL AND SMALL COMPANY FUND
Schwab OneSource Portfolios-International and the Small Company Fund
are mutual funds that seek long-term capital appreciation. To achieve their
goals, the Investment Manager, Charles Schwab Investment Management, Inc.
("CSIM"), will attempt to identify and select a diversified portfolio of equity
funds which present the greatest capital growth potential ("underlying fund(s)")
based on an analysis of many factors, including the underlying funds' investment
objective, the history of portfolio manager(s), total return, volatility and
expenses.
SCHWAB ONESOURCE PORTFOLIOS-GROWTH ALLOCATION AND BALANCED ALLOCATION
The Funds are asset allocation funds that provide easy access to
actively managed portfolios of funds from well-known families. The investment
objective of the Growth Allocation is to provide you with capital growth with
less volatility than a portfolio comprised entirely of stock funds. Of course, a
portfolio with lower volatility also has lower growth potential than a portfolio
comprised entirely of stock funds. The investment objective of the Balanced
Allocation is to provide you with capital growth and income with less volatility
than the Growth Allocation.
The investment objectives stated above for each of the Funds, along
with certain investment restrictions adopted by the Funds, are fundamental and
cannot be changed without approval by holders of a majority of the Funds'
outstanding voting shares, as defined in the Investment Company Act of 1940, as
amended (the "1940 Act").
INVESTMENT SECURITIES
FOREIGN INVESTMENTS
The International Index Fund and Asset Director(R) Funds expect to
invest in stocks of foreign issuers. The International Index Fund will invest
primarily in such stocks. The Schwab OneSource Portfolios-International expects
to invest primarily in other investment companies which invest in stocks of
foreign issuers, and may invest directly in domestic and foreign securities. The
Growth Allocation and the Balanced Allocation may invest in other investment
companies which invest in stocks of foreign issuers,
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and may invest directly in domestic and foreign securities. We expect that many
of the underlying funds may invest up to 100% of their assets in foreign
securities. Investing in foreign issuers involves certain special
considerations, including those set forth below, which are typically not
associated with investing in U.S. issuers. Since investments in the securities
of foreign issuers are usually made and held in foreign currencies, and since
the International Index Fund, Asset Director(R) Funds, OneSource Portfolios and
underlying funds may hold cash in foreign currencies, they may be affected
favorably or unfavorably by changes in currency rates and in exchange control
regulations, and may incur costs in connection with conversions between various
currencies. The rate of exchange between the U.S. dollar and other currencies is
determined by the forces of supply and demand in the foreign exchange market as
well as by political and economic factors.
Since foreign companies are not subject to uniform accounting, auditing
and financial reporting standards, practices and requirements comparable to
those applicable to U.S. companies, there may be less publicly available
information about a foreign company than about a U.S. company. Securities of
foreign companies have less volume, are less liquid and are more volatile than
securities of U.S. companies. Fixed commissions on foreign securities exchanges
are generally higher than negotiated commissions on U.S. exchanges, although the
International Index Fund, Asset Director Funds, and OneSource Portfolios
endeavor to achieve the most favorable net results on their portfolio
transactions. There is generally less government supervision and regulation of
foreign securities exchanges, brokers, dealers and listed companies than in the
United States, thus increasing the risk of delayed settlements of portfolio
transactions or loss of certificates for portfolio securities.
Foreign markets also have different clearance and settlement
procedures, and in certain markets there have been times when settlements have
been unable to keep pace with the volume of securities transactions, making it
difficult to conduct such transactions. Such delays in settlement could result
in temporary periods when a portion of the assets of the International Index
Fund, Asset Director Funds, OneSource Portfolios and underlying funds is
uninvested and no return is earned thereon. The inability to make intended
security purchases due to settlement problems could cause the International
Index Fund, Asset Director Funds, OneSource Portfolios and underlying funds to
miss attractive investment opportunities. Losses to the International Index
Fund, Asset Director Funds, OneSource Portfolios and underlying funds arising
out of the inability to fulfill a contract to sell such securities could result
in potential liability to the International Index Fund, Asset Director Funds,
OneSource Portfolios and underlying funds.
In addition, with respect to those countries in which the International
Index Fund, Asset Director Funds, OneSource Portfolios and underlying funds may
invest or other countries which may have a significant impact on the companies
in which the International Index Fund, Asset Director Funds, OneSource
Portfolios and underlying funds may invest, there is the possibility of
expropriation or confiscatory taxation, political or social instability,
diplomatic developments, change of government or war which could affect the
International Index Fund's, Asset Director Funds', OneSource Portfolios' and
underlying funds' investments. Moreover, individual foreign economies may differ
favorably or unfavorably from the U.S. economy in such respects as growth of
gross national product, rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payments position.
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Each of the Asset Director(R) Funds may invest up to 5% of its net
assets in companies located in developing countries. Schwab OneSource
Portfolios-International may invest directly, or indirectly through underlying
funds which invest primarily in companies located in developing countries.
Growth Allocation, Balanced Allocation and the Small Company Fund may invest up
to 10% of their total net assets directly, or indirectly through underlying
funds which invest primarily in companies located in developing countries.
Compared to the United States and other developed countries, developing
countries may have relatively unstable governments, economies based on only a
few industries and securities markets that trade a small number of securities.
Prices on these exchanges tend to be volatile, and securities in these countries
have historically offered greater potential for gain (as well as loss) than
securities of companies located in developed countries.
Hong Kong. In addition to the risks discussed above, it is
unforeseeable what risk, if any, may exist to the International Index Fund's,
Asset Director Funds', OneSource Portfolios' and underlying funds' investments
as a result of the recent incorporation of the British Crown Colony of Hong Kong
into the People's Republic of China. Shareholders should note that the risks
discussed above may increase depending on political and economic developments.
DEPOSITARY RECEIPTS
Each of the Asset Director Funds, Growth Allocation and Balanced
Allocation may invest in American Depositary Receipts, European Depositary
Receipts, Global Depositary Receipts, Global Depositary Shares ("ADRs," "EDRs,"
"GDRs" and "GDSs," respectively), or other similar global instruments which are
receipts representing ownership of shares of a foreign-based issuer held in
trust by a bank or similar financial institution. The Asset Director Funds',
Growth Allocation's, Balanced Allocation's and the Small Company Fund's direct
investments in these instruments currently will not exceed 10% of each Fund's
net assets, but underlying funds may invest in ADRs, EDRs, GDRs, GDSs or other
similar global instruments. These are designed for U.S. and European securities
markets as alternatives to purchasing underlying securities in their
corresponding national markets and currencies. ADRs, EDRs, GDRs and GDSs can be
sponsored or unsponsored. Sponsored ADRs, EDRs, GDRs and GDSs are certificates
in which a bank or financial institution participates with a custodian. Issuers
of unsponsored ADRs, EDRs, GDRs and GDSs are not contractually obligated to
disclose material information in the United States. Therefore, there may not be
a correlation between such information and the market value of the unsponsored
ADRs, EDRs, GDRs or GDSs.
OPTIONS ON SECURITIES
Writing Covered Options. The Funds may write (sell) covered call and
put options on any securities in which they may invest. The Funds may purchase
and write such options on securities that are listed on domestic or foreign
securities exchanges or traded in the over-the-counter market. All call options
written by the Funds are covered, which means that the Funds will own the
securities subject to the option so long as the option is outstanding. The
purpose of writing covered call options is to realize greater income than would
be realized on portfolio securities transactions alone. However, in writing
covered call options for additional income, the Funds may forego the opportunity
to profit from an increase in the market price of the underlying security.
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All put options the Funds write will be covered, which means that each
of the Funds will have deposited with its custodian cash, U.S. Government
securities or other high-grade debt securities (i.e., securities rated in one of
the top three categories by Moody's Investor Service ("Moody's") or Standard &
Poor's ("S&P") or, if unrated, determined by the Funds' Investment Manager to be
of comparable credit quality) with a value at least equal to the exercise price
of the put option. The purpose of writing such options is to generate additional
income for the Funds. However, in return for the option premium, the Funds
accept the risk that they may be required to purchase the underlying securities
at a price in excess of the securities market value at the time of purchase.
The Funds may terminate their obligations under a written call or put
option by purchasing an option identical to the one it has written. Such
purchases are referred to as "closing purchase transactions."
Purchasing Options. The Funds may purchase put and call options on any
securities in which they may invest or options on any securities index based on
securities in which they may invest. The Funds may also enter into closing sale
transactions in order to realize gains or minimize losses on options they have
purchased.
The writer of an option may have no control over when the underlying
securities must be sold, in the case of a call option, or purchased, in the case
of a put option, since, with regard to certain options, the writer may be
assigned an exercise notice at any time prior to the termination of the
obligation. Whether or not an option expires unexercised, the writer retains the
amount of the premium. This amount may, in the case of a covered call option, be
offset by a decline in the market value of the underlying security during the
option period. If a call option is exercised, the writer experiences a profit or
loss from the sale of the underlying security. If a put option is exercised, the
writer must fulfill its obligation to purchase the underlying security at the
exercise price, which will usually exceed the then market value of the
underlying security.
The purchase of a call option would entitle the Funds, in return for
the premium paid, to purchase specified securities at a specified price during
the option period. The Funds would ordinarily realize a gain if, during the
option period, the value of such securities exceeded the sum of the exercise
price, the premium paid and transaction costs; otherwise the Funds would realize
either no gain or a loss on the purchase of the call option.
Risks Associated With Options Transactions. There is no assurance that
a liquid secondary market on a domestic or foreign options exchange will exist
for any particular exchange-traded option or at any particular time. If the
Funds are unable to effect a closing purchase transaction with respect to
covered options they have written, the Funds will not be able to sell the
underlying securities or dispose of assets held in a segregated account until
the options expire or are exercised. Similarly, if the Funds are unable to
effect a closing sale transaction with respect to options they have purchased,
they would have to exercise the options in order to realize any profit and will
incur transaction costs upon the purchase or sale of underlying securities.
Reasons for the absence of a liquid secondary market on an exchange
include the following: (i) there may be insufficient trading interest in certain
options; (ii) an exchange may impose restrictions on
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<PAGE> 44
opening transactions or closing transactions or both; (iii) trading halts,
suspensions or other restrictions may be imposed with respect to particular
classes or series of options; (iv) unusual or unforeseen circumstances may
interrupt normal operations on an exchange; (v) the facilities of an exchange or
the Options Clearing Corporation (the "OCC") may not at all times be adequate to
handle current trading volume; or (vi) one or more exchanges could, for economic
or other reasons, decide or be compelled at some future date to discontinue the
trading of options (or a particular class or series of options), although
outstanding options on that exchange that had been issued by the OCC as a result
of trades on that exchange would continue to be exercisable in accordance with
their terms.
The Funds may purchase and sell both options that are traded on U.S.
and foreign exchanges and options traded over-the-counter with broker-dealers
who make markets in these options. The ability to terminate over-the-counter
options is more limited than with exchange-traded options and may involve the
risk that broker-dealers participating in such transactions will not fulfill
their obligations. Until such time as the staff of the Securities and Exchange
Commission (the "SEC") changes its position, the Funds will treat purchased
over-the-counter options and all assets used to cover written over-the-counter
options as illiquid securities, except that with respect to options written with
primary dealers in U.S. Government securities pursuant to an agreement requiring
a closing purchase transaction at a formula price, the amount of illiquid
securities may be calculated with reference to a formula the staff of the SEC
approves. Each of the Funds will write or purchase an option only when the
market value of that option, when aggregated with the market value of all other
options transactions made on behalf of the Fund, does not exceed 5% of the
Fund's net assets.
The underlying funds may also write (sell) covered call and put options
and purchase put and call options. The nature of the conditions and risks
associated with such transactions by the underlying funds are similar to those
described for the Funds.
FOREIGN CURRENCY TRANSACTIONS
Forward Foreign Currency Exchange Contracts. The International Index
Fund, Asset Director(R) Funds and OneSource Portfolios may enter into forward
foreign currency exchange contracts in several circumstances. The International
Index Fund, Asset Director Funds and OneSource Portfolios may engage in foreign
currency exchange transactions to protect against uncertainty in the level of
future exchange rates. The International Index Fund, Asset Director Funds and
OneSource Portfolios expect to engage in foreign currency exchange transactions
in connection with the purchase and sale of portfolio securities (so-called
"transaction hedging") and to protect the value of specific portfolio positions
("position hedging"). The underlying funds may also engage in transaction and
position hedging.
For transaction hedging purposes, the International Index Fund, Asset
Director Funds, OneSource Portfolios and underlying funds enter into foreign
currency transactions with respect to specific receivables or payables of the
funds arising in connection with the purchase or sale of portfolio securities.
By transaction hedging, the International Index Fund, Asset Director Funds and
OneSource Portfolios will attempt to protect against a possible loss resulting
from an adverse change in the relationship between (i) the U.S. dollar and the
applicable foreign currency during the period between the date on which the
security is purchased or sold and (ii) the transaction's settlement date. When
engaging in position hedging, the
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International Index Fund, Asset Director(R) Funds, OneSource Portfolios and
underlying funds enter into foreign currency exchange transactions to protect
against a decline in the values of the foreign currencies in which portfolio
securities are denominated (or against an increase in the value of currency for
securities which the International Index Fund, Asset Director Funds, OneSource
Portfolios and underlying funds expect to purchase).
When engaging in position and/or transaction hedging, the International
Index Fund, Asset Director Funds, OneSource Portfolios and underlying funds may
purchase or sell foreign currencies on a spot (or cash) basis at the prevailing
spot rate and also may enter into contracts to purchase or sell foreign
currencies at a future date ("forward contracts") and purchase and sell foreign
currency futures contracts ("futures contracts"). International Index Fund,
Asset Director Funds, OneSource Portfolios and underlying funds also may
purchase exchange-listed and over-the-counter call and put options on futures
contracts and on foreign currencies. A put option on a futures contract gives
the International Index Fund, Asset Director Funds, OneSource Portfolios and
underlying funds the right to assume a short position in the futures contract
until expiration of the option. A put option on currency gives the International
Index Fund, Asset Director Funds, OneSource Portfolios and underlying funds the
right to sell a currency at an exercise price until the expiration of the
option. A call option on a futures contract gives the International Index Fund,
Asset Director Funds, OneSource Portfolios and underlying funds the right to
assume a long position in the futures contract until the expiration of the
option. A call option on currency gives the International Index Fund, Asset
Director Funds, OneSource Portfolios and underlying funds the right to purchase
a currency at the exercise price until the expiration of the option.
Hedging transactions involve costs and may result in losses, and the
ability of the International Index Fund, Asset Director Funds, OneSource
Portfolios and underlying funds to engage in hedging transactions may be limited
by tax considerations. Transaction and position hedging do not eliminate
fluctuations in the underlying prices of the securities that the Funds or the
underlying funds own or expect to purchase or sell. They simply establish a rate
of exchange that may be achieved at some future point in time. Additionally,
although these techniques tend to minimize the risk of loss due to decline in
the value of the hedged currency, they tend to limit any potential gain that
might result from an increase in the value of such currency.
Although the contracts are not presently are regulated by the Commodity
Futures Trading Commission (the "CFTC"), the CFTC may in the future assert
authority to regulate these contracts. In such event, the ability of the
International Index Fund, Asset Director Funds, OneSource Portfolios and
underlying funds to utilize forward foreign currency exchange contracts may be
restricted.
Each of the Asset Director Funds will enter into a forward foreign
currency exchange contract only when the market value of such contract, when
aggregated with the market value of all other such contracts held by the Fund,
does not exceed 5% of the Fund's net assets.
The International Index Fund, Asset Director Funds and OneSource
Portfolios generally will not enter into a forward contract with a term of
greater than one year.
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While the International Index Fund, Asset Director(R) Funds and
OneSource Portfolios will, and underlying funds may, enter into forward
contracts to reduce currency exchange rate risks, transactions in such contracts
involve certain other risks. Thus, while the International Index Fund, Asset
Director Funds, OneSource Portfolios and underlying funds may benefit from such
transactions, unanticipated changes in currency prices may result in a poorer
overall performance for the International Index Fund, Asset Director Funds,
OneSource Portfolios and underlying funds than if they had not engaged in any
such transactions. Moreover, there may be imperfect correlation between the
International Index Fund's, Asset Director Funds', OneSource Portfolios' and
underlying funds' portfolio holdings of securities denominated in a particular
currency and forward contracts into which the International Index Fund, Asset
Director Funds, OneSource Portfolios and underlying funds enter. Such imperfect
correlation may cause the International Index Fund, Asset Director Funds,
OneSource Portfolios and underlying funds to sustain losses, which will prevent
the International Index Fund, Asset Director Funds, OneSource Portfolios and
underlying funds from achieving a complete hedge or expose the International
Index Fund, Asset Director Funds, OneSource Portfolios and underlying funds to
risk of foreign exchange loss.
Writing and Purchasing Currency Call and Put Options. The International
Index Fund, Asset Director Funds, OneSource Portfolios and underlying funds may
write covered put and call options and purchase put and call options on foreign
currencies for the purpose of protecting against declines in the dollar value of
portfolio securities and against increases in the dollar cost of securities to
be acquired. A call option written by the International Index Fund, Asset
Director Funds, OneSource Portfolios and underlying funds obligates the
International Index Fund, Asset Director Funds, OneSource Portfolios and
underlying funds to sell specified currency to the holder of the option at a
specified price at any time before the expiration date. A put option written by
the International Index Fund, Asset Director Funds, OneSource Portfolios and
underlying funds would obligate the International Index Fund, Asset Director
Funds, OneSource Portfolios and underlying funds to purchase specified currency
from the option holder at a specified time before the expiration date. The
writing of currency options involves a risk that the International Index Fund,
Asset Director Funds, OneSource Portfolios and underlying funds will, upon
exercise of the option, be required to sell currency subject to a call at a
price that is less than the currency's market value or be required to purchase
currency subject to a put at a price that exceeds the currency's market value.
The International Index Fund, Asset Director Funds and OneSource
Portfolios may terminate their obligations under a call or put option by
purchasing an option identical to the one it has written. Such purchases are
referred to as "closing purchase transactions." The International Index Fund,
Asset Director Funds and OneSource Portfolios would also be able to enter into
closing sale transactions in order to realize gains or minimize losses on
options purchased by the International Index Fund, Asset Director Funds and
OneSource Portfolios.
The purchase of a call option would entitle the International Index
Fund, Asset Director Funds, OneSource Portfolios and underlying funds to
purchase specified currency at a specified price during the option period in
return for the premium paid. The International Index Fund, Asset Director Funds,
OneSource Portfolios and underlying funds ordinarily would realize a gain or a
loss on the purchase of the call option.
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The purchase of a put option would entitle the International Index
Fund, Asset Director Funds(R), OneSource Portfolios and underlying funds to sell
specific currency at a specified price during the option period in exchange for
the premium paid. The purchase of protective puts is designed merely to offset
or hedge against a decline in the dollar value of the International Index
Fund's, Asset Director Funds', OneSource Portfolios' and underlying funds'
portfolio securities due to currency exchange rate fluctuations. The
International Index Fund, Asset Director Funds, OneSource Portfolios and
underlying funds ordinarily would realize a gain, if, during the option period,
the value of the underlying currency were to decrease below the exercise price
sufficiently to more than cover the premium and transaction costs; otherwise the
International Index Fund, Asset Director Funds, OneSource Portfolios and
underlying funds would realize either no gain or a loss on the purchase of the
put option. Gains and losses on the purchase of protective put options would
tend to be offset by countervailing changes in the value of the underlying
currency.
Special Risks Associated With Options on Foreign Currency. An
exchange-traded option position may be closed out only on an options exchange
that provides a secondary market for an option of the same series. Although the
International Index Fund, Asset Director Funds and OneSource Portfolios
generally will purchase or write only those options for which there appears to
be an active secondary market, there is no assurance that a liquid secondary
market on an exchange will exist for any particular option or at any particular
time. For some options, no secondary market on an exchange may exist. In such
event, it might not be possible to effect closing transactions in particular
options, with the result that the International Index Fund, Asset Director
Funds, OneSource Portfolios and underlying funds would have to exercise their
options in order to realize any profit and would incur transaction costs upon
the sale of underlying securities pursuant to the exercise of put options. If
the International Index Fund, Asset Director Funds, OneSource Portfolios and
underlying funds, as covered call option writers, are unable to effect a closing
purchase transaction in a secondary market, they will not be able to sell the
underlying currency (or security denominated in that currency) until the option
expires or they deliver the underlying currency upon exercise.
There is no assurance that higher than anticipated trading activity or
other unforeseen events might not, at times, render certain of the facilities of
the OCC inadequate. This could result in an exchange instituting special
procedures that may interfere with the timely execution of customers' orders.
The International Index Fund, Asset Director Funds and OneSource
Portfolios will purchase and write over-the-counter options only to the extent
consistent with their limitations on investments in illiquid securities, as
described in the Prospectuses. Trading in over-the-counter options is subject to
the risk that the other party will be unable or unwilling to close-out
purchasing and writing activities.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
The Funds may purchase and sell various kinds of futures contracts and
options on futures contracts. The futures contracts may be based on various
securities (such as U.S. Government securities), securities indices, foreign
currencies and other financial instruments and indices. All futures contracts
entered into by the Funds are traded on U.S. exchanges or boards of trade that
the CFTC licenses and regulates on foreign exchanges. The Funds and the
underlying funds are not permitted to engage in speculative futures trading.
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Futures Contracts. A futures contract generally may be described as an
agreement between two parties to buy and sell particular financial instruments
for an agreed upon price during a designated month (or to deliver the final cash
settlement price, in the case of a contract relating to an index or otherwise
not calling for physical delivery at the end of trading in the contract).
When interest rates are rising or securities prices are falling, the
Funds and the underlying funds may seek, through the sale of futures contracts,
to offset a decline in the value of their current portfolio securities. When
rates are falling or prices are rising, the Funds and the underlying funds,
through the purchase of futures contracts, may attempt to secure better rates or
prices than might later be available in the market when they effect anticipated
purchases. Similarly, the International Index Fund, Asset Director(R) Funds,
OneSource Portfolios and the underlying funds may sell futures contracts on a
specified currency to protect against a decline in the value of that currency
and their portfolio securities that are denominated in that currency. The
International Index Fund, Asset Director Funds, OneSource Portfolios and the
underlying funds may purchase futures contracts on a foreign currency to fix the
price in U.S. dollars of a security denominated in that currency that the
International Index Fund, Asset Director Funds, OneSource Portfolios and
underlying funds have acquired or expect to acquire.
Although futures contracts, by their terms, generally call for the
actual delivery or acquisition of underlying securities or the cash value of the
index, in most cases the contractual obligation is fulfilled before the date of
the contract without having to make or take such delivery. The contractual
obligation is offset by buying (or selling, as the case may be) on a commodities
exchange an identical futures contract calling for delivery in the same month.
Such a transaction, which is effected through a member of an exchange, cancels
the obligation to make or take delivery of the securities or the cash value of
the index underlying the contractual obligations. The Funds and the underlying
funds may incur brokerage fees when they purchase or sell futures contracts.
Positions taken in the futures markets are not normally held to
maturity but are instead liquidated through offsetting transactions, which may
result in a profit or a loss. While the Funds' and the underlying funds' futures
contracts on securities or currency will usually be liquidated in this manner,
the Funds and the underlying funds may instead make or take delivery of the
underlying securities or currency whenever it appears economically advantageous
for them to do so. A clearing corporation associated with the exchange on which
futures on securities or currencies are traded guarantees that, if still open,
the sale or purchase will be performed on the settlement date.
Options on Futures Contracts. The acquisition of put and call options
on futures contracts will give the Funds and the underlying funds the right (but
not the obligation), for a specified price, to sell or to purchase,
respectively, the underlying futures contract at any time during the option
period. As the purchaser of an option on a futures contract, the Funds and the
underlying funds obtain the benefit of the futures position if prices move in a
favorable direction but limit their risk of loss in the event of an unfavorable
price movement to the loss of the premium and transaction costs.
The writing of a call option on a futures contract generates a premium
that may partially offset a decline in the value of the Funds' and the
underlying funds' assets. By writing a call option, the Funds and
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the underlying funds become obligated, in exchange for the premium, to sell a
futures contract that may have a value lower than the exercise price. Thus, the
loss incurred by the Funds and the underlying funds in writing options on
futures is potentially unlimited and may exceed the amount of the premium
received. The Funds and the underlying funds will incur transaction costs in
connection with the writing of options on futures.
The holder or writer of an option on a futures contract may terminate
its position by selling or purchasing an offsetting option on the same series.
There is no guarantee that these closing transactions can be effected. The
Funds' and the underlying funds' ability to establish and close out positions on
these options will be subject to the development and maintenance of a liquid
market.
Hedging Strategies With Futures. Hedging by use of futures contracts
seeks to establish more certainty than would otherwise be possible with respect
to the effective price, rate of return or currency exchange rate on portfolio
securities or securities that the Funds own or propose to acquire. Such futures
contracts may include contracts for the future delivery of securities held by
the Funds or securities with characteristics similar to those of the Funds'
portfolio securities. Similarly, the International Index Fund, Asset Director(R)
Funds, and OneSource Portfolios sell futures contracts on currency in which
their portfolio securities are denominated or in one currency to hedge against
fluctuations in the value of securities denominated in a different currency if
there is an established historical pattern of correlation between the two
currencies. If, in the opinion of the Investment Manager, there is a sufficient
degree of correlation between price trends for the Funds' portfolio securities
and futures contracts based on other financial instruments, securities indices
or other indices, the Funds may also enter into such futures contracts as part
of their hedging strategy. Although, under some circumstances, prices of
securities in the Funds' portfolio may be more or less volatile than prices of
such futures contracts, the Investment Manager will attempt to estimate the
extent of this difference in volatility based on historical patterns. The
Investment Manager will attempt to compensate for it by having the Funds enter
into a greater or lesser number of futures contracts or by attempting to achieve
only a particular hedge against price changes affecting the Funds' portfolio
securities. When hedging of this character is successful, any depreciation in
the value of the portfolio securities will be substantially offset by
appreciation in the value of the futures position. On the other hand, any
unanticipated appreciation in the value of the Funds' portfolio securities will
be substantially offset by a decline in the value of the futures position.
On other occasions, the Funds may take "long" positions by purchasing
such futures contracts. This would be done, for example, when the Funds
anticipate the subsequent purchase of particular securities when they have the
necessary cash but expect the prices or currency exchange rates available on the
intended date of purchase in the applicable market to be less favorable than
prices that are currently available.
The underlying funds may engage in similar hedging transactions using
futures contracts, which would operate in a similar manner and entail similar
risks to the underlying funds.
When buying or selling futures contracts, a Fund and an underlying fund
must deposit an amount of cash, cash equivalents or liquid, high-quality debt
instruments with its broker equal to a fraction of the contract amount. This
amount is known as "initial margin" and is in the nature of a performance bond
or
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good faith deposit on the contract, which will be returned to the Fund and
underlying fund upon termination of the futures contract, assuming all
contractual obligations have been satisfied. Subsequent payments to and from the
broker, known as "variation margin," will be made at least daily as the price of
the futures contract fluctuates and the Fund's and the underlying funds'
position in the contract becomes more or less valuable. This process is known as
"marking-to-market."
Regulations of the Commodities Futures Trading Commission ("CFTC")
applicable to the Funds and the underlying funds generally require that all of
their futures transactions constitute "bona fide" hedging transactions. As a
result, a Fund and an underlying fund will normally sell futures contracts to
protect against a decrease in the price of securities it owns but intends to
sell or purchase futures contracts to protect against an increase in the price
of securities it intends to purchase. In addition, the Funds and the underlying
funds may purchase and sell futures contracts and options as a substitute for a
comparable market position in the underlying securities. Futures transactions
need not constitute "bona fide" hedging under CFTC regulations if the aggregate
initial margin and premiums required to establish such positions do not exceed
5% of each Fund's and each underlying fund's net assets.
Risks Involved in Futures and Options Transactions. Futures and options
transactions involve risks, which in some strategies can be substantial due to
the low margin deposits required and the extremely high degree of leverage
involved in futures and options trading. However, to the extent the Funds'
futures and options practices are limited to hedging purposes, the Investment
Manager does not believe that the Funds are subject to the degree of risk
frequently associated with futures and options transactions. To the extent the
Funds and the underlying funds engage in the use of futures and options on
futures other than for hedging purposes, the Funds and the underlying funds may
be subject to additional risk.
The primary risks associated with the use of futures and options
include: imperfect correlation between the change in market value of the
securities held by a Fund and the prices of the futures or options, possible
lack of a liquid secondary market for futures or options, and the resulting
inability to close such positions prior to their maturity dates. To minimize
these risks, the Funds will invest only in those contracts whose behavior is
expected to resemble that of a Fund's underlying securities. The risk that a
Fund will be unable to close out a futures position will be minimized by
entering into such transactions on a national exchange with an active and liquid
secondary market.
Three principal areas of risk are present when futures and options
contracts are used even in a hedging context. First, there may not always be a
liquid secondary market for a futures or option contract at the time a Fund or
an underlying fund seeks to "close out" its position. If a Fund or an underlying
fund is unable to "close out" a futures or option position and prices move
adversely, the Fund or an underlying fund would have to continue to make daily
cash payments to maintain its required margin, and if the Fund or an underlying
fund has insufficient cash to meet this requirement, it may have to sell
portfolio securities at a disadvantageous time. In addition, the Fund or an
underlying fund might be required to deliver the securities underlying futures
or options contracts it holds. Each Fund will seek to and the underlying funds
may seek to reduce the risk that it will be unable to "close out" contracts by
entering into only futures or options contracts that are traded on national
exchanges and for which there appears to be a liquid secondary market.
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It is also possible that changes in the prices of futures or options
contracts might correlate imperfectly, or not at all, with changes in the market
values of the securities being hedged. This situation could result from price
distortions in the futures or options markets due to, among other things, active
trading by speculators and use of offsetting "closing" transactions by other
investors seeking to avoid meeting additional margin deposit requirements. In
the event of significant market distortions, it is possible that a Fund or an
underlying fund could lose money on futures or options contracts and experience
appreciation in the value of its portfolio securities, or vice versa.
Finally, adverse market movements could cause a Fund or an underlying
fund to lose up to its full investment in an options contract and/or to
experience substantial losses on an investment in a futures contract. However,
barring such significant market distortions, a similar result could be expected
were the Fund or an underlying fund to invest directly in the securities being
hedged. There is also the risk of loss by a Fund or an underlying fund of margin
deposits in the event of bankruptcy of a broker with whom the Fund or an
underlying fund has an open position in a futures contract or option.
The value of all futures contracts on stocks and stock indices and
options contracts is not to exceed 10% of the Small-Cap Index Fund's and the
International Index Fund's total assets. The S&P 500 Fund may enter into futures
contracts and options on futures contracts provided that aggregate deposits
required do not exceed 5% of the Fund's total assets. In addition, certain
provisions of the Internal Revenue Code of 1986, as amended, (the "Code"), may
limit each Fund's use of futures contracts and options.
The extent to which each Fund may purchase and sell futures, options,
equity index participations and index participation contracts may be limited by
each Fund's intention to meet Code requirements for qualification as a regulated
investment company. See "Taxes in this Statement of Additional Information (SAI)
for more information." An underlying fund's investment in such instruments may
similarly be restricted by Code requirements.
OTHER INVESTMENTS
SWAPS. Each of the Asset Director(R) Funds may enter into swaps on
various securities (such as U.S. Government securities), securities indices,
interest rates, prepayment rates, foreign currencies or other financial
instruments or indices in order to protect the value of the Asset Director Funds
from interest rate fluctuations and to hedge against fluctuations in the
floating rate market in which the Asset Director Funds' investments are traded,
for both hedging and non-hedging purposes. While swaps are different from
futures contracts (and options on futures contracts) in that swap contracts are
individually negotiated with specific counterparties, the Asset Director Funds
will use swap contracts for purposes similar to the purposes for which they use
options, futures and options on futures. Those uses of swap contracts (i.e.,
risk management and hedging) present the Funds with risks and opportunities
similar to those associated with options contracts, futures contracts and
options on futures. See "Futures Contracts and Options on Futures Contracts" in
this SAI for more information.
The Asset Director Funds may enter into these transactions to manage
their exposure to changing interest rates and other market factors. Some
transactions may reduce each Asset Director Fund's exposure to market
fluctuations while others may tend to increase market exposure.
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The use of swaps involves investment techniques and risks different
from and potentially greater than those associated with ordinary fund securities
transactions. If the Investment Manager is incorrect in its expectations of
market values, interest rates or currency exchange rates, the investment
performance of the Asset Director Funds would be less favorable than it would
have been if this investment technique were not used. The Asset Director Funds
will only invest up to 5% of each Fund's net assets in swaps.
PREFERRED STOCK. The Funds may invest in preferred stock, although
Balanced Allocation's and Growth Allocation's direct investments in preferred
stock will not exceed 10% of each Fund's net assets. Preferred stock has
priority over common stock as to income and generally as to assets of an issuer;
however, income is usually limited to a definitive percentage regardless of the
issuer's earnings. Preferred stock usually has limited voting rights. The Asset
Director(R) Funds will invest up to 5% of each Fund's net assets in preferred
stock.
CONVERTIBLE SECURITIES. Each of the Asset Director Funds may invest up
to 5% of its net assets in securities that are convertible into common stock,
including convertible bonds that are investment grade, convertible preferred
stocks, and warrants. The S&P 500 Fund will not purchase convertible securities
directly. It may, however, hold convertible securities to the extent that such
holdings are incident to the Fund's ownership of common stocks.
Convertible bonds are issued with lower coupons than nonconvertible
bonds of the same quality and maturity, but they give holders the option to
exchange their bonds for a specific number of shares of the company's common
stock at a predetermined price. This structure allows the convertible bond
holder to participate in share price movements in the company's common stock.
The actual return on a convertible bond may exceed its stated yield if the
company's common stock appreciates in value and the option to convert to common
shares becomes more valuable.
Convertible preferred stocks are nonvoting equity securities that pay a
fixed dividend. These securities have a convertible feature similar to
convertible bonds; however, they do not have a maturity date. Due to their
fixed-income features, convertible issues typically are more sensitive to
interest rate changes than the underlying common stock. In the event of
liquidation, bondholders would have claims on company assets senior to those of
stockholders; preferred stockholders would have claims senior to those of common
stockholders.
Warrants. The Funds or underlying funds may invest in warrants, which
are options to purchase equity securities at specific prices valid for a
specific period of time. The prices do not necessarily move parallel to the
prices of the underlying securities. Warrants have no voting rights, receive no
dividends and have no rights with respect to the assets of the issuer. If a
warrant is not exercised within the specified time period, it will become
worthless and a Fund or an underlying fund will lose the purchase price and the
right to purchase the underlying security.
REAL ESTATE-RELATED INVESTMENTS. The Asset Director Funds, and the
Balanced Allocation and Growth Allocation may invest no more than 10% of each
Fund's respective net assets in real estate-related investments. Real
estate-related instruments include real estate investment trusts, commercial and
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residential mortgage-backed securities and real estate financings. Real
estate-related instruments are sensitive to factors such as changes in real
estate values and property taxes, interest rates, cash flow of underlying real
estate assets, overbuilding, and the management skill and creditworthiness of
the issuer. Real estate-related instruments may also be affected by tax and
regulatory requirements, such as those relating to the environment.
PRECIOUS METAL-RELATED INVESTMENTS . The Asset Director(R) Funds,
Growth Allocation and Balanced Allocation may invest no more than 10% of each
Fund's respective net assets in precious metal-related investments. The Asset
Director Funds, S&P 500 Fund, Analytics Fund(TM), Growth Allocation and Balanced
Allocation may invest in common stocks of domestic companies principally engaged
in precious metal-related activities, which include companies principally
engaged in the extraction, processing, distribution or marketing of precious
metals if at the time of investment the Investment Manager considers that at
least 50% of the company's assets, revenues or profits are derived from the
precious metal industry. The Asset Director Funds, Growth Allocation and
Balanced Allocation may also invest in securities of foreign companies
principally engaged in the precious metals industry. For further disclosure on
foreign securities, see "Foreign Investments" in this Statement of Additional
Information.
The Asset Director Funds, S&P 500 Fund, Analytics Fund, Growth
Allocation and Balanced Allocation also may invest in futures on precious
metals, such as gold futures, and options thereon. Such investments are subject
to the investment limitations on investments in futures and options for the
Asset Director Funds, S&P 500 Fund, Analytics Fund, Growth Allocation and
Balanced Allocation as set forth in "Futures Contracts and Options on Futures
Contracts" in this Statement of Additional Information.
Prices of precious metals can be expected to respond to changes in
rates of inflation and to perceptions of economic and political instability.
Historically, the prices of precious metals and of securities of companies
engaged in the precious metal-related activities have been subject to extreme
fluctuations, as a result of, among other reasons, wider economic or political
instability.
U.S. GOVERNMENT SECURITIES. The Funds may purchase U.S. Government
securities. Direct obligations of the U.S. Government are supported by the full
faith and credit of the U.S. Treasury. While obligations of certain U.S.
Government agencies and instrumentalities are similarly backed, those of others,
such as the Federal National Mortgage Association and the Student Loan Marketing
Association, are only supported by the right of the issuer to borrow from the
U.S. Treasury, the discretionary authority of the U.S. Government to purchase
the agency's obligations or the credit of the issuing agency or instrumentality.
There can be no assurance that the U.S. Government would provide financial
support to U.S. Government sponsored agencies or instrumentalities if it were
not obligated to do so by law. A Fund will invest in U.S. Government securities
not backed by the full faith and credit of the U.S. Treasury only when the
Investment Manager is satisfied that the credit risk with respect to their
issuer is minimal.
GOVERNMENT "MORTGAGE BACKED" SECURITIES. Government "mortgage-backed"
(or government guaranteed mortgage-related) securities are among the U.S.
Government securities in which the Funds may invest. Mortgages backing the
securities purchased by the Funds include, among others, conventional 30-year
fixed rate mortgages, graduated payment mortgages, 15-year mortgages and
adjustable rate mortgages. All of these mortgages can be used to create
pass-through securities. A pass-through security is
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formed when mortgages are pooled together and undivided interests in the pool or
pools are sold. The cash flow from the mortgages is passed through to the
holders of the securities in the form of periodic payments of interest,
principal and prepayments (net of a service fee). Prepayments occur when the
holder of an individual mortgage prepays the remaining principal before the
mortgage's scheduled maturity date. As a result of the pass-through of
prepayments of principal on the underlying securities, mortgage-backed
securities are often subject to more rapid prepayment of principal than their
stated maturity indicates. Because the prepayment characteristics of the
underlying mortgages vary, it is not possible to predict accurately the realized
yield or average life of a particular issue of pass-through certificates.
Prepayment rates are important because of their effect on the yield and price of
the securities. Accelerated prepayments adversely impact yields for
pass-throughs purchased at a premium (i.e., a price in excess of principal
amount) and may involve additional risk of loss of principal because the premium
may not have been fully amortized at the time the obligation is repaid. The
opposite is true for pass-throughs purchased at a discount. The Funds may
purchase mortgage-related securities at a premium or at a discount. The
government, to the extent described below, guarantees principal and interest
payments on the mortgage-related securities. Such guarantees do not extend to
the value or yield of the mortgage-related securities themselves or of a Fund's
shares.
GNMA Certificates. Certificates of the Government National Mortgage
Association ("GNMA") are mortgage securities which evidence an undivided
interest in a pool or pools of mortgages. GNMA Certificates that the Funds may
purchase are the "modified pass-through" type, which entitle the holder to
receive timely payment of all interest and principal payments due on the
mortgage pool, net of fees paid to the "issuer" and GNMA, regardless of whether
or not the mortgagor actually makes the payment.
The National Housing Act authorized GNMA to guarantee the timely
payment of principal and interest on securities backed by a pool of mortgages
insured by the Federal Housing Administration ("FHA") or guaranteed by the
Veterans Administration ("VA"). The GNMA guarantee is backed by the full faith
and credit of the U.S. Government. GNMA is also empowered to borrow without
limitation from the U.S. Treasury if necessary to make any payments required
under its guarantee.
The average life of a GNMA Certificate is likely to be substantially
shorter than the original maturity of the mortgages underlying the securities.
Prepayments of principal by mortgagors and mortgage foreclosures will usually
result in the return of the greater part of principal investment long before the
maturity of the mortgages in the pool. Foreclosures impose no risk to principal
investment because of the GNMA guarantee, except to the extent that a Fund has
purchased the certificates above par in the secondary market.
FHLMC Securities. The Federal Home Loan Mortgage Corporation ("FHLMC")
was created in 1970 to promote development of a nationwide secondary market in
conventional residential mortgages. The FHLMC issues two types of mortgage
pass-through securities ("FHLMC Certificates"): mortgage participation
certificates ("PCs") and guaranteed mortgage certificates ("GMCs"). PCs resemble
GNMA Certificates in that each PC represents a pro rata share of all interest
and principal payments made and owed on the underlying pool. The FHLMC
guarantees timely monthly payment of interest on PCs and the ultimate payment of
principal.
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GMCs also represent a pro rata interest in a pool of mortgages.
However, these instruments pay interest semi-annually and return principal once
a year in guaranteed minimum payments. The expected average life of these
securities is approximately 10 years. The FHLMC guarantee is not backed by the
full faith and credit of the U.S. Government.
FNMA Securities. The Federal National Mortgage Association ("FNMA") was
established in 1938 to create a secondary market in mortgages the FHA insures.
FNMA issues guaranteed mortgage pass-through certificates ("FNMA Certificates").
FNMA Certificates resemble GNMA Certificates in that each FNMA Certificate
represents a pro rata share of all interest and principal payments made and owed
on the underlying pool. FNMA guarantees timely payment of interest and principal
on FNMA Certificates. The FNMA guarantee is not backed by the full faith and
credit of the U.S. Government.
OTHER ASSET-BACKED SECURITIES. The Asset Director(R) Funds may invest a
portion of their assets in debt obligations known as "Asset-Backed Securities"
that are rated in one of the four highest rating categories by a nationally
recognized statistical rating organization ("NRSRO") (e.g., S&P or Moody's) or,
if not so rated, deemed to be of equivalent quality by the Investment Manager
pursuant to guidelines adopted by the Board of Trustees. Growth Allocation,
Balanced Allocation and the Small Company Fund do not currently intend to invest
directly in Asset-Backed Securities, but they may invest in them indirectly
through underlying funds. The credit quality of most Asset-Backed Securities
depends primarily on the credit quality of the assets underlying such
securities, how well the entity issuing the security is insulated from the
credit risk of the originator (or any other affiliated entities) and the amount
and quality of any credit support provided to the securities. The rate of
principal payments on Asset-Backed Securities generally depends on the rate of
principal payments received on the underlying assets, which in turn may be
affected by a variety of economic and other factors. As a result, the yield on
any Asset-Backed Security is difficult to predict with precision, and actual
yield to maturity may be more or less than the anticipated yield to maturity.
Asset-Backed Securities may be classified as "Pass-Through Certificates" or
"Collateralized Obligations."
"Pass-Through Certificates" are asset-backed securities that represent
undivided fractional ownership interests in the underlying pool of assets.
Pass-Through Certificates usually provide for payments of principal and interest
received to be passed through to their holders, usually after deduction for
certain costs and expenses incurred in administering the pool. Because
Pass-Through Certificates represent ownership interests in the underlying
assets, the holders thereof bear directly the risk of any defaults by the
obligors on the underlying assets not covered by any credit support.
Asset-Backed Securities issued in the form of debt instruments, also
known as Collateralized Obligations, are generally issued as the debt of a
special purpose entity organized solely for the purpose of owning such assets
and issuing such debt. The assets collateralizing such Asset-Backed Securities
are pledged to a trustee or custodian for the benefit of the holders thereof.
Such issuers generally hold no assets other than those underlying the
Asset-Backed Securities and any credit support provided. As a result, although
payments on such Asset-Backed Securities are obligations of the issuers, in the
event of default on the underlying assets not covered by any credit support, the
issuing entities are unlikely to have sufficient assets to satisfy their
obligations on the related Asset-Backed Securities.
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CORPORATE BONDS. Each Asset Director(R) Fund may invest in corporate
bonds rated in one of the four highest categories by a NRSRO. Corporate Bonds
are issued in the form of debt instruments by a private corporation and are
different in character from bonds issued by a government agency or municipality.
Typical distinguishing features include: (1) they are taxable; (2) they have a
par value of $1,000; (3) they have a term maturity (which means they come due
all at once) and are paid for out of a sinking fund accumulated for that purpose
and they may be callable; and (4) they are often traded on major exchanges, with
prices published in the newspapers.
METHODS OF ALLOCATING CASH FLOWS. While many Asset-Backed Securities
are issued with only one class of security, many others are issued in more than
one class, each with different payment terms. Multiple class Asset-Backed
Securities are issued for two main reasons. First, multiple classes may be used
as a method of providing credit support. This is typically accomplished by
creating one or more classes with a right to payments on the Asset-Backed
Security that is subordinate to that of the remaining class or classes. Second,
multiple classes may permit the issuance of securities with payment terms,
interest rates or other characteristics that differ both from those of each
other and from those of the underlying assets. Examples include "multi-tranche
CMOs" (collateralized mortgage obligations) with serial maturities such that all
principal payments received on the mortgages underlying the securities are first
paid to the class with the earliest stated maturity, and then sequentially to
the class with the next stated maturity, "Strips" (Asset-Backed Securities that
entitle the holder to disproportionate interests with respect to the allocation
of interest and principal of the assets backing the security) and securities
with a class or classes having characteristics that mimic the characteristics of
non-Asset-Backed Securities, such as floating interest rates (i.e., interest
rates that adjust as a specified benchmark changes) or scheduled amortization of
principal.
TYPES OF CREDIT SUPPORT. Asset-Backed Securities are often backed by a
pool of assets representing the obligations of a number of different parties. To
lessen the effect of failures by obligors on these underlying assets to make
payments, such securities may contain elements of credit support. Such credit
support falls into two classes: liquidity protection and protection against
ultimate default on the underlying assets. Liquidity protection refers to the
provision of advances, generally by the entity administering the pool of assets,
to ensure that scheduled payments on the underlying pool are made timely.
Protection against ultimate default ensures payment on at least a portion of the
assets in the pool. Such protection may be provided through guarantees,
insurance policies or letters of credit obtained from third parties, through
various means of structuring the transaction, or through a combination of such
approaches. Examples of Asset-Backed Securities with credit support that arise
out of the structure of the transaction include "senior-subordinated securities"
(multiple class Asset-Backed Securities with certain classes subordinate to
other classes as to the payment of principal thereon, so that defaults on the
underlying assets are borne first by the holders of the subordinated class) and
Asset-Backed Securities that have "reserve funds" (cash or investments,
sometimes funded from a portion of the initial payments on the underlying
assets, are held in reserve against future losses) or that have been
"overcollateralized" (the scheduled payments on, or the principal amount of, the
underlying assets substantially exceed that required to make payment on the
Asset-Backed Securities and pay any servicing or other fees). The degree of
credit support provided on each issue is generally based on historical
information respecting the level of credit risk associated with such payments.
Delinquency or loss in excess of that anticipated could adversely affect the
return on an investment in an Asset-Backed Security.
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CREDIT CARD RECEIVABLE SECURITIES. The Asset Director(R) Funds may
invest directly, and the Growth Allocation and Balanced Allocation may invest
indirectly through underlying funds, in Asset-Backed Securities backed by
receivables from revolving credit card agreements ("Credit Card Receivable
Securities"). Most of the Credit Card Receivable Securities issued publicly to
date have been Pass-Through Certificates. In order to lengthen the maturity of
Credit Card Receivable Securities, most such securities provide for a fixed
period during which only interest payments on the underlying accounts are passed
through to the security holder and principal payments received on such accounts
are used to fund the transfer of additional credit card charges made on an
account to the pool of assets supporting the related Credit Card Receivable
Securities. The initial fixed period may usually be shortened upon the
occurrence of specified events that signal a potential deterioration in the
quality of the assets backing the security, such as the imposition of a cap on
interest rates. The ability of the issuer to extend the life of an issue of
Credit Card Receivable Securities thus depends upon the continued generation of
additional principal amounts in the underlying accounts during the initial
period and the non-occurrence of specified events. Competitive and general
economic factors could adversely affect the rate at which new receivables are
created in an account and conveyed to an issuer, shortening the expected
weighted average life of the related Credit Card Receivable Security, and
reducing its yield. An acceleration in cardholders' payment rates or any other
event that shortens the period during which additional credit card charges on an
account may be transferred to the pool of assets supporting the related Credit
Card Receivable Security could have a similar effect on the weighted average
life and yield.
Credit card holders are entitled to the protection of a number of state
and federal consumer credit laws, many of which give such holders the right to
set off certain amounts against balances owed on the credit card, thereby
reducing amounts paid on accounts. In addition, unlike most other Asset-Backed
Securities, accounts are unsecured obligations of the cardholder.
CERTIFICATES OF DEPOSIT AND BANKER'S ACCEPTANCES. The Funds may invest
in certificates of deposit, which are certificates issued against funds
deposited in a banking institution for a specified period of time at a specified
interest rate. Banker's acceptances are credit instruments evidencing a bank's
obligation to pay a draft drawn on it by a customer. These instruments reflect
the obligation both of the bank and of the drawer to pay the full amount of the
instrument upon maturity. Each Fund will invest only in certificates of deposit
and banker's acceptances of banks that have capital, surplus and undivided
profits in excess of $100 million.
COMMERCIAL PAPER. The Funds may invest in Commercial Paper, which
consists of short-term, unsecured promissory notes issued to finance short-term
credit needs. The Funds will invest only in commercial paper that at the time of
purchase is rated Prime-1 or Prime-2 by Moody's, A-1 or A-2 by S&P, Duff 2 or
higher by Duff & Phelps, Inc. ("Duff"), or F2 or higher by Fitch Investors
Services, Inc. ("Fitch") or if unrated by Moody's, S&P, Duff or Fitch, is
determined by the Investment Manager, using guidelines approved by the Board of
Trustees, to be at least equal in quality to one or more of the above ratings.
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OTHER INVESTMENT POLICIES
Securities that are acquired by the International Index Fund, Asset
Director(R) Funds, and OneSource Portfolios outside the United States and that
are publicly traded in the United States on a foreign securities exchange or in
a foreign securities market, are not considered by the Funds to be illiquid
assets provided that: (i) the Funds acquire and hold the securities with the
intention of reselling the securities in the foreign trading market, (ii) the
Funds reasonably believe they can dispose of the securities readily in the
foreign trading market or for cash in the United States, or (iii) foreign market
and current market quotations are readily available. Investments may be in
securities of foreign issuers, whether located in developed or undeveloped
countries. Investments in foreign securities where delivery takes place outside
the United States will have to be made in compliance with any applicable U.S.
and foreign currency restrictions and tax laws (including laws imposing
withholding taxes on any dividend or interest income) and laws limiting the
amount and types of foreign investments. Changes of government administrations
or economic or monetary policies in the United States or abroad, or changed
circumstances regarding convertibility or exchange rates, could result in
investment losses for the Funds. Investments in foreign securities may also
subject the Funds to losses due to nationalization, expropriation or differing
accounting practices and treatments. Moreover, investors should recognize that
foreign securities are often traded with less frequency and volume, and
therefore may have greater price volatility than many U.S. securities.
Notwithstanding that the Funds generally intend to acquire the securities of
foreign issuers where there are public trading markets, the Funds' investments
in the securities of foreign issuers may tend to increase the risks with respect
to the liquidity of the Funds' portfolio and the Funds' ability to meet a large
number of shareholder redemption requests should there be economic or political
turmoil in a country in which the Funds have a substantial portion of their
assets invested or should relations between the United States and foreign
countries deteriorate markedly. Furthermore, the reporting and disclosure
requirements applicable to foreign issuers may differ from those applicable to
domestic issuers, and there may be difficulties in obtaining or enforcing
judgments against foreign issuers.
Loans of Portfolio Securities. The Funds or underlying funds may loan
securities to qualified broker-dealers or other institutional investors
provided: (i) the loan is secured continuously by collateral consisting of U.S.
Government securities, cash or cash equivalents maintained on a daily
marked-to-market basis in an amount at least equal to the current market value
of the securities loaned; (ii) the Fund or underlying fund may at any time call
the loan and obtain the return of the securities loaned; (iii) the Fund or
underlying fund will receive any interest or dividends paid on the loaned
securities; and (iv) the aggregate market value of securities loaned will not at
any time exceed one-third of the total assets of the Fund or underlying fund.
The lending of securities is a common practice in the securities
industry. The Funds will engage in security lending arrangements with the
primary objective of increasing the Funds' income through investment of the cash
collateral in short-term, interest-bearing obligations but will do so only to
the extent that the Funds will not lose the tax treatment available to regulated
investment companies. The Funds will be entitled to all dividends or interest on
any loaned securities. Loans of securities involve a risk that the borrower may
fail to return the securities or provide additional collateral.
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<PAGE> 59
Repurchase Transactions. Repurchase agreements are instruments under
which a buyer acquires ownership of a security from a seller who agrees to
repurchase the security at a mutually agreed upon time and price (which price is
higher than the purchase price), thereby determining the yield during the
buyer's holding period. Under the 1940 Act, a repurchase agreement is deemed to
be a Fund's loan of money to the seller, collateralized by the underlying
security. The interest rate is effective for the period of time in which the
Funds are invested in the agreement and is not related to the coupon rate on the
underlying security. Any repurchase agreements a Fund enters into will involve
the Fund as the buyer and banks or broker-dealers as sellers (repurchase
agreements with broker-dealers will be limited to obligations of the U.S.
Government or its agencies or instrumentalities). The period of these repurchase
agreements will be usually short--from overnight to one week--and at no time
will the Funds invest in repurchase agreements for more than one year. However,
securities subject to repurchase agreements may have maturity dates in excess of
one year from the effective date of the repurchase agreements. The transaction
requires the initial collateralization of the seller's obligation with
securities having a market value, including accrued interest, equal to at least
102% of the dollar amount the Funds invest with the value marked-to-market daily
to maintain 100% coverage. A default by the seller might cause the Funds to
experience a loss or delay in the liquidation of the collateral securing the
repurchase agreement. The Funds might also incur disposition costs in
liquidating the collateral. The Funds will make payment for such securities only
upon physical delivery or evidence of book entry transfer to the account of its
custodian bank. The Funds may not enter into a repurchase agreement of more than
seven days duration if, as a result, the market value of the Funds' net assets,
together with investments in other securities deemed to be not readily
marketable, would be invested in excess of the Funds' policy on investments in
illiquid securities.
In the event of a bankruptcy or other default of a repurchase
agreement's seller, a Fund might incur expenses in enforcing its rights, and
could experience losses, including a decline in the value of the underlying
securities and loss of income. Each Fund will not invest more than 10% of its
net assets at the time of purchase in repurchase agreements maturing in more
than seven days and other illiquid securities.
Illiquid Securities. Each Fund, except the OneSource Portfolios,
reserves the right to invest up to 10% of its net assets in illiquid securities.
Each of the OneSource Portfolios reserves the right to invest up to 15% of its
net assets in illiquid securities. Generally, an "illiquid security" is any
security that cannot be disposed of promptly and in the ordinary course of
business at approximately the amount at which the Funds have valued the
instrument. Subject to this limitation, the Funds may invest in restricted
securities when such investment is consistent with the Funds' investment
objectives, and such securities may be considered to be liquid to the extent the
Funds' Investment Manager determines that there is a liquid institutional or
other market for such securities. In determining whether a restricted security
is properly considered a liquid security, the Funds' Investment Manager, under
the direction of the Board of Trustees, will take into account the following
factors: (i) the frequency of trades and quotes for the security; (ii) the
number of dealers willing to purchase or sell the security and the number of
potential purchasers; (iii) dealer undertakings to make a market in the
security; and (iv) the nature of the security and marketplace trades (e.g., the
time needed to dispose of the security, the method of soliciting offers and the
mechanics of transfer). To the extent the Funds invest in restricted securities
that are deemed liquid, the general level of illiquidity in the Funds'
portfolios may be increased if qualified institutional buyers become
uninterested in purchasing these securities contracts.
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<PAGE> 60
When-Issued and Delayed Delivery Securities. The Funds may hold
securities on a "when-issued" or "delayed delivery" basis. When-issued or
delayed delivery securities are securities purchased for future delivery at a
stated price and yield. Generally, a Fund will not pay for securities until the
Fund receives them. Securities purchased on a when-issued or delayed delivery
basis are recorded as assets. During the period between the agreement date and
the settlement date, the value of such securities may change as the prices of
securities in the stock market increase or decrease, or as interest rates
change. Default by the other party to the agreement may result in a loss to a
Fund.
INVESTMENT IN UNDERLYING SCHWAB FUNDS
The Asset Director(R) Funds may invest, as described more fully in
their Prospectus, in the following underlying SchwabFunds(R) of the Trust: the
International Index Fund, the Small-Cap Index Fund and the S&P 500 Fund. The
investment objectives and investment policies, limitations, and techniques of
these underlying SchwabFunds and the risks associated with those investment
policies, limitations, and techniques are described in the Asset Director Funds'
Prospectus, or in this SAI. The investment objectives, policies, limitations and
techniques of other underlying SchwabFunds are described more fully in their
prospectuses and this SAI, which are available by contacting Schwab at 800-2
NO-LOAD, 24 hours a day, or 101 Montgomery Street, San Francisco, California
94104 (TDD users may contact Schwab at 800-345-2550), or electronically by using
Schwab's World Wide Web address: http://www.schwab.com/funds.
In addition to utilizing the investment securities, techniques and
policies and exposing themselves to similar limitations and risks as described
in this SAI, the other underlying SchwabFunds may also invest in restricted
securities, collateralized mortgage obligations, municipal securities and index
options.
Although each Fund has the ability to invest all of the assets
allocated to a particular asset class in one or more SchwabFunds, none of the
Funds has a present intention to invest more than 5% of its total assets in any
single SchwabFund that is not described below. However, if the Investment
Manager determines in the future that it is in a Fund's best interest, the
Investment Manager reserves the right to invest more than 5% of a Fund's total
assets in a SchwabFund not described below, including SchwabFunds that do not
currently exist. Each Fund may invest all of the assets allocated to the stock
class (e.g., as much as 95% for the High Growth Fund) or to a stock sub-category
in one or more of the S&P 500 Fund, the International Index Fund and the
Small-Cap Index Fund.
The Schwab S&P 500 Fund seeks to track the price and dividend
performance (total return) of common stocks of U. S. companies, as represented
by the S&P 500 Index(R), by investing in substantially all of the 500 common
stocks composing the S&P 500 Index. Investments in this SchwabFund expose a Fund
to stock risk. The Schwab S&P 500 Fund may also invest in short-term debt
securities with attendant risks described above regarding investment in debt
securities.
The International Index Fund attempts to track the price and dividend
performance (total return) of the Schwab International Index(R), an index
created by Schwab to represent the performance of common stocks and other equity
securities including preferred stocks, rights and warrants issued by large,
publicly traded companies from countries around the world with major developed
securities markets, excluding the
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<PAGE> 61
U.S. To the extent a Fund invests in this SchwabFund, which normally invests 80%
of its assets in stocks which comprise the Schwab International Index, the Fund
will be exposed to international stock risk, which is described above. The
International Index Fund may also engage in foreign currency hedging, which
involves certain costs that may result in losses to that SchwabFund, and
although tending to minimize risk of certain losses also tends to limit certain
potential gains.
The Small-Cap Index Fund attempts to track the price and dividend
performance (total return) of the Schwab Small-Cap Index(R), an index created by
Schwab to represent the performance of common stocks of the second 1,000 largest
U.S. corporations (excluding investment companies). To the extent a Fund invests
in the Small-Cap Index Fund, which normally invests 80% of its assets in stocks
which comprise the Schwab Small-Cap Index, the Fund will be exposed to risks of
small company stocks.
Each of the Schwab Index Funds engages in index or passive investing,
and also seeks to minimize capital gain distributions by offsetting capital
gains and capital losses and lowering portfolio turnover. These investment
policies are intended to minimize the adverse federal income tax consequences of
portfolio trading, but may increase the differences between the Schwab Index
Funds' performance and the relevant index's performance. Each Schwab Index Fund
may also purchase other investment securities or engage in securities techniques
(normally up to 20% of its total assets) that are similar to the Asset
Director(R) Funds' and will entail similar risks.
UNDERLYING FUND INVESTMENT TECHNIQUES
The underlying funds for the OneSource Portfolios may also engage in
foreign currency transactions with respect to foreign securities investments;
invest in restricted securities; sell securities short; borrow money for
investment purposes (i.e., leverage their portfolio); write (sell) or purchase
call or put options on securities or on stock indices; concentrate their assets
in one industry; invest in master demand notes; invest in domestic equity
securities; and enter into futures contracts and options on futures contracts.
The underlying funds for the Asset Director Funds may also engage in foreign
currency transactions with respect to foreign securities investments, borrow
money and invest in futures and options. The risks associated with these
investments are discussed below.
To the extent that the underlying funds also invest or engage in swaps,
preferred stock, convertible securities, real estate-related investments,
precious metal related investments, U.S. Government securities, government
"mortgage-backed" securities, asset-backed securities, certificates of deposit
and bankers' acceptances, commercial paper, repurchase transactions, and
when-issued and delayed delivery securities, the underlying funds would be
subject to risks associated with such investments similar to those risks
discussed above regarding such investments by the Funds.
Short Sales. An underlying fund may sell securities short. In a short
sale, the underlying fund sells stock which it does not own, making delivery
with securities "borrowed" from a broker. The underlying fund is then obligated
to replace the security borrowed by purchasing it at the market price at the
time of replacement. This price may or may not be less than the price at which
the security was sold by the underlying fund. Until the security is replaced,
the underlying fund is required to pay the lender any dividends or interest that
accrue during the period of the loan. In order to borrow the security, the
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<PAGE> 62
underlying fund may also have to pay a premium, which would increase the cost of
the security sold. The broker will retain the proceeds of the short sale to the
extent necessary to meet margin requirements until the short position is closed
out.
The underlying fund must also deposit in a segregated account an amount
of cash or U.S. Government securities equal to the difference between (a) the
market value of the securities sold short at the time they were sold short and
(b) the value of the collateral deposited with the broker in connection with the
short sale (not including the proceeds from the short sale). While the short
position is open, the underlying fund must maintain daily the segregated account
at such a level that (i) the amount deposited in it plus the amount deposited
with the broker as collateral equals the current market value of the securities
sold short and (ii) the amount deposited in it plus the amount deposited with
the broker as collateral is not less than the market value of the securities at
the time they were sold short. Depending upon market conditions, up to 80% of
the value of an underlying fund's net assets may be deposited as collateral for
the obligation to replace securities borrowed to effect short sales and
allocated to a segregated account in connection with short sales. The underlying
fund will incur a loss as a result of the short sale if the price of the
security increases between the date of the short sale and the date on which the
underlying fund replaces the borrowed security. The underlying fund will realize
a gain if the security declines in price between those dates. The amount of any
gain will be decreased and the amount of any loss increased by the amount of any
premium dividends or interest the underlying fund may be required to pay in
connection with a short sale.
A short sale is "against the box" if at all times when the short
position is open the underlying fund owns an equal or greater amount of the
securities or securities convertible into, or exchangeable without further
consideration for, securities of the same issue as the securities sold short.
Such a transaction defers a gain or loss for Federal income tax purposes. The
procedures described above regarding deposits in a segregated account are not
required to be followed for short sales "against the box."
Leverage Through Borrowing. An underlying fund may borrow up to 25% of
the value of its net assets on an unsecured basis from banks to increase its
holdings of portfolio securities. Under the 1940 Act, the underlying fund is
required to maintain continuous asset coverage of 300% with respect to such
borrowings and to sell (within three days) sufficient portfolio holdings to
restore such coverage if it should decline to less than 300% due to market
fluctuations or otherwise, even if it is disadvantageous to do so from an
investment standpoint. Leveraging will exaggerate the effect of any increase or
decrease in the value of portfolio securities on the underlying fund's net asset
value. Money borrowed will also be subject to interest costs (which may include
commitment fees and/or the cost of maintaining minimum average balances), which
may or may not exceed the interest and option premiums received from the
securities purchased with borrowed underlying funds.
Derivatives. An underlying fund may invest in the following instruments
that are known commonly as derivatives. Generally, a derivative is a financial
arrangement, the value of which is based on or "received" from a traditional
security, asset or market index.
Hedging. An underlying fund may employ many of the investment
techniques described herein not only for investment purposes which may be
considered speculative, but also for hedging purposes. For
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<PAGE> 63
example, an underlying fund may purchase or sell put and call options on common
stocks to hedge against movement in individual common stock prices, or purchase
and sell stock index futures and related options to hedge against marketwide
movements in common stock prices. Although such hedging techniques generally
tend to minimize the risk of loss that is hedged against, they may also limit
commensurably the potential gain that might have resulted had the hedging
transaction not occurred. Also, the desired protection generally resulting from
hedging transactions may not always be achieved.
Master Demand Notes. Although the Funds will not do so, underlying
funds (particularly money market mutual funds) may invest up to 100% of their
assets in master demand notes. Master demand notes are unsecured obligations of
U.S. corporations redeemable upon notice that permit investment by an underlying
fund of fluctuating amounts at varying rates of interest pursuant to direct
arrangements between the fund and the issuing corporation. Because they are
direct arrangements between the underlying fund and the issuing corporation,
there is no secondary market for the notes. However, they are redeemable at face
value, plus accrued interest, at any time.
Domestic Equity Securities. The underlying funds, particularly global
underlying funds, also may be able to purchase equity securities of U.S.
companies. Equity securities are ownership interests in the net worth of a
corporation and include common stocks, convertible securities and warrants.
Common stock prices can be volatile in the short term. Market conditions or
other company, political and economic news can often cause large changes in a
stock's price. Such investments entail market risk, i.e., the risk of being
invested in stocks when the market goes down, resulting in stock prices
declining over short or even long periods.
INVESTMENT RESTRICTIONS
FUNDAMENTAL INVESTMENT RESTRICTIONS FOR INTERNATIONAL INDEX FUND,
SMALL-CAP INDEX FUND, HIGH GROWTH FUND, BALANCED GROWTH FUND,
CONSERVATIVE GROWTH FUND, SCHWAB S&P 500 FUND, ANALYTICS FUND(TM),
ONESOURCE PORTFOLIOS-INTERNATIONAL
Except as otherwise noted, the restrictions below are fundamental and
cannot be changed without approval of the holders of a majority of the
outstanding voting securities (as defined in the 1940 Act). With respect to the
Analytics Fund and the Schwab OneSource Portfolios-International, investment
restriction numbers 3, 4, 6 and 7 are non-fundamental and may be changed by the
Trust's Board of Trustees. Each of the Funds listed above may not:
1) As to 75% of its assets, purchase securities of any issuer (other
than obligations of, or guaranteed by, the U.S. Government, its agencies or
instrumentalities or investments in other registered investment companies) if,
as a result, more than 5% of the value of its total assets would be invested in
the securities of such issuer.
2) Purchase securities (other than securities issued or guaranteed by
the U.S. Government, its agencies or instrumentalities) if, as a result of such
purchase, 25% or more of the value of its total assets would be invested in any
industry (except that the International Index Fund and Small-Cap Index Fund may
purchase securities under such circumstances only to the extent that the
International Index or Small-Cap
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<PAGE> 64
Index, respectively, is also so concentrated and that the S&P 500 Fund and
Analytics Fund may purchase securities under such circumstances only to the
extent that the S&P 500 is also so concentrated, and except that the Schwab
OneSource Portfolios-International will invest 25% or more of its total assets
in other investment companies).
3) Invest more than 10% of its net assets in illiquid securities,
including repurchase agreements with maturities in excess of seven days (except
that the Schwab OneSource Portfolios-International may not invest more than 15%
of its net assets in illiquid securities).
4) Purchase or retain securities of an issuer if any of the officers,
Trustees or Directors of the Trust or the Investment Manager individually own
beneficially more than 1/2 of 1% of the securities of such issuer and together
beneficially own more than 5% of the securities of such issuer.
5) Purchase or sell commodities, commodity contracts or real estate,
including interests in real estate limited partnerships, provided that each Fund
may (i) purchase securities of companies that deal in real estate or interests
therein, (ii) purchase or sell futures contracts, options contracts, equity
index participations and index participation contracts, and (iii) for the Asset
Director(R) Funds, S&P 500 Fund, and Analytics Fund(TM), purchase securities of
companies that deal in precious metals or interests therein.
6) Invest for the purpose of exercising control or management of
another issuer.
7) Purchase securities of other investment companies, except as
permitted by the 1940 Act, including any exemptive relief granted by the SEC.
8) Lend money to any person, except that each Fund may (i) purchase a
portion of an issue of short-term debt securities or similar obligations
(including repurchase agreements) that are distributed publicly or customarily
purchased by institutional investors, and (ii) lend its portfolio securities.
9) Borrow money or issue senior securities, except that each Fund may
borrow from banks as a temporary measure to satisfy redemption requests or for
extraordinary or emergency purposes and then only in an amount not to exceed
one-third of the value of its total assets (including the amount borrowed),
provided that each Fund will not purchase securities while borrowings represent
more than 5% of its total assets.
10) Pledge, mortgage or hypothecate any of its assets, except that, to
secure allowable borrowings, each Fund may do so with respect to no more than
one-third of the value of its total assets.
11) Underwrite securities issued by others, except to the extent it may
be deemed to be an underwriter, under the federal securities laws, in connection
with the disposition of securities from its investment portfolio.
In order to permit the sale of shares of each Fund in certain
jurisdictions, each Fund may make commitments more restrictive than the
fundamental operating restrictions described above. Should it do so and later
determine that any such commitment is no longer in the best interests of the
Fund and its
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<PAGE> 65
shareholders, it will revoke the commitment(s) by terminating sales of its
shares in the jurisdiction(s) involved.
NON-FUNDAMENTAL RESTRICTIONS FOR INTERNATIONAL INDEX FUND,
SMALL-CAP INDEX FUND, HIGH GROWTH FUND, BALANCED GROWTH FUND,
CONSERVATIVE GROWTH FUND, SCHWAB S&P 500 FUND, ANALYTICS FUND AND
ONESOURCE PORTFOLIOS INTERNATIONAL
The following restrictions are non-fundamental and may be changed by
the Trust's Board of Trustees. Each of the Funds, with the exception of Growth
Allocation, Balanced Allocation and the Small Company Fund, may not:
1) Purchase more than 10% of any class of securities of any issuer if,
as a result of such purchase, it would own more than 10% of such issuer's
outstanding voting securities.
2) Invest more than 5% of its net assets in warrants, valued at the
lower of cost or market, and no more than 40% of this 5% may be invested in
warrants that are not listed on the New York Stock Exchange or the American
Stock Exchange, provided, however, that for purposes of this restriction,
warrants acquired by a Fund in units or attached to other securities are deemed
to be without value.
3) Purchase puts, calls, straddles, spreads or any combination thereof
if by reason of such purchase the value of its aggregate investment in such
securities would exceed 5% of the Fund's net assets.
4) Make short sales, except for short sales against the box.
5) Purchase or sell interests in oil, gas or other mineral development
programs or leases, although it may invest in companies that own or invest in
such interests or leases.
6) Purchase securities on margin, except such short-term credits as may
be necessary for the clearance of purchases and sales of securities.
Investments in Other Mutual Funds. The Schwab OneSource
Portfolios-International intends to purchase shares of underlying funds in
compliance with the requirements of Section 12(d)(1)(F) of the 1940 Act. Under
that provision, the Fund is prohibited from purchasing the securities of an
underlying fund if, as a result, the Fund together with its affiliates would own
more than 3% of the total outstanding securities of that underlying fund. In
addition, the Fund is required to seek voting instructions from its shareholders
regarding underlying fund proxies, and to vote such proxies in accordance with
the instructions received or to vote such proxies in the same proportion as the
vote of all other holders of the underlying fund securities.
FUNDAMENTAL INVESTMENT RESTRICTIONS FOR GROWTH ALLOCATION,
BALANCED ALLOCATION AND THE SMALL COMPANY FUND
The restrictions numbered 1, 2 and 3 immediately below are fundamental
and cannot be changed without approval of the holders of a majority of the
outstanding voting securities (as defined in the 1940
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Act). For more detailed information, see "1940 Act Restrictions" and "Other
Investment Policies" discussed below. The Growth Allocation, Balanced Allocation
and the Small Company Fund:
1) May purchase securities of any issuer only when consistent with the
maintenance of its status as a diversified company under the 1940 Act.
2) May not concentrate investments in a particular industry or group of
industries as concentration is defined under the 1940 Act, or the rules or
regulations thereunder.
3) May (i) purchase or sell commodities, commodities contracts, or real
estate, (ii) lend or borrow money, (iii) issue senior securities, (iv)
underwrite securities, or (v) pledge, mortgage or hypothecate any of its assets,
only if permitted by the 1940 Act or the rules or regulations thereunder.
The Growth Allocation's, Balanced Allocation's and the Small Company
Fund's fundamental investment policies have been adopted to avoid wherever
possible the necessity of shareholder meetings otherwise required under the 1940
Act. This recognizes the need to react quickly to changes in the law or new
investment opportunities in the securities markets and the cost and time
involved in obtaining shareholder approvals for diversely held investment
companies. However, the Growth Allocation, Balanced Allocation and the Small
Company Fund have also adopted non-fundamental investment policies, set forth
below, which are more restrictive than their fundamental investment policies.
The Growth Allocation's, Balanced Allocation's and the Small Company Fund's
non-fundamental investment policies may be changed by a vote of the Board of
Trustees. Any changes in either the Growth Allocation's, Balanced Allocation's
or the Small Company Fund's non-fundamental investment policies will be
communicated to the Fund's shareholders prior to the effectiveness of the
changes.
1940 ACT RESTRICTIONS. Under the 1940 Act and the rules, regulations
and interpretations thereunder, a "diversified company," as to 75% of its total
assets, may not purchase securities of any issuer (other than obligations of, or
guaranteed by, the U.S. Government or its agencies, or instrumentalities or
investments in other registered investment companies) if, as a result, more than
5% of the value of its total assets would be invested in the securities of such
issuer or more than 10% of the issuer's voting securities would be held by the
fund. "Concentration" is generally interpreted under the 1940 Act as investing
25% or more of total assets in an industry or group of industries. The 1940 Act
limits the ability of investment companies to borrow and lend money and to
underwrite securities. The 1940 Act currently prohibits an open-end fund from
issuing senior securities, as defined in the 1940 Act, except under very limited
circumstances.
OTHER INVESTMENT POLICIES FOR GROWTH ALLOCATION, BALANCED ALLOCATION
AND THE SMALL COMPANY FUND
The following investment policies and restrictions are non-fundamental
and may be changed by the Trust's Board of Trustees. The Growth Allocation,
Balanced Allocation and the Small Company Fund may not:
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1) Invest more than 15% of its net assets in illiquid securities,
including repurchase agreements with maturities in excess of 7 days.
2) Purchase or retain securities of an issuer if any of the officers,
Trustees or Directors of the Trust or the Investment Manager individually own
beneficially more than 1/2 of 1% of the securities of such issuer and together
beneficially own more than 5% of the securities of such issuer.
3) Invest for the purpose of exercising control or management of
another issuer.
4) Purchase securities of other investment companies, except as
permitted by the 1940 Act, including any exemptive relief granted by the SEC.
5) Purchase more than 10% of any class of securities of any issuer if,
as a result of such purchase, it would own more than 10% of such issuer's
outstanding voting securities.
6) Invest more than 5% of its net assets in warrants, valued at the
lower of cost or market, and no more than 40% of this 5% may be invested in
warrants that are not listed on the New York Stock Exchange or the American
Stock Exchange, provided, however, that for purposes of this restriction,
warrants acquired by a Fund in units or attached to other securities are deemed
to be without value.
7) Purchase puts, calls, straddles, spreads or any combination thereof,
if by reason of such purchase the value of its aggregate investment in such
securities would exceed 5% of the Fund's net assets.
8) Make short sales, except for short sales against the box.
9) Purchase or sell interests in oil, gas or other mineral development
programs or leases, although it may invest in companies that own or invest in
such interests or leases.
10) Purchase securities on margin, except such short-term credits as
may be necessary for the clearance of purchases and sales of securities.
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MANAGEMENT OF THE TRUST
OFFICERS AND TRUSTEES. The officers and Trustees of the Trust, their
principal occupations over the past five years and their affiliations, if any,
with The Charles Schwab Corporation, Schwab and the Investment Manager, are as
follows:
<TABLE>
<CAPTION>
POSITION WITH
NAME/DATE OF BIRTH THE TRUST PRINCIPAL OCCUPATION
- ------------------ --------- --------------------
<S> <C> <C>
CHARLES R. SCHWAB* Chairman and Trustee Chairman, Chief Executive Officer and
July 29, 1937 Director, The Charles Schwab Corporation;
Chairman and Director, Charles Schwab &
Co., Inc. and Charles Schwab Investment
Management, Inc.; Chairman and Director,
The Charles Schwab Trust Company; Chairman
and Director (current board positions), and
Chairman (officer position) until December
1995, Mayer & Schweitzer, Inc. (a
securities brokerage subsidiary of The
Charles Schwab Corporation); Director, The
Gap, Inc. (a clothing retailer),
Transamerica Corporation (a financial
services organization), AirTouch
Communications (a telecommunications
company) and Siebel Systems (a software
company).
</TABLE>
- ---------------------------
*Mr. Schwab is an "interested person" of the Trust.
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<PAGE> 69
<TABLE>
<CAPTION>
POSITION WITH
NAME/DATE OF BIRTH THE TRUST PRINCIPAL OCCUPATION
- ------------------ --------- --------------------
<S> <C> <C>
TIMOTHY F. McCARTHY** President and Trustee Executive Vice President and President -
September 19, 1951 Financial Products and International Group,
Charles Schwab & Co., Inc.; Executive Vice
President-President, Financial Products and
International Group, The Charles Schwab
Corporation; Chief Executive Officer,
Charles Schwab Investment Management, Inc.;
Vice Chairman and Chief Operating Officer,
Charles Schwab Limited; Director, Mayer &
Schweitzer. From 1994 to 1995, Mr. McCarthy
was Chief Executive Officer, Jardine
Fleming Unit Trusts Ltd.; Executive
Director, Jardine Fleming Holdings Ltd.;
Chairman, Jardine Fleming Taiwan Securities
Ltd.; and Director of JF India and Fleming
Flagship, Europe. Prior to 1994, he was
President of Fidelity Investments Advisor
Group, a division of Fidelity Investments
in Boston.
DONALD F. DORWARD Trustee Executive Vice President and Managing
September 23, 1931 Director, Grey Advertising. From 1990 to
1996, Mr. Dorward was President and Chief
Executive Officer, Dorward & Associates.
Dorward and Associates is an advertising
and marketing/consulting firm.
ROBERT G. HOLMES Trustee Chairman, Chief Executive Officer and
May 15, 1931 Director, Semloh Financial, Inc. Semloh
Financial is an international financial
services and investment advisory firm.
</TABLE>
- ---------------------------
**Mr. McCarthy is an "interested person" of the Trust.
33
<PAGE> 70
<TABLE>
<CAPTION>
POSITION WITH
NAME/DATE OF BIRTH THE TRUST PRINCIPAL OCCUPATION
- ------------------ --------- --------------------
<S> <C> <C>
DONALD R. STEPHENS Trustee Managing Partner, D.R. Stephens & Co.
June 28, 1938 (investment banking). From 1985 to 1995,
Mr. Stephens was Chairman and Chief
Executive Officer of North American Trust
(a real estate investment trust). Prior to
1992, Mr. Stephens was Chairman and Chief
Executive Officer of the Bank of San
Francisco.
MICHAEL W. WILSEY Trustee Chairman, Chief Executive Officer and
August 18, 1943 Director, Wilsey Bennett, Inc. (truck and
air transportation, real estate investment
and management, and investments).
TAI-CHIN TUNG Treasurer and Principal Vice President - Finance, Charles Schwab &
March 7, 1951 Financial Officer Co., Inc.; Controller, Charles Schwab
Investment Management, Inc. From 1994 to
1996, Ms. Tung was Controller for Robertson
Stephens Investment Management, Inc. From
1993 to 1994, she was Vice President of
Fund Accounting, Capital Research and
Management Co. Prior to 1993, Ms. Tung was
Senior Vice President of the Sierra Funds
and Chief Operating Officer of Great
Western Financial Securities.
WILLIAM J. KLIPP* Executive Vice President, Executive Vice President-SchwabFunds(R),
December 9, 1955 Chief Operating Officer Charles Schwab & Co., Inc.; President and
and Trustee Chief Operating Officer, Charles Schwab
Investment Management, Inc. Prior to 1993,
Mr. Klipp was Treasurer of Charles Schwab &
Co., Inc. and Mayer & Schweitzer, Inc.
</TABLE>
- ---------------------------
*Mr. Klipp is an "interested person" of the Trust.
34
<PAGE> 71
<TABLE>
<CAPTION>
POSITION WITH
NAME/DATE OF BIRTH THE TRUST PRINCIPAL OCCUPATION
- ------------------ --------- --------------------
<S> <C> <C>
STEPHEN B. WARD Senior Vice President Senior Vice President and Chief Investment
April 5, 1955 and Chief Investment Officer, Charles Schwab Investment
Officer Management, Inc.
FRANCES COLE Secretary Vice President, Chief Counsel, Chief
September 9, 1955 Compliance Officer and Assistant Corporate
Secretary, Charles Schwab Investment
Management, Inc.
DAVID H. LUI Assistant Secretary Vice President and Senior Counsel - Charles
October 14, 1960 Schwab Investment Management, Inc. From
1991 to 1992, he was Assistant Secretary
and Assistant Corporate Counsel for the
Franklin Group of Mutual Funds.
CHRISTINA M. PERRINO Assistant Secretary Vice President and Senior Counsel - Charles
June 16, 1961 Schwab Investment Management, Inc. Prior to
1994, she was Counsel and Assistant
Secretary for North American Security Life
Insurance Company and Secretary for North
American Funds.
KAREN L. SEAMAN Assistant Secretary Corporate Counsel - Charles Schwab
February 27, 1968 Investment Management, Inc. From October,
1994 to July 1996, Ms. Seaman was Attorney
for Franklin Resources, Inc. Prior to 1994,
Ms. Seaman was an attorney for The Benham
Group.
</TABLE>
Each of the above-referenced Officers and/or Trustees also serves in
the same capacity as described for the Trust, Schwab Investments, The Charles
Schwab Family of Funds and Schwab Annuity Portfolios. The address of each
individual listed above is 101 Montgomery Street, San Francisco, California
94104.
35
<PAGE> 72
COMPENSATION TABLE 1
<TABLE>
<CAPTION>
Pension or Retirement Estimated Annual
Aggregate Benefits Accrued as Benefits upon Total Compensation
Compensation from Part of Fund Expenses Retirement from the from the Fund
Name of Person, Position the Trust from the Fund Complex 2 Fund Complex 2 Complex 2
- ------------------------ --------- ---------------------- ------------- --------
<S> <C> <C> <C> <C>
Charles R. Schwab, 0 N/A N/A 0
Chairman and Trustee
Timothy F. McCarthy, 0 N/A N/A 0
President and Trustee
William J. Klipp, 0 N/A N/A 0
Executive Vice
President, Chief Operating
Officer and Trustee
Donald F. Dorward, 16,150 N/A N/A 81,100
Trustee
Robert G. Holmes, 16,150 N/A N/A 81,100
Trustee
Donald R. Stephens, 16,150 N/A N/A 81,100
Trustee
Michael W. Wilsey, 16,150 N/A N/A 81,100
Trustee
</TABLE>
1 Figures are for the Trust's fiscal year ended October 31, 1996.
2 "Fund Complex" comprises all 30 funds of the Trust, The Charles Schwab
Family of Funds, Schwab Investments and Schwab Annuity Portfolios.
DEFERRED COMPENSATION PLAN
Pursuant to exemptive relief received by the Trust from the SEC, the
Trust may enter into deferred fee arrangements (the "Fee Deferral Plan" or the
"Plan") with the Trust's Trustees who are not "interested persons" of any of the
Funds of the Trust (the "Independent Trustees" or the "Trustees").
36
<PAGE> 73
As of the date of this SAI, none of the Independent Trustees has
elected to participate in the Fee Deferral Plan. In the event an Independent
Trustee does elect to participate in the Plan, the Plan would operate as
described below.
Under the Plan, deferred Trustee's fees will be credited to a book
reserve account established by the Trust (the "Deferred Fee Account") as of the
date such fees would have been paid to such Trustee. The value of the Deferred
Fee Account as of any date will be equal to the value the Account would have had
as of that date if the amounts credited to the Account had been invested and
reinvested in the securities of the SchwabFund or SchwabFunds(R) selected by the
participating Trustee (the "Selected SchwabFund Securities"). SchwabFunds
include the series or classes of beneficial interest of the Trust, The Charles
Schwab Family of Funds and Schwab Investments.
Pursuant to the exemptive relief granted to the Trust, each Fund will
purchase and maintain the Selected SchwabFund Securities in an amount equal to
the deemed investments in that Fund of the Deferred Fee Accounts of the
Independent Trustees. The exemptive relief granted to the Trust permits the
Funds and the Trustees to purchase the Selected SchwabFund Securities, which
transactions would otherwise be limited or prohibited by the investment policies
and/or restrictions of the Funds. See "Investment Restrictions in this SAI for
more information."
INVESTMENT MANAGER
The Investment Manager, a wholly owned subsidiary of The Charles Schwab
Corporation, serves as the Funds' investment adviser and administrator pursuant
to an Investment Advisory and Administration Agreement (the "Advisory
Agreement") between it and the Trust. The Investment Manager is registered as an
investment adviser under the Investment Advisers Act of 1940, as amended, and
currently provides investment management services to the SchwabFunds Family(R),
a family of 27 mutual funds with over $50 billion in assets as of July 15, 1997.
The Investment Manager is an affiliate of: Schwab; the Trust's distributor; the
shareholder services; and the transfer agent. The Advisory Agreement will
continue in effect until May 30, 1998 with respect to each of the Funds and
thereafter will continue for one year terms subject to annual approval by: (1)
the Trust's Board of Trustees or (2) a vote of a majority (as defined in the
1940 Act) of the outstanding voting securities of a Fund. In either event, the
continuance must also be approved by a majority of the Trust's Board of Trustees
who are not parties to the Agreement or interested persons (as defined in the
1940 Act) of any such party by vote cast in person at a meeting called for the
purpose of voting on such approval. The Advisory Agreement may be terminated at
any time upon 60 days' notice by either party, or by a majority vote of the
outstanding shares of a Fund, and will terminate automatically upon assignment.
International Index Fund. For its advisory and administrative services
to the International Index Fund, the Investment Manager is entitled to receive a
graduated annual fee, payable monthly, of 0.70% of the Fund's average daily net
assets not in excess of $300 million and 0.60% of such assets over $300 million.
The Investment Manager and Schwab have guaranteed that, through at
least February 29, 2000, the total fund operating expenses allocable to the
Investor Shares and Select Shares for the International
37
<PAGE> 74
Index Fund will not exceed 0.58% and 0.47%, respectively, of the average daily
net assets of each class of shares.
For the fiscal years ended October 31, 1996, 1995 and 1994, the
International Index Fund paid investment advisory fees of $886,000, $665,000 and
$474,000, respectively (fees were reduced by $675,000, $415,000 and $388,000,
respectively).
Small-Cap Index Fund. For its advisory and administrative services to
the Small-Cap Index Fund, the Investment Manager is entitled to receive a
graduated annual fee, payable monthly, of 0.50% of the Fund's average daily net
assets not in excess of $300 million and 0.45% of such assets over $300 million.
The Investment Manager and Schwab have guaranteed that, through at
least February 29, 2000, the total fund operating expenses allocable to the
Investor Shares and Select Shares for the Small-Cap Index Fund will not exceed
0.49% and 0.38%, respectively, the average daily net assets of each class of
shares.
For the fiscal years ended October 31, 1996 and 1995, and for the
fiscal period from December 3, 1993 (commencement of operations) to October 31,
1994, the Small-Cap Index Fund paid investment advisory fees of $520,000,
$332,000 and $152,000, respectively (fees were reduced by $347,000, $115,000 and
$107,000, respectively).
Asset Director(R) Funds. For its advisory and administrative services
to the Asset Director Funds, the Investment Manager is entitled to receive a
graduated annual fee, payable monthly, of 0.74% of each Fund's average daily net
assets not in excess of $1 billion, 0.69% of the next $1 billion and 0.64% of
such net assets over $2 billion.
The Investment Manager and Schwab have guaranteed that, through at
least February 28, 1998, the total fund operating expenses for each Asset
Director Fund will not exceed 0.89% of the Fund's average daily net assets.
For the fiscal period of November 20, 1995 (commencement of operations)
to October 31, 1996, the High Growth Fund, the Balanced Growth Fund, and the
Conservative Growth Fund paid investment advisory fees of $337,000 $219,000, and
$26,000, respectively (fees were reduced by $296,000, $242,000 and $118,000
respectively).
S&P 500 Fund. For its advisory and administrative services to the S&P
500 Fund, the Investment Manager is entitled to receive a graduated annual fee,
payable monthly, of 0.36% of the Fund's average daily net assets not in excess
of $1 billion, 0.33% of the next $1 billion and 0.31% of such net assets over $2
billion.
The Investment Manager and Schwab have guaranteed that, through at
least February 29, 2000, the total operating expenses allocable to the Investor
Shares, the e.Shares(TM) and the Select Shares(TM) will not exceed 0.35%, 0.28%
and 0.19% respectively, of the average daily net assets of each class of shares.
38
<PAGE> 75
For the fiscal period of May 1, 1996 (commencement of operations) to
October 31, 1996, the S&P 500 Fund paid investment advisory fees of $128,000
(fees were reduced by $223,000).
Analytics Fund(TM). For its advisory and administrative services to the
Analytics Fund, the Investment Manager is entitled to receive a graduated annual
fee, payable monthly, of 0.74% of the Fund's average daily net assets not in
excess of $1 billion, 0.69% of the next $1 billion and 0.64% of such net assets
over $2 billion.
The Investment Manager and Schwab have guaranteed that, through at
least February 28, 1998, the total fund operating expenses for the Analytics
Fund will not exceed 0.75% of its average daily net assets.
For the fiscal period of July 1, 1996 (commencement of operations) to
October 31, 1996, the Analytics Fund paid investment advisory fees of $66,000
(fees were reduced by $151,000).
Schwab OneSource Portfolios-International. For its advisory and
administrative services to the Schwab OneSource Portfolios-International, the
Investment Manager is entitled to receive a graduated annual fee, payable
monthly, of 0.74% of the Fund's average daily net assets not in excess of $1
billion, 0.69% of the next $1 billion and 0.64% of net assets over $2 billion.
The Investment Manager and Schwab have guaranteed that, through at
least February 28, 1999, the total fund operating expenses for the Schwab
OneSource Portfolios-International will not exceed 0.50% of its average daily
net assets.
For the fiscal period of October 16, 1996 (commencement of operations)
to October 31, 1996, the Schwab OneSource Portfolios-International paid
investment advisory fees of $0 (fees were reduced by $17,000).
Growth Allocation and Balanced Allocation. For its advisory and
administrative services to the Growth Allocation and Balanced Allocation, the
Investment Manager is entitled to receive a graduated annual fee, payable
monthly, of 0.74% of the first $1 billion of each Fund's average daily net
assets, 0.69% of the next $1 billion, and 0.64% of net assets over $2 billion.
The Investment Manager and Schwab have guaranteed that, through at
least February 28, 1999, the fund selection and investment management fees for
Growth Allocation and Balanced Allocation will not exceed 0.50% of its average
daily net assets.
Small Company Fund. For its advisory and administrative services to the
Small Company Fund, the Investment Manager is entitled to receive a graduated
annual fee, payable monthly, of 0.74% of the first $1 billion of the Fund's
average daily net assets, 0.69% of the next $1 billion, and 0.64% of net assets
over $2 billion.
39
<PAGE> 76
The Investment Manager and Schwab have guaranteed that, through at
least February 28, 1999, the fund selection and investment management fees for
the Small Company Fund will not exceed 0.50% of its average daily net assets.
Schwab currently receives remuneration from fund companies
participating in its Mutual Fund OneSource(R) service equal to 0.25% to 0.35%
per annum of assets invested in the OneSource Portfolios. The Investment Manager
and Schwab provide investment management and other services to all of Schwab's
proprietary funds and receive compensation from them. In light of this
remuneration and compensation, Schwab guarantees, through at least December 31,
2001, to waive its Transfer Agent and Shareholder Service fees for OneSource
Portfolios International, Growth Allocation, Balanced Allocation and the Small
Company Fund. These fees normally total 0.25% for each Fund. After December 31,
2001, the guarantee may be terminated, modified or continued.
Additional Information. From time to time, each Fund may compare its
total operating expense ratio to the total operating expense ratio of other
mutual funds or mutual fund averages with similar investment objectives as
reported by Lipper Analytical Service, Inc., Morningstar, Inc. or other
independent sources of such information ("independent sources").
SUB-ADVISER
With respect to the Analytics Fund(TM), the Investment Manager has
entered into an investment sub-advisory agreement (the "Sub-Advisory Agreement")
with Symphony Asset Management, Inc. (the "Sub-Adviser" or "Symphony") pursuant
to which Symphony Asset Management, Inc. will act as the Fund's sub-adviser. The
Sub-Adviser is registered as an investment adviser under the Investment Advisers
Act of 1940 and currently manages directly and indirectly approximately $700
million in institutional and private account assets.
The Sub-Adviser makes investment decisions for the Analytics Fund's
non-cash investments and uses quantitative techniques and proprietary real-time
databases and software models to continually identify and rank stocks that
exhibit a favorable combination of attributes that have historically been
associated with aggregate total returns greater than that of the S&P 500. Once
rankings are determined, statistical methodologies will be used to construct a
portfolio of the most attractive stocks in terms of potential long-term capital
growth.
For the Sub-Adviser's services relating to the Analytics Fund(TM), the
Investment Manager pays the Sub-Adviser an annual investment sub-advisory fee,
payable monthly, of 0.20% of the Fund's average daily net assets not in excess
of $300 million, 0.15% of the next $500 million and 0.10% of such assets over
$800 million.
As of February 28, 1997, Symphony no longer served as sub-adviser to
the Asset Director(R) Funds. Instead, the Investment Manager became responsible
for providing all investment advisory services to the Asset Director Funds.
40
<PAGE> 77
As of May 1, 1995 and June 30, 1995, Dimensional Fund Advisors Inc.
("Dimensional") no longer served as the sub-adviser to the Small-Cap Index Fund
and International Index Fund, respectively. As of the same dates, the Investment
Manager became responsible for providing all investment advisory services to the
Funds.
Expenses. Under the Sub-Advisory Agreement between Dimensional and the
Investment Manager, the Investment Manager paid Dimensional the following
amounts for the fiscal periods indicated below.
International Index Fund: for the fiscal years ended October 31, 1996,
1995 and 1994, Dimensional was paid $0, $143,000 and $185,000 respectively.
Small-Cap Index Fund: for the fiscal year ended October 31, 1996, 1995
and for the fiscal period from December 3, 1993 (commencement of operations) to
October 31, 1994, Dimensional was paid $0, $36,000 and $51,000, respectively.
Asset Director Funds for the fiscal period from November 20, 1995
(commencement of operations) to October 31, 1996 paid Symphony $120,156.
DISTRIBUTOR
Pursuant to a Distribution Agreement, Schwab is the principal
underwriter for shares of the Trust and is the Trust's agent for the purpose of
the continuous offering of the Funds' shares. Each Fund pays the cost of the
prospectuses and shareholder reports to be prepared and delivered to existing
shareholders. Schwab pays such costs when the described materials are used in
connection with the offering of shares to prospective investors and for
supplementary sales literature and advertising. Schwab receives no fee under the
Distribution Agreement. Terms of continuation, termination and assignment under
the Distribution Agreement are identical to those described above with respect
to the Advisory Agreement.
CONSULTANT
The Investment Adviser has hired and pays Symphony as a consultant for
the Asset Director(R) Funds. Symphony provides the Tactical Asset Allocation
Model described below under "Indexing and Asset Allocation -- the Schwab Index
Funds and the Schwab Asset Allocation Funds."
CUSTODIAN AND FUND ACCOUNTANT
Morgan Stanley Trust Company, 1 Pierrepont Plaza, Brooklyn, New York
11201, and Federated Services Company, 1001 Liberty Avenue, Pittsburgh,
Pennsylvania 15222, serve as Custodian and Fund Accountant for the International
Index Fund, Small-Cap Index Fund, Asset Director Funds, Schwab OneSource
Portfolios-International, Growth Allocation, Balanced Allocation and the Small
Company Fund.
PNC Bank, National Association, at the Airport Business Center, 200
Stevens Drive, Suite 440, Lester, Pennsylvania 19113, serves as Custodian for
the S&P 500 Fund and Analytics Fund(TM). PFPC Inc.,
41
<PAGE> 78
at 400 Bellevue Parkway, Wilmington, Delaware 19809, serves as Fund Accountant
for the S&P 500 Fund and Analytics Fund.
ACCOUNTANTS AND REPORTS TO SHAREHOLDERS
The Trust's independent accountants, Price Waterhouse LLP, audit and
report on the annual financial statements of each series of the Trust and review
certain regulatory reports and each Fund's federal income tax return. Price
Waterhouse LLP also performs other professional accounting, auditing, tax and
advisory services when the Trust engages it to do so. Shareholders will be sent
audited annual and unaudited semi-annual financial statements. The address of
Price Waterhouse LLP is 555 California Street, San Francisco, California 94104.
LEGAL COUNSEL
Ropes & Gray, One Franklin Square, 1301 K Street, N.W., Suite 800 East,
Washington, D.C. 20005, is counsel to the Trust.
PORTFOLIO TRANSACTIONS AND TURNOVER
PORTFOLIO TRANSACTIONS
In effecting securities transactions for the Funds, the Investment
Manager and the Sub-Adviser seek to obtain best price and execution. Subject to
the supervision of the Board of Trustees, the Investment Manager and the
Sub-Adviser will generally select brokers and dealers for the Funds primarily on
the basis of the quality and reliability of brokerage services, including
execution capability and financial responsibility. In assessing these criteria,
the Investment Manager and the Sub-Adviser will, among other things, monitor the
performance of brokers effecting transactions for the Funds to determine the
effect, if any, the Funds' transactions through those brokers have on the market
prices of the stocks involved. This may be of particular importance for the
Funds' investments in relatively smaller companies whose stocks are not as
actively traded as those of their larger counterparts. The Funds will seek to
buy and sell securities in a manner that causes the least possible fluctuation
in the prices of those stocks in view of the size of the transactions.
In an attempt to obtain best execution for the Funds, the Investment
Manager and the Sub-Adviser may also place orders directly with market makers or
with third market brokers, Instinet or brokers on an agency basis. Placing
orders with third market brokers or through Instinet may enable the Funds to
trade directly with other institutional holders on a net basis. At times, this
may allow the Funds to trade larger blocks than would be possible trading
through a single market maker.
When the execution and price offered by two or more broker-dealers are
comparable, the Investment Manager and the Sub-Adviser may, in its discretion,
in agency transactions (and not principal transactions) utilize the services of
broker-dealers that provide it with investment information and other research
resources. Such resources may also be used by the Investment Manager and the
Sub-Adviser when providing advisory services to other investment advisory
clients, including mutual funds.
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<PAGE> 79
In determining when and to what extent to use Schwab or any other
affiliated broker-dealer as its broker for executing orders for the Funds on
securities exchanges, the Investment Manager and the Sub-Adviser will consider
(if relevant) whether the compensation to be paid Schwab or any other affiliated
broker-dealer will be (i) fair and reasonable, (ii) at least as favorable to the
Funds as commissions that would be charged by other qualified brokers having
comparable execution capabilities and (iii) at least as favorable as commissions
contemporaneously charged by Schwab or any other affiliated broker-dealer on
comparable transactions for its most favored unaffiliated customers. The Funds
do not consider it practicable or in the best interests of their shareholders to
solicit competitive bids for commission rates on each transaction. However, the
Board of Trustees, including a majority of the Trustees who are not "interested
persons" of Schwab or any other affiliated broker-dealer within the meaning of
the 1940 Act, (i) has prescribed procedures designed to provide that the Funds
do not pay commissions that do not meet the standards described above, (ii)
reviews those procedures annually to determine whether they remain adequate and
(iii) considers quarterly whether or not the commissions charged by Schwab or
any other affiliated broker-dealer have met the standards.
Brokerage services Schwab provides to the Funds are also subject to
Rule 11a2-2(T) under the Securities Exchange Act of 1934, as amended. Rule
11a2-2(T) permits the Funds to use Schwab as a broker provided certain
conditions are met. Among these requirements are that members of the exchange
not associated with Schwab perform the floor brokerage element of portfolio
transactions (that is, execution on the exchange floor or through use of
exchange facilities) that the orders to such members be transmitted from off the
exchange floor and that neither Schwab nor an associated person of Schwab
participates in the execution of the transaction after the order has been so
transmitted. In connection with transactions in which Schwab acts as broker for
the Funds, Schwab, while not permitted to perform floor brokerage (which is
undertaken by members Schwab selects who are not associated with that firm),
still continues to bear principal responsibility for determining important
elements of overall execution such as timing and order size, and also clears and
settles such transactions. Schwab pays the fees charged by those persons
performing the described floor brokerage elements. Schwab will not trade
directly with the Funds in any transactions in which Schwab or an affiliate acts
as principal.
Brokerage Commissions. For the fiscal years ended October 31, 1996,
1995 and 1994, the International Index Fund paid brokerage commissions of
$101,230, $54,718 and $86,127, respectively. For the fiscal years ended October
31, 1996 and 1995, and for the fiscal period from December 3, 1993 (commencement
of operations) to October 31, 1994, the Small-Cap Index Fund paid brokerage
commissions of $181,679, $142,785 and $165,997, respectively. For the fiscal
period November 20, 1995 (commencement of operations) to October 31, 1996, the
High Growth Fund, the Balanced Growth Fund and the Conservative Growth Fund paid
brokerage commissions of $92,248, $48,733, $10,741 respectively. For the fiscal
period May 1, 1996 (commencement of operations) to October 31, 1996, the S&P 500
Fund paid brokerage commissions of $119,350. For the fiscal period July 1, 1996
(commencement of operations) to October 31, 1996, the Analytics Fund(TM) paid
brokerage commissions of $90,932. For the fiscal period October 16, 1996
(commencement of operations) to October 31, 1996, the OneSource Portfolios
International paid brokerage commissions of $0.
43
<PAGE> 80
PORTFOLIO TURNOVER
For reporting purposes, each Fund's turnover rate is calculated by
dividing the value of purchases or sales of portfolio securities for the fiscal
year, whichever is less, by the monthly average value of portfolio securities
the Fund owned during the fiscal year. When making the calculation, all
securities whose maturities at the time of acquisition were one year or less
("short-term securities") are excluded.
A 100% portfolio turnover rate would occur, for example, if all
portfolio securities (aside from short-term securities) were sold and either
repurchased or replaced once during the fiscal year. The Funds expect that their
portfolio turnover rate will not exceed 100% in any given year, a turnover rate
lower than that of most non-index mutual funds. In the case of the Asset
Director(R) Funds, the portfolio turnover rate applies to the Funds' stock and
bond categories.
The International Index Fund's portfolio turnover rate for the fiscal
years ended October 31, 1996 and 1995 was 6% and 0%, respectively. The Small-Cap
Index Fund's portfolio turnover rate for the fiscal years ended October 31, 1996
and 1995 was 23% and 24% respectively.
The High Growth Fund, Balanced Growth Fund (equity portion) and
Conservative Growth Fund's (equity portion) portfolio turnover rates for the
period from November 20, 1995 (commencement of operations) to October 31, 1996
were 46%, 44%, and 64%, respectively. The portfolio turnover rate for the bond
portion of both the Balanced Growth Fund and the Conservative Growth Fund for
this same period was 0%.
The S&P 500 Fund's portfolio turnover rate for the period May 1, 1996
(commencement of operations) to October 31, 1996 was 1.0%.
The Analytics Fund's(TM) portfolio turnover rate for the period from
July 1, 1996 (commencement of operations) to October 31, 1996 was 33%.
The Schwab OneSource Portfolios-International portfolio turnover rate
for the period from October 16, 1996 (commencement of operations) to October 31,
1996 was 0.0% and 53% for the period from November 1 to February 28, 1997.
Balanced Allocation and Growth Allocation's portfolio turnover rate for the
period November 18, 1996 (commencement of operations) to February 28, 1997 was
61% and 67%, respectively.
The Small Company Fund anticipates that its annual portfolio turnover
rate will not exceed 100%, however, there is no limit on the Fund's portfolio
turnover rate.
From time to time, each Fund may compare its portfolio turnover rate
with that of other mutual funds as reported by independent sources.
44
<PAGE> 81
TAXES
It is each Fund's policy to qualify for taxation as a "regulated
investment company" by meeting the requirements of Subchapter M of the Code. By
following this policy, each Fund expects to eliminate or reduce to a nominal
amount the federal income tax to which it is subject.
In order to qualify as a regulated investment company, each of the
Funds must, among other things, (1) derive at least 90% of its gross income from
dividends, interest, payments with respect to securities loans and gains from
the sale or other disposition of stocks, securities, foreign currencies or other
income (including gains from options, futures or forward contracts) derived with
respect to its business of investing in stocks, securities or currencies; (2)
derive less than 30% of its gross income from gains from the sale or other
disposition of certain assets (including stocks and securities) held for less
than three months; and (3) diversify its holdings so that at the end of each
quarter of its taxable year (i) at least 50% of the market value of the Fund's
total assets is represented by cash or cash items, U.S. Government securities,
securities of other regulated investment companies and other securities limited,
in respect of any one issuer, to a value not greater than 5% of the value of the
Fund's total assets and 10% of the outstanding voting securities of such issuer,
and (ii) not more than 25% of the value of its assets is invested in the
securities of any one issuer (other than U.S. Government securities or
securities of any other regulated investment company) or of two or more issuers
that the Fund controls, within the meaning of the Code, and that are engaged in
the same, similar or related trades or businesses.
These requirements may restrict the degree to which a Fund may engage
in short-term trading and certain hedging transactions and may limit the range
of a Fund's investments. If a Fund qualifies as a regulated investment company,
it will not be subject to federal income tax on the part of its net investment
income and net realized capital gains, if any, which it distributes to
shareholders, provided that the Fund meets certain minimum distribution
requirements. To comply with these requirements, a Fund must distribute at least
(a) 90% of its "investment company taxable income" (as that term is defined in
the Code) and (b) 90% of the excess of its (i) tax-exempt interest income over
(ii) certain deductions attributable to that income (with certain exceptions),
for its taxable year. Each Fund intends to make sufficient distributions to
shareholders to meet these requirements.
The Code imposes a non-deductible excise tax on regulated investment
companies that do not distribute in a calendar year (regardless of whether they
otherwise have a non-calendar taxable year) an amount equal to 98% of their
"ordinary income" (as defined in the Code) for the calendar year plus 98% of
their capital gain net income for the one year period ending on October 31 of
such calendar year. The balance of such income must be distributed during the
next calendar year. For the foregoing purposes, a Fund is treated as having
distributed any amount on which it is subject to income tax for any taxable year
ending in such calendar year. If the distributions during a calendar year were
less than the required amount, the Fund is subject to a non-deductible excise
tax equal to 4% of the deficiency.
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INCOME TAX INFORMATION
Any dividends declared by the Funds in October, November or December to
shareholders of record during those months and paid during the following January
are treated, for tax purposes, as if they were received by each shareholder on
December 31 of the year in which they were declared.
Dividends the Funds pay from net investment income and distributions
from the Funds' net short-term capital gains in excess of any net long-term
capital losses, whether received in cash or reinvested, will generally be
taxable to shareholders as ordinary income. Distributions received from the
Funds designated as long-term capital gains (net of capital losses), whether
received in cash or reinvested, will be taxable as long-term capital gains
without regard to the length of time a shareholder owned shares in the Funds.
However, if a shareholder receives a long-term capital gain distribution with
respect to Funds' shares held for six months or less, any loss on the sale or
exchange of those shares shall, to the extent of the long-term capital gain
distribution, be treated as a long-term capital loss. For corporate investors in
the Funds, dividend distributions the Funds designate to be from dividends
received from qualifying domestic corporations will be eligible for the 70%
corporate dividends-received deduction to the extent they would qualify if the
Funds were regular corporations. If a shareholder is not subject to income tax,
generally the shareholder will not be taxed on amounts distributed by the Funds.
A Fund will be required in certain cases to withhold and remit to the
U.S. Treasury 31% of taxable dividends paid to any shareholder who (1) fails to
provide a correct taxpayer identification number certified under penalty of
perjury; (2) is subject to withholding by the Internal Revenue Service for
failure to properly report all payments of interest or dividends; or (3) fails
to provide a certified statement that he or she is not subject to "backup
withholding." This "backup withholding" is not an additional tax and any amounts
withheld may be credited against the shareholder's ultimate U.S. tax liability.
The foregoing discussion relates only to federal income tax law as
applicable to U.S. citizens or residents. Foreign shareholders (i.e.,
nonresident alien individuals and foreign corporations, partnerships, trusts and
estates) are generally subject to U.S. withholding tax at the rate of 30% (or a
lower tax treaty rate) on distributions derived from net investment income and
short-term capital gains. Distributions to foreign shareholders of long-term
capital gains and any gains from the sale or other disposition of shares of the
Funds are generally not subject to U.S. taxation, unless the recipient is an
individual who meets the Code's definition of "resident alien." Different tax
consequences may result if the foreign shareholder is engaged in a trade or
business within the United States. In addition, the tax consequences to a
foreign shareholder entitled to claim the benefits of a tax treaty may be
different than those described above. Distributions by a Fund also may be
subject to state, local and foreign taxes, and its treatment under applicable
tax laws may differ from the federal income tax treatment.
Income which the International Index Fund, Asset Director(R) Funds, and
OneSource Portfolios receive from sources within various foreign countries may
be subject to foreign income taxes withheld at the source. If a Fund has at
least 50% of its assets invested in foreign securities at the end of its taxable
year, it may elect to pass through to its shareholders the ability to take
either the foreign tax credit or the deduction for foreign titles. It is
expected that the International Index Fund will have more than 50% of the value
of its total assets at the close of its taxable year invested in foreign
securities, and it will make this
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<PAGE> 83
election. Pursuant to this election, U.S. shareholders must include in gross
income, even though not actually received, their respective pro rata share of
foreign taxes, and may either deduct their pro rata share of foreign taxes (but
not for alternative minimum tax purposes) or credit the tax against U.S. income
taxes, subject to certain limitations described in Code section 904 (but not
both). A shareholder who does not itemize deductions may not claim a deduction
for foreign taxes. It is expected that the Asset Director Funds, and OneSource
Portfolios will not have 50% of their assets invested in foreign securities at
the close of their taxable years, and therefore will not be permitted to make
this election and "pass through" to their shareholders. Also, to the extent the
Asset Director(R) Funds, and OneSource Portfolios invest in an underlying fund
that elects to "pass through" foreign taxes, these Funds will not be able to
"pass through" the taxes paid by the underlying fund. Each shareholder's
respective pro rata share of foreign taxes these Funds pay will, therefore, be
netted against their share of the Fund's gross income.
The International Index Fund, Asset Director Funds, and OneSource
Portfolios may invest in a non-U.S. corporation which could be treated as a
passive foreign investment company ("PFIC") or become a PFIC under the Code.
This could result in adverse tax consequences upon the disposition of, or the
receipt of "excess distributions" with respect to, such equity investments. To
the extent the International Index Fund, Asset Director Funds, and OneSource
Portfolios do invest in PFICs, they may elect to treat the PFIC as a "qualified
fund" or mark-to-marked its investments in PFICs annually. In either case, the
Funds may be required to distribute amounts in excess of realized income and
gains. To the extent that the International Index Fund, Asset Director Funds,
and OneSource Portfolios do invest in foreign securities which are determined to
be PFIC securities and are required to pay a tax on such investments, a credit
for this tax would not be allowed to be passed through to the International
Index Fund's, Asset Director Funds', and OneSource Portfolios' shareholders.
Therefore, the payment of this tax would reduce the International Index Fund's,
Asset Director Funds', and OneSource Portfolios' economic return from their PFIC
shares, and excess distributions received with respect to such shares are
treated as ordinary income rather than capital gains.
An underlying fund may invest in non-U.S. corporations which would be
treated as PFICs or become a PFIC. This could result in adverse tax consequences
upon the disposition of, or the receipt of "excess distributions" with respect
to, such equity investments. To the extent an underlying fund does invest in
PFICs, it may elect to treat the PFIC as a "qualified electing fund" or
mark-to-market its investments in PFICs annually. In either case, the underlying
fund may be required to distribute amounts in excess of its realized income and
gains. To the extent that the underlying fund itself is required to pay a tax on
income or gain from investment in PFICs, the payment of this tax would reduce
the Asset Director Funds' and OneSource Portfolios' economic return.
A Fund's transactions in futures contracts, forward contracts, foreign
currency transactions, options and certain other investment and hedging
activities are subject to special tax rules. In a given case, these rules may
accelerate income to a Fund, defer its losses, cause adjustments in the holding
periods of the Fund's assets, convert short-term capital losses into long-term
capital losses or otherwise affect the character of the Fund's income. These
rules could therefore affect the amount, timing and character of distributions
to shareholders. The Funds will endeavor to make any available elections
pertaining to these transactions in a manner believed to be in the best interest
of the Funds and their shareholders.
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The discussion of federal income taxation presented above only
summarizes some of the important federal tax considerations generally affecting
purchasers of Fund shares. No attempt has been made to present a detailed
explanation of the federal income tax treatment of a Fund and its shareholders,
and the discussion is not intended as a substitute for careful tax planning.
Accordingly, prospective investors (particularly those not residing or domiciled
in the United States) should consult their own tax advisers regarding the
consequences of investing in a Fund.
SHARE PRICE CALCULATION
Each Fund's net asset value per share is determined each Business Day
at the close of trading on the New York Stock Exchange, generally as of 4:00
p.m. Eastern time. The net asset value of the International Index Fund is
expressed in U.S. dollars by translating the Fund's assets using the mean price
for the U.S. dollar as quoted by generally recognized, reliable sources.
Currently, the New York Stock Exchange is closed on the following holidays: New
Year's Day (observed), Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day and Christmas Day.
The Funds value their portfolio securities daily based on their fair
value. Securities traded on stock exchanges are valued at the last quoted sales
price on the exchange on which such securities are primarily traded, or, lacking
any sales, at the mean between the bid and ask prices. Securities traded in the
over-the-counter market are valued at the last sales price that day, or if no
sales that day, at the mean between the bid and ask prices. In addition,
securities that are primarily traded on foreign exchanges are generally valued
at the preceding closing values of such securities on their respective exchanges
with these values then translated into U.S. dollars at the current exchange
rate. Foreign securities for which the closing values are not readily available
are valued at fair value as determined in good faith pursuant to the Board of
Trustees' guidelines.
Securities for which market quotations are not readily available
(including restricted securities that are subject to limitations on their sale
and illiquid securities) are valued at fair value as determined in good faith
pursuant to the Trust's Board of Trustees' guidelines.
Securities may be valued on the basis of prices provided by pricing
services when such prices are believed to reflect fair market value. In
accordance with the 1940 Act, the underlying funds are valued at their
respective net asset values as determined by those funds. The underlying funds
that are money market funds value their portfolio securities based on the
amortized cost method. The other underlying funds value their portfolio
securities based on market quotes if they are readily available. The Investment
Manager assigns fair values to the Funds' other investments in good faith under
Board of Trustees guidelines. The Board of Trustees regularly reviews these
values.
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<PAGE> 85
HOW THE FUNDS REFLECT PERFORMANCE
STANDARDIZED TOTAL RETURN
Average annual total return for a period is determined by calculating
the actual dollar amount of investment return on a $1,000 investment in a Fund
made at the beginning of the period, then calculating the average annual
compounded rate of return that would produce the same investment return on the
$1,000 over the same period. In computing average annual total return, a Fund
assumes the reinvestment of all distributions at net asset value on applicable
reinvestment dates.
<TABLE>
<CAPTION>
Name of Fund and Date Fund Total Return for the One Year Average Annual Total Return from
Commenced Operations* Period ended October 31, 1996 Commencement of Operations to October 31, 1996
- --------------------- ----------------------------- ----------------------------------------------
<S> <C> <C>
International Index Fund 11.07% 7.54%
(9/09/93)
Small-Cap Index Fund 16.73% 11.56%
(12/03/93)
</TABLE>
* See "Nonstandardized Total Return" below for the aggregate (cumulative) total
return of Funds that have not operated for a full fiscal year as of October 31,
1996. Data is for Investor Shares only.
NONSTANDARDIZED TOTAL RETURN
Nonstandardized total return for a Fund differs from standardized total
return in that it relates to periods other than the period for standardized
total return and/or that it represents aggregate (rather than average) total
return.
In addition, an after-tax total return for each Fund may be calculated
by taking that Fund's standardized or non-standardized total return and
subtracting applicable federal taxes from the portions of each Fund's total
return attributable to capital gain distributions and ordinary income. This
after-tax total return may be compared to that of other mutual funds with
similar investment objectives as reported by independent sources.
Each Fund also may report the percentage of that Fund's standardized or
non-standardized total return which would be paid to taxes annually (at the
applicable federal personal income and capital gains tax rates) before
redemption of Fund shares. This proportion may be compared to that of other
mutual funds with similar investment objectives as reported by independent
sources.
A Fund may also advertise its cumulative total return since inception.
This number is calculated using the same formula that is used for average annual
total return except that, rather than calculating the total return based on a
one-year period, cumulative total return is calculated from inception to the
date specified.
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<PAGE> 86
<TABLE>
<CAPTION>
Name of Fund and Date Fund Cumulative Total Return From Commencement
Commenced Operations* of Operations
- --------------------- -------------
<S> <C>
International Index Fund 1 (9/09/93) 25.71%
Small-Cap Index Fund 1 (12/03/93) 37.57%
High Growth Fund 1 (11/20/95) 13.24%
Balanced Growth Fund 1 (11/20/95) 10.82%
Conservative Growth Fund 1 (11/20/95) 8.18%
S&P 500 Fund Investor Shares 1 (5/01/96) 8.80%
S&P 500 e.Shares 1 (5/01/96) 8.90%
Analytics Fund(TM)1 (7/1/96) 10.10%
OneSource Portfolios-International 2 (10/16/96) 5.99%
Growth Allocation 2 (11/18/96) 3.10%
Balanced Allocation 2 (11/18/96) 2.71%
</TABLE>
* Data is for Investor Shares only.
1 Cumulative (aggregate) total return from commencement of operations to
October 31, 1996
2 Cumulative (aggregate) total return from commencement of operations to
February 28, 1997
YIELD
A Fund's yield refers to the net investment income generated by a
hypothetical investment in the Fund over a specific 30 day period. This net
investment income is then annualized, which means that the net investment income
generated during the 30-day period is assumed to be generated in each 30-day
period over an annual period, and is shown as a percentage of the investment.
EFFECTIVE YIELD
A Fund's effective yield is calculated similarly, but the net
investment income earned by the investment is assumed to be compounded monthly
when annualized. The effective yield will be slightly higher than the yield due
to this compounding effect.
COMPARING THE PERFORMANCE OF THE FUNDS WITH OTHER FUNDS AND INDICES
The performance of the Funds may be compared with the performance of
other mutual funds by comparing the ratings of mutual fund rating services,
various indices of investment performance, U.S. Government obligations, bank
certificates of deposit, the consumer price index and other investments for
which reliable data is available. For example, the International Index Fund and
the Small Cap Index Fund may be compared to the Schwab 1000 Index(R), the Schwab
International Index(R), the Schwab Small-Cap Index(R), and the Standard & Poor's
500 Index(R), and the Small Cap Index Fund(R) may also be compared to Standard &
Poor's Small-Cap 600 Index.
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The Asset Director(R) Funds, OneSource Portfolios-Growth Allocation,
Balanced Allocation and Small Company Fund also may compare their historical
performance figures to the performance of indices similar to their asset
categories and sub-categories, and to the performance of "blended indices"
similar to the Funds' portfolio strategies, such as those indices named in the
Funds' Prospectus under "Market Performance."
The Schwab OneSource Portfolios-International may compare its
historical performance to the performance of indices such as Morgan Stanley
Capital International's EAFE index, its World ex-U.S. index and other indices or
combination of indices.
From time to time, the Funds may include discussions in advertisements
of the income tax savings shareholders may experience as a result of their
policy of limiting portfolio trading in order to reduce capital gains. This
information may be supplemented by presentations of statistical data
illustrating the extent of such income tax savings and the impact of such
savings on the yield and/or total return of the Funds. In addition, such
advertisements may include comparisons of the Funds' performance against that of
investment products that do not employ the Funds' policy of seeking to limit
capital gains.
THE BENEFITS OF INTERNATIONAL INVESTING
INCREASED DIVERSIFICATION CAN LOWER RISK
To some extent, all U.S.-based investments -- stocks, bonds, mutual
funds and CDs -- are affected by the same economic forces. Tax cuts, interest
rate changes and the performance of the U.S. stock market can all influence U.S.
investments. Adding international (or overseas) investments to a U.S.-based
portfolio historically has reduced the portfolio's overall volatility. Although
U.S. and international markets may be interrelated, they do not move in tandem
- -- so losses in one market can be offset by gains in another.
POTENTIALLY HIGHER OVERALL PERFORMANCE
During the 20 years ending December 31, 1996, international equity
markets outperformed the U.S. equity market and most other U.S. securities
investments -- corporate bonds, CDs and U.S. Treasuries. The returns
international markets produced also have kept investors well ahead of inflation.
This historical performance means that investors diversified overseas earned a
higher level of return.
BROADER GROWTH OPPORTUNITIES
Investors who limit their portfolios to U.S. securities are missing
these investment opportunities. According to Morgan Stanley, as of December 31,
1979, the United States made up more than half of the world's stock market, a
value of over $11 trillion. As of December 31, 1996, it represented forty-five
percent.
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<PAGE> 88
INDEXING AND ASSET ALLOCATION - THE SCHWAB INDEX FUNDS AND THE SCHWAB
ASSET ALLOCATION FUNDS
Because the unmanaged performance of a broad-based equity index often
has proven superior to that of many individually selected stock portfolios, a
growing percentage of assets invested in the equity markets are being placed in
"index" portfolios. Institutional investors often devote a substantial
percentage of their assets to indexed strategies.
An index typically tracks the performance of a group of securities
selected to represent a particular market, and most often is used to gauge that
market's performance. The Dow Jones Industrial Average ("DJIA") and S&P 500(R)
are two indices designed to measure the performance of U.S. stocks. When
investment managers invest indexed separate accounts or index fund assets, they
attempt to replicate the performance of the applicable target index by holding
all or a representative sample of the securities included in the index.
An index's performance data assumes the reinvestment of dividends but
does not reflect deductions for administrative and management expenses. The
Funds will be subject to these costs and expenses, while an index does not have
these expenses. In addition, various factors, such as holding a cash balance,
may cause the Funds' performance to be higher or lower than that of an index.
The Funds are intended to make indexed investing easily available to
Schwab customers with the highest level of convenience and economy, thereby
facilitating their ability to participate in the long-term performance of the
U.S. stock market.
The difference between a fund's total return and the total return of
its benchmark index is referred to as a fund's tracking error. The Schwab Index
Funds may report or advertise tracking error.
INTERNATIONAL INDEX
The International Index is a broad-based stock market index which
contains the common stocks of the 350 largest operating companies (i.e.,
non-investment companies) incorporated outside the United States. To reduce
undue risk, the Index represents equities only from countries that are
considered to have developed markets and economies. By tracking the largest
companies in developed markets, the Index represents the performance of the
"blue chips" of international markets. The Index also is designed to provide a
broad representation of the international market, by limiting each country to no
more than 35% of the total market capitalization of the Index. As the stocks
contained in the Index represent about 35% of the total market capitalization of
international companies, the Index provides a reliable measure of market
performance. The International Index was first made available to the public on
July 29, 1993.
SMALL-CAP INDEX
To be included in the Small-Cap Index, a company must satisfy all of
the following criteria: (1) it must be an "operating company" (i.e., not an
investment company) incorporated in the United States, its territories or
possessions; (2) a liquid market for its common shares must exist on the New
York Stock
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<PAGE> 89
Exchange, American Stock Exchange or the NASDAQ/NMS and (3) its market value
must place it among the second 1,000 such companies as measured by market
capitalization (i.e., from the company with a rank of 1,001 through the company
with a rank of 2,000). Shareholders generally avoid exposure to the smallest
companies, whose shares are often thinly traded and very volatile, because these
stocks are not included in the Index.
A particular stock's weighting in the Small-Cap Index is based on its
relative total market value (i.e., its market price per share times the number
of shares outstanding), divided by the total market capitalization of the
Small-Cap Index. The returns produced by the U.S. stock market during the 25
years ending December 31, 1995 have been exceeded by very few types of
securities investments. Because the unmanaged performance of the U.S. stock
market often has proven superior to that of many individually selected stock
portfolios, a growing percentage of assets invested in the equity markets are
being placed in "index" portfolios. From less than $9 billion in 1980, indexed
institutional holdings have grown to over $280 billion, a figure equal to
approximately one-quarter of all institutional assets. (Source: Callan
Associates Survey, reported in Fall 1990 edition of The Journal of Portfolio
Management.)
Historically, returns in a long-term investment in a group of common
stocks representative of the stock market as a whole, as well as a group of
common stocks representative of small-cap stocks, significantly have exceeded
the returns of U.S. Treasury Bills, CDs, corporate bonds and inflation.
THE S&P 500 INDEX(R)
The S&P 500 is representative of the performance of the U.S. stock
market. The Index consists of 500 stocks chosen for market size, liquidity and
industry group representation. It is a market-value weighted index (stock price
times number of shares outstanding), with each stock's weight in the Index
proportionate to its market value. The S&P 500 does not contain the 500 largest
stocks, as measured by market capitalization. Although many of the stocks in the
Index are among the largest, there also are some relatively small companies in
the Index. Those companies, however, generally are established companies within
their industry group. S&P identifies important industry groups within the U.S.
economy and then allocates a representative sample of stocks with each group to
the S&P 500. There are four major industry sectors within the Index:
Industrials, Utilities, Financial and Transportation.
ASSET ALLOCATION STRATEGIES USING SCHWABFUNDS(R)
Shareholders of SchwabFunds may wish to invest in the SchwabFunds as
components of their personal asset allocation plan. They also may choose to
invest in the Schwab Asset Director(R) Funds, Growth Allocation or Balanced
Allocation, which offer the benefits of asset allocation in a single fund. An
asset allocation program is available through Schwab. This program may help
shareholders select investments, including investments in SchwabFunds, which
match their individual investment needs. The shareholders' personal investment
plan is based on a number of factors, including personal financial situation,
time horizon, investment objectives and goals and risk tolerance.
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<PAGE> 90
ASSET DIRECTOR(R) FUNDS
As stated in the Funds' prospectus, under neutral market conditions,
each Asset Director Fund seeks to meet its investment objective by investing,
either directly or through investments in affiliated underlying mutual funds, in
a different mix of stocks, bonds and cash-equivalents. The Asset Director Funds
invest a portion of their assets in all or a representative sample of the common
stocks in the following stock sub-categories: large company; small company; and
international. As stated in the Funds' prospectus, under normal market
conditions the Investment Manager currently intends to utilize an indexing
approach to investing within each asset sub-category, which provides
shareholders with the potential benefits to be realized from both an asset
allocation strategy and an indexing approach with one investment.
For the Asset Director Funds, the Investment Manager also consults a
Tactical Asset Allocation Model, which measures the relative value of each asset
category and makes recommendations for allocations within the defined ranges.
Tactical Asset Allocation is a value-oriented strategy that seeks the highest
reward for a given level of risk. Expected returns are measured for each asset
category; for stocks, the internal rate of return is measured on forecasted
dividend stream; for bonds, the yield to maturity is evaluated on representative
long corporate bonds; and for cash equivalents yield to maturity is evaluated on
representative money market instruments. Risks and correlations of the asset
categories are measured from long-term return histories. The Funds may also make
other investments that do not fall within the asset categories.
ACCESS TO SCHWAB'S MUTUAL FUND ONESOURCE(R) SERVICE
With Schwab's Mutual Fund OneSource Service ("OneSource"), a
shareholder can invest in over 650 mutual funds from many fund companies,
subject to the following. Schwab's standard transaction fee will be charged on
each redemption of fund shares held for 90 days or less to discourage short-term
trading. Mutual fund shares held for more than 90 days are exempt from the
short-term redemption policy and may be sold without penalty. Up to 15
short-term redemptions of fund shares per calendar year are permitted. If you
exceed this number, you will no longer be able to buy or sell fund shares
without paying a transaction fee. As a courtesy, we will notify you in advance
if your short-term redemptions are nearing the point where all of your future
trades will be subject to transaction fees. Schwab reserves the right to modify
OneSource's terms and conditions at any time. For more information, a
shareholder should call 800-2 NO-LOAD, 24 hours a day.
ONESOURCE PORTFOLIOS--SELECTION AND MANAGEMENT STRATEGY
The OneSource Portfolios are four portfolios of mutual funds that offer
investors easy access to actively managed funds from well-known fund families.
Underlying funds are selected based on their investment objective, practices and
policies, their management and other factors. Selection will also be based on
quantifiable factors such as historic total returns, volatility, expenses and
size. The OneSource Portfolios will include both a "core" component that
represents holdings specific to the Funds' objectives and long term horizons as
well as a "tactical" position that consists of special investment opportunities
that arise due to market conditions.
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<PAGE> 91
SCHWABFUNDS(R)
SchwabFunds offers a variety of series and classes of shares of beneficial
interest to help you with your investment needs.
EQUITY FUNDS
Schwab 1000 Fund(R) - Investor Shares 1
Schwab 1000 Fund - Select Shares(TM)
Schwab International Index Fund(R)- Investor Shares 2
Schwab International Index Fund - Select Shares(TM)
Schwab Small-Cap Index Fund(R) - Investor Shares 2
Schwab Small-Cap Index Fund - Select Shares
Schwab Asset Director(R)-High Growth Fund 2,7
Schwab Asset Director-Balanced Growth Fund 2,7
Schwab Asset Director-Conservative Growth Fund 2,7
Schwab S&P 500 Fund-Investor Shares 2
Schwab S&P 500 Fund-e.Shares(TM)2, 3
Scwhab S&P 500 Fund - Select Shares 2
Schwab Analytics Fund(TM)2
Schwab OneSource Portfolios-International 2,7
Schwab OneSource Portfolios-Growth Allocation 2,7
Schwab OneSource Portfolios-Balanced Allocation 2,7
Schwab OneSource Portfolios - Small Company Fund 2,7
FIXED INCOME FUNDS 1
Schwab Short/Intermediate Government Bond Fund
Schwab California Long-Term Tax-Free Bond Fund 4
Schwab Long-Term Tax-Free Bond Fund
Schwab Long-Term Government Bond Fund
Schwab Short/Intermediate Tax-Free Bond Fund
Schwab California Short/Intermediate Tax-Free Bond Fund 4
MONEY MARKET FUNDS 5
Schwab Money Market Fund
Schwab Government Money Fund
Schwab Municipal Money Fund-Sweep Shares
Schwab U.S. Treasury Money Fund
Schwab Value Advantage Money Fund(R)
Schwab Institutional Advantage Money Fund(R)6
Schwab Retirement Money Fund(R)6
Schwab Municipal Money Fund-Value Advantage Shares(TM)
Schwab California Municipal Money Fund-Sweep Shares
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<PAGE> 92
Schwab California Municipal Money Fund-Value Advantage Shares(TM)
Schwab New York Municipal Money Fund-Sweep Shares
Schwab New York Municipal Money Fund-Value Advantage Shares(TM)
1 The Schwab 1000 Fund and all fixed income funds are separate investment
portfolios of Schwab Investments.
2 The Funds are separate investment portfolios or classes of shares of Schwab
Capital Trust.
3 Available only through SchwabLink(R).
4 Available only to California residents and residents of selected other
states.
5 All listed money market funds are separate investment portfolios of The
Charles Schwab Family of Funds.
6 Designed for institutional investors only.
7 The Asset Director(R) Funds may not invest in these Funds.
OTHER INFORMATION
From time to time, the International Index Fund and Small-Cap Index
Fund may compare the historical performance of the International Index and
Small-Cap Index, respectively, to the historical performance of various other
indices, including the S&P 500, as reported by independent sources.
Each Fund, except for the Analytics Fund(TM) and Schwab OneSource
Portfolios-International, is managed to offset capital gains with capital losses
in order to minimize each Fund's capital gain distributions. This special
feature can make a real difference in an investor's after-tax return, especially
if the investor is in a high tax bracket. In addition, each Fund has adopted a
number of policies that should cause its portfolio turnover rate to be below the
portfolio turnover rate of many other mutual funds. A lower portfolio turnover
rate acts to minimize associated transaction costs as well as the level of
realized capital gains. By avoiding, where possible, distributing capital gains
to shareholders, the Funds help to build the value of a shareholders' shares and
defer payment of capital gains taxes until shares are redeemed. A shareholder's
current tax liability for capital gains should be reduced and the shareholder's
total return increased by these policies.
Each Fund may, from time to time, refer to recent studies that analyze
certain techniques and strategies which either Fund may use. In addition, each
Fund may, from time to time, promote the advantages of investing in a series
that is part of a large, diverse mutual fund complex.
From time to time, each Fund may include discussions in advertisements
of the income tax savings shareholders may experience as a result of that Fund's
policy of limiting portfolio trading in order to reduce capital gains. This
information may be supplemented by presentations of statistical data
illustrating the extent of such income tax savings and the impact of such
savings on the yield and/or total return of each Fund. In addition, such
advertisements may include comparisons of each Fund's performance against that
of investment products that do not employ each Fund's policy of seeking to limit
capital gains.
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GENERAL INFORMATION
The Trust generally is not required to hold shareholder meetings.
However, as provided in its Agreement and Declaration of Trust and Bylaws,
shareholder meetings will be held in connection with the following matters: (1)
election or removal of Trustees if a meeting is requested in writing by a
shareholder or shareholders who beneficially own(s) 10% or more of the Trust's
shares; (2) adoption of any contract for which shareholder approval is required
by the 1940 Act; (3) any termination of the Trust to the extent and as provided
in the Declaration of Trust; (4) any amendment of the Declaration of Trust
(other than amendments changing the name of the Trust or any of its investment
portfolios, supplying any omission, curing any ambiguity or curing, correcting
or supplementing any defective or inconsistent provision thereof); (5)
determining whether a court action, proceeding or claim should or should not be
brought or maintained derivatively or as a class action on behalf of the Trust
or the shareholders, to the same extent as the stockholders of a Massachusetts
business corporation; and (6) such additional matters as may be required by law,
the Declaration of Trust, the Bylaws or any registration of the Trust with the
SEC or any state or as the Board of Trustees may consider desirable. The
shareholders also would vote upon changes to a Fund's fundamental investment
objective, policies or restrictions.
Each Trustee serves until the next meeting of shareholders, if any,
called for the purpose of electing Trustees and until the election and
qualification of his or her successor or until death, resignation, retirement or
removal by a majority vote of the shares entitled to vote (as described below)
or of a majority of the Trustees. In accordance with the 1940 Act, (i) the Trust
will hold a shareholder meeting for the election of Trustees when less than a
majority of the Trustees have been elected by shareholders and (ii) if, as a
result of a vacancy in the Board of Trustees, less than two-thirds of the
Trustees have been elected by the shareholders, that vacancy will be filled by a
vote of the shareholders.
Upon the written request of 10 or more shareholders who have been such
for at least six months and who hold shares constituting at least 1% of the
Trust's outstanding shares stating that they wish to communicate with the other
shareholders for the purpose of obtaining signatures necessary to demand a
meeting to consider removal of one or more Trustees, the Trust has undertaken to
disseminate appropriate materials at the expense of the requesting shareholders.
The Bylaws provide that a majority of shares entitled to vote shall be
a quorum for the transaction of business at a shareholders' meeting, except that
where any provision of law, of the Declaration of Trust or of the Bylaws permits
or requires that (i) holders of any series shall vote as a series, then a
majority of the aggregate number of shares of that series entitled to vote shall
be necessary to constitute a quorum for the transaction of business by that
series, or (ii) holders of any class shall vote as a class, then a majority of
the aggregate number of shares of that class entitled to vote shall be necessary
to constitute a quorum for the transaction of business by that class. Any lesser
number shall be sufficient for adjournments. Any adjourned session or sessions
may be held, within a reasonable time after the date set for the original
meeting, without the necessity of further notice. The Declaration of Trust
specifically authorizes the Board of Trustees to terminate the Trust (or any of
its investment portfolios) by notice to the shareholders without shareholder
approval.
57
<PAGE> 94
Under Massachusetts law, shareholders of a Massachusetts business trust
could, under certain circumstances, be held personally liable for the Trust's
obligations. The Declaration of Trust, however, disclaims shareholder liability
for the Trust's acts or obligations and requires that notice of such disclaimer
be given in each agreement, obligation or instrument entered into or executed by
the Trust or the Trustees. In addition, the Declaration of Trust provides for
indemnification out of the property of an investment portfolio in which a
shareholder owns or owned shares for all losses and expenses of such shareholder
or former shareholder if he or she is held personally liable for the obligations
of the Trust solely by reason of being or having been a shareholder. Moreover,
the Trust will be covered by insurance which the Trustees consider adequate to
cover foreseeable tort claims. Thus, the risk of a shareholder incurring
financial loss on account of shareholder liability is considered remote, because
it is limited to circumstances in which a disclaimer is inoperative and the
Trust itself is unable to meet its obligations.
For further information, please refer to the registration statement and
exhibits for the Trust on file with the SEC in Washington, D.C. and available
upon payment of a copying fee. The statements in the Prospectus and this
Statement of Additional Information concerning the contents of contracts or
other documents, copies of which are filed as exhibits to the registration
statement, are qualified by reference to such contracts or documents.
PRINCIPAL HOLDERS OF SECURITIES
As of July 7, 1997, two trustees owned approximately 1.6% of the total
outstanding shares of the Conservative Growth Fund. As of this same date, the
officers and Trustees of the Trust, as a group, owned of record or beneficially
less than 1% of the outstanding voting securities of the remaining classes and
series of Schwab Capital Trust.
As of July 7, 1997, The Charles Schwab Trust Company, 101 Montgomery
Street, San Francisco, California, 94104, directly or beneficially owned 21.65%
of the International Index Fund - Select Shares, 14.86% of the Small-Cap Index
Fund - Select Shares, 12.04% of the Balanced Growth Fund, 7.69% of the S&P 500
Fund - Investor Shares, 8.94% of the S&P 500 Fund - Select Shares, and 5.54% of
the S&P 500 Fund - e.Shares. As of this same date, the Morgan Stanley Trust
Company, 1 Pierrepont Plaza, Brooklyn, New York, 11201, directly or beneficially
owned 15.00% of the International Index Fund - Investor Shares and 15.44% of the
Small-Cap Index Fund - Investor Shares.
PURCHASE AND REDEMPTION OF SHARES
Each Fund has set minimum initial investment requirements, as disclosed
in its respective Prospectus. Subsequent investments of $100 or more may be
made. These minimum investment requirements may be changed at any time and are
not applicable to certain types of investors. The Trust may waive the minimums
for purchases by Trustees, Directors, officers or employees of the Sub-Adviser.
The Funds, other than the OneSource Portfolios have made an election
with the SEC to pay in cash all redemptions requested by any shareholder of
record limited in amount during any 90-day period to the lesser of $250,000 or
1% of its net assets at the beginning of such period. The OneSource Portfolios
have not so elected. This election is irrevocable without the SEC's prior
approval. Redemption requests in
58
<PAGE> 95
excess of applicable limits (as summarized below) may be paid, in whole or in
part, in investment securities or in cash, as the Trust's Board of Trustees may
deem advisable; however, payment will be made wholly in cash unless the Board of
Trustees believes that economic or market conditions exist that would make such
a practice detrimental to the best interests of the Fund. If redemption proceeds
are paid in investment securities, such securities will be valued as set forth
in the Prospectus of the Fund affected under "Share Price Calculation" for the
International Index Fund, Small- Cap Fund and OneSource Portfolios, and under
"Important Information About Your Investment - How We Determine the Price of
Your Shares" for the Asset Director(R) Funds and Analytics Fund(TM). A redeeming
shareholder would normally incur brokerage expenses if he or she were to convert
the securities to cash.
OTHER INFORMATION
The Prospectuses of the Funds and this Statement of Additional
Information do not contain all the information included in the Registration
Statement filed with the SEC under the Securities Act of 1933, as amended, with
respect to the securities offered by the Prospectuses. Certain portions of the
Registration Statement have been omitted from the Prospectuses and this
Statement of Additional Information pursuant to the rules and regulations of the
SEC. The Registration Statement, including the exhibits filed therewith, may be
examined at the office of the SEC in Washington, D.C.
Statements contained in the Prospectuses or in this Statement of
Additional Information as to the contents of any contract or other document
referred to are not necessarily complete, and, in each instance, reference is
made to the copy of such contract or other document filed as an exhibit to the
Registration Statement of which the Prospectuses and this Statement of
Additional Information form a part, each such statement being qualified in all
respects by such reference.
THIS STATEMENT OF ADDITIONAL INFORMATION DOES NOT CONSTITUTE AN
OFFERING BY THE TRUST, ANY SERIES THEREOF, OR BY THE DISTRIBUTOR IN ANY
JURISDICTION IN WHICH SUCH OFFERING MAY NOT BE LAWFULLY MADE.
59
<PAGE> 96
SCHWAB INTERNATIONAL INDEX FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
October 31, 1996
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
---------- --------
<S> <C> <C>
COMMON STOCK--98.3%
AUSTRALIA--2.3%
Australia & New Zealand Banking Group 77,262 $ 451
Broken Hill Proprietary Co., Ltd. 116,281 1,544
Coca Cola Amatil 29,457 405
Commonwealth Bank Group 60,023 564
Commonwealth Bank Group (Installment Receipts) 14,142 85
National Australia Bank 85,804 942
News Corp., Ltd. 110,907 631
Western Mining Corp. 65,592 412
Westpac Banking Corp. 99,986 571
-----
5,605
-----
BELGIUM--0.8%
Electrabel 3,100 720
Electrabel, VVPR Strip 500 1
Generale de Banque 840 294
Petrofina SA 1,100 338
Societe Generale de Belgique 3,040 227
Tractebel Investor International 600 286
-----
1,866
-----
CANADA--3.4%
Alcan Aluminum Ltd. 15,376 505
BCE Inc. 20,888 959
Bank of Montreal 16,776 508
Bank of Nova Scotia, Halifax 19,541 616
Barrick Gold Corp. 19,903 521
Canadian Imperial Bank of Commerce 13,397 557
Canadian Pacific Ltd 20,597 521
Imperial Oil Ltd. (New) 11,952 527
Northern Telecom Ltd. 14,053 915
Placer Dome Inc. 21,200 509
Royal Bank of Canada, Montreal Quebec 15,200 502
Seagram Co. Ltd. 20,826 785
Thomson Corp. 33,900 682
Toronto-Dominion Bank 14,000 327
-----
8,434
-----
</TABLE>
F-1
<PAGE> 97
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
---------- --------
<S> <C> <C>
DENMARK--0.3%
Novo Nordisk A/S Series B 2,102 $ 350
Tele Danmark A/S Series B 7,910 399
------
749
------
FRANCE--7.1%
AXA Groupe SA 15,588 968
Alcatel Alsthom CGE SA 8,287 707
BQE National de Paris 10,331 387
Canal Plus 1,354 335
Carrefour 2,855 1,584
Cie Financiere de Paribas (Bearer) 5,425 349
Cie Generale de Eaux 6,852 819
Compagnie de Saint-Gobain SA 5,078 685
Danone Groupe 3,416 468
Elf Aquitaine 14,835 1,186
L'Air Liquide 3,965 612
L'Air Liquide (Prime Fidelite 1997) (Reg.) 3,324 513
L'Oreal SA 3,759 1,273
LVMH Moet Hennessy Louis Vuitton 7,100 1,628
Lafarge Coppee SA 8,847 531
Lyonnaise des Eaux-Dumez 2,840 251
Michelin (CGDE) Class B (Reg.) 5,354 258
PSA Peugeot Citroen 2,200 229
Pinault Printemps Redoute SA 1,255 473
Renault (Reg.) 14,839 316
Rhone-Poulenc SA A Shares 15,750 467
Roussel Uclaf 1,526 404
Sanofi 6,203 562
Schneider SA 9,040 442
Societe Generale 4,907 529
Suez Group 7,753 334
TOTAL Class B 12,682 992
Union des Assurances de Paris 14,792 307
------
17,609
------
GERMANY--8.2%
BASF AG 36,369 1,162
Bayer AG 37,670 1,423
Bayerische Hypotheken & Wechsel Bank AG 15,269 447
Bayerische Motoren Werk AG 1,099 643
Bayerische Vereinsbank AG 15,131 569
Commerzbank AG 21,500 482
</TABLE>
F-2
<PAGE> 98
SCHWAB INTERNATIONAL INDEX FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
October 31, 1996
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
---------- --------
<S> <C> <C>
Daimler Benz AG 30,638 $ 1,799
Deutsche Bank AG 27,823 1,289
Dresdner Bank AG 23,930 640
Hoechst AG 32,620 1,227
Linde AG 400 248
Lufthansa AG 25,290 331
Mannesmann AG 2,022 785
Metro AG 4,927 404
Muenchener Rueckversicherung 11 21
Muenchener Rueckversicherung (Reg.) 812 1,941
RWE AG 18,210 750
RWE AG (Non Voting) 18,320 622
Sap AG 3,610 489
Siemens AG 31,250 1,615
Thyssen AG 1,963 351
Veba AG 26,470 1,412
Vereinigte Elektrizitatswerke Westfalen Series B 1,249 416
Viag AG 1,235 457
Viag AG (New)* 277 101
Volkswagen AG 1,534 604
------
20,228
------
HONG KONG--4.3%
CITIC Pacific 124,000 603
Cathay Pacific Airways 100,000 156
Cheung Kong Holdings 126,000 1,010
China Light & Power 116,900 543
Hang Seng Bank Ltd. 105,900 1,257
Henderson Land Development Co. 91,000 809
Hong Kong Electric Holdings Ltd. 99,000 317
Hong Kong Telecommunications Ltd. 648,265 1,144
Hutchison Whampoa Ltd. 216,000 1,508
New World Development Co. 92,099 536
Sun Hung Kai Properties 134,500 1,531
Swire Pacific Ltd. Class A 87,500 772
Wharf Holdings 101,000 417
------
10,603
------
ITALY--2.0%
Assicurazioni Generali 48,070 928
Fiat SpA 168,000 449
Fiat SpA, di Risp (Non-Convertible) 42,000 61
INA 201,000 278
</TABLE>
F-3
<PAGE> 99
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
---------- --------
<S> <C> <C>
STET 207,000 $ 715
STET di Risp (Non-Convertible) 66,000 176
Telecom Italia 395,976 882
Telecom Italia Mob 395,976 818
Telecom Italia Mob di Risp 195,000 222
Telecom Italia di Risp (Non-Convertible) 165,000 314
-----
4,843
-----
JAPAN--29.0%
Ajinomoto Co., Inc. 26,000 276
All Nippon Airways Co., Ltd. 51,000 425
Asahi Bank 79,000 812
Asahi Chemical Industry Co. 41,000 256
Asahi Glass Co., Ltd. 42,000 443
Bank of Tokyo-Mitsubishi, Ltd. 183,450 3,738
Bank of Yokohama 44,000 326
Bridgestone Corp. 28,000 472
Canon Inc. 31,000 594
Chiba Bank 31,000 233
Chubu Electric Power Co. 26,100 539
Chugoku Electric Power Co., Inc. 14,300 288
DDI Corp. 100 751
Dai Nippon Printing Co. 27,000 455
Dai-Ichi Kangyo Bank, Ltd. 112,000 1,820
Daiei Inc. 24,000 213
Daiwa Bank 48,000 272
Daiwa House Industries Co. 11,000 153
Daiwa Securities Co. 47,000 508
East Japan Railway Co. 150 689
Eisai Co. 250 4
Fanuc 8,000 256
Fuji Bank, Ltd. 111,000 1,999
Fuji Photo Film Co. 18,000 517
Fujitsu Ltd. 66,000 580
Gunma Bank 10,000 89
Hachijuni Bank 13,000 130
Hitachi Ltd. 121,000 1,073
Honda Motor Co., Ltd. 34,000 812
Industrial Bank of Japan, Ltd. 106,720 2,128
Ishikawajima-Harima Heavy Industries 53,000 244
Isuzu Motors Ltd. 39,000 193
Ito-Yokado Co., Ltd. 15,000 748
Itochu Corp. 43,000 259
</TABLE>
F-4
<PAGE> 100
SCHWAB INTERNATIONAL INDEX FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
October 31, 1996
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
---------- --------
<S> <C> <C>
Japan Air Lines Co., Ltd. 63,000 $ 360
Japan Telecom Co. 20 481
Japan Tobacco Inc. 100 706
Joyo Bank 18,000 119
Joyo Bank (Rights expire 11/20/96)* 1,800 6
Jusco Co. 12,000 356
Kajima Corp. 34,000 292
Kansai Electric Power Co. 33,700 707
Kao Corp. 24,000 282
Kawasaki Heavy Industries 55,000 252
Kawasaki Steel Co. 112,000 345
Kinki Nippon Railway Co. 56,650 376
Kirin Brewery Co., Ltd. 40,000 411
Kobe Steel 104,000 247
Kokusai Denki 1,500 130
Komatsu Ltd. 38,000 311
Kubota Corp. 42,000 238
Kyocera Corp. 7,000 462
Kyushu Electric Power Co. 18,700 383
Long-Term Credit Bank of Japan 85,000 564
Marubeni Corp. 34,000 157
Marui Co. 14,000 259
Matsushita Electric Industrial Co., Ltd. 76,000 1,215
Matsushita Electric Works 30,000 290
Mazda Motor Corp. 48,000 213
Mitsubishi Chemical Corp. 62,000 253
Mitsubishi Corp. 56,000 625
Mitsubishi Electric Corp. 77,000 446
Mitsubishi Estate Co. 46,000 574
Mitsubishi Heavy Industries 122,000 938
Mitsubishi Materials Co. 46,000 204
Mitsubishi Motors 37,000 306
Mitsubishi Trust & Banking Corp. 45,000 664
Mitsui & Co. 56,000 453
Mitsui Fudosan Co. 26,000 322
Mitsui Trust & Banking Co. 44,000 425
Murata Manufacturing Co. 9,000 289
NEC Corp. 55,000 599
NKK Corp. 97,000 244
NTT Data Corp. 10 296
Nikko Securities Co. 52,000 498
Nintendo Co., Ltd. 4,200 269
</TABLE>
F-5
<PAGE> 101
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
---------- --------
<S> <C> <C>
Nippon Credit Bank 69,000 $ 208
Nippon Express Co. 31,000 252
Nippon Oil Co. 48,000 274
Nippon Paper Industries Co. 39,000 220
Nippon Steel Corp. 238,000 694
Nippon Telegraph & Telephone Corp. 596 4,162
Nippon Yusen Kabushiki Kaisha 27,000 135
Nippondenso Co. 31,000 643
Nissan Motor Co., Ltd. 89,000 673
Nomura Securities Co., Ltd. 70,000 1,156
Obayashi Corp. 17,000 131
Odakyu Electric Railway Co. 420 3
Oji Paper Co. (New)* 16,000 117
Osaka Gas Co. 93,000 288
Ricoh Co., Ltd. 27,000 268
Rohm Co. 4,000 237
Sakura Bank 124,000 1,176
Sankyo Co. 13,000 322
Sanwa Bank 104,000 1,772
Sanyo Electric Co., Ltd. 60,000 291
Secom Co. 3,000 179
Seibu Railway Co. 16,000 766
Sekisui Chemical Co. 21,000 234
Sekisui House 26,000 274
Seven-Eleven Japan Co. 15,200 884
Sharp Corp. 40,000 608
Shikoku Electric Power Co. 6,200 125
Shimizu Corp. 31,000 280
Shin-Etsu Chemical Co. 13,650 234
Shizuoka Bank 26,000 297
Sony Corp. 12,500 750
Sumitomo Bank 113,000 1,985
Sumitomo Chemical Co. 63,000 269
Sumitomo Corp. 40,000 323
Sumitomo Electric Industries 27,000 356
Sumitomo Marine & Fire Insurance Co. 28,000 201
Sumitomo Metal Industries 90,000 247
Sumitomo Trust & Banking Co. 44,000 487
Suzuki Motor Corp. 10,000 102
TDK 3,000 176
Taisei Corp. 40,000 246
Taisho Pharmaceutical Co. 8,000 159
</TABLE>
F-6
<PAGE> 102
SCHWAB INTERNATIONAL INDEX FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
October 31, 1996
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
---------- --------
<S> <C> <C>
Takeda Chemical Industries 31,000 $ 531
Tobu Railway Co. 16,000 90
Tohoku Electric Power Co. 15,100 306
Tokai Bank 67,000 777
Tokio Marine & Fire Insurance Co. 55,000 604
Tokyo Electric Power Co., Inc. 48,000 1,100
Tokyo Gas & Electric Industrial 82,000 256
Tokyu Corp. 43,000 289
Tonen Corp. 23,000 295
Toppan Printing Co. 27,000 330
Toray Industries Inc. 54,000 326
Toshiba Corp. 119,000 744
Tostem Corp. 5,000 144
Toyo Seikan 8,000 253
Toyo Trust & Banking Co. 30,000 256
Toyoda Automatic Loom 6,000 111
Toyota Motor Corp. 143,000 3,379
Yamaichi Securities Co. 45,000 251
Yamanouchi Pharmaceutical Co. 13,000 264
Yasuda Fire & Marine Insurance Co. 20,000 127
Yasuda Trust & Banking Co. 23,000 112
------
71,611
------
NETHERLANDS--6.1%
ABN-Amro Holdings NV 17,870 1,010
Aegon NV 15,411 784
Akzo Nobel NV 4,185 527
Dordtsche Petrol 2,002 348
Elsevier NV 38,508 640
Heineken NV 3,050 576
ING Groep NV 43,506 1,356
Koninklijke Ahold NV 7,171 418
Koninklijke PTT Nederland 26,041 942
Philips Electronics NV 19,400 684
PolyGram NV 10,409 489
Royal Dutch Petroleum Co. (Bearer) 29,926 4,942
SGS-Thomson Microelectronics NV* 7,522 399
Unilever NV, CVA 8,700 1,323
Wolters Kluwer NV, CVA 4,072 523
------
14,961
------
</TABLE>
F-7
<PAGE> 103
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
---------- --------
<S> <C> <C>
SINGAPORE--2.0%
City Developments 47,000 $ 370
Hong Kong Land Holdings 246,356 549
Jardine Matheson Holdings Ltd. 191 1
Overseas Chinese Bank (alien market) 57,212 654
Singapore Airlines Ltd. (alien market) 77,000 678
Singapore Telecommunications 910,000 2,119
United Overseas Bank (alien market) 52,600 512
-----
4,883
-----
SPAIN--2.0%
Argentaria Corp. 8,052 316
Banco Bilbao-Vizcaya SA (Reg.) 13,766 669
Banco de Santander SA (Reg.) 8,600 441
Empresa Nacional de Electricidad 15,326 938
Gas Natural SDG SA 2,091 366
Iberdrola SA 49,800 529
Repsol, SA 16,600 542
Telefonica Internacional de Espana, SA 55,184 1,107
-----
4,908
-----
SWEDEN--2.0%
ASEA AB 3,300 374
ASEA AB Series B 800 89
Astra AB Series A 29,914 1,374
Astra AB Series B 6,700 306
L.M. Ericsson Telephone Series B 69,080 1,870
Sandvik AB Series A 8,600 203
Sandvik AB Series B 3,000 71
Swedish Match Company* 25,700 77
Volvo AB Series A 5,000 103
Volvo AB Series B 20,700 430
-----
4,897
-----
SWITZERLAND--7.0%
BBC Brown Boveri (Bearer) 420 519
BBC Brown Boveri (Reg.) 189 46
CS Holding (Reg.) 13,670 1,365
Ciba-Geigy Ltd. (Bearer) 170 208
Ciba-Geigy Ltd. (Reg.) 1,404 1,729
Cie Financiere Richemont Series A (Bearer) 309 471
Nestle Ltd. (Reg.) 2,334 2,535
Roche Group Holding AG 420 3,177
</TABLE>
F-8
<PAGE> 104
SCHWAB INTERNATIONAL INDEX FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
October 31, 1996
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
---------- --------
<S> <C> <C>
Roche Group Holding AG (Bearer) 85 $ 1,042
Sandoz Ltd. (Bearer) 491 569
Sandoz Ltd. (Reg.) 2,090 2,416
Schweizerische Bankgesellschaft (Bearer) 1,144 1,090
Schweizerische Bankgesellschaft (Reg.) 1,150 222
Schweizerische Bankverein (Reg.) 4,295 827
Winterthur (Reg.) 600 357
Zurich Versicherung (Reg.) 2,531 693
------
17,266
------
UNITED KINGDOM--21.8%
Abbey National 72,619 754
Allied Domecq PLC 64,028 494
Argyll Group 56,798 337
Associated British Foods 55,569 382
BAA 61,792 498
BAT Industries 177,692 1,232
BOC Group 29,615 410
BTR 223,104 935
Barclays 90,265 1,417
Bass 50,821 652
Boots Co. 56,881 577
British Aerospace 23,848 453
British Airways 59,836 539
British Gas 241,400 750
British Petroleum Co. 336,363 3,615
British Sky Broadcast 101,400 952
British Steel 125,330 348
British Telecom 354,739 2,180
Cable & Wireless 150,259 1,193
Cadbury Schweppes 59,887 499
Commercial Union Assurance Co. 33,117 350
GKN 19,003 357
General Electric Co. 151,200 935
Glaxo Wellcome 206,766 3,248
Granada Group 35,882 517
Grand Metropolitan, Inc. 121,599 917
Great University Stores 56,903 569
Guinness 108,800 779
</TABLE>
F-9
<PAGE> 105
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
---------- --------
<S> <C> <C>
HSBC Holdings 48,766 $ 1,025
HSBC Holdings (Hong Kong) 104,953 2,151
Hanson Industries 289,071 379
Imperial Chemical Industries 40,411 519
Imperial Tobacco* 28,907 169
J. Sainsbury PLC 106,430 631
Kingfisher 41,660 444
Legal & General Group 68,785 363
Lloyds Abbey Life 38,848 397
Lloyds TSB Group 298,261 1,891
Marks & Spencer PLC 152,500 1,281
National Power Development 59,600 393
National Westminster Bancorp 104,773 1,196
Pearson, Inc. 34,454 425
Powergen 38,518 320
Prudential Corp. 110,479 836
RTZ Corp. PLC 60,025 960
Rank Group 86,054 572
Reed International 31,845 593
Rentokil Group 54,815 368
Reuters Holdings PLC 95,074 1,184
Royal Bank of Scotland 49,988 409
Royal Sun Alliance 969 7
Scot & Newcastle 37,789 393
Shell Transport & Trading Co. 197,687 3,240
Siebe 24,267 381
SmithKline Beecham PLC (New) 149,987 1,853
Standard Chartered PLC 56,941 614
Tesco 121,999 661
Thorn EMI* 23,982 135
Thorn EMI 24,463 481
Tomkins 12 0
Unilever 44,900 943
Vendome Lux Group SA (units) 42,290 399
Vodafone Group 177,810 687
Whitbread 26,922 315
Zeneca Group 51,108 1,385
------
53,889
------
</TABLE>
F-10
<PAGE> 106
SCHWAB INTERNATIONAL INDEX FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
October 31, 1996
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
---------- --------
<S> <C> <C>
UNITED STATES--0.0%
Millennium Chemicals Inc.* 4,129 $ 84
--------
TOTAL COMMON STOCK
(Cost $209,972) 242,436
-------
PREFERRED STOCK--0.3%
AUSTRALIA--0.1%
News Corp. (Limited Voting Shares) 61,436 270
-------
GERMANY--0.2%
Sap AG (Non-Voting) 2,010 270
Volkswagen AG (Non-Voting) 350 106
-------
376
-------
ITALY--0.0%
Fiat SpA 38,800 55
-------
TOTAL PREFERRED STOCK
(Cost $580) 701
-------
WARRANTS--0.0%
SWITZERLAND--0.0%
Schweizerische Bankverein (expire 6/30/00)* 425 1
-------
UNITED KINGDOM--0.0%
BTR (expire 11/26/98)* 4,019 0
-------
TOTAL WARRANTS
(Cost $3) 1
-------
</TABLE>
F-11
<PAGE> 107
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
---------- --------
<S> <C> <C>
CASH EQUIVALENTS--0.8%
Seven Seas Money Market Fund+
5.04%, 11/07/96 2,041,447 $ 2,041
-------
TOTAL CASH EQUIVALENTS
(Cost $2,041) 2,041
-------
TOTAL INVESTMENTS--99.4%
(Cost $212,596) 245,179
-------
OTHER ASSETS AND LIABILITIES--0.6%
Other Assets 2,084
Liabilities (485)
-------
1,599
------
NET ASSETS--100.0% (Note 8)
Applicable to 20,180,511 outstanding shares, $0.00001
par value (unlimited shares authorized) $246,778
-------
-------
NET ASSET VALUE PER SHARE $12.23
-----
-----
</TABLE>
- ---------------
* Non-Income Producing Security
+ Interest rate represents the yield on October 31, 1996.
See accompanying Notes to Financial Statements.
F-12
<PAGE> 108
SCHWAB INTERNATIONAL INDEX FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF OPERATIONS (in thousands)
Year ended October 31, 1996
<TABLE>
<S> <C>
Investment income:
Dividends (net of foreign tax withheld of $738) $ 4,699
Interest 190
------
Total investment income 4,889
------
Expenses:
Investment advisory and administration fee 1,561
Transfer agency and shareholder service fees 559
Custodian fees 233
Registration fees 55
Professional fees 81
Shareholder reports 75
Trustees' fees 22
Amortization of deferred organization costs 25
Insurance and other expenses 7
------
2,618
Less expenses reduced (Note 4) (1,078)
------
Total expenses incurred by Fund 1,540
------
Net investment income 3,349
------
Net realized gain (loss) on investments and foreign
currency transactions:
Net realized loss from changes in market value (1,972)
Net realized gain from changes in foreign exchange rates 287
------
Net realized loss on investments sold (1,685)
Net realized loss on foreign currency transactions (96)
------
Net realized loss on investments sold and foreign
currency transactions (1,781)
------
Change in net unrealized gain (loss) on investments and
foreign currency translation:
Increase in net unrealized gain from changes in market
value 29,821
Decrease in net unrealized gain from changes in foreign
exchange rates (9,716)
------
Increase in net unrealized gain on investments 20,105
Decrease in net unrealized gain on translating assets
and liabilities into the reporting currency (7)
------
Increase in net unrealized gain on investments and
foreign currency translation 20,098
------
Net gain on investments 18,317
------
Increase in net assets resulting from operations $21,666
======
</TABLE>
See accompanying Notes to Financial Statements.
F-13
<PAGE> 109
- ------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS (in thousands)
<TABLE>
<CAPTION>
Year ended
October 31,
1996 1995
-------- --------
<S> <C> <C>
Operations:
Net investment income $ 3,349 $ 2,238
Net realized gain (loss) on investments sold
and foreign currency transactions (1,781) 193
Increase in net unrealized gain on
investments
and foreign currency translation 20,098 2,557
---------- --------
Increase in net assets resulting from
operations 21,666 4,988
---------- --------
Dividends to shareholders from net
investment income (2,089) (1,532)
---------- --------
Capital share transactions:
Proceeds from shares sold 100,434 73,349
Net asset value of shares issued in
reinvestment of dividends 1,809 1,372
Early withdrawal fees 54 49
Less payments for shares redeemed (54,708) (40,969)
---------- --------
Increase in net assets from capital
share transactions 47,589 33,801
---------- --------
Total increase in net assets 67,166 37,257
Net assets:
Beginning of period 179,612 142,355
---------- --------
End of period (including undistributed
net investment income of $3,292 and
$2,051, respectively) $246,778 $179,612
========== ========
Number of Fund shares:
Sold 8,493 6,778
Reinvested 155 134
Redeemed (4,605) (3,840)
---------- --------
Net increase in shares outstanding 4,043 3,072
Shares outstanding:
Beginning of period 16,138 13,066
---------- --------
End of period 20,181 16,138
========== ========
</TABLE>
See accompanying Notes to Financial Statements.
F-14
<PAGE> 110
SCHWAB INTERNATIONAL INDEX FUND(R)
- ------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
Year ended October 31, 1996
1. DESCRIPTION OF THE FUND
The Schwab International Index Fund (the "Fund") is a series of Schwab Capital
Trust (the "Trust"), a no-load, open-end, management investment company
organized as a Massachusetts business trust on May 7, 1993 and registered under
the Investment Company Act of 1940, as amended.
In addition to the Fund, the Trust also offers the Schwab Small-Cap Index
Fund(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
investments in money market funds are valued at the last sale price for a given
day, or if a sale is not reported for that day, at the mean between the most
recent quoted bid and asked prices. Unlisted securities for which market
quotations are readily available are valued at the mean between the most recent
bid and asked prices. Securities for which no quotations are readily available
are valued at fair value as determined by the Fund's investment manager pursuant
to guidelines adopted in good faith by the Board of Trustees. Short-term
securities with 60 days or less to maturity are stated at amortized cost, which
approximates market value.
F-15
<PAGE> 111
- ------------------------------------------------------------------------------
Security transactions and investment income -- Security transactions are
accounted for on a trade date basis (date the order to buy or sell is executed).
Dividend income and distributions to shareholders are recorded on the
ex-dividend date; interest income is recorded on the accrual basis. Realized
gains and losses from security transactions are determined on an identified cost
basis.
Repurchase agreements -- Repurchase agreements are fully collateralized by U.S.
Treasury or government agency securities. All collateral is held by the Fund's
custodian and is monitored daily to ensure that its market value at least equals
the repurchase price under the agreement.
Foreign currency translation -- The accounting records of the Fund are
maintained in U.S. dollars. Investment securities and all other assets and
liabilities of the Fund denominated in a foreign currency are translated into
U.S. dollars at the exchange rates on October 31. Purchases and sales of
securities, income receipts and expense payments are translated into U.S.
dollars at the exchange rate in effect on the dates of the respective
transactions.
The Fund separates within its statement of operations the portion of realized
and unrealized gains and losses resulting from changes in foreign exchange rates
from that arising from changes in securities' market values.
Forward currency contracts -- A forward currency contract ("Forward") is an
agreement between two parties to buy and sell a currency at a set price on a
future date. The value of the Forward fluctuates with changes in currency
exchange rates. The Forward is marked-to-market daily and the change in value is
recorded by the Fund as an unrealized gain or loss. When the Forward is closed,
the Fund records a realized gain or loss equal to the difference between the
value at the time the 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.
F-16
<PAGE> 112
SCHWAB INTERNATIONAL INDEX FUND(R)
- ------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
Year ended October 31, 1996
Deferred organization costs -- Costs incurred in connection with the
organization of the Fund and its initial registration with the Securities and
Exchange Commission 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 October 31, 1996, (for financial reporting and federal income tax purposes),
net unrealized gain aggregated $32,583,000, of which $45,871,000 related to
appreciated securities and $13,288,000 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. Under
this agreement, the Fund incurred investment advisory and administration fees of
$1,561,000 during the year ended October 31, 1996, before the Investment Manager
reduced its fee (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
F-17
<PAGE> 113
- ------------------------------------------------------------------------------
net assets for transfer agency services and 0.20% of such assets for shareholder
services. For the year ended October 31, 1996, the Fund incurred transfer agency
and shareholder service fees of $559,000, before Schwab reduced its fees (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
year ended October 31, 1996, 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 $22,000 related to
the Trust's unaffiliated trustees.
4. EXPENSES REDUCED BY THE INVESTMENT MANAGER AND SCHWAB
The Investment Manager and Schwab reduced a portion of their fees in order to
limit the Fund's ratio of operating expenses to average net assets. For the year
ended October 31, 1996, the total of such fees reduced by the Investment Manager
and Schwab was $675,000 and $403,000, respectively (see Note 9).
5. BORROWING AGREEMENT
The Trust has an arrangement with State Street Bank and Trust Company, the
Fund's custodian, whereby the Fund may borrow up to $10,000,000, on a temporary
basis, to fund redemptions. Amounts borrowed under this arrangement bear
interest at periodically negotiated rates and may be collateralized by the
assets of the Fund. During the year ended October 31, 1996, no borrowings were
made under this arrangement.
6. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities, other than short-term obligations,
aggregated (in thousands) $75,454 and $27,236, respectively, for the year ended
October 31, 1996.
F-18
<PAGE> 114
SCHWAB INTERNATIONAL INDEX FUND(R)
- ------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
Year ended October 31, 1996
7. 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 year ended October 31, 1996, total early withdrawal fees
retained by the Fund amounted to $54,000.
8. COMPOSITION OF NET ASSETS
At October 31, 1996, net assets consisted of (in thousands):
<TABLE>
<S> <C>
Paid in capital $213,106
Accumulated undistributed net investment income 3,292
Accumulated net realized loss on investments sold (2,217)
and foreign currency transactions
Net unrealized gain on investments 32,583
Net unrealized gain on translating assets and 14
liabilities into the reporting currency
----------
Total $246,778
==========
</TABLE>
The Fund follows Statement of Position 93-2 Determination, Disclosure, and
Financial Statement Presentation of Income, Capital Gain, and Return of Capital
Distributions by Investment Companies, which will generally present
undistributed income and realized gains on a tax basis. As a result, certain
reclassifications have occurred that decreased undistributed net investment
income by $19,000 and increased net realized loss on investments sold and
foreign currency transactions and capital paid in by $34,000 and $53,000,
respectively. These reclassifications have no impact on the net asset value of
the Fund.
At October 31, 1996, the Fund's Statement of Net Assets included: $71,000
payable for investments purchased, $142,000 payable for Fund shares redeemed,
$32,000 payable for investment advisory and administration fee and $244,000
receivable for Fund shares sold.
F-19
<PAGE> 115
- ------------------------------------------------------------------------------
9. FINANCIAL HIGHLIGHTS
For a share outstanding throughout each period:
<TABLE>
<CAPTION>
PERIOD ENDED
YEAR ENDED OCTOBER 31, OCTOBER 31,
1996 1995 1994 1993 ++
-------- -------- -------- ------------
<S> <C> <C> <C> <C>
Net asset value at beginning of period $ 11.13 $ 10.89 $ 10.15 $ 10.00
Income from investment operations
Net investment income 0.16 0.14 0.11 0.03
Net realized and unrealized gain on
investments and foreign currency
transactions 1.07 0.22 0.69 0.12
-------- -------- -------- ------------
Total from investment operations 1.23 0.36 0.80 0.15
Less distributions
Dividends from net investment income (0.13) (0.12) (0.04) --
Distributions from realized gain on
investments -- -- (0.02) --
-------- -------- -------- ------------
Total distributions (0.13) (0.12) (0.06) --
-------- -------- -------- ------------
Net asset value at end of period $ 12.23 $ 11.13 $ 10.89 $ 10.15
======== ======== ======== ===========
Total return (not annualized) 11.07% 3.35% 7.89% 1.50%
Ratios/Supplemental data
Net assets, end of period (000s) $246,778 $179,612 $142,355 $106,085
Ratio of expenses to average net
assets + 0.69% 0.85% 0.90% 0.60%*
Ratio of net investment income to
average net assets + 1.50% 1.45% 1.14% 2.15%*
Portfolio turnover rate 6% 0% 6% 2%
Average commission rate $0.01
</TABLE>
- ---------------
+ The information contained in the above table is based on actual expenses for
the periods, after giving effect to the portion of fees reduced and expenses
absorbed by the Investment Manager and Schwab. Had these fees and expenses not
been reduced and absorbed, the Fund's expense and net investment income ratios
would have been:
<TABLE>
<S> <C> <C> <C> <C>
Ratio of expenses to average net
assets 1.17% 1.22% 1.30% 2.10%*
Ratio of net investment income to
average net assets 1.02% 1.08% 0.74% 0.65%*
</TABLE>
++ For the period September 9, 1993 (commencement of operations) to October 31,
1993.
* Annualized
F-20
<PAGE> 116
- ------------------------------------------------------------------------------
To the Trustees and Shareholders
of the Schwab International Index Fund(R)
In our opinion, the accompanying statement of net assets 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
the Schwab International Index Fund (one of the series constituting Schwab
Capital Trust, hereafter referred to as the "Trust") at October 31, 1996, the
results of its operations, the changes in its net assets and the financial
highlights for 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, 1996 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
San Francisco, California
November 27, 1996
F-21
<PAGE> 117
SCHWAB SMALL-CAP INDEX FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
October 31, 1996
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- ----------
<S> <C> <C>
COMMON STOCK--99.6%
AEROSPACE/DEFENSE--1.0%
AAR Corp. 5,200 $ 148
Alliant Techsystems Inc.* 4,000 196
Coltec Industries Inc.* 24,400 421
Curtiss-Wright Corp. 1,400 76
Gencorp Inc. 12,100 200
OEA, Inc. 6,800 257
Orbital Sciences Corp. Class A* 10,600 224
Rohr Industries Inc.* 6,600 122
Thiokol Corp. 6,100 255
Trimble Navigation Ltd.* 7,500 106
-----
2,005
-----
AIR TRANSPORTATION--0.9%
Alaska Air Group Inc.* 4,000 88
Atlantic Southeast Airlines Inc. 10,800 227
Atlas Air Inc.* 4,900 181
Comair Holdings Inc. 14,700 294
Continental Airlines Inc. Class B 15,000 377
Mesa Air Group Inc.* 9,900 93
Offshore Logistics, Inc.* 7,200 121
Trans World Airlines Inc. (New)* 10,800 86
USAir Group, Inc.* 17,200 299
Valujet Inc. 17,300 170
-----
1,936
-----
ALCOHOLIC BEVERAGES--0.2%
Adolph Coors Co. Class B 12,100 235
Canandaigua Wine Co., Inc. Class A* 5,900 135
-----
370
-----
APPAREL--1.2%
Brown Group Inc. 5,700 118
Burlington Industries Inc.* 19,800 225
Cone Mills Corp.* 8,800 69
Donnkenny Inc. 4,700 59
Fabri-Centers of America, Inc. Class A 5,900 77
Guilford Mills, Inc. 4,900 116
Justin Industries Inc. 8,000 82
Kellwood Co. 6,100 110
</TABLE>
F-22
<PAGE> 118
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- ----------
<S> <C> <C>
Men's Wearhouse, Inc. 7,200 $ 148
Nautica Enterprises Inc. 11,300 346
Phillips-Van Heusen Corp. 7,700 85
Springs Industries Inc. 5,900 266
St. John's Knits, Inc. 6,200 284
Stride Rite Corp. 14,700 121
Unitog Co. 4,000 110
Wolverine World Wide Inc. 9,150 226
-----
2,442
-----
AUTOMOTIVE PRODUCTS--0.3%
APS Holding Corp. Class A* 4,400 91
Armor-All Products Corp. 6,800 113
Carlisle Cos. Inc. 5,200 296
Discount Auto Parts Inc.* 4,900 107
O'Reilly Automotive, Inc.* 3,200 113
-----
720
-----
BANKS--6.8%
ALBANK Financial Corp. 4,320 120
Associated Banc-Corp. 5,600 223
Banc One Corp. 6,386 271
Bancorp South, Inc. 6,600 166
CCB Financial Corp. 5,550 316
CNB Bancshares Inc. 6,301 187
Centura Banks Inc. 7,900 307
Chase Manhattan Corp. (New) 1,414 121
Chemical Financial Corp. 2,995 112
Citizens Bancorp 4,800 245
Citizens Banking Corp. 4,600 133
City National Corp. 14,900 261
Cole Taylor Financial Group Inc. 4,800 145
Colonial BancGroup Inc. 6,900 261
Corus Bankshares Inc. 4,700 146
Cullen/Frost Bankers Inc. 8,400 254
Dauphin Deposit Bank & Trust Co. 10,600 346
Deposit Guaranty Corp. 7,400 371
F & M National Corp. 5,455 101
First Citizens BancShares Inc. 4,200 282
First Commercial Bancshares Inc. 4,500 125
First Commercial Corp. 10,851 368
First Commonwealth Financial Corp. 6,400 115
</TABLE>
F-23
<PAGE> 119
SCHWAB SMALL-CAP INDEX FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
October 31, 1996
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- ----------
<S> <C> <C>
First Financial Bancorp 5,390 $168
First Hawaiian, Inc. 9,900 307
First Michigan Bank Corp. 8,201 205
First Midwest Bancorp Inc. 5,100 163
Firstbank Illinois Co. 3,600 117
Fort Wayne National Corp. 4,200 145
Fulton Financial Corp. 11,216 223
HUBCO, Inc. 4,635 100
Hancock Holding Co. 3,000 120
Imperial Bancorp 8,346 160
Jefferson Bankshares, Inc. 5,400 149
Keystone Financial Inc. 13,650 353
Liberty Bancorp, Inc. 3,900 150
Long Island Bancorp Inc. 8,200 244
Magna Group Inc. 9,000 251
Mark Twain Bancshares Inc. 4,800 220
Mid-Am, Inc. 6,622 117
National Bancorp of Alaska, Inc. 2,800 181
National Commerce Bancorp 8,200 289
New York Bancorp Inc. 3,300 112
North Fork Bancorporation 7,700 244
ONBANCorp, Inc. 4,500 164
Old National Bancorp 8,601 313
One Valley Bancorp of West Virginia Inc. 9,750 315
Park National Corp. 2,500 121
People's Bank Bridgeport Conn. 13,200 338
Provident Bancorp Inc. 9,000 399
Provident Bankshares Corp. 3,500 126
Queens County Bancorp, Inc. 2,933 127
Riggs National Corp. Washington D.C. 11,100 189
S & T Bancorp, Inc. 3,300 104
Security Capital Corp. 3,200 212
Sumitomo Bank 5,100 129
Susquehanna Bancshares, Inc. 4,500 132
T R Financial Corp. 3,400 103
Toronto-Dominion Bank 2,274 53
TrustCo Bank Corp. NY 6,445 141
Trustmark Corp. 11,400 282
U S Trust Corp. (New) 3,000 188
U.S. Bancorp 3,420 137
UMB Financial Corp. 6,297 246
</TABLE>
F-24
<PAGE> 120
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- ----------
<S> <C> <C>
UST Corp. 5,400 $ 97
Union Planters Corp. 5,337 185
United Bankshares, Inc. 5,700 171
United Carolina Bancshares Corp. 7,800 201
Westamerica Bancorp 3,100 158
Whitney Holding Corp. 5,400 172
Zions Bancorp 4,500 408
------
14,205
------
BUSINESS MACHINES & SOFTWARE--7.2%
3COM Corp. 4,134 280
AST Research Inc.* 19,278 88
Amati Communications Corp.* 5,400 94
Analogic Corp. 4,500 123
Applied Magnetics Corp.* 8,100 173
Auspex Systems, Inc.* 7,600 77
BBN Corp.* 7,300 156
BancTec, Inc.* 6,300 128
Black Box Corp.* 5,100 173
Borland International Inc.* 9,300 47
Broderbund Software Inc.* 6,600 185
Cheyenne Software Inc.* 12,450 378
Cisco Systems Inc. 2,800 173
Computer Horizons Corp. 5,700 177
Computer Products, Inc.* 8,500 167
Computer Sciences Corp.* 6,320 469
Compuware Corp.* 13,700 726
Comshare, Inc. 3,600 50
Comverse Technology Inc. (New)* 7,500 262
Control Data Systems, Inc.* 4,500 105
Data General Corp.* 11,200 167
Dell Computer Corp. 6,300 513
Digi International Inc.* 4,300 63
Exabyte Corp.* 6,900 90
FileNet Corp.* 6,100 172
Geoworks* 4,600 93
HCIA Inc.* 3,600 101
HNC Software Inc. 6,400 201
INSO Corp. 4,200 206
Intergraph Corp.* 16,000 151
JTS Corp.* 20,000 75
</TABLE>
F-25
<PAGE> 121
SCHWAB SMALL-CAP INDEX FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
October 31, 1996
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- ----------
<S> <C> <C>
Learning Co. Inc.* 14,300 $ 290
Legato Systems Inc. 5,800 207
McAfee Associates, Inc. 16,012 730
Medic Computer Systems, Inc. 4,800 134
Metatools Inc.* 4,000 78
Microchip Technology Inc.* 11,700 423
Mylex Corp.* 6,000 76
National Computer Systems, Inc. 5,700 122
National Instruments Corp.* 8,100 235
Network General Corp. 11,700 280
Novellus Systems, Inc.* 5,100 210
Oak Technology 12,900 129
Optical Data Systems, Inc. 5,700 83
PeopleSoft Inc. 1,200 108
Platinum Technology Inc.* 18,400 267
Project Software & Development Inc. 4,000 134
Proxim Inc.* 3,500 81
Pure Atria Corp.* 6,950 189
Quantum Corp.* 18,800 380
Rational Software Corp. (New) 13,800 527
Read-Rite Corp.* 16,800 296
Safeguard Scientifics Inc. 9,600 382
Santa Cruz Operations, Inc.* 11,000 76
Security Dynamics Technology 4,100 331
Sequent Computer Systems, Inc.* 12,000 178
Stac Inc.* 10,500 77
Stratus Computer Inc.* 7,800 175
Structural Dynamics Research Corp.* 11,100 196
System Software Associates, Inc. 14,900 174
Tech Data Corp.* 13,600 349
Transaction Systems Architects Inc. Class A 7,600 312
U.S. Robotics, Inc. 13,600 856
Veritas Software Co. 4,950 251
Videoserver Inc.* 4,200 198
Wang Laboratories Inc. (New)* 12,600 294
Wind River Systems Inc. 7,400 312
Xircom, Inc.* 6,000 122
------
15,125
------
</TABLE>
F-26
<PAGE> 122
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- ----------
<S> <C> <C>
BUSINESS SERVICES--13.3%
ABM Industries, Inc. 9,000 $159
ABR Information Services Inc. 4,600 317
Access Health Inc. 4,600 151
Accustaff Inc. 12,900 343
Ackerley Inc. 10,000 123
Addington Resources, Inc.* 5,000 139
Affiliated Computer Services Inc. Class A 6,800 369
Alternative Resources Corp. 5,100 102
American Business Information, Inc. 7,650 145
American Business Products, Inc. 5,200 116
American Homepatient Inc. 5,500 130
American Management Systems, Inc. 12,200 387
American Medical Response, Inc.* 7,800 234
Amresco Inc. 8,600 180
Analysts International Corp. 4,800 118
Apollo Group, Inc. Class A 14,337 391
Applix Inc. 3,400 82
Aspen Technology Inc.* 2,600 174
BISYS Group, Inc.* 7,900 295
Bell & Howell Co. (New)* 4,500 120
Billing Information Concepts Corp.* 4,700 122
Bowne & Co. Inc. 5,000 117
CDI Corp.* 6,500 179
Cadence Design Systems Inc. 4,050 148
Cambridge Technology Partners 14,400 473
Camco International Inc. 9,700 376
Catalina Marketing Corp. 8,400 427
Cellular Technical Services Inc. 7,000 113
Cerner Corp. 11,600 138
Checkfree Corp.* 14,300 259
Clintrials Research Inc. 4,300 160
Compucom Systems Inc.* 14,000 137
Computer Task Group Inc. 4,100 155
Computervision Corp. (New)* 20,000 180
Concord EFS, Inc. 23,175 669
Continental Waste Industries Inc.* 4,600 114
Corrections Corp. of America 15,200 395
Coventry Corp.* 10,000 100
Culligan Water Technologies Inc.* 7,000 263
Curative Technologies Inc.* 4,500 104
</TABLE>
F-27
<PAGE> 123
SCHWAB SMALL-CAP INDEX FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
October 31, 1996
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- ----------
<S> <C> <C>
Dames & Moore Inc. 6,500 $ 87
Data Broadcasting* 10,500 77
DeVRY Inc. 9,000 449
Dionex Corp. 4,200 163
Dynatech Corp.* 5,900 292
Electro Rental 4,100 96
Employee Solutions Inc. 9,600 211
Envoy Corp. (New)* 4,600 170
Epic Design Technology Inc. 4,500 111
Express Scripts Inc. Class A* 5,200 146
Fair Issac & Co. Inc. 5,100 192
Franklin Quest Co.* 6,900 140
G&K Services, Inc. Class A 6,350 184
GRC International, Inc.* 2,500 35
Gartner Group Inc. Class A (New) 11,600 360
HA-LO Industries Inc. 3,900 123
HBO & Co. 5,200 313
Health Management Systems, Inc. 6,000 140
Healthplan Services Corp.* 4,400 80
Heritage Media Corp. Class A (New) 11,000 168
Hon Industries Inc. 10,400 368
Horizon Healthcare Corp.* 16,400 170
ITT Educational Services Inc. 6,250 227
Information Resources, Inc.* 9,400 119
Inphynet Medical Management Inc.* 4,900 78
Integrated Health Services Inc. 9,400 231
Integrated Systems Consulting Group 717 12
Integrated Systems Inc. Class A 8,400 224
Intelligent Electronics Inc. 11,000 96
Interim Services Inc.* 5,800 232
Jack Henry & Associates Inc. 3,600 146
Jacobs Engineering Group Inc.* 9,500 210
Jenny Craig, Inc.* 6,900 62
John H. Harland Co. 9,700 302
Keane, Inc. 5,300 246
Kinder Care Learning Centers Inc.* 7,100 141
Kirby Corp.* 7,800 152
Kronos, Inc. 2,100 61
Mariner Health Group Inc.* 10,300 86
Maxicare Health Plans Inc. (New)* 5,200 97
Metromedia International Group, Inc.* 21,700 214
</TABLE>
F-28
<PAGE> 124
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- ----------
<S> <C> <C>
Micro Warehouse, Inc.* 12,000 $278
Molten Metal Technology, Inc.* 7,800 104
National Data Corp. 8,800 362
National Education Corp.* 11,000 179
National Media Corp.* 8,100 97
Netcom Online Communications* 3,500 53
Netmanage Inc.* 13,200 90
Network Equipment Technologies* 6,500 87
New England Business Service, Inc. 4,800 86
Norrell Corp. Georgia 8,000 200
Occusystems Inc.* 6,700 185
Oceaneering International, Inc.* 7,400 133
Ogden Corp. 15,700 285
OrNda HealthCorp* 9,760 266
Orthodontic Centers of America Inc. 14,200 202
PAXAR Corp. 8,359 135
PHH Corp. 12,200 363
PSINet Inc.* 12,700 121
Payment Services Inc. 10,600 212
Pharmaceutical Product Development Inc.* 3,648 70
PhyCor Inc. 10,350 319
Physician Corp. of America* 12,700 141
Physicians Computer Network* 17,400 156
Pre-Paid Legal Services, Inc.* 7,000 82
Quarterdeck Corp.* 13,000 67
Republic Industries Inc. 31,200 969
Robert Half International Inc. 15,800 634
Rollins, Inc. 11,400 218
Rykoff-Sexton, Inc. 6,450 92
SEI Corp. 5,900 119
SPS Transaction Services, Inc.* 8,500 136
Scientific Games Holdings Corp.* 4,400 100
Seacor Holdings Inc.* 2,700 146
Sitel Corp. 20,400 402
Standard Register Co. 9,100 237
Steris Corp. 8,522 321
Stewart Enterprises Inc. Class A 7,950 270
Sun Healthcare Group Inc.* 16,408 209
Symantec Corp.* 19,900 215
Synetic Inc.* 5,200 191
TCSI Corp. 6,600 52
</TABLE>
F-29
<PAGE> 125
SCHWAB SMALL-CAP INDEX FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
October 31, 1996
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- ----------
<S> <C> <C>
Technology Solutions Co. 5,500 $ 213
True North Communications 7,000 166
U.S.A. Waste Services Inc.* 39,837 1,275
United Waste Systems, Inc. 11,000 377
Universal Health Services Inc. Class B 11,300 283
Valassis Communications Inc.* 14,300 257
Viasoft Inc. 6,000 297
Volt Information Sciences Inc. 3,500 137
Wallace Computer Services, Inc. 9,200 270
Zebra Technologies Corp. Class A 7,600 219
------
27,793
------
CHEMICAL--2.1%
Arcadian Corp. 13,400 330
Calgon Carbon Corp. 14,400 144
Cambrex Corp. 4,800 150
Chemed Corp. 3,200 125
Crompton & Knowles Corp. 23,100 416
Cytec Industries Inc. 12,600 450
Dexter Corp. 7,800 242
Ferro Corp. 8,800 238
First Mississippi Corp. 6,000 174
Geon Co. 8,500 167
H.B. Fuller Co. 4,600 191
Lawter International Inc. 13,300 156
Lilly Industrial Inc. Class A 6,950 125
NCH Corp. 2,400 134
NL Industries Inc. (New) 16,200 138
OM Group Inc. 3,700 150
Petrolite Corp. 3,600 116
Scotts Co. Class A* 7,400 138
Sequa Corp. Class A* 3,600 150
Techne Corp.* 3,500 84
Tredegar Industries Inc. 4,400 168
WD-40 Co. 2,700 135
Wellman Inc. 10,500 186
------
4,307
------
CONSTRUCTION--1.9%
Amre Inc. 5,900 55
Apogee Enterprises, Inc. 4,300 165
Blount International Inc. Class A 5,850 211
</TABLE>
F-30
<PAGE> 126
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- ----------
<S> <C> <C>
Blount International Inc. Class B 1,500 $ 54
Calmat Co. 7,800 145
Centex Construction Products Inc. 8,200 128
Centex Corp. 9,000 271
D.R. Horton Inc. 11,300 103
Del Webb Corp. 6,700 107
Global Industries Inc. 12,000 213
Granite Construction Inc. 5,750 113
Kaufman & Broad Home Corp. 12,700 152
Lone Star Industries, Inc. (New) 6,300 232
Mafco Consolidated Group Inc.* 7,800 217
Mastec Inc.* 6,100 296
Medusa Corp. 5,600 184
Morrison Knudsen Corp. (New)* 18,000 162
Pulte Corp. 8,600 228
Regal Beloit Corp. 6,000 107
Southdown Inc. 6,400 175
Stone & Webster, Inc. 4,200 139
TJ International Inc. 6,100 118
Toll Brothers, Inc.* 10,200 175
Triangle Pacific Corp. Delaware* 4,400 93
U.S. Home Corp. (New)* 3,200 69
-----
3,912
-----
CONSUMER-DURABLE--1.3%
Bassett Furniture Industries Inc. 4,700 105
Champion Enterprises Inc. 16,600 328
Chicago Miniature Lamp Inc. 5,250 158
Ethan Allen Interiors Inc. 4,700 168
Furniture Brands International Inc.* 19,900 266
Harman International Industries Inc. (New) 8,775 451
Interface Inc. Class A 7,000 117
Kimball International Inc. Class B 7,000 252
La-Z-Boy Chair Co. 6,000 187
National Presto Industries, Inc. 2,300 86
Outboard Marine Corp. 6,400 99
Sturm, Ruger & Co., Inc. 11,000 206
Toro Co. 3,500 110
Zenith Electronics Corp.* 19,700 259
-----
2,792
-----
</TABLE>
F-31
<PAGE> 127
SCHWAB SMALL-CAP INDEX FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
October 31, 1996
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- ----------
<S> <C> <C>
CONSUMER-NONDURABLE--2.0%
3DO Co.* 9,100 $ 52
A.T. Cross Co. Class A 5,800 66
Acclaim Entertainment Inc.* 16,000 79
Applebee's International, Inc. 7,400 180
Buffets Inc.* 9,900 110
CKE Restaurants Inc. 7,200 214
Department 56 Inc.* 6,300 139
Foodmaker, Inc.* 12,000 117
Galoob Lewis Toys Inc.* 5,000 134
International Dairy Queen Inc. Class A* 8,100 156
Jostens, Inc. 12,300 264
Landry's Seafood Restaurants, Inc. 7,700 155
Luby's Cafeterias, Inc. 7,500 158
Mohawk Industries Inc.* 12,900 311
Papa John's International, Inc. 6,100 305
Rexall Sundown, Inc. 10,700 290
Ruby Tuesday Inc. 5,637 92
Russ Berrie & Co. Inc. 8,500 153
Ryan's Family Steak Houses Inc.* 19,500 141
Samsonite Corp. (New) 7,500 253
Sbarro, Inc. 8,000 211
Shoney's Inc.* 16,700 123
Showbiz Pizza Time Inc. (New) 5,700 105
Sonic Corp. 5,600 126
Toy Biz Inc. Class A* 5,300 94
Williams-Sonoma Inc.* 8,400 232
-----
4,260
-----
CONTAINERS--0.4%
ACX Technologies Inc. 8,600 153
Ball Corp. 9,900 239
Gaylord Container Corp. Class A* 17,400 131
Greif Brothers Corp. Class A 8,500 239
-----
762
-----
ELECTRONICS--4.2%
ADAC Laboratories 6,000 122
AMETEK, Inc. 10,800 215
Actel Corp.* 6,000 106
Allen Group Inc. 8,600 137
Alliance Semiconductor Corp. 12,100 76
</TABLE>
F-32
<PAGE> 128
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- ----------
<S> <C> <C>
Altron Inc. 5,250 $ 79
Ampex Corp. (Delaware) Class A* 15,000 101
Anixter International Inc. 16,600 247
Augat Inc. 6,200 171
Belden Inc. 12,300 354
Broadband Technologies Inc.* 4,200 75
Burr Brown 5,700 123
Cable Design Technologies Corp. 6,100 157
CopyTele Inc. 19,200 138
Cyrix Corp.* 6,000 106
DSP Communications Inc. 7,600 290
Dallas Semiconductor Corp. 9,500 190
Echostar Communications Corp. Class A* 3,500 104
Exide Corp. 6,700 174
FSI International Inc. 7,600 79
Fluke Corp. 2,800 112
Genrad Inc.* 7,000 142
Gerber Scientific Inc. 7,100 96
ITI Technologies Inc.* 3,600 103
Identix Inc.* 7,800 63
Imp Inc.* 9,000 25
Integrated Device Technology Inc. 26,500 217
Integrated Process Equipment Corp.* 4,600 51
International Rectifier Corp. 16,100 199
Itron, Inc.* 4,500 73
Kemet Corp. 13,400 257
Kent Electronics Corp. 9,100 208
Kulicke & Soffa Industries Inc. 6,000 79
Lam Research Corp.* 9,500 231
Lattice Semiconductor Corp.* 7,400 253
Littlefuse, Inc.* 3,400 141
Logicon, Inc. 4,700 194
Macromedia Inc. 11,900 199
Marshall Industries* 5,400 163
Methode Electronics Inc. Class A 11,050 214
Ortel Corp.* 4,000 84
Osmonics, Inc.* 3,500 74
Palomar Medical Technologies* 10,000 72
Pioneer Standard Electronics Inc. 6,525 70
Rexel Inc.* 7,000 102
S3 Inc. 16,200 304
</TABLE>
F-33
<PAGE> 129
SCHWAB SMALL-CAP INDEX FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
October 31, 1996
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- ----------
<S> <C> <C>
Sanmina Corp. 5,600 $ 258
Sierra Semiconductor Corp. 10,000 130
Silicon Valley Group Inc.* 10,000 167
Stanford Telecommunications* 3,000 87
Technitrol Inc. 2,600 86
VLSI Technology, Inc.* 16,200 279
VeriFone, Inc.* 7,000 235
Vicor Corp. 12,700 230
Vitesse Semiconductor Corp.* 6,600 210
Wyle Electronics 4,400 131
Zilog Inc.* 5,900 117
-----
8,700
-----
ENERGY-DEVELOPMENT--4.6%
Amcol International Corp. 6,800 102
Apache Corp. 3,525 125
Ashland Coal, Inc. 4,000 95
Atwood Oceanics Inc.* 2,200 122
BJ Services Co.* 10,000 449
Barrett Resources Corp.* 12,900 495
Benton Oil & Gas Co.* 9,800 239
Cabot Oil & Gas Corp. Class A 6,600 102
Chesapeake Energy Corp. 9,600 559
Devon Energy Corp. 9,400 328
Energy Ventures, Inc.* 8,000 352
Falcon Drilling Inc.* 11,600 412
Forest Oil Corp. (New)* 9,000 134
Halliburton Co. 5,616 318
Helmerich & Payne Inc. 7,900 428
Louis Dreyfus Natural Gas Corp.* 11,400 192
MAXXAM Inc.* 2,300 97
Marine Drilling Company, Inc.* 13,900 191
NGC Corp. 693 12
Newfield Exploration Co.* 5,900 279
Newpark Resources, Inc. 5,500 206
Nuevo Energy Co.* 6,000 299
Parker & Parsley Petroleum Co. 11,200 322
Parker Drilling Co.* 21,100 179
Pride Petroleum Services Inc.* 9,100 159
Production Operators Corp. 3,200 126
Reading & Bates Corp. (New)* 20,600 592
</TABLE>
F-34
<PAGE> 130
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- ----------
<S> <C> <C>
Rochester & Pittsburgh Coal Co. 3,500 $ 114
Rowan Cos. Inc.* 27,700 620
Solv-Ex Corp.* 7,600 98
Tom Brown Inc. (New)* 7,300 138
Transocean Offshore Inc. 6,700 424
Tremont Corp.* 2,300 79
Tuboscope Vetco International Corp.* 11,200 169
United Meridian Corp.* 10,100 476
Varco International Inc.* 9,900 196
Vintage Petroleum Inc. 9,700 286
Zeigler Coal Holding Co. 8,000 145
-----
9,659
-----
FOOD-AGRICULTURE--2.5%
Bob Evans Farms, Inc. 14,700 186
Chiquita Brands International Inc. 18,200 228
Coca-Cola Bottling Co. 3,000 121
Dekalb Genetics Corp. Class B 5,400 213
Delta & Pine Land Co. 7,698 277
Dimon Inc. 13,600 258
Dreyers Grand Ice Cream Inc. 4,500 115
Earthgrains Co. 3,500 186
Fleming Companies, Inc. 12,200 212
Flowers Industries, Inc. 20,350 476
Hudson Foods Inc. Class A 9,350 155
International Multifoods Corp. 5,100 78
Interstate Bakeries Corp. (New) 13,100 555
J.M. Smucker Co. Class A 8,900 147
J.M. Smucker Co. Class B (Non Voting) 4,700 72
JP Foodservice, Inc.* 6,800 153
Lance Inc. 10,400 184
Mississippi Chemical Corp. (New) 7,000 176
Mycogen Corp.* 9,800 154
Ralcorp Holdings, Inc.* 10,966 230
Richfood Holdings Inc. 16,350 398
Savannah Foods & Industries Inc. 7,400 118
Seaboard Corp. 500 106
Smithfield Foods Inc.* 6,200 178
Tootsie Roll Industries, Inc. 7,300 268
-----
5,244
-----
</TABLE>
F-35
<PAGE> 131
SCHWAB SMALL-CAP INDEX FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
October 31, 1996
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- ----------
<S> <C> <C>
GOLD--0.6%
Amax Gold Inc.* 30,500 $ 168
Battle Mountain Gold Co. 75,400 575
Getchell Gold Corp.* 9,371 417
Meridian Gold Inc.* 21,000 92
-----
1,252
-----
HEALTHCARE--8.2%
Acuson* 8,600 182
Advanced Technology Laboratories, Inc.* 4,500 137
Advanced Tissue Sciences Inc.* 12,500 203
Agouron Pharmaceuticals Inc.* 5,000 286
Alliance Pharmaceutical Corp.* 9,200 128
Alpharma, Inc. Class A 7,500 94
Amylin Pharmaceuticals Inc.* 9,000 100
Arrow International Inc. 7,400 211
Ballard Medical Products 9,900 174
Barr Laboratories, Inc. 4,000 111
Bio Rad Laboratories Inc. Class A 4,050 98
Bio Technology General Corp.* 13,800 113
Block Drug Inc. Class A 11,505 521
CNS, Inc. 6,500 110
Cardinal Health Inc. 5,842 459
Carter Wallace Inc. 15,300 237
Cephalon Inc.* 7,600 170
Cognex Corp. 14,800 189
Columbia Laboratories Inc. 8,000 96
Community Psychiatric Centers* 13,100 116
Conmed Corp. 4,900 85
Cygnus Therapeutic Systems, Inc.* 6,000 86
Cytogen Corp.* 15,000 80
Datascope Corp.* 5,200 88
Diagnostic Products Corp. 4,300 128
Enzo Biochem Inc. 7,849 143
Fresenius Medical Care AG (Sponsored American
Depository Receipts)* 7,450 222
Gilead Sciences Inc.* 9,500 220
GranCare, Inc.* 7,300 131
Gulf South Medical Supply Inc. 5,500 120
Haemonetics Corp.* 9,700 173
HealthSouth Rehabilitation Corp.* 12,488 468
</TABLE>
F-36
<PAGE> 132
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- ----------
<S> <C> <C>
Herbalife International Inc. 9,400 $188
Hologic Inc. 4,700 108
Human Genome Sciences Inc.* 6,700 243
ICN Pharmaceuticals, Inc. 11,301 215
IDEXX Laboratories Inc. 6,800 266
Icos Corp.* 12,500 93
Idec Pharmaceuticals Corp.* 6,700 144
Imatron Inc.* 22,500 90
Immunex Corp. (New)* 13,300 180
Immunomedics Inc.* 11,100 78
Incyte Pharmaceuticals Inc.* 3,100 125
Interneuron Pharmaceuticals* 7,500 184
Invacare Corp. 9,600 266
Isis Pharmaceuticals* 8,000 129
Isolyser Inc. 10,300 72
Jones Medical Industries Inc. 9,800 424
Kinetic Concepts Inc. 14,900 196
Life Technologies, Inc. (New) 7,650 174
Ligand Pharmaceuticals Inc. Class B 8,200 103
Lincare Holdings Inc.* 8,200 305
Liposome Inc.* 10,900 186
Living Centers of America* 6,600 154
Lunar Corp. 3,000 93
Magellan Health Services Inc.* 11,700 215
Marquette Medical System Inc.* 13,400 209
Martek Biosciences Corp.* 5,400 115
Matrix Pharmaceuticals* 8,000 60
Medimmune Inc.* 7,900 123
Mentor Corp. 8,100 179
Mid Atlantic Medical Services Inc.* 14,800 159
Multicare Cos. Inc. 7,800 140
Nabi Inc.* 11,000 102
Natures Sunshine Products Inc. 7,500 165
Neopath Inc.* 4,000 65
Neoprobe Corp.* 6,300 90
Neurex Corp.* 6,700 104
Neurogen Corp.* 4,300 92
Nexstar Pharmaceuticals Inc.* 8,900 139
North American Vaccine Inc.* 9,400 209
Novacare Inc.* 22,580 186
Noven Pharmaceuticals, Inc.* 6,000 83
</TABLE>
F-37
<PAGE> 133
SCHWAB SMALL-CAP INDEX FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
October 31, 1996
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- ----------
<S> <C> <C>
Organogenesis Inc. 6,200 $ 111
Owens & Minor Inc. (New) 8,700 82
PDT Inc. 3,400 84
PHP Healthcare Corp. 3,000 69
PLC Systems Inc.* 5,200 116
Patterson Dental Co.* 6,950 195
Perrigo Co.* 24,100 226
Physician Sales & Service Inc. 12,600 266
Protein Design Labs, Inc.* 4,800 116
Quintiles Transnational Corp. 6,100 400
Regeneron Pharmaceuticals Inc.* 9,400 178
Renal Treatment Centers Inc. 10,300 276
Respironics Inc.* 6,200 93
RoTech Medical Corp. 8,000 127
Roberts Pharmaceutical Corp.* 5,700 88
Salick Health Care, Inc.* 3,600 143
Sepracor Inc.* 9,600 155
Sequus Pharmaceuticals Inc.* 10,600 148
Sofamor/Danek Group Inc.* 8,000 220
Sola International Inc.* 7,300 264
Somatogen Inc.* 7,400 80
Summit Technology Inc. 10,000 56
Sunrise Medical Inc.* 6,000 89
Target Therapeutics Inc. 4,300 159
Tecnol Medical Products Inc.* 6,100 77
Thermedics Inc.* 12,200 253
Thermo Cardiosystems Inc. 7,050 224
U.S. Bioscience Inc.* 8,500 98
Ventritex Inc.* 7,000 160
Vertex Pharmaceuticals Inc.* 7,800 259
Vivus* 5,600 186
West Company Inc. 5,300 142
------
17,270
------
HOUSEHOLD PRODUCTS--0.3%
Bush Boake Allen Inc.* 5,600 144
Church & Dwight Inc. 6,100 131
Libbey Inc. 4,300 103
Playtex Products Inc.* 18,800 160
------
538
------
</TABLE>
F-38
<PAGE> 134
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- ----------
<S> <C> <C>
IMAGING & PHOTO--0.4%
Avid Technology, Inc.* 6,500 $ 89
BMC Industries, Inc. 8,200 243
Chyron Corp.* 30,700 157
Optical Imaging Systems Inc.* 31,200 88
Photronic, Inc.* 4,150 112
Robotic Vision Systems Inc.* 5,600 57
Ultratech Stepper Inc. 7,100 120
----
866
----
INSURANCE--5.7%
20th Century Industries* 16,300 261
Acordia, Inc. 4,300 123
Alexander & Alexander Services 13,700 209
Alfa Corp. 13,700 152
Allied Group Inc. 3,600 151
American Annuity Group, Inc. 15,350 209
American Bankers Insurance Group, Inc. 6,500 311
American Heritage Life Investment Corp. 5,200 115
American Travellers Corp. 6,100 209
Argonaut Group, Inc. 7,700 223
Arthur J. Gallagher & Co. 4,500 132
CMAC Investment Corp. 3,800 263
Capital Re Corp. 5,400 209
Capitol American Financial Corp. 6,500 236
Capsure Holdings Corp. 4,200 38
Citizens Corp. 13,600 274
Commerce Group Inc. 11,800 283
Compdent Corp.* 3,500 120
Conseco, Inc. 5,308 284
Crawford & Co. Class A 6,100 121
Crawford & Co. Class B 11,700 231
Delphi Financial Group, Inc. Class A 7,200 203
Enhance Financial Services Group Inc. 7,100 237
Executive Risk Inc. 4,300 177
Financial Security Assured Holdings Ltd. 10,100 283
Foremost Corp. of America 3,400 187
Fremont General Corp. 8,620 253
Frontier Insurance Group, Inc. 4,675 186
General Re Corp. 2,049 302
HCC Insurance Holdings, Inc. 11,250 287
</TABLE>
F-39
<PAGE> 135
SCHWAB SMALL-CAP INDEX FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
October 31, 1996
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- ----------
<S> <C> <C>
Harleysville Group Inc. 4,600 $ 128
Home Beneficial Corp. Class B 5,600 141
Horace Mann Educators Corp. (New) 7,500 257
Integon Corp. 4,200 79
John Alden Financial Corp. 8,200 153
Kansas City Life Insurance Co. 2,600 142
Liberty Corp. 6,300 217
Life Re Corp. 4,400 161
MAIC Holdings Inc. 2,572 84
MMI Companies, Inc. 3,500 101
Markel Corp.* 2,300 200
NAC Re Corp. 5,900 207
Orion Capital Corp. 4,400 239
Oxford Health Plans Inc. 4,400 200
Penncorp Financial Group Inc. 8,900 308
Presidential Life Corp. 11,800 134
Reinsurance Group of America Inc. 6,600 299
Reliance Group Holdings Inc. 36,000 297
Selective Insurance Group, Inc. 5,400 184
Sierra Health Services Inc.* 5,800 166
State Auto Financial Corp. 6,750 92
Trenwick Group Inc. 2,300 114
United Dental Care Inc.* 2,300 70
United Fire & Casualty Co. 3,500 114
United Insurance Companies, Inc.* 14,800 375
United Wisconsin Services, Inc. 4,000 104
Vesta Insurance Group Inc. 6,750 173
W.R. Berkley Corp. 6,900 356
Washington National Corp. 4,900 140
Zenith National Insurance Corp. 5,500 150
Zurich Reinsurance Centre Holdings, Inc. 8,300 249
------
11,903
------
MEDIA--2.1%
AMC Entertainment Inc.* 5,500 95
BET Holdings, Inc. Class A* 3,100 91
Banta Corp. 9,900 209
Cablevision Systems Corp. Class A* 4,700 146
Carmike Cinemas Inc.* 3,500 83
Central Newspapers Inc. Class A 7,500 302
Century Communications Corp. Class A* 23,837 161
</TABLE>
F-40
<PAGE> 136
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- ----------
<S> <C> <C>
Clear Channel Communications 950 $ 69
Evergreen Media 8,250 222
GC Companies Inc.* 2,380 81
Harte Hanks Communications (New) 12,700 329
Heartland Wireless Communications, Inc.* 6,400 138
Hollinger International Inc. 28,100 351
Houghton Mifflin Co. 4,500 223
International Family Entertainment Inc. Class B 15,125 270
John Wiley & Son, Inc. Class A 5,800 178
Jones Intercable Inc. Class A* 10,000 110
McClatchy Newspapers Inc. Class A 9,500 265
New World Communications Class A* 9,200 227
Oak Industries Inc.* 5,600 142
Paxson Communications Corp.* 8,000 71
Spelling Entertainment Group, Inc.* 28,600 207
TCA Cable TV Inc. 8,000 213
TSX Corp. 5,000 52
United International Holdings Inc. Class A* 9,200 115
Westwood One Inc.* 10,100 157
-----
4,507
-----
MISCELLANEOUS FINANCE--4.1%
1st Source Corp. 4,384 101
AMCORE Financial, Inc. 4,100 86
Aames Financial Corp. 7,650 341
Alex Brown Inc. 6,000 341
Americredit Corp.* 9,000 171
Astoria Financial Corp. 8,000 284
Bok Financial Corp. (New) 7,150 189
Cal-Federal Bancorp Inc.* 16,100 374
California Federal Bank* 960 11
Coast Savings Financial Inc.* 5,600 184
Collective Bancorp Inc. 6,400 193
Commercial Federal Corp. 4,800 201
Downey Financial Corp. 5,515 143
Eaton Vance Corp. (Non Voting) 3,500 153
First American Financial Corp. 3,600 135
First Financial Corp. 9,600 262
Fund American Enterprises Holdings, Inc. 2,709 243
Glendale Federal Bank (FSB) (New)* 14,300 263
Great Financial Corp. 4,700 137
</TABLE>
F-41
<PAGE> 137
SCHWAB SMALL-CAP INDEX FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
October 31, 1996
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- ----------
<S> <C> <C>
Home Financial Corp. 8,500 $ 138
Inter-Regional Financial Group, Inc. 3,650 118
Interpool Inc. 5,600 122
JSB Financial, Inc. 3,800 139
Jefferies Group, Inc. 3,900 139
John Nuveen Co. Class A 11,600 322
Legg Mason, Inc. 6,500 210
Money Store Inc. 17,675 460
Morgan Keegan, Inc. 5,500 80
Olympic Financial Ltd.* 12,600 200
Peoples Heritage Financial Group, Inc. 9,900 228
Pioneer Group Inc. 8,000 190
Quick & Reilly Group, Inc. 8,280 218
RCSB Financial Inc. 4,800 140
Raymond James Financial Inc. 6,800 166
Roosevelt Financial Group Inc. 14,100 244
Sovereign Bancorp Inc. 17,812 210
St. Paul Bancorp Inc. 6,000 159
Standard Financial Inc. 5,800 104
Student Loan Corp. 6,000 204
Value Line, Inc. 3,300 125
WFS Financial Inc. 9,240 193
Washington Federal, Inc. 13,600 327
Westcorp Inc. 8,500 202
White River Corp.* 2,000 120
-----
8,570
-----
MOTOR VEHICLE--1.4%
A.O. Smith Corp. Class B 6,600 173
Arctic Cat Inc. 10,150 96
Arvin Industries, Inc. 7,300 167
Borg Warner Automotive Inc. 7,400 284
Breed Technologies Inc. 9,800 225
Detroit Diesel Corp.* 8,900 165
Federal Mogul Corp. 12,300 275
Gentex Corp. 12,000 282
Hays Wheels International Inc.* 540 18
Mascotech Inc. 18,500 291
Modine Manufacturing Co. 10,800 270
Navistar International Corp.* 25,150 233
</TABLE>
F-42
<PAGE> 138
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- ----------
<S> <C> <C>
Standard Products Co. 5,100 $ 124
Superior Industries International, Inc. 10,200 249
Titan Wheel International Inc. 7,125 91
-----
2,943
-----
NON-FERROUS--1.0%
A.M. Castle & Co. 5,000 93
Brush Wellman Inc. 5,200 98
Coeur d'Alene Mines Corp. 7,600 111
Commercial Metals Co. 5,233 162
Hecla Mining Co.* 15,400 87
Kaiser Aluminum Corp.* 22,600 251
Minerals Technologies Inc. 7,500 294
Mueller Industries Inc. 5,600 225
Oregon Metallurgical Corp. 6,500 203
RMI Titanium Co.* 6,400 154
Reliance Steel & Aluminum Co. 3,000 110
Stillwater Mining Co.* 7,400 125
Wolverine Tube Inc.* 4,800 191
-----
2,104
-----
OIL-DOMESTIC--1.3%
Cross Timbers Oil Co. 6,400 151
Diamond Shamrock Inc. 11,500 338
KCS Energy, Inc. 4,000 173
Pogo Producing Co. 9,000 399
Quaker State Corp. 16,000 268
Smith International Inc.* 10,100 384
Snyder Oil Corp. 11,200 171
Tesoro Petroleum Corp.* 8,000 118
Tosco Corp. 4,806 270
Total Petroleum (North America) Ltd. 12,300 118
TransTexas Gas Corp.* 23,400 322
-----
2,712
-----
PAPER--0.9%
Buckeye Cellulose Corp.* 6,800 178
Caraustar Industries Inc. 8,600 250
Chesapeake Corp. 7,700 218
Longview Fibre Co. 16,200 281
Mosinee Paper Corp. 3,500 99
P.H. Glatfelter Co. 15,700 298
</TABLE>
F-43
<PAGE> 139
SCHWAB SMALL-CAP INDEX FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
October 31, 1996
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- ----------
<S> <C> <C>
Rock Tennessee Co. Class A 10,890 $ 199
Shorewood Packaging Corp.* 6,100 116
Wausau Paper Mills Co. 12,220 234
-----
1,873
-----
PRODUCER GOODS-MANUFACTURING--5.8%
AGCO Corp. 12,300 312
Albany International Corp. Class A (New) 9,000 203
American Financial Enterprises Inc. 4,700 122
Applied Power Inc. Class A 4,600 166
AptarGroup, Inc. 5,500 177
BT Office Products International Inc.* 10,200 84
BW/IP Holding, Inc. Class A 8,100 109
Baldor Electric Co. 8,540 172
Barnes Group Inc. 2,900 163
Bearings Inc. (New) 3,700 96
Blyth Industries Inc. 7,200 280
Boise Cascade Office Products Corp. 15,200 289
Clarcor Inc. 5,000 109
Collins & Aikman Corp.* 20,700 124
Commercial Intertech Corp. 4,950 55
Credence Systems Corp. 6,750 92
Cuno Inc.* 4,950 79
Donaldson Inc. 8,200 240
Duriron Inc. 8,000 215
Fedders USA Inc. 13,000 76
Figgie International Holdings Inc. Class A* 7,000 74
Fisher Scientific International, Inc. 6,700 301
General Binding Corp. 5,000 124
Giddings & Lewis Inc. 11,100 129
Goulds Pumps Inc. 7,400 171
Graco Inc. 5,475 125
Greenfield Industries Inc. 5,200 136
Helix Technology Corp. 3,300 88
Herman Miller, Inc. 8,300 360
Hexcel Corp. (New)* 11,400 208
Hughes Supply Inc. 3,000 114
IDEX Corp. 6,150 231
Insilco Corp.* 3,200 126
Ionics Inc.* 6,900 317
Juno Lighting Inc. 5,600 87
</TABLE>
F-44
<PAGE> 140
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- ----------
<S> <C> <C>
Kaydon Corp. 5,100 $ 208
Kennametal Inc. 8,900 303
Keystone International Inc. 11,300 203
Lawson Products, Inc. 3,900 84
Lincoln Electric Co. 3,700 104
Lincoln Electric Co. Class A (Non Voting) 8,200 229
Lydall Inc. 5,800 128
Manitowoc Inc. 4,000 134
Measurex Corp. 4,600 118
Myers Industry Inc. 5,450 84
NN Ball & Roller, Inc. 4,400 59
Nu-Kote Holding Inc. Class A 7,400 71
Precision Castparts Corp. 6,800 318
Quanex Corp. 4,000 114
Roper Industries 5,300 226
SPS Technologies, Inc.* 1,800 108
SPX Corp. 4,000 114
Standex International Corp. 4,000 123
Stewart & Stevenson Services, Inc. 10,400 220
Teleflex Inc. 6,150 296
Tencor Instruments 10,000 190
Texas Industries Inc. 3,600 204
Thermo Ecotek Corp. 6,300 95
TriMas Corp. 11,800 271
U.S. Filter Corp. (New) 12,450 430
UNR Industries, Inc. 16,600 111
Valhi, Inc. (New) 34,700 204
Valmont Industries, Inc. 4,500 154
Visx Inc. (Delaware)* 4,900 123
W.H. Brady Co. Class A 6,900 161
WMS Industries Inc.* 9,500 233
Watts Industries Inc. Class A 9,000 188
Westpoint Stevens Inc. Class A 10,100 269
Wyman Gordon Co.* 12,400 271
X-Rite, Inc. 6,600 123
------
12,025
------
</TABLE>
F-45
<PAGE> 141
SCHWAB SMALL-CAP INDEX FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
October 31, 1996
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- ----------
<S> <C> <C>
RAILROAD--0.3%
Florida East Coast Industry Inc. 2,900 $ 253
Overseas Shipholding Group 11,200 190
Westinghouse Air Brake Co. (New) 12,400 135
-----
578
-----
REAL PROPERTY--0.7%
Avatar Holdings, Inc.* 3,400 104
Castle & Cooke, Inc.* 7,000 108
Catellus Development Corp.* 28,300 279
Doubletree Corp.* 7,100 288
Forest City Enterprises, Inc. Class A 3,100 153
Insignia Financial Group Class A (New) 8,400 182
Lennar Corp. 11,400 254
Price Enterprises Inc. 7,800 131
-----
1,499
-----
RETAIL--5.5%
AnnTaylor Stores Corp.* 7,000 127
Arbor Drugs, Inc. 7,900 180
Authentic Fitness Corp. 7,500 83
Best Buy Co., Inc.* 12,100 198
Bruno's Inc. (New)* 402 6
Burlington Coat Factory Warehouse* 13,000 159
CDW Computer Centers Inc. 6,950 436
CUC International Inc. 16,919 415
Carson Pirie Scott & Co.* 5,200 129
Casey's General Stores Inc. 8,300 149
Charming Shoppes Inc. 34,900 160
Claire's Stores Inc. 17,400 296
CompUSA Inc. 16,000 740
Consolidated Stores Corp.* 6,100 236
Dollar Tree Stores Inc. 8,350 317
Duty Free International Inc. 8,800 141
Eagle Hardware & Garden, Inc.* 10,300 293
Family Dollar Stores, Inc. 19,800 337
Fingerhut Companies, Inc. 14,900 222
Fred Meyer Inc.* 11,000 386
Gymboree Corp.* 8,700 273
Hearx Ltd* 21,000 47
Hollywood Entertainment Corp. 11,700 242
Just for Feet Inc. 8,025 209
</TABLE>
F-46
<PAGE> 142
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- ----------
<S> <C> <C>
Lands' End, Inc.* 10,000 $ 215
Longs Drug Stores Corp. 6,300 283
MacFrugals Bargains-Close-Out* 8,000 195
Michaels Stores Inc.* 8,800 88
Petco Animal Supplies Inc. 6,300 147
Pier 1 Imports Inc. 15,745 220
Proffitt's, Inc.* 8,000 322
Quality Food Centers, Inc. 4,600 169
Regis Corp. 6,750 164
Ross Stores Inc. 9,000 373
Ruddick Corp. 14,900 194
Service Merchandise Co. Inc.* 33,562 197
Shopko Stores Inc. 12,800 206
Smart & Final Inc. 6,300 148
Smith's Food & Drug Centers, Inc. Class B 5,866 153
Sotheby's Holdings, Inc. Class A 20,600 350
Stanhome Inc. 5,700 151
Stein Mart Inc.* 7,200 129
Sunglass Hut International Inc. 7,100 62
Tiffany & Co. (New) 12,200 451
Unifirst Corp. 6,600 133
United Stationers Inc. 7,980 177
Urban Outfitters Inc. 6,200 96
Value City Department Stores Inc.* 10,000 128
Vitalink Pharmacy Services, Inc.* 4,600 106
Waban Inc.* 10,600 277
Wet Seal Inc.* 3,900 122
Whole Foods Market, Inc.* 9,000 231
Zale Corp. (New)* 11,000 213
------
11,481
------
STEEL--0.7%
Armco Inc.* 34,400 129
Birmingham Steel Corp. 8,300 133
Carpenter Technology Corp. 5,500 179
Chaparral Steel Co. 8,000 106
Cleveland Cliffs Inc. 3,700 152
Intermet Corp. 9,200 108
J & L Specialty Steel Inc. 15,000 176
Lukens Inc. 4,150 57
National Steel Corp. Class B* 13,300 115
</TABLE>
F-47
<PAGE> 143
SCHWAB SMALL-CAP INDEX FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
October 31, 1996
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- ----------
<S> <C> <C>
Oregon Steel Mills Inc. 9,500 $ 151
Rouge Steel Co. Class A 3,500 71
-----
1,377
-----
TELEPHONE--3.3%
ACC Corp. 4,650 195
Aliant Communications Inc. 11,400 182
American Mobile Satellite Corp.* 9,100 96
Andrew Corp. 1,912 93
Antec Corp.* 11,600 124
Arch Communications Group, Inc.* 6,700 77
Aspect Telecommunications Corp. 7,600 450
Associated Group Inc. Class A* 6,800 196
Boston Technology Inc. (New)* 8,400 139
C-TEC Corp.* 8,700 210
CFW Communications Co. 4,500 99
Cellular Communications International* 3,400 107
Centennial Cellular Corp. Class A* 6,200 80
Cidco Inc.* 4,700 90
Coherent Communications Systems Corp. 5,000 98
Coherent Inc.* 4,000 157
Comnet Cellular Inc.* 4,700 130
Emmis Broadcasting Corp. Class A* 2,800 101
General Datacom Industries Inc.* 6,500 63
Geotek Communications Inc.* 18,800 139
InterVoice, Inc.* 5,600 72
Interdigital Commerce Corp.* 14,100 91
Intermedia Communications Inc.* 6,100 194
Intermediate Telephone Inc.* 4,700 72
International Cabletel Inc. 10,333 244
Jacor Communications Inc.* 12,100 335
LCI International Inc. 16,200 516
Midcom Communications Inc.* 4,100 44
Mobile Telecommunications Technologies Corp.* 17,200 227
Mobilemedia Corp. Class A* 14,200 28
Octel Communications Corp. 15,400 245
P-Com Inc. 7,700 169
Pairgain Technologies Inc. 10,400 715
PictureTel Corp. (New) 6,600 178
Plantronics, Inc. (New)* 2,300 87
</TABLE>
F-48
<PAGE> 144
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- ----------
<S> <C> <C>
Renaissance Communications Corp. 9,400 $ 333
Roseville Communications Co. 4,800 112
U S Long Distance Corp. 4,700 40
Vanguard Cellular Systems, Inc. Class A* 13,750 228
Winstar Communications Inc.* 9,700 203
-----
6,959
-----
TOBACCO--0.1%
Schweitzer Mauduit International Inc. 5,100 157
-----
TRANSPORTATION-MISCELLANEOUS--1.5%
APL Ltd. 8,300 183
Air Express International Corp. 7,600 229
Airbourne Freight Corp. 6,700 133
American Freightways Corp.* 10,600 103
Arnold Industries Inc. 9,000 142
Expeditores International of Washington Inc. 3,900 164
Harper Group, Inc. 6,500 155
Heartland Express, Inc. 11,496 251
J.B. Hunt Transport Services Inc. 12,350 183
Landstar Systems, Inc.* 4,900 116
NACCO Industries, Inc. Class A 2,950 136
Pittston Co. (Burlington Group) 6,600 123
Roadway Express Inc. 7,400 118
Rollins Truck Leasing Corp. 13,900 158
Swift Transportation Inc.* 8,500 192
U.S. Freightways Corp. 7,800 171
Wabash National Corp. 6,100 98
Werner Enterprises Inc. 12,750 222
XTRA Corp. 5,200 216
Yellow Corp. 8,600 112
-----
3,205
-----
TRAVEL & RECREATION--1.5%
Acxiom Corp. 9,400 368
Anchor Gaming* 3,800 189
Aztar Corp.* 12,400 101
Bally Entertainment Corp. 14,800 446
Boyd Gaming Corp.* 19,900 147
Central Parking Corp. 5,500 190
K2 Inc. 6,415 148
</TABLE>
F-49
<PAGE> 145
SCHWAB SMALL-CAP INDEX FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
October 31, 1996
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- ----------
<S> <C> <C>
Marcus Corp. 6,750 $ 150
National Auto Credit Inc. 9,550 103
Players International Inc. 8,900 61
Primadonna Resorts Inc.* 9,800 157
Prime Hospitality Corp.* 11,900 181
Rio Hotel & Casino Inc.* 6,100 88
Showboat, Inc. 5,300 101
Sodak Gaming, Inc. 7,200 130
Speedway Motorsports, Inc. 10,000 229
Sports Authority Inc. 12,150 295
Station Casinos Inc.* 11,500 128
Stratosphere Corp.* 18,900 27
-----
3,239
-----
UTILITIES--4.3%
Aquila Gas Pipeline Corp. 8,800 128
Atmos Energy Corp. 5,200 124
Bay State Gas Co. 4,200 119
Black Hills Corp. 4,400 112
Central Hudson Gas & Electric Corp. 5,300 159
Central Louisiana Electric Co. (New) 7,200 195
Central Maine Power Co. 9,400 110
Cilcorp Inc. 4,000 146
Commonwealth Energy System (Shares of Beneficial
Interest) 7,200 173
Destec Energy, Inc.* 18,000 270
Eastern Enterprises 7,800 300
Eastern Utilities Association 6,000 97
Empire District Electric Co. 4,400 83
Global Industrial Technologies Inc.* 6,800 127
IES Industries Inc. 9,500 292
Indiana Energy Inc. 6,700 164
Interstate Power Co. 3,000 91
K N Energy Inc. 8,668 324
Laclede Gas Co. 5,300 124
MDU Resources Group, Inc. 10,600 237
Madison Gas & Electric Co. 5,400 111
Minnesota Power & Light Co. 10,000 283
New Jersey Resources Corp. 5,400 149
Northwest Natural Gas Co. 7,850 198
Oneok Inc. 9,100 245
</TABLE>
F-50
<PAGE> 146
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- ----------
<S> <C> <C>
Orange & Rockland Utilities, Inc. 4,600 $ 162
Otter Tail Power Co. 3,500 113
Philadelphia Suburban Corp. 4,950 84
Piedmont Natural Gas Inc. 9,400 230
Primark Corp.* 7,600 189
Public Service Co. of New Mexico 13,500 253
Public Service Co. of North Carolina Inc. 6,000 108
Rochester Gas & Electric Corp. 12,300 229
Seagull Energy Corp.* 19,392 419
Sierra Pacific Resources 9,600 268
SIGCORP, Inc. 4,966 169
Southern Union Co. (New) 5,233 130
Southwest Gas Corp. 8,400 161
Southwestern Energy Co. 6,900 103
Tejas Gas Corp. 7,445 302
TNP Enterprises Inc. 5,500 142
Triarc Cos., Inc. Class A* 8,900 105
Tuscon Electric Power Co.* 10,720 212
UGI Corp. (New) 10,800 255
United Illuminating Co. 4,400 146
United Water Resources Inc. 12,300 192
WPS Resources Corp. 8,100 241
Washington Energy Co. 7,100 137
Western Gas Resources Inc. 7,500 119
Wicor Inc. 5,700 201
-------
9,031
-------
TOTAL COMMON STOCK
(Cost $172,001) 208,321
-------
WARRANTS--0.0%
Jacor Communications Inc.* (expire 09/18/01) 6,600 14
-------
TOTAL WARRANTS
(Cost $152) 14
-------
</TABLE>
F-51
<PAGE> 147
SCHWAB SMALL-CAP INDEX FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
October 31, 1996
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- ----------
<S> <C> <C>
CASH EQUIVALENTS--0.5%
Seven Seas Money Market Fund+
5.04%, 11/07/96 932,151 $ 932
-------
TOTAL CASH EQUIVALENTS
(Cost $932) 932
-------
TOTAL INVESTMENTS--100.1%
(Cost $173,085) 209,267
-------
OTHER ASSETS AND LIABILITIES--(0.1%)
Other Assets 225
Liabilities (367)
-------
(142)
-------
NET ASSETS--100.0% (Note 8)
Applicable to 15,392,160 outstanding shares,
$0.00001 par value (unlimited shares authorized) $209,125
-------
-------
NET ASSET VALUE PER SHARE $13.59
-----
-----
</TABLE>
- ---------------
* Non-Income Producing Security
+ Interest rate represents the yield on October 31, 1996.
See accompanying Notes to Financial Statements.
F-52
<PAGE> 148
- ------------------------------------------------------------------------------
STATEMENT OF OPERATIONS (in thousands)
Year ended October 31, 1996
<TABLE>
<S> <C>
Investment income:
Dividends $ 1,903
Interest 89
-------
Total investment income 1,992
-------
Expenses:
Investment advisory and administration fee 867
Transfer agency and shareholder service fees 434
Custodian fees 100
Registration fees 68
Professional fees 61
Shareholder reports 68
Trustees' fees 16
Amortization of deferred organization costs 15
Insurance and other expenses 5
-------
1,634
Less expenses reduced (Note 4) (610)
-------
Total expenses incurred by Fund 1,024
-------
Net investment income 968
-------
Net realized loss on investments sold (647)
Increase in net unrealized gain on investments 22,556
-------
Net gain on investments 21,909
-------
Increase in net assets resulting from operations $22,877
=======
</TABLE>
See accompanying Notes to Financial Statements.
F-53
<PAGE> 149
Schwab Small-Cap Index Fund(R)
- ------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS (in thousands)
<TABLE>
<CAPTION>
Year ended
October 31,
1996 1995
-------- --------
<S> <C> <C>
Operations:
Net investment income $ 968 $ 596
Net realized gain (loss) on investments sold (647) 291
Increase in net unrealized
gain on investments 22,556 13,029
-------- --------
Increase in net assets resulting
from operations 22,877 13,916
-------- --------
Dividends to shareholders from
net investment income (673) (408)
-------- --------
Capital share transactions:
Proceeds from shares sold 106,790 64,687
Net asset value of shares issued in
reinvestment of dividends 604 364
Early withdrawal fees 61 41
Less payments for shares redeemed (42,608) (24,654)
-------- --------
Increase in net assets from
capital share transactions 64,847 40,438
-------- --------
Total increase in net assets 87,051 53,946
Net assets:
Beginning of period 122,074 68,128
-------- --------
End of period (including undistributed net
investment income of $779 and $484,
respectively) $209,125 $122,074
======== ========
Number of Fund shares:
Sold 8,182 5,910
Reinvested 49 38
Redeemed (3,271) (2,296)
-------- --------
Net increase in shares outstanding 4,960 3,652
Shares outstanding:
Beginning of period 10,432 6,780
-------- --------
End of period 15,392 10,432
======== ========
</TABLE>
See accompanying Notes to Financial Statements.
F-54
<PAGE> 150
- ------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
Year ended October 31, 1996
1. DESCRIPTION OF THE FUND
The Schwab Small-Cap Index Fund (the "Fund") is a series of Schwab Capital Trust
(the "Trust"), a no-load, open-end, investment management company organized as a
Massachusetts business trust on May 7, 1993 and registered under the Investment
Company Act of 1940, as amended.
In addition to the Fund, the Trust also offers the Schwab International 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
investments in money market funds are valued at the last sale price for a given
day, or if a sale is not reported for that day, at the mean between the most
recent quoted bid and asked prices. Unlisted securities for which market
quotations are readily available are valued at the mean between the most recent
bid and asked prices. Securities for which no quotations are readily available
are valued at fair value as determined by the Fund's investment manager pursuant
to guidelines adopted in good faith by the Board of Trustees. Short-term
securities with 60 days or less to maturity are stated at amortized cost, which
approximates market value.
F-55
<PAGE> 151
SCHWAB SMALL-CAP INDEX FUND(R)
- ------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
Year ended October 31, 1996
Security transactions and investment income -- Security transactions are
accounted for on a trade date basis (date the order to buy or sell is executed).
Dividend income and distributions to shareholders are recorded on the
ex-dividend date; interest income is recorded on the accrual basis. Realized
gains and losses from security transactions are determined on an identified cost
basis.
Repurchase agreements -- Repurchase agreements are fully collateralized by U.S.
Treasury or government agency securities. All collateral is held by the Fund's
custodian and is monitored daily to ensure that its market value at least equals
the repurchase price under the agreement.
Deferred organization costs -- Costs incurred in connection with the
organization of the Fund and its initial registration with the Securities and
Exchange Commission 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 October 31, 1996, (for financial reporting and federal income tax purposes),
net unrealized gain aggregated $36,182,000, of which $49,087,000 related to
appreciated securities and $12,905,000 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
F-56
<PAGE> 152
- ------------------------------------------------------------------------------
services and facilities furnished, the Fund pays an annual fee, payable monthly,
of 0.50% of the first $300 million of average daily net assets and 0.45% of such
assets over $300 million. Under this agreement, the Fund incurred investment
advisory and administration fees of $867,000 during the year ended October 31,
1996, before the Investment Manager reduced its fee (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 the average daily net assets for
transfer agency services and 0.20% of such assets for shareholder services. For
the year ended October 31, 1996, the Fund incurred transfer agency and
shareholder service fees of $434,000, before Schwab reduced its fees (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
year ended October 31, 1996, 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 $16,000 related to
the Trust's unaffiliated trustees.
4. EXPENSES REDUCED BY THE INVESTMENT MANAGER AND SCHWAB
The Investment Manager and Schwab reduced a portion of their fees in order to
limit the Fund's ratio of operating expenses to average net assets. For the year
ended October 31, 1996, the total of such fees reduced by the Investment Manager
and Schwab was $347,000 and $263,000, respectively.
5. BORROWING AGREEMENT
The Trust has an arrangement with State Street Bank and Trust Company, the
Fund's custodian, whereby the Fund may borrow up to $10,000,000, on a temporary
basis, to fund redemptions. Amounts
F-57
<PAGE> 153
SCHWAB SMALL-CAP INDEX FUND(R)
- ------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
Year ended October 31, 1996
borrowed under this arrangement bear interest at periodically negotiated rates
and may be collateralized by the assets of the Fund. During the year ended
October 31, 1996, no borrowings were made under this arrangement.
6. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities, other than short-term obligations,
aggregated (in thousands) $116,019 and $50,425, respectively, for the year ended
October 31, 1996.
7. EARLY WITHDRAWAL FEES PAID TO THE FUND
The Fund assesses a 0.50% early withdrawal fee on redemption proceeds
attributable to shares purchased and held less than six months. The early
withdrawal fee is retained by the Fund and is treated as a contribution to
capital. For the year ended October 31, 1996, total early withdrawal fees
retained by the Fund amounted to $61,000.
8. COMPOSITION OF NET ASSETS
At October 31, 1996, net assets consisted of (in thousands):
<TABLE>
<S> <C>
Paid in capital $173,048
Accumulated undistributed net investment income 779
Accumulated net realized loss on investments sold (884)
Net unrealized gain on investments 36,182
------------
Total $209,125
============
</TABLE>
At October 31, 1996, the Fund's Statement of Net Assets included: $13,000
payable for investments purchased, $223,000 payable for Fund shares redeemed,
$21,000 payable for investment advisory and administration fee and $66,000
receivable for Fund shares sold.
F-58
<PAGE> 154
- ------------------------------------------------------------------------------
9. FINANCIAL HIGHLIGHTS
For a share outstanding throughout each period:
<TABLE>
<CAPTION>
PERIOD ENDED
YEAR ENDED OCTOBER 31, OCTOBER 31,
1996 1995 1994 ++
----------- ----------- ------------
<S> <C> <C> <C>
Net asset value at beginning of period $ 11.70 $ 10.05 $ 10.00
Income from investment operations
Net investment income 0.07 0.10 0.06
Net realized and unrealized gain on
investments 1.88 1.61 --
-------- -------- -------
Total from investment operations 1.95 1.71 0.06
Less distributions
Dividends from net investment income (0.06) (0.06) (0.01)
Distributions from realized gain on
investments -- -- --
-------- -------- -------
Total distributions (0.06) (0.06) (0.01)
-------- -------- -------
Net asset value at end of period $ 13.59 $ 11.70 $ 10.05
======== ======== =======
Total return (not annualized) 16.73% 17.11% 0.63%
Ratios/Supplemental data
Net assets, end of period (000s) $ 209,125 $ 122,074 $ 68,128
Ratio of expenses to average net assets + 0.59% 0.68% 0.67%*
Ratio of net investment income to
average net assets + 0.56% 0.68% 0.68%*
Portfolio turnover rate 23% 24% 16%
Average commission rate $0.03
- ---------------
</TABLE>
+ The information contained in the above table is based on actual expenses for
the periods, after giving effect to the portion of fees and expenses reduced
by the Investment Manager and Schwab. Had these fees and expenses not been
reduced, the Fund's expense and net investment income ratios would have been:
<TABLE>
<S> <C> <C> <C>
Ratio of expenses to average net assets 0.94% 1.02% 1.19%*
Ratio of net investment income to
average net assets 0.21% 0.34% 0.16%*
</TABLE>
++ For the period December 3, 1993 (commencement of operations) to October 31,
1994.
* Annualized
F-59
<PAGE> 155
- ------------------------------------------------------------------------------
To the Trustees and Shareholders of
the Schwab Small-Cap Index Fund(R)
In our opinion, the accompanying statement of net assets 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
the Schwab Small-Cap Index Fund (one of the series constituting Schwab Capital
Trust, hereafter referred to as the "Trust") at October 31, 1996, the results of
its operations, the changes in its net assets and financial highlights for 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, 1996 by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
PRICE WATERHOUSE LLP
San Francisco, California
November 27, 1996
1996 SPECIAL TAX INFORMATION (UNAUDITED)
NOTICE TO CORPORATE SHAREHOLDERS
100% of the Fund's distributions for the fiscal year ended October 31,
1996 qualify for the corporate dividends received deduction.
F-60
<PAGE> 156
SCHWAB ASSET DIRECTOR--HIGH GROWTH FUND(R)
- ------------------------------------------------------------------------------
Statement of Net Assets
October 31, 1996
<TABLE>
<CAPTION>
Number
of Shares Value
--------- -----------
<S> <C> <C>
COMMON STOCK--76.3%
DOMESTIC--56.4%
AEROSPACE/DEFENSE--1.1%
AAR Corp. 500 $ 14,250
Alliant Techsystems Inc.* 900 43,988
BFGoodrich Co. 300 12,713
Boeing Co. 2,700 257,513
Curtiss-Wright Corp. 100 5,413
Gencorp Inc. 900 14,850
General Dynamics Corp. 400 27,450
Lockheed Martin Corp. 1,900 170,288
McDonnell Douglas Corp. 1,600 87,200
Northrop Grumman Corp. 400 32,300
OEA, Inc. 1,000 37,750
Orbital Sciences Corp. Class A* 1,000 21,125
Raytheon Co. 1,700 83,725
Rockwell International Corp. 1,500 82,500
Rohr Industries Inc.* 400 7,400
Textron Inc. 1,100 97,625
Thiokol Corp. 500 20,938
Trimble Navigation Ltd.* 500 7,094
United Technologies Corp. 900 115,875
---------
1,139,997
---------
AIR TRANSPORTATION--0.3%
AMR Corp.* 800 67,200
Alaska Air Group Inc.* 300 6,600
Atlantic Southeast Airlines Inc. 1,100 23,100
Delta Airlines Inc. 700 49,613
Mesa Air Group Inc.* 2,000 18,750
Offshore Logistics, Inc.* 400 6,725
Southwest Airlines Co. 800 18,000
Trans World Airlines Inc. (New)* 1,500 12,000
USAir Group, Inc.* 3,000 52,125
Valujet Inc. 1,900 18,644
---------
272,757
---------
ALCOHOLIC BEVERAGES--0.3%
Adolph Coors Co. Class B 1,800 34,988
Anheuser-Busch Companies, Inc. 3,600 138,600
Brown Forman Corp. Class B 500 21,625
Canandaigua Wine Co., Inc. Class A* 700 16,013
Seagram Company Ltd. 2,200 83,325
---------
294,551
---------
</TABLE>
F-61
<PAGE> 157
SCHWAB ASSET DIRECTOR--HIGH GROWTH FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
October 31, 1996
<TABLE>
<CAPTION>
Number
of Shares Value
--------- -----------
<S> <C> <C>
APPAREL--0.4%
Brown Group Inc. 500 $ 10,313
Burlington Industries Inc.* 1,800 20,475
Cone Mills Corp.* 600 4,725
Donnkenny Inc. 500 6,250
Fabri-Centers of America, Inc. Class A 200 2,600
Guilford Mills, Inc. 400 9,500
Justin Industries Inc. 600 6,150
Kellwood Co. 500 9,000
Liz Claiborne Inc. 400 16,900
Men's Wearhouse, Inc. 500 10,281
NIKE, Inc. Class B 1,800 105,975
Nautica Enterprises Inc. 2,000 61,250
Phillips-Van Heusen Corp. 600 6,600
Reebok International Ltd. 400 14,300
Russell Corp. 200 5,675
St. John's Knits, Inc. 600 27,450
Stride Rite Corp. 2,300 18,975
Unitog Co. 400 10,950
V.F. Corp. 400 26,150
Wolverine World Wide Inc. 1,350 33,413
-------
406,932
-------
AUTOMOTIVE PRODUCTS--0.1%
APS Holding Corp. Class A* 300 6,225
Armor-All Products Corp. 500 8,313
Carlisle Cos. Inc. 900 51,188
Cooper Tire & Rubber 400 7,850
Discount Auto Parts Inc.* 400 8,700
Goodyear Tire & Rubber 1,000 45,875
O'Reilly Automotive, Inc.* 200 7,050
-------
135,201
-------
BANKS--4.4%
ALBANK Financial Corp. 360 10,035
Associated Banc-Corp. 900 35,888
Banc One Corp. 2,850 120,769
Bancorp South, Inc. 1,400 35,263
Bank of Boston Corp. 1,300 83,200
Bank of New York Co., Inc. 2,600 86,125
BankAmerica Corp. 2,900 265,350
Bankers Trust New York Corp. 1,000 84,500
Barnett Banks, Inc. 1,200 45,750
Boatmens Bancshares Inc. 1,400 85,138
CCB Financial Corp. 900 51,300
CNB Bancshares Inc. 420 12,495
Centura Banks Inc. 1,100 42,763
</TABLE>
F-62
<PAGE> 158
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares Value
--------- -----------
<S> <C> <C>
Chase Manhattan Corp. (New) 3,440 $294,980
Chemical Financial Corp. 300 11,213
Citicorp 4,200 415,800
Citizens Bancorp 400 20,400
Citizens Banking Corp. 400 11,600
City National Corp. 1,600 28,000
Cole Taylor Financial Group Inc. 400 12,050
Colonial BancGroup Inc. 300 11,363
Comerica Inc. 900 47,813
Corestates Financial Corp. 1,600 77,800
Corus Bankshares Inc. 500 15,563
Cullen/Frost Bankers Inc. 600 18,113
Dauphin Deposit Bank & Trust Co. 1,100 35,888
Deposit Guaranty Corp. 700 35,088
F & M National Corp. 400 7,400
Fifth Third Bancorp 700 43,925
First Bank System Inc. 982 64,812
First Chicago NBD Corp. 1,805 92,055
First Citizens BancShares Inc. 300 20,175
First Commercial Bancshares Inc. 300 8,363
First Commercial Corp. 1,236 41,864
First Commonwealth Financial Corp. 1,000 18,000
First Financial Bancorp 880 27,390
First Hawaiian, Inc. 1,100 34,100
First Michigan Bank Corp. 700 17,500
First Midwest Bancorp Inc. 300 9,563
First Union Corp. 2,275 165,506
Firstbank Illinois Co. 300 9,769
Fleet Financial Group Inc. (New) 1,924 95,960
Fort Wayne National Corp. 300 10,388
Fulton Financial Corp. 880 17,490
HUBCO, Inc. 412 8,884
Hancock Holding Co. 700 27,913
Imperial Bancorp 486 9,325
J.P. Morgan & Co. Inc. 1,600 138,200
Jefferson Bankshares, Inc. 500 13,781
Keycorp (New) 1,400 65,275
Keystone Financial Inc. 1,650 42,694
Liberty Bancorp, Inc. 300 11,513
Long Island Bancorp Inc. 800 23,850
MBNA Corp. 1,600 60,400
Magna Group Inc. 1,200 33,450
Mark Twain Bancshares Inc. 900 41,288
Mellon Bank Corp. 900 58,613
Mid-Am, Inc. 440 7,755
National Bancorp of Alaska, Inc. 700 45,325
</TABLE>
F-63
<PAGE> 159
SCHWAB ASSET DIRECTOR--HIGH GROWTH FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
October 31, 1996
<TABLE>
<CAPTION>
Number
of Shares Value
--------- -----------
<S> <C> <C>
National City Corp. 1,200 $ 52,050
National Commerce Bancorp 1,100 38,775
NationsBank Corp. 2,700 254,475
New York Bancorp Inc. 300 10,163
North Fork Bancorporation 1,100 34,788
Norwest Corp. 2,210 96,964
ONBANCorp, Inc. 400 14,575
Old National Bancorp 800 29,100
One Valley Bancorp of West Virginia Inc. 625 20,195
PNC Bank Corp. 2,500 90,625
Park National Corp. 200 9,650
People's Bank Bridgeport Conn. 1,400 35,875
Provident Bancorp Inc. 1,350 59,822
Provident Bankshares Corp. 300 10,763
Queens County Bancorp, Inc. 266 11,538
Republic New York Corp. 300 22,875
Riggs National Corp. Washington D.C. 700 11,900
S & T Bancorp, Inc. 300 9,413
Security Capital Corp. 300 19,875
Sumitomo Bank 400 10,150
Suntrust Banks, Inc. 1,600 74,600
Susquehanna Bancshares, Inc. 300 8,813
Toronto-Dominion Bank 1,464 34,221
Toronto-Dominion Bank (Ontario)* 245 5,727
TrustCo Bank Corp. NY 460 10,063
Trustmark Corp. 1,500 37,125
U S Trust Corp. (New) 300 18,750
U.S. Bancorp 885 35,345
UMB Financial Corp. 1,050 41,081
Union Planters Corp. 1,220 42,395
United Bankshares, Inc. 300 9,000
United Carolina Bancshares Corp. 600 15,450
Wachovia Corp. (New) 1,100 59,125
Wells Fargo & Co. 533 142,378
Westamerica Bancorp 300 15,263
Whitney Holding Corp. 400 12,750
---------
4,672,430
---------
BUSINESS MACHINES & SOFTWARE--4.2%
3COM Corp. 1,200 81,225
AST Research Inc.* 1,200 5,475
Amati Communications Corp.* 700 12,206
Amdahl Corporation* 600 6,150
Analogic Corp. 500 13,625
Apple Computer, Inc. 800 18,500
Applied Magnetics Corp.* 900 19,238
Auspex Systems, Inc.* 700 7,131
</TABLE>
F-64
<PAGE> 160
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares Value
--------- -----------
<S> <C> <C>
Autodesk, Inc. 100 $ 2,288
BBN Corp.* 500 10,688
BancTec, Inc.* 700 14,263
Bay Networks, Inc. 800 16,200
Black Box Corp.* 500 17,000
Borland International Inc.* 700 3,566
Broderbund Software Inc.* 700 19,600
Cabletron Systems Inc.* 1,000 62,375
Ceridian Corp.* 428 21,240
Cheyenne Software Inc.* 1,300 39,488
Cisco Systems Inc. 5,300 327,606
Compaq Computer Corp.* 2,200 153,175
Computer Assoc. International Inc. 3,050 180,331
Computer Horizons Corp. 600 18,675
Computer Products, Inc.* 800 15,750
Computer Sciences Corp.* 1,190 88,358
Compuware Corp.* 1,200 63,600
Comshare, Inc. 300 4,181
Comverse Technology Inc. (New)* 800 27,900
Control Data Systems, Inc.* 500 11,719
Data General Corp.* 1,500 22,313
Dell Computer Corp. 800 65,200
Digi International Inc.* 300 4,406
Digital Equipment Corp.* 1,100 32,450
EMC Corp.* 1,500 39,375
Exabyte Corp.* 500 6,531
FileNet Corp.* 400 11,300
Geoworks* 500 10,094
HCIA Inc.* 700 19,600
HNC Software Inc. 400 12,550
Hewlett Packard Co. 7,700 339,763
Honeywell Inc. 900 55,913
INSO Corp. 800 39,300
Intergraph Corp.* 2,300 21,706
International Business Machines 3,900 503,100
JTS Corp.* 2,200 8,250
Learning Co. Inc.* 1,200 25,611
Legato Systems Inc. 600 21,375
McAfee Associates, Inc. 1,575 71,761
Metatools Inc.* 500 9,688
Microchip Technology Inc.* 1,200 43,350
Microsoft Corp.* 4,400 604,175
Mylex Corp.* 800 10,150
National Computer Systems, Inc. 500 10,688
National Instruments Corp.* 500 14,500
Novell Inc.* 2,100 19,556
</TABLE>
F-65
<PAGE> 161
SCHWAB ASSET DIRECTOR--HIGH GROWTH FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
October 31, 1996
<TABLE>
<CAPTION>
Number
of Shares Value
--------- -----------
<S> <C> <C>
Novellus Systems, Inc.* 600 $ 24,750
Oak Technology 2,000 20,000
Optical Data Systems, Inc. 400 5,800
Oracle Systems Corp. 4,350 184,059
Pitney Bowes Inc. 1,000 55,875
Platinum Technology Inc.* 1,900 27,550
Project Software & Development Inc. 400 13,350
Pure Atria Corp.* 617 16,775
Quantum Corp.* 1,800 36,338
Rational Software Corp. (New) 1,800 68,738
Read-Rite Corp.* 1,600 28,200
Safeguard Scientifics Inc. 1,800 71,550
Santa Cruz Operations, Inc.* 1,500 10,406
Seagate Technology, Inc. 684 45,657
Security Dynamics Technology 1,300 104,975
Sequent Computer Systems, Inc.* 800 11,850
Shiva Corp. 800 32,950
Silicon Graphics Inc.* 1,276 23,606
Stac Inc.* 700 5,119
Stratus Computer Inc.* 1,100 24,613
Structural Dynamics Research Corp.* 1,300 22,994
Sun Microsystems Inc. 1,500 91,406
System Software Associates, Inc. 1,500 17,531
Tandem Computers Inc.* 600 7,575
Tech Data Corp.* 1,400 35,963
Transaction Systems Architects Inc. Class A 900 36,900
Unisys Corp.* 900 5,625
Veritas Software Co. 500 25,375
Videoserver Inc.* 300 14,119
Wang Laboratories Inc. (New)* 1,300 30,306
Wind River Systems Inc. 450 18,956
Xerox Corp. 2,400 111,300
Xircom, Inc.* 700 14,219
---------
4,528,688
---------
BUSINESS SERVICES--2.7%
ABM Industries, Inc. 600 10,575
ABR Information Services Inc. 800 55,100
Access Health Inc. 900 29,475
Ackerley Inc. 1,200 14,700
Addington Resources, Inc.* 600 16,650
Affiliated Computer Services Inc. Class A 600 32,550
Allegiance Corp.* 320 6,000
Alternative Resources Corp. 400 7,975
American Business Information, Inc. 500 9,500
American Business Products, Inc. 400 8,900
American Homepatient Inc. 800 18,900
</TABLE>
F-66
<PAGE> 162
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares Value
--------- -----------
<S> <C> <C>
American Medical Response, Inc.* 1,000 $ 30,000
Amresco Inc. 1,000 20,938
Analysts International Corp. 600 14,700
Apollo Group, Inc. Class A 2,250 61,313
Applix Inc. 300 7,200
Aspen Technology Inc.* 200 13,400
Automatic Data Processing, Inc. 1,700 70,763
BISYS Group, Inc.* 700 26,119
Bell & Howell Co. (New)* 700 18,725
Billing Information Concepts Corp.* 500 12,938
Bowne & Co. Inc. 400 9,350
Browning Ferris Industries Inc. 1,300 34,125
CDI Corp.* 600 16,500
Cambridge Technology Partners 1,200 39,450
Camco International Inc. 1,100 42,625
Catalina Marketing Corp. 1,100 55,963
Cellular Technical Services Inc. 400 6,475
Cerner Corp. 1,100 13,131
Checkfree Corp.* 1,100 19,938
Clintrials Research Inc. 300 11,194
Compucom Systems Inc.* 1,500 14,719
Computer Task Group Inc. 400 15,100
Computervision Corp. (New)* 2,200 19,800
Continental Waste Industries Inc.* 600 14,925
Coventry Corp.* 1,300 13,000
Culligan Water Technologies Inc.* 700 26,250
Dames & Moore Inc. 500 6,688
Data Broadcasting* 1,100 8,044
DeVRY Inc. 900 44,888
Deluxe Corp. 100 3,263
Dionex Corp. 400 15,500
Dun & Bradstreet Corp. 1,400 81,025
Dynatech Corp.* 700 34,694
Ecolab Inc. 300 10,950
Electro Rental 400 9,400
Employee Solutions Inc. 1,200 26,400
Envoy Corp. (New)* 400 14,800
Epic Design Technology Inc. 500 12,375
Express Scripts Inc. Class A* 900 25,313
Fair Issac & Co. Inc. 300 11,288
First Data Corp. 1,800 143,550
Franklin Quest Co.* 1,000 20,250
G&K Services, Inc. Class A 500 14,500
GRC International, Inc.* 200 2,825
H & R Block Inc. 600 14,850
HA-LO Industries Inc. 400 12,600
</TABLE>
F-67
<PAGE> 163
SCHWAB ASSET DIRECTOR--HIGH GROWTH FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
October 31, 1996
<TABLE>
<CAPTION>
Number
of Shares Value
--------- -----------
<S> <C> <C>
Health Management Systems, Inc. 450 $10,519
Healthplan Services Corp.* 600 10,875
Heritage Media Corp. Class A (New) 1,000 15,250
Hon Industries Inc. 1,100 38,913
Horizon Healthcare Corp.* 1,800 18,675
ITT Educational Services Inc. 450 16,369
Information Resources, Inc.* 600 7,613
Inphynet Medical Management Inc.* 800 12,700
Integrated Health Services Inc. 1,000 24,625
Integrated Systems Consulting Group 150 2,438
Integrated Systems Inc. Class A 600 15,975
Intelligent Electronics Inc. 1,400 12,250
Interim Services Inc.* 400 16,000
Interpublic Group of Companies, Inc. 500 24,250
Jack Henry & Associates Inc. 300 12,188
Jacobs Engineering Group Inc.* 1,100 24,338
Jenny Craig, Inc.* 800 7,200
John H. Harland Co. 1,500 46,688
Keane, Inc. 800 37,100
Kinder Care Learning Centers Inc.* 600 11,888
Kirby Corp.* 800 15,600
Kronos, Inc. 300 8,738
Laidlaw Inc. Class B (Non Voting) 1,500 17,625
Mariner Health Group Inc.* 1,100 9,213
Maxicare Health Plans Inc. (New)* 900 16,819
Metromedia International Group, Inc.* 2,600 25,675
Micro Warehouse, Inc.* 1,200 27,750
Molten Metal Technology, Inc.* 1,100 14,713
Moore Corp. Ltd. 500 10,125
National Data Corp. 900 37,013
National Education Corp.* 1,000 16,250
National Media Corp.* 100 1,200
National Service Industries, Inc. 200 6,900
Netcom Online Communications* 300 4,538
Netmanage Inc.* 1,400 9,581
Network Equipment Technologies* 500 6,688
New England Business Service, Inc. 400 7,200
Norrell Corp. Georgia 800 20,000
Occusystems Inc.* 600 16,538
Oceaneering International, Inc.* 800 14,400
Ogden Corp. 4,000 72,500
Orthodontic Centers of America Inc. 1,600 22,800
PAXAR Corp. 625 10,078
PSINet Inc.* 1,300 12,431
Payment Services Inc. 750 15,000
Pharmaceutical Product Development Inc.* 405 7,796
</TABLE>
F-68
<PAGE> 164
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares Value
--------- -----------
<S> <C> <C>
Physician Corp. of America* 1,100 $ 12,238
Physicians Computer Network* 1,500 13,406
Pre-Paid Legal Services, Inc.* 800 9,400
Quarterdeck Corp.* 1,100 5,672
R.R. Donnelley & Sons Co. 1,000 30,375
Rollins, Inc. 1,200 22,950
Rykoff-Sexton, Inc. 400 5,700
SEI Corp. 500 10,063
SPS Transaction Services, Inc.* 900 14,400
SUPERVALU Inc. 300 8,925
Safety-Kleen Corp. 300 4,688
Scientific Games Holdings Corp.* 800 18,100
Seacor Holdings Inc.* 300 16,200
Service Corp. International 1,600 45,600
Shared Medical Systems Corp. 100 4,813
Sitel Corp. 1,200 23,625
Standard Register Co. 1,200 31,200
Sun Healthcare Group Inc.* 1,300 16,575
Symantec Corp.* 1,800 19,463
Synetic Inc.* 900 33,131
TCSI Corp. 700 5,513
Technology Solutions Co. 600 23,250
True North Communications 700 16,625
United Waste Systems, Inc. 1,800 61,650
Universal Health Services Inc. Class B 1,300 32,500
Valassis Communications Inc.* 1,700 30,600
Viad Corp. 1,100 15,950
Viasoft Inc. 600 29,700
Volt Information Sciences Inc. 300 11,775
WMX Technologies Inc. 3,500 120,313
Zebra Technologies Corp. Class A 1,600 46,000
---------
2,885,594
---------
CHEMICAL--1.8%
Air Products & Chemicals Inc. 1,000 60,000
Arcadian Corp. 1,100 27,088
Calgon Carbon Corp. 1,100 11,000
Cambrex Corp. 600 18,750
Chemed Corp. 300 11,700
Crompton & Knowles Corp. 2,278 41,004
Cytec Industries Inc. 1,500 53,625
Dexter Corp. 1,100 34,100
Dow Chemical Co. 2,300 178,825
E.I. Du Pont de Nemours & Co. 4,700 435,925
Eastman Chemical Co. 500 26,375
Ferro Corp. 1,200 32,400
First Mississippi Corp. 1,000 29,000
</TABLE>
F-69
<PAGE> 165
SCHWAB ASSET DIRECTOR--HIGH GROWTH FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
October 31, 1996
<TABLE>
<CAPTION>
Number
of Shares Value
--------- -----------
<S> <C> <C>
Geon Co. 1,100 $ 21,588
Great Lakes Chemical Corp. 400 20,850
H.B. Fuller Co. 400 16,650
Hercules Inc. 700 33,338
Lawter International Inc. 1,200 14,100
Lilly Industrial Inc. Class A 500 9,000
Millennium Chemicals Inc.* 380 7,695
Minnesota Mining & Manufacturing Co. 3,200 245,200
Monsanto Co. 3,800 150,575
Morton International Inc. 1,000 39,375
NCH Corp. 200 11,150
NL Industries Inc. (New) 2,400 20,400
Nalco Chemical Co. 300 10,913
OM Group Inc. 300 12,150
PPG Industries Inc. 1,300 74,100
Petrolite Corp. 300 9,675
Praxair Inc. 1,000 44,250
Rohm & Haas Co. 500 35,688
Scotts Co. Class A* 500 9,313
Sequa Corp. Class A* 300 12,525
Sigma-Aldrich Corp. 400 23,450
Techne Corp.* 400 9,600
Tredegar Industries Inc. 300 11,475
Union Carbide Corp. 900 38,363
W R Grace & Co. (Delaware)* 700 37,100
WD-40 Co. 200 10,025
Wellman Inc. 1,200 21,300
---------
1,909,640
---------
CONSTRUCTION--0.5%
Amre Inc. 700 6,475
Apogee Enterprises, Inc. 300 11,513
Armstrong World Industries, Inc. 300 20,025
Blount International Inc. Class A 1,200 43,200
Calmat Co. 700 13,038
Centex Construction Products Inc. 500 7,813
Centex Corp. 1,400 42,175
Crane Co. 100 4,650
D.R. Horton Inc. 1,100 10,038
Del Webb Corp. 400 6,400
Fluor Corp. 600 39,300
Global Industries Inc. 1,400 24,850
Granite Construction Inc. 450 8,831
Kaufman & Broad Home Corp. 1,000 12,000
Lone Star Industries, Inc. (New) 300 11,025
Mafco Consolidated Group Inc.* 700 19,513
Mastec Inc.* 600 29,138
</TABLE>
F-70
<PAGE> 166
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares Value
--------- -----------
<S> <C> <C>
Medusa Corp. 400 $ 13,150
Morrison Knudsen Corp. (New)* 1,600 14,400
Owens Corning 400 15,500
Pulte Corp. 1,300 34,450
Regal Beloit Corp. 500 8,875
Sherwin Williams Co. 600 30,075
Southdown Inc. 400 10,950
Stanley Works 600 16,950
Stone & Webster, Inc. 400 13,200
TJ International Inc. 400 7,750
Toll Brothers, Inc.* 1,300 22,263
Triangle Pacific Corp. Delaware* 300 6,319
U.S. Home Corp. (New)* 300 6,488
-------
510,354
-------
CONSUMER-DURABLE--0.4%
Bassett Furniture Industries Inc. 400 8,950
Black & Decker Corp. 600 22,425
Champion Enterprises Inc. 1,620 31,995
Chicago Miniature Lamp Inc. 450 13,556
Ethan Allen Interiors Inc. 400 14,300
Furniture Brands International Inc.* 2,400 32,100
Harman International Industries Inc. (New) 900 46,238
Interface Inc. Class A 400 6,700
Kimball International Inc. Class B 600 21,600
La-Z-Boy Chair Co. 500 15,563
Masco Corp. 1,000 31,375
Maytag Corp. 500 9,938
National Presto Industries, Inc. 200 7,500
Newell Co. 1,100 31,213
Snap-on Tools Corp. 300 9,638
Sturm, Ruger & Co., Inc. 1,600 30,000
Toro Co. 300 9,413
Whirlpool Corp. 600 28,350
Zenith Electronics Corp.* 2,100 27,563
-------
398,417
-------
CONSUMER-NONDURABLE--0.8%
3DO Co.* 600 3,413
A.T. Cross Co. Class A 500 5,688
Acclaim Entertainment Inc.* 1,800 8,888
American Greetings Corp. Class A 500 14,656
Buffets Inc.* 1,200 13,275
CKE Restaurants Inc. 700 20,825
Corning Inc. 1,600 62,000
Darden Restaurants Inc. 800 6,700
Department 56 Inc.* 700 15,400
</TABLE>
F-71
<PAGE> 167
SCHWAB ASSET DIRECTOR--HIGH GROWTH FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
October 31, 1996
<TABLE>
<CAPTION>
Number
of Shares Value
--------- -----------
<S> <C> <C>
Foodmaker, Inc.* 1,300 $ 12,675
Galoob Lewis Toys Inc.* 500 13,438
Hasbro Inc. 600 23,325
International Dairy Queen Inc. Class A* 700 13,475
Jostens, Inc. 1,800 38,700
Landry's Seafood Restaurants, Inc. 900 18,113
Luby's Cafeterias, Inc. 800 16,800
Mattel Inc. 1,750 50,531
McDonald's Corp. 5,000 221,875
Mohawk Industries Inc.* 1,300 31,363
Premark International, Inc. 400 8,350
Rexall Sundown, Inc. 1,300 35,181
Rubbermaid Inc. 1,000 23,250
Ruby Tuesday Inc. 600 9,750
Russ Berrie & Co. Inc. 500 9,000
Ryan's Family Steak Houses Inc.* 2,800 20,300
Samsonite Corp. (New) 600 20,250
Sbarro, Inc. 500 13,188
Shoney's Inc.* 2,800 20,650
Showbiz Pizza Time Inc. (New) 700 12,950
Sonic Corp. 400 9,000
Toy Biz Inc. Class A* 400 7,100
Wendy's International, Inc. 800 16,500
Williams-Sonoma Inc.* 1,100 30,388
-------
826,997
-------
CONTAINERS--0.1%
ACX Technologies Inc. 1,100 19,525
Ball Corp. 1,200 28,950
Bemis Co., Inc. 200 7,000
Crown Cork & Seal Inc. 900 43,200
Gaylord Container Corp. Class A* 1,500 11,250
Greif Brothers Corp. Class A 1,100 30,938
Stone Container Corp. 500 7,625
-------
148,488
-------
ELECTRONICS--2.2%
ADAC Laboratories 600 12,225
AMETEK, Inc. 1,300 25,838
AMP Inc. 1,100 37,263
Actel Corp.* 400 7,075
Advanced Micro Devices Inc. 620 11,005
Allen Group Inc. 1,000 15,875
Alliance Semiconductor Corp. 1,400 8,750
Altron Inc. 450 6,750
Ampex Corp. (Delaware) Class A* 1,200 8,100
Anixter International Inc. 1,800 26,775
</TABLE>
F-72
<PAGE> 168
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares Value
--------- -----------
<S> <C> <C>
Applied Materials, Inc. 1,100 $ 29,081
Augat Inc. 600 16,500
Belden Inc. 1,200 34,500
Broadband Technologies Inc.* 500 8,938
Burr Brown 400 8,600
Cable Design Technologies Corp. 500 12,875
Checkpoint Systems Inc. 800 17,900
CopyTele Inc. 1,400 10,063
Cyrix Corp.* 500 8,813
DSP Communications Inc. 600 22,875
Dallas Semiconductor Corp. 700 14,000
EG&G, Inc. 200 3,525
Echostar Communications Corp. Class A* 300 8,906
Exide Corp. 700 18,200
FORE Systems, Inc. 600 23,813
FSI International Inc. 700 7,306
Fluke Corp. 200 8,000
General Instrument Corp.* 800 16,100
General Signal Corp. 200 8,150
Genrad Inc.* 700 14,175
Gerber Scientific Inc. 700 9,450
Harris Corp. 200 12,525
ITI Technologies Inc.* 300 8,550
Identix Inc.* 200 1,625
Imation Corp.* 290 7,939
Input/Output Inc. 2,000 59,500
Integrated Device Technology Inc. 2,600 21,288
Integrated Process Equipment Corp.* 400 4,400
Intel Corp. 6,100 669,856
International Rectifier Corp. 1,700 21,038
Itron, Inc.* 300 4,894
Kemet Corp. 1,300 24,944
Kent Electronics Corp. 1,600 36,600
Kulicke & Soffa Industries Inc. 500 6,594
LSI Logic Corp. 400 10,600
Lam Research Corp.* 1,100 26,744
Lattice Semiconductor Corp.* 1,100 37,538
Littlefuse, Inc.* 300 12,413
Logicon, Inc. 800 33,100
Lucent Technologies, Inc. 5,048 237,256
Macromedia Inc. 1,200 20,025
Marshall Industries* 500 15,063
Methode Electronics Inc. Class A 1,000 19,375
Micron Technology Inc. 1,300 32,988
Motorola Inc. 4,300 197,800
National Semiconductor Corp.* 600 11,550
</TABLE>
F-73
<PAGE> 169
SCHWAB ASSET DIRECTOR--HIGH GROWTH FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
October 31, 1996
<TABLE>
<CAPTION>
Number
of Shares Value
--------- -----------
<S> <C> <C>
Osmonics, Inc.* 500 $ 10,625
Palomar Medical Technologies* 800 5,750
Perkin-Elmer Corp. 200 10,725
Pioneer Standard Electronics Inc. 500 5,375
Rexel Inc.* 700 10,150
S3 Inc. 1,700 31,875
Sanmina Corp. 400 18,450
Scientific-Atlanta, Inc. 400 5,800
Sierra Semiconductor Corp. 1,100 14,300
Silicon Valley Group Inc.* 1,000 16,688
Stanford Telecommunications* 300 8,663
Technitrol Inc. 300 9,938
Tektronix, Inc. 300 11,738
Texas Instruments Inc. 1,300 62,563
Thomas & Betts Corp. 200 8,475
VLSI Technology, Inc.* 1,300 22,425
VeriFone, Inc.* 700 23,538
Vicor Corp. 1,500 27,188
Vitesse Semiconductor Corp.* 600 19,050
Wyle Electronics 300 8,963
Zilog Inc.* 700 13,825
---------
2,341,735
---------
ENERGY-DEVELOPMENT--1.3%
Amcol International Corp. 600 9,038
Ashland Coal, Inc. 300 7,088
Atwood Oceanics Inc.* 300 16,575
Baker Hughes Inc. 1,000 35,625
Barrett Resources Corp.* 1,100 42,213
Benton Oil & Gas Co.* 600 14,663
Burlington Resources Inc. 800 40,300
Cabot Oil & Gas Corp. Class A 500 7,750
Chesapeake Energy Corp. 1,425 83,006
Devon Energy Corp. 600 20,925
Dresser Industries Inc. 1,300 42,738
Energy Ventures, Inc.* 700 30,800
Forest Oil Corp. (New)* 900 13,444
Halliburton Co. 1,029 58,267
Helmerich & Payne Inc. 1,200 64,950
Louis Dreyfus Natural Gas Corp.* 800 13,500
Louisiana Land & Exploration Co. 200 11,375
MAXXAM Inc.* 200 8,400
Marine Drilling Company, Inc.* 1,500 20,625
McDermott International Inc. 200 3,550
Nabors Industries Inc.* 2,800 46,550
Newfield Exploration Co.* 900 42,525
Newpark Resources, Inc. 400 15,000
</TABLE>
F-74
<PAGE> 170
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares Value
--------- -----------
<S> <C> <C>
Noble Drilling Corp.* 3,100 $ 57,738
Nuevo Energy Co.* 600 29,925
Occidental Petroleum Corp. 2,200 53,900
Parker Drilling Co.* 1,300 11,050
Pride Petroleum Services Inc.* 900 15,694
Production Operators Corp. 300 11,850
Reading & Bates Corp. (New)* 2,100 60,375
Rochester & Pittsburgh Coal Co. 600 19,500
Rowan Cos. Inc.* 3,100 69,363
Schlumberger Ltd. 2,000 198,250
Solv-Ex Corp.* 800 10,350
Tom Brown Inc. (New)* 800 15,150
Tremont Corp.* 300 10,275
Tuboscope Vetco International Corp.* 1,200 18,150
Union Pacific Resources Group 1,939 53,323
United Meridian Corp.* 800 37,700
Varco International Inc.* 700 13,825
Vintage Petroleum Inc. 900 26,550
Zeigler Coal Holding Co. 800 14,500
---------
1,376,375
---------
FOOD-AGRICULTURE--2.9%
Archer-Daniels-Midland Co. 3,810 82,868
Bob Evans Farms, Inc. 1,500 18,938
CPC International Inc. 1,000 78,875
Campbell Soup Co. 2,000 160,000
Chiquita Brands International Inc. 2,000 25,000
Coca-Cola Bottling Co. 200 8,050
Coca-Cola Co. 18,500 934,250
ConAgra, Inc. 1,400 69,825
Dekalb Genetics Corp. Class B 600 23,625
Delta & Pine Land Co. 598 21,528
Dimon Inc. 1,100 20,900
Dreyers Grand Ice Cream Inc. 300 7,650
Earthgrains Co. 464 24,592
Fleming Companies, Inc. 2,900 50,388
General Mills Inc. 1,400 79,975
H.J. Heinz Co. 2,200 78,100
Hershey Foods Corp. 1,100 53,213
Hudson Foods Inc. Class A 1,200 19,950
International Multifoods Corp. 500 7,625
Interstate Bakeries Corp. (New) 1,400 59,325
J.M. Smucker Co. Class A 1,200 19,800
J.M. Smucker Co. Class B (Non Voting) 300 4,613
JP Foodservice, Inc.* 400 9,000
Kellogg Co. 2,000 127,000
Lance Inc. 900 15,919
</TABLE>
F-75
<PAGE> 171
SCHWAB ASSET DIRECTOR--HIGH GROWTH FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
October 31, 1996
<TABLE>
<CAPTION>
Number
of Shares Value
--------- -----------
<S> <C> <C>
Mississippi Chemical Corp. (New) 700 $ 17,588
Mycogen Corp.* 1,100 17,325
Pepsico Inc. 11,100 328,838
Pioneer Hi-Bred International Inc. 600 40,275
Quaker Oats Co. 900 31,950
Ralcorp Holdings, Inc.* 1,000 21,000
Ralston Purina Co. 700 46,288
Richfood Holdings Inc. 2,100 51,056
Sara Lee Corp. 3,500 124,250
Savannah Foods & Industries Inc. 600 9,600
Seaboard Corp. 100 21,125
Smithfield Foods Inc.* 900 25,875
Sysco Corp. 1,300 44,200
Tootsie Roll Industries, Inc. 800 29,400
Unilever 1,400 214,025
Whitman Corp. 700 16,975
Wm Wrigley Junior Co. 800 48,200
---------
3,088,979
---------
GOLD--0.3%
Amax Gold Inc.* 3,300 18,150
Barrick Gold Corp. 2,200 57,475
Battle Mountain Gold Co. 10,400 79,300
Getchell Gold Corp.* 1,500 66,750
Homestake Mining Co. 500 7,125
Meridian Gold Inc.* 1,700 7,438
Newmont Mining Corp. 600 27,750
Placer Dome, Inc. 1,400 33,600
Santa Fe Pacific Gold Corp. 700 8,313
---------
305,901
---------
HEALTHCARE--5.5%
ALZA Corp.* 400 10,350
Abbott Laboratories 5,400 273,375
Acuson* 600 12,675
Advanced Technology Laboratories, Inc.* 400 12,150
Advanced Tissue Sciences Inc.* 1,500 24,375
Agouron Pharmaceuticals Inc.* 400 22,850
Allergan Inc. 300 9,150
Alliance Pharmaceutical Corp.* 900 12,488
Alpharma, Inc. Class A 600 7,500
American Home Products Corp. 5,300 324,625
Amgen Inc. 2,100 128,756
Amylin Pharmaceuticals Inc.* 1,100 12,238
Arrow International Inc. 800 22,800
Ballard Medical Products 800 14,100
Barr Laboratories, Inc. 500 13,813
</TABLE>
F-76
<PAGE> 172
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares Value
--------- -----------
<S> <C> <C>
Bausch & Lomb Inc. 300 $ 10,125
Baxter International Inc. 1,600 66,600
Becton Dickinson & Co. 400 17,400
Beverly Enterprises, Inc.* 500 6,188
Bio Rad Laboratories Inc. Class A 300 7,275
Bio Technology General Corp.* 1,500 12,234
Biomet Inc. 600 9,675
Block Drug Inc. Class A 1,030 46,608
Boston Scientific Corp.* 1,437 78,137
Bristol Myers Squibb Co. 4,300 454,725
C.R. Bard Inc. 400 11,300
CNS, Inc. 500 8,438
Carter Wallace Inc. 1,600 24,800
Cephalon Inc.* 800 17,850
Cognex Corp. 1,400 17,850
Columbia Laboratories Inc. 1,000 12,000
Columbia/HCA Healthcare Corp. 5,100 182,325
Community Psychiatric Centers* 1,400 12,425
Conmed Corp. 400 6,950
Cygnus Therapeutic Systems, Inc.* 700 10,063
Cytogen Corp.* 1,600 8,500
Datascope Corp.* 400 6,750
Diagnostic Products Corp. 400 11,900
Eli Lilly & Co. 4,200 296,100
Enzo Biochem Inc. 525 9,581
Fresenius Medical Care AG
(Sponsored American Depository Receipts)* 1,290 38,378
Gilead Sciences Inc.* 700 16,231
GranCare, Inc.* 600 10,800
Gulf South Medical Supply Inc. 300 6,525
Haemonetics Corp.* 700 12,513
HealthSouth Rehabilitation Corp.* 1,876 70,350
Herbalife International Inc. 600 12,000
Hologic Inc. 400 9,175
Human Genome Sciences Inc.* 900 32,625
Humana Inc.* 1,200 21,900
ICN Pharmaceuticals, Inc. 809 15,371
Icos Corp.* 1,300 9,669
Idec Pharmaceuticals Corp.* 600 12,938
Imatron Inc.* 2,300 9,236
Immunex Corp. (New)* 1,100 14,919
Immunomedics Inc.* 1,200 8,475
Incyte Pharmaceuticals Inc.* 400 16,150
Invacare Corp. 1,300 36,075
Isis Pharmaceuticals* 700 11,244
Isolyser Inc. 1,100 7,700
</TABLE>
F-77
<PAGE> 173
SCHWAB ASSET DIRECTOR--HIGH GROWTH FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
October 31, 1996
<TABLE>
<CAPTION>
Number
of Shares Value
--------- -----------
<S> <C> <C>
Johnson & Johnson 9,800 $482,650
Jones Medical Industries Inc. 900 38,925
Kinetic Concepts Inc. 1,200 15,750
Life Technologies, Inc. (New) 600 13,650
Ligand Pharmaceuticals Inc. Class B 700 8,750
Lincare Holdings Inc.* 800 29,800
Liposome Inc.* 1,200 20,475
Living Centers of America* 1,000 23,375
Lunar Corp. 300 9,281
Magellan Health Services Inc.* 1,200 22,050
Mallinckrodt Inc. 400 17,400
Manor Care, Inc. 300 11,775
Marquette Medical System Inc.* 1,500 23,438
Martek Biosciences Corp.* 500 10,688
Matrix Pharmaceuticals* 700 5,250
Medimmune Inc.* 400 6,225
Medtronic Inc. 1,900 122,313
Mentor Corp. 1,100 24,338
Merck & Co. Inc. 9,800 726,425
Mid Atlantic Medical Services Inc.* 1,600 17,200
Multicare Cos. Inc. 600 10,800
Nabi Inc.* 1,200 11,100
Natures Sunshine Products Inc. 450 9,900
Neopath Inc.* 500 8,156
Neoprobe Corp.* 500 7,125
Neurex Corp.* 800 12,450
Neurogen Corp.* 500 10,688
Nexstar Pharmaceuticals Inc.* 1,000 15,563
North American Vaccine Inc.* 1,100 24,475
Novacare Inc.* 2,600 21,450
Noven Pharmaceuticals, Inc.* 700 9,625
Organogenesis Inc. 500 8,938
Owens & Minor Inc. (New) 700 6,563
PDT Inc. 300 7,388
PHP Healthcare Corp. 100 2,288
PLC Systems Inc.* 600 13,425
Patterson Dental Co.* 500 14,063
Perrigo Co.* 2,600 24,375
Pfizer Inc. 5,300 438,575
Pharmacia & Upjohn Inc. 3,300 118,800
Physician Sales & Service Inc. 1,000 21,125
Protein Design Labs, Inc.* 500 12,063
Quintiles Transnational Corp. 600 39,375
Regeneron Pharmaceuticals Inc.* 700 13,256
Renal Treatment Centers Inc. 600 16,050
Respironics Inc.* 400 6,025
</TABLE>
F-78
<PAGE> 174
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares Value
--------- -----------
<S> <C> <C>
RoTech Medical Corp. 800 $ 12,650
Roberts Pharmaceutical Corp.* 400 6,150
Salick Health Care, Inc.* 300 11,888
Schering Plough Corp. 2,800 179,200
Sepracor Inc.* 700 11,288
Sequus Pharmaceuticals Inc.* 900 12,600
Sofamor/Danek Group Inc.* 1,100 30,250
Sola International Inc.* 800 28,900
Somatogen Inc.* 500 5,375
St. Jude Medical, Inc. 125 4,930
Summit Technology Inc. 1,100 6,119
Sunrise Medical Inc.* 500 7,438
Target Therapeutics Inc. 400 14,775
Tecnol Medical Products Inc.* 600 7,575
Tenet Healthcare Corp.* 1,100 22,963
Thermedics Inc.* 1,400 29,050
U.S. Bioscience Inc.* 900 10,350
United Healthcare Corp. 1,200 45,450
United States Surgical Corp. 300 12,563
Ventritex Inc.* 500 11,406
Vertex Pharmaceuticals Inc.* 900 29,869
Vivus* 500 16,625
Warner Lambert Co. 2,000 127,250
West Company Inc. 400 10,750
---------
5,788,131
---------
HOUSEHOLD PRODUCTS--1.1%
Alberto Culver Co. Class B 100 4,575
Avon Products, Inc. 1,000 54,250
Bush Boake Allen Inc.* 500 12,875
Church & Dwight Inc. 600 12,900
Clorox Co. 600 65,475
Colgate-Palmolive Co. 1,300 119,600
Dial Corp. (New) 1,100 15,125
Gillette Co. 3,400 254,150
International Flavors & Fragrances Inc. 800 33,100
Libbey Inc. 400 9,600
Playtex Products Inc.* 1,200 10,200
Procter & Gamble Co. 5,700 564,300
Tupperware Corp. 400 20,550
---------
1,176,700
---------
IMAGING & PHOTO--0.3%
Avid Technology, Inc.* 600 8,213
BMC Industries, Inc. 800 23,700
Chyron Corp.* 3,200 16,400
Eastman Kodak Co. 2,700 215,325
</TABLE>
F-79
<PAGE> 175
SCHWAB ASSET DIRECTOR--HIGH GROWTH FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
October 31, 1996
<TABLE>
<CAPTION>
Number
of Shares Value
--------- -----------
<S> <C> <C>
Optical Imaging Systems Inc.* 3,500 $ 9,844
Photronic, Inc.* 400 10,750
Polaroid Corp. 200 8,125
Robotic Vision Systems Inc.* 400 4,050
Ultratech Stepper Inc. 1,000 16,875
-------
313,282
-------
INSURANCE--2.6%
20th Century Industries* 1,800 28,800
Acordia, Inc. 400 11,400
Aetna Inc. 1,524 101,918
Alexander & Alexander Services 3,300 50,325
Alfa Corp. 1,100 12,238
Allied Group Inc. 500 20,938
Allstate Corp. 3,400 190,825
American Annuity Group, Inc. 1,400 19,075
American Bankers Insurance Group, Inc. 1,000 47,875
American General Corp. 1,000 37,250
American Heritage Life Investment Corp. 300 6,638
American International Group, Inc. 3,400 369,325
American Travellers Corp. 450 15,441
Aon Corp. 900 51,975
Argonaut Group, Inc. 800 23,200
Arthur J. Gallagher & Co. 900 26,438
CMAC Investment Corp. 300 20,738
Capital Re Corp. 400 15,500
Capitol American Financial Corp. 400 14,500
Capsure Holdings Corp. 600 5,400
Chubb Corp. 1,200 60,000
Cigna Corp. 800 104,400
Citizens Corp. 1,400 28,175
Commerce Group Inc. 1,100 26,400
Compdent Corp.* 400 13,675
Conseco, Inc. 466 24,931
Crawford & Co. Class A 400 7,950
Crawford & Co. Class B 1,000 19,750
Delphi Financial Group, Inc. Class A 360 10,125
Enhance Financial Services Group Inc. 900 30,038
Executive Risk Inc. 300 12,375
Financial Security Assured Holdings Ltd. 1,200 33,600
Foremost Corp. of America 300 16,538
Fremont General Corp. 1,350 39,656
Frontier Insurance Group, Inc. 330 13,118
General Re Corp. 935 137,679
HCC Insurance Holdings, Inc. 750 19,125
Harleysville Group Inc. 400 11,100
Home Beneficial Corp. Class B 500 12,594
</TABLE>
F-80
<PAGE> 176
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares Value
--------- -----------
<S> <C> <C>
Horace Mann Educators Corp. (New) 1,100 $ 37,675
ITT Hartford Group Inc. 800 50,400
Integon Corp. 500 9,438
Jefferson-Pilot Corp. 450 25,594
John Alden Financial Corp. 1,100 20,488
Kansas City Life Insurance Co. 200 10,950
Liberty Corp. 1,000 34,500
Life Re Corp. 400 14,650
Lincoln National Corp. Inc. 700 33,950
MAIC Holdings Inc. 212 6,890
MGIC Investment Corp. 400 27,450
MMI Companies, Inc. 400 11,500
Markel Corp.* 200 17,400
Marsh & McLennan Companies 1,000 104,125
NAC Re Corp. 500 17,563
Orion Capital Corp. 900 48,938
Penncorp Financial Group Inc. 1,100 38,088
Presidential Life Corp. 800 9,100
Providian Corp. 700 32,900
Reinsurance Group of America Inc. 900 40,838
Reliance Group Holdings Inc. 3,900 32,175
Safeco Corp. 800 30,300
Selective Insurance Group, Inc. 400 13,600
Sierra Health Services Inc.* 500 14,313
St. Paul Companies, Inc. 600 32,625
State Auto Financial Corp. 600 8,175
Torchmark Corp. 500 24,188
Transamerica Corp. 1,000 75,875
Trenwick Group Inc. 200 9,888
UNUM Corp. 1,000 62,875
USF&G Corp. 500 9,500
USLIFE Corp. 100 3,125
United Dental Care Inc.* 200 6,050
United Fire & Casualty Co. 400 13,000
United Wisconsin Services, Inc. 300 7,763
Vesta Insurance Group Inc. 1,200 30,750
W.R. Berkley Corp. 1,200 61,950
Washington National Corp. 400 11,450
Zenith National Insurance Corp. 400 10,900
Zurich Reinsurance Centre Holdings, Inc. 900 27,000
---------
2,768,967
---------
MEDIA--1.2%
AMC Entertainment Inc.* 400 6,900
BET Holdings, Inc. Class A* 300 8,775
Banta Corp. 1,100 23,169
Cablevision Systems Corp. Class A* 400 12,450
</TABLE>
F-81
<PAGE> 177
SCHWAB ASSET DIRECTOR--HIGH GROWTH FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
October 31, 1996
<TABLE>
<CAPTION>
Number
of Shares Value
--------- -----------
<S> <C> <C>
Carmike Cinemas Inc.* 300 $ 7,125
Central Newspapers Inc. Class A 1,100 44,275
Century Communications Corp. Class A* 2,700 18,225
Comcast Corp. Class A 1,600 23,500
Dow Jones & Co. Inc. 700 23,100
Evergreen Media 900 24,188
GC Companies Inc.* 300 10,163
Gannett Inc. 1,000 75,875
Heartland Wireless Communications, Inc.* 300 6,450
Hollinger International Inc. 2,500 31,250
Houghton Mifflin Co. 1,000 49,625
International Family Entertainment Inc.
Class B 1,625 29,047
John Wiley & Son, Inc. Class A 900 27,563
Jones Intercable Inc. Class A* 1,100 12,100
King World Productions, Inc.* 300 10,800
Knight-Ridder, Inc. 600 22,425
McClatchy Newspapers Inc. Class A 1,300 36,238
McGraw-Hill, Inc. 600 28,125
Meredith Corp. 100 5,025
New World Communications Class A* 1,000 24,688
New York Times Co. Class A 700 25,288
Oak Industries Inc.* 400 10,150
Paxson Communications Corp.* 600 5,325
Regal Cinemas, Inc. 675 17,423
SBC Communications Inc. 4,600 223,675
Spelling Entertainment Group, Inc.* 3,100 22,475
TCA Cable TV Inc. 1,100 29,288
TSX Corp. 600 6,225
Tele Communications Inc. (New) -- TCI Group
Series A 4,400 54,725
Time Warner Inc. 2,900 108,025
Times Mirror Co. (New) Series A 800 37,000
Tribune Co. (New) 900 73,575
United International Holdings Inc. Class A* 600 7,500
Viacom Inc. Class B* 2,100 68,513
Westwood One Inc.* 900 13,950
---------
1,264,218
---------
MISCELLANEOUS FINANCE--2.1%
1st Source Corp. 420 9,634
AMCORE Financial, Inc. 400 8,375
Aames Financial Corp. 800 35,700
Alex Brown Inc. 900 51,075
American Express Co. 3,400 159,800
Americredit Corp.* 700 13,300
Astoria Financial Corp. 600 21,263
Beneficial Corp. 400 23,400
</TABLE>
F-82
<PAGE> 178
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares Value
--------- -----------
<S> <C> <C>
Bok Financial Corp. (New) 500 $ 13,250
Cal-Federal Bancorp Inc.* 1,700 39,525
Charter One Financial Inc. 1,785 77,536
Coast Savings Financial Inc.* 500 16,438
Collective Bancorp Inc. 1,000 30,125
Commercial Federal Corp. 400 16,750
Dean Witter Discover & Co. 1,400 82,425
Downey Financial Corp. 420 10,920
Eaton Vance Corp. (Non Voting) 200 8,750
Federal Home Loan Mortgage Corp. 1,400 141,400
Federal National Mortgage Assoc. 7,600 297,350
First American Financial Corp. 400 15,050
First Financial Corp. 1,300 35,425
Fund American Enterprises Holdings, Inc. 200 17,925
Glendale Federal Bank (FSB) (New)* 1,500 27,563
Golden West Financial Corp. 500 32,438
Great Financial Corp. 400 11,650
Great Western Financial Corp. 1,000 28,000
Green Tree Financial Corp. 1,000 39,625
H.F. Ahmanson & Co. 600 18,825
Home Financial Corp. 600 9,713
Household International Inc. 1,200 106,200
Inter-Regional Financial Group, Inc. 300 9,713
Interpool Inc. 400 8,700
JSB Financial, Inc. 300 10,988
Jefferies Group, Inc. 400 14,300
John Nuveen Co. Class A 1,300 36,075
Legg Mason, Inc. 400 12,900
Merrill Lynch & Co. Inc. 1,200 84,300
Morgan Keegan, Inc. 700 10,238
Morgan Stanley Group Inc. 1,000 50,250
Olympic Financial Ltd.* 1,100 17,463
Peoples Heritage Financial Group, Inc. 900 20,700
Phoenix Duff & Phelp Corp. 1,500 9,188
Pioneer Group Inc. 1,100 26,125
Quick & Reilly Group, Inc. 1,100 29,013
RCSB Financial Inc. 400 11,625
Raymond James Financial Inc. 500 12,188
Roosevelt Financial Group Inc. 1,600 27,700
Salomon Inc. 800 36,100
Sovereign Bancorp Inc. 2,205 26,047
St. Paul Bancorp Inc. 500 13,250
Standard Financial Inc. 400 7,150
Student Loan Corp. 1,000 34,000
Travelers Inc. 3,600 195,300
Value Line, Inc. 300 11,363
</TABLE>
F-83
<PAGE> 179
SCHWAB ASSET DIRECTOR--HIGH GROWTH FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
October 31, 1996
<TABLE>
<CAPTION>
Number
of Shares Value
--------- -----------
<S> <C> <C>
WFS Financial Inc. 880 $ 18,370
Washington Federal, Inc. 1,500 36,094
Westcorp Inc. 1,155 27,431
White River Corp.* 300 18,000
---------
2,214,001
---------
MOTOR VEHICLE--1.2%
A.O. Smith Corp. Class B 800 21,000
Arctic Cat Inc. 700 6,606
Arvin Industries, Inc. 1,300 29,738
Borg Warner Automotive Inc. 1,100 42,213
Breed Technologies Inc. 900 20,700
Chrysler Corp. 5,000 168,125
Cummins Engine Inc. 200 8,325
Dana Corp. 700 20,738
Detroit Diesel Corp.* 600 11,100
Eaton Corp. 500 29,875
Echlin Inc. 300 9,788
Federal Mogul Corp. 1,000 22,375
Fleetwood Enterprises, Inc. 200 6,750
Ford Motor Co. 8,200 256,250
General Motors Corp. 5,400 290,925
Gentex Corp. 1,400 32,900
Genuine Parts Co. 800 35,000
Hays Wheels International Inc.* 50 1,675
Lucasvarity PLC (Sponsored American
Depository Receipts)* 276 11,109
Mascotech Inc. 1,500 23,625
Modine Manufacturing Co. 1,000 25,000
Navistar International Corp.* 5,100 47,175
PACCAR Inc. 200 11,150
Standard Products Co. 500 12,125
Superior Industries International, Inc. 1,000 24,375
TRW Inc. 700 63,350
Titan Wheel International Inc. 500 6,375
---------
1,238,367
---------
NON-FERROUS--0.5%
A.M. Castle & Co. 375 6,938
Alcan Aluminum Ltd. 1,600 52,600
Aluminum Company of America 1,600 93,800
Asarco Inc. 200 5,250
Brush Wellman Inc. 500 9,438
Coeur d'Alene Mines Corp. 500 7,313
Commercial Metals Co. 500 15,500
Cyprus Amax Minerals Co. 600 13,575
Echo Bay Mines Ltd 600 4,688
</TABLE>
F-84
<PAGE> 180
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares Value
--------- -----------
<S> <C> <C>
Engelhard Corp. 1,000 $ 18,250
Freeport-McMoRan Copper & Gold Inc. Class B 1,400 42,525
Hecla Mining Co.* 1,100 6,188
Inco Ltd. 1,200 38,100
Kaiser Aluminum Corp.* 2,400 26,700
Minerals Technologies Inc. 1,000 39,250
Mueller Industries Inc. 900 36,225
Oregon Metallurgical Corp. 400 12,500
Phelps Dodge Corp. 1,000 62,875
RMI Titanium Co.* 700 16,888
Reliance Steel & Aluminum Co. 400 14,650
Reynolds Metals Co. 400 22,500
Stillwater Mining Co.* 600 10,125
Wolverine Tube Inc.* 400 15,950
-------
571,828
-------
OIL-DOMESTIC--0.7%
Amerada Hess Corp. 700 38,763
Ashland Inc. 400 17,000
Atlantic Richfield Co. 1,400 185,500
Cross Timbers Oil Co. 400 9,450
Diamond Shamrock Inc. 1,300 38,188
KCS Energy, Inc. 200 8,625
Kerr-McGee Corp. 400 25,100
Oryx Energy Co.* 500 9,625
Pennzoil Co. 200 10,200
Phillips Petroleum Co. 1,500 61,500
Pogo Producing Co. 1,300 57,688
Quaker State Corp. 900 15,075
Santa Fe Energy Resources, Inc.* 400 5,700
Smith International Inc.* 1,100 41,800
Snyder Oil Corp. 700 10,675
Sun Inc. 400 8,950
Tesoro Petroleum Corp.* 900 13,275
Total Petroleum (North America) Ltd. 1,300 12,513
TransTexas Gas Corp.* 2,500 34,375
USX Corp. (Marathon Group) (New) 2,000 43,750
Unocal Corp. 1,700 62,263
-------
710,015
-------
OIL-INTERNATIONAL--2.7%
Amoco Corp. 3,900 295,425
Chevron Corp. 5,300 348,475
Exxon Corp. 9,900 877,388
Mobil Corp. 3,100 361,925
Royal Dutch Petroleum Co. 4,200 694,575
</TABLE>
F-85
<PAGE> 181
SCHWAB ASSET DIRECTOR--HIGH GROWTH FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
October 31, 1996
<TABLE>
<CAPTION>
Number
of Shares Value
--------- -----------
<S> <C> <C>
Texaco, Inc. 2,100 $ 213,413
Western Atlas, Inc.* 400 27,750
---------
2,818,951
---------
PAPER--0.8%
Alco Standard Corp. 900 41,738
Boise Cascade Corp. 300 9,300
Buckeye Cellulose Corp.* 800 20,900
Caraustar Industries Inc. 1,100 31,969
Champion International Corp. 700 30,450
Chesapeake Corp. 1,100 31,075
Georgia Pacific Corp. 1,100 82,500
International Paper Co. 2,100 89,775
James River Corp. 400 12,600
Kimberly Clark Corp. 2,280 212,610
Longview Fibre Co. 1,800 31,275
Louisiana Pacific Corp. 700 14,613
Mead Corp. 300 17,025
Mosinee Paper Corp. 400 11,350
P.H. Glatfelter Co. 1,500 28,500
Potlatch Corp. 100 4,275
Rock Tennessee Co. Class A 990 18,068
Shorewood Packaging Corp.* 600 11,400
Temple-Inland Inc. 400 20,500
Union Camp Corp. 500 24,375
Wausau Paper Mills Co. 1,625 31,078
Westvaco Corp. 700 19,950
Weyerhaeuser Co. 1,000 45,875
Willamette Industries, Inc. 600 40,350
---------
881,551
---------
PRODUCER GOODS-MANUFACTURING--3.3%
Albany International Corp. Class A (New) 1,300 29,250
Allied Signal Inc. 2,300 150,650
American Financial Enterprises Inc. 300 7,800
Applied Power Inc. Class A 400 14,400
AptarGroup, Inc. 500 16,125
Avery Dennison Corp. 400 26,350
BT Office Products International Inc.* 1,200 9,900
BW/IP Holding, Inc. Class A 600 8,100
Baldor Electric Co. 1,200 24,150
Barnes Group Inc. 200 11,250
Bearings Inc. (New) 300 7,800
Blyth Industries Inc. 800 31,100
Briggs & Stratton Corp. 100 4,000
Case Corp. 600 27,900
Caterpillar Inc. 1,500 102,938
</TABLE>
F-86
<PAGE> 182
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares Value
--------- -----------
<S> <C> <C>
Cincinnati Milacron Inc. 100 $ 1,913
Clarcor Inc. 400 8,700
Collins & Aikman Corp.* 1,900 11,400
Commercial Intertech Corp. 500 5,563
Cooper Industries Inc. 800 32,200
Credence Systems Corp. 600 8,213
Cuno Inc.* 500 7,938
Deere & Co. 1,900 79,325
Donaldson Inc. 1,200 35,100
Dover Corp. 800 41,100
Duriron Inc. 1,100 29,563
Emerson Electric Co. 2,100 186,900
FMC Corp. (New)* 200 14,725
Fedders USA Inc. 1,400 8,225
Figgie International Holdings Inc. Class A* 700 7,438
Fisher Scientific International, Inc. 900 40,388
Foster Wheeler Corp. 300 12,300
General Binding Corp. 500 12,375
General Electric Co. 12,200 1,180,350
Giddings & Lewis Inc. 1,100 12,788
Goulds Pumps Inc. 1,000 23,063
Graco Inc. 450 10,294
Greenfield Industries Inc. 400 10,450
Harnischfeger Industries Corp. 200 8,000
Helix Technology Corp. 300 8,006
Herman Miller, Inc. 1,200 52,050
Hexcel Corp. (New)* 1,300 23,725
Hughes Supply Inc. 400 15,200
IDEX Corp. 1,000 37,625
ITT Industries Inc. 800 18,600
Illinois Tool Works Inc. 800 56,200
Ingersoll Rand Co. 700 29,138
Insilco Corp.* 300 11,850
Ionics Inc.* 400 18,400
Johnson Controls, Inc. 300 21,900
Juno Lighting Inc. 400 6,225
Kaydon Corp. 900 36,675
Kennametal Inc. 900 30,600
Keystone International Inc. 1,000 18,000
Lawson Products, Inc. 400 8,600
Lincoln Electric Co. 300 8,438
Lincoln Electric Co. Class A (Non Voting) 900 25,088
Lydall Inc. 400 8,850
Manitowoc Inc. 450 15,075
Measurex Corp. 400 10,300
Millipore Corp. 200 7,000
</TABLE>
F-87
<PAGE> 183
SCHWAB ASSET DIRECTOR--HIGH GROWTH FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
October 31, 1996
<TABLE>
<CAPTION>
Number
of Shares Value
--------- -----------
<S> <C> <C>
Myers Industry Inc. 500 $ 7,750
NN Ball & Roller, Inc. 400 5,400
Nu-Kote Holding Inc. Class A 500 4,781
Pall Corp. 600 15,375
Parker Hannifin Corp. 500 18,938
Precision Castparts Corp. 1,000 46,750
Quanex Corp. 300 8,550
Raychem Corp. 800 62,500
Roper Industries 400 17,025
SPS Technologies, Inc.* 100 6,000
SPX Corp. 500 14,188
Standex International Corp. 400 12,300
Stewart & Stevenson Services, Inc. 900 19,069
Teleflex Inc. 500 24,063
Tencor Instruments 1,100 20,900
Tenneco, Inc. 1,200 59,400
Texas Industries Inc. 300 17,025
Thermo Ecotek Corp. 900 13,613
Timken Co. 100 4,463
TriMas Corp. 1,300 29,900
Tyco Labs Inc. 1,100 54,588
U.S. Filter Corp. (New) 1,650 56,925
UNR Industries, Inc. 1,200 8,025
Valhi, Inc. (New) 3,900 22,913
Valmont Industries, Inc. 300 10,275
Visx Inc. (Delaware)* 500 12,500
W.H. Brady Co. Class A 800 18,700
W.W. Grainger, Inc. 400 29,650
WMS Industries Inc.* 600 14,700
Watts Industries Inc. Class A 1,300 27,138
Westinghouse Electric Corp. 2,900 49,663
Westpoint Stevens Inc. Class A 1,300 34,613
Wyman Gordon Co.* 1,000 21,875
X-Rite, Inc. 500 9,281
---------
3,506,405
---------
RAILROAD--0.5%
Burlington Northern Santa Fe 1,300 107,088
CSX Corp. 1,700 73,313
Conrail Inc. 1,000 95,125
Florida East Coast Industry Inc. 300 26,213
Norfolk Southern Corp. 1,400 124,775
Overseas Shipholding Group 1,400 23,800
Union Pacific Corp. 1,700 95,413
Westinghouse Air Brake Co. (New) 600 6,525
---------
552,252
---------
</TABLE>
F-88
<PAGE> 184
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares Value
--------- -----------
<S> <C> <C>
REAL PROPERTY--0.2%
Avatar Holdings, Inc.* 200 $ 6,100
Castle & Cooke, Inc.* 700 10,763
Catellus Development Corp.* 2,700 26,663
Doubletree Corp.* 600 24,375
Forest City Enterprises, Inc. Class A 200 9,900
HFS, Inc. 900 65,925
Insignia Financial Group Class A (New) 1,100 23,788
Lennar Corp. 1,400 31,150
Price Enterprises Inc. 700 11,725
-------
210,389
-------
RETAIL--2.7%
Albertson's, Inc. 1,800 61,875
American Stores Co. (New) 1,000 41,375
AnnTaylor Stores Corp.* 500 9,063
Arbor Drugs, Inc. 1,100 25,025
Authentic Fitness Corp. 500 5,563
Burlington Coat Factory Warehouse* 1,100 13,475
CDW Computer Centers Inc. 600 37,650
CUC International Inc. 2,644 64,772
Carson Pirie Scott & Co.* 400 9,950
Casey's General Stores Inc. 700 12,556
Charming Shoppes Inc. 3,600 16,538
Circuit City Stores Inc. 700 22,925
Claire's Stores Inc. 1,725 29,325
CompUSA Inc. 2,000 92,500
Dayton Hudson Corp. 1,200 41,550
Dillard Department Stores Inc. Class A 800 25,400
Dollar Tree Stores Inc. 1,000 38,000
Duty Free International Inc. 800 12,800
Eagle Hardware & Garden, Inc.* 800 22,750
Federated Department Stores Inc.* 1,400 46,200
Fingerhut Companies, Inc. 1,300 19,338
Footstar Inc.* 172 3,784
Fred Meyer Inc.* 1,200 42,150
Fruit of the Loom Inc. Class A* 400 14,550
Gap Inc. 2,000 58,000
Giant Food Inc. Class A 300 10,125
Great Atlantic & Pacific Tea Co., Inc. 200 6,000
Gymboree Corp.* 1,100 34,513
Harcourt General Inc. 600 29,850
Hollywood Entertainment Corp. 900 18,619
Home Depot Inc. 3,600 197,100
J.C. Penney Inc. 1,600 84,000
Just for Feet Inc. 750 19,547
K Mart Corp. 3,100 30,225
</TABLE>
F-89
<PAGE> 185
SCHWAB ASSET DIRECTOR--HIGH GROWTH FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
October 31, 1996
<TABLE>
<CAPTION>
Number
of Shares Value
--------- -----------
<S> <C> <C>
Kroger Co.* 800 $ 35,700
Lands' End, Inc.* 1,000 21,500
Limited Inc. 1,997 36,695
Longs Drug Stores Corp. 1,000 44,875
Lowes Cos Inc. 1,100 44,413
MacFrugals Bargains-Close-Outs, Inc.* 600 14,625
May Department Stores Co. 1,700 80,538
Melville Corp. 600 22,350
Mercantile Stores Co., Inc. 300 14,888
Michaels Stores Inc.* 500 5,000
Nordstrom Inc. 500 18,031
Payless Shoesource Inc.* 272 9,214
Pep Boys -- Manny, Moe & Jack 300 10,500
Petco Animal Supplies Inc. 300 7,013
Pier 1 Imports Inc. 1,400 19,600
Price Costco Inc.* 1,300 25,756
Proffitt's, Inc.* 1,200 48,300
Quality Food Centers, Inc. 400 14,700
Regis Corp. 450 10,913
Rite Aid Corp. 600 20,400
Ross Stores Inc. 1,000 41,438
Ruddick Corp. 1,600 20,800
Sears Roebuck & Co. 2,900 140,288
Service Merchandise Co. Inc.* 2,700 15,863
Shopko Stores Inc. 900 14,513
Smart & Final Inc. 500 11,750
Smith's Food & Drug Centers, Inc. Class B 668 17,452
Sotheby's Holdings, Inc. Class A 1,600 27,200
Stanhome Inc. 500 13,250
Stein Mart Inc.* 500 8,938
TJX Companies, Inc. 600 24,000
Tandy Corp. 400 15,050
Tiffany & Co. (New) 1,800 66,600
Toys "R" Us, Inc.* 1,700 57,588
Unifirst Corp. 600 12,075
United Stationers Inc. 400 8,850
Urban Outfitters Inc. 600 9,300
Value City Department Stores Inc.* 1,100 14,025
Vitalink Pharmacy Services, Inc.* 300 6,900
Waban Inc.* 1,300 33,963
Wal-Mart Stores, Inc. 16,600 441,975
Walgreen Co. 1,700 64,175
Wet Seal Inc.* 500 15,656
Whole Foods Market, Inc.* 500 12,844
Winn Dixie Stores Inc. 1,100 36,713
</TABLE>
F-90
<PAGE> 186
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares Value
--------- -----------
<S> <C> <C>
Woolworth Corp.* 700 $ 14,700
Zale Corp. (New)* 1,000 19,375
---------
2,867,385
---------
STEEL--0.2%
Allegheny Teldyne Inc. 770 16,459
Armco Inc.* 2,800 10,500
Bethlehem Steel Corp.* 500 4,063
Birmingham Steel Corp. 1,200 19,200
Carpenter Technology Corp. 900 29,363
Chaparral Steel Co. 1,200 15,900
Cleveland Cliffs Inc. 300 12,300
Inland Steel Industries, Inc. 200 3,225
Intermet Corp. 700 8,181
J & L Specialty Steel Inc. 1,100 12,925
Lukens Inc. 400 5,500
National Steel Corp. Class B* 1,200 10,350
Nucor Corp. 600 28,425
Oregon Steel Mills Inc. 400 6,350
Rouge Steel Co. Class A 300 6,113
USX Corp. (U.S. Steel Group) 500 13,625
Worthington Industries Inc. 500 10,344
---------
212,823
---------
TELEPHONE--2.9%
ACC Corp. 600 25,200
AT&T Corp. 12,800 446,400
Airtouch Communications Inc.* 3,600 94,050
Aliant Communications Inc. 1,400 22,400
Alltel Corp. 1,200 36,600
American Mobile Satellite Corp.* 1,100 11,550
Ameritech Corp. (New) 4,300 235,425
Andrew Corp. 500 24,375
Antec Corp.* 500 5,344
Arch Communications Group, Inc.* 800 9,250
Associated Group Inc. Class A* 500 14,375
Bell Atlantic Corp. 3,800 228,950
BellSouth Corp. 6,900 281,175
Boston Technology Inc. (New)* 700 11,594
C-TEC Corp.* 1,200 29,025
CFW Communications Co. 500 11,000
Cellular Communications International* 400 12,600
Centennial Cellular Corp. Class A* 400 5,150
Cidco Inc.* 400 7,650
Coherent Communications Systems Corp. 400 7,825
Coherent Inc.* 300 11,738
Comnet Cellular Inc.* 300 8,325
</TABLE>
F-91
<PAGE> 187
SCHWAB ASSET DIRECTOR--HIGH GROWTH FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
October 31, 1996
<TABLE>
<CAPTION>
Number
of Shares Value
--------- -----------
<S> <C> <C>
DSC Communications Corp.* 700 $ 9,756
Emmis Broadcasting Corp. Class A* 200 7,213
GTE Corp. 6,700 282,238
General Datacom Industries Inc.* 500 4,813
Geotek Communications Inc.* 1,200 8,850
InterVoice, Inc.* 500 6,469
Interdigital Commerce Corp.* 1,000 6,438
Intermedia Communications Inc.* 500 15,875
Intermediate Telephone Inc.* 500 7,625
International Cabletel Inc. 1,300 30,713
Jacor Communications Inc.* 1,300 35,994
MCI Communications Corp. 5,000 125,313
Mobile Telecommunications Technologies
Corp.* 1,900 25,056
Mobilemedia Corp. Class A* 1,000 1,984
Northern Telecom Ltd 2,200 143,275
Nynex Corp. 3,200 142,400
Octel Communications Corp. 2,200 35,063
P-Com Inc. 500 11,000
Pacific Telesis Group 2,600 88,400
Pairgain Technologies Inc. 1,800 123,750
Plantronics, Inc. (New)* 200 7,525
Renaissance Communications Corp. 1,300 45,988
Roseville Communications Co. 500 11,688
Sprint Corp. 2,600 102,050
Tellabs Inc. 600 51,075
U S Long Distance Corp. 500 4,219
U S WEST, Inc. (Communications Group) 3,400 103,275
U S WEST, Inc. (Media Group)* 3,200 50,000
Vanguard Cellular Systems, Inc. Class A* 1,200 19,875
Winstar Communications Inc.* 900 18,844
Worldcom, Inc. 2,300 56,206
---------
3,122,971
---------
TOBACCO--0.8%
American Brands, Inc. 1,200 57,300
Loew's Corp. 1,300 107,413
Philip Morris Companies, Inc. 6,700 620,588
Schweitzer Mauduit International Inc. 700 21,525
UST Inc. 1,000 28,875
---------
835,701
---------
TRANSPORTATION-MISCELLANEOUS--0.4%
APL Ltd. 800 17,600
Air Express International Corp. 500 15,063
Airbourne Freight Corp. 1,000 19,875
American Freightways Corp.* 700 6,781
Arnold Industries Inc. 800 12,600
</TABLE>
F-92
<PAGE> 188
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares Value
--------- -----------
<S> <C> <C>
Caliber Systems Inc. 200 $ 3,375
Consolidated Freightways Inc. 200 4,800
Expeditores International of Washington Inc. 300 12,600
Federal Express Corp. 400 32,200
Harper Group, Inc. 500 11,938
Heartland Express, Inc. 1,441 31,522
J.B. Hunt Transport Services Inc. 1,100 16,294
Landstar Systems, Inc.* 300 7,125
NACCO Industries, Inc. Class A 400 18,500
Pittston Co. (Burlington Group) 800 14,900
Pittston Brinks Group 200 5,700
Roadway Express Inc. 1,050 16,800
Rollins Truck Leasing Corp. 1,100 12,513
Ryder System, Inc. 400 11,900
Swift Transportation Inc.* 600 13,575
U.S. Freightways Corp. 600 13,163
Wabash National Corp. 600 9,675
Werner Enterprises Inc. 1,650 28,669
XTRA Corp. 600 24,900
Yellow Corp. 900 11,756
-------
373,824
-------
TRAVEL & RECREATION--0.8%
Acxiom Corp. 1,100 43,038
Anchor Gaming* 800 39,800
Aztar Corp.* 900 7,313
Bally Entertainment Corp. 2,000 60,250
Boyd Gaming Corp.* 2,100 15,488
Brunswick Corp. 500 11,750
Central Parking Corp. 600 20,775
Harrahs Entertainment Inc.* 700 11,725
Hilton Hotels Corp. 3,200 97,200
ITT Corp. (New)* 800 33,600
K2 Inc. 400 9,200
Marcus Corp. 500 11,125
Marriott International Inc. 900 51,188
National Auto Credit Inc. 660 7,095
Players International Inc. 700 4,791
Primadonna Resorts Inc.* 900 14,456
Prime Hospitality Corp.* 1,500 22,875
Rio Hotel & Casino Inc.* 500 7,250
Showboat, Inc. 500 9,500
Sodak Gaming, Inc. 800 14,400
Sports Authority Inc. 750 18,188
Station Casinos Inc.* 1,000 11,125
</TABLE>
F-93
<PAGE> 189
SCHWAB ASSET DIRECTOR--HIGH GROWTH FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
October 31, 1996
<TABLE>
<CAPTION>
Number
of Shares Value
--------- -----------
<S> <C> <C>
Stratosphere Corp.* 1,900 $ 2,702
Walt Disney Co. 5,473 360,534
-------
885,368
-------
UTILITIES--2.1%
American Electric Power Co., Inc. 900 37,350
Aquila Gas Pipeline Corp. 700 10,150
Atmos Energy Corp. 500 11,875
Baltimore Gas & Electric Co. 500 13,625
Bay State Gas Co. 300 8,475
Black Hills Corp. 400 10,200
Carolina Power & Light Co. 1,000 36,125
Central & South West Corp. 1,000 26,500
Central Hudson Gas & Electric Corp. 500 15,000
Central Louisiana Electric Co. (New) 1,100 29,838
Central Maine Power Co. 900 10,575
Cilcorp Inc. 900 32,850
Cinergy Corp. 1,100 36,438
Coastal Corp. 700 30,100
Columbia Gas System, Inc. 400 24,300
Commonwealth Energy System
(Shares of Beneficial Interest) 600 14,400
Consolidated Edison Co. 1,500 43,875
Consolidated Natural Gas Co. 600 31,875
DTE Energy Co. 1,000 30,125
Destec Energy, Inc.* 2,000 30,000
Dominion Resources Inc. 800 30,200
Duke Power Co. 1,400 68,425
ENSERCH Corp. 300 6,450
Eastern Enterprises 1,100 42,350
Eastern Utilities Association 1,000 16,125
Edison International 2,800 55,300
Empire District Electric Co. 400 7,500
Enron Corp. 1,800 83,700
Entergy Corp. 1,200 33,600
FPL Group, Inc. 900 41,400
GPU Inc. 800 26,300
Global Industrial Technologies Inc.* 700 13,038
Houston Industries Inc. 1,400 32,025
IES Industries Inc. 1,300 39,975
Indiana Energy Inc. 600 14,700
Interstate Power Co. 300 9,113
Laclede Gas Co. 400 9,350
MDU Resources Group, Inc. 1,200 26,850
Madison Gas & Electric Co. 450 9,281
Minnesota Power & Light Co. 1,100 31,075
NICOR Inc. 200 6,975
</TABLE>
F-94
<PAGE> 190
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares Value
--------- -----------
<S> <C> <C>
New Jersey Resources Corp. 500 $13,813
Niagara Mohawk Power Corp. 700 5,950
NorAm Energy Co. 600 9,225
Northern States Power Co. 500 23,500
Northwest Natural Gas Co. 600 15,113
Ohio Edison Co. 600 12,525
Oneok Inc. 900 24,188
Orange & Rockland Utilities, Inc. 400 14,050
Otter Tail Power Co. 300 9,713
P P & L Resources Inc. 800 18,700
Pacific Enterprises 400 12,300
Pacific Gas & Electric Co. 2,600 61,100
Pacificorp 1,600 33,800
Panhandle Eastern Corp. 1,100 42,350
Peco Energy Co. 1,100 27,775
Peoples Energy Corp. 100 3,525
Philadelphia Suburban Corp. 600 10,200
Piedmont Natural Gas Inc. 1,200 29,400
Primark Corp.* 1,100 27,363
Public Service Co. of New Mexico 1,200 22,500
Public Service Co. of North Carolina Inc. 400 7,200
Public Service Enterprise Group 1,800 48,375
Rochester Gas & Electric Corp. 1,300 24,213
Seagull Energy Corp.* 2,016 43,596
Sierra Pacific Resources 1,300 36,238
SIGCORP, Inc. 900 30,600
Sonat Inc. 600 29,550
Southern Co. 4,500 99,563
Southern Union Co. (New) 400 9,950
Southwest Gas Corp. 700 13,388
Southwestern Energy Co. 600 8,925
Tejas Gas Corp. 1,200 48,750
Texas Utilities Co. 1,300 52,650
TNP Enterprises Inc. 400 10,350
Triarc Cos., Inc. Class A* 700 8,225
Tucson Electric Power Co.* 860 16,985
UGI Corp. (New) 1,300 30,713
Unicom Corp. 1,100 28,600
Union Electric Co. 700 27,038
United Illuminating Co. 400 13,300
United Water Resources Inc. 900 14,063
WPS Resources Corp. 1,100 32,725
Washington Energy Co. 600 11,550
Western Gas Resources Inc. 600 9,525
</TABLE>
F-95
<PAGE> 191
SCHWAB ASSET DIRECTOR--HIGH GROWTH FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
October 31, 1996
<TABLE>
<CAPTION>
Number
of Shares Value
--------- -----------
<S> <C> <C>
Wicor Inc. 900 $ 32,063
Williams Cos. Inc. 700 36,575
----------
2,229,208
----------
59,785,373
----------
INTERNATIONAL--19.9%
AUSTRALIA--0.5%
Australia & New Zealand Banking Group 7,295 42,616
Broken Hill Proprietary Co., Ltd. 9,593 127,364
Coca Cola Amatil 2,473 34,010
Commonwealth Bank Group 4,999 46,955
Commonwealth Bank Group
(Installment Receipts) 1,007 6,074
National Australia Bank 7,275 79,866
News Corp., Ltd. 9,738 55,421
Western Mining Corp. 5,402 33,955
Westpac Banking Corp. 9,225 52,647
----------
478,908
----------
BELGIUM--0.2%
Electrabel 261 60,585
Electrabel, VVPR Strip 44 45
Fortis AG 180 25,277
Generale de Banque 65 22,716
Petrofina SA 95 29,210
Societe Generale de Belgique 322 24,055
Tractebel 32 15
Tractebel Investor International 88 41,898
----------
203,801
----------
CANADA--0.6%
Alcan Aluminum Ltd. 1,166 38,281
BCE Inc. 1,527 70,129
Bank of Montreal 1,274 38,547
Bank of Nova Scotia, Halifax 1,134 35,750
Barrick Gold Corp. 2,344 61,390
Canadian Imperial Bank of Commerce 1,049 43,597
Canadian Pacific Ltd 1,663 42,065
Imperial Oil Ltd. (New) 914 40,271
Noranda Inc. 1,178 25,974
Northern Telecom Ltd. 1,235 80,447
Placer Dome Inc. 1,161 27,851
Royal Bank of Canada, Montreal Quebec 1,525 50,409
Seagram Co. Ltd. 1,818 68,504
Thomson Corp. 2,880 57,914
----------
681,129
----------
</TABLE>
F-96
<PAGE> 192
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares Value
--------- -----------
<S> <C> <C>
DENMARK--0.1%
D/S 1912 Class B 1 $ 25,119
D/S Svendborg Class B 1 35,958
Novo Nordisk A/S Series B 182 30,311
Tele Danmark A/S Series B 636 32,061
---------
123,449
---------
FRANCE--1.3%
AXA Groupe SA 936 58,146
Alcatel Alsthom CGE SA 760 64,814
Banque Nationale de Paris 975 36,483
Canal Plus 117 28,950
Carrefour 187 103,769
Compagnie Financiere de Paribas (Bearer) 584 37,582
Compagnie Generale de Eaux 586 70,033
Compagnie de Saint-Gobain SA 414 55,875
Danone Groupe 352 48,196
Elf Aquitaine 1,319 105,468
L'Air Liquide 354 54,632
L'Oreal SA 327 110,716
LVMH Moet Hennessy Louis Vuitton 424 97,199
Lafarge Coppee SA 459 27,544
Lyonnaise des Eaux-Dumez 287 25,374
Michelin (CGDE) Class B (Reg.) 564 27,193
PSA Peugeot Citroen 243 25,334
Pinault Printemps Redoute SA 109 41,106
Renault (Reg.) 1,184 25,243
Rhone-Poulenc SA A Shares 1,591 47,147
Roussel Uclaf 132 34,933
Sanofi 505 45,744
Schneider SA 656 32,078
Societe Generale 434 46,774
Suez Group 802 34,527
TOTAL Class B 1,165 91,126
Union des Assurances de Paris 1,593 33,091
---------
1,409,077
---------
GERMANY--1.5%
BASF AG 2,960 94,601
Bayer AG 3,315 125,254
Bayerische Hypotheken & Wechsel Bank AG 1,052 30,808
Bayerische Motoren Werk AG 80 46,804
Bayerische Vereinsbank AG 984 37,004
Commerzbank AG 1,680 37,640
Daimler Benz AG 2,490 146,171
Deutsche Bank AG 2,271 105,182
Dresdner Bank AG 2,153 57,578
</TABLE>
F-97
<PAGE> 193
SCHWAB ASSET DIRECTOR--HIGH GROWTH FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
October 31, 1996
<TABLE>
<CAPTION>
Number
of Shares Value
--------- -----------
<S> <C> <C>
Hoechst AG 2,560 $ 96,270
Linde AG 31 19,191
Lufthansa AG 2,280 29,810
Mannesmann AG 153 59,406
Metro AG 426 34,937
Muenchener Rueckversicherung (Reg.) 34 81,273
RWE AG 3,571 147,000
RWE AG (Non Voting) 1,501 50,945
Sap AG 248 33,571
Siemens AG 2,718 140,441
Thyssen AG 128 22,905
Veba AG 2,360 125,870
Vereinigte Elektrizitatswerke Westfalen
Series B 82 27,290
Viag AG 99 36,609
Viag AG* 20 7,277
Volkswagen AG 110 43,309
---------
1,637,146
---------
HONG KONG--0.8%
CITIC Pacific 11,000 53,491
Cathay Pacific Airways 13,000 20,343
Cheung Kong Holdings 8,000 64,147
China Light & Power 11,000 51,072
Hang Seng Bank Ltd. 8,400 99,674
Henderson China 24 54
Henderson Land Development Co. 6,000 53,348
Hong Kong Electric Holdings Ltd. 26,000 83,223
Hong Kong Telecommunications Ltd. 43,966 77,615
Hutchison Whampoa Ltd. 13,000 90,789
New World Development Co. 10,190 59,304
Sun Hung Kai Properties 9,000 102,429
Swire Pacific Ltd. Class A 7,000 61,787
Wharf Holdings 12,000 49,507
---------
866,783
---------
ITALY--0.4%
Assicurazioni Generali 4,018 77,605
Fiat SpA 14,966 40,005
Fiat SpA, di Risp (Non-Convertible) 6,565 9,521
INA 14,965 20,667
Istituto Bancario San Paolo di Torino 3,834 22,746
STET 17,472 60,352
STET di Risp (Non-Convertible) 5,004 13,326
Telecom Italia 30,252 67,404
Telecom Italia di Risp (Non-Convertible) 9,137 17,407
</TABLE>
F-98
<PAGE> 194
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares Value
--------- -----------
<S> <C> <C>
Telecom Italia Mob 30,252 $ 62,518
Telecom Italia Mob di Risp 11,325 12,915
-------
404,466
-------
JAPAN--6.4%
Ajinomoto Co., Inc. 2,000 21,255
All Nippon Airways Co., Ltd. 4,000 33,341
Asahi Bank 7,000 71,934
Asahi Chemical Industry Co. 4,000 24,944
Asahi Glass Co., Ltd. 4,000 42,159
Bank of Tokyo-Mitsubishi, Ltd. 15,400 313,803
Bank of Yokohama 3,000 22,239
Bridgestone Corp. 3,000 50,591
Canon Inc. 3,000 57,441
Chiba Bank 2,000 15,037
Chubu Electric Power Co. 3,000 61,921
Chugoku Electric Power Co., Inc. 1,000 20,113
DDI Corp. 6 45,057
Dai Nippon Printing Co. 2,000 33,727
Dai-Ichi Kangyo Bank, Ltd. 10,000 162,487
Daiei Inc. 2,000 17,742
Daiwa Bank 4,000 22,660
Daiwa House Industries Co. 1,000 13,877
Daiwa Securities Co. 4,000 43,213
Denso Corp. 3,000 62,184
East Japan Railway Co. 12 55,123
Fanuc 1,000 32,058
Fuji Bank, Ltd. 10,000 180,054
Fuji Photo Film Co. 2,000 57,441
Fujitsu Ltd. 6,000 52,699
Gunma Bank 1,000 8,871
Hachijuni Bank 3,000 30,038
Hitachi Ltd. 11,000 97,580
Honda Motor Co., Ltd. 3,000 71,670
Industrial Bank of Japan, Ltd. 9,560 190,604
Ishikawajima-Harima Heavy Industries 3,000 13,833
Isuzu Motors Ltd. 4,000 19,780
Ito-Yokado Co., Ltd. 1,000 49,888
Itochu Corp. 4,000 24,136
Japan Air Lines Co., Ltd. 6,000 34,254
Japan Telecom Co. 1 24,066
Japan Tobacco Inc. 6 42,370
Joyo Bank 3,000 19,815
Joyo Bank (Rights expire 11/20/96)* 100 309
Jusco Co. 1,000 29,687
Kajima Corp. 3,000 25,796
Kansai Electric Power Co. 3,600 75,570
</TABLE>
F-99
<PAGE> 195
SCHWAB ASSET DIRECTOR--HIGH GROWTH FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
October 31, 1996
<TABLE>
<CAPTION>
Number
of Shares Value
--------- -----------
<S> <C> <C>
Kao Corp. 2,000 $ 23,539
Kawasaki Heavy Industries 4,000 18,304
Kawasaki Steel Co. 8,000 24,663
Kinki Nippon Railway Co. 4,120 27,321
Kirin Brewery Co., Ltd. 3,000 30,829
Kobe Steel 9,000 21,343
Kokusai Denki 1,000 86,514
Komatsu Ltd. 3,000 24,558
Kubota Corp. 4,000 22,625
Kyocera Corp. 1,000 65,961
Kyushu Electric Power Co. 2,000 40,929
Long-Term Credit Bank of Japan 7,000 46,419
Marubeni Corp. 4,000 18,515
Marui Co. 1,000 18,532
Matsushita Electric Industrial Co., Ltd. 7,000 111,897
Matsushita Electric Works 2,000 19,323
Mazda Motor Corp. 5,000 22,177
Mitsubishi Chemical Corp. 5,000 20,421
Mitsubishi Corp. 5,000 55,773
Mitsubishi Electric Corp. 7,000 40,516
Mitsubishi Estate Co. 4,000 49,888
Mitsubishi Heavy Industries 11,000 84,537
Mitsubishi Materials Co. 7,000 31,110
Mitsubishi Motors 2,000 16,547
Mitsubishi Trust & Banking Corp. 4,000 59,022
Mitsui & Co. 5,000 40,402
Mitsui Fudosan Co. 2,000 24,768
Mitsui Trust & Banking Co. 4,000 38,646
Murata Manufacturing Co. 1,000 32,146
NEC Corp. 5,000 54,455
NKK Corp. 8,000 20,096
NTT Data Corp. 1 29,599
Nikko Securities Co. 4,000 38,294
Nintendo Co., Ltd. 1,000 63,941
Nippon Credit Bank 9,000 27,113
Nippon Express Co. 3,000 24,373
Nippon Oil Co. 3,000 17,127
Nippon Paper Industries Co. 2,000 11,278
Nippon Steel Corp. 23,000 67,068
Nippon Telegraph & Telephone Corp. 54 377,059
Nippon Yusen Kabushiki Kaisha 6,000 30,038
Nissan Motor Co., Ltd. 8,000 60,498
Nomura Securities Co., Ltd. 7,000 115,586
Obayashi Corp. 2,000 15,423
Odakyu Electric Railway Co. 60 370
Oji Paper Co. (New)* 1,000 7,308
</TABLE>
F-100
<PAGE> 196
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares Value
--------- -----------
<S> <C> <C>
Osaka Gas Co. 7,000 $ 21,642
Ricoh Co., Ltd. 2,000 19,850
Rohm Co. 1,000 59,286
Sakura Bank 12,000 113,829
Sankyo Co. 2,000 49,537
Sanwa Bank 10,000 170,392
Sanyo Electric Co., Ltd. 5,000 24,241
Secom Co. 1,000 59,549
Seibu Railway Co. 2,000 95,736
Sekisui Chemical Co. 1,000 11,155
Sekisui House 2,000 21,079
Seven-Eleven Japan Co. 1,100 63,959
Sharp Corp. 4,000 60,779
Shikoku Electric Power Co. 1,000 20,201
Shimizu Corp. 2,000 18,093
Shin-Etsu Chemical Co. 1,050 17,983
Shizuoka Bank 2,000 22,836
Sony Corp. 1,000 59,989
Sumitomo Bank 11,000 193,228
Sumitomo Chemical Co. 6,000 25,612
Sumitomo Corp. 3,000 24,215
Sumitomo Electric Industries 2,000 26,349
Sumitomo Marine & Fire Insurance Co. 2,000 14,334
Sumitomo Metal Industries 7,000 19,244
Sumitomo Trust & Banking Co. 4,000 44,267
Suzuki Motor Corp. 1,000 10,188
TDK 1,000 58,671
Taisei Corp. 2,000 12,296
Taisho Pharmaceutical Co. 1,000 19,850
Takeda Chemical Industries 3,000 51,381
Tobu Railway Co. 2,000 11,260
Tohoku Electric Power Co. 1,500 30,433
Tokai Bank 7,000 81,156
Tokio Marine & Fire Insurance Co. 5,000 54,894
Tokyo Electric Power Co., Inc. 4,600 105,450
Tokyo Gas Co. 7,000 21,826
Tokyu Corp. 3,000 20,157
Tonen Corp. 2,000 25,647
Toppan Printing Co. 2,000 24,417
Toray Industries Inc. 4,000 24,136
Toshiba Corp. 10,000 62,536
Tostem Corp. 1,000 28,721
Toyo Seikan Kaisha 1,000 31,619
Toyo Trust & Banking Co. 2,000 17,074
Toyoda Automatic Loom 1,000 18,532
Toyota Motor Corp. 13,000 307,145
</TABLE>
F-101
<PAGE> 197
SCHWAB ASSET DIRECTOR--HIGH GROWTH FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
October 31, 1996
<TABLE>
<CAPTION>
Number
of Shares Value
--------- -----------
<S> <C> <C>
Yamaichi Securities Co. 3,000 $ 16,705
Yamanouchi Pharmaceutical Co. 1,000 20,289
Yasuda Fire & Marine Insurance Co. 2,000 12,700
Yasuda Trust & Banking Co. 6,000 29,248
---------
6,701,934
---------
NETHERLANDS--1.2%
ABN-Amro Holdings NV 1,584 89,530
Aegon NV 1,298 66,021
Akzo Nobel NV 345 43,473
Dordtsche Petrol 173 30,079
Elsevier NV 3,213 53,402
Fortis Amev NV, CVA 249 7,441
Heineken NV 244 46,091
ING Groep NV 3,643 113,582
Koninklijke Ahold NV 788 45,979
Koninklijke PTT Nederland 2,341 84,716
Philips Electronics NV 1,675 59,035
PolyGram NV 874 41,055
Royal Dutch Petroleum Co. (Bearer) 2,603 429,870
SGS-Thomson Microelectronics NV* 391 20,718
Unilever NV, CVA 777 118,151
Wolters Kluwer NV, CVA 328 42,162
---------
1,291,305
---------
SINGAPORE--0.3%
City Developments 3,000 23,642
Hong Kong Land Holdings 11,396 25,413
Jardine Matheson Holdings Ltd. 265 1,497
Overseas Chinese Bank (alien market) 4,418 50,500
Singapore Airlines Ltd. (alien market) 5,000 44,018
Singapore Telecommunications 66,000 153,695
United Overseas Bank (alien market) 4,000 38,907
---------
337,672
---------
SPAIN--0.4%
Argentaria Corp. 609 23,865
Banco Bilbao-Vizcaya SA (Reg.) 1,091 53,013
Banco de Santander SA (Reg.) 775 39,784
Empresa Nacional de Electricidad 1,262 77,246
Gas Natural SDG SA 181 31,662
Iberdrola SA 4,508 47,873
Repsol, SA 1,457 47,560
Telefonica Internacional de Espana, SA 4,561 91,510
---------
412,513
---------
</TABLE>
F-102
<PAGE> 198
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares Value
--------- -----------
<S> <C> <C>
SWEDEN--0.4%
ABB Series A 273 $ 30,930
ABB Series B 106 11,816
Astra AB Series A 2,285 104,942
Astra AB Series B 557 25,412
L.M. Ericsson Telephone Series B 4,649 125,845
Sandvik AB Series A 1,016 23,949
Sandvik AB Series B 929 21,898
Swedish Match Company* 1,833 5,464
Volvo AB Series A 518 10,713
Volvo AB Series B 1,315 27,297
---------
388,266
---------
SWITZERLAND--1.3%
ABB AG (Bearer) 39 48,195
ABB AG (Reg.) 45 10,965
CS Holding (Reg.) 805 80,404
Ciba-Geigy Ltd. (Bearer) 12 14,715
Ciba-Geigy Ltd. (Reg.) 123 151,512
Cie Financiere Richemont Series A (Bearer) 28 42,642
Nestle Ltd. (Reg.) 190 206,384
Roche Group Holding AG 34 257,152
Roche Group Holding AG (Bearer) 7 85,839
Sandoz Ltd. (Bearer) 12 13,899
Sandoz Ltd. (Reg.) 170 196,495
Schweizerische Bankgesellschaft (Bearer) 97 92,396
Schweizerische Bankgesellschaft (Reg.) 61 11,775
Schweizerischer Bankverein (Reg.) 554 106,724
Winterthur (Reg.) 43 25,616
Zurich Versicherung (Reg.) 207 56,663
---------
1,401,376
---------
UNITED KINGDOM--4.5%
Abbey National PLC 6,411 66,573
Allied Domecq PLC 5,111 39,431
Associated British Foods PLC 5,339 36,671
BAA PLC 5,080 40,928
BAT Industries 14,986 103,907
BOC Group 2,336 32,356
BTR PLC 19,375 81,202
Barclays PLC 7,892 123,891
Bass PLC 4,265 54,701
Boots Co. 4,622 46,867
British Aerospace PLC 2,038 38,710
British Airways PLC 4,777 42,996
British Gas 21,063 65,479
British Petroleum Co. 27,586 296,446
</TABLE>
F-103
<PAGE> 199
SCHWAB ASSET DIRECTOR--HIGH GROWTH FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
October 31, 1996
<TABLE>
<CAPTION>
Number
of Shares Value
--------- -----------
<S> <C> <C>
British Sky Broadcast 8,327 $ 78,201
British Steel 8,787 24,420
British Telecom 30,272 185,997
Cable & Wireless 10,862 86,274
Cadbury Schweppes 4,878 40,650
Commercial Union Assurance Co. 3,334 35,272
GKN 3,000 56,396
General Electric Co. 13,345 82,537
Glaxo Wellcome 16,832 264,370
Granada Group 2,853 41,095
Grand Metropolitan, Inc. 10,356 78,125
Great University Stores 4,883 48,798
Guinness 9,327 66,795
HSBC Holdings 4,285 90,038
HSBC Holdings (Hong Kong) 8,905 182,477
Hanson Industries 26,627 34,887
Imperial Chemical Industries 3,515 45,139
Imperial Tobacco* 2,662 15,598
J. Sainsbury PLC 8,966 53,119
Kingfisher 3,303 35,213
Legal & General Group 5,345 28,187
Lloyds Abbey Life 3,041 31,058
Lloyds TSB Group 36,634 232,242
Marks & Spencer PLC 13,601 114,227
National Power Development 5,482 36,136
National Westminster Bancorp 8,793 100,395
Pearson, Inc. 2,688 33,163
Powergen 3,259 27,052
Prudential Corp. 9,445 71,483
RTZ Corp. PLC 5,226 83,613
Rank Group 11,442 76,075
Reed International 2,744 51,093
Rentokil Group 4,749 31,884
Reuters Holdings PLC 8,143 101,390
Royal Bank of Scotland 3,944 32,289
Safeway PLC 5,641 33,466
Scot & Newcastle 2,969 30,855
Scottish Power 10,000 51,107
Shell Transport & Trading Co. 16,092 263,747
Siebe 2,102 32,981
SmithKline Beecham PLC (New) 12,072 149,132
Standard Chartered PLC 4,782 51,603
Tesco 10,239 55,495
Thorn EMI 2,127 41,785
Unilever 3,941 82,810
Vendome Lux Group SA (units) 3,387 31,974
</TABLE>
F-104
<PAGE> 200
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares Value
--------- -----------
<S> <C> <C>
Vodafone Group 14,919 $ 57,670
Whitbread 2,092 24,516
Zeneca Group 4,593 123,824
----------
4,696,811
----------
21,034,636
----------
TOTAL COMMON STOCK
(Cost $71,823,293) 80,820,009
----------
PREFERRED STOCK--0.1%
AUSTRALIA--0.0%
News Corp. (Limited Voting Shares) 5,399 23,751
----------
GERMANY--0.0%
Sap AG (Non-Voting) 175 23,551
Volkswagen AG (Non-Voting) 42 12,744
----------
36,295
----------
ITALY--0.0%
Fiat SpA 5,589 7,921
----------
UNITED STATES--0.0%
Aetna Inc. 6.25% Class C (Voting) 74 5,189
Fresenius National Medical Care Inc. Class D
(Special Dividend)* 700 91
----------
5,280
----------
TOTAL PREFERRED STOCK (Cost $74,132) 73,247
----------
WARRANTS--0.0%
SWITZERLAND--0.0%
Schweizerischer Bankverein (expire 6/30/00)* 30 77
----------
UNITED STATES--0.0%
Jacor Communications Inc. (expire 09/18/01)* 600 1,256
----------
TOTAL WARRANTS
(Cost $13,512) 1,333
----------
</TABLE>
F-105
<PAGE> 201
SCHWAB ASSET DIRECTOR--HIGH GROWTH FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
October 31, 1996
<TABLE>
<CAPTION>
Par Value
---------- ------------
<S> <C> <C>
U.S. TREASURY OBLIGATIONS--17.6%(A)
U.S. Treasury Bonds
7.25%, 05/15/16 $9,650,000 $ 10,223,114
7.50%, 11/15/16 500,000 542,575
8.13%, 08/15/19 5,100,000 5,909,166
7.25%, 08/15/22 1,900,000 2,015,045
-----------
TOTAL U.S. TREASURY OBLIGATIONS (Cost
$17,908,627) 18,689,900
-----------
CASH EQUIVALENTS--10.1%
Federal Home Loan Bank
Consolidated Discount Notes(b)
5.30%, 01/30/97 4,950,000 4,886,243
Federal Home Loan Mortgage Corp. Discount
Notes(b)
5.30%, 11/01/96 3,140,000 3,140,000
<CAPTION>
Shares
----------
<S> <C> <C>
Seven Seas Money Market Fund(c)
5.04%, 11/07/96 2,722,089 2,722,089
-----------
TOTAL CASH EQUIVALENTS
(Cost $10,747,615) 10,748,332
-----------
TOTAL INVESTMENTS--104.1%
(Cost $100,567,179) 110,332,821
-----------
OTHER ASSETS AND LIABILITIES--(4.1%)
Other Assets 859,882
Liabilities (5,238,765)
-----------
(4,378,883)
-----------
NET ASSETS--100.0% (Note 7)
Applicable to 9,375,074 outstanding
shares,
$0.00001 par value (unlimited shares
authorized) $105,953,938
-----------
-----------
NET ASSET VALUE PER SHARE $11.30
-----
-----
</TABLE>
See accompanying Notes to Statements of Net Assets.
F-106
<PAGE> 202
SCHWAB ASSET DIRECTOR--BALANCED GROWTH FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
October 31, 1996
<TABLE>
<CAPTION>
Number
of Shares Value
--------- -----------
<S> <C> <C>
COMMON STOCK--57.1%
DOMESTIC--42.4%
AEROSPACE/DEFENSE--0.9%
AAR Corp. 200 $ 5,700
Alliant Techsystems Inc.* 500 24,483
BFGoodrich Co. 200 8,475
Boeing Co. 1,900 181,213
Coltec Industries Inc.* 1,000 17,250
Curtiss-Wright Corp. 100 5,413
Gencorp Inc. 400 6,600
General Dynamics Corp. 200 13,725
Lockheed Martin Corp. 900 80,663
McDonnell Douglas Corp. 1,000 54,500
Northrop Grumman Corp. 200 16,150
OEA, Inc. 300 11,325
Orbital Sciences Corp. Class A* 300 6,338
Raytheon Co. 1,000 49,250
Rockwell International Corp. 1,000 55,000
Rohr Industries Inc.* 500 9,250
Textron Inc. 700 62,125
Thiokol Corp. 300 12,563
Trimble Navigation Ltd.* 300 4,256
United Technologies Corp. 500 64,375
-------
688,654
-------
AIR TRANSPORTATION--0.2%
AMR Corp.* 500 42,000
Alaska Air Group Inc.* 200 4,400
Atlantic Southeast Airlines Inc. 600 12,600
Continental Airlines Inc. Class B 700 17,588
Delta Airlines Inc. 400 28,350
Mesa Air Group Inc.* 400 3,750
Offshore Logistics, Inc.* 200 3,363
Southwest Airlines Co. 600 13,500
Trans World Airlines Inc. (New)* 800 6,400
USAir Group, Inc.* 1,800 31,275
Valujet Inc. 1,100 10,794
-------
174,020
-------
ALCOHOLIC BEVERAGES -- 0.2%
Adolph Coors Co. Class B 900 17,494
Anheuser-Busch Companies, Inc. 2,000 77,000
Brown Forman Corp. Class B 300 12,975
Canandaigua Wine Co., Inc. Class A* 300 6,863
Seagram Company Ltd. 1,200 45,450
-------
159,782
-------
</TABLE>
F-107
<PAGE> 203
SCHWAB ASSET DIRECTOR--BALANCED GROWTH FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
October 31, 1996
<TABLE>
<CAPTION>
Number
of Shares Value
--------- -----------
<S> <C> <C>
APPAREL--0.3%
Brown Group Inc. 300 $ 6,188
Burlington Industries Inc.* 1,100 12,513
Cone Mills Corp.* 300 2,363
Donnkenny Inc. 300 3,750
Fabri-Centers of America, Inc. Class A 400 5,200
Guilford Mills, Inc. 200 4,750
Justin Industries Inc. 300 3,075
Kellwood Co. 300 5,400
Liz Claiborne Inc. 200 8,450
Men's Wearhouse, Inc. 400 8,225
NIKE, Inc. Class B 1,400 82,425
Nautica Enterprises Inc. 600 18,375
Phillips-Van Heusen Corp. 300 3,300
Reebok International Ltd. 200 7,150
Russell Corp. 100 2,838
Springs Industries Inc. 700 31,588
St. John's Knits, Inc. 400 18,300
Stride Rite Corp. 700 5,775
Unitog Co. 200 5,475
V.F. Corp. 200 13,075
Wolverine World Wide Inc. 750 18,563
-------
266,778
-------
AUTOMOTIVE PRODUCTS--0.1%
APS Holding Corp. Class A* 200 4,150
Armor-All Products Corp. 300 4,988
Carlisle Cos. Inc. 500 28,438
Cooper Tire & Rubber 200 3,925
Discount Auto Parts Inc.* 500 10,875
Goodyear Tire & Rubber 600 27,525
O'Reilly Automotive, Inc.* 100 3,525
-------
83,426
-------
BANKS--3.3%
ALBANK Financial Corp. 240 6,690
Associated Banc-Corp. 500 19,938
Banc One Corp. 1,588 67,292
Bancorp South, Inc. 500 12,594
Bank of Boston Corp. 500 32,000
Bank of New York Co., Inc. 1,600 53,000
BankAmerica Corp. 2,000 183,000
Bankers Trust New York Corp. 300 25,350
Barnett Banks, Inc. 600 22,875
Boatmens Bancshares Inc. 600 36,488
CCB Financial Corp. 500 28,500
CNB Bancshares Inc. 210 6,248
</TABLE>
F-108
<PAGE> 204
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares Value
--------- -----------
<S> <C> <C>
Centura Banks Inc. 600 $ 23,325
Chase Manhattan Corp. (New) 1,932 165,669
Chemical Financial Corp. 400 14,950
Citicorp 2,500 247,500
Citizens Bancorp 200 10,200
Citizens Banking Corp. 200 5,800
City National Corp. 600 10,500
Cole Taylor Financial Group Inc. 200 6,025
Colonial BancGroup Inc. 200 7,575
Comerica Inc. 600 31,875
Corestates Financial Corp. 900 43,763
Corus Bankshares Inc. 200 6,225
Cullen/Frost Bankers Inc. 400 12,075
Dauphin Deposit Bank & Trust Co. 600 19,575
Deposit Guaranty Corp. 700 35,088
F & M National Corp. 200 3,700
Fifth Third Bancorp 400 25,100
First Bank System Inc. 764 50,424
First Chicago NBD Corp. 1,343 68,493
First Citizens BancShares Inc. 200 13,450
First Commercial Bancshares Inc. 200 5,575
First Commercial Corp. 674 22,835
First Commonwealth Financial Corp. 300 5,400
First Financial Bancorp 220 6,848
First Hawaiian, Inc. 600 18,600
First Michigan Bank Corp. 420 10,500
First Midwest Bancorp Inc. 200 6,375
First Union Corp. 1,305 94,939
Firstbank Illinois Co. 100 3,256
Fleet Financial Group Inc. (New) 756 37,706
Fort Wayne National Corp. 200 6,925
Fulton Financial Corp. 440 8,745
HUBCO, Inc. 309 6,663
Hancock Holding Co. 400 15,950
Imperial Bancorp 324 6,217
J.P. Morgan & Co. Inc. 900 77,738
Jefferson Bankshares, Inc. 200 5,513
Keycorp (New) 900 41,963
Keystone Financial Inc. 900 23,288
Liberty Bancorp, Inc. 100 3,838
Long Island Bancorp Inc. 400 11,925
MBNA Corp. 800 30,200
Magna Group Inc. 400 11,150
Mark Twain Bancshares Inc. 500 22,938
Mellon Bank Corp. 500 32,563
Mid-Am, Inc. 220 3,878
</TABLE>
F-109
<PAGE> 205
SCHWAB ASSET DIRECTOR--BALANCED GROWTH FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
October 31, 1996
<TABLE>
<CAPTION>
Number
of Shares Value
--------- -----------
<S> <C> <C>
National Bancorp of Alaska, Inc. 400 $ 25,900
National City Corp. 600 26,025
National Commerce Bancorp 600 21,150
NationsBank Corp. 1,600 150,800
New York Bancorp Inc. 200 6,775
North Fork Bancorporation 600 18,975
Norwest Corp. 1,210 53,089
ONBANCorp, Inc. 200 7,288
Old National Bancorp 515 18,733
One Valley Bancorp of West Virginia Inc. 625 20,195
PNC Bank Corp. 1,400 50,750
Park National Corp. 100 4,825
People's Bank Bridgeport Conn. 800 20,500
Provident Bancorp Inc. 750 33,234
Provident Bankshares Corp. 200 7,175
Queens County Bancorp, Inc. 266 11,538
Republic New York Corp. 200 15,250
Riggs National Corp. Washington D.C. 400 6,800
S & T Bancorp, Inc. 200 6,275
Security Capital Corp. 200 13,250
Sumitomo Bank 200 5,075
Suntrust Banks, Inc. 600 27,975
Susquehanna Bancshares, Inc. 200 5,875
Toronto-Dominion Bank 738 17,251
Toronto-Dominion Bank (Ontario)* 184 4,301
Trust Company of New Jersey 200 2,763
TrustCo Bank Corp. NY 230 5,031
Trustmark Corp. 800 19,800
U S Trust Corp. (New) 200 12,500
U.S. Bancorp 290 11,582
UMB Financial Corp. 330 12,911
UST Corp. 200 3,575
Union Planters Corp. 305 10,599
United Bankshares, Inc. 200 6,000
United Carolina Bancshares Corp. 300 7,725
Valley National Bancorp 840 20,790
Wachovia Corp. (New) 600 32,250
Wells Fargo & Co. 300 80,138
Westamerica Bancorp 200 10,175
Whitney Holding Corp. 200 6,375
---------
2,638,033
---------
BUSINESS MACHINES & SOFTWARE--3.2%
3COM Corp. 600 40,613
AST Research Inc.* 600 2,738
Amati Communications Corp.* 400 6,975
Amdahl Corporation* 300 3,075
</TABLE>
F-110
<PAGE> 206
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares Value
--------- -----------
<S> <C> <C>
Analogic Corp. 300 $ 8,175
Apple Computer, Inc. 400 9,250
Applied Magnetics Corp.* 500 10,688
Auspex Systems, Inc.* 300 3,056
Autodesk, Inc. 100 2,288
BBN Corp.* 300 6,413
BancTec, Inc.* 400 8,150
Bay Networks, Inc. 700 14,175
Black Box Corp.* 200 6,800
Borland International Inc.* 400 2,038
Broderbund Software Inc.* 700 19,600
Cabletron Systems Inc.* 300 18,713
Ceridian Corp.* 214 10,620
Cheyenne Software Inc.* 800 24,300
Cisco Systems Inc. 3,100 191,619
Compaq Computer Corp.* 1,100 76,588
Computer Assoc. International Inc. 1,550 91,644
Computer Horizons Corp. 300 9,338
Computer Products, Inc.* 400 7,875
Computer Sciences Corp.* 595 44,179
Compuware Corp.* 800 42,400
Comshare, Inc. 200 2,788
Comverse Technology Inc. (New)* 300 10,463
Control Data Systems, Inc.* 300 7,031
Data General Corp.* 1,000 14,875
Dell Computer Corp. 500 40,750
Digi International Inc.* 200 2,938
Digital Equipment Corp.* 600 17,700
EMC Corp.* 800 21,000
Exabyte Corp.* 200 2,613
FileNet Corp.* 300 8,475
Geoworks* 300 6,056
HCIA Inc.* 400 11,200
HNC Software Inc. 200 6,275
Hewlett Packard Co. 4,300 189,738
Honeywell Inc. 500 31,063
INSO Corp. 200 9,825
Intergraph Corp.* 1,000 9,438
International Business Machines 2,200 283,800
Iomega Corp. 1,800 38,813
JTS Corp.* 1,300 4,875
Learning Co. Inc.* 600 12,413
Legato Systems Inc. 400 14,250
McAfee Associates, Inc. 900 41,006
Microchip Technology Inc.* 700 25,288
Microsoft Corp.* 2,500 343,281
</TABLE>
F-111
<PAGE> 207
SCHWAB ASSET DIRECTOR--BALANCED GROWTH FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
October 31, 1996
<TABLE>
<CAPTION>
Number
of Shares Value
--------- -----------
<S> <C> <C>
Mylex Corp.* 400 $ 5,075
National Computer Systems, Inc. 200 4,275
National Instruments Corp.* 300 8,700
Network General Corp. 1,200 28,725
Novell Inc.* 1,200 11,175
Novellus Systems, Inc.* 400 16,500
Oak Technology 600 6,000
Optical Data Systems, Inc. 200 2,900
Oracle Systems Corp. 2,400 101,550
Pitney Bowes Inc. 700 39,113
Platinum Technology Inc.* 1,100 15,950
Project Software & Development Inc. 200 6,675
Pure Atria Corp.* 308 8,374
Quantum Corp.* 1,000 20,188
Rational Software Corp. (New) 1,200 45,825
Read-Rite Corp.* 900 15,863
Safeguard Scientifics Inc. 1,000 39,750
Santa Cruz Operations, Inc.* 800 5,550
Seagate Technology, Inc. 842 56,204
Security Dynamics Technology 200 16,150
Sequent Computer Systems, Inc.* 400 5,925
Shiva Corp. 400 16,475
Silicon Graphics Inc.* 654 12,099
Stac Inc.* 500 3,656
Stratus Computer Inc.* 600 13,425
Structural Dynamics Research Corp.* 700 12,381
Sun Microsystems Inc. 700 42,656
System Software Associates, Inc. 800 9,350
Tandem Computers Inc.* 300 3,788
Tech Data Corp.* 800 20,550
Transaction Systems Architects Inc. Class A 400 16,400
Unisys Corp.* 400 2,500
Veritas Software Co. 300 15,225
Videoserver Inc.* 200 9,413
Wang Laboratories Inc. (New)* 700 16,319
Wind River Systems Inc. 300 12,638
Xerox Corp. 1,400 64,925
Xircom, Inc.* 400 8,125
---------
2,557,656
---------
BUSINESS SERVICES--2.3%
ABM Industries, Inc. 400 7,050
ABR Information Services Inc. 500 34,438
Access Health Inc. 450 14,738
Ackerley Inc. 600 7,350
Addington Resources, Inc.* 300 8,325
Affiliated Computer Services Inc. Class A 600 32,550
</TABLE>
F-112
<PAGE> 208
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares Value
--------- -----------
<S> <C> <C>
Allegiance Corp.* 220 $ 4,125
Alternative Resources Corp. 200 3,988
American Business Information, Inc. 300 5,700
American Business Products, Inc. 200 4,450
American Homepatient Inc. 150 3,544
American Management Systems, Inc. 600 19,050
American Medical Response, Inc.* 300 9,000
Amresco Inc. 300 6,281
Analysts International Corp. 400 9,800
Apollo Group, Inc. Class A 1,350 36,788
Applix Inc. 200 4,800
Apria Healthcare Group Inc.* 900 17,213
Aspen Technology Inc.* 200 13,400
Automatic Data Processing, Inc. 1,100 45,788
BISYS Group, Inc.* 600 22,388
Bell & Howell Co. (New)* 300 8,025
Billing Information Concepts Corp.* 300 7,763
Bowne & Co. Inc. 200 4,675
Browning Ferris Industries Inc. 800 21,000
CDI Corp.* 500 13,750
Cambridge Technology Partners 600 19,725
Camco International Inc. 600 23,250
Catalina Marketing Corp. 700 35,613
Cellular Technical Services Inc. 200 3,238
Cerner Corp. 500 5,969
Checkfree Corp.* 600 10,875
Clintrials Research Inc. 200 7,463
Compucom Systems Inc.* 900 8,831
Computer Task Group Inc. 200 7,550
Computervision Corp. (New)* 1,200 10,800
Continental Waste Industries Inc.* 300 7,463
Corrections Corp. of America 1,400 36,400
Coventry Corp.* 700 7,000
Culligan Water Technologies Inc.* 400 15,000
Dames & Moore Inc. 300 4,013
Data Broadcasting* 600 4,388
DeVRY Inc. 500 24,938
Deluxe Corp. 400 13,050
Dionex Corp. 200 7,750
Dun & Bradstreet Corp. 800 46,300
Dynatech Corp.* 400 19,825
Ecolab Inc. 300 10,950
Electro Rental 200 4,700
Employee Solutions Inc. 600 13,200
Envoy Corp. (New)* 300 11,100
Epic Design Technology Inc. 200 4,950
</TABLE>
F-113
<PAGE> 209
SCHWAB ASSET DIRECTOR--BALANCED GROWTH FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
October 31, 1996
<TABLE>
<CAPTION>
Number
of Shares Value
--------- -----------
<S> <C> <C>
Express Scripts Inc. Class A* 500 $14,063
Fair Issac & Co. Inc. 500 18,813
First Data Corp. 1,000 79,750
Franklin Quest Co.* 300 6,075
G&K Services, Inc. Class A 300 8,700
GRC International, Inc.* 200 2,825
H & R Block Inc. 300 7,425
HA-LO Industries Inc. 200 6,300
Health Management Systems, Inc. 300 7,013
Healthplan Services Corp.* 200 3,625
Heritage Media Corp. Class A (New) 1,000 15,250
Hon Industries Inc. 500 17,688
Horizon Healthcare Corp.* 1,000 10,375
ITT Educational Services Inc. 300 10,913
Information Resources, Inc.* 300 3,806
Inphynet Medical Management Inc.* 200 3,175
Integrated Health Services Inc. 300 7,388
Integrated Systems Inc. Class A 700 18,638
Interim Services Inc.* 200 8,000
Interpublic Group of Companies, Inc. 300 14,550
Jack Henry & Associates Inc. 200 8,125
Jacobs Engineering Group Inc.* 600 13,275
Jenny Craig, Inc.* 500 4,500
John H. Harland Co. 800 24,900
Keane, Inc. 200 9,275
Kinder Care Learning Centers Inc.* 200 3,963
Kirby Corp.* 400 7,800
Kronos, Inc. 200 5,825
Laidlaw Inc. Class B (Non Voting) 800 9,400
Mariner Health Group Inc.* 600 5,025
Maxicare Health Plans Inc. (New)* 500 9,344
Metromedia International Group, Inc.* 700 6,913
Micro Warehouse, Inc.* 700 16,188
Molten Metal Technology, Inc.* 600 8,025
Moore Corp. Ltd. 200 4,050
Morrison Health Care Inc. 200 2,425
National Data Corp. 800 32,900
National Education Corp.* 600 9,750
National Media Corp.* 400 4,800
National Service Industries, Inc. 100 3,450
Netcom Online Communications* 200 3,025
Netmanage Inc.* 800 5,475
Network Equipment Technologies* 300 4,013
New England Business Service, Inc. 200 3,600
Norrell Corp. Georgia 400 10,000
Occusystems Inc.* 300 8,269
</TABLE>
F-114
<PAGE> 210
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares Value
--------- -----------
<S> <C> <C>
Oceaneering International, Inc.* 500 $ 9,000
Ogden Corp. 2,300 41,688
Orthodontic Centers of America Inc. 800 11,400
PAXAR Corp. 500 8,063
PHH Corp. 600 17,850
PSINet Inc.* 700 6,694
Payment Services Inc. 450 9,000
Pharmaceutical Product Development Inc.* 243 4,678
Physician Corp. of America* 800 8,900
Physician Reliance Network 1,200 7,013
Physicians Computer Network* 800 7,150
Pre-Paid Legal Services, Inc.* 400 4,700
Quarterdeck Corp.* 600 3,094
R.R. Donnelley & Sons Co. 500 15,188
Republic Industries Inc. 2,200 68,338
Rollins, Inc. 500 9,563
Rykoff-Sexton, Inc. 600 8,550
SEI Corp. 300 6,038
SPS Transaction Services, Inc.* 400 6,400
SUPERVALU Inc. 300 8,925
Safety-Kleen Corp. 100 1,563
Scientific Games Holdings Corp.* 200 4,525
Seacor Holdings Inc.* 200 10,800
Service Corp. International 800 22,800
Shared Medical Systems Corp. 100 4,813
Sitel Corp. 800 15,750
Standard Register Co. 400 10,400
Steris Corp. 484 18,211
Sun Healthcare Group Inc.* 900 11,475
Symantec Corp.* 1,100 11,894
Synetic Inc.* 500 18,406
TCSI Corp. 400 3,150
Technology Solutions Co. 300 11,625
True North Communications 300 7,125
U.S.A. Waste Services Inc.* 1,910 61,120
United Waste Systems, Inc. 1,000 34,250
Universal Health Services Inc. Class B 400 10,000
Valassis Communications Inc.* 600 10,800
Viad Corp. 400 5,800
Viasoft Inc. 400 19,800
Volt Information Sciences Inc. 200 7,850
WMX Technologies Inc. 1,700 58,438
Zebra Technologies Corp. Class A 400 11,500
---------
1,853,334
---------
</TABLE>
F-115
<PAGE> 211
SCHWAB ASSET DIRECTOR--BALANCED GROWTH FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
October 31, 1996
<TABLE>
<CAPTION>
Number
of Shares Value
--------- -----------
<S> <C> <C>
CHEMICAL--1.3%
Air Products & Chemicals Inc. 400 $ 24,000
Arcadian Corp. 700 17,238
Calgon Carbon Corp. 500 5,000
Cambrex Corp. 150 4,688
Chemed Corp. 200 7,800
Crompton & Knowles Corp. 1,187 21,366
Dexter Corp. 600 18,600
Dow Chemical Co. 1,400 108,850
E.I. Du Pont de Nemours & Co. 2,800 259,700
Eastman Chemical Co. 300 15,825
Ferro Corp. 700 18,900
First Mississippi Corp. 300 8,700
Geon Co. 600 11,775
Great Lakes Chemical Corp. 200 10,425
H.B. Fuller Co. 200 8,325
Hercules Inc. 600 28,575
Lawter International Inc. 600 7,050
Lilly Industrial Inc. Class A 300 5,400
Millennium Chemicals Inc.* 198 4,010
Minnesota Mining & Manufacturing Co. 1,800 137,925
Monsanto Co. 2,100 83,213
Morton International Inc. 500 19,688
NCH Corp. 400 22,300
NL Industries Inc. (New) 1,000 8,500
Nalco Chemical Co. 300 10,913
OM Group Inc. 200 8,100
PPG Industries Inc. 700 39,900
Petrolite Corp. 500 16,125
Praxair Inc. 600 26,550
Rohm & Haas Co. 200 14,275
Scotts Co. Class A* 200 3,725
Sequa Corp. Class A* 100 4,175
Sigma-Aldrich Corp. 200 11,725
Techne Corp.* 200 4,800
Tredegar Industries Inc. 300 11,475
Union Carbide Corp. 500 21,313
W R Grace & Co. (Delaware)* 400 21,200
WD-40 Co. 100 5,013
Wellman Inc. 600 10,650
---------
1,067,792
---------
CONSTRUCTION--0.3%
Amre Inc. 400 3,700
Apogee Enterprises, Inc. 300 11,513
Armstrong World Industries, Inc. 100 6,675
Blount International Inc. Class A 300 10,800
</TABLE>
F-116
<PAGE> 212
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares Value
--------- -----------
<S> <C> <C>
Calmat Co. 300 $ 5,588
Centex Construction Products Inc. 300 4,688
Centex Corp. 800 24,100
Crane Co. 100 4,650
D.R. Horton Inc. 700 6,388
Del Webb Corp. 200 3,200
Fluor Corp. 300 19,650
Global Industries Inc. 800 14,200
Granite Construction Inc. 300 5,888
Kaufman & Broad Home Corp. 500 6,000
Lone Star Industries, Inc. (New) 200 7,350
Mafco Consolidated Group Inc.* 300 8,363
Mastec Inc.* 400 19,425
Medusa Corp. 200 6,575
Morrison Knudsen Corp. (New)* 600 5,400
Owens Corning 300 11,625
Pulte Corp. 800 21,200
Regal Beloit Corp. 300 5,325
Sherwin Williams Co. 300 15,038
Southdown Inc. 200 5,475
Stanley Works 400 11,300
Stone & Webster, Inc. 200 6,600
TJ International Inc. 200 3,875
Toll Brothers, Inc.* 700 11,988
Triangle Pacific Corp. Delaware* 300 6,319
U.S. Home Corp. (New)* 200 4,325
-------
277,223
-------
CONSUMER-DURABLE--0.3%
Bassett Furniture Industries Inc. 200 4,475
Black & Decker Corp. 300 11,213
Champion Enterprises Inc. 772 15,247
Chicago Miniature Lamp Inc. 300 9,038
Ethan Allen Interiors Inc. 200 7,150
Furniture Brands International Inc.* 1,600 21,400
Harman International Industries Inc. (New) 500 25,688
Interface Inc. Class A 200 3,350
Kimball International Inc. Class B 300 10,800
La-Z-Boy Chair Co. 300 9,338
Masco Corp. 300 9,413
Maytag Corp. 300 5,963
National Presto Industries, Inc. 100 3,750
Newell Co. 600 17,025
Snap-on Tools Corp. 150 4,819
Sturm, Ruger & Co., Inc. 1,000 18,750
Toro Co. 200 6,275
</TABLE>
F-117
<PAGE> 213
SCHWAB ASSET DIRECTOR--BALANCED GROWTH FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
October 31, 1996
<TABLE>
<CAPTION>
Number
of Shares Value
--------- -----------
<S> <C> <C>
Whirlpool Corp. 300 $ 14,175
Zenith Electronics Corp.* 1,200 15,750
-------
213,619
-------
CONSUMER-NONDURABLE--0.6%
3DO Co.* 300 1,706
A.T. Cross Co. Class A 200 2,275
Acclaim Entertainment Inc.* 900 4,444
American Greetings Corp. Class A 200 5,863
Applebee's International, Inc. 700 17,019
Buffets Inc.* 400 4,425
CKE Restaurants Inc. 400 11,900
Corning Inc. 600 23,250
Darden Restaurants Inc. 400 3,350
Department 56 Inc.* 300 6,600
Foodmaker, Inc.* 800 7,800
Galoob Lewis Toys Inc.* 300 8,063
Hasbro Inc. 300 11,663
IHOP Corp. (New)* 100 2,231
International Dairy Queen Inc. Class A* 300 5,775
Jostens, Inc. 1,000 21,500
Landry's Seafood Restaurants, Inc. 200 4,025
Luby's Cafeterias, Inc. 700 14,700
Mattel Inc. 1,125 32,484
McDonald's Corp. 2,800 124,250
Mohawk Industries Inc.* 700 16,888
Morrison Fresh Cooking Inc. 150 788
Papa John's International, Inc. 300 14,981
Premark International, Inc. 200 4,175
Rexall Sundown, Inc. 600 16,238
Rubbermaid Inc. 600 13,950
Ruby Tuesday Inc. 300 4,875
Russ Berrie & Co. Inc. 300 5,400
Ryan's Family Steak Houses Inc.* 1,700 12,325
Samsonite Corp. (New) 300 10,125
Sbarro, Inc. 300 7,913
Shoney's Inc.* 1,700 12,538
Showbiz Pizza Time Inc. (New) 400 7,400
Sonic Corp. 300 6,750
Toy Biz Inc. Class A* 200 3,550
Wendy's International, Inc. 300 6,188
Williams-Sonoma Inc.* 600 16,575
-------
473,982
-------
CONTAINERS--0.1%
ACX Technologies Inc. 600 10,650
Ball Corp. 1,600 38,600
</TABLE>
F-118
<PAGE> 214
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares Value
--------- -----------
<S> <C> <C>
Bemis Co., Inc. 100 $ 3,500
Crown Cork & Seal Inc. 500 24,000
Gaylord Container Corp. Class A* 700 5,250
Greif Brothers Corp. Class A 600 16,875
Stone Container Corp. 200 3,050
-------
101,925
-------
ELECTRONICS--1.6%
ADAC Laboratories 400 8,150
AMETEK, Inc. 700 13,913
AMP Inc. 600 20,325
Actel Corp.* 400 7,075
Advanced Micro Devices Inc. 520 9,230
Allen Group Inc. 500 7,938
Alliance Semiconductor Corp. 700 4,375
Altron Inc. 150 2,250
Ampex Corp. (Delaware) Class A* 700 4,725
Anixter International Inc. 1,000 14,875
Applied Materials, Inc. 600 15,863
Augat Inc. 200 5,500
Belden Inc. 400 11,500
Broadband Technologies Inc.* 300 5,363
Burr Brown 200 4,300
Cable Design Technologies Corp. 300 7,725
Checkpoint Systems Inc. 400 8,950
CopyTele Inc. 1,100 7,906
Cyrix Corp.* 300 5,288
DSP Communications Inc. 400 15,250
Dallas Semiconductor Corp. 400 8,000
EG&G, Inc. 100 1,763
Echostar Communications Corp. Class A* 200 5,938
Exide Corp. 400 10,400
FSI International Inc. 500 5,219
Fluke Corp. 100 4,000
General Instrument Corp.* 500 10,063
General Signal Corp. 100 4,075
Genrad Inc.* 400 8,100
Gerber Scientific Inc. 300 4,050
Harris Corp. 100 6,263
ITI Technologies Inc.* 200 5,700
Identix Inc.* 500 4,063
Imation Corp.* 160 4,380
Integrated Device Technology Inc. 1,500 12,281
Integrated Process Equipment Corp.* 300 3,300
Intel Corp. 3,900 428,269
International Rectifier Corp. 1,000 12,375
Itron, Inc.* 200 3,263
</TABLE>
F-119
<PAGE> 215
SCHWAB ASSET DIRECTOR--BALANCED GROWTH FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
October 31, 1996
<TABLE>
<CAPTION>
Number
of Shares Value
--------- -----------
<S> <C> <C>
Kemet Corp. 800 $ 15,350
Kent Electronics Corp. 400 9,150
Kulicke & Soffa Industries Inc. 300 3,956
LSI Logic Corp. 500 13,250
Lam Research Corp.* 600 14,588
Lattice Semiconductor Corp.* 600 20,475
Littlefuse, Inc.* 400 16,550
Logicon, Inc. 200 8,275
Lucent Technologies, Inc. 2,865 134,655
Macromedia Inc. 700 11,681
Marshall Industries* 300 9,038
Methode Electronics Inc. Class A 500 9,688
Micron Technology Inc. 500 12,688
Motorola Inc. 2,500 115,000
National Semiconductor Corp.* 300 5,775
Ortel Corp.* 300 6,281
Osmonics, Inc.* 300 6,375
Palomar Medical Technologies* 500 3,594
Perkin-Elmer Corp. 100 5,363
Pioneer Standard Electronics Inc. 300 3,225
Pittway Corp. Class A 300 14,625
Rexel Inc.* 300 4,350
S3 Inc. 800 15,000
Sanmina Corp. 200 9,225
Scientific-Atlanta, Inc. 200 2,900
Sierra Semiconductor Corp. 600 7,800
Silicon Valley Group Inc.* 400 6,675
Stanford Telecommunications* 200 5,775
Technitrol Inc. 200 6,625
Tektronix, Inc. 100 3,913
Texas Instruments Inc. 900 43,313
Thomas & Betts Corp. 200 8,475
VLSI Technology, Inc.* 700 12,075
VeriFone, Inc.* 600 20,175
Vitesse Semiconductor Corp.* 400 12,700
Wyle Electronics 200 5,975
Zilog Inc.* 300 5,925
---------
1,332,486
---------
ENERGY-DEVELOPMENT--1.0%
Amcol International Corp. 200 3,013
Ashland Coal, Inc. 200 4,725
Atwood Oceanics Inc.* 200 11,050
Baker Hughes Inc. 500 17,813
Barrett Resources Corp.* 600 23,025
Benton Oil & Gas Co.* 500 12,219
Burlington Resources Inc. 200 10,075
</TABLE>
F-120
<PAGE> 216
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares Value
--------- -----------
<S> <C> <C>
Cabot Oil & Gas Corp. Class A 300 $ 4,650
Chesapeake Energy Corp. 450 26,213
Devon Energy Corp. 300 10,463
Dresser Industries Inc. 700 23,013
Energy Ventures, Inc.* 300 13,200
Forest Oil Corp. (New)* 500 7,469
Halliburton Co. 787 44,564
Helmerich & Payne Inc. 600 32,475
Louis Dreyfus Natural Gas Corp.* 300 5,063
Louisiana Land & Exploration Co. 100 5,688
MAXXAM Inc.* 100 4,200
Marine Drilling Company, Inc.* 900 12,375
McDermott International Inc. 100 1,775
Nabors Industries Inc.* 1,400 23,275
Newfield Exploration Co.* 500 23,625
Newpark Resources, Inc. 300 11,250
Noble Drilling Corp.* 1,500 27,938
Nuevo Energy Co.* 400 19,950
Occidental Petroleum Corp. 1,200 29,400
Parker & Parsley Petroleum Co. 800 23,000
Parker Drilling Co.* 700 5,950
Pride Petroleum Services Inc.* 500 8,719
Production Operators Corp. 100 3,950
Reading & Bates Corp. (New)* 1,100 31,625
Rochester & Pittsburgh Coal Co. 400 13,000
Rowan Cos. Inc.* 1,900 42,513
Schlumberger Ltd. 1,100 109,038
Seitel, Inc. (New)* 100 3,975
Solv-Ex Corp.* 300 3,881
Tom Brown Inc. (New)* 300 5,681
Tremont Corp.* 200 6,850
Tuboscope Vetco International Corp.* 700 10,588
Union Pacific Resources Group 1,062 29,205
United Meridian Corp.* 400 18,850
Varco International Inc.* 600 11,850
Vintage Petroleum Inc. 300 8,850
Weatherford Enterra Inc.* 1,000 29,000
Zeigler Coal Holding Co. 300 5,438
-------
780,469
-------
FOOD-AGRICULTURE--2.2%
Archer-Daniels-Midland Co. 1,910 41,543
Bob Evans Farms, Inc. 800 10,100
CPC International Inc. 700 55,213
Campbell Soup Co. 1,100 88,000
Chiquita Brands International Inc. 1,000 12,500
Coca-Cola Bottling Co. 100 4,025
</TABLE>
F-121
<PAGE> 217
SCHWAB ASSET DIRECTOR--BALANCED GROWTH FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
October 31, 1996
<TABLE>
<CAPTION>
Number
of Shares Value
--------- -----------
<S> <C> <C>
Coca-Cola Co. 10,400 $ 525,200
ConAgra, Inc. 1,000 49,875
Dekalb Genetics Corp. Class B 400 15,750
Delta & Pine Land Co. 799 28,764
Dimon Inc. 800 15,200
Dreyers Grand Ice Cream Inc. 200 5,100
Earthgrains Co. 244 12,932
Farmer Brothers Co. 100 15,150
Fleming Companies, Inc. 2,000 34,750
General Mills Inc. 600 34,275
H.J. Heinz Co. 1,400 49,700
Hershey Foods Corp. 600 29,025
Hudson Foods Inc. Class A 400 6,650
International Multifoods Corp. 200 3,050
Interstate Bakeries Corp. (New) 800 33,900
J.M. Smucker Co. Class A 700 11,550
J.M. Smucker Co. Class B (Non Voting) 300 4,613
JP Foodservice, Inc.* 300 6,750
Kellogg Co. 900 57,150
Lance Inc. 400 7,075
Mississippi Chemical Corp. (New) 600 15,075
Mycogen Corp.* 400 6,300
Pepsico Inc. 6,500 192,563
Pioneer Hi-Bred International Inc. 300 20,138
Quaker Oats Co. 200 7,100
Ralcorp Holdings, Inc.* 500 10,500
Ralston Purina Co. 400 26,450
Richfood Holdings Inc. 1,050 25,528
Sara Lee Corp. 1,900 67,450
Savannah Foods & Industries Inc. 300 4,800
Seaboard Corp. 100 21,125
Smithfield Foods Inc.* 500 14,375
Sysco Corp. 700 23,800
Tootsie Roll Industries, Inc. 500 18,375
Unilever 800 122,300
Whitman Corp. 300 7,275
Wm Wrigley Junior Co. 400 24,100
---------
1,765,094
---------
GOLD--0.2%
Amax Gold Inc.* 1,900 10,450
Barrick Gold Corp. 1,500 39,188
Battle Mountain Gold Co. 6,000 45,750
Getchell Gold Corp.* 500 22,250
Homestake Mining Co. 600 8,550
Meridian Gold Inc.* 900 3,938
Newmont Mining Corp. 500 23,125
</TABLE>
F-122
<PAGE> 218
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares Value
--------- -----------
<S> <C> <C>
Placer Dome, Inc. 1,000 $ 24,000
Santa Fe Pacific Gold Corp. 300 3,563
-------
180,814
-------
HEALTHCARE--4.0%
ALZA Corp.* 200 5,175
Abbott Laboratories 3,300 167,063
Acuson* 300 6,338
Advanced Technology Laboratories, Inc.* 200 6,075
Advanced Tissue Sciences Inc.* 400 6,500
Agouron Pharmaceuticals Inc.* 200 11,425
Allergan Inc. 300 9,150
Alliance Pharmaceutical Corp.* 400 5,550
Alpharma, Inc. Class A 300 3,750
American Home Products Corp. 2,700 165,375
Amgen Inc. 1,200 73,575
Amylin Pharmaceuticals Inc.* 600 6,675
Arrow International Inc. 500 14,250
Ballard Medical Products 600 10,575
Barr Laboratories, Inc. 300 8,288
Bausch & Lomb Inc. 200 6,750
Baxter International Inc. 1,100 45,788
Becton Dickinson & Co. 400 17,400
Beverly Enterprises, Inc.* 200 2,475
Bio Rad Laboratories Inc. Class A 150 3,638
Bio Technology General Corp.* 900 7,341
Biomet Inc. 300 4,838
Block Drug Inc. Class A 609 27,557
Boston Scientific Corp.* 637 34,637
Bristol Myers Squibb Co. 2,500 264,375
C.R. Bard Inc. 200 5,650
CNS, Inc. 300 5,063
Carter Wallace Inc. 900 13,950
Cephalon Inc.* 500 11,156
Cognex Corp. 800 10,200
Columbia Laboratories Inc. 600 7,200
Columbia/HCA Healthcare Corp. 3,300 117,975
Community Psychiatric Centers* 700 6,213
Conmed Corp. 200 3,475
Cygnus Therapeutic Systems, Inc.* 300 4,313
Cytogen Corp.* 900 4,781
Datascope Corp.* 200 3,375
Diagnostic Products Corp. 200 5,950
Eli Lilly & Co. 2,700 190,350
Enzo Biochem Inc. 315 5,749
Fresenius Medical Care AG (Sponsored
American Depository Receipts)* 752 22,372
</TABLE>
F-123
<PAGE> 219
SCHWAB ASSET DIRECTOR--BALANCED GROWTH FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
October 31, 1996
<TABLE>
<CAPTION>
Number
of Shares Value
--------- -----------
<S> <C> <C>
Gilead Sciences Inc.* 600 $ 13,913
GranCare, Inc.* 400 7,200
Gulf South Medical Supply Inc. 200 4,350
Haemonetics Corp.* 400 7,150
HealthSouth Rehabilitation Corp.* 938 35,175
Herbalife International Inc. 300 6,000
Hologic Inc. 300 6,881
Human Genome Sciences Inc.* 500 18,125
Humana Inc.* 300 5,475
ICN Pharmaceuticals, Inc. 604 11,476
Icos Corp.* 800 5,950
Idec Pharmaceuticals Corp.* 300 6,469
Imatron Inc.* 1,300 5,220
Immunex Corp. (New)* 800 10,850
Immunomedics Inc.* 700 4,944
Incyte Pharmaceuticals Inc.* 200 8,075
Interneuron Pharmaceuticals* 700 17,150
Invacare Corp. 700 19,425
Isis Pharmaceuticals* 300 4,819
Isolyser Inc. 600 4,200
Johnson & Johnson 5,600 275,800
Jones Medical Industries Inc. 500 21,625
Kinetic Concepts Inc. 600 7,875
Life Technologies, Inc. (New) 300 6,825
Ligand Pharmaceuticals Inc. Class B 500 6,250
Lincare Holdings Inc.* 400 14,900
Liposome Inc.* 700 11,944
Living Centers of America* 300 7,013
Lunar Corp. 200 6,188
Magellan Health Services Inc.* 700 12,863
Mallinckrodt Inc. 200 8,700
Manor Care, Inc. 200 7,850
Marquette Medical System Inc.* 800 12,500
Martek Biosciences Corp.* 300 6,413
Matrix Pharmaceuticals* 400 3,000
Medimmune Inc.* 400 6,225
Medtronic Inc. 1,000 64,375
Mentor Corp. 600 13,275
Merck & Co. Inc. 5,600 415,100
Mid Atlantic Medical Services Inc.* 900 9,675
Multicare Cos. Inc. 750 13,500
Nabi Inc.* 700 6,475
Natures Sunshine Products Inc. 300 6,600
Neopath Inc.* 300 4,894
Neoprobe Corp.* 300 4,275
Neurex Corp.* 400 6,225
</TABLE>
F-124
<PAGE> 220
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares Value
--------- -----------
<S> <C> <C>
Neurogen Corp.* 200 $ 4,275
Nexstar Pharmaceuticals Inc.* 400 6,225
North American Vaccine Inc.* 500 11,125
Novacare Inc.* 800 6,600
Noven Pharmaceuticals, Inc.* 400 5,500
Organogenesis Inc. 300 5,363
Owens & Minor Inc. (New) 400 3,750
PDT Inc. 200 4,925
PHP Healthcare Corp. 200 4,575
PLC Systems Inc.* 300 6,713
Patterson Dental Co.* 500 14,063
Perrigo Co.* 1,500 14,063
Pfizer Inc. 3,100 256,525
Pharmacia & Upjohn Inc. 1,800 64,800
Physician Sales & Service Inc. 700 14,788
Protein Design Labs, Inc.* 300 7,238
Quintiles Transnational Corp. 400 26,250
Regeneron Pharmaceuticals Inc.* 400 7,575
Renal Treatment Centers Inc. 400 10,700
Respironics Inc.* 200 3,013
RoTech Medical Corp. 400 6,325
Roberts Pharmaceutical Corp.* 200 3,075
Salick Health Care, Inc.* 200 7,925
Schering Plough Corp. 1,500 96,000
Sepracor Inc.* 300 4,838
Sequus Pharmaceuticals Inc.* 500 7,000
Sofamor/Danek Group Inc.* 600 16,500
Sola International Inc.* 400 14,450
Somatogen Inc.* 500 5,375
St. Jude Medical, Inc. 30 1,183
Summit Technology Inc. 600 3,338
Sunrise Medical Inc.* 200 2,975
Target Therapeutics Inc. 200 7,388
Tecnol Medical Products Inc.* 300 3,788
Tenet Healthcare Corp.* 800 16,700
Thermedics Inc.* 900 18,675
U.S. Bioscience Inc.* 500 5,750
United Healthcare Corp. 400 15,150
United States Surgical Corp. 100 4,188
Ventritex Inc.* 300 6,844
Vertex Pharmaceuticals Inc.* 500 16,594
Vivra Inc. 900 28,688
Vivus* 200 6,650
Warner Lambert Co. 1,200 76,350
West Company Inc. 200 5,375
---------
3,354,737
---------
</TABLE>
F-125
<PAGE> 221
SCHWAB ASSET DIRECTOR--BALANCED GROWTH FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
October 31, 1996
<TABLE>
<CAPTION>
Number
of Shares Value
--------- -----------
<S> <C> <C>
HOUSEHOLD PRODUCTS--0.9%
Alberto Culver Co. Class B 100 $ 4,575
Avon Products, Inc. 600 32,550
Bush Boake Allen Inc.* 300 7,725
Church & Dwight Inc. 300 6,450
Clorox Co. 200 21,825
Colgate-Palmolive Co. 1,000 92,000
Dial Corp. (New) 400 5,500
Gillette Co. 2,200 164,450
International Flavors & Fragrances Inc. 400 16,550
Libbey Inc. 200 4,800
Playtex Products Inc.* 600 5,100
Procter & Gamble Co. 3,300 326,700
Tupperware Corp. 200 10,275
-------
698,500
-------
IMAGING & PHOTO--0.2%
Avid Technology, Inc.* 300 4,106
BMC Industries, Inc. 600 17,775
Chyron Corp.* 1,800 9,225
Eastman Kodak Co. 1,800 143,550
Optical Imaging Systems Inc.* 1,700 4,781
Photronic, Inc.* 200 5,375
Polaroid Corp. 100 4,063
Robotic Vision Systems Inc.* 300 3,038
Ultratech Stepper Inc. 300 5,063
-------
196,976
-------
INSURANCE--2.0%
20th Century Industries* 1,000 16,000
Acordia, Inc. 200 5,700
Aetna Inc. 734 49,086
Alexander & Alexander Services 2,400 36,600
Alfa Corp. 800 8,900
Allied Group Inc. 600 25,125
Allstate Corp. 1,800 101,025
American Annuity Group, Inc. 500 6,813
American Bankers Insurance Group, Inc. 600 28,725
American General Corp. 800 29,800
American Heritage Life Investment Corp. 200 4,425
American International Group, Inc. 2,400 260,700
American Travellers Corp. 300 10,294
Aon Corp. 500 28,875
Argonaut Group, Inc. 500 14,500
Arthur J. Gallagher & Co. 500 14,688
CMAC Investment Corp. 500 34,563
Capital Re Corp. 200 7,750
</TABLE>
F-126
<PAGE> 222
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares Value
--------- -----------
<S> <C> <C>
Capitol American Financial Corp. 200 $ 7,250
Capsure Holdings Corp. 300 2,700
Chubb Corp. 800 40,000
Cigna Corp. 300 39,150
Citizens Corp. 800 16,100
Commerce Group Inc. 800 19,200
Compdent Corp.* 500 17,094
Conseco, Inc. 349 18,672
Crawford & Co. Class A 200 3,975
Crawford & Co. Class B 500 9,875
Delphi Financial Group, Inc. Class A 240 6,750
Enhance Financial Services Group Inc. 500 16,688
Executive Risk Inc. 200 8,250
Financial Security Assured Holdings Ltd. 600 16,800
Foremost Corp. of America 200 11,025
Fremont General Corp. 750 22,031
Frontier Insurance Group, Inc. 220 8,745
General Re Corp. 685 100,866
HCC Insurance Holdings, Inc. 500 12,750
Harleysville Group Inc. 200 5,550
Home Beneficial Corp. Class B 500 12,594
Horace Mann Educators Corp. (New) 600 20,550
ITT Hartford Group Inc. 400 25,200
Integon Corp. 200 3,775
Jefferson-Pilot Corp. 300 17,063
John Alden Financial Corp. 600 11,175
Kansas City Life Insurance Co. 100 5,475
Liberty Corp. 300 10,350
Life Re Corp. 200 7,325
Lincoln National Corp. Inc. 400 19,400
MAIC Holdings Inc. 106 3,445
MGIC Investment Corp. 200 13,725
MMI Companies, Inc. 200 5,750
Markel Corp.* 100 8,700
Marsh & McLennan Companies 300 31,238
NAC Re Corp. 300 10,538
Orion Capital Corp. 500 27,188
Penncorp Financial Group Inc. 600 20,775
Presidential Life Corp. 400 4,550
Providian Corp. 300 14,100
Reinsurance Group of America Inc. 500 22,688
Reliance Group Holdings Inc. 2,200 18,150
Safeco Corp. 400 15,150
Selective Insurance Group, Inc. 200 6,800
Sierra Health Services Inc.* 500 14,313
St. Paul Companies, Inc. 300 16,313
</TABLE>
F-127
<PAGE> 223
SCHWAB ASSET DIRECTOR--BALANCED GROWTH FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
October 31, 1996
<TABLE>
<CAPTION>
Number
of Shares Value
--------- -----------
<S> <C> <C>
State Auto Financial Corp. 300 $ 4,088
Torchmark Corp. 200 9,675
Transamerica Corp. 300 22,763
Trenwick Group Inc. 400 19,775
UNUM Corp. 300 18,863
USF&G Corp. 300 5,700
USLIFE Corp. 100 3,125
United Companies Financial Corp. 700 20,913
United Dental Care Inc.* 100 3,025
United Fire & Casualty Co. 300 9,750
United Insurance Companies, Inc.* 800 20,250
United Wisconsin Services, Inc. 200 5,175
Vesta Insurance Group Inc. 300 7,688
W.R. Berkley Corp. 600 30,975
Washington National Corp. 200 5,725
Zenith National Insurance Corp. 200 5,450
Zurich Reinsurance Centre Holdings, Inc. 500 15,000
---------
1,641,310
---------
MEDIA--1.0%
AMC Entertainment Inc.* 200 3,450
BET Holdings, Inc. Class A* 200 5,850
Banta Corp. 600 12,638
Cablevision Systems Corp. Class A* 500 15,563
Carmike Cinemas Inc.* 100 2,375
Central Newspapers Inc. Class A 600 24,150
Century Communications Corp. Class A* 1,300 8,775
Comcast Corp. Class A 700 10,281
Dow Jones & Co. Inc. 400 13,200
Evergreen Media 900 24,188
GC Companies Inc.* 100 3,388
Gannett Inc. 700 53,113
Harte Hanks Communications (New) 450 11,644
Heartland Wireless Communications, Inc.* 200 4,300
Hollinger International Inc. 1,400 17,500
Houghton Mifflin Co. 500 24,813
International Family Entertainment Inc.
Class B 875 15,641
John Wiley & Son, Inc. Class A 500 15,313
Jones Intercable Inc. Class A* 600 6,600
King World Productions, Inc.* 100 3,600
Knight-Ridder, Inc. 400 14,950
McClatchy Newspapers Inc. Class A 700 19,513
McGraw-Hill, Inc. 400 18,750
Media General, Inc. Class A 400 11,900
Meredith Corp. 100 5,025
New World Communications Class A* 400 9,875
New York Times Co. Class A 400 14,450
</TABLE>
F-128
<PAGE> 224
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares Value
--------- -----------
<S> <C> <C>
Oak Industries Inc.* 200 $ 5,075
Paxson Communications Corp.* 300 2,663
Pulitzer Publishing Co. 500 31,750
Regal Cinemas, Inc. 450 11,616
SBC Communications Inc. 2,500 121,563
Spelling Entertainment Group, Inc.* 1,800 13,050
TCA Cable TV Inc. 600 15,975
TSX Corp. 300 3,113
Tele Communications Inc. (New)--TCI Group
Series A 2,700 33,581
Time Warner Inc. 1,600 59,600
Times Mirror Co. (New) Series A 400 18,500
Tribune Co. (New) 600 49,050
United International Holdings Inc. Class A* 200 2,500
Viacom Inc. Class B* 1,400 45,675
Westwood One Inc.* 400 6,200
-------
790,756
-------
MISCELLANEOUS FINANCE--1.5%
1st Source Corp. 210 4,817
AMCORE Financial, Inc. 200 4,188
Aames Financial Corp. 300 13,388
Alex Brown Inc. 500 28,375
American Express Co. 1,900 89,300
Americredit Corp.* 400 7,600
Astoria Financial Corp. 400 14,175
Beneficial Corp. 200 11,700
Bok Financial Corp. (New) 300 7,950
Cal-Federal Bancorp Inc.* 1,600 37,200
Coast Savings Financial Inc.* 300 9,863
Collective Bancorp Inc. 300 9,038
Commercial Federal Corp. 200 8,375
Dean Witter Discover & Co. 800 47,100
Downey Financial Corp. 210 5,460
Eaton Vance Corp. (Non Voting) 100 4,375
Federal Home Loan Mortgage Corp. 1,100 111,100
Federal National Mortgage Assoc. 4,200 164,325
First American Financial Corp. 200 7,525
First Financial Corp. 700 19,075
Fund American Enterprises Holdings, Inc. 400 35,850
Glendale Federal Bank (FSB) (New)* 800 14,700
Golden West Financial Corp. 200 12,975
Great Financial Corp. 200 5,825
Great Western Financial Corp. 400 11,200
Green Tree Financial Corp. 500 19,813
H.F. Ahmanson & Co. 300 9,413
Home Financial Corp. 300 4,856
</TABLE>
F-129
<PAGE> 225
SCHWAB ASSET DIRECTOR--BALANCED GROWTH FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
October 31, 1996
<TABLE>
<CAPTION>
Number
of Shares Value
--------- -----------
<S> <C> <C>
Household International Inc. 400 $ 35,400
Inter-Regional Financial Group, Inc. 150 4,856
Interpool Inc. 200 4,350
JSB Financial, Inc. 200 7,325
Jefferies Group, Inc. 300 10,725
John Nuveen Co. Class A 700 19,425
Legg Mason, Inc. 200 6,450
Merrill Lynch & Co. Inc. 700 49,175
Morgan Keegan, Inc. 400 5,850
Morgan Stanley Group Inc. 600 30,150
Olympic Financial Ltd.* 600 9,525
Peoples Heritage Financial Group, Inc. 500 11,500
Phoenix Duff & Phelp Corp. 900 5,513
Pioneer Group Inc. 600 14,250
Quick & Reilly Group, Inc. 600 15,825
RCSB Financial Inc. 200 5,813
Raymond James Financial Inc. 300 7,313
Roosevelt Financial Group Inc. 800 13,850
Salomon Inc. 400 18,050
Sovereign Bancorp Inc. 630 7,442
St. Paul Bancorp Inc. 300 7,950
Standard Financial Inc. 200 3,575
Student Loan Corp. 600 20,400
Travelers Inc. 1,950 105,788
Value Line, Inc. 200 7,575
WFS Financial Inc. 440 9,185
Washington Federal, Inc. 900 21,656
Westcorp Inc. 315 7,481
White River Corp.* 200 12,000
---------
1,197,958
---------
MOTOR VEHICLE--0.9%
A.O. Smith Corp. Class B 400 10,500
Arctic Cat Inc. 400 3,775
Arvin Industries, Inc. 700 16,013
Borg Warner Automotive Inc. 600 23,025
Breed Technologies Inc. 700 16,100
Chrysler Corp. 3,000 100,875
Cummins Engine Inc. 100 4,163
Dana Corp. 400 11,850
Detroit Diesel Corp.* 600 11,100
Eaton Corp. 300 17,925
Echlin Inc. 200 6,525
Federal Mogul Corp. 800 17,900
Fleetwood Enterprises, Inc. 100 3,375
Ford Motor Co. 4,900 153,125
General Motors Corp. 3,200 172,400
</TABLE>
F-130
<PAGE> 226
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares Value
--------- -----------
<S> <C> <C>
Gentex Corp. 700 $ 16,450
Genuine Parts Co. 400 17,500
Hays Wheels International Inc.* 50 1,675
Lucasvarity PLC (Sponsored American
Depository Receipts)* 138 5,555
Mascotech Inc. 1,000 15,750
Modine Manufacturing Co. 600 15,000
Navistar International Corp.* 4,300 39,775
PACCAR Inc. 100 5,575
Standard Products Co. 200 4,850
Superior Industries International, Inc. 400 9,750
TRW Inc. 300 27,150
Titan Wheel International Inc. 300 3,825
-------
731,506
-------
NON-FERROUS--0.4%
A.M. Castle & Co. 250 4,625
Alcan Aluminum Ltd. 900 29,588
Aluminum Company of America 1,100 64,488
Asarco Inc. 100 2,625
Brush Wellman Inc. 200 3,775
Coeur d'Alene Mines Corp. 500 7,313
Commercial Metals Co. 200 6,200
Cyprus Amax Minerals Co. 400 9,050
Echo Bay Mines Ltd 300 2,344
Engelhard Corp. 400 7,300
Freeport-McMoRan Copper & Gold Inc. Class B 500 15,188
Hecla Mining Co.* 600 3,375
Inco Ltd. 500 15,875
Kaiser Aluminum Corp.* 1,400 15,575
Minerals Technologies Inc. 500 19,625
Mueller Industries Inc. 500 20,125
Oregon Metallurgical Corp. 300 9,375
Phelps Dodge Corp. 300 18,863
RMI Titanium Co.* 400 9,650
Reliance Steel & Aluminum Co. 200 7,325
Reynolds Metals Co. 200 11,250
Stillwater Mining Co.* 500 8,438
Wolverine Tube Inc.* 200 7,975
-------
299,947
-------
OIL-DOMESTIC--0.5%
Amerada Hess Corp. 300 16,613
Ashland Inc. 200 8,500
Atlantic Richfield Co. 800 106,000
Cross Timbers Oil Co. 200 4,725
Diamond Shamrock Inc. 700 20,563
</TABLE>
F-131
<PAGE> 227
SCHWAB ASSET DIRECTOR--BALANCED GROWTH FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
October 31, 1996
<TABLE>
<CAPTION>
Number
of Shares Value
--------- -----------
<S> <C> <C>
KCS Energy, Inc. 300 $ 12,938
Kerr-McGee Corp. 200 12,550
Oryx Energy Co.* 200 3,850
Pennzoil Co. 100 5,100
Phillips Petroleum Co. 1,000 41,000
Pogo Producing Co. 700 31,063
Quaker State Corp. 400 6,700
Santa Fe Energy Resources, Inc.* 200 2,850
Smith International Inc.* 800 30,400
Snyder Oil Corp. 400 6,100
Sun Inc. 200 4,475
Tesoro Petroleum Corp.* 500 7,375
Total Petroleum (North America) Ltd. 800 7,700
TransTexas Gas Corp.* 1,400 19,250
USX Corp. (Marathon Group) (New) 1,100 24,063
Unocal Corp. 1,000 36,625
---------
408,440
---------
OIL-INTERNATIONAL--1.9%
Amoco Corp. 2,400 181,800
Chevron Corp. 2,800 184,100
Exxon Corp. 5,700 505,163
Mobil Corp. 1,600 186,800
Royal Dutch Petroleum Co. 2,100 347,288
Texaco, Inc. 1,500 152,438
Western Atlas, Inc.* 200 13,875
---------
1,571,464
---------
PAPER--0.6%
Alco Standard Corp. 500 23,188
Boise Cascade Corp. 100 3,100
Buckeye Cellulose Corp.* 500 13,063
Caraustar Industries Inc. 600 17,438
Champion International Corp. 300 13,050
Chesapeake Corp. 600 16,950
Georgia Pacific Corp. 500 37,500
International Paper Co. 1,300 55,575
James River Corp. 200 6,300
Kimberly Clark Corp. 1,590 148,268
Longview Fibre Co. 1,000 17,375
Louisiana Pacific Corp. 300 6,263
Mead Corp. 200 11,350
Mosinee Paper Corp. 200 5,675
P.H. Glatfelter Co. 600 11,400
Potlatch Corp. 100 4,275
Rock Tennessee Co. Class A 440 8,030
Shorewood Packaging Corp.* 200 3,800
</TABLE>
F-132
<PAGE> 228
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares Value
--------- -----------
<S> <C> <C>
Temple-Inland Inc. 200 $ 10,250
Union Camp Corp. 200 9,750
Wausau Paper Mills Co. 875 16,734
Westvaco Corp. 400 11,400
Weyerhaeuser Co. 600 27,525
Willamette Industries, Inc. 200 13,450
-------
491,709
-------
PRODUCER GOODS-MANUFACTURING--2.6%
Albany International Corp. Class A (New) 700 15,750
Allied Signal Inc. 1,600 104,800
American Financial Enterprises Inc. 200 5,200
Applied Power Inc. Class A 200 7,200
AptarGroup, Inc. 300 9,675
Avery Dennison Corp. 200 13,175
BT Office Products International Inc.* 600 4,950
BW/IP Holding, Inc. Class A 300 4,050
Baldor Electric Co. 400 8,050
Barnes Group Inc. 400 22,500
Bearings Inc. (New) 150 3,900
Blyth Industries Inc. 400 15,550
Boise Cascade Office Products Corp. 1,400 26,600
Briggs & Stratton Corp. 100 4,000
Case Corp. 300 13,950
Caterpillar Inc. 900 61,763
Cincinnati Milacron Inc. 100 1,913
Clarcor Inc. 200 4,350
Collins & Aikman Corp.* 1,400 8,400
Commercial Intertech Corp. 200 2,225
Cooper Industries Inc. 400 16,100
Credence Systems Corp. 300 4,106
Cuno Inc.* 200 3,175
Deere & Co. 1,000 41,750
Donaldson Inc. 400 11,700
Dover Corp. 400 20,550
Duriron Inc. 600 16,125
Emerson Electric Co. 1,300 115,700
FMC Corp. (New)* 100 7,363
Fedders USA Inc. 800 4,700
Figgie International Holdings Inc. Class A* 400 4,250
Fisher Scientific International, Inc. 500 22,438
Foster Wheeler Corp. 100 4,100
General Binding Corp. 200 4,950
General Electric Co. 6,900 667,575
Giddings & Lewis Inc. 800 9,300
Goulds Pumps Inc. 300 6,919
Graco Inc. 300 6,863
</TABLE>
F-133
<PAGE> 229
SCHWAB ASSET DIRECTOR--BALANCED GROWTH FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
October 31, 1996
<TABLE>
<CAPTION>
Number
of Shares Value
--------- -----------
<S> <C> <C>
Greenfield Industries Inc. 500 $13,063
Harnischfeger Industries Corp. 100 4,000
Helix Technology Corp. 100 2,669
Herman Miller, Inc. 400 17,350
Hexcel Corp. (New)* 700 12,775
Hughes Supply Inc. 200 7,600
IDEX Corp. 600 22,575
ITT Industries Inc. 400 9,300
Illinois Tool Works Inc. 600 42,150
Ingersoll Rand Co. 400 16,650
Insilco Corp.* 100 3,950
Ionics Inc.* 500 23,000
Johnson Controls, Inc. 200 14,600
Juno Lighting Inc. 200 3,113
Kaydon Corp. 500 20,375
Kennametal Inc. 400 13,600
Keystone International Inc. 800 14,400
Lawson Products, Inc. 200 4,300
Lincoln Electric Co. 100 2,813
Lincoln Electric Co. Class A (Non Voting) 400 11,150
Lydall Inc. 200 4,425
Manitowoc Inc. 300 10,050
Measurex Corp. 200 5,150
Millipore Corp. 100 3,500
Myers Industry Inc. 200 3,100
NN Ball & Roller, Inc. 300 4,050
Nu-Kote Holding Inc. Class A 300 2,869
Pall Corp. 300 7,688
Parker Hannifin Corp. 200 7,575
Precision Castparts Corp. 600 28,050
Quanex Corp. 200 5,700
Raychem Corp. 200 15,625
Roper Industries 500 21,281
SPS Technologies, Inc.* 100 6,000
SPX Corp. 300 8,513
Standex International Corp. 200 6,150
Stewart & Stevenson Services, Inc. 500 10,594
TRINOVA Corp. 1,600 52,600
Teleflex Inc. 600 28,875
Tencor Instruments 400 7,600
Tenneco, Inc. 800 39,600
Texas Industries Inc. 200 11,350
Thermo Ecotek Corp. 450 6,806
Timken Co. 100 4,463
TriMas Corp. 700 16,100
Tyco Labs Inc. 600 29,775
</TABLE>
F-134
<PAGE> 230
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares Value
--------- -----------
<S> <C> <C>
U.S. Filter Corp. (New) 900 $ 31,050
UNR Industries, Inc. 700 4,681
Valhi, Inc. (New) 1,600 9,400
Valmont Industries, Inc. 200 6,850
Visx Inc. (Delaware)* 300 7,500
W.H. Brady Co. Class A 500 11,688
W.W. Grainger, Inc. 200 14,825
WMS Industries Inc.* 300 7,350
Watts Industries Inc. Class A 700 14,613
Westinghouse Electric Corp. 1,500 25,688
Westpoint Stevens Inc. Class A 700 18,638
Wyman Gordon Co.* 700 15,313
X-Rite, Inc. 300 5,569
Zero Corp. 200 3,675
---------
2,089,427
---------
RAILROAD--0.4%
Burlington Northern Santa Fe 700 57,663
CSX Corp. 800 34,500
Conrail Inc. 700 66,588
Florida East Coast Industry Inc. 200 17,475
Norfolk Southern Corp. 900 80,213
Overseas Shipholding Group 800 13,600
Union Pacific Corp. 900 50,513
Westinghouse Air Brake Co. (New) 800 8,700
---------
329,252
---------
REAL PROPERTY--0.2%
Avatar Holdings, Inc.* 100 3,050
Castle & Cooke, Inc.* 400 6,150
Catellus Development Corp.* 1,500 14,813
Doubletree Corp.* 600 24,375
Forest City Enterprises, Inc. Class A 100 4,950
HFS, Inc. 500 36,625
Insignia Financial Group Class A (New) 800 17,300
Lennar Corp. 800 17,800
Price Enterprises Inc. 300 5,025
---------
130,088
---------
RETAIL--1.9%
Albertson's, Inc. 700 24,063
American Stores Co. (New) 600 24,825
AnnTaylor Stores Corp.* 300 5,438
Arbor Drugs, Inc. 600 13,650
Authentic Fitness Corp. 300 3,338
Burlington Coat Factory Warehouse* 500 6,125
CDW Computer Centers Inc. 300 18,825
</TABLE>
F-135
<PAGE> 231
SCHWAB ASSET DIRECTOR--BALANCED GROWTH FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
October 31, 1996
<TABLE>
<CAPTION>
Number
of Shares Value
--------- -----------
<S> <C> <C>
CUC International Inc. 1,433 $ 35,096
Carson Pirie Scott & Co.* 200 4,975
Casey's General Stores Inc. 400 7,175
Cato Corp. (New) 300 1,444
Charming Shoppes Inc. 1,500 6,891
Circuit City Stores Inc. 400 13,100
Claire's Stores Inc. 1,125 19,125
CompUSA Inc. 800 37,000
Dayton Hudson Corp. 900 31,163
Dillard Department Stores Inc. Class A 400 12,700
Dollar Tree Stores Inc. 750 28,500
Duty Free International Inc. 600 9,600
Eagle Hardware & Garden, Inc.* 500 14,219
Federated Department Stores Inc.* 500 16,500
Fingerhut Companies, Inc. 600 8,925
Footstar Inc.* 115 2,530
Fred Meyer Inc.* 400 14,050
Fruit of the Loom Inc. Class A* 200 7,275
Gap Inc. 1,200 34,800
Giant Food Inc. Class A 300 10,125
Great Atlantic & Pacific Tea Co., Inc. 100 3,000
Gymboree Corp.* 600 18,825
Harcourt General Inc. 200 9,950
Hollywood Entertainment Corp. 500 10,344
Home Depot Inc. 2,000 109,500
J.C. Penney Inc. 1,000 52,500
Just for Feet Inc. 750 19,547
K Mart Corp. 1,800 17,550
Kroger Co.* 500 22,313
Lands' End, Inc.* 700 15,050
Limited Inc. 744 13,671
Longs Drug Stores Corp. 600 26,925
Lowes Cos Inc. 700 28,263
MacFrugals Bargains-Close-Outs, Inc.* 300 7,313
May Department Stores Co. 1,100 52,113
Melville Corp. 400 14,900
Mercantile Stores Co., Inc. 100 4,963
Michaels Stores Inc.* 300 3,000
Nordstrom Inc. 400 14,425
Payless Shoesource Inc.* 144 4,878
Pep Boys--Manny, Moe & Jack 200 7,000
Petco Animal Supplies Inc. 300 7,013
Pier 1 Imports Inc. 900 12,600
Price Costco Inc.* 700 13,869
Proffitt's, Inc.* 700 28,175
Quality Food Centers, Inc. 200 7,350
</TABLE>
F-136
<PAGE> 232
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares Value
--------- -----------
<S> <C> <C>
Regis Corp. 300 $ 7,275
Rite Aid Corp. 200 6,800
Ross Stores Inc. 600 24,863
Ruddick Corp. 600 7,800
Sears Roebuck & Co. 1,700 82,238
Service Merchandise Co. Inc.* 1,300 7,638
Shopko Stores Inc. 400 6,450
Smart & Final Inc. 300 7,050
Smith's Food & Drug Centers, Inc. Class B 597 15,597
Sotheby's Holdings, Inc. Class A 800 13,600
Stanhome Inc. 300 7,950
Stein Mart Inc.* 400 7,150
TJX Companies, Inc. 200 8,000
Tandy Corp. 300 11,288
Toys "R" Us, Inc.* 1,000 33,875
Unifirst Corp. 500 10,063
United Stationers Inc. 200 4,425
Urban Outfitters Inc. 400 6,200
Value City Department Stores Inc.* 600 7,650
Vitalink Pharmacy Services, Inc.* 200 4,600
Waban Inc.* 700 18,288
Wal-Mart Stores, Inc. 9,600 255,600
Walgreen Co. 700 26,425
Wet Seal Inc.* 300 9,394
Whole Foods Market, Inc.* 300 7,706
Winn Dixie Stores Inc. 600 20,025
Woolworth Corp.* 200 4,200
Zale Corp. (New)* 500 9,688
---------
1,568,332
---------
STEEL--0.1%
Allegheny Teldyne Inc. 385 8,229
Armco Inc.* 1,700 6,375
Bethlehem Steel Corp.* 300 2,438
Birmingham Steel Corp. 400 6,400
Carpenter Technology Corp. 500 16,313
Chaparral Steel Co. 600 7,950
Cleveland Cliffs Inc. 200 8,200
Inland Steel Industries, Inc. 100 1,613
Intermet Corp. 300 3,506
J & L Specialty Steel Inc. 800 9,400
Lukens Inc. 200 2,750
National Steel Corp. Class B* 600 5,175
Nucor Corp. 300 14,213
Oregon Steel Mills Inc. 200 3,175
Rouge Steel Co. Class A 200 4,075
</TABLE>
F-137
<PAGE> 233
SCHWAB ASSET DIRECTOR--BALANCED GROWTH FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
October 31, 1996
<TABLE>
<CAPTION>
Number
of Shares Value
--------- -----------
<S> <C> <C>
USX Corp. (U.S. Steel Group) 200 $ 5,450
Worthington Industries Inc. 200 4,138
-------
109,400
-------
TELEPHONE--2.1%
ACC Corp. 300 12,600
AT&T Corp. 7,300 254,588
Airtouch Communications Inc.* 1,900 49,638
Aliant Communications Inc. 800 12,800
Alltel Corp. 700 21,350
American Mobile Satellite Corp.* 600 6,300
Ameritech Corp. (New) 2,300 125,925
Andrew Corp. 150 7,313
Antec Corp.* 400 4,275
Arch Communications Group, Inc.* 500 5,781
Aspect Telecommunications Corp. 300 17,775
Associated Group Inc. Class A* 200 5,750
Bell Atlantic Corp. 1,800 108,450
BellSouth Corp. 3,700 150,775
Boston Technology Inc. (New)* 300 4,969
C-TEC Corp.* 400 9,675
CFW Communications Co. 300 6,600
Cellular Communications International* 200 6,300
Centennial Cellular Corp. Class A* 400 5,150
Cidco Inc.* 200 3,825
Coherent Communications Systems Corp. 600 11,738
Coherent Inc.* 200 7,825
Comnet Cellular Inc.* 200 5,550
DSC Communications Corp.* 100 1,394
Emmis Broadcasting Corp. Class A* 200 7,213
GTE Corp. 3,700 155,863
General Datacom Industries Inc.* 300 2,888
Geotek Communications Inc.* 1,100 8,113
InterVoice, Inc.* 200 2,588
Interdigital Commerce Corp.* 500 3,219
Intermedia Communications Inc.* 300 9,525
Intermediate Telephone Inc.* 300 4,575
International Cabletel Inc. 700 16,538
Jacor Communications Inc.* 700 19,381
MCI Communications Corp. 2,700 67,669
Mobile Telecommunications Technologies
Corp.* 1,100 14,506
Mobilemedia Corp. Class A* 900 1,786
Northern Telecom Ltd 1,100 71,638
Nynex Corp. 1,400 62,300
P-Com Inc. 300 6,600
Pacific Telesis Group 1,800 61,200
Pairgain Technologies Inc. 1,000 68,750
</TABLE>
F-138
<PAGE> 234
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares Value
--------- -----------
<S> <C> <C>
Plantronics, Inc. (New)* 200 $ 7,525
Renaissance Communications Corp. 700 24,763
Roseville Communications Co. 300 7,013
Sprint Corp. 1,500 58,875
Tellabs Inc. 300 25,538
U S Long Distance Corp. 300 2,531
U S WEST, Inc. (Communications Group) 2,000 60,750
U S WEST, Inc. (Media Group)* 1,600 25,000
Vanguard Cellular Systems, Inc. Class A* 800 13,250
Winstar Communications Inc.* 500 10,469
Worldcom, Inc. 1,300 31,769
---------
1,698,181
---------
TOBACCO--0.6%
American Brands, Inc. 400 19,100
Loew's Corp. 600 49,575
Philip Morris Companies, Inc. 3,800 351,975
Schweitzer Mauduit International Inc. 450 13,838
UST Inc. 700 20,213
---------
454,701
---------
TRANSPORTATION-MISCELLANEOUS--0.3%
APL Ltd. 400 8,800
Air Express International Corp. 300 9,038
Airbourne Freight Corp. 300 5,963
Amerco Inc.* 800 28,300
American Freightways Corp.* 400 3,875
Arnold Industries Inc. 600 9,450
Caliber Systems Inc. 100 1,688
Consolidated Freightways Inc. 100 2,400
Expeditores International of Washington Inc. 200 8,400
Federal Express Corp. 600 48,300
Harper Group, Inc. 200 4,775
Heartland Express, Inc. 460 10,063
J.B. Hunt Transport Services Inc. 800 11,850
Landstar Systems, Inc.* 200 4,750
M.S. Carriers, Inc.* 200 3,800
NACCO Industries, Inc. Class A 300 13,875
Pittston Brinks Group 100 2,850
Pittston Co. (Burlington Group) 450 8,381
Roadway Express Inc. 450 7,200
Rollins Truck Leasing Corp. 600 6,825
Ryder System, Inc. 200 5,950
Swift Transportation Inc.* 300 6,788
U.S. Freightways Corp. 300 6,581
Wabash National Corp. 300 4,838
Werner Enterprises Inc. 900 15,638
</TABLE>
F-139
<PAGE> 235
SCHWAB ASSET DIRECTOR--BALANCED GROWTH FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
October 31, 1996
<TABLE>
<CAPTION>
Number
of Shares Value
--------- -----------
<S> <C> <C>
XTRA Corp. 600 $ 24,900
Yellow Corp. 400 5,225
-------
270,503
-------
TRAVEL & RECREATION--0.6%
Acxiom Corp. 600 23,475
Anchor Gaming* 300 14,925
Aztar Corp.* 500 4,063
Bally Entertainment Corp. 1,200 36,150
Boyd Gaming Corp.* 1,000 7,375
Brunswick Corp. 200 4,700
Casino America Inc. 25 119
Central Parking Corp. 400 13,850
Harrahs Entertainment Inc.* 400 6,700
Hilton Hotels Corp. 800 24,300
ITT Corp. (New)* 200 8,400
K2 Inc. 200 4,600
Marcus Corp. 300 6,675
Marriott International Inc. 600 34,125
National Auto Credit Inc. 330 3,548
Players International Inc. 400 2,738
Polaris Industries Inc. 700 13,738
Primadonna Resorts Inc.* 400 6,425
Prime Hospitality Corp.* 900 13,725
Rio Hotel & Casino Inc.* 200 2,900
Showboat, Inc. 200 3,800
Sodak Gaming, Inc. 600 10,800
Sports Authority Inc. 450 10,913
Station Casinos Inc.* 700 7,788
Stratosphere Corp.* 1,100 1,564
Walt Disney Co. 3,239 213,369
-------
480,765
-------
UTILITIES--1.6%
American Electric Power Co., Inc. 700 29,050
Aquila Gas Pipeline Corp. 400 5,800
Atmos Energy Corp. 200 4,750
Baltimore Gas & Electric Co. 300 8,175
Bay Saint Gas Co. (Rights Callable
Through 11/30/99) 200 5,650
Black Hills Corp. 200 5,100
Carolina Power & Light Co. 300 10,838
Central & South West Corp. 800 21,200
Central Hudson Gas & Electric Corp. 500 15,000
Central Louisiana Electric Co. (New) 600 16,275
Central Maine Power Co. 700 8,225
Cilcorp Inc. 500 18,250
</TABLE>
F-140
<PAGE> 236
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares Value
--------- -----------
<S> <C> <C>
Cinergy Corp. 600 $19,875
Coastal Corp. 100 4,300
Columbia Gas System, Inc. 300 18,225
Commonwealth Energy System
(Shares of Beneficial Interest) 400 9,600
Consolidated Edison Co. 600 17,550
Consolidated Natural Gas Co. 300 15,938
DTE Energy Co. 600 18,075
Destec Energy, Inc.* 1,100 16,500
Dominion Resources Inc. 700 26,425
Duke Power Co. 900 43,988
ENSERCH Corp. 100 2,150
Eastern Enterprises 400 15,400
Eastern Utilities Association 300 4,838
Edison International 1,500 29,625
Empire District Electric Co. 200 3,750
Enron Corp. 700 32,550
Entergy Corp. 900 25,200
FPL Group, Inc. 700 32,200
GPU Inc. 500 16,438
Global Industrial Technologies Inc.* 300 5,588
Houston Industries Inc. 1,000 22,875
IES Industries Inc. 700 21,525
Indiana Energy Inc. 600 14,700
Interstate Power Co. 100 3,038
K N Energy Inc. 700 26,163
Laclede Gas Co. 200 4,675
MDU Resources Group, Inc. 400 8,950
Madison Gas & Electric Co. 300 6,188
Minnesota Power & Light Co. 600 16,950
NICOR Inc. 100 3,488
New Jersey Resources Corp. 500 13,813
Niagara Mohawk Power Corp. 400 3,400
NorAm Energy Co. 300 4,613
Northern States Power Co. 200 9,400
Northwest Natural Gas Co. 300 7,556
Ohio Edison Co. 300 6,263
Oneok Inc. 500 13,438
Orange & Rockland Utilities, Inc. 200 7,025
Otter Tail Power Co. 200 6,475
P P & L Resources Inc. 500 11,688
Pacific Enterprises 200 6,150
Pacific Gas & Electric Co. 1,700 39,950
Pacificorp 1,100 23,238
Panhandle Eastern Corp. 600 23,100
Peco Energy Co. 900 22,725
</TABLE>
F-141
<PAGE> 237
SCHWAB ASSET DIRECTOR--BALANCED GROWTH FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
October 31, 1996
<TABLE>
<CAPTION>
Number
of Shares Value
--------- -----------
<S> <C> <C>
Peoples Energy Corp. 100 $ 3,525
Philadelphia Suburban Corp. 300 5,100
Piedmont Natural Gas Inc. 700 17,150
Primark Corp.* 600 14,925
Public Service Co. of New Mexico 900 16,875
Public Service Co. of North Carolina Inc. 200 3,600
Public Service Enterprise Group 900 24,188
Rochester Gas & Electric Corp. 800 14,900
Seagull Energy Corp.* 1,328 28,718
Sierra Pacific Resources 700 19,513
SIGCORP, Inc. 500 17,000
Sonat Inc. 300 14,775
South Jersey Industries Inc. 100 2,350
Southern Co. 2,800 61,950
Southern Union Co. (New) 300 7,463
Southwest Gas Corp. 300 5,738
Southwestern Energy Co. 300 4,463
Tejas Gas Corp. 300 12,188
Texas Utilities Co. 600 24,300
TNP Enterprises Inc. 300 7,763
Triarc Cos., Inc. Class A* 400 4,700
Tucson Electric Power Co.* 400 7,900
UGI Corp. (New) 700 16,538
Unicom Corp. 800 20,800
Union Electric Co. 100 3,863
United Illuminating Co. 200 6,650
United Water Resources Inc. 400 6,250
WPS Resources Corp. 600 17,850
Washington Energy Co. 300 5,775
Western Gas Resources Inc. 300 4,763
Wicor Inc. 500 17,813
Williams Cos. Inc. 400 20,900
----------
1,274,200
----------
34,363,616
----------
INTERNATIONAL -- 14.7%
AUSTRALIA -- 0.3%
Australia & New Zealand Banking Group 3,979 23,244
Broken Hill Proprietary Co., Ltd. 5,127 68,070
Coca Cola Amatil 1,466 20,161
Commonwealth Bank Group 2,675 25,126
National Australia Bank 3,902 42,837
News Corp., Ltd. 5,204 29,617
Western Mining Corp. 2,887 18,147
Westpac Banking Corp. 4,930 28,136
----------
255,338
----------
</TABLE>
F-142
<PAGE> 238
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares Value
--------- -----------
<S> <C> <C>
BELGIUM--0.2%
Electrabel 186 $ 43,175
Electrabel, VVPR Strip 25 26
Fortis AG 104 14,605
Generale de Banque 68 23,764
Petrofina SA 57 17,526
Societe Generale de Belgique 173 12,924
Tractebel 15 7
Tractebel Investor International 33 15,712
-------
127,739
-------
CANADA--0.5%
Alcan Aluminum Ltd. 551 18,090
BCE Inc. 816 37,476
Bank of Montreal 651 19,697
Bank of Nova Scotia, Halifax 565 17,812
Barrick Gold Corp. 1,453 38,054
Canadian Imperial Bank of Commerce 643 26,724
Canadian Pacific Ltd 866 21,905
Imperial Oil Ltd. (New) 472 20,797
Inco Ltd 450 14,220
Noranda Inc. 686 15,126
Northern Telecom Ltd. 660 42,992
Placer Dome Inc. 585 14,034
Royal Bank of Canada, Montreal Quebec 769 25,419
Seagram Co. Ltd. 972 36,626
Thomson Corp. 1,539 30,948
-------
379,920
-------
DENMARK--0.1%
D/S 1912 Class B 1 25,119
Novo Nordisk A/S Series B 97 16,155
Tele Danmark A/S Series B 340 17,140
-------
58,414
-------
FRANCE--0.9%
AXA Groupe SA 500 31,061
Alcatel Alsthom CGE SA 397 33,857
Banque Nationale de Paris 508 19,008
Canal Plus 67 16,578
Carrefour 99 54,937
Compagnie Financiere de Paribas (Bearer) 312 20,078
Compagnie Generale de Eaux 313 37,407
Compagnie de Saint-Gobain SA 221 29,827
Danone Groupe 188 25,741
Elf Aquitaine 705 56,372
L'Air Liquide 189 29,168
</TABLE>
F-143
<PAGE> 239
SCHWAB ASSET DIRECTOR--BALANCED GROWTH FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
October 31, 1996
<TABLE>
<CAPTION>
Number
of Shares Value
--------- -----------
<S> <C> <C>
L'Oreal SA 174 $ 58,913
LVMH Moet Hennessy Louis Vuitton 226 51,809
Lafarge Coppee SA 245 14,702
Lyonnaise des Eaux-Dumez 154 13,615
Michelin (CGDE) Class B (Reg.) 302 14,561
PSA Peugeot Citroen 130 13,553
Pinault Printemps Redoute SA 58 21,873
Renault (Reg.) 633 13,496
Rhone-Poulenc SA A Shares 850 25,188
Roussel Uclaf 71 18,790
Sanofi 270 24,457
Schneider SA 350 17,115
Societe Generale 232 25,004
Suez Group 429 18,469
TOTAL Class B 622 48,653
Union des Assurances de Paris 821 17,054
-------
751,286
-------
GERMANY--1.1%
BASF AG 1,490 47,620
Bayer AG 1,964 74,208
Bayerische Hypotheken & Wechsel Bank AG 629 18,421
Bayerische Motoren Werk AG 61 35,688
Bayerische Vereinsbank AG 572 21,510
Commerzbank AG 1,000 22,405
Daimler Benz AG 1,442 84,650
Deutsche Bank AG 1,293 59,886
Dresdner Bank AG 1,151 30,782
Hoechst AG 1,600 60,169
Linde AG 22 13,619
Lufthansa AG 1,360 17,781
Mannesmann AG 92 35,721
Metro AG 245 20,093
Muenchener Rueckversicherung 10 19,480
Muenchener Rueckversicherung (Reg.) 23 54,979
RWE AG 846 34,825
RWE AG (Non Voting) 500 16,970
Sap AG 132 17,868
Siemens AG 1,560 80,606
Thyssen AG 77 13,779
Veba AG 1,378 73,495
Vereinigte Elektrizitatswerke Westfalen
Series B 43 14,311
Viag AG 71 26,255
Viag AG* 12 4,366
Volkswagen AG 86 33,860
-------
933,347
-------
</TABLE>
F-144
<PAGE> 240
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares Value
--------- -----------
<S> <C> <C>
HONG KONG--0.7%
CITIC Pacific 9,000 $ 43,765
Cathay Pacific Airways 7,000 10,954
Cheung Kong Holdings 5,000 40,092
China Light & Power 9,000 41,786
Hang Seng Bank Ltd. 3,400 40,344
Henderson China 12 27
Henderson Land Development Co. 5,000 44,457
Hong Kong Electric Holdings Ltd. 12,500 40,011
Hong Kong Telecommunications Ltd. 23,010 40,621
Hutchison Whampoa Ltd. 8,000 55,870
New World Development Co. 7,158 41,658
Sun Hung Kai Properties 5,000 56,905
Swire Pacific Ltd. Class A 6,000 52,960
Wharf Holdings 9,000 37,130
-------
546,580
-------
ITALY--0.3%
Assicurazioni Generali 2,159 41,700
Fiat SpA 8,042 21,497
Fiat SpA, di Risp (Non-Convertible) 5,394 7,823
INA 10,028 13,849
Istituto Bancario San Paolo di Torino 2,207 13,094
STET 9,950 34,369
STET di Risp (Non-Convertible) 2,791 7,433
Telecom Italia 16,255 36,217
Telecom Italia di Risp (Non-Convertible) 5,096 9,708
Telecom Italia Mob 17,228 35,603
Telecom Italia Mob di Risp 16,046 18,299
-------
239,592
-------
JAPAN--4.8%
Ajinomoto Co., Inc. 1,000 10,628
All Nippon Airways Co., Ltd. 2,000 16,670
Asahi Bank 5,000 51,381
Asahi Chemical Industry Co. 2,000 12,472
Asahi Glass Co., Ltd. 2,000 21,079
Bank of Tokyo-Mitsubishi, Ltd. 8,800 179,316
Bank of Yokohama 2,000 14,826
Bridgestone Corp. 2,000 33,727
Canon Inc. 2,000 38,294
Chiba Bank 1,000 7,518
Chubu Electric Power Co. 1,000 20,640
Chugoku Electric Power Co., Inc. 1,000 20,113
DDI Corp. 2 15,019
Dai Nippon Printing Co. 1,000 16,864
Dai-Ichi Kangyo Bank, Ltd. 6,000 97,492
</TABLE>
F-145
<PAGE> 241
SCHWAB ASSET DIRECTOR--BALANCED GROWTH FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
October 31, 1996
<TABLE>
<CAPTION>
Number
of Shares Value
--------- -----------
<S> <C> <C>
Daiei Inc. 1,000 $ 8,871
Daiwa Bank 4,000 22,660
Daiwa House Industries Co. 1,000 13,877
Daiwa Securities Co. 3,000 32,410
Denso Corp. 2,000 41,456
East Japan Railway Co. 4 18,374
Fuji Bank, Ltd. 6,000 108,032
Fuji Photo Film Co. 1,000 28,721
Fujitsu Ltd. 3,000 26,349
Gunma Bank 1,000 8,871
Hachijuni Bank 1,000 10,013
Hitachi Ltd. 7,000 62,097
Honda Motor Co., Ltd. 2,000 47,780
Industrial Bank of Japan, Ltd. 5,320 106,068
Ishikawajima-Harima Heavy Industries 3,000 13,833
Isuzu Motors Ltd. 2,000 9,890
Ito-Yokado Co., Ltd. 1,000 49,888
Itochu Corp. 2,000 12,068
Japan Air Lines Co., Ltd. 3,000 17,127
Japan Tobacco Inc. 2 14,123
Joyo Bank 1,000 6,605
Joyo Bank (Rights expire 11/20/96)* 100 309
Jusco Co. 1,000 29,687
Kajima Corp. 2,000 17,197
Kansai Electric Power Co. 2,000 41,983
Kao Corp. 1,000 11,769
Kawasaki Heavy Industries 2,000 9,152
Kawasaki Steel Co. 5,000 15,414
Kinki Nippon Railway Co. 4,060 26,923
Kirin Brewery Co., Ltd. 2,000 20,552
Kobe Steel 7,000 16,600
Kokusai Denki 1,000 86,514
Komatsu Ltd. 2,000 16,372
Kubota Corp. 2,000 11,313
Kyocera Corp. 1,000 65,961
Kyushu Electric Power Co. 2,000 40,929
Long-Term Credit Bank of Japan 4,000 26,525
Marubeni Corp. 2,000 9,257
Marui Co. 1,000 18,532
Matsushita Electric Industrial Co., Ltd. 4,000 63,941
Matsushita Electric Works 1,000 9,661
Mazda Motor Corp. 3,000 13,306
Mitsubishi Chemical Corp. 4,000 16,337
Mitsubishi Corp. 3,000 33,464
Mitsubishi Electric Corp. 5,000 28,940
Mitsubishi Estate Co. 3,000 37,416
</TABLE>
F-146
<PAGE> 242
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares Value
--------- -----------
<S> <C> <C>
Mitsubishi Heavy Industries 7,000 $ 53,796
Mitsubishi Materials Co. 4,000 17,777
Mitsubishi Motors 1,000 8,274
Mitsubishi Trust & Banking Corp. 3,000 44,267
Mitsui & Co. 4,000 32,322
Mitsui Fudosan Co. 2,000 24,768
Mitsui Trust & Banking Co. 2,000 19,323
NEC Corp. 3,000 32,673
NKK Corp. 6,000 15,072
Nikko Securities Co. 3,000 28,721
Nippon Credit Bank 2,000 6,025
Nippon Express Co. 2,000 16,249
Nippon Oil Co. 2,000 11,418
Nippon Paper Industries Co. 3,000 16,916
Nippon Steel Corp. 15,000 43,740
Nippon Telegraph & Telephone Corp. 22 153,616
Nippon Yusen Kabushiki Kaisha 2,000 10,013
Nissan Motor Co., Ltd. 4,000 30,249
Nomura Securities Co., Ltd. 4,000 66,049
Obayashi Corp. 1,000 7,712
Odakyu Electric Railway Co. 30 185
Oji Paper Co. (New)* 1,000 7,308
Osaka Gas Co. 4,000 12,367
Ricoh Co., Ltd. 1,000 9,925
Rohm Co. 1,000 59,286
Sakura Bank 6,000 56,914
Sankyo Co. 1,000 24,768
Sanwa Bank 6,000 102,235
Sanyo Electric Co., Ltd. 3,000 14,545
Seibu Railway Co. 1,000 47,868
Sekisui Chemical Co. 1,000 11,155
Sekisui House 1,000 10,540
Seven-Eleven Japan Co. 1,100 63,959
Sharp Corp. 2,000 30,390
Shikoku Electric Power Co. 1,000 20,201
Shimizu Corp. 1,000 9,047
Shin-Etsu Chemical Co. 1,000 17,127
Shizuoka Bank 2,000 22,836
Sony Corp. 1,000 59,989
Sumitomo Bank 6,000 105,397
Sumitomo Chemical Co. 2,000 8,537
Sumitomo Corp. 2,000 16,143
Sumitomo Electric Industries 1,000 13,175
Sumitomo Marine & Fire Insurance Co. 1,000 7,167
Sumitomo Metal Industries 5,000 13,746
Sumitomo Trust & Banking Co. 2,000 22,133
</TABLE>
F-147
<PAGE> 243
SCHWAB ASSET DIRECTOR--BALANCED GROWTH FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
October 31, 1996
<TABLE>
<CAPTION>
Number
of Shares Value
--------- -----------
<S> <C> <C>
Suzuki Motor Corp. 1,000 $ 10,188
Taisei Corp. 1,000 6,148
Taisho Pharmaceutical Co. 1,000 19,850
Takeda Chemical Industries 2,000 34,254
Tobu Railway Co. 3,000 16,890
Tohoku Electric Power Co. 1,000 20,289
Tokai Bank 4,000 46,375
Tokio Marine & Fire Insurance Co. 3,000 32,937
Tokyo Electric Power Co., Inc. 3,000 68,772
Tokyo Gas Co. 5,000 15,590
Tokyu Corp. 2,000 13,438
Tonen Corp. 1,000 12,823
Toppan Printing Co. 1,000 12,209
Toray Industries Inc. 2,000 12,068
Toshiba Corp. 7,000 43,775
Toyo Seikan Kaisha 1,000 31,619
Toyo Trust & Banking Co. 1,000 8,537
Toyoda Automatic Loom 1,000 18,532
Toyota Motor Corp. 7,000 165,386
Yamaichi Securities Co. 2,000 11,137
Yamanouchi Pharmaceutical Co. 1,000 20,289
Yasuda Fire & Marine Insurance Co. 1,000 6,350
Yasuda Trust & Banking Co. 4,000 19,498
---------
3,936,083
---------
NETHERLANDS--0.9%
ABN-Amro Holdings NV 846 47,817
Aegon NV 693 35,248
Akzo Nobel NV 184 23,186
Dordtsche Petrol 92 15,996
Elsevier NV 1,717 28,537
Fortis Amev NV, CVA 490 14,642
Heineken NV 130 24,556
ING Groep NV 1,976 61,608
Koninklijke Ahold NV 504 29,408
Koninklijke PTT Nederland 1,249 45,199
Philips Electronics NV 895 31,544
PolyGram NV 467 21,937
Royal Dutch Petroleum Co. (Bearer) 1,453 239,954
SGS-Thomson Microelectronics NV* 374 19,817
Unilever NV, CVA 415 63,105
Wolters Kluwer NV, CVA 175 22,495
---------
725,049
---------
SINGAPORE--0.2%
City Developments 2,000 15,761
Hong Kong Land Holdings 7,180 16,011
</TABLE>
F-148
<PAGE> 244
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares Value
--------- -----------
<S> <C> <C>
Jardine Matheson Holdings Ltd. 35 $ 198
Overseas Chinese Bank (alien market) 2,209 25,250
Singapore Airlines Ltd. (alien market) 3,000 26,411
Singapore Telecommunications 40,000 93,149
United Overseas Bank (alien market) 2,000 19,453
-------
196,233
-------
SPAIN--0.3%
Argentaria Corp. 326 12,775
Banco Bilbao-Vizcaya SA (Reg.) 583 28,329
Banco de Santander SA (Reg.) 414 21,252
Empresa Nacional de Electricidad 675 41,316
Gas Natural SDG SA 97 16,968
Iberdrola SA 2,409 25,582
Repsol, SA 778 25,396
Telefonica Internacional de Espana, SA 2,438 48,915
-------
220,533
-------
SWEDEN--0.3%
ABB AB Series A 164 18,581
ABB Series B 59 6,577
Astra AB Series A 1,228 56,398
Astra AB Series B 298 13,596
L.M. Ericsson Telephone Series B 2,720 73,629
Sandvik AB Series A 813 19,164
Sandvik AB Series B 338 7,967
Volvo AB Series A 858 17,745
Volvo AB Series B 787 16,337
-------
229,994
-------
SWITZERLAND--1.0%
ABB AG (Bearer) 20 24,715
ABB AG (Reg.) 25 6,092
CS Holding (Reg.) 453 45,246
Ciba-Geigy Ltd. (Bearer) 7 8,584
Ciba-Geigy Ltd. (Reg.) 66 81,299
Cie Financiere Richemont Series A (Bearer) 15 22,844
Holderbank Financiere Glaris (Bearer) 17 11,768
Holderbank Financiere Glaris (Regd) 82 11,466
Nestle Ltd. (Reg.) 109 118,400
Roche Group Holding AG 20 151,266
Roche Group Holding AG (Bearer) 4 49,051
Sandoz Ltd. (Bearer) 7 8,108
Sandoz Ltd. (Reg.) 95 109,806
Schweizerische Bankgesellschaft (Bearer) 62 59,057
Schweizerische Bankgesellschaft (Reg.) 34 6,563
Schweizerischer Bankverein (Reg.) 298 57,407
</TABLE>
F-149
<PAGE> 245
SCHWAB ASSET DIRECTOR--BALANCED GROWTH FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
October 31, 1996
<TABLE>
<CAPTION>
Number
of Shares Value
--------- -----------
<S> <C> <C>
Winterthur (Reg.) 20 $ 11,915
Zurich Versicherung (Reg.) 108 29,563
-------
813,150
-------
UNITED KINGDOM--3.1%
Abbey National 4,273 44,371
Allied Domecq PLC 2,602 20,074
Asda Group 7,862 14,972
Associated British Foods 2,656 18,243
BAA 2,573 20,730
BAT Industries 8,009 55,531
BOC Group 1,201 16,635
BTR 10,369 43,457
Barclays 4,223 66,294
Bass 2,160 27,703
Boots Co. 2,323 23,555
British Aerospace 1,067 20,267
British Airways 2,412 21,710
British Gas 11,258 34,998
British Petroleum Co. 15,677 168,469
British Sky Broadcast 4,306 40,439
British Steel 4,942 13,734
British Telecom 16,179 99,407
Cable & Wireless 5,805 46,107
Cadbury Schweppes 2,464 20,533
Commercial Union Assurance Co. 1,687 17,847
GKN 946 17,784
General Electric Co. 7,132 44,111
Glaxo Wellcome 9,642 151,441
Granada Group 2,300 33,130
Grand Metropolitan, Inc. 5,535 41,756
Great University Stores 2,463 24,614
Guinness 4,948 35,435
HSBC Holdings 2,164 45,471
HSBC Holdings (Hong Kong) 4,765 97,642
Hanson Industries 23,040 30,187
Imperial Chemical Industries 1,772 22,756
Imperial Tobacco* 1,387 8,127
J. Sainsbury PLC 4,531 26,844
Kingfisher 1,668 17,782
Legal & General Group 3,077 16,226
Lloyds Abbey Life 1,751 17,883
Lloyds TSB Group 13,782 87,371
Marks & Spencer PLC 7,269 61,048
National Power Development 2,904 19,143
National Westminster Bancorp 4,374 49,941
Pearson, Inc. 1,355 16,717
</TABLE>
F-150
<PAGE> 246
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares Value
--------- -----------
<S> <C> <C>
Powergen 1,831 $ 15,199
Prudential Corp. 4,770 36,101
RTZ Corp. PLC 2,634 42,142
Rank Group 4,283 28,477
Reed International 1,374 25,584
Rentokil Group 3,980 26,721
Reuters Holdings PLC 4,937 61,471
Royal Bank of Scotland 2,000 16,374
Safeway PLC 2,871 17,033
Scot & Newcastle 1,495 15,536
Scottish Power 3,124 15,966
Shell Transport & Trading Co. 9,223 151,165
Siebe 1,085 17,024
SmithKline Beecham PLC (New) 7,540 93,146
Standard Chartered PLC 2,413 26,039
Tesco 5,173 28,037
Thorn EMI 1,070 21,020
Unilever 1,987 41,752
United News & Media PLC 1,280 14,042
Vendome Lux Group SA (units) 1,749 16,511
Vodafone Group 7,977 30,836
Whitbread 1,204 14,109
Zeneca Group 2,455 66,889
----------
2,521,659
----------
11,974,540
----------
TOTAL COMMON STOCK
(Cost $41,293,555) 46,338,156
----------
PREFERRED STOCK--0.1%
AUSTRALIA--0.0%
News Corp. Ltd. (Limited Voting Shares) 2,555 11,240
----------
GERMANY--0.0%
Metro AG (Non-Voting)* 186 11,238
Sap AG (Non-Voting) 99 13,323
Volkswagen AG (Non-Voting) 24 7,282
----------
20,605
----------
ITALY--0.0%
Fiat SpA 11,680 16,554
----------
</TABLE>
F-151
<PAGE> 247
SCHWAB ASSET DIRECTOR--BALANCED GROWTH FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
October 31, 1996
<TABLE>
<CAPTION>
Number
of Shares Value
--------- -----------
<S> <C> <C>
UNITED STATES--0.0%
Aetna Inc. 6.25% Class C (Voting) 44 $ 3,086
Fresenius National Medical Care Inc. Class D
(Special Dividend)* 400 52
Teledyne, Inc. Series E 1 16
------
3,154
------
TOTAL PREFERRED STOCK
(Cost $64,327) 62,791
------
WARRANTS--0.0%
SWITZERLAND--0.0%
Schweizerische Bankverein (expire 6/30/00)* 20 51
------
UNITED STATES--0.0%
Jacor Communications Inc. (expire 09/18/01)* 300 628
------
TOTAL WARRANTS
(Cost $6,756) 679
------
</TABLE>
F-152
<PAGE> 248
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
---------- -----------
<S> <C> <C>
U.S. TREASURY OBLIGATIONS--34.1%(A)
U.S. Treasury Bonds
10.00%, 05/15/10 $ 475,000 $ 585,072
10.38%, 11/15/12 500,000 648,610
7.25%, 05/15/16 5,000,000 5,296,950
7.50%, 11/15/16 500,000 542,575
8.13%, 08/15/19 3,925,000 4,547,741
7.25%, 08/15/22 750,000 795,413
7.13%, 02/15/23 1,200,000 1,256,364
6.25%, 08/15/23 725,000 681,123
U.S. Treasury Notes
5.88%, 08/15/98 1,775,000 1,779,722
6.13%, 08/31/98 3,200,000 3,222,496
5.00%, 02/15/99 500,000 491,600
7.00%, 04/15/99 600,000 616,098
7.50%, 10/31/99 1,900,000 1,980,351
5.75%, 10/31/00 1,500,000 1,485,780
6.25%, 04/30/01 500,000 503,685
6.38%, 08/15/02 900,000 910,935
5.88%, 02/15/04 1,150,000 1,124,930
6.50%, 05/15/05 400,000 404,416
6.50%, 08/15/05 200,000 202,240
6.88%, 05/15/06 500,000 518,185
-----------
TOTAL U.S. TREASURY OBLIGATIONS (Cost
$27,154,668) 27,594,286
-----------
AGENCY OBLIGATIONS-COUPON NOTES--2.2%(A)
Federal National Mortgage Assoc.
8.50%, 02/01/05 1,050,000 1,110,774
7.25%, 06/01/05 650,000 656,032
-----------
TOTAL AGENCY OBLIGATIONS--COUPON NOTES
(Cost $1,757,834) 1,766,806
-----------
CASH EQUIVALENTS--10.8%
Federal Home Loan Bank Consolidated
Discount Notes(b)
5.30%, 01/30/97 3,950,000 3,899,123
</TABLE>
F-153
<PAGE> 249
SCHWAB ASSET DIRECTOR--BALANCED GROWTH FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
October 31, 1996
<TABLE>
<CAPTION>
Par Value
---------- -----------
<S> <C> <C>
Federal Home Loan Mortgage Corp. Discount
Notes(b)
5.30%, 11/01/96 $3,240,000 $ 3,240,000
Shares
----------
Seven Seas Money Market Fund(c)
5.04%, 11/07/96 1,594,120 1,594,120
----------
TOTAL CASH EQUIVALENTS
(Cost $8,732,671) 8,733,243
----------
TOTAL INVESTMENTS--104.3%
(Cost $79,009,811) 84,495,961
----------
OTHER ASSETS AND LIABILITIES--(4.3%)
Other Assets 871,473
Liabilities (4,386,970)
----------
(3,515,497)
----------
NET ASSETS--100% (Note 7)
Applicable to 7,331,569 outstanding shares,
$0.00001 par value (unlimited shares
authorized) $80,980,464
----------
----------
NET ASSET VALUE PER SHARE $11.05
-----
-----
</TABLE>
See accompanying Notes to Statements of Net Assets.
F-154
<PAGE> 250
SCHWAB ASSET DIRECTOR--CONSERVATIVE GROWTH FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
October 31, 1996
<TABLE>
<CAPTION>
Number
of Shares Value
--------- ----------
<S> <C> <C>
COMMON STOCK--38.1%
DOMESTIC--28.1%
AEROSPACE/DEFENSE--0.5%
Alliant Techsystems Inc.* 100 $ 4,632
BFGoodrich Co. 100 4,238
Boeing Co. 100 9,538
Coltec Industries Inc.* 200 3,450
Gencorp Inc. 100 1,650
General Dynamics Corp. 100 6,863
Lockheed Martin Corp. 200 17,925
McDonnell Douglas Corp. 200 10,900
Northrop Grumman Corp. 100 8,075
OEA, Inc. 100 3,775
Orbital Sciences Corp. Class A* 100 2,113
Raytheon Co. 200 9,850
Rockwell International Corp. 200 11,000
Rohr Industries Inc.* 100 1,850
Textron Inc. 100 8,875
Thiokol Corp. 100 4,188
Trimble Navigation Ltd.* 100 1,419
United Technologies Corp. 100 12,875
-------
123,216
-------
AIR TRANSPORTATION--0.2%
AMR Corp.* 100 8,400
America West Airlines, Inc. Class B* 100 1,150
Atlantic Southeast Airlines Inc. 100 2,100
Atlas Air Inc.* 100 3,688
Comair Holdings Inc. 150 3,000
Delta Airlines Inc. 100 7,088
Mesa Air Group Inc.* 100 938
Offshore Logistics, Inc.* 100 1,681
Southwest Airlines Co. 100 2,250
Trans World Airlines Inc. (New)* 200 1,600
USAir Group, Inc.* 600 10,425
-------
42,320
-------
ALCOHOLIC BEVERAGES--0.2%
Adolph Coors Co. Class B 500 9,719
Anheuser-Busch Companies, Inc. 200 7,700
Brown Forman Corp. Class B 100 4,325
Canandaigua Wine Co., Inc. Class A* 100 2,288
Seagram Ltd 300 11,363
-------
35,395
-------
</TABLE>
F-155
<PAGE> 251
SCHWAB ASSET DIRECTOR--CONSERVATIVE GROWTH FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
October 31, 1996
<TABLE>
<CAPTION>
Number
of Shares Value
--------- ----------
<S> <C> <C>
APPAREL--0.3%
Brown Group Inc. 100 $ 2,063
Burlington Industries Inc.* 300 3,413
Cone Mills Corp.* 100 788
Justin Industries Inc. 100 1,025
Kellwood Co. 100 1,800
Liz Claiborne Inc. 100 4,225
Men's Wearhouse, Inc. 100 2,056
NIKE, Inc. Class B 200 11,775
Phillips-Van Heusen Corp. 100 1,100
Reebok International Ltd. 100 3,575
Springs Industries Inc. 200 9,025
St. John's Knits, Inc. 200 9,150
Stride Rite Corp. 200 1,650
V.F. Corp. 100 6,538
Wolverine World Wide Inc. 150 3,713
------
61,896
------
AUTOMOTIVE PRODUCTS--0.1%
Armor-All Products Corp. 100 1,663
Carlisle Cos. Inc. 100 5,688
Cooper Tire & Rubber 100 1,963
Discount Auto Parts Inc.* 100 2,175
Goodyear Tire & Rubber 100 4,588
------
16,077
------
BANKS--2.1%
Associated Banc-Corp. 100 3,988
Banc One Corp. 307 13,009
Bancorp South, Inc. 100 2,519
Bank of Boston Corp. 100 6,400
Bank of New York Co., Inc. 200 6,625
BankAmerica Corp. 100 9,150
Bankers Trust New York Corp. 100 8,450
Barnett Banks, Inc. 200 7,625
Boatmens Bancshares Inc. 100 6,081
CCB Financial Corp. 100 5,700
Centura Banks Inc. 100 3,888
Chase Manhattan Corp. (New) 308 26,411
Chemical Financial Corp. 100 3,738
Citicorp 200 19,800
Citizens Bancorp 100 5,100
City National Corp. 100 1,750
Comerica Inc. 100 5,313
Corestates Financial Corp. 100 4,863
Cullen/Frost Bankers Inc. 200 6,038
Dauphin Deposit Bank & Trust Co. 200 6,525
</TABLE>
F-156
<PAGE> 252
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares Value
--------- ----------
<S> <C> <C>
Deposit Guaranty Corp. 100 $ 5,013
F & M National Corp. 100 1,850
Fifth Third Bancorp 100 6,275
First Bank System Inc. 188 12,408
First Chicago NBD Corp. 81 4,131
First Citizens Bancshares Inc. 100 6,725
First Commercial Corp. 112 3,806
First Commonwealth Financial Corp. 100 1,800
First Financial Bancorp 220 6,848
First Hawaiian, Inc. 200 6,200
First Michigan Bank Corp. 140 3,500
First Union Corp. 135 9,821
Fleet Financial Group Inc. (New) 189 9,426
Fulton Financial Corp. 110 2,186
Hancock Holding Co. 100 3,988
Imperial Bancorp 162 3,108
J.P. Morgan & Co. Inc. 200 17,275
Keycorp (New) 200 9,325
Keystone Financial Inc. 150 3,881
Long Island Bancorp Inc. 100 2,981
MBNA Corp. 150 5,663
Magna Group Inc. 100 2,788
Mark Twain Bancshares Inc. 100 4,588
Mellon Bank Corp. 100 6,513
Mid-Am, Inc. 110 1,939
National Bancorp of Alaska, Inc. 100 6,475
National City Corp. 100 4,338
National Commerce Bancorp 100 3,525
NationsBank Corp. 200 18,850
North Fork Bancorporation 100 3,163
Norwest Corp. 300 13,163
ONBANCorp, Inc. 100 3,644
Old National Bancorp 100 3,638
One Valley Bancorp of West Virginia Inc. 125 4,039
PNC Bank Corp. 100 3,625
People's Bank Bridgeport Conn. 100 2,563
Provident Bancorp Inc. 150 6,647
Regions Financial Corp. 76 3,791
Republic New York Corp. 100 7,625
Riggs National Corp. Washington D.C. 100 1,700
Security Capital Corp. 100 6,625
Sumitomo Bank 100 2,538
Summit Bancorp 90 3,679
Suntrust Banks, Inc. 200 9,325
Toronto-Dominion Bank 176 4,114
TrustCo Bank Corp. NY 115 2,516
</TABLE>
F-157
<PAGE> 253
SCHWAB ASSET DIRECTOR--CONSERVATIVE GROWTH FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
October 31, 1996
<TABLE>
<CAPTION>
Number
of Shares Value
--------- ----------
<S> <C> <C>
Trustmark Corp. 100 $ 2,475
U S Trust Corp. (New) 100 6,250
U.S. Bancorp 100 3,994
UMB Financial Corp. 110 4,304
UST Corp. 100 1,788
United Carolina Bancshares Corp. 150 3,863
Wachovia Corp. (New) 100 5,375
Wells Fargo & Co. 66 17,630
Westamerica Bancorp 100 5,088
Whitney Holding Corp. 100 3,188
-------
464,549
-------
BUSINESS MACHINES & SOFTWARE--2.2%
3COM Corp. 200 13,538
AST Research Inc.* 100 456
Apple Computer, Inc. 100 2,313
Auspex Systems, Inc.* 100 1,019
Bay Networks, Inc. 200 4,050
Borland International Inc.* 100 509
Broderbund Software Inc.* 100 2,800
Cabletron Systems Inc.* 100 6,238
Ceridian Corp.* 57 2,829
Cheyenne Software Inc.* 200 6,075
Cisco Systems Inc. 400 24,725
Compaq Computer Corp.* 200 13,925
Computer Assoc. International Inc. 300 17,738
Computer Horizons Corp. 100 3,113
Computer Sciences Corp.* 179 13,291
Compuware Corp.* 200 10,600
Comverse Technology Inc. (New)* 100 3,488
Data General Corp.* 300 4,463
Dell Computer Corp. 100 8,150
Dialogic Corp.* 100 3,388
Digital Equipment Corp.* 100 2,950
EMC Corp.* 200 5,250
Exabyte Corp.* 100 1,306
HCIA Inc.* 100 2,800
HNC Software Inc. 100 3,138
Hewlett Packard Co. 600 26,475
Honeywell Inc. 100 6,213
INSO Corp. 100 4,913
Intergraph Corp.* 500 4,719
International Business Machines 400 51,600
Learning Co. Inc.* 100 2,092
McAfee Associates, Inc. 225 10,252
Medic Computer Systems, Inc. 200 5,600
Microchip Technology Inc.* 200 7,225
</TABLE>
F-158
<PAGE> 254
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares Value
--------- ----------
<S> <C> <C>
Microsoft Corp.* 400 $ 54,925
National Instruments Corp.* 100 2,900
Network General Corp. 200 4,788
Novell Inc.* 300 2,794
Novellus Systems, Inc.* 100 4,125
Oak Technology 200 2,000
Oracle Systems Corp. 300 12,694
Pitney Bowes Inc. 100 5,588
Platinum Technology Inc.* 300 4,350
Pure Atria Corp.* 154 4,187
Quantum Corp.* 300 6,056
Rational Software Corp. (New) 200 7,638
Read-Rite Corp.* 200 3,525
Safeguard Scientifics Inc. 200 7,950
Seagate Technology, Inc. 188 12,549
Security Dynamics Technology 100 8,075
Sequent Computer Systems, Inc.* 100 1,481
Silicon Graphics Inc.* 122 2,257
Stratus Computer Inc.* 100 2,238
Structural Dynamics Research Corp.* 200 3,538
Sun Microsystems Inc. 200 12,188
System Software Associates, Inc. 200 2,338
Tandem Computers Inc.* 100 1,263
Tech Data Corp.* 200 5,138
Transaction Systems Architects Inc. Class A 200 8,200
Unisys Corp.* 200 1,250
Wang Laboratories Inc. (New)* 100 2,331
Xerox Corp. 100 4,638
-------
468,245
-------
BUSINESS SERVICES--1.6%
Access Health Inc. 50 1,638
Accustaff Inc. 300 7,988
Affiliated Computer Services Inc. Class A 100 5,425
Allegiance Corp.* 40 750
Alternative Resources Corp. 100 1,994
American Business Information, Inc. 100 1,900
American Business Products, Inc. 100 2,225
American Management Systems, Inc. 150 4,763
American Medical Response, Inc.* 100 3,000
Amresco Inc. 100 2,094
Analysts International Corp. 200 4,900
Apollo Group, Inc. Class A 225 6,131
Automatic Data Processing, Inc. 200 8,325
BISYS Group, Inc.* 100 3,731
Bbn Corp.* 100 2,138
Bell & Howell Co. (New)* 100 2,675
</TABLE>
F-159
<PAGE> 255
SCHWAB ASSET DIRECTOR--CONSERVATIVE GROWTH FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
October 31, 1996
<TABLE>
<CAPTION>
Number
of Shares Value
--------- ----------
<S> <C> <C>
Bowne & Co. Inc. 100 $ 2,338
Browning Ferris Industries Inc. 100 2,625
CDI Corp.* 100 2,750
Cambridge Technology Partners 300 9,863
Camco International Inc. 100 3,875
Catalina Marketing Corp. 200 10,175
Cerner Corp. 100 1,194
Checkfree Corp.* 200 3,625
Coventry Corp.* 100 1,000
Culligan Water Technologies Inc.* 100 3,750
Dames & Moore Inc. 100 1,338
DeVRY Inc. 100 4,988
Deluxe Corp. 100 3,263
Dionex Corp. 100 3,875
Dun & Bradstreet Corp. 200 11,575
Dynatech Corp.* 100 4,956
Employee Solutions Inc. 200 4,400
Express Scripts Inc. Class A* 100 2,813
Fair Issac & Co. Inc. 100 3,763
Filenet Corp.* 100 2,825
First Data Corp. 200 15,950
Franklin Quest Co.* 100 2,025
G&K Services, Inc. Class A 100 2,900
H & R Block Inc. 100 2,475
Health Management Systems, Inc. 150 3,506
Heritage Media Corp. Class A (New) 200 3,050
Hon Industries Inc. 100 3,538
Horizon Healthcare Corp.* 200 2,075
Information Resources, Inc.* 100 1,269
Integrated Health Services Inc. 100 2,463
Integrated Systems Inc. Class A 100 2,663
Interim Services Inc.* 100 4,000
Interpublic Group of Companies, Inc. 100 4,850
Jacobs Engineering Group Inc.* 100 2,213
John H. Harland Co. 300 9,338
Keane, Inc. 100 4,638
Kinder Care Learning Centers Inc.* 100 1,981
Kirby Corp.* 100 1,950
Laidlaw Inc. Class B (Non-Voting) 200 2,350
Mariner Health Group Inc.* 100 838
Maxicare Health Plans Inc. (New)* 100 1,869
Micro Warehouse, Inc.* 200 4,625
Molten Metal Technology, Inc.* 100 1,338
Moore Corp. Ltd 100 2,025
National Data Corp. 200 8,225
National Education Corp.* 200 3,250
</TABLE>
F-160
<PAGE> 256
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares Value
--------- ----------
<S> <C> <C>
Netcom Online Communications* 100 $ 1,513
Network Equipment Technologies* 100 1,338
Norrell Corp. Georgia 100 2,500
Ogden Corp. 500 9,063
Orthodontic Centers of America Inc. 200 2,850
PAXAR Corp. 125 2,016
PHH Corp. 200 5,950
Payment Services Inc. 200 4,000
Physician Corp. of America* 100 1,113
Physician Reliance Network 200 1,169
Physicians Computer Network* 200 1,788
Psinet Inc.* 100 956
Quarterdeck Corp.* 100 516
R.R. Donnelley & Sons Co. 100 3,038
Rollins, Inc. 200 3,825
SEI Corp. 100 2,013
SPS Transaction Services, Inc.* 100 1,600
Scientific Games Holdings Corp.* 100 2,263
Service Corp. International 200 5,700
Standard Register Co. 100 2,600
Sun Healthcare Group Inc.* 100 1,275
Synetic Inc.* 100 3,681
True North Communications 100 2,375
U.S.A. Waste Services Inc.* 320 10,240
United Waste Systems, Inc. 200 6,850
Universal Health Services Inc. Class B 200 5,000
Valassis Communications Inc.* 100 1,800
Viad Corp. 100 1,450
WMX Technologies Inc. 300 10,313
Zebra Technologies Corp. Class A 200 5,750
-------
344,617
-------
CHEMICAL--0.8%
A. Schulman Inc. 100 2,094
Air Products & Chemicals Inc. 100 6,000
Arcadian Corp. 200 4,925
Calgon Carbon Corp. 100 1,000
Chemed Corp. 100 3,900
Crompton & Knowles Corp. 100 1,800
Dexter Corp. 100 3,100
Dow Chemical Co. 200 15,550
E.I. Du Pont de Nemours & Co. 300 27,825
Eastman Chemical Co. 100 5,275
Ferro Corp. 100 2,700
First Mississippi Corp. 100 2,900
Geon Co. 100 1,963
Great Lakes Chemical Corp. 100 5,213
</TABLE>
F-161
<PAGE> 257
SCHWAB ASSET DIRECTOR--CONSERVATIVE GROWTH FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
October 31, 1996
<TABLE>
<CAPTION>
Number
of Shares Value
--------- ----------
<S> <C> <C>
H.B. Fuller Co. 200 $ 8,325
Hercules Inc. 100 4,763
Lawter International Inc. 100 1,175
Lilly Industrial Inc. Class A 100 1,800
Millennium Chemicals Inc.* 30 608
Minnesota Mining & Manufacturing Co. 200 15,325
Monsanto Co. 300 11,888
Morton International Inc. 100 3,938
NCH Corp. 100 5,575
NL Industries Inc. (New) 200 1,700
OM Group Inc. 100 4,050
PPG Industries Inc. 200 11,400
Praxair Inc. 100 4,425
Rohm & Haas Co. 100 7,138
Scotts Co. Class A* 100 1,863
Union Carbide Corp. 100 4,263
W R Grace & Co. (Delaware)* 100 5,300
Wellman Inc. 100 1,775
-------
179,556
-------
CONSTRUCTION--0.3%
Blount International Inc. Class A 150 5,400
Calmat Co. 100 1,863
Centex Construction Products Inc. 100 1,563
Centex Corp. 400 12,050
Del Webb Corp. 100 1,600
Fluor Corp. 100 6,550
Global Industries Inc. 200 3,550
Kaufman & Broad Home Corp. 100 1,200
Mafco Consolidated Group Inc.* 100 2,788
Pulte Corp. 500 13,250
Regal Beloit Corp. 100 1,775
Sherwin Williams Co. 100 5,013
Southdown Inc. 100 2,738
Stone & Webster, Inc. 100 3,300
TJ International Inc. 100 1,938
Toll Brothers, Inc.* 100 1,713
-------
66,291
-------
CONSUMER-DURABLE--0.2%
Bassett Furniture Industries Inc. 100 2,238
Black & Decker Corp. 100 3,738
Champion Enterprises Inc. 200 3,950
Furniture Brands International Inc.* 200 2,675
Harman International Industries Inc. (New) 100 5,138
Interface Inc. Class A 100 1,675
Kimball International Inc. Class B 100 3,600
</TABLE>
F-162
<PAGE> 258
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares Value
--------- ----------
<S> <C> <C>
La-Z-Boy Chair Co. 100 $ 3,113
Masco Corp. 100 3,138
Maytag Corp. 100 1,988
National Presto Industries, Inc. 100 3,750
Newell Co. 100 2,838
Sturm, Ruger & Co., Inc. 200 3,750
Toro Co. 200 6,275
Whirlpool Corp. 100 4,725
Zenith Electronics Corp. 100 1,313
-------
53,904
-------
CONSUMER-NONDURABLE--0.5%
3DO Co.* 100 569
A.T. Cross Co. Class A 100 1,138
Acclaim Entertainment Inc.* 200 988
American Greetings Corp. Class A 100 2,931
Applebee's International, Inc. 100 2,431
Buffets Inc.* 100 1,106
Corning Inc. 200 7,750
Darden Restaurants Inc. 100 838
Department 56 Inc.* 100 2,200
Harcourt General Inc. 100 4,975
Hasbro Inc. 100 3,888
IHOP Corp. (New)* 100 2,231
International Dairy Queen Inc. Class A* 100 1,925
Jostens, Inc. 400 8,600
Landry's Seafood Restaurants, Inc. 100 2,013
Luby's Cafeterias, Inc. 400 8,400
Mattel Inc. 250 7,219
McDonald's Corp. 400 17,750
Mohawk Industries Inc.* 100 2,413
Papa John's International, Inc. 150 7,491
Premark International, Inc. 100 2,088
Rexall Sundown, Inc. 200 5,413
Rubbermaid Inc. 100 2,325
Russ Berrie & Co. Inc. 100 1,800
Ryan's Family Steak Houses Inc.* 200 1,450
Sbarro, Inc. 100 2,638
Shoney's Inc.* 100 738
Toy Biz Inc. Class A* 100 1,775
Wendy's International, Inc. 100 2,063
Williams-Sonoma Inc.* 100 2,763
-------
109,909
-------
CONTAINERS--0.1%
ACX Technologies Inc. 100 1,775
Ball Corp. 200 4,825
</TABLE>
F-163
<PAGE> 259
SCHWAB ASSET DIRECTOR--CONSERVATIVE GROWTH FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
October 31, 1996
<TABLE>
<CAPTION>
Number
of Shares Value
--------- ----------
<S> <C> <C>
Crown Cork & Seal Inc. 100 $ 4,800
Gaylord Container Corp. Class A* 200 1,500
Greif Brothers Corp. Class A 100 2,813
Stone Container Corp. 100 1,525
------
17,238
------
ELECTRONICS--1.1%
AMETEK, Inc. 100 1,988
AMP Inc. 100 3,388
Advanced Micro Devices Inc. 180 3,195
Allen Group Inc. 100 1,588
Alliance Semiconductor Corp. 100 625
Anixter International Inc. 200 2,975
Applied Materials, Inc. 100 2,644
Augat Inc. 100 2,750
Belden Inc. 100 2,875
Burr Brown 100 2,150
Cable Design Technologies Corp. 100 2,575
Checkpoint Systems Inc. 100 2,238
Cyrix Corp.* 100 1,763
Dallas Semiconductor Corp. 100 2,000
FORE Systems, Inc. 400 15,875
General Instrument Corp.* 100 2,013
Gerber Scientific Inc. 100 1,350
Harris Corp. 100 6,263
Imation Corp.* 20 548
Integrated Device Technology Inc. 300 2,456
Intel Corp. 500 54,906
International Rectifier Corp. 200 2,475
Itron, Inc.* 100 1,631
Kemet Corp. 200 3,838
Kent Electronics Corp. 200 4,575
Kulicke & Soffa Industries Inc. 100 1,319
LSI Logic Corp. 100 2,650
Lam Research Corp.* 200 4,863
Lattice Semiconductor Corp.* 100 3,413
Lucent Technologies, Inc. 556 26,132
Macromedia Inc. 200 3,338
Marshall Industries* 100 3,013
Methode Electronics Inc. Class A 100 1,938
Micron Technology Inc. 200 5,075
Motorola Inc. 400 18,400
National Semiconductor Corp.* 100 1,925
Northern Telecom Ltd 200 13,025
Pioneer Standard Electronics Inc. 100 1,075
Rexel Inc.* 100 1,450
S3 Inc. 200 3,750
</TABLE>
F-164
<PAGE> 260
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares Value
--------- ----------
<S> <C> <C>
Silicon Valley Group Inc.* 100 $ 1,669
Texas Instruments Inc. 200 9,625
VLSI Technology, Inc.* 200 3,450
VeriFone, Inc.* 100 3,363
Vicor Corp. 200 3,625
Wyle Electronics 100 2,988
Zilog Inc.* 100 1,975
-------
246,745
-------
ENERGY-DEVELOPMENT--0.6%
Amcol International Corp. 100 1,506
Atwood Oceanics Inc.* 100 5,525
BJ Services Co.* 100 4,488
Baker Hughes Inc. 100 3,563
Barrett Resources Corp.* 100 3,838
Benton Oil & Gas Co.* 100 2,444
Burlington Resources Inc. 100 5,038
Cabot Oil & Gas Corp. Class A 100 1,550
Chesapeake Energy Corp. 225 13,106
Devon Energy Corp. 100 3,488
Dresser Industries Inc. 100 3,288
Energy Ventures, Inc.* 100 4,400
Falcon Drilling Inc.* 100 3,550
Halliburton Co. 157 8,890
Helmerich & Payne Inc. 200 10,825
Louis Dreyfus Natural Gas Corp.* 100 1,688
Newfield Exploration Co.* 100 4,725
Nuevo Energy Co.* 100 4,988
Occidental Petroleum Corp. 200 4,900
Parker & Parsley Petroleum Co. 100 2,875
Parker Drilling Co.* 200 1,700
Rowan Cos. Inc.* 500 11,188
Schlumberger Ltd 100 9,913
Union Pacific Resources Group 269 7,398
United Meridian Corp.* 100 4,713
Varco International Inc.* 100 1,975
Vintage Petroleum Inc. 100 2,950
Zeigler Coal Holding Co. 100 1,813
-------
136,325
-------
FOOD-AGRICULTURE--1.5%
Archer-Daniels-Midland Co. 420 9,135
Bob Evans Farms, Inc. 200 2,525
CPC International Inc. 100 7,888
Campbell Soup Co. 200 16,000
Chiquita Brands International Inc. 200 2,500
Coca-Cola Co. 1,800 90,900
</TABLE>
F-165
<PAGE> 261
SCHWAB ASSET DIRECTOR--CONSERVATIVE GROWTH FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
October 31, 1996
<TABLE>
<CAPTION>
Number
of Shares Value
--------- ----------
<S> <C> <C>
ConAgra, Inc. 200 $ 9,975
Delta & Pine Land Co. 100 3,600
Dimon Inc. 100 1,900
Earthgrains Co. 16 848
Fleming Companies, Inc. 400 6,950
Flowers Industries, Inc. 200 4,675
General Mills Inc. 100 5,713
H.J. Heinz Co. 300 10,650
Hershey Foods Corp. 200 9,675
Hudson Foods Inc. Class A 100 1,663
International Multifoods Corp. 100 1,525
Interstate Bakeries Corp. (New) 100 4,238
J.M. Smucker Co. Class A 100 1,650
JP Foodservice, Inc.* 100 2,250
Kellogg Co. 200 12,700
Lance Inc. 100 1,769
Mississippi Chemical Corp. (New) 100 2,513
Pepsico Inc. 1,100 32,588
Pioneer Hi-Bred International Inc. 100 6,713
Quaker Oats Co. 100 3,550
Ralcorp Holdings, Inc.* 100 2,100
Ralston Purina Co. 100 6,613
Richfood Holdings Inc. 150 3,647
Sara Lee Corp. 300 10,650
Savannah Foods & Industries Inc. 100 1,600
Seaboard Corp. 100 21,125
Smithfield Foods Inc.* 100 2,875
Sysco Corp. 100 3,400
Tootsie Roll Industries, Inc. 100 3,675
Unilever 100 15,288
Whitman Corp. 100 2,425
Wm Wrigley Junior Co. 100 6,025
-------
333,516
-------
GOLD--0.1%
Barrick Gold Corp. 200 5,225
Battle Mountain Gold Co. 1,200 9,150
Getchell Gold Corp.* 100 4,450
Homestake Mining Co. 100 1,425
Meridian Gold Inc.* 200 875
Newmont Mining Corp. 100 4,625
Placer Dome Inc. 200 4,800
Santa Fe Pacific Gold Corp. 100 1,188
-------
31,738
-------
</TABLE>
F-166
<PAGE> 262
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares Value
--------- ----------
<S> <C> <C>
HEALTHCARE--2.2%
ALZA Corp.* 100 $ 2,588
Abbott Laboratories 500 25,313
Acuson* 100 2,113
Advanced Tissue Sciences Inc.* 100 1,625
Agouron Pharmaceuticals Inc.* 100 5,713
Alpharma, Inc. Class A 100 1,250
American Home Products Corp. 400 24,500
Amgen Inc. 200 12,263
Arrow International Inc. 100 2,850
Ballard Medical Products 100 1,763
Baxter International Inc. 200 8,325
Becton Dickinson & Co. 200 8,700
Biomet Inc. 100 1,613
Block Drug Inc. Class A 103 4,661
Boston Scientific Corp.* 167 9,081
Bristol Myers Squibb Co. 200 21,150
Cardinal Health Inc. 81 6,359
Carter Wallace Inc. 100 1,550
Cognex Corp. 200 2,550
Columbia/HCA Healthcare Corp. 300 10,725
Community Psychiatric Centers* 100 888
Cygnus Therapeutic Systems, Inc.* 100 1,438
Datascope Corp.* 100 1,688
Diagnostic Products Corp. 100 2,975
Eli Lilly & Co. 400 28,200
Enzo Biochem Inc. 105 1,916
Fresenius Medical Care AG
(Sponsored American Depository Receipts)* 215 6,396
Genesis Health Ventures, Inc. 150 3,431
Gilead Sciences Inc.* 100 2,319
Gulf South Medical Supply Inc. 100 2,175
Haemonetics Corp.* 100 1,788
HealthSouth Rehabilitation Corp.* 117 4,388
Herbalife International Inc. 100 2,000
Hologic Inc. 100 2,294
Human Genome Sciences Inc.* 100 3,625
Humana Inc.* 200 3,650
ICN Pharmaceuticals, Inc. 101 1,919
Immunex Corp. (New)* 100 1,356
Interneuron Pharmaceuticals* 100 2,450
Invacare Corp. 100 2,775
Isis Pharmaceuticals* 100 1,606
Isolyser Inc. 100 700
Johnson & Johnson 900 44,325
Jones Medical Industries Inc. 200 8,650
</TABLE>
F-167
<PAGE> 263
SCHWAB ASSET DIRECTOR--CONSERVATIVE GROWTH FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
October 31, 1996
<TABLE>
<CAPTION>
Number
of Shares Value
--------- ----------
<S> <C> <C>
Kinetic Concepts Inc. 100 $ 1,313
Ligand Pharmaceuticals Inc. Class B 100 1,250
Lincare Holdings Inc.* 100 3,725
Liposome Inc.* 100 1,706
Living Centers of America* 100 2,338
Magellan Health Services Inc.* 100 1,838
Mallinckrodt Inc. 100 4,350
Marquette Medical System Inc.* 200 3,125
Medimmune Inc.* 100 1,556
Medtronic Inc. 200 12,875
Mentor Corp. 100 2,213
Merck & Co. Inc. 800 59,300
Mid Atlantic Medical Services Inc.* 200 2,150
Multicare Cos. Inc. 150 2,700
Nexstar Pharmaceuticals Inc.* 100 1,556
North American Vaccine Inc.* 200 4,450
Novacare Inc.* 200 1,650
Owens & Minor Inc. (New) 100 938
PDT Inc. 100 2,463
Patterson Dental Co.* 100 2,813
Perrigo Co.* 300 2,813
Pfizer Inc. 400 33,100
Pharmacia & Upjohn Inc. 200 7,200
Physician Sales & Service Inc. 200 4,225
Renal Treatment Centers Inc. 100 2,675
Respironics Inc.* 100 1,506
RoTech Medical Corp. 200 3,163
Roberts Pharmaceutical Corp.* 100 1,538
Salick Health Care, Inc.* 100 3,963
Schering Plough Corp. 200 12,800
Sepracor Inc.* 100 1,613
Sofamor/Danek Group Inc.* 100 2,750
Sola International Inc.* 100 3,613
Somatogen Inc.* 100 1,075
St. Jude Medical, Inc. 100 3,944
Sunrise Medical Inc.* 100 1,488
Target Therapeutics Inc. 100 3,694
Tecnol Medical Products Inc.* 100 1,263
Tenet Healthcare Corp.* 100 2,088
Thermedics Inc.* 200 4,150
United Healthcare Corp. 100 3,788
Ventritex Inc.* 100 2,281
Vertex Pharmaceuticals Inc.* 100 3,319
Warner Lambert Co. 200 12,725
West Company Inc. 100 2,688
-------
525,415
-------
</TABLE>
F-168
<PAGE> 264
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares Value
--------- ----------
<S> <C> <C>
HOUSEHOLD PRODUCTS--0.5%
Avon Products, Inc. 200 $ 10,850
Bush Boake Allen Inc.* 100 2,575
Church & Dwight Inc. 100 2,150
Clorox Co. 100 10,913
Colgate-Palmolive Co. 100 9,200
Dial Corp. (New) 100 1,375
Gillette Co. 300 22,425
International Flavors & Fragrances Inc. 100 4,138
Playtex Products Inc.* 200 1,700
Procter & Gamble Co. 500 49,500
Tupperware Corp. 100 5,138
-------
119,964
-------
IMAGING & PHOTO--0.1%
Avid Technology, Inc.* 100 1,369
BMC Industries, Inc. 100 2,963
Chyron Corp.* 400 2,050
Eastman Kodak Co. 100 7,975
Ultratech Stepper Inc. 100 1,688
-------
16,045
-------
INSURANCE--1.4%
20th Century Industries* 200 3,200
Aetna Inc. 122 8,159
Alexander & Alexander Services 300 4,575
Alfa Corp. 100 1,113
Allstate Corp. 200 11,225
American Annuity Group, Inc. 100 1,363
American Bankers Insurance Group, Inc. 100 4,788
American General Corp. 200 7,450
American International Group, Inc. 300 32,588
Aon Corp. 100 5,775
Argonaut Group, Inc. 100 2,900
Arthur J. Gallagher & Co. 100 2,938
CMAC Investment Corp. 100 6,913
Capital Re Corp. 100 3,875
Capitol American Financial Corp. 100 3,625
Chubb Corp. 200 10,000
Cigna Corp. 100 13,050
Citizens Corp. 100 2,013
Commerce Group Inc. 100 2,400
Conseco, Inc. 58 3,103
Crawford & Co. Class A 100 1,988
Crawford & Co. Class B 100 1,975
Enhance Financial Services Group Inc. 100 3,338
Financial Security Assured Holdings Ltd. 100 2,800
</TABLE>
F-169
<PAGE> 265
SCHWAB ASSET DIRECTOR--CONSERVATIVE GROWTH FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
October 31, 1996
<TABLE>
<CAPTION>
Number
of Shares Value
--------- ----------
<S> <C> <C>
Foremost Corp. of America 100 $ 5,513
Fremont General Corp. 150 4,406
Frontier Insurance Group, Inc. 100 3,975
General Re Corp. 137 20,173
HCC Insurance Holdings, Inc. 250 6,375
Harleysville Group Inc. 100 2,775
Highlands Insurance Group Inc.* 10 198
Home Beneficial Corp. Class B 100 2,519
Horace Mann Educators Corp. (New) 100 3,425
ITT Hartford Group Inc. 100 6,300
Jefferson-Pilot Corp. 100 5,688
John Alden Financial Corp. 100 1,863
Kansas City Life Insurance Co. 100 5,475
Liberty Corp. 100 3,450
Lincoln National Corp. Inc. 100 4,850
MGIC Investment Corp. 100 6,863
Marsh & McLennan Companies 100 10,413
NAC Re Corp. 100 3,513
Orion Capital Corp. 100 5,438
Penncorp Financial Group Inc. 100 3,463
Presidential Life Corp. 100 1,138
Providian Corp. 100 4,700
Reinsurance Group of America Inc. 100 4,538
Reliance Group Holdings Inc. 500 4,125
Safeco Corp. 200 7,575
Selective Insurance Group, Inc. 100 3,400
Sierra Health Services Inc.* 100 2,863
St. Paul Companies, Inc. 100 5,438
Torchmark Corp. 100 4,838
Transamerica Corp. 100 7,588
UNUM Corp. 100 6,288
USF&G Corp. 100 1,900
United Companies Financial Corp. 100 2,988
United Insurance Companies, Inc.* 100 2,531
Vesta Insurance Group Inc. 150 3,844
W.R. Berkley Corp. 100 5,163
Zenith National Insurance Corp. 100 2,725
Zurich Reinsurance Centre Holdings, Inc. 100 3,000
-------
322,471
-------
MEDIA--0.7%
AMC Entertainment Inc.* 100 1,725
Banta Corp. 200 4,213
Cablevision Systems Corp. Class A* 100 3,113
Central Newspapers Inc. Class A 100 4,025
Century Communications Corp. Class A* 300 2,025
Comcast Corp. Class A 200 2,938
</TABLE>
F-170
<PAGE> 266
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares Value
--------- ----------
<S> <C> <C>
Dow Jones & Co. Inc. 100 $ 3,300
Evergreen Media 150 4,031
Gannett Inc. 100 7,588
Harte Hanks Communications (New) 150 3,881
Hollinger International Inc. 300 3,750
Houghton Mifflin Co. 100 4,963
International Family Entertainment Inc. Class
B 125 2,234
John Wiley & Son, Inc. Class A 100 3,063
Knight-Ridder, Inc. 200 7,475
McClatchy Newspapers Inc. Class A 100 2,788
McGraw-Hill, Inc. 100 4,688
Meredith Corp. 100 5,025
Metromedia International Group, Inc.* 100 988
New World Communications Class A* 100 2,469
New York Times Co. Class A 100 3,613
Oak Industries Inc.* 100 2,538
Paxson Communications Corp.* 100 888
Pulitzer Publishing Co. 100 6,350
Regal Cinemas, Inc. 225 5,808
SBC Communications Inc. 400 19,450
Spelling Entertainment Group, Inc.* 400 2,900
TCA Cable TV Inc. 100 2,663
Tele Communications Inc. (New)--TCI Group
Series A 500 6,219
Time Warner Inc. 300 11,175
Times Mirror Co. (New) Series A 100 4,625
Tribune Co. (New) 100 8,175
United International Holdings Inc. Class A* 100 1,250
Viacom Inc. Class B* 300 9,788
Westwood One Inc.* 100 1,550
-------
161,274
-------
MISCELLANEOUS FINANCE--1.0%
AMCORE Financial, Inc. 100 2,094
Alex Brown Inc. 100 5,675
American Express Co. 200 9,400
Americredit Corp.* 100 1,900
Astoria Financial Corp. 200 7,088
Beneficial Corp. 100 5,850
Bok Financial Corp. (New) 100 2,650
Cal-Federal Bancorp Inc.* 200 4,650
Coast Savings Financial Inc.* 100 3,288
Collective Bancorp Inc. 100 3,013
Commercial Federal Corp. 100 4,188
Dean Witter Discover & Co. 100 5,888
Eaton Vance Corp. (Non Voting) 100 4,375
Federal Home Loan Mortgage Corp. 200 20,200
</TABLE>
F-171
<PAGE> 267
SCHWAB ASSET DIRECTOR--CONSERVATIVE GROWTH FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
October 31, 1996
<TABLE>
<CAPTION>
Number
of Shares Value
--------- ----------
<S> <C> <C>
Federal National Mortgage Assoc. 800 $ 31,300
First Financial Corp. 100 2,725
Fund American Enterprises Holdings, Inc. 100 8,963
Glendale Federal Bank (FSB) (New)* 100 1,838
Great Western Financial Corp. 100 2,800
Green Tree Financial Corp. 100 3,963
H.F. Ahmanson & Co. 100 3,138
Home Financial Corp. 100 1,619
Household International Inc. 100 8,850
Interpool Inc. 100 2,175
John Nuveen Co. Class A 200 5,550
Merrill Lynch & Co. Inc. 200 14,050
Money Store Inc. 250 6,500
Morgan Stanley Group Inc. 200 10,050
Olympic Financial Ltd.* 100 1,588
Peoples Heritage Financial Group, Inc. 100 2,300
Pioneer Group Inc. 100 2,375
Quick & Reilly Group, Inc. 100 2,638
Raymond James Financial Inc. 100 2,438
Roosevelt Financial Group Inc. 200 3,463
Salomon Inc. 100 4,513
Sovereign Bancorp Inc. 105 1,240
St. Paul Bancorp Inc. 100 2,650
Standard Financial Inc. 100 1,788
Student Loan Corp. 100 3,400
Travelers Inc. 300 16,275
Washington Federal, Inc. 200 4,813
Westcorp Inc. 105 2,494
-------
235,755
-------
MOTOR VEHICLE--0.5%
Arctic Cat Inc. 100 944
Arvin Industries, Inc. 100 2,288
Borg Warner Automotive Inc. 100 3,838
Breed Technologies Inc. 100 2,300
Chrysler Corp. 400 13,450
Dana Corp. 100 2,963
Detroit Diesel Corp.* 100 1,850
Eaton Corp. 100 5,975
Echlin Inc. 100 3,263
Federal Mogul Corp. 100 2,238
Ford Motor Co. 800 25,000
General Motors Corp. 400 21,550
Gentex Corp. 200 4,700
Genuine Parts Co. 100 4,375
Hays Wheels International Inc.* 10 335
Mascotech Inc. 200 3,150
</TABLE>
F-172
<PAGE> 268
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares Value
--------- ----------
<S> <C> <C>
Modine Manufacturing Co. 100 $ 2,500
Navistar International Corp.* 300 2,775
Standard Products Co. 100 2,425
Superior Industries International, Inc. 100 2,438
TRW Inc. 100 9,050
Titan Wheel International Inc. 100 1,275
-------
118,682
-------
NON-FERROUS--0.3%
Alcan Aluminum Ltd. 100 3,288
Aluminum Company of America 200 11,725
Cyprus Amax Minerals Co. 100 2,263
Echo Bay Mines Ltd 200 1,563
Engelhard Corp. 100 1,825
Freeport-McMoRan Copper & Gold Inc. Class B 100 3,038
Hecla Mining Co.* 100 563
Inco Ltd 100 3,175
Kaiser Aluminum Corp.* 300 3,338
Minerals Technologies Inc. 200 7,850
Mueller Industries Inc. 100 4,025
Phelps Dodge Corp. 100 6,288
Reynolds Metals Co. 100 5,625
Stillwater Mining Co.* 100 1,688
Wolverine Tube Inc.* 200 7,975
-------
64,229
-------
OIL-DOMESTIC--0.3%
Amerada Hess Corp. 100 5,538
Atlantic Richfield Co. 100 13,250
Cross Timbers Oil Co. 100 2,363
Diamond Shamrock Inc. 100 2,938
Kerr-McGee Corp. 100 6,275
Phillips Petroleum Co. 200 8,200
Quaker State Corp. 100 1,675
Snyder Oil Corp. 100 1,525
Sun Inc. 100 2,238
Tosco Corp. 61 3,424
TransTexas Gas Corp.* 300 4,125
USX Corp. (Marathon Group) (New) 200 4,375
Unocal Corp. 200 7,325
-------
63,251
-------
OIL-INTERNATIONAL--1.1%
Amoco Corp. 300 22,725
Chevron Corp. 500 32,875
Exxon Corp. 800 70,900
Mobil Corp. 300 35,025
</TABLE>
F-173
<PAGE> 269
SCHWAB ASSET DIRECTOR--CONSERVATIVE GROWTH FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
October 31, 1996
<TABLE>
<CAPTION>
Number
of Shares Value
--------- ----------
<S> <C> <C>
Royal Dutch Petroleum Co. 300 $ 49,613
Texaco, Inc. 200 20,325
Western Atlas, Inc.* 100 6,938
-------
238,401
-------
PAPER--0.4%
Alco Standard Corp. 100 4,638
Caraustar Industries Inc. 100 2,906
Champion International Corp. 100 4,350
Chesapeake Corp. 100 2,825
Georgia Pacific Corp. 100 7,500
International Paper Co. 200 8,550
James River Corp. 100 3,150
Kimberly Clark Corp. 178 16,599
Longview Fibre Co. 200 3,475
Louisiana Pacific Corp. 100 2,088
Mead Corp. 100 5,675
P.H. Glatfelter Co. 200 3,800
Rock Tennessee Co. Class A 110 2,008
Shorewood Packaging Corp.* 100 1,900
Temple-Inland Inc. 100 5,125
Union Camp Corp. 100 4,875
Wausau Paper Mills Co. 125 2,391
Westvaco Corp. 100 2,850
Weyerhaeuser Co. 200 9,175
Willamette Industries, Inc. 100 6,725
-------
100,605
-------
PRODUCER GOODS-MANUFACTURING--1.7%
Albany International Corp. Class A (New) 100 2,250
Allied Signal Inc. 100 6,550
AptarGroup, Inc. 100 3,225
Avery Dennison Corp. 100 6,588
BT Office Products International Inc.* 100 825
BW/IP Holding, Inc. Class A 100 1,350
Baldor Electric Co. 100 2,013
Case Corp. 100 4,650
Caterpillar Inc. 200 13,725
Collins & Aikman Corp.* 200 1,200
Cooper Industries Inc. 100 4,025
Credence Systems Corp. 100 1,369
Deere & Co. 100 4,175
Donaldson Inc. 100 2,925
Dover Corp. 100 5,138
Duriron Inc. 100 2,688
Emerson Electric Co. 200 17,800
FMC Corp. (New)* 100 7,363
</TABLE>
F-174
<PAGE> 270
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares Value
--------- ----------
<S> <C> <C>
Fisher Scientific International, Inc. 100 $ 4,488
General Electric Co. 1,200 116,100
Giddings & Lewis Inc. 200 2,325
Goulds Pumps Inc. 100 2,306
Greenfield Industries Inc. 100 2,613
Helix Technology Corp. 100 2,669
Herman Miller, Inc. 100 4,338
Hexcel Corp. (New)* 200 3,650
IDEX Corp. 100 3,763
ITT Industries Inc. 100 2,325
Illinois Tool Works Inc. 100 7,025
Ingersoll Rand Co. 100 4,163
Insilco Corp.* 100 3,950
Ionics Inc.* 100 4,600
Johnson Controls, Inc. 100 7,300
Juno Lighting Inc. 100 1,556
Kaydon Corp. 100 4,075
Kennametal Inc. 100 3,400
Keystone International Inc. 100 1,800
Lincoln Electric Co. Class A (Non Voting) 100 2,788
Lydall Inc. 100 2,213
Myers Industry Inc. 100 1,550
Nu-Kote Holding Inc. Class A 100 956
Pall Corp. 100 2,563
Parker Hannifin Corp. 100 3,788
Precision Castparts Corp. 100 4,675
Raychem Corp. 100 7,813
Roper Industries 100 4,256
Standex International Corp. 100 3,075
Stewart & Stevenson Services, Inc. 100 2,119
TRINOVA Corp. 200 6,575
Teleflex Inc. 100 4,813
Tencor Instruments 100 1,900
Tenneco, Inc. 200 9,900
Texas Industries Inc. 100 5,675
TriMas Corp. 200 4,600
Tyco Labs Inc. 100 4,963
U.S. Filter Corp. (New) 150 5,175
UNR Industries, Inc. 200 1,338
Valhi, Inc. (New) 500 2,938
Visx Inc. (Delaware)* 100 2,500
W.W. Grainger, Inc. 100 7,413
WMS Industries Inc.* 100 2,450
Watts Industries Inc. Class A 100 2,088
Westinghouse Electric Corp. 300 5,138
Westpoint Stevens Inc. Class A 100 2,663
</TABLE>
F-175
<PAGE> 271
SCHWAB ASSET DIRECTOR--CONSERVATIVE GROWTH FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
October 31, 1996
<TABLE>
<CAPTION>
Number
of Shares Value
--------- ----------
<S> <C> <C>
Wyman Gordon Co.* 100 $ 2,188
X-Rite, Inc. 100 1,856
-------
380,274
-------
RAILROAD--0.3%
Burlington Northern Santa Fe 100 8,238
CSX Corp. 200 8,625
Conrail Inc. 100 9,513
Florida East Coast Industry Inc. 100 8,738
Norfolk Southern Corp. 100 8,913
Overseas Shipholding Group 100 1,700
Union Pacific Corp. 200 11,225
Westinghouse Air Brake Co. (New) 100 1,088
-------
58,040
-------
REAL PROPERTY--0.1%
Catellus Development Corp.* 200 1,975
Doubletree Corp.* 100 4,063
Forest City Enterprises, Inc. Class A 100 4,950
HFS, Inc. 100 7,325
Insignia Financial Group Class A (New) 100 2,163
Lennar Corp. 200 4,450
Price Enterprises Inc. 100 1,675
-------
26,601
-------
RETAIL--1.3%
Albertson's, Inc. 200 6,875
American Stores Co. (New) 100 4,138
Arbor Drugs, Inc. 100 2,275
Authentic Fitness Corp. 100 1,113
Best Buy Co., Inc.* 200 3,275
Burlington Coat Factory Warehouse* 100 1,225
CDW Computer Centers Inc. 150 9,413
CUC International Inc. 219 5,366
Carson Pirie Scott & Co.* 100 2,488
Casey's General Stores Inc. 100 1,794
Charming Shoppes Inc. 300 1,378
Circuit City Stores Inc. 100 3,275
Claire's Stores Inc. 225 3,825
CompUSA Inc. 200 9,250
Dayton Hudson Corp. 100 3,463
Dillard Department Stores Inc. Class A 100 3,175
Dollar Tree Stores Inc. 150 5,700
Duty Free International Inc. 100 1,600
Family Dollar Stores, Inc. 300 5,100
Federated Department Stores Inc.* 100 3,300
Fingerhut Companies, Inc. 100 1,488
</TABLE>
F-176
<PAGE> 272
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares Value
--------- ----------
<S> <C> <C>
Footstar Inc.* 28 $ 616
Fred Meyer Inc.* 100 3,513
Fruit of the Loom Inc. Class A* 100 3,638
Gap Inc. 200 5,800
Gymboree Corp.* 100 3,138
Hollywood Entertainment Corp. 100 2,069
Home Depot Inc. 300 16,425
Home Shopping Network, Inc.* 400 4,050
J.C. Penney Inc. 200 10,500
Just for Feet Inc. 150 3,909
K Mart Corp. 300 2,925
Kroger Co.* 100 4,463
Lands' End, Inc.* 100 2,150
Limited Inc. 109 2,003
Longs Drug Stores Corp. 100 4,488
Lowes Cos Inc. 100 4,038
MacFrugals Bargains-Close-Outs, Inc.* 100 2,438
May Department Stores Co. 200 9,475
Melville Corp. 100 3,725
Michaels Stores Inc.* 100 1,000
Nordstrom Inc. 100 3,606
Payless Shoesource Inc.* 32 1,084
Pier 1 Imports Inc. 100 1,400
Price Costco Inc.* 100 1,981
Proffitt's, Inc.* 100 4,025
Rite Aid Corp. 100 3,400
Ross Stores Inc. 100 4,144
Ruddick Corp. 100 1,300
Sears Roebuck & Co. 200 9,675
Service Merchandise Co. Inc.* 300 1,763
Shopko Stores Inc. 100 1,613
Smart & Final Inc. 100 2,350
Smith's Food & Drug Centers, Inc. Class B 74 1,933
Sotheby's Holdings, Inc. Class A 100 1,700
Spiegel, Inc. Class A (Non Voting) 400 2,725
Stanhome Inc. 100 2,650
Stein Mart Inc.* 100 1,788
Tandy Corp. 100 3,763
Tiffany & Co. (New) 200 7,400
Toys "R" Us, Inc.* 200 6,775
Unifirst Corp. 100 2,013
Waban Inc.* 100 2,613
Wal-Mart Stores, Inc. 1,600 42,600
Walgreen Co. 200 7,550
Winn Dixie Stores Inc. 200 6,675
</TABLE>
F-177
<PAGE> 273
SCHWAB ASSET DIRECTOR--CONSERVATIVE GROWTH FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
October 31, 1996
<TABLE>
<CAPTION>
Number
of Shares Value
--------- ----------
<S> <C> <C>
Woolworth Corp.* 100 $ 2,100
Zale Corp. (New)* 100 1,938
-------
300,443
-------
STEEL--0.1%
Allegheny Teldyne Inc. 192 4,104
Armco Inc.* 300 1,125
Bethlehem Steel Corp.* 100 813
Birmingham Steel Corp. 100 1,600
Carpenter Technology Corp. 100 3,263
Chaparral Steel Co. 100 1,325
Cleveland Cliffs Inc. 100 4,100
Intermet Corp. 100 1,169
J & L Specialty Steel Inc. 100 1,175
Lukens Inc. 100 1,375
National Steel Corp. Class B* 100 863
Nucor Corp. 100 4,738
Oregon Steel Mills Inc. 100 1,588
USX Corp. (U.S. Steel Group) 100 2,725
Worthington Industries Inc. 100 2,069
-------
32,032
-------
TELEPHONE--1.3%
360 Communications Co.* 100 2,263
ACC Corp. 100 4,200
AT&T Corp. 1,100 38,363
Airtouch Communications Inc.* 300 7,838
Aliant Communications Inc. 100 1,600
Alltel Corp. 100 3,050
American Mobile Satellite Corp.* 100 1,050
Ameritech Corp. (New) 400 21,900
Antec Corp.* 100 1,069
Arch Communications Group, Inc.* 100 1,156
Aspect Telecommunications Corp. 100 5,925
Associated Group Inc. Class A* 100 2,875
Bell Atlantic Corp. 200 12,050
BellSouth Corp. 600 24,450
Boston Technology Inc. (New)* 100 1,656
C-TEC Corp.* 200 4,838
Coherent Inc.* 100 3,913
Comnet Cellular Inc.* 100 2,775
DSC Communications Corp.* 100 1,394
GTE Corp. 600 25,275
General Datacom Industries Inc.* 100 963
Geotek Communications Inc.* 200 1,475
InterVoice, Inc.* 100 1,294
Interdigital Commerce Corp.* 100 644
</TABLE>
F-178
<PAGE> 274
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares Value
--------- ----------
<S> <C> <C>
International Cabletel Inc. 100 $ 2,363
Jacor Communications Inc.* 100 2,769
Loral Space & Communications* 100 1,588
MCI Communications Corp. 500 12,531
Mobile Telecommunications Technologies Corp.* 300 3,956
Mobilemedia Corp. Class A* 100 198
Nextel Communications Inc.* 107 1,719
Nynex Corp. 200 8,900
Octel Communications Corp. 200 3,188
Pacific Telesis Group 300 10,200
Pairgain Technologies Inc. 200 13,750
Renaissance Communications Corp. 100 3,538
Sprint Corp. 300 11,775
Tellabs Inc. 100 8,513
U S WEST, Inc. (Communications Group) 400 12,150
U S WEST, Inc. (Media Group)* 300 4,688
Vanguard Cellular Systems, Inc. Class A* 200 3,313
Winstar Communications Inc.* 200 4,188
Worldcom, Inc. 200 4,888
-------
286,231
-------
TOBACCO--0.3%
American Brands, Inc. 100 4,775
Loew's Corp. 100 8,263
Philip Morris Companies, Inc. 600 55,575
Schweitzer Mauduit International Inc. 110 3,383
UST Inc. 100 2,888
-------
74,884
-------
TRANSPORTATION-MISCELLANEOUS--0.3%
APL Ltd. 100 2,200
Air Express International Corp. 100 3,013
Airbourne Freight Corp. 100 1,988
Amerco Inc.* 100 3,538
American Freightways Corp.* 100 969
Arnold Industries Inc. 100 1,575
Federal Express Corp. 100 8,050
Harper Group, Inc. 200 4,775
Heartland Express, Inc. 150 3,281
J.B. Hunt Transport Services Inc. 100 1,481
NACCO Industries, Inc. Class A 200 9,250
Rollins Truck Leasing Corp. 100 1,138
Ryder System, Inc. 100 2,975
Swift Transportation Inc.* 100 2,263
U.S. Freightways Corp. 100 2,194
Wabash National Corp. 100 1,613
Werner Enterprises Inc. 150 2,606
</TABLE>
F-179
<PAGE> 275
SCHWAB ASSET DIRECTOR--CONSERVATIVE GROWTH FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
October 31, 1996
<TABLE>
<CAPTION>
Number
of Shares Value
--------- ----------
<S> <C> <C>
XTRA Corp. 100 $ 4,150
Yellow Corp. 100 1,306
-------
58,365
-------
TRAVEL & RECREATION--0.5%
Aexiom Corp. 200 7,825
Anchor Gaming* 100 4,975
Aztar Corp.* 100 813
Bally Entertainment Corp. 500 15,063
Bally Total Fitness Holding Corp.* 25 126
Boyd Gaming Corp.* 200 1,475
Brunswick Corp. 100 2,350
Harrahs Entertainment Inc.* 100 1,675
Hilton Hotels Corp. 400 12,150
ITT Corp. (New)* 100 4,200
K2 Inc. 100 2,300
Marcus Corp. 100 2,225
Marriott International Inc. 100 5,688
National Auto Credit Inc. 110 1,183
Players International Inc. 100 684
Polaris Industries Inc. 100 1,963
Primadonna Resorts Inc.* 100 1,606
Prime Hospitality Corp.* 100 1,525
Rio Hotel & Casino Inc.* 100 1,450
Speedway Motorsports, Inc. 200 4,575
Sports Authority Inc. 150 3,638
Station Casinos Inc.* 100 1,113
Stratosphere Corp.* 100 142
Walt Disney Co. 509 33,530
-------
112,274
-------
UTILITIES--1.3%
American Electric Power Co., Inc. 100 4,150
Aquila Gas Pipeline Corp. 100 1,450
Baltimore Gas & Electric Co. 100 2,725
Carolina Power & Light Co. 100 3,613
Central & South West Corp. 200 5,300
Central Hudson Gas & Electric Corp. 100 3,000
Central Louisiana Electric Co. (New) 100 2,713
Central Maine Power Co. 100 1,175
Cilcorp Inc. 100 3,650
Cinergy Corp. 100 3,313
Coastal Corp. 100 4,300
Commonwealth Energy System
(Shares of Beneficial Interest) 200 4,800
Consolidated Edison Co. 200 5,850
Consolidated Natural Gas Co. 100 5,313
</TABLE>
F-180
<PAGE> 276
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares Value
--------- ----------
<S> <C> <C>
DTE Energy Co. 100 $ 3,013
Destec Energy, Inc.* 300 4,500
Dominion Resources Inc. 100 3,775
Duke Power Co. 200 9,775
Eastern Enterprises 100 3,850
Eastern Utilities Association 100 1,613
Edison International 300 5,925
Enron Corp. 200 9,300
Entergy Corp. 200 5,600
FPL Group, Inc. 200 9,200
GPU Inc. 100 3,288
Global Industrial Technologies Inc.* 100 1,863
Houston Industries Inc. 200 4,575
IES Industries Inc. 100 3,075
Indiana Energy Inc. 100 2,450
K N Energy Inc. 100 3,738
Laclede Gas Co. 100 2,338
MDU Resources Group, Inc. 100 2,238
Minnesota Power & Light Co. 200 5,650
New Jersey Resources Corp. 100 2,763
Niagara Mohawk Power Corp. 100 850
NorAm Energy Co. 200 3,075
Northern States Power Co. 100 4,700
Northwest Natural Gas Co. 150 3,778
Ohio Edison Co. 100 2,088
Oneok Inc. 200 5,375
Orange & Rockland Utilities, Inc. 100 3,513
Otter Tail Power Co. 200 6,475
P P & L Resources Inc. 100 2,338
Pacific Enterprises 100 3,075
Pacific Gas & Electric Co. 300 7,050
Pacificorp 200 4,225
Panhandle Eastern Corp. 100 3,850
Peco Energy Co. 200 5,050
Piedmont Natural Gas Inc. 100 2,450
Primark Corp.* 100 2,488
Public Service Co. of New Mexico 200 3,750
Public Service Co. of North Carolina Inc. 100 1,800
Public Service Enterprise Group 200 5,375
Rochester Gas & Electric Corp. 200 3,725
Seagull Energy Corp.* 188 4,066
Sierra Pacific Resources 100 2,788
SIGCORP, Inc. 100 3,400
Sonat Inc. 100 4,925
South Jersey Industries Inc. 100 2,350
Southern Co. 500 11,063
</TABLE>
F-181
<PAGE> 277
SCHWAB ASSET DIRECTOR--CONSERVATIVE GROWTH FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
October 31, 1996
<TABLE>
<CAPTION>
Number
of Shares Value
--------- ----------
<S> <C> <C>
Southwest Gas Corp. 100 $ 1,913
Southwestern Energy Co. 100 1,488
Tejas Gas Corp. 150 6,094
Texas Utilities Co. 200 8,100
Triarc Cos., Inc. Class A* 100 1,175
Tucson Electric Power Co.* 100 1,975
UGI Corp. (New) 200 4,725
Unicom Corp. 100 2,600
Union Electric Co. 100 3,863
United Illuminating Co. 100 3,325
United Water Resources Inc. 100 1,563
WPS Resources Corp. 100 2,975
Washington Energy Co. 100 1,925
Western Gas Resources Inc. 100 1,588
Wicor Inc. 100 3,563
Williams Cos. Inc. 100 5,225
---------
295,600
---------
6,322,373
---------
INTERNATIONAL--10.0%
AUSTRALIA--0.2%
Australia & New Zealand Banking Group 613 3,581
Broken Hill Proprietary Co., Ltd. 1,150 15,268
Commonwealth Bank Group 554 5,204
National Australia Bank 851 9,342
News Corp., Ltd. 798 4,542
Western Mining Corp. 650 4,086
Westpac Banking Corp. 1,069 6,101
---------
48,124
---------
BELGIUM--0.1%
Electrabel 32 7,428
Electrabel, VVPR Strip 6 6
Petrofina SA 11 3,382
Societe Generale de Belgique 24 1,793
Tractebel 4 2
Tractebel Investor International 8 3,809
---------
16,420
---------
CANADA--0.3%
Alcan Aluminum Ltd. 132 4,334
BCE Inc. 183 8,404
Bank of Montreal 156 4,720
Bank of Nova Scotia, Halifax 135 4,256
Barrick Gold Corp. 286 7,490
Canadian Imperial Bank of Commerce 127 5,278
Canadian Pacific Ltd 200 5,059
</TABLE>
F-182
<PAGE> 278
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares Value
--------- ----------
<S> <C> <C>
Imperial Oil Ltd. (New) 113 $ 4,979
Northern Telecom Ltd. 149 9,706
Placer Dome Inc. 140 3,358
Royal Bank of Canada, Montreal Quebec 184 6,082
Seagram Co. Ltd. 176 6,632
Thomson Corp. 345 6,938
-------
77,236
-------
DENMARK--0.0%
Tele Danmark A/S Series B 52 2,621
-------
FRANCE--0.7%
AXA Groupe SA 108 6,709
Alcatel Alsthom CGE SA 89 7,590
Banque Nationale Paris 114 4,266
Carrefour 22 12,208
Compagnie Financiere de Paribas (Bearer) 70 4,505
Compagnie de Saint-Gobain SA 50 6,748
Danone Groupe 42 5,751
Eaux (CIE Generale) 70 8,366
Elf Aquitaine 159 12,714
L'Air Liquide 42 6,482
L'Oreal SA 39 13,205
LVMH Moet Hennessy Louis Vuitton 51 11,691
Lafarge Coppee SA 55 3,301
Lyonnaise des Eaux-Dumez 30 2,652
Michelin (CGDE) Class B (Reg.) 43 2,073
PSA Peugeot Citroen 29 3,023
Renault (Reg.) 143 3,049
Rhone-Poulenc SA A Shares 192 5,690
Sanofi 60 5,435
Schneider SA 76 3,716
Societe Generale 52 5,604
Suez Group 96 4,133
TOTAL Class B 140 10,951
Union des Assurances de Paris 180 3,739
-------
153,601
-------
GERMANY--0.8%
BASF AG 360 11,506
Bayer AG 410 15,491
Bayer Motoren Werk 12 7,021
Bayerische Hypotheken & Wechsel Bank AG 151 4,422
Bayerische Vereinsbank AG 154 5,791
Commerzbank AG 200 4,481
Daimler Benz AG 300 17,611
</TABLE>
F-183
<PAGE> 279
SCHWAB ASSET DIRECTOR--CONSERVATIVE GROWTH FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
October 31, 1996
<TABLE>
<CAPTION>
Number
of Shares Value
--------- ----------
<S> <C> <C>
Deutsche Bank AG 278 $ 12,876
Dresdner Bank AG 260 6,953
Hoechst AG 340 12,786
Linde AG 5 3,095
Lufthansa AG 330 4,315
Mannesmann AG 21 8,154
Muenchener Rueckversicherung (Reg.) 5 11,952
RWE AG 120 4,940
RWE AG (Non Voting) 70 2,376
Sap AG 30 4,061
Siemens AG 330 17,051
Thyssen AG 18 3,221
Veba AG 285 15,200
Vereinigte Elektrizitatswerke Westfalen
Series B 12 3,994
Viag AG 12 4,437
Viag AG* 3 1,092
Volkswagen AG 14 5,512
-------
188,338
-------
HONG KONG--0.6%
CITIC Pacific 2,000 9,726
Cheung Kong Holdings 2,000 16,037
Hang Seng Bank Ltd. 2,000 23,732
Henderson China 4 9
Henderson Land Development Co. 1,000 8,891
Hong Kong Electric Holdings Ltd. 2,000 6,402
Hong Kong Telecommunications Ltd. 8,628 15,231
Hutchison Whampoa Ltd. 2,000 13,968
New World Development Co. 2,063 12,006
Sun Hung Kai Properties 1,000 11,381
Swire Pacific Ltd. Class A 1,000 8,827
Wharf Holdings 2,000 8,251
-------
134,461
-------
ITALY--0.2%
Assicurazioni Generali 515 9,947
Fiat SpA 1,924 5,143
Fiat SpA, di Risp (Non-Convertible) 830 1,204
INA 1,382 1,909
STET 2,246 7,758
STET di Risp (Non-Convertible) 627 1,670
Telecom Italia 3,888 8,663
Telecom Italia di Risp (Non-Convertible) 1,145 2,181
Telecom Italia Mob 3,367 6,958
Telecom Italia Mob di Risp 1,431 1,632
-------
47,065
-------
</TABLE>
F-184
<PAGE> 280
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares Value
--------- ----------
<S> <C> <C>
JAPAN--3.0%
Asahi Bank 1,000 $10,276
Bank of Tokyo-Mitsubishi, Ltd. 1,850 37,697
DDI Corp. 1 7,510
Dai-Ichi Kangyo Bank, Ltd. 1,000 16,249
East Japan Railway Co. 1 4,594
Fuji Bank, Ltd. 1,000 18,005
Fujitsu Ltd. 1,000 8,783
Hitachi Ltd. 1,000 8,871
Industrial Bank of Japan, Ltd. 1,080 21,533
Ishikawajima-Harima Heavy Industries 1,000 4,611
Ito-Yokado Co., Ltd. 1,000 49,888
Joyo Bank 1,000 6,605
Joyo Bank (Rights expire 11/20/96)* 100 309
Kansai Electric Power Co. 1,000 20,992
Kawasaki Heavy Industries 1,000 4,576
Kawasaki Steel Co. 1,000 3,083
Kobe Steel 1,000 2,371
Kokusai Denki 1,000 86,514
Long-Term Credit Bank of Japan 1,000 6,631
Matsushita Electric Industrial Co., Ltd. 1,000 15,985
Mitsubishi Chemical Corp. 1,000 4,084
Mitsubishi Electric Corp. 1,000 5,788
Mitsubishi Heavy Industries 1,000 7,685
NKK Corp. 1,000 2,512
Nippon Paper Industries Co. 1,000 5,639
Nippon Steel Corp. 2,000 5,832
Nippon Telegraph & Telephone Corp. 4 27,930
Nissan Motor Co., Ltd. 1,000 7,562
Nomura Securities Co., Ltd. 1,000 16,512
Obayashi Corp. 1,000 7,712
Osaka Gas Co. 1,000 3,092
Sakura Bank 1,000 9,486
Sanwa Bank 1,000 17,039
Seven-Eleven Japan Co. 1,100 63,959
Sumitomo Bank 1,000 17,566
Sumitomo Metal Industries 1,000 2,749
Taisei Corp. 1,000 6,148
Tokai Bank 1,000 11,594
Tokyo Electric Power Co., Inc. 1,000 22,924
Tokyo Gas Co. 1,000 3,118
Toshiba Corp. 1,000 6,254
Toyo Seikan Kaisha 1,000 31,619
Toyo Trust & Banking Co. 1,000 8,537
</TABLE>
F-185
<PAGE> 281
SCHWAB ASSET DIRECTOR--CONSERVATIVE GROWTH FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
October 31, 1996
<TABLE>
<CAPTION>
Number
of Shares Value
--------- ----------
<S> <C> <C>
Toyota Motor Corp. 1,000 $ 23,627
Yasuda Fire & Marine Insurance Co. 1,000 6,350
-------
660,401
-------
NETHERLANDS--0.6%
ABN-Amro Holdings NV 187 10,570
Aegon NV 154 7,833
Akzo Nobel NV 42 5,292
Elsevier NV 386 6,416
Heineken NV 29 5,478
ING Groep NV 433 13,500
Koninklijke PTT Nederland 282 10,205
Philips Electronics NV 201 7,084
PolyGram NV 105 4,932
Royal Dutch Petroleum Co. (Bearer) 314 51,855
Unilever NV, CVA 94 14,294
Wolters Kluwer NV, CVA 29 3,728
-------
141,187
-------
SINGAPORE--0.1%
Hong Kong Land Holdings 1,036 2,310
Singapore Airlines Ltd. (alien market) 1,000 8,804
Singapore Telecommunications 6,000 13,972
-------
25,086
-------
SPAIN--0.2%
Argentaria Corp. 50 1,959
Banco Bilbao-Vizcaya SA (Reg.) 133 6,463
Banco de Santander SA (Reg.) 68 3,491
Empresa Nacional de Electricidad 152 9,304
Iberdrola SA 542 5,756
Repsol, SA 176 5,745
Telefonica Internacional de Espana, SA 550 11,035
-------
43,753
-------
SWEDEN--0.2%
ASEA AB Series B 13 1,449
Asea 39 4,419
Astra AB Series A 294 13,502
Astra AB Series B 40 1,825
L.M. Ericsson Telephone Series B 560 15,159
Sandvik AB Series A 72 1,697
Sandvik AB Series B 82 1,933
Volvo AB Series A 65 1,344
Volvo AB Series B 167 3,467
-------
44,795
-------
</TABLE>
F-186
<PAGE> 282
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares Value
--------- ----------
<S> <C> <C>
SWITZERLAND--0.7%
CS Holding (Reg.) 108 $ 10,787
Ciba-Geigy Ltd. (Bearer) 1 1,226
Ciba-Geigy Ltd. (Reg.) 14 17,245
Nestle Ltd. (Reg.) 25 27,156
Roche Group Holding AG 4 30,253
Roche Group Holding AG (Bearer) 1 12,263
Sandoz Ltd. (Bearer) 2 2,316
Sandoz Ltd. (Reg.) 21 24,273
Schweizerische Bankgesellschaft (Bearer) 12 11,430
Schweizerische Bankgesellschaft (Reg.) 13 2,509
Schweizerischer Bankverein (Reg.) 45 8,669
Winterthur (Reg.) 4 2,383
Zurich Versicherung (Reg.) 27 7,391
-------
157,901
-------
UNITED KINGDOM--2.3%
Abbey National 769 7,985
Allied Domecq PLC 621 4,791
Associated British Foods 443 3,043
BAA 615 4,955
BAT Industries 1,806 12,522
BOC Group 195 2,701
BTR 2,223 9,317
Barclays 976 15,321
Bass 517 6,631
Boots Co. 556 5,638
British Airways 577 5,193
British Gas 2,541 7,899
British Petroleum Co. 3,294 35,398
British Sky Broadcast 1,030 9,673
British Steel 806 2,240
British Telecom 3,652 22,439
Cable & Wireless 1,315 10,445
Cadbury Schweppes 589 4,908
Commercial Union Assurance Co. 403 4,264
General Electric Co. 1,608 9,945
Glaxo Wellcome 2,029 31,868
Granada Group 345 4,969
Grand Metropolitan, Inc. 1,266 9,551
Great University Stores 589 5,886
Guinness 1,184 8,479
HSBC Holdings 518 10,884
HSBC Holdings (Hong Kong) 1,073 21,987
Hanson Industries 2,167 2,839
Imperial Chemical Industries 424 5,445
Imperial Tobacco* 216 1,266
</TABLE>
F-187
<PAGE> 283
SCHWAB ASSET DIRECTOR--CONSERVATIVE GROWTH FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
October 31, 1996
<TABLE>
<CAPTION>
Number
of Shares Value
--------- ----------
<S> <C> <C>
J. Sainsbury PLC 1,084 $ 6,422
Kingfisher 398 4,243
Lloyds TSB Group 2,430 15,405
Marks & Spencer PLC 1,640 13,773
National Power Development 695 4,581
National Westminster Bancorp 1,046 11,943
Pearson, Inc. 309 3,812
Powergen 437 3,627
Prudential Corp. 1,141 8,636
RTZ Corp. PLC 628 10,048
Rank Group 486 3,231
Reed International 329 6,126
Reuters Holdings PLC 977 12,165
Royal Bank of Scotland 478 3,913
Safeway PLC 685 4,064
Scot & Newcastle 358 3,720
Shell Transport & Trading Co. 1,941 31,813
SmithKline Beecham PLC (New) 1,610 19,889
Standard Chartered PLC 576 6,216
Tesco 1,237 6,704
Thorn EMI 261 5,127
Unilever 475 9,981
Vodafone Group 1,238 4,786
Zeneca Group 554 15,094
---------
503,801
---------
2,244,790
---------
TOTAL COMMON STOCK
(Cost $7,622,564) 8,567,163
---------
PREFERRED STOCK--0.0%
AUSTRALIA--0.0%
News Corp. (Limited Voting Shares) 390 1,716
---------
GERMANY--0.0%
Sap AG (Non-Voting) 24 3,230
Volkswagen AG (Non-Voting) 6 1,821
---------
5,051
---------
</TABLE>
F-188
<PAGE> 284
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares Value
--------- ----------
<S> <C> <C>
ITALY--0.0%
Fiat SpA 701 $ 994
-----
UNITED STATES--0.0%
Aetna Inc. 6.25% Class C (Voting) 7 491
Fresenius National Medical Care Inc. Class D
(Special Dividend)* 100 13
-----
7,761
-----
504
-----
TOTAL PREFERRED STOCK
(Cost $8,500) 8,265
-----
WARRANTS--0.0%
SWITZERLAND--0.0%
Schweizerische Bankverein (expire 6/30/00)* 5 13
-----
UNITED STATES--0.0%
Jacor Communications Inc. (expire 09/18/01)* 100 209
-----
TOTAL WARRANTS
(Cost $2,229) 222
-----
</TABLE>
F-189
<PAGE> 285
SCHWAB ASSET DIRECTOR--CONSERVATIVE GROWTH FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
October 31, 1996
<TABLE>
<CAPTION>
Par Value
---------- -----------
<S> <C> <C>
U.S. TREASURY OBLIGATIONS--54.6%(A)
U.S. Treasury Bonds
10.00%, 05/15/10 $ 300,000 $ 369,519
7.25%, 05/15/16 1,670,000 1,769,181
8.13%, 08/15/19 1,700,000 1,969,722
7.13%, 02/15/23 800,000 837,576
U.S. Treasury Notes
5.88%, 08/15/98 1,300,000 1,303,458
6.13%, 08/31/98 1,300,000 1,309,139
5.00%, 02/15/99 600,000 589,920
7.00%, 04/15/99 300,000 308,049
7.50%, 10/31/99 600,000 625,374
7.13%, 02/29/00 200,000 206,976
5.75%, 10/31/00 1,050,000 1,040,046
6.38%, 08/15/02 525,000 531,379
5.88%, 02/15/04 500,000 489,100
6.50%, 05/15/05 400,000 404,416
6.50%, 08/15/05 500,000 505,600
----------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $12,147,593) 12,259,455
----------
AGENCY OBLIGATIONS--COUPON NOTES--1.8%(A)
Federal National Mortgage Assoc.
7.25%, 06/01/05 400,000 403,712
----------
TOTAL AGENCY OBLIGATIONS--COUPON NOTES
(Cost $403,739) 403,712
----------
CASH EQUIVALENTS -- 7.3%
Federal Home Loan Bank Consolidated Discount Notes(b)
5.30%, 01/30/97 600,000 592,272
Federal Home Loan Mortgage Corp. Discount Notes(b)
5.30%, 11/01/96 605,000 605,000
<CAPTION>
Shares
----------
<S> <C> <C>
Seven Seas Money Market Fund(c)
5.04%, 11/07/96 437,614 437,614
----------
TOTAL CASH EQUIVALENTS
(Cost $1,634,799) 1,634,886
----------
TOTAL INVESTMENTS--101.8%
(Cost $21,819,424) 22,873,703
----------
</TABLE>
F-190
<PAGE> 286
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
-----------
<S> <C> <C>
OTHER ASSETS AND LIABILITIES--(1.8%)
Other Assets $ 310,266
Liabilities (725,344)
----------
(415,078)
----------
NET ASSETS--100.0% (Note 7)
Applicable to 2,136,503 outstanding shares,
$0.00001 par value (unlimited shares authorized) $22,458,625
----------
----------
NET ASSET VALUE PER SHARE $10.51
-----
-----
</TABLE>
- ---------------
NOTES TO STATEMENTS OF NET ASSETS
(a) Interest rates represent stated coupon rate of security.
(b) Interest rates represent effective yield at time of purchase.
(c) Interest rates represent the yield on October 31, 1996.
*Non-Income Producing Security
See accompanying Notes to Financial Statements.
F-191
<PAGE> 287
- ------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
Period from November 20, 1995 (commencement of operations) to
October 31, 1996
<TABLE>
<CAPTION>
---------------Schwab Asset
Director(R)-------------- -
Balanced
Growth Fund
High -----------
Growth Fund
----------- Conservative
Growth Fund
-----------
<S> <C> <C> <C>
Investment income:
Dividends (net of foreign tax
withheld
of $61,271, $34,666 and $7,507,
respectively) $1,315,014 $ 711,698 $ 154,124
Interest 1,199,705 1,595,716 710,068
---------- ---------- ---------
Total investment income 2,514,719 2,307,414 864,192
---------- ---------- ---------
Expenses:
Investment advisory and
administration fee 633,316 461,072 144,523
Transfer agency and shareholder
service fees 215,222 157,039 49,377
Custodian fees 221,569 193,803 119,929
Registration fees 91,046 77,059 38,676
Professional fees 35,136 31,566 25,559
Shareholder reports 75,596 47,105 16,047
Trustees' fees 9,403 7,646 4,768
Amortization of deferred
organization costs 3,470 3,470 3,470
Insurance and other expenses 4,060 3,021 2,044
---------- ---------- ---------
1,288,818 981,781 404,393
Less expenses reduced and absorbed
(Note 4) (525,320 ) (425,212 ) (229,691)
---------- ---------- ---------
Total expenses incurred by Fund 763,498 556,569 174,702
---------- ---------- ---------
Net investment income 1,751,221 1,750,845 689,490
---------- ---------- ---------
Net realized loss on investments and
foreign currency transactions:
Net realized loss from changes in
market value (548,396 ) (540,402 ) (140,784)
Net realized loss from changes in
foreign exchange rates (10,052 ) (19,754 ) (6,703)
---------- ---------- ---------
Net realized loss on investments
sold (558,448 ) (560,156 ) (147,487)
Net realized loss on foreign
currency transactions (758 ) (160 ) (66)
Net realized loss on investments ---------- ---------- ---------
sold and foreign currency
transactions (559,206 ) (560,316 ) (147,553)
</TABLE>
(Continued on next page)
F-192
<PAGE> 288
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
---------------Schwab Asset
Director(R)-------------- -
Balanced
Growth Fund
High -----------
Growth Fund
----------- Conservative
Growth Fund
-----------
<S> <C> <C> <C>
Net unrealized gain (loss) on
investments and foreign currency
translations:
Net unrealized gain from changes
in market value $10,424,004 $5,862,801 $1,141,978
Net unrealized loss from changes
in
foreign exchange rates (658,362 ) (376,651 ) (87,699 )
---------- ---------- ---------
Net unrealized gain on investments 9,765,642 5,486,150 1,054,279
Net unrealized gain on translating
assets and liabilities into the
reporting currency 1,898 1,249 499
---------- ---------- ---------
Net unrealized gain on investments
and foreign currency translation 9,767,540 5,487,399 1,054,778
---------- ---------- ---------
Net gain on investments 9,208,334 4,927,083 907,225
---------- ---------- ---------
Increase in net assets resulting
from operations $10,959,555 $6,677,928 $1,596,715
========== ========== =========
</TABLE>
See accompanying Notes to Financial Statements.
F-193
<PAGE> 289
- ------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
Period from November 20, 1995 (commencement of operations) to
October 31, 1996
<TABLE>
<CAPTION>
---------------Schwab Asset
Director(R)---------------
High Balanced Conservative
Growth Fund Growth Fund Growth Fund
------------ ----------- -----------
<S> <C> <C> <C>
Operations:
Net investment income $ 1,751,221 $1,750,845 $ 689,490
Net realized loss on investments
sold and foreign currency
transactions (559,206 ) (560,316 ) (147,553 )
Net unrealized gain on investments
and foreign currency translation 9,767,540 5,487,399 1,054,778
------------ ----------- -----------
Increase in net assets resulting
from operations 10,959,555 6,677,928 1,596,715
------------ ----------- -----------
Dividends to shareholders from net
investment income (158,402 ) (150,875 ) (616,233 )
------------ ----------- -----------
Capital share transactions:
Proceeds from shares sold 117,537,418 89,829,083 29,366,693
Net asset value of shares issued
in reinvestment of dividends 152,276 138,204 551,598
Less payments for shares redeemed (22,537,909 ) (15,514,876) (8,441,148 )
------------ ----------- -----------
Increase in net assets from
capital share transactions 95,151,785 74,452,411 21,477,143
------------ ----------- -----------
Total increase in net assets 105,952,938 80,979,464 22,457,625
Net assets:
Beginning of period 1,000 1,000 1,000
------------ ----------- -----------
End of period (including
undistributed net investment
income of $1,592,819, $1,599,970
and $73,257, respectively) $105,953,938 $80,980,464 $22,458,625
============ =========== ===========
Number of Fund shares:
Sold 11,466,890 8,788,481 2,908,857
Reinvested 14,842 13,523 53,963
Redeemed (2,106,758 ) (1,470,535 ) (826,417 )
------------ ----------- -----------
Net increase in shares outstanding 9,374,974 7,331,469 2,136,403
Shares outstanding:
Beginning of period 100 100 100
------------ ----------- -----------
End of period 9,375,074 7,331,569 2,136,503
============ =========== ===========
</TABLE>
See accompanying Notes to Financial Statements.
F-194
<PAGE> 290
- ------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
Period from November 20, 1995 (commencement of operations) to
October 31, 1996
1. DESCRIPTION OF THE FUNDS
The Schwab Asset Director(R) - High Growth Fund, Schwab Asset
Director - Balanced Growth Fund and Schwab Asset Director - Conservative Growth
Fund (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.
In addition to the three Funds described above, the Trust also offers -- the
Schwab International Index Fund(R), Schwab Small-Cap Index Fund(R), 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
investments in money market funds are valued at the last quoted sale price for a
given day, or if a sale is not reported for that day, at the mean between the
most recent quoted bid and asked prices. Unlisted securities for which market
quotations are readily available are valued at the mean between the most recent
bid and asked prices. Securities for which no quotations are readily available
are valued at fair value as determined by the Funds' investment manager pursuant
to guidelines adopted in good faith by the Board of Trustees. Bonds and notes
are generally valued at prices obtained from an independent bond-pricing
service. These securities are valued at the mean between the representative
quoted bid and asked prices, or if such prices are not available, at prices for
securities of comparable maturity, quality and type. Short-term securities with
F-195
<PAGE> 291
- ------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
Period from November 20, 1995 (commencement of operations) to
October 31, 1996
60 days or less to maturity are stated at amortized cost, which approximates
market value.
Security transactions and investment income -- Security transactions are
accounted for on a trade date basis (date the order to buy or sell is executed).
Dividend income and distributions to shareholders are recorded on the
ex-dividend date. Interest income is recorded on the accrual basis and includes
amortization of premium and accretion of discount on investments. Realized gains
and losses from security transactions are determined on an identified cost
basis. For callable bonds purchased at a premium, the excess of the purchase
price over the call value is amortized against interest income through the call
date. If the call provision is not exercised, any remaining premium is amortized
through the final maturity date.
Repurchase agreements -- Repurchase agreements are fully collateralized by U.S.
Treasury or government agency securities. All collateral is held by the Funds'
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 Funds are
maintained in U.S. dollars. Investment securities and all other assets and
liabilities of the Funds denominated in a foreign currency are translated into
U.S. dollars at the exchange rates on October 31, 1996. Purchases and sales of
foreign securities, foreign income receipts and foreign expense payments are
translated into U.S. dollars at the exchange rate in effect on the dates of the
respective transactions.
The Funds separate within their 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 Funds as an unrealized gain or loss.
F-196
<PAGE> 292
- ------------------------------------------------------------------------------
When the Forward is closed, the Funds record 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 Funds engage in Forwards in
connection with the purchase and sale of portfolio securities to minimize the
uncertainty of changes in future exchange rates. The Funds could be exposed to
risk if counterparties to the contracts are unable to meet the terms of the
contracts or if the value of the foreign currency changes unfavorably.
Deferred organization costs -- Costs incurred in connection with the
organization of the 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.
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, 1996, (for financial reporting and federal income tax purposes),
net unrealized gain for the High Growth Fund, Balanced Growth Fund and
Conservative Growth Fund aggregated $9,765,642, $5,486,150 and $1,054,279,
respectively, of which $12,947,581, $7,384,650 and $1,494,797, respectively,
related to appreciated securities and $3,181,939, $1,898,500 and $440,518,
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"). For advisory services and facilities furnished,
each Fund pays an annual fee, payable
F-197
<PAGE> 293
- ------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
Period from November 20, 1995 (commencement of operations) to
October 31, 1996
monthly, of 0.74% of each Fund's average daily net assets not in excess of $1
billion, 0.69% of such assets over $1 billion and 0.64% of such assets over $2
billion. Under this agreement, the High Growth Fund, Balanced Growth Fund and
Conservative Growth Fund incurred investment advisory and administration fees of
$633,316, $461,072 and $144,523, respectively, for the period ended October 31,
1996, before the Investment Manager reduced its fee (see Note 4).
Sub-advisory agreement -- The Investment Manager has a sub-advisory agreement
with Symphony Asset Management, Inc. ("Symphony") to serve as sub-adviser to the
Funds. Symphony does not receive compensation directly from the Funds. However,
the Investment Manager pays Symphony an annual fee, payable monthly, of 0.08% of
the Funds' aggregate average net assets on the first $100 million, 0.06% of the
next $150 million, 0.04% of the next $600 million and 0.02% of such assets over
$850 million.
Transfer agency and shareholder service agreements -- The Trust has transfer
agency and shareholder service agreements with Charles Schwab & Co., Inc.
("Schwab"). For services provided under these agreements, Schwab receives an
annual fee, payable monthly, of 0.05% of each Fund's average daily net assets
for transfer agency services and 0.20% of such assets for shareholder services.
For the period ended October 31, 1996, the High Growth Fund, Balanced Growth
Fund and Conservative Growth Fund incurred transfer agency and shareholder
service fees of $215,222, $157,039 and $49,377, respectively, before Schwab
reduced its fees (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
period ended October 31, 1996, the Trust made no direct payments to its officers
or trustees who were "interested persons" within the meaning of the Investment
Company Act of 1940, as amended. The Funds incurred fees aggregating $21,817
related to the Trust's unaffiliated trustees.
F-198
<PAGE> 294
- ------------------------------------------------------------------------------
4. EXPENSES REDUCED AND ABSORBED BY THE INVESTMENT MANAGER AND SCHWAB
The Investment Manager and Schwab reduced a portion of their fees and absorbed
certain expenses in order to limit each Fund's ratio of operating expenses to
average net assets. For the period ended October 31, 1996, the total of such
fees and expenses reduced and absorbed by the Investment Manager were $321,597,
$271,535 and $180,314 for the High Growth Fund, Balanced Growth Fund and
Conservative Growth Fund, respectively, and the total of such fees reduced by
Schwab was $203,723, $153,677 and $49,377 for the High Growth Fund, Balanced
Growth Fund and Conservative Growth Fund, respectively (See Note 8).
5. BORROWING AGREEMENT
The Trust has an agreement with State Street Bank and Trust Company, the Fund's
custodian, whereby each Fund may borrow up to $10,000,000, on a temporary basis,
to fund redemptions. Amounts borrowed under this arrangement bear interest at
periodically negotiated rates and may be collateralized by the assets of the
Fund. During the period ended October 31, 1996, no borrowings were made under
this arrangement.
6. INVESTMENT TRANSACTIONS
Purchases, sales and maturities of investment securities, other than short-term
obligations, for the period ended October 31, 1996, were as follows (in
thousands):
<TABLE>
<CAPTION>
High Balanced Conservative
Growth Fund Growth Fund Growth Fund
------------ ----------- -----------
<S> <C> <C> <C>
Purchases $130,861,596 $99,791,667 $33,172,236
Proceeds of sales and
maturities $ 40,474,842 $28,878,116 $12,799,753
</TABLE>
F-199
<PAGE> 295
- ------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
Period from November 20, 1995 (commencement of operations) to
October 31, 1996
7. COMPOSITION OF NET ASSETS
At October 31, 1996, net assets for each Fund consisted of:
<TABLE>
<CAPTION>
High Balanced Conservative
Growth Fund Growth Fund Growth Fund
------------ ----------- -----------
<S> <C> <C> <C>
Paid in capital $95,152,785 $74,453,411 $21,478,143
Accumulated undistributed net
investment income 1,592,819 1,599,970 73,257
Accumulated net realized loss on
investments sold and
foreign currency transactions (559,206 ) (560,316 ) (147,553 )
Net unrealized gain on investments 9,765,642 5,486,150 1,054,279
Net unrealized loss on translating
assets and liabilities into the
reporting currency 1,898 1,249 499
------------ ----------- -----------
$105,953,938 $80,980,464 $22,458,625
============ =========== ===========
</TABLE>
At October 31, 1996, the High Growth Fund's Statement of Net Assets included:
$4,897,479 payable for investments purchased, $70,257 payable for Fund shares
redeemed, $19,729 payable for investment advisory and administration fee, $2,776
payable for transfer agency fees and $67,640 receivable for Fund shares sold.
The Balanced Growth Fund's Statement of Net Assets included: $3,898,551 payable
for investments purchased, $275,334 payable for Fund shares redeemed, $10,697
payable for investment advisory and administration fee $3,362 payable for
transfer agency fees and $129,240 receivable for Fund shares sold. The
Conservative Growth Fund's Statement of Net Assets included: $593,038 payable
for investment purchased, $23,354 payable for Fund shares redeemed, $2,650
receivable from advisor and $9,476 receivable for Fund shares sold.
F-200
<PAGE> 296
- ------------------------------------------------------------------------------
8. FINANCIAL HIGHLIGHTS
For a share outstanding throughout the period from November 20, 1995
(commencement of operations) to October 31, 1996:
<TABLE>
<CAPTION>
High Balanced Conservative
Growth Fund Growth Fund Growth Fund
------------ ----------- -----------
<S> <C> <C> <C>
Net asset value at beginning of period $ 10.00 $ 10.00 $ 10.00
Income from investment operations
Net investment income 0.19 0.25 0.33
Net realized and unrealized gain on
investments and foreign
currency transactions 1.13 0.83 0.48
------------ ----------- -----------
Total from investment operations 1.32 1.08 0.81
Less distributions
Dividends from net investment income (0.02 ) (0.03 ) (0.30 )
Distributions from realized gain
on investments -- -- --
------------ ----------- -----------
Total distributions (0.02 ) (0.03 ) (0.30 )
------------ ----------- -----------
Net asset value at end of period $ 11.30 $ 11.05 $ 10.51
============ =========== ===========
Total return (not annualized) 13.24% 10.82% 8.18%
Ratios/Supplemental data
Net assets, end of period $105,953,938 $80,980,464 $22,458,625
Ratio of expenses to average net
assets+ 0.89%* 0.89%* 0.89%*
Ratio of net investment income to
average net assets+ 2.03%* 2.79%* 3.49%*
Portfolio turnover rate 46% 44% 64%
Average commission rate $ 0.03 $ 0.02 $ 0.02
</TABLE>
- ---------------
+ The information contained in the above table is based on actual expenses for
the period, after giving effect to the portion of fees reduced and expenses
absorbed by the Investment Manager and Schwab. Had these fees and expenses not
been reduced and absorbed, the Funds' expense and net investment income ratios
would have been:
<TABLE>
<S> <C> <C> <C>
Ratio of expenses to average net
assets 1.50%* 1.56%* 2.05%*
Ratio of net investment income to
average net assets 1.42%* 2.12%* 2.33%*
</TABLE>
* Annualized
F-201
<PAGE> 297
- ------------------------------------------------------------------------------
To the Trustees and Shareholders of
the Schwab Asset Director(R) - High Growth Fund,
Schwab Asset Director - Balanced Growth Fund and
Schwab Asset Director - Conservative Growth Fund
In our opinion, the accompanying statements of net assets 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
the Schwab Asset Director - High Growth Fund, Schwab Asset Director - Balanced
Growth Fund and Schwab Asset Director - Conservative Growth Fund (three of the
series constituting Schwab Capital Trust, hereafter referred to as the "Trust")
at October 31, 1996, and the results of each of their operations, the changes in
each of their net assets and the financial highlights for the period November
20, 1995 (commencement of operations) through October 31, 1996, in conformity
with generally accepted accounting principles. These financial statements and
the 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, 1996 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PRICE WATERHOUSE LLP
San Francisco, California
November 27, 1996
F-202
<PAGE> 298
SCHWAB S&P 500 FUND
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
October 31, 1996
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
---------- ----------
<S> <C> <C>
COMMON STOCK--98.9%
AEROSPACE/DEFENSE--2.3%
B.F. Goodrich Co. 3,100 $ 131
Boeing Co. 17,900 1,707
General Dynamics Corp. 3,700 254
Lockheed Martin Corp. 11,000 986
McDonnell Douglas Corp. 11,100 605
Northrop Grumman Corp. 3,400 275
Raytheon Co. 11,700 576
Rockwell International Corp. 11,100 611
Textron Inc. 4,500 399
United Technologies Corp. 6,100 785
-----
6,329
-----
AIR TRANSPORTATION--0.3%
AMR Corp.* 4,300 361
Delta Airlines Inc. 4,800 340
Southwest Airlines Co. 7,700 173
USAir Group, Inc.* 3,400 59
-----
933
-----
ALCOHOLIC BEVERAGES--0.7%
Adolph Coors Co. Class B 2,800 54
Anheuser-Busch Companies, Inc. 24,500 943
Brown Forman Corp. Class B 3,300 143
Seagram Company Ltd. 18,600 704
-----
1,844
-----
APPAREL--0.5%
Liz Claiborne Inc. 3,600 152
NIKE, Inc. Class B 15,000 883
Reebok International Ltd. 3,600 129
Russell Corp. 2,000 57
Springs Industries Inc. 1,900 86
Stride Rite Corp. 4,100 34
V.F. Corp. 2,800 183
-----
1,524
-----
AUTOMOTIVE PRODUCTS--0.2%
Cooper Tire & Rubber 5,200 102
Goodyear Tire & Rubber 7,700 353
-----
455
-----
BANKS--8.0%
Banc One Corp. 22,400 949
Bank of Boston Corp. 7,500 480
Bank of New York Co., Inc. 19,400 643
BankAmerica Corp. 18,900 1,729
</TABLE>
F-203
<PAGE> 299
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
---------- ----------
<S> <C> <C>
Bankers Trust New York Corp. 4,300 $ 363
Barnett Banks, Inc. 10,500 400
Boatmens Bancshares Inc. 7,800 474
Chase Manhattan Corp. (New) 22,700 1,947
Citicorp 25,600 2,534
Comerica Inc. 6,100 324
Corestates Financial Corp. 11,400 554
Fifth Third Bancorp 6,500 408
First Bank System Inc. 6,600 436
First Chicago NBD Corp. 15,800 806
First Union Corp. 13,800 1,004
Fleet Financial Group Inc. (New) 14,900 743
J.P. Morgan & Co. Inc. 9,200 795
Keycorp (New) 11,400 532
MBNA Corp. 11,600 438
Mellon Bank Corp. 6,100 397
National City Corp. 12,600 547
NationsBank Corp. 14,800 1,395
Norwest Corp. 19,100 838
PNC Bank Corp. 18,700 678
Republic New York Corp. 2,700 206
Suntrust Banks, Inc. 11,100 518
U.S. Bancorp 7,400 296
Wachovia Corp. (New) 8,800 473
Wells Fargo & Co. 5,300 1,416
------
22,323
------
BUSINESS MACHINES & SOFTWARE--7.6%
3COM Corp.* 8,600 582
Amdahl Corporation* 5,700 58
Apple Computer, Inc.* 6,300 146
Autodesk, Inc. 2,700 62
Bay Networks, Inc.* 9,000 182
Cabletron Systems Inc.* 3,900 243
Ceridian Corp.* 3,700 184
Cisco Systems Inc.* 33,500 2,071
Compaq Computer Corp.* 13,200 919
Computer Assoc. International Inc. 17,900 1,058
Computer Sciences Corp.* 3,600 267
Data General Corp.* 3,300 49
Dell Computer Corp.* 4,400 359
Digital Equipment Corp.* 7,700 227
EMC Corp.* 11,400 299
Hewlett Packard Co. 52,600 2,321
Honeywell Inc. 6,200 385
Intergraph Corp.* 3,700 35
International Business Machines 27,500 3,548
Microsoft Corp.* 31,100 4,270
</TABLE>
F-204
<PAGE> 300
SCHWAB S&P 500 FUND
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
October 31, 1996
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
---------- ----------
<S> <C> <C>
Novell Inc.* 17,800 $ 166
Oracle Systems Corp.* 32,800 1,388
Pitney Bowes Inc. 7,900 441
Seagate Technology, Inc.* 5,300 354
Silicon Graphics Inc.* 9,400 174
Sun Microsystems Inc.* 9,200 561
Tandem Computers Inc.* 5,600 71
Unisys Corp.* 8,800 55
Xerox Corp. 16,300 756
------
21,231
------
BUSINESS SERVICES--1.8%
Allegiance Corp.* 2,600 49
Automatic Data Processing, Inc. 14,600 608
Bowne & Co. Inc. 1,000 23
Browning Ferris Industries Inc. 10,400 273
Deluxe Corp. 4,000 131
Dun & Bradstreet Corp. 8,900 515
Ecolab Inc. 3,800 139
First Data Corp. 11,100 885
H & R Block Inc. 5,100 126
Interpublic Group of Companies, Inc. 3,700 179
John H. Harland Co. 2,400 75
Laidlaw Inc. Class B (Non Voting) 14,900 175
Moore Corp. Ltd. 5,200 105
National Service Industries, Inc. 2,000 69
R.R. Donnelley & Sons Co. 7,800 237
SUPERVALU Inc. 3,000 89
Safety-Kleen Corp. 3,300 52
Service Corp. International 12,000 342
Shared Medical Systems Corp. 1,700 82
Viad Corp. 3,000 44
WMX Technologies Inc. 24,600 846
------
5,044
------
CHEMICAL--3.5%
Air Products & Chemicals Inc. 5,300 318
Dow Chemical Co. 13,400 1,042
E.I. Du Pont de Nemours & Co. 29,500 2,736
Eastman Chemical Co. 4,600 243
Great Lakes Chemical Corp. 3,300 172
Hercules Inc. 5,300 252
Minnesota Mining & Manufacturing Co. 22,300 1,709
Monsanto Co. 30,500 1,209
Morton International Inc. 7,100 280
Nalco Chemical Co. 3,200 116
PPG Industries Inc. 9,600 547
Praxair Inc. 7,800 345
</TABLE>
F-205
<PAGE> 301
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
---------- ----------
<S> <C> <C>
Rohm & Haas Co. 3,200 $ 228
Sigma-Aldrich Corp. 3,000 176
Union Carbide Corp. 6,700 286
W R Grace & Co. (Delaware)* 4,600 244
-----
9,903
-----
CONSTRUCTION--0.3%
Armstrong World Industries, Inc. 1,700 113
Centex Corp. 2,300 69
Crane Co. 1,000 47
Fluor Corp. 4,700 308
Kaufman & Broad Home Corp. 3,200 38
Owens Corning 2,100 81
Pulte Corp. 600 16
Sherwin Williams Co. 5,000 251
Stanley Works 3,800 107
-----
1,030
-----
CONSUMER-DURABLE--0.3%
Black & Decker Corp. 4,600 172
Masco Corp. 7,600 238
Maytag Corp. 5,600 111
Newell Co. 7,700 218
Snap-on Tools Corp. 2,850 92
Whirlpool Corp. 4,300 203
-----
1,034
-----
CONSUMER-NONDURABLE--1.1%
American Greetings Corp. Class A 4,600 135
Corning Inc. 10,700 415
Darden Restaurants Inc. 7,500 63
Hasbro Inc. 4,400 171
Jostens, Inc. 2,800 60
Luby's Cafeterias, Inc. 500 11
Mattel Inc. 12,700 367
McDonald's Corp. 36,100 1,602
Premark International, Inc. 2,100 44
Rubbermaid Inc. 6,600 153
Ryan's Family Steak Houses Inc.* 4,200 30
Shoney's Inc.* 3,900 29
Wendy's International, Inc. 6,600 136
-----
3,216
-----
CONTAINERS--0.2%
Ball Corp. 600 14
Bemis Co., Inc. 2,900 102
</TABLE>
F-206
<PAGE> 302
SCHWAB S&P 500 FUND
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
October 31, 1996
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
---------- ----------
<S> <C> <C>
Crown Cork & Seal Inc. 7,000 $ 336
Stone Container Corp. 4,600 70
------
522
------
ELECTRONICS--3.7%
AMP Inc. 12,500 423
Advanced Micro Devices Inc.* 6,400 114
Applied Materials, Inc.* 8,200 217
EG&G, Inc. 3,000 53
General Instrument Corp.* 7,500 151
General Signal Corp. 2,500 102
Harris Corp. 2,300 144
Intel Corp. 42,800 4,700
LSI Logic Corp.* 6,600 175
Lucent Technologies, Inc. 32,319 1,519
Micron Technology Inc. 10,700 272
Motorola Inc. 31,500 1,449
National Semiconductor Corp.* 8,700 167
Perkin-Elmer Corp. 2,500 134
Scientific-Atlanta, Inc. 3,700 54
Tektronix, Inc. 1,600 63
Texas Instruments Inc. 9,500 457
Thomas & Betts Corp. 2,900 123
------
10,317
------
ENERGY-DEVELOPMENT--1.3%
Baker Hughes Inc. 7,500 267
Burlington Resources Inc. 6,500 327
Dresser Industries Inc. 9,200 302
Halliburton Co. 5,800 328
Helmerich & Payne Inc. 1,600 87
Louisiana Land & Exploration Co. 1,600 91
McDermott International Inc. 2,800 50
Occidental Petroleum Corp. 16,200 397
Rowan Cos. Inc.* 4,400 98
Schlumberger Ltd. 12,200 1,209
Union Pacific Resources Group* 12,832 353
------
3,509
------
FOOD-AGRICULTURE--6.3%
Archer-Daniels-Midland Co. 27,535 599
CPC International Inc. 7,600 599
Campbell Soup Co. 12,000 960
Coca-Cola Co. 128,100 6,469
ConAgra, Inc. 11,900 594
Fleming Companies, Inc. 3,300 57
General Mills Inc. 7,800 446
H.J. Heinz Co. 19,100 678
</TABLE>
F-207
<PAGE> 303
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
---------- ----------
<S> <C> <C>
Hershey Foods Corp. 7,600 $ 368
Kellogg Co. 11,000 699
Pepsico Inc. 80,000 2,370
Pioneer Hi-Bred International Inc. 4,300 289
Quaker Oats Co. 7,500 266
Ralston Purina Co. 5,200 344
Sara Lee Corp. 23,800 845
Sysco Corp. 8,700 296
Unilever 8,000 1,223
Whitman Corp. 5,300 129
Wm Wrigley Junior Co. 5,600 337
------
17,568
------
GOLD--0.4%
Barrick Gold Corp. 17,600 460
Battle Mountain Gold Co. 12,000 92
Homestake Mining Co. 7,800 111
Newmont Mining Corp. 4,800 222
Placer Dome, Inc. 12,000 288
Santa Fe Pacific Gold Corp. 7,400 88
------
1,261
------
HEALTHCARE--10.3%
ALZA Corp.* 4,000 104
Abbott Laboratories 41,200 2,086
Allergan Inc. 3,800 116
American Home Products Corp. 32,700 2,003
Amgen Inc.* 13,500 828
Bausch & Lomb Inc. 3,400 115
Baxter International Inc. 13,000 541
Becton Dickinson & Co. 6,300 274
Beverly Enterprises, Inc.* 5,200 64
Biomet Inc.* 5,300 85
Boston Scientific Corp.* 8,700 473
Bristol Myers Squibb Co. 25,700 2,718
C.R. Bard Inc. 2,200 62
Columbia/HCA Healthcare Corp. 32,850 1,174
Eli Lilly & Co. 28,900 2,037
Fresenius Medical Care AG (Sponsored
American Depository Receipts)* 4,825 144
Humana Inc.* 8,200 150
Johnson & Johnson 70,000 3,448
Mallinckrodt Inc. 3,700 161
Manor Care, Inc. 3,600 141
Medtronic Inc. 11,900 766
Merck & Co. Inc. 62,200 4,611
Pfizer Inc. 33,400 2,764
Pharmacia & Upjohn Inc. 27,300 983
</TABLE>
F-208
<PAGE> 304
SCHWAB S&P 500 FUND
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
October 31, 1996
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
---------- ----------
<S> <C> <C>
Schering Plough Corp. 20,100 $ 1,286
St. Jude Medical, Inc.* 4,200 166
Tenet Healthcare Corp.* 10,500 219
United Healthcare Corp.* 9,700 367
United States Surgical Corp. 3,900 163
Warner Lambert Co. 13,400 853
------
28,902
------
HOUSEHOLD PRODUCTS--2.6%
Alberto Culver Co. Class B 1,800 82
Avon Products, Inc. 6,400 347
Clorox Co. 2,900 316
Colgate-Palmolive Co. 7,100 653
Dial Corp. (New) 3,000 41
Gillette Co. 23,600 1,764
International Flavors & Fragrances Inc. 6,100 252
Procter & Gamble Co. 35,800 3,544
Tupperware Corp. 3,300 170
------
7,169
------
IMAGING & PHOTO--0.5%
Eastman Kodak Co. 16,900 1,348
Polaroid Corp. 2,800 114
------
1,462
------
INSURANCE--3.5%
Aetna Inc. 7,745 518
Alexander & Alexander Services 3,500 53
Allstate Corp. 22,300 1,252
American General Corp. 9,700 361
American International Group, Inc. 24,600 2,672
Aon Corp. 5,600 323
Chubb Corp. 8,700 435
Cigna Corp. 3,600 470
General Re Corp. 4,400 648
ITT Hartford Group Inc. 5,700 359
Jefferson-Pilot Corp. 3,200 182
Lincoln National Corp. Inc. 5,600 272
MGIC Investment Corp. 3,000 206
Marsh & McLennan Companies 3,600 375
Providian Corp. 4,400 207
Safeco Corp. 5,800 220
St. Paul Companies, Inc. 4,600 250
Torchmark Corp. 3,900 189
Transamerica Corp. 3,700 281
UNUM Corp. 4,000 252
</TABLE>
F-209
<PAGE> 305
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
---------- ----------
<S> <C> <C>
USF&G Corp. 6,000 $ 114
USLIFE Corp. 1,900 59
-----
9,698
-----
MEDIA--2.1%
Comcast Corp. Class A 12,700 187
Dow Jones & Co. Inc. 4,700 155
Gannett Inc. 7,600 577
King World Productions, Inc.* 1,900 68
Knight-Ridder, Inc. 5,000 187
McGraw-Hill, Inc. 5,300 248
Meredith Corp. 1,600 80
New York Times Co. Class A 5,100 184
SBC Communications Inc. 31,300 1,522
Tele Communications Inc. (New)--TCI Group Series A* 32,900 409
Time Warner Inc. 30,300 1,129
Times Mirror Co. (New) Series A 5,700 264
Tribune Co. (New) 3,200 262
Viacom Inc. Class B* 18,300 597
-----
5,869
-----
MISCELLANEOUS FINANCE--3.2%
American Express Co. 23,600 1,109
Beneficial Corp. 3,200 187
Dean Witter Discover & Co. 8,600 506
Federal Home Loan Mortgage Corp. 9,200 929
Federal National Mortgage Assoc. 59,400 2,324
Golden West Financial Corp. 2,900 188
Great Western Financial Corp. 6,600 185
Green Tree Financial Corp. 7,400 293
H.F. Ahmanson & Co. 5,900 185
Household International Inc. 4,600 407
Merrill Lynch & Co. Inc. 9,500 667
Morgan Stanley Group Inc. 7,900 397
Salomon Inc. 5,600 253
Travelers Inc. 24,950 1,354
-----
8,984
-----
MOTOR VEHICLE--2.4%
Chrysler Corp. 38,800 1,305
Cummins Engine Inc. 2,400 100
Dana Corp. 5,500 163
Eaton Corp. 4,300 257
Echlin Inc. 3,700 121
Fleetwood Enterprises, Inc. 1,100 37
Ford Motor Co. 59,300 1,853
General Motors Corp. 40,000 2,155
Genuine Parts Co. 5,600 245
</TABLE>
F-210
<PAGE> 306
SCHWAB S&P 500 FUND
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
October 31, 1996
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
---------- ----------
<S> <C> <C>
Lucasvarity PLC (Sponsored American
Depository Receipts)* 3,174 $ 128
Navistar International Corp.* 4,600 43
PACCAR Inc. 1,800 100
TRW Inc. 3,300 299
------
6,806
------
NON-FERROUS--0.8%
Alcan Aluminum Ltd. 10,500 345
Aluminum Company of America 9,000 528
Asarco Inc. 2,900 76
Cyprus Amax Minerals Co. 5,100 115
Echo Bay Mines Ltd 6,400 50
Engelhard Corp. 7,200 131
Freeport-McMoRan Copper & Gold Inc. Class B 9,800 298
Inco Ltd. 8,500 270
Phelps Dodge Corp. 3,800 239
Reynolds Metals Co. 2,700 152
------
2,204
------
OIL-DOMESTIC--1.2%
Amerada Hess Corp. 4,900 271
Ashland Inc. 3,800 162
Atlantic Richfield Co. 8,200 1,087
Kerr-McGee Corp. 3,000 188
Oryx Energy Co.* 5,500 106
Pennzoil Co. 2,000 102
Phillips Petroleum Co. 13,700 562
Santa Fe Energy Resources, Inc.* 4,500 64
Sun Inc. 3,600 81
USX Corp. (Marathon Group) (New) 15,200 333
Unocal Corp. 12,900 472
------
3,428
------
OIL-INTERNATIONAL--6.6%
Amoco Corp. 25,500 1,932
Chevron Corp. 34,200 2,249
Exxon Corp. 64,700 5,734
Mobil Corp. 20,700 2,417
Royal Dutch Petroleum Co. 27,300 4,515
Texaco, Inc. 13,300 1,352
Western Atlas, Inc.* 3,000 208
------
18,407
------
PAPER--1.6%
Alco Standard Corp. 6,000 278
Boise Cascade Corp. 1,900 59
Champion International Corp. 5,300 231
Georgia Pacific Corp. 4,500 338
</TABLE>
F-211
<PAGE> 307
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
---------- ----------
<S> <C> <C>
International Paper Co. 15,500 $ 663
James River Corp. 3,900 123
Kimberly Clark Corp. 14,100 1,315
Louisiana Pacific Corp. 5,600 117
Mead Corp. 3,000 170
Potlatch Corp. 2,200 94
Temple-Inland Inc. 2,900 149
Union Camp Corp. 3,000 146
Westvaco Corp. 5,900 168
Weyerhaeuser Co. 9,900 454
Willamette Industries, Inc. 3,500 235
------
4,540
------
PRODUCER GOODS-MANUFACTURING--5.7%
Allied Signal Inc. 15,100 989
Avery Dennison Corp. 2,900 191
Briggs & Stratton Corp. 2,000 80
Case Corp. 3,600 167
Caterpillar Inc. 9,300 638
Cincinnati Milacron Inc. 2,900 55
Cooper Industries Inc. 5,800 233
Deere & Co. 12,500 522
Dover Corp. 5,800 298
Emerson Electric Co. 12,500 1,113
FMC Corp. (New)* 2,300 169
Foster Wheeler Corp. 2,200 90
General Electric Co. 85,400 8,262
Giddings & Lewis Inc. 3,200 37
Harnischfeger Industries Corp. 2,500 100
ITT Industries Inc. 7,200 167
Illinois Tool Works Inc. 7,000 492
Ingersoll Rand Co. 4,900 204
Johnson Controls, Inc. 2,800 204
Millipore Corp. 2,700 95
Pall Corp. 6,100 156
Parker Hannifin Corp. 4,000 152
Raychem Corp. 2,400 188
TRINOVA Corp. 2,300 76
Tenneco, Inc. 9,000 446
Timken Co. 1,800 80
Tyco Labs Inc. 7,000 347
W.W. Grainger, Inc. 2,900 215
Westinghouse Electric Corp. 20,100 344
------
16,110
------
RAILROAD--1.0%
Burlington Northern Santa Fe 8,700 717
CSX Corp. 9,900 427
</TABLE>
F-212
<PAGE> 308
SCHWAB S&P 500 FUND
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
October 31, 1996
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
---------- ----------
<S> <C> <C>
Conrail Inc. 4,200 $ 400
Norfolk Southern Corp. 6,600 588
Union Pacific Corp. 12,200 685
------
2,817
------
REAL PROPERTY--0.2%
HFS, Inc.* 6,600 483
------
RETAIL--4.9%
Albertson's, Inc. 12,600 433
American Stores Co. (New) 6,500 269
CUC International Inc.* 18,600 456
Charming Shoppes Inc.* 5,800 27
Circuit City Stores Inc. 5,200 170
Dayton Hudson Corp. 9,900 343
Dillard Department Stores Inc. Class A 5,100 162
Federated Department Stores Inc.* 10,200 337
Footstar Inc.* 1,698 37
Fruit of the Loom Inc. Class A* 4,200 153
Gap Inc. 14,700 426
Giant Food Inc. Class A 3,200 108
Great Atlantic & Pacific Tea Co., Inc. 2,800 84
Harcourt General Inc. 3,700 184
Home Depot Inc. 25,600 1,402
J.C. Penney Inc. 11,600 609
K Mart Corp.* 24,600 240
Kroger Co.* 6,100 272
Limited Inc. 14,300 263
Longs Drug Stores Corp. 1,700 76
Lowes Cos Inc. 9,000 363
May Department Stores Co. 12,800 606
Melville Corp. 5,900 220
Mercantile Stores Co., Inc. 1,700 84
Nordstrom Inc. 4,000 144
Payless Shoesource Inc.* 1,040 35
Pep Boys--Manny, Moe & Jack 3,800 133
Price Costco Inc.* 11,100 220
Rite Aid Corp. 4,100 139
Sears Roebuck & Co. 21,100 1,021
TJX Companies, Inc. 3,600 144
Tandy Corp. 3,400 128
Toys 'R' Us, Inc.* 13,700 464
Wal-Mart Stores, Inc. 118,500 3,155
Walgreen Co. 12,200 461
Winn Dixie Stores Inc. 8,100 270
Woolworth Corp.* 6,800 143
------
13,781
------
</TABLE>
F-213
<PAGE> 309
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
---------- ----------
<S> <C> <C>
STEEL--0.3%
Allegheny Teldyne Inc. 9,235 $ 197
Armco Inc.* 6,400 24
Bethlehem Steel Corp.* 5,500 45
Inland Steel Industries, Inc. 1,100 18
Nucor Corp. 4,500 213
USX Corp. (U.S. Steel Group) 4,200 114
Worthington Industries Inc. 5,300 110
------
721
------
TELEPHONE--6.3%
AT&T Corp. 83,200 2,902
Airtouch Communications Inc.* 25,000 653
Alltel Corp. 10,200 311
Ameritech Corp. (New) 28,000 1,533
Andrew Corp.* 3,200 156
Bell Atlantic Corp. 23,400 1,410
BellSouth Corp. 52,300 2,131
DSC Communications Corp.* 5,400 75
GTE Corp. 50,600 2,132
MCI Communications Corp. 35,400 887
Northern Telecom Ltd 12,800 834
Nynex Corp. 21,800 970
Pacific Telesis Group 21,300 724
Sprint Corp. 21,300 836
Tellabs Inc.* 4,900 417
U S WEST, Inc. (Communications Group) 23,600 717
U S WEST, Inc. (Media Group)* 25,700 402
Worldcom, Inc.* 19,200 469
------
17,559
------
TOBACCO--1.8%
American Brands, Inc. 8,900 425
Loew's Corp. 5,500 454
Philip Morris Companies, Inc. 41,800 3,872
UST Inc. 8,700 251
------
5,002
------
TRANSPORTATION-MISCELLANEOUS--0.2%
Caliber Systems Inc. 5,300 89
Consolidated Freightways Inc. 4,700 113
Federal Express Corp.* 3,200 258
NACCO Industries, Inc. Class A 200 9
Ryder System, Inc. 4,500 134
Yellow Corp.* 600 8
------
611
------
</TABLE>
F-214
<PAGE> 310
SCHWAB S&P 500 FUND
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
October 31, 1996
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
---------- ----------
<S> <C> <C>
TRAVEL & RECREATION--1.3%
Bally Entertainment Corp.* 3,200 $ 96
Brunswick Corp. 4,700 110
Harrah's Entertainment Inc.* 5,300 89
Hilton Hotels Corp. 9,600 292
ITT Corp. (New)* 5,800 244
Marriot International Inc. 6,100 347
Walt Disney Co. 35,700 2,352
-----
3,530
-----
UTILITIES--3.9%
American Electric Power Co., Inc. 8,700 361
Baltimore Gas & Electric Co. 8,100 221
Carolina Power & Light Co. 7,000 253
Central & South West Corp. 10,700 284
Cinergy Corp. 8,000 265
Coastal Corp. 5,900 254
Columbia Gas System, Inc. 2,600 158
Consolidated Edison Co. 11,400 333
Consolidated Natural Gas Co. 4,600 244
DTE Energy Co. 7,700 232
Dominion Resources Inc. 10,100 381
Duke Power Co. 10,900 533
ENSERCH Corp. 4,500 97
Eastern Enterprises 1,700 65
Edison International 21,400 423
Enron Corp. 12,100 563
Entergy Corp. 11,900 333
FPL Group, Inc. 9,700 446
GPU Inc. 6,000 197
Houston Industries Inc. 14,400 329
NICOR Inc. 2,900 101
Niagara Mohawk Power Corp.* 7,200 61
NorAm Energy Co. 8,400 129
Northern States Power Co. 3,000 141
Ohio Edison Co. 7,000 146
Oneok Inc. 2,100 56
P P & L Resources Inc. 7,000 164
Pacific Enterprises 3,900 120
Pacific Gas & Electric Co. 20,500 482
Pacificorp 14,000 296
Panhandle Eastern Corp. 8,200 316
Peco Energy Co. 11,200 283
Peoples Energy Corp. 1,900 67
Public Service Enterprise Group 11,900 320
Sonat Inc. 4,700 231
Southern Co. 33,800 748
Texas Utilities Co. 11,000 446
</TABLE>
F-215
<PAGE> 311
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
---------- ----------
<S> <C> <C>
Unicom Corp. 9,800 $ 255
Union Electric Co. 5,100 197
Williams Cos. Inc. 5,600 283
-------
10,814
-------
TOTAL COMMON STOCK
(Cost $259,927) 276,940
-------
PREFERRED STOCK--0.0%
HEALTHCARE--0.0%
Fresenius National Medical Care Inc. Class D
(Special Dividend)* 4,600 1
-------
INSURANCE--0.0%
Aetna Inc. 6.25% Class C (Voting) 381 27
-------
TOTAL PREFERRED STOCK
(Cost $25) 28
-------
CASH EQUIVALENTS--1.4%
Temporary Investment Fund, Inc.
TempCash Portfolio+
4.82%, 11/07/96 3,834,631 3,835
-------
TOTAL CASH EQUIVALENTS
(Cost $3,835) 3,835
-------
TOTAL INVESTMENTS--100.3%
(Cost $263,787) 280,803
-------
-------
OTHER ASSETS AND LIABILITIES--(0.3%)
Other Assets 1,790
Liabilities (2,490)
-------
(700)
-------
NET ASSETS--100.0% (Note 7)
Applicable to 22,404,150 outstanding Investor shares
and 3,335,720 outstanding e.Shares, $0.00001 par
value (unlimited shares authorized) $280,103
-------
-------
NET ASSET VALUE PER INVESTOR SHARE $10.88
-----
-----
NET ASSET VALUE PER e.SHARE $10.89
-----
-----
</TABLE>
- ---------------
* Non-Income Producing Security
+ Interest rate represents the yield on October 31, 1996.
See accompanying Notes to Financial Statements.
F-216
<PAGE> 312
Schwab S&P 500 Fund
- ------------------------------------------------------------------------------
STATEMENT OF OPERATIONS (in thousands)
Period from May 1, 1996 (commencement of operations) to
October 31, 1996
<TABLE>
<S> <C>
Investment income:
Dividends $ 2,269
Interest 59
-------
Total investment income 2,328
-------
Expenses:
Investment advisory and administration fee 351
Transfer agency and shareholder service fees:
Investor shares 229
e.Shares 7
Custodian fees 57
Registration fees 161
Professional fees 24
Shareholder reports 40
Trustees' fees 7
Amortization of deferred organization costs 3
Insurance and other expenses 18
-------
897
Less expenses reduced and absorbed (Note 5) (429)
-------
Total expenses incurred by Fund 468
-------
Net investment income 1,860
-------
Net realized loss on investments sold (54)
Net unrealized gain on investments 17,016
-------
Net gain on investments 16,962
-------
Increase in net assets resulting from operations $18,822
=======
</TABLE>
See accompanying Notes to Financial Statements.
F-217
<PAGE> 313
- ------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS (in thousands)
Period from May 1, 1996 (commencement of operations) to
October 31, 1996
<TABLE>
<S> <C>
Operations:
Net investment income $ 1,860
Net realized loss on investments sold (54)
Net unrealized gain on investments 17,016
--------
Increase in net assets resulting from operations 18,822
--------
Dividends to shareholders from net investment income:
Investor shares --
e.Shares --
--------
Total dividends to shareholders --
--------
Capital share transactions:
Proceeds from shares sold 304,596
Net asset value of shares issued in
reinvestment of dividends --
Less payments for shares redeemed (43,315)
--------
Increase in net assets from capital share transactions 261,281
--------
Total increase in net assets 280,103
Net assets:
Beginning of period --
--------
End of period (including undistributed
net investment income of $1,860) $280,103
========
Number of Fund shares:
Sold 29,931
Reinvested --
Redeemed (4,191)
--------
Net increase in shares outstanding 25,740
Shares Outstanding:
Beginning of period --
--------
End of period 25,740
========
</TABLE>
See accompanying Notes to Financial Statements.
F-218
<PAGE> 314
Schwab S&P 500 Fund
- ------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
Period from May 1, 1996 (commencement of operations) to
October 31, 1996
1. DESCRIPTION OF THE FUND
The S&P 500 Fund (the "Fund"), is a series of Schwab Capital Trust (the
"Trust"), a no-load, open-end, investment management company organized as a
Massachusetts business trust on May 7, 1993 and registered under the Investment
Company Act of 1940, as amended.
The Fund offers two classes of shares -- Investor Shares and e.Shares(TM). The
Investor Shares are available to all investors. The e.Shares are available only
to clients of Schwab Institutional and The Charles Schwab Trust Company and to
certain tax-advantaged retirement plans who can execute their trading and
information requests through SchwabLink(TM). Both classes represent interests in
the same portfolio of investments of the Fund and are substantially the same in
all respects except that the classes are subject to different transfer agency
and shareholder service fees (see Note 3), investment minimums and certain other
expenses.
In addition to the Fund, the Trust also offers the 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 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
investments in money market funds are valued at the last sale price for a given
day, or if a sale is not reported for that day, at the mean between the most
recent quoted bid and asked prices. Unlisted securities for which
F-219
<PAGE> 315
- ------------------------------------------------------------------------------
market quotations are readily available are valued at the mean between the most
recent bid and asked prices. Securities for which no quotations are readily
available are valued at fair value as determined in good faith by the Fund's
Investment Manager pursuant to guidelines adopted by the Board of Trustees.
Short-term securities with 60 days or less to maturity are stated at amortized
cost, which approximates market value.
Security transactions -- Security transactions are accounted for on a trade date
basis (date the order to buy or sell is executed).
Deferred organization costs -- Costs incurred in connection with the
organization of the Fund and its initial registration with the Securities and
Exchange Commission 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. Expenses attributable to
both classes of shares of the Fund are allocated daily to each class based on
the value of settled shares outstanding of each respective class. Transfer
agency, shareholder service fees and certain other expenses that are class
specific are calculated daily at the class level.
Investment income and realized gains (losses) -- Dividend income and
distributions to shareholders are recorded on the ex-dividend date; interest
income is recorded on the accrual basis. Realized gains and losses from security
transactions are determined on an identified cost basis. Income and realized
gains (losses) are allocated daily to each class of shares based on the value of
settled shares outstanding of each respective class.
Federal income taxes -- It is the Fund's policy to meet the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all net investment income and realized net capital gains, if any, to
shareholders. Therefore, no federal income tax provision is required. The Fund
is considered a separate entity for tax purposes.
At October 31, 1996 (for financial reporting and federal income tax purposes),
net unrealized gain for the Fund aggregated $17,016,000 of
F-220
<PAGE> 316
SCHWAB S&P 500 FUND
- ------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
Period from May 1, 1996 (commencement of operations) to
October 31, 1996
which $23,841,000 related to appreciated securities and $6,825,000 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 0.36% of the first $1 billion
of average daily net assets, 0.33% of the next $1 billion and 0.31% of such
assets over $2 billion. Under this agreement, the Fund incurred investment
advisory and administration fees of $351,000, for the period ended October 31,
1996, before the Investment Manager reduced its fee (see Note 5).
Transfer agency and shareholder service agreements -- The Trust has transfer
agency and shareholder service agreements with Charles Schwab & Co., Inc.
("Schwab"). For transfer agency services provided under these agreements, Schwab
receives an annual fee, payable monthly, of 0.05% of its average daily net
assets for each class of shares. For shareholder services provided, Schwab
receives from the Investor Shares and e.Shares(TM) an annual fee of 0.20% and
0.05%, respectively, of average daily net assets. For the period ended October
31, 1996, the Fund incurred transfer agency and shareholder service fees of
$229,000 and $7,000 for the Investor Shares and e.Shares(TM), respectively,
before Schwab reduced its fees (see Note 5).
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
period ended October 31, 1996, the Trust made no direct payments to its officers
or trustees who were "interested persons" within the meaning of the Investment
Company Act of 1940, as amended. The Fund incurred fees of $7,000 related to the
Trust's unaffiliated trustees.
4. BORROWING AGREEMENT
The Trust has an arrangement with PNC Bank, N.A., the Fund's custodian, whereby
the Fund may borrow up to $10,000,000, on a
F-221
<PAGE> 317
- ------------------------------------------------------------------------------
temporary basis, to fund redemptions. Amounts borrowed under this arrangement
bear interest at periodically negotiated rates and may be collateralized by the
assets of the Fund. During the period ended October 31, 1996, no borrowings were
made under this arrangement.
5. EXPENSES REDUCED AND ABSORBED BY THE INVESTMENT MANAGER
AND SCHWAB
During the period ended October 31, 1996, the Investment Manager and Schwab
reduced a portion of their fees and absorbed certain expenses in order to limit
the Fund's ratio of operating expenses to average net assets. The total of such
fees and expenses reduced and absorbed by the Investment Manager were $265,000
and the total of such fees reduced by Schwab were $157,000 and $7,000, for
Investor shares and e.Shares, respectively (see Note 9).
6. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities, other than short-term obligations,
aggregated (in thousands) $262,087 and $1,907, respectively, for the period
ended October 31, 1996.
7. COMPOSITION OF NET ASSETS
At October 31, 1996, net assets consisted of (in thousands):
<TABLE>
<S> <C>
Paid in capital $261,281
Accumulated undistributed net investment income 1,860
Accumulated net realized loss on investments sold (54)
Net unrealized gain on investments 17,016
--------
Total $280,103
========
</TABLE>
At October 31, 1996, the Fund's Statement of Net Assets included: $12,000
payable for investment advisory and administration fee, $5,000 payable for
transfer agency and shareholder service fees, $574,000 payable for Fund shares
redeemed, $1,737,000 payable for securities purchased, $1,303,000 receivable for
fund shares sold and $14,000 receivable from advisor.
F-222
<PAGE> 318
SCHWAB S&P 500 FUND
- ------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
Period from May 1, 1996 (commencement of operations) to
October 31, 1996
8. CAPITAL SHARE TRANSACTIONS
The Fund offers two classes of shares: Investor Shares and e.Shares(TM). Shares
of each class represent interests in the same portfolio of investments of the
Fund. Transactions in capital shares for the period ended October 31, 1996 were
as follows (in thousands):
<TABLE>
<CAPTION>
INVESTOR
SHARES E.SHARES TOTAL
-------- -------- --------
<S> <C> <C> <C>
Capital share transactions:
Proceeds from shares sold $255,898 $ 48,698 $304,596
Net asset value of shares
issued in reinvestment of
dividends -- -- --
Less payments for shares
redeemed (29,107) (14,208) (43,315)
-------- --------
Increase in net assets from
capital share transactions $226,791 $ 34,490 $261,281
======== ========
Number of Fund shares:
Sold 25,237 4,694 29,931
Reinvested -- -- --
Redeemed (2,833) (1,358) (4,191)
-------- --------
Net increase in shares
outstanding 22,404 3,336 25,740
======== ========
</TABLE>
F-223
<PAGE> 319
- ------------------------------------------------------------------------------
9. FINANCIAL HIGHLIGHTS
For a share outstanding throughout the period from May 1, 1996 (commencement of
operations) to October 31, 1996:
<TABLE>
<CAPTION>
INVESTOR
SHARES E.SHARES(TM)
-------- ----------
<S> <C> <C>
Net asset value at beginning of period $ 10.00 $ 10.00
Income from investment operations
Net investment income 0.08 0.04
Net realized and unrealized gain
on investments 0.80 0.85
-------- --------
Total from investment operations 0.88 0.89
Less distributions
Dividends from net investment income -- --
Distributions from realized gain
on investments -- --
-------- --------
Total distributions -- --
-------- --------
Net asset value at end of period $ 10.88 $ 10.89
======== ========
Total return (not annualized) 8.80% 8.90%
Ratios/Supplemental data
Net assets, end of period (000s) $243,772 $ 36,331
Ratio of expenses to average net assets+ 0.49%* 0.28%*
Ratio of net investment income to
average net assets+ 1.89%* 1.82%*
Portfolio turnover rate 1% 1%
Average commission rate $0.02 $0.02
</TABLE>
- ---------------
+ The information contained in the above table is based on actual expenses for
the period, after giving effect to the portion of fees reduced and expenses
absorbed by the Investment Manager and Schwab. Had these fees and expenses not
been reduced and absorbed, the Fund's expense and net investment income ratios
would have been:
<TABLE>
<S> <C> <C>
Ratio of expenses to average net assets 0.89%* 1.19%*
Ratio of net investment income to
average net assets 1.49%* 0.91%*
</TABLE>
* Annualized
F-224
<PAGE> 320
- ------------------------------------------------------------------------------
To the Trustees and Shareholders of
the Schwab S&P 500 Fund
In our opinion, the accompanying statement of net assets 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
the Schwab S&P 500 Fund (one of the series constituting Schwab Capital Trust,
hereafter referred to as the "Trust") at October 31, 1996, and the results of
its operations, the changes in its net assets and the financial highlights for
the period May 1, 1996 (commencement of operations) through October 31, 1996, 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 audit. We conducted our audit of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audit, which included confirmation of securities at October
31, 1996 by correspondence with the custodian and brokers, provides a reasonable
basis for the opinion expressed above.
PRICE WATERHOUSE LLP
San Francisco, California
November 27, 1996
F-225
<PAGE> 321
SCHWAB ANALYTICS FUND(TM)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
October 31, 1996
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- -------
<S> <C> <C>
COMMON STOCK--99.4%
AEROSPACE/DEFENSE--2.1%
General Dynamics Corp. 11,000 $ 755
Rockwell International Corp. 24,100 1,326
-----
2,081
-----
AIR TRANSPORTATION--0.4%
UAL Corp.* 8,200 388
-----
ALCOHOLIC BEVERAGES--0.3%
Anheuser-Busch Companies, Inc. 7,900 304
-----
APPAREL--0.8%
Liz Claiborne Inc. 14,700 621
Nine West Group, Inc.* 3,200 160
-----
781
-----
AUTOMOTIVE PRODUCTS--0.0%
Goodyear Tire & Rubber 1,000 46
-----
BANKS--7.9%
Bancorp Hawaii, Inc. 6,800 269
City National Corp. 22,000 385
J.P. Morgan & Co. Inc. 33,700 2,911
NationsBank Corp. 9,000 848
Star Banc Corp.* 2,800 252
Suntrust Banks, Inc. 33,700 1,571
U.S. Bancorp 37,000 1,478
-----
7,714
-----
</TABLE>
F-226
<PAGE> 322
SCHWAB ANALYTICS FUND(TM)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
October 31, 1996
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- -------
<S> <C> <C>
BUSINESS MACHINES & SOFTWARE--8.8%
Compaq Computer Corp.* 28,800 $2,005
Computer Assoc. International Inc. 61,800 3,654
Dell Computer Corp.* 6,000 489
Diebold, Inc. 14,900 857
Storage Technology Corp.* 36,500 1,556
-----
8,561
-----
BUSINESS SERVICES--1.5%
HBO & Co. 16,600 1,000
Safety-Kleen Corp. 13,900 217
WMX Technologies Inc. 6,700 230
-----
1,447
-----
CHEMICAL--0.4%
Cytec Industries Inc.* 10,400 372
Lubrizol Corp. 1,800 54
-----
426
-----
CONSTRUCTION--0.3%
Sherwin Williams Co. 4,400 221
-----
CONSUMER-DURABLE--0.3%
Leggett & Platt, Inc. 9,700 290
-----
CONTAINERS--0.2%
Bemis Co., Inc. 5,900 207
-----
</TABLE>
F-227
<PAGE> 323
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- -------
<S> <C> <C>
ELECTRONICS--4.5%
ADC Telecommunications, Inc.* 41,900 $2,868
Intel Corp. 13,900 1,526
-----
4,394
-----
ENERGY-DEVELOPMENT--4.8%
Burlington Resources Inc. 13,100 660
Cooper Cameron Corp.* 5,900 377
Halliburton Co. 16,000 906
Occidental Petroleum Corp. 106,600 2,612
Union Texas Petroleum Holdings, Inc. 6,200 133
-----
4,688
-----
FOOD-AGRICULTURE--5.9%
Campbell Soup Co. 39,900 3,192
Coca-Cola Co. 33,000 1,667
Coca-Cola Enterprises, Inc. 20,800 887
Universal Corp. 1,400 38
-----
5,784
-----
GOLD--0.5%
Placer Dome, Inc. 21,100 506
-----
HEALTHCARE--9.8%
American Home Products Corp. 56,900 3,485
Bristol Myers Squibb Co. 38,800 4,103
Johnson & Johnson 17,000 837
Merck & Co. Inc. 15,600 1,156
-----
9,581
-----
</TABLE>
F-228
<PAGE> 324
SCHWAB ANALYTICS FUND(TM)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
October 31, 1996
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- -------
<S> <C> <C>
HOUSEHOLD PRODUCTS--3.0%
Avon Products, Inc.* 12,000 $ 651
Gillette Co. 31,000 2,317
-----
2,968
-----
IMAGING & PHOTO--0.4%
Eastman Kodak Co. 5,000 399
-----
INSURANCE--3.8%
American Re Corp. 11,500 740
Cigna Corp. 15,400 2,010
Sunamerica, Inc. 24,700 926
-----
3,676
-----
MEDIA--1.9%
Cox Communications, Inc. Class A* 10,000 185
Meredith Corp.* 5,600 281
Tribune Co. (New) 16,800 1,373
-----
1,839
-----
MISCELLANEOUS FINANCE--3.2%
Charter One Financial Inc. 8,800 382
Federal National Mortgage Assoc. 16,100 630
Student Loan Marketing Assoc. 25,700 2,127
-----
3,139
-----
MOTOR VEHICLE--1.6%
Arvin Industries, Inc. 7,500 172
Ford Motor Co. 2,900 91
Harley-Davidson, Inc. 29,700 1,340
-----
1,603
-----
</TABLE>
F-229
<PAGE> 325
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- -------
<S> <C> <C>
NON-FERROUS--0.2%
Alcan Aluminum Ltd. 7,300 $ 240
-----
OIL-DOMESTIC--3.0%
Oryx Energy Co.* 8,000 154
Unocal Corp. 76,000 2,784
-----
2,938
-----
OIL-INTERNATIONAL--3.9%
Chevron Corp. 7,100 467
Texaco, Inc. 32,700 3,323
-----
3,790
-----
PAPER--1.3%
International Paper Co. 23,900 1,022
Weyerhaeuser Co. 4,700 216
-----
1,238
-----
PRODUCER GOODS-MANUFACTURING--8.4%
Avery Dennison Corp. 10,700 705
Emerson Electric Co. 23,000 2,047
General Electric Co. 45,700 4,421
Johnson Controls, Inc.* 13,700 1,000
-----
8,173
-----
RAILROAD--0.8%
Norfolk Southern Corp. 8,700 775
------
RETAIL--6.2%
Gap Inc.* 100,900 2,926
Safeway Inc.* 32,900 1,411
Sears Roebuck & Co. 16,400 793
TJX Companies, Inc. 2,000 80
Toys 'R' Us, Inc.* 25,100 850
------
6,060
------
STEEL--0.3%
USX Corp. (U.S. Steel Group) 10,500 286
------
</TABLE>
F-230
<PAGE> 326
SCHWAB ANALYTICS FUND(TM)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
October 31, 1996
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- -------
<S> <C> <C>
TELEPHONE--5.9%
Bell Atlantic Corp. 34,800 $2,097
BellSouth Corp. 84,500 3,443
Worldcom, Inc.* 10,600 259
------
5,799
------
TOBACCO--1.6%
American Brands, Inc. 8,500 406
Philip Morris Companies, Inc. 12,400 1,149
------
1,555
------
TRAVEL & RECREATION--1.0%
Circus Circus Enterprises, Inc.* 5,400 186
Hilton Hotels Corp.* 24,800 753
------
939
------
UTILITIES--4.4%
Cinergy Corp. 10,300 341
Columbia Gas System, Inc. 11,500 699
IPALCO Enterprises, Inc.* 14,800 398
National Fuel Gas Co.* 6,100 227
Texas Utilities Co. 65,600 2,655
------
4,320
------
TOTAL COMMON STOCK
(Cost $89,745) 97,156
------
</TABLE>
F-231
<PAGE> 327
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- -------
<S> <C> <C>
CASH EQUIVALENTS--0.4%
Temporary Investment Fund, Inc.
TempCash Portfolio+
4.82%, 11/07/96 428,802 $ 429
------
TOTAL CASH EQUIVALENTS
(Cost $429) 429
------
TOTAL INVESTMENTS--99.8%
(Cost $90,174) 97,585
------
OTHER ASSETS AND LIABILITIES--0.2%
Other Assets 5,491
Liabilities (5,287)
------
204
------
NET ASSETS--100.0% (Note 7)
Applicable to 8,880,612 outstanding shares,
$0.00001 par value (unlimited shares authorized) $97,789
------
------
NET ASSET VALUE PER SHARE $11.01
-----
-----
</TABLE>
- ---------------
* Non-Income Producing Security
+ Interest rate represents the yield on October 31, 1996
See accompanying Notes to Financial Statements.
F-232
<PAGE> 328
SCHWAB ANALYTICS FUND(TM)
- ------------------------------------------------------------------------------
STATEMENT OF OPERATIONS (in thousands)
Period from July 1, 1996 (commencement of operations) to
October 31, 1996
<TABLE>
<S> <C>
Investment income:
Dividends $ 614
Interest 25
------
Total investment income 639
------
Expenses:
Investment advisory and administration fee 217
Transfer agency and shareholder service fees 74
Custodian fees 20
Registration fees 84
Professional fees 17
Shareholder reports 25
Trustees' fees 2
Amortization of deferred organization costs 1
Insurance and other expenses 6
------
446
Less expenses reduced (Note 4) (225)
------
Total expenses incurred by Fund 221
------
Net investment income 418
------
Net realized gain on investments sold 1,141
Net unrealized gain on investments 7,411
------
Net gain on investments 8,552
------
Increase in net assets resulting from operations $8,970
======
</TABLE>
See accompanying Notes to Financial Statements.
F-233
<PAGE> 329
- ------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS (in thousands)
Period from July 1, 1996 (commencement of operations) to
October 31, 1996
<TABLE>
<S> <C>
Operations:
Net investment income $ 418
Net realized gain on investments sold 1,141
Net unrealized gain on investments 7,411
------
Increase in net assets resulting from operations 8,970
------
Dividends to shareholders from net investment income --
------
Capital share transactions:
Proceeds from shares sold 99,367
Net asset value of shares issued in reinvestment of
dividends --
Less payments for shares redeemed (10,548)
------
Increase in net assets from capital share transactions 88,819
------
Total increase in net assets 97,789
Net assets:
Beginning of period --
------
End of period (including undistributed net investment
income of $418) $ 97,789
======
Number of Fund shares:
Sold 9,915
Reinvested --
Redeemed (1,034)
------
Net increase in shares outstanding 8,881
Shares outstanding:
Beginning of period --
------
End of period 8,881
======
</TABLE>
See accompanying Notes to Financial Statements.
F-234
<PAGE> 330
SCHWAB ANALYTICS FUND(TM)
- ------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
Period from July 1, 1996 (commencement of operations) to
October 31, 1996
1. DESCRIPTION OF THE FUND
The Schwab Analytics Fund (the "Fund") is a series of Schwab Capital Trust (the
"Trust"), a no-load, open-end, investment management company organized as a
Massachusetts business trust on May 7, 1993 and registered under the Investment
Company Act of 1940, as amended.
In addition to the Fund, the Trust also offers the Schwab 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, 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
investments in money market funds are valued at the last sale price for a given
day, or if a sale is not reported for that day, at the mean between the most
recent quoted bid and asked prices. Unlisted securities for which market
quotations are readily available are valued at the mean between the most recent
bid and asked prices. Securities for which no quotations are readily available
are valued at fair value as determined by the Fund's investment manager pursuant
to guidelines adopted in good faith by the Board of Trustees. Short-term
securities with 60 days or less to maturity are stated at amortized cost, which
approximates market value.
F-235
<PAGE> 331
- ------------------------------------------------------------------------------
Security transactions and investment income -- Security transactions are
accounted for on a trade date basis (date the order to buy or sell is executed).
Dividend income and distributions to shareholders are recorded on the
ex-dividend date; interest income is recorded on the accrual basis. Realized
gains and losses from security transactions are determined on an identified cost
basis.
Repurchase agreements -- Repurchase agreements are fully collateralized by U.S.
Treasury or government agency securities. All collateral is held by the Fund's
custodian and is monitored daily to ensure that its market value at least equals
the repurchase price under the agreement.
Deferred organization costs -- Costs incurred in connection with the
organization of the Fund and its initial registration with the Securities and
Exchange Commission 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 October 31, 1996, (for financial reporting and federal income tax purposes),
net unrealized gain aggregated $7,411,000, of which $8,203,000 related to
appreciated securities and $792,000 related to depreciated securities.
F-236
<PAGE> 332
SCHWAB ANALYTICS FUND(TM)
- ------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
Period from July 1, 1996 (commencement of operations) to
October 31, 1996
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 0.74% 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. Under this agreement, the Fund incurred investment
advisory and administration fees of $217,000 during the period ended October 31,
1996, before the Investment Manager reduced its fee (see Note 4).
Sub-advisory agreement -- The Investment Manager has a sub-advisory agreement
with Symphony Asset Management, Inc. ("Symphony") to serve as sub-adviser to the
Fund. Symphony does not receive compensation directly from the Fund. However,
the Investment Manager pays Symphony an annual fee, payable monthly, of 0.20% of
the Fund's average daily net assets on the first $300 million, 0.15% of the next
$500 million, and 0.10% of such assets over $800 million.
Transfer agency and shareholder service agreements -- The Trust has transfer
agency and shareholder service agreements with Charles Schwab & Co., Inc.
("Schwab"). For services provided under these agreements, Schwab receives an
annual fee, payable monthly, of 0.05% of the average daily net assets for
transfer agency services and 0.20% of such assets for shareholder services. For
the period ended October 31, 1996, the Fund incurred transfer agency and
shareholder service fees of $74,000, before Schwab reduced its fees (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
period ended October 31, 1996, 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 $2,000 related to the
Trust's unaffiliated trustees.
F-237
<PAGE> 333
- ------------------------------------------------------------------------------
4. EXPENSES REDUCED BY THE INVESTMENT MANAGER AND SCHWAB
During the period ended October 31, 1996, 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. The total of such fees reduced by the Investment
Manager and Schwab were $151,000 and $74,000, respectively (see Note 8).
5. BORROWING AGREEMENT
The Trust has an arrangement with PNC Bank, N.A., the Fund's custodian, whereby
the Fund may borrow up to $10,000,000, on a temporary basis, to fund
redemptions. Amounts borrowed under this arrangement bear interest at
periodically negotiated rates and may be collateralized by the assets of the
Fund. During the period ended October 31, 1996, no borrowings were made under
this arrangement.
6. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities, other than short-term obligations,
aggregated (in thousands) $116,705 and $28,101, respectively, for the period
ended October 31, 1996.
F-238
<PAGE> 334
SCHWAB ANALYTICS FUND(TM)
- ------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
Period from July 1, 1996 (commencement of operations) to
October 31, 1996
7. COMPOSITION OF NET ASSETS
At October 31, 1996, net assets consisted of (in thousands):
<TABLE>
<S> <C>
Paid in capital $88,819
Accumulated undistributed net investment income 418
Accumulated net realized gain on investments sold 1,141
Net unrealized gain on investments 7,411
-------
Total $97,789
=======
</TABLE>
At October 31, 1996, the Fund's Statement of Net Assets included: $4,633,000
payable for investments purchased, $487,000 payable for Fund shares redeemed,
$7,000 payable for investment advisory and administration fees and $141,000
receivable for Fund shares sold.
F-239
<PAGE> 335
- ------------------------------------------------------------------------------
8. FINANCIAL HIGHLIGHTS
For a share outstanding throughout the period from July 1, 1996 (commencement of
operations) to October 31, 1996:
<TABLE>
<CAPTION>
<S> <C>
Net asset value at beginning of period $ 10.00
Income from investment operations
Net investment income 0.05
Net realized and unrealized gain on investments 0.96
-------
Total from investment operations 1.01
Less distributions
Dividends from net investment income --
Distributions from realized gain on investments --
-------
Total distributions --
-------
Net asset value at end of period $ 11.01
=======
Total return (not annualized) 10.10%
Ratios/Supplemental data
Net assets, end of period (000s) $97,789
Ratio of expenses to average net assets+ 0.75%*
Ratio of net investment income to average net assets+ 1.41%*
Portfolio turnover rate 33%
Average commission rate $0.03
</TABLE>
- ---------------
+ The information contained in the above table is based on actual expenses for
the period, after giving effect to the portion of fees reduced by the
Investment Manager and Schwab. Had these fees not been reduced, the Fund's
expense and net investment income ratios would have been:
<TABLE>
<S> <C>
Ratio of expenses to average net assets 1.51%*
Ratio of net investment income to average net assets 0.65%*
</TABLE>
* Annualized
F-240
<PAGE> 336
- ------------------------------------------------------------------------------
To the Trustees and Shareholders of
the Schwab Analytics Fund(TM)
In our opinion, the accompanying statement of net assets 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
the Schwab Analytics Fund (one of the series constituting Schwab Capital Trust,
hereafter referred to as the "Trust") at October 31, 1996, and the results of
its operations, the changes in its net assets and the financial highlights for
the period July 1, 1996 (commencement of operations) through October 31, 1996,
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 audit. We conducted our audit of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audit, which included confirmation of securities at October
31, 1996 by correspondence with the custodian and brokers, provides a reasonable
basis for the opinion expressed above.
PRICE WATERHOUSE LLP
San Francisco, California
November 27, 1996
F-241
<PAGE> 337
SCHWAB ONESOURCE PORTFOLIOS--INTERNATIONAL
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
October 31, 1996
<TABLE>
<CAPTION>
Number
of Shares Value
--------- -----------
<S> <C> <C>
MUTUAL FUNDS--88.8%
AIM International Equity Fund Class A 112,929 $ 1,735,718
Acorn International Fund 60,975 1,181,078
BT International Equity Fund 176,922 2,949,283
Babson-Stewart Ivory International Fund 65,548 1,178,549
Brinson Non-U.S. Equity Fund Class A 95,201 1,067,200
Colonial Newport Tiger Fund Class Z* 149,276 1,965,971
EV Traditional Greater China Growth Fund* 38,597 590,539
Founders Passport Fund 245,987 3,350,338
Founders Worldwide Growth Fund 55,191 1,181,078
GAM Japan Capital Fund Class A 163,626 1,652,627
Hotchkis & Wiley International Fund 111,786 2,366,505
Invesco European Small Company Fund 105,473 1,681,232
Ivy Canada Fund Class A 47,105 483,764
Ivy International Fund Class A 85,736 2,951,035
Janus Overseas Fund 222,425 3,294,111
Janus Worldwide Fund 68,308 2,363,469
Managers International Equity Fund 55,065 2,357,896
Oakmark International Fund 79,468 1,185,684
Oppenheimer Global Fund Class A 30,123 1,179,634
Scudder Latin America Fund 52,642 1,086,001
Seligman Henderson Global Smaller Companies Fund
Class A 233,586 3,536,498
Seven Seas Active International Fund 101,820 1,094,562
SoGen Overseas Fund 212,879 2,954,757
Strong International Stock Fund 85,777 1,179,434
Twentieth Century International Growth Fund 140,115 1,178,364
Vontobel Eastern European Equity Fund* 76,300 1,062,101
Vontobel EuroPacific Fund 62,365 1,177,455
Warburg Pincus International Equity Fund Common
Shares 85,428 1,767,511
Warburg Pincus Japan OTC Fund Common Shares* 190,147 1,610,513
Wright Managed International Blue Chip Investment
Fund 69,396 1,179,736
----------
TOTAL MUTUAL FUNDS
(Cost $53,066,888) 52,542,643
----------
</TABLE>
F-242
<PAGE> 338
SCHWAB ONESOURCE PORTFOLIOS--INTERNATIONAL
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
October 31, 1996
<TABLE>
<CAPTION>
Number
of Shares Value
--------- -----------
<S> <C> <C>
CASH EQUIVALENTS--13.8%
Seven Seas Money Market Fund+
5.04%, 11/07/96 8,195,371 $ 8,195,371
----------
TOTAL MONEY MARKET FUNDS
(Cost $8,195,371) 8,195,371
----------
TOTAL INVESTMENTS--102.6%
(Cost $61,262,259) 60,738,014
----------
OTHER ASSETS AND LIABILITIES--(2.6%)
Other Assets 297,782
Liabilities (1,855,672)
----------
(1,557,890)
----------
NET ASSETS--100.0% (Note 6)
Applicable to 5,970,171 outstanding shares,
$0.00001 par value (unlimited shares authorized) $59,180,124
----------
----------
NET ASSET VALUE PER SHARE $9.91
----
----
</TABLE>
- ---------------
* Non-Income Producing Security
+ Interest rate represents the yield on October 31, 1996.
See accompanying Notes to Financial Statements.
F-243
<PAGE> 339
- ------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
Period from October 16, 1996 (commencement of operations) to
October 31, 1996
<TABLE>
<S> <C>
Investment income:
Interest $ 23,774
------
Total investment income 23,774
------
Expenses:
Investment advisory and administration fee 17,321
Transfer agency and shareholder service fees 5,852
Custodian fees 2,800
Registration fees 22,880
Professional fees 9,408
Shareholder reports 19,008
Trustees' fees 1,504
Amortization of deferred organization costs 592
Insurance and other expenses 416
------
79,781
Less expenses reduced and absorbed (Note 4) (68,078)
------
Total expenses incurred by Fund 11,703
------
Net investment income 12,071
------
Net realized gain (loss) on investments sold --
Net unrealized loss on investments (524,245)
------
Net loss on investments (524,245)
------
Decrease in net assets resulting from operations $(512,174)
======
</TABLE>
See accompanying Notes to Financial Statements.
F-244
<PAGE> 340
SCHWAB ONESOURCE PORTFOLIOS--INTERNATIONAL
- ------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
Period from October 16, 1996 (commencement of operations) to
October 31, 1996
<TABLE>
<S> <C>
Operations:
Net investment income $ 12,071
Net realized gain (loss) on investments sold --
Net unrealized loss on investments (524,245)
----------
Decrease in net assets resulting from operations (512,174)
----------
Dividends to shareholders from net investment income --
----------
Capital share transactions:
Proceeds from shares sold 59,979,849
Net asset value of shares issued in reinvestment
of dividends --
Less payments for shares redeemed (287,551)
----------
Increase in net assets from capital share
transactions 59,692,298
----------
Total increase in net assets 59,180,124
Net assets:
Beginning of period --
----------
End of period (including undistributed net
investment income of $12,071) $59,180,124
==========
Number of Fund shares:
Sold 5,999,014
Reinvested --
Redeemed (28,843)
----------
Net increase in shares outstanding 5,970,171
Shares outstanding:
Beginning of period --
----------
End of period 5,970,171
==========
</TABLE>
See accompanying Notes to Financial Statements.
F-245
<PAGE> 341
- ------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
Period from October 16, 1996 (commencement of operations) to
October 31, 1996
1. DESCRIPTION OF THE FUND
The Schwab OneSource Portfolios -- International (the "Fund") is a series of
Schwab Capital Trust (the "Trust"), a no-load, open-end, management investment
company organized as a Massachusetts business trust on May 7, 1993 and
registered under the Investment Company Act of 1940, as amended (the "1940
Act").
The Fund's assets are invested principally in a diversified portfolio of
underlying international equity funds, primarily OneSource Funds that are not
affiliated with the Fund, as defined in the 1940 Act. International equity funds
are those which invest, under normal market conditions, in equity securities of
companies located in one or more countries other than the United States with a
developed securities market. The Fund is designed to give shareholders a single
investment that offers broad international diversification.
In addition to the Fund, 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, Schwab Analytics
Fund(TM), 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 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
F-246
<PAGE> 342
SCHWAB ONESOURCE PORTFOLIOS--INTERNATIONAL
- ------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
Period from October 16, 1996 (commencement of operations) to
October 31, 1996
exchange are valued at the last sale price for a given day, or if a sale is not
reported for that day, at the mean between the most recent bid and asked prices.
Unlisted securities for which market quotations are readily available are valued
at the mean between the most recent bid and asked prices. Other investments, 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.
Security transactions and investment income -- Security transactions are
accounted for on a trade date basis (date the order to buy or sell is executed).
Dividend income and distributions to shareholders are recorded on the
ex-dividend date; interest income is recorded on the accrual basis. Realized
gains and losses from security transactions are determined on an identified cost
basis.
Deferred organization costs -- Costs incurred in connection with the
organization of the Fund and its initial registration with the Securities and
Exchange Commission 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 October 31, 1996, (for financial reporting and federal income tax purposes),
net unrealized loss aggregated $524,245, of which $64,481 related to appreciated
securities and $588,726 related to depreciated securities.
F-247
<PAGE> 343
- ------------------------------------------------------------------------------
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
Fund's business affairs and provides underlying fund analysis, selection,
ongoing monitoring, and investment management services. For these services, the
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. Under this agreement, the Fund incurred investment advisory and
administration fees of $17,321 during the period ended October 31, 1996, before
the Investment Manager reduced its fee (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. For the
period ended October 31, 1996, the Fund incurred transfer agency and shareholder
service fees of $5,852, before Schwab reduced its fees (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
period ended October 31, 1996, 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 $1,504 related to the
Trust's unaffiliated trustees.
4. EXPENSES REDUCED AND ABSORBED BY THE INVESTMENT MANAGER
AND SCHWAB
The Investment Manager and Schwab reduced a portion of their fees and absorbed
certain expenses in order to limit the Fund's ratio of operating expenses to
average net assets. For the period ended October 31, 1996, the total of such
fees and expenses reduced and absorbed by the Investment Manager was $62,226 and
the total of such fees reduced by Schwab was $5,852 (see Note 7).
F-248
<PAGE> 344
SCHWAB ONESOURCE PORTFOLIOS--INTERNATIONAL
- ------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
Period from October 16, 1996 (commencement of operations) to
October 31, 1996
5. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities, other than short-term obligations,
aggregated $53,066,888 and $0, respectively, for the period ended October 31,
1996.
6. COMPOSITION OF NET ASSETS
At October 31, 1996, net assets consisted of:
<TABLE>
<S> <C>
Paid in capital $59,692,298
Accumulated undistributed net investment income 12,071
Net unrealized loss on investments (524,245)
-----------
Total $59,180,124
===========
</TABLE>
At October 31, 1996, the Fund's Statement of Net Assets included: $1,717,546
payable for investments purchased, $15,935 payable for Fund shares redeemed,
$44,905 receivable from advisor and $163,521 receivable for Fund shares sold.
F-249
<PAGE> 345
Schwab OneSource Portfolios--International
- ------------------------------------------------------------------------------
7. FINANCIAL HIGHLIGHTS
For a share outstanding throughout the period from October 16, 1996
(commencement of operations) to October 31, 1996:
<TABLE>
<S> <C>
Net asset value at beginning of period $ 10.00
Income from investment operations
Net investment income --
Net realized and unrealized loss on investments (0.09)
-----------
Total from investment operations (0.09)
Less distributions
Dividends from net investment income --
Distributions from realized gain on investments --
-----------
Total distributions --
-----------
Net asset value at end of period $ 9.91
===========
Total return (not annualized) (0.90%)
Ratios/Supplemental data
Net assets, end of period $59,180,124
Ratio of expenses to average net assets+ 0.50%*
Ratio of net investment income to average net
assets+ 0.52%*
Portfolio turnover rate 0%
Average commission rate $ 0.00
</TABLE>
- ---------------
+ The information contained in the above table is based on actual expenses for
the period, after giving effect to the portion of fees reduced and expenses
absorbed by the Investment Manager and Schwab. Had these fees and expenses not
been reduced and absorbed, the Fund's expense and net investment income ratios
would have been:
<TABLE>
<S> <C>
Ratio of expenses to average net assets 3.41%*
Ratio of net investment loss to average net assets (2.39%)*
</TABLE>
* Annualized
F-250
<PAGE> 346
- ------------------------------------------------------------------------------
To the Trustees and Shareholders
of the Schwab OneSource Portfolios--International
In our opinion, the accompanying statement of net assets 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
the Schwab OneSource Portfolios - International (one of the series constituting
Schwab Capital Trust, hereafter referred to as the "Trust") at October 31, 1996,
and the results of its operations, the changes in its net assets and the
financial highlights for the period October 16, 1996 (commencement of
operations) through October 31, 1996, 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 audit. We conducted our audit of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit, which included
confirmation of securities at October 31, 1996 by correspondence with the
custodian and brokers, provides a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
San Francisco, California
November 27, 1996
F-251
<PAGE> 347
SCHWAB ONESOURCE PORTFOLIOS--INTERNATIONAL
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
April 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
---------- -------
<S> <C> <C>
MUTUAL FUNDS--98.7%
Acorn International Fund 31,332 $ 618
Berger/Biam International Core Fund+ 188,460 2,024
BT Investment International Equity Fund 255,247 4,742
EV Traditional Greater China Growth Fund 136,795 2,224
Founders Passport Fund 289,728 4,076
GAM Japan Capital Fund Class A 100,698 986
Hotchkis & Wiley International Fund 230,480 5,121
Invesco European Small Company Fund 177,731 2,876
Ivy International Fund Class A 139,173 5,163
Janus Overseas Fund 450,961 7,355
Managers International Equity Fund 43,491 1,942
Oakmark International Fund 433,069 7,385
Oppenheimer International Growth Fund Class A+ 188,477 2,445
Scudder Japan Fund 617,451 4,977
Scudder Latin American Fund 61,754 1,584
SoGen Overseas Fund 484,662 6,722
Strong International Stock Fund 106,730 1,464
American Century-Twentieth Century International Growth
Fund 557,419 4,783
Vontobel Eastern European Equity Fund+ 169,898 2,926
Vontobel EuroPacific Fund 91,847 1,714
Warburg Pincus International Equity Fund 69,150 1,474
------
TOTAL MUTUAL FUNDS (Cost $69,825) 72,601
------
</TABLE>
F-252
<PAGE> 348
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
---------- -------
<S> <C> <C>
CASH EQUIVALENTS--1.5%
MSTC Cash Reserve Liquid Asset Fund* 5.33%, 05/07/97 1,113,596 $ 1,114
------
TOTAL CASH EQUIVALENTS (Cost $1,114) 1,114
------
TOTAL INVESTMENTS--100.2% (Cost $70,939) 73,715
------
OTHER ASSETS AND LIABILITIES--(0.2)%
Other Assets 652
Liabilities (809)
------
(157)
------
NET ASSETS--100.0% (see Note 6)
Applicable to 7,050,894 outstanding $0.00001 par value
shares (unlimited shares authorized) $73,558
======
NET ASSET VALUE PER SHARE $10.43
=====
</TABLE>
See accompanying Notes to Statements of Net Assets and Notes to Financial
Statements.
F-253
<PAGE> 349
SCHWAB ONESOURCE PORTFOLIOS--GROWTH ALLOCATION
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
April 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
---------- -------
<S> <C> <C>
MUTUAL FUNDS--96.9%
Baron Asset Fund 184,684 $ 6,503
Barr Rosenberg Series Trust U.S. Small Capitalizaton
Insurance Shares 274,157 1,960
Brinson US Equity Fund Class A 168,400 2,649
BT Investment International Equity Fund 149,409 2,776
Franklin California Growth Fund 139,904 2,707
Hotchkis & Wiley Low Duration Fund 294,946 2,994
Ivy International Fund Class A 127,413 4,727
Janus Investment Balanced Fund 92,465 1,352
Janus Overseas Fund 450,929 7,355
Kemper Diversified Income Fund 482,508 2,847
Kemper Dreman High Return Fund Class A 230,200 6,471
Lindner Dividend Fund 157,895 4,200
Longleaf Partners Funds Trust Realty Fund 190,225 2,793
Montgomery Growth Fund 91,964 1,910
Oakmark Fund 108,481 3,799
Oppenheimer Bond Fund for Growth Class A 195,557 2,820
Oppenheimer Quest For Value Class A 59,364 1,869
Papp American Abroad Fund 56,613 1,304
Scudder Japan Fund 248,478 2,003
SoGen Overseas Fund 102,490 1,422
Sound Shore Fund 285,884 6,598
Strong Advantage Fund 84,491 850
Strong Schafer Value Fund 70,317 3,789
Torray Fund 217,533 5,562
American Century-Twentieth Century International Growth
Fund 421,133 3,613
Westwood Balanced Fund 103,595 1,038
Westwood Equity Retail Fund 165,857 1,302
White Oak Growth Stock Fund 100,961 2,435
------
TOTAL MUTUAL FUNDS (Cost $89,119) 89,648
------
</TABLE>
F-254
<PAGE> 350
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
---------- -------
<S> <C> <C>
CASH EQUIVALENTS--1.7%
MSTC Cash Reserve Liquid Asset Fund* 5.33%, 05/07/97 1,556,821 $ 1,557
------
TOTAL CASH EQUIVALENTS (Cost $1,557) 1,557
------
TOTAL INVESTMENTS--98.6% (Cost $90,676) 91,205
------
OTHER ASSETS AND LIABILITIES--1.4%
Other Assets 6,253
Liabilities (4,919)
------
1,334
------
NET ASSETS--100.0% (see Note 6)
Applicable to 9,172,376 outstanding $0.00001 par value
shares (unlimited shares authorized) $92,539
======
NET ASSET VALUE PER SHARE $10.09
=====
</TABLE>
See accompanying Notes to Statements of Net Assets and Notes to Financial
Statements.
F-255
<PAGE> 351
SCHWAB ONESOURCE PORTFOLIOS--BALANCED ALLOCATION
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
April 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
---------- -------
<S> <C> <C>
MUTUAL FUNDS--96.4%
Baron Asset Fund 50,906 $ 1,792
Barr Rosenberg Series Trust U.S. Small Capitalizaton
Insurance Shares 90,871 650
BT Investment International Equity Fund 74,136 1,377
Franklin California Growth Fund 45,674 884
Hotchkis & Wiley Low Duration Fund 227,628 2,310
Ivy International Fund Class A 49,915 1,852
Janus Investment Balanced Fund 77,729 1,136
Janus Overseas Fund 166,834 2,721
Kemper Diversified Income Fund 782,792 4,618
Kemper Dreman High Return Fund Class A 81,490 2,291
Lindner Dividend Fund 77,206 2,054
Longleaf Partners Funds Trust Realty Fund 48,490 712
Montgomery Growth Fund 34,038 707
Oakmark Fund 53,540 1,875
Oppenheimer Bond Fund for Growth Class A 95,847 1,382
Oppenheimer Quest For Value Class A 16,763 528
Papp American Abroad Fund 21,059 485
Scudder Japan Fund 92,098 742
SoGen Overseas Fund 23,246 322
Sound Shore Fund 97,733 2,256
Strong Advantage Fund 594,864 5,984
Strong Schafer Value Fund 26,028 1,403
Torray Fund 71,721 1,834
American Century-Twentieth Century International Growth
Fund 195,051 1,674
Westwood Balanced Fund 69,034 692
Westwood Equity Retail Fund 102,573 805
White Oak Growth Stock Fund 47,202 1,139
------
TOTAL MUTUAL FUNDS (Cost $44,136) 44,225
------
</TABLE>
F-256
<PAGE> 352
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
---------- -------
<S> <C> <C>
CASH EQUIVALENTS--2.4%
MSTC Cash Reserve Liquid Asset Fund* 5.33%, 05/07/97 1,090,875 $ 1,091
------
TOTAL CASH EQUIVALENTS (Cost $1,091) 1,091
------
TOTAL INVESTMENTS--98.8% (Cost $45,227) 45,316
------
OTHER ASSETS AND LIABILITIES--1.2%
Other Assets 1,952
Liabilities (1,385)
------
567
------
NET ASSETS--100.0% (see Note 6)
Applicable to 4,558,429 outstanding $0.00001 par value
shares (unlimited shares authorized) $45,883
======
NET ASSET VALUE PER SHARE $10.07
=====
</TABLE>
- ---------------
NOTES TO STATEMENTS OF NET ASSETS
+ Non-Income Producing Security.
* Interest rate represents the yield on report date.
See accompanying Notes to Financial Statements.
F-257
<PAGE> 353
SCHWAB ONESOURCE PORTFOLIOS
- ------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS (in thousands)
<TABLE>
<CAPTION>
Schwab OneSource Portfolios
---------------------------------------------
International Growth Balanced
------------- Allocation Allocation
Six Months ------------ ------------
ended April Period ended Period ended
30, April 30, April 30,
1997 1997+ 1997+
(Unaudited) (Unaudited) (Unaudited)
------------- ------------ ------------
<S> <C> <C> <C>
Investment income:
Dividends $ 1,311 $ 1,562 $ 895
Interest 49 104 55
------ ------- -----
Total investment income 1,360 1,666 950
------ ------- -----
Expenses:
Investment advisory and
administration fee 256 294 142
Transfer agency and shareholder
service fees 87 99 48
Custodian fees 19 28 24
Portfolio accounting fees 2 3 2
Registration fees 33 29 34
Professional fees 9 9 6
Shareholder reports 21 17 13
Trustees' fees 3 2 2
Amortization of deferred
organization costs 7 2 2
Insurance and other expenses 2 1 1
------ ------- -----
439 484 274
Less expenses reduced and absorbed
(see Note 4) (266) (286) (178)
------ ------- -----
Total expenses incurred by Fund 173 198 96
------ ------- -----
Net investment income 1,187 1,468 854
------ ------- -----
Net realized loss on investments
sold (957) (1,293) (659)
Net realized gains received from
underlying funds 964 1,079 450
Net unrealized gain on investments 3,300 529 89
------ ------- -----
Net gain (loss) on investments 3,307 315 (120)
------ ------- -----
Increase in net assets resulting
from operations $ 4,494 $ 1,783 $ 734
====== ======= =====
</TABLE>
+ Period from November 18, 1996 (commencement of operations) through April 30,
1997.
See accompanying Notes to Financial Statements.
F-258
<PAGE> 354
SCHWAB ONESOURCE PORTFOLIOS
- ------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS (in thousands)
<TABLE>
<CAPTION>
Schwab OneSource Portfolios
--------------------------------------------------------
Growth Balanced
International Allocation Allocation
-------------------------- ----------- -----------
Periods Ended
April 30, April 30, April 30,
1997+ October 31, 1997+++ 1997+++
(Unaudited) 1996++ (Unaudited) (Unaudited)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Operations:
Net investment income $ 1,187 $ 12 $ 1,468 $ 854
Net realized loss on investments sold (957) -- (1,293) (659)
Net realized gains received from
underlying funds 964 -- 1,079 450
Net unrealized gain (loss) on investments 3,300 (524) 529 89
-------- ------- -------- -------
Increase (decrease) in net assets
resulting
from operations 4,494 (512) 1,783 734
-------- ------- -------- -------
Dividends to shareholders from net
investment income (1,133) -- (1,148) (520)
-------- ------- -------- -------
Capital share transactions:
Proceeds from shares sold 22,814 59,980 105,361 51,499
Net asset value of shares issued in
reinvestment of dividends 1,062 -- 1,114 488
Less payments for shares redeemed (12,859) (288) (14,571) (6,318)
-------- ------- -------- -------
Increase in net assets from capital share
transactions 11,017 59,692 91,904 45,669
-------- ------- -------- -------
Total increase in net assets 14,378 59,180 92,539 45,883
Net assets:
Beginning of period 59,180 -- -- --
-------- ------- -------- -------
End of period (including undistributed
net investment income of $66, $12,
$320, and $334 respectively) $ 73,558 $59,180 $ 92,539 $45,883
======== ======= ======== =======
Number of Fund shares:
Sold 2,226 5,999 10,509 5,138
Reinvested 105 -- 112 49
Redeemed (1,250) (29) (1,449) (629)
-------- ------- -------- -------
Net increase in shares outstanding 1,081 5,970 9,172 4,558
Shares outstanding:
Beginning of period 5,970 -- -- --
-------- ------- -------- -------
End of period 7,051 5,970 9,172 4,558
======== ======= ======== =======
</TABLE>
- ---------------
+ Period from November 1, 1996 through April 30, 1997.
++ Period from October 16, 1996 (commencement of operations) through October
31, 1996.
+++ Period from November 18, 1996 (commencement of operations) through April 30,
1997.
See accompanying Notes to Financial Statements.
F-259
<PAGE> 355
- ------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
Periods ended April 30, 1997 (Unaudited)
1. DESCRIPTION OF THE FUND
The Schwab OneSource Portfolios -- International, Growth Allocation and Balanced
Allocation, (the "Funds") are 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 (the "1940 Act").
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(TM). 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 ask 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.
F-260
<PAGE> 356
- ------------------------------------------------------------------------------
Deferred organization costs -- Costs incurred in connection with the
organization of the Funds are amortized on a straight-line basis over a
five-year period from the Funds' commencement of operations.
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 April 30, 1997 (for financial reporting and federal income tax purposes), net
unrealized gain for the International, Growth Allocation and Balanced Allocation
aggregated $2,776,000, $529,000 and $89,000, respectively, of which $2,802,000,
$1,305,000 and $472,000, respectively, related to appreciated securities and
$26,000, $776,000 and $383,000, 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 has reduced a portion of its fees for
the periods 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 each Fund's average daily net assets
for transfer agency services and 0.20% of such assets for shareholder
F-261
<PAGE> 357
- ------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
services. Schwab has reduced a portion of its fees for the periods ended April
30, 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 April 30, 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 related to the Trust's unaffiliated trustees of
$3,000, $2,000 and $2,000 for the International, Growth Allocation and Balanced
Allocation, respectively.
4. EXPENSES REDUCED AND ABSORBED BY THE INVESTMENT MANAGER AND SCHWAB
The Investment Manager and Schwab reduced a portion of their fees and absorbed
certain expenses in order to limit the Funds' ratio of operating expenses to
average net assets. For the periods ended April 30, 1997, the total of such fees
and expenses reduced and absorbed by the Investment Manager was $179,000,
$187,000 and $130,000 for the International, Growth Allocation and Balanced
Allocation, respectively, and the total of such fees reduced by Schwab was
$87,000, $99,000 and $48,000, for the International, Growth Allocation and
Balanced Allocation, respectively (see Note 7).
5. INVESTMENT TRANSACTIONS
Purchases, sales and maturities of investment securities, other than short-term
obligations, for the periods ended April 30, 1997, were as follows:
<TABLE>
<CAPTION>
Growth Balanced
International Allocation Allocation
--------------- ---------------- ----------------
April 30, 1997+ April 30, 1997++ April 30, 1997++
--------------- ---------------- ----------------
<S> <C> <C> <C>
Purchases $85,025,000 $189,219,000 $ 82,743,000
Proceeds of sales
and maturities $67,301,000 $ 98,863,000 $ 37,767,000
</TABLE>
- ---------------
+ Period from November 1, 1996 through April 30, 1997.
++ Period from November 18, 1996 (commencement of operations) through April 30,
1997.
F-262
<PAGE> 358
- ------------------------------------------------------------------------------
6. COMPOSITION OF NET ASSETS
At April 30, 1997, net assets for each Fund consisted of:
<TABLE>
<CAPTION>
Growth Balanced
International Allocation Allocation
------------- ----------- -----------
<S> <C> <C> <C>
Paid in capital $ 70,709,000 $91,904,000 $45,669,000
Accumulated undistributed
net investment income 66,000 320,000 334,000
Accumulated net realized
gain (loss) on
investments sold and
underlying funds 7,000 (214,000) (209,000)
Net unrealized gain on
investments 2,776,000 529,000 89,000
------------- ----------- -----------
Net Assets $ 73,558,000 $92,539,000 $45,883,000
========== ========== ==========
</TABLE>
At April 30, 1997, the International Fund's Statement of Net Assets included:
$570,000 payable for investments purchased, $157,000 payable for Fund shares
redeemed, $4,000 payable for investment advisory fee, $572,000 receivable for
investments sold, and $12,000 receivable for Fund shares sold. The Growth
Allocation Fund's Statement of Net Assets included: $4,780,000, payable for
investments purchased, $72,000 payable for Fund shares redeemed, $6,000 payable
for investment advisory fee, $6,162,000 receivable for investments sold, and
$7,000 receivable for Fund shares sold. The Balanced Allocation Fund's Statement
of Net Assets included: $1,307,000 payable for investment purchased, $19,000
payable for Fund shares redeemed, $1,813,000 receivable for investments sold,
$62,000 receivable for fund shares sold, and $1,000 receivable from advisor.
F-263
<PAGE> 359
- ------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
7. FINANCIAL HIGHLIGHTS
For a share outstanding throughout each period:
<TABLE>
<CAPTION>
Growth Balanced
International Allocation Allocation
-------------------------- ----------- -----------
Periods ended
April 30, April 30, April 30,
1997++ October 31, 1997++++++ 1997++++++
(Unaudited) 1996++++ (Unaudited) (Unaudited)
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Net asset value at beginning of period $ 9.91 $ 10.00 $ 10.00 $ 10.00
Income from investment operations
Net investment income 0.18 -- 0.17 0.20
Net realized and unrealized gain (loss)
on investments 0.51 (0.09) 0.06 --
----------- ------ ----------- -----------
Total from investment operations 0.69 (0.09) 0.23 0.20
Less distributions
Dividends from net investment income (0.17) -- (0.14) (0.13)
----------- ------ ----------- -----------
Total distributions (0.17) -- (0.14) (0.13)
----------- ------ ----------- -----------
Net asset value at end of period $ 10.43 $ 9.91 $ 10.09 $ 10.07
============ ============ ============ ============
Total return (not annualized) 7.05% (0.90%) 2.29% 2.00%
Ratios/Supplemental data
Net assets, end of period (in thousands) $73,558 $59,180 $92,539 $45,883
Ratio of expenses to average net assets+ 0.50%* 0.50%* 0.50%* 0.50%*
Ratio of net investment income to average
net assets 3.41%* 0.52%* 3.68%* 4.43%*
Portfolio turnover rate 98% 0% 109% 93%
Average commission rate $ 0.00 $ 0.00 $ 0.00 $ 0.00
</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>
Ratio of expenses to average net assets 1.26%* 3.41%* 1.22%* 1.42%*
Ratio of net investment income to average
net assets 2.65%* (2.39%)* 2.96%* 3.51%*
</TABLE>
* Annualized
++ Period from November 1, 1996 through April 30, 1997.
++++ Period from October 16, 1996 (commencement of operations) through October
31, 1996.
++++++ Period from November 18, 1996 (commencement of operations) through April
30, 1997.
F-264
