<PAGE> 1
SCHWABFUNDS (R)
SCHWAB
S&P 500
FUND
Semi-Annual Report
April 30, 1997
<PAGE> 2
Dear Shareholder,
[Photo of With the support of investors like you, SchwabFunds(R)
Charles continues to be among the largest and fastest-growing mutual
R. Schwab] fund companies in the nation. Charles Schwab Investment
Management, Inc. (CSIM) manages over $47 billion in assets for
more than 2.5 million SchwabFunds shareholders. Today, CSIM
offers investors 30 funds spanning a spectrum of financial
markets and investing styles.
You'll find in-depth information on the performance of your SchwabFunds
investment in the following pages.
LONG-TERM INVESTMENT STRATEGIES
When it comes to investing, patience is a virtue. Given the recent market
volatility, it is important to maintain the discipline to adhere to your asset
allocation plan and to ensure you have a diversified investment portfolio. We
created the SchwabFunds Family to offer time-tested strategies for long-term
investing -- Indexing, Asset Allocation, Quantitative Models and Fund-of-Funds
- -- and to provide investors with easy, cost-efficient options to help achieve
portfolio diversification. Furthermore, the tax-efficient strategy employed by
our index funds can help you retain more of what your investments earn.
COMMITMENT TO VALUE
In our ongoing commitment to provide cost-efficient ways for you to invest, we
recently reduced the operating expense ratios and introduced a new class of
shares -- Select Shares -- for each of our four index funds. Select Shares have
among the lowest fund expenses in the industry and offer investors even greater
savings through significantly lower expense ratios.
EXPANDING CHANNELS OF COMMUNICATION
If you're among the millions of people exploring the Internet, I encourage you
to visit our Web site at www.schwab.com/funds. There you'll find a wealth of
online information on SchwabFunds as well as other resources available at
Schwab. You can also access mutual fund performance data, chart daily net asset
values, request a free fund prospectus, trade funds and more -- all from the
comfort of your home or office, 24 hours a day. Continuing our efforts to
provide you with up-to-date, useful information, we have recently added monthly
portfolio manager commentaries on selected SchwabFunds to our Web site. In these
commentaries, our expert portfolio managers offer insights into market trends
and the effects of those trends on fund performance.
Thank you for placing your trust in SchwabFunds. We will continue to explore new
strategies to help meet your investment needs and to provide you with timely
information on SchwabFunds.
/s/ Charles R. Schwab
---------------------
Charles R. Schwab
<PAGE> 3
KEEP YOUR
MONEY WORKING
HARDER!
----------------------------
USE THIS ENVELOPE TO EASILY
ADD TO YOUR SCHWAB FUNDS.
CHARLES SCHWAB
<PAGE> 4
WE'VE MADE IT EASIER FOR YOU! TAKE ADVANTAGE OF THIS OPPORTUNITY TO ADD TO YOUR
SCHWABFUNDS(R) INVESTMENT.
Now, you can add to your account by using this convenient Schwab investment
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DON'T DELAY. USE THIS CONVENIENT INVESTMENT ENVELOPE AND SEND YOUR CHECK TODAY!
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- --------------------------------------------------------------------------------
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________________________________________________________________________________
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$_______________________________________________________________________________
AMOUNT OF INVESTMENT
________________________________________________________________________________
SIGNATURE
[ ] Check here if you would like more investment coupons for future use.
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SCHWAB ACCOUNT NUMBER
Please indicate to which SchwabFund your investment should go:
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IF NO FUND IS INDICATED, YOUR INVESTMENT WILL GO INTO THE SWEEP ACCOUNT YOU'VE
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*This envelope may not be used for initial investments. Subsequent investment
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Printed on recycled paper. TF4794C(5/97) CRS 20061
(LIFT HERE FOR MORE INFORMATION)
<PAGE> 5
CHARLES SCHWAB
JUST FOLLOW THESE EASY STEPS TO INVEST IN YOUR SCHWABFUNDS(R) ACCOUNT:
1. Fill out the Schwab investment coupon completely, including your name,
account number, amount of your check and signature. Please use one coupon
for each account.
2. Make your check payable to CHARLES SCHWAB & CO., INC., and enclose your
check with the completed coupon in this postage-paid envelope.
3. Then just drop your SchwabFunds investment envelope in the mail today -
and start putting your money to work. If you have any questions, don't
hesitate to call 1-800-2 NO-LOAD.
This envelope is intended for shareholders who have already received a current
SchwabFunds prospectus.
<PAGE> 6
ATTN: Dept. AIP333-4 NO POSTAGE
NECESSARY IF
MAILED IN THE
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<PAGE> 7
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
A WORD FROM SCHWABFUNDS(R) .................................. 2
FUND PERFORMANCE ............................................ 4
TAX-SMART INVESTMENT STRATEGY ............................... 5
FUND HOLDINGS ............................................... 6
THE PORTFOLIO MANAGEMENT TEAM ............................... 8
MARKET OVERVIEW ............................................. 9
QUESTIONS TO THE PORTFOLIO MANAGEMENT TEAM .................. 14
FINANCIAL STATEMENTS AND NOTES .............................. 17
</TABLE>
1
<PAGE> 8
A WORD FROM SCHWABFUNDS(R)
We are pleased to bring you the semi-annual report for the Schwab S&P 500 Fund
(the Fund) for the six-month period ended April 30, 1997. During the period, the
Fund achieved its primary objective of tracking the price and dividend
performance of the S&P 500(R) Index (the Index). It also succeeded in
maintaining the tax efficiencies and low costs designed to maximize long-term
performance results, as explained on the following pages.
INVESTOR SHARES AND e.SHARES(TM)
This report relates to both classes of shares for the Fund -- Investor Shares
and e.Shares. It's important to note the difference between the two classes.
Both classes of shares are part of the same Fund, so they have the same
investment objective and investment portfolio. Investor Shares is available to
the retail customer, while e.Shares is primarily for institutional customers and
is available only through SchwabLink(TM) to clients of Schwab Institutional and
the Trust Company and to certain tax-advantaged retirement plans. Because
trading and other communications are executed electronically through SchwabLink,
shareholder servicing costs are reduced, which allows the Fund to offer a lower
operating expense ratio (OER) for e.Shares. The OER for e.Shares is 0.28% and
the new lower OER for Investor Shares is only 0.35%. Over time, the difference
in the OERs will impact the total return for each class of shares.
2
<PAGE> 9
NEW LOWER EXPENSE RATIOS
In their tradition of providing low-cost investing, Schwab and Charles Schwab
Investment Management, Inc. (CSIM) lowered the OER for the Investor Shares from
0.49% to 0.35% ( effective February 28, 1997). In addition to lowering the OER
for the Investor Shares, Schwab and CSIM have created a third class of shares
for the Fund, Select Shares, with an even lower OER.
Select Shares, which became available on May 19, 1997, was created to give
investors a more cost-effective way to invest. This new class of shares offers a
significantly lower operating expense ratio and requires a minimum initial
deposit of $50,000. With an OER of only 0.19%, the expense ratio for the S&P 500
Fund -- Select Shares is among the lowest in the industry.1 All OERs for the
Fund are guaranteed through at least February 29, 2000.
SCHWAB S&P 500 FUND
GROWTH IN NET ASSETS AND NUMBER OF ACCOUNTS
[LINE GRAPH]
<TABLE>
<CAPTION>
S&P 500 FUND
DATE ASSETS # OF ACCTS
---- ------ ----------
<S> <C> <C>
May-96 $154,775 24,623
Jun-96 $173,838 26,494
Jul-96 $187,005 28,361
Aug-96 $209,287 30,039
Sep-96 $250,912 31,863
Oct-96 $280,103 33,353
Nov-96 $337,710 35,599
Dec-96 $347,685 37,327
Jan-97 $452,244 42,137
Feb-97 $532,777 46,729
Mar-97 $554,743 50,710
Apr-97 $665,970 57,249
</TABLE>
Net Assets $665,970,000
Accounts 57,249
*Commencement of Fund Operations
1 Source: Morningstar, Inc. Based on the average OER of 1.27% for 556 growth
and income funds, as of 4/30/97.
3
<PAGE> 10
FUND PERFORMANCE
The table below compares total returns for the period ended April 30, 1997 for
the Schwab S&P 500 Fund, Investor Shares and e.Shares(TM), and the S&P 500(R)
Index.
<TABLE>
<CAPTION>
TOTAL RETURNS
======================================================================
Cumulative Since
Fund Inception
Six-Month (5/1/96)
- ----------------------------------------------------------------------
<S> <C> <C>
Schwab
S&P 500 Fund
Investor Shares 14.24% 24.30%
- ----------------------------------------------------------------------
Schwab
S&P 500 Fund
e.Shares 14.34% 24.52%
- ----------------------------------------------------------------------
S&P 500(R) Index 14.71% 25.12%
- ----------------------------------------------------------------------
</TABLE>
As of March 31, 1997, the respective six-month and cumulative since fund
inception total returns were 10.79% and 17.44% for the Investor Shares and were
11.00% and 17.66% for the e.Shares.
TOTAL RETURN ASSUMES REINVESTMENT OF ALL DIVIDEND AND CAPITAL GAIN
DISTRIBUTIONS, IF ANY. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
PRINCIPAL VALUE AND INVESTMENT RETURNS WILL FLUCTUATE SO THAT AN INVESTOR'S
SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. The
Investment Manager and Schwab waived a portion of their fees during the
reporting period and have guaranteed that maximum total operating expenses will
not exceed 0.35% for Investor Shares and 0.28% for e.Shares(TM) through at least
2/29/2000. Without fee waivers and guarantees, for the period ended 4/30/97, the
Fund's total return for the six-month and cumulative since fund inception
periods would have been 14.10% and 23.98%, respectively, for the Investor Shares
and 14.18% and 24.18%, respectively, for the e.Shares. For the period ended
3/31/97, the Fund's total return for the six-month and cumulative since fund
inception periods would have been 10.62% and 17.13%, respectively, for the
Investor Shares and 10.79% and 17.33%, respectively, for the e.Shares. Indices
are unmanaged, and unlike the Fund, do not reflect advisory and other fees
associated with an investment in the Fund. Investors cannot invest in an index
directly.
4
<PAGE> 11
TAX-SMART INVESTMENT STRATEGY
The Schwab S&P 500 Fund seeks to maximize its after-tax performance for
investors by minimizing capital gain distributions. This strategy is designed to
help you keep more of what your money earns.
The following chart illustrates how taxes can impact a fund's performance.
THE POWER OF A TAX-SMART STRATEGY
[BAR CHART]
Portfolio A = $75,281
Portfolio B = $88,640
This example is for illustrative purposes only and the assumptions are not
intended to show current performance or predict or guarantee future performance
of the Fund. While the Fund attempts to minimize capital gain distributions,
there are no assurances that the Fund will not make capital gain distributions
in the future.
The chart shows two hypothetical portfolios; each assumes a $20,000 initial
investment and a 10% pre-tax average annual total return. The portfolio in which
capital gains are realized annually (Portfolio A) earns 3% income and 7%
realized capital gains and is taxed annually; the portfolio in which capital
gains are deferred over 20 years (Portfolio B) earns 3% income, taxed annually,
and 7% capital gains, which accumulate unrealized and are taxed at the end of
the 20-year period. Compared to Portfolio A, Portfolio B earns an extra $13,359
by deferring its capital gains. Both examples assume income dividends are taxed
annually at the maximum 39.6% federal personal income tax rate and capital gains
are taxed at the maximum 28% rate. Of course, taxes and actual fund
distributions may vary and can be higher or lower than the rates shown.
5
<PAGE> 12
FUND HOLDINGS
The Fund's portfolio is diversified across approximately 500 large company
common stocks representing approximately 70% of the total value of the U.S.
stock market. The common stocks include many of America's most recognizable
companies and key industries. Following is a list of the Fund's ten largest
holdings as well as a diversification chart showing the economic sectors in
which the Fund was invested. Both are as of April 30, 1997 and are not
necessarily indicative of the Fund's future holdings. A complete listing of the
Fund's portfolio holdings, also as of April 30, 1997, can be found in the
Statement of Net Assets section of this report. Unlike the Statement of Net
Assets, information is shown here as a percentage of the Fund's investments, not
as a percentage of the Fund's net assets.
FUND'S TOP TEN HOLDINGS AS A
PERCENTAGE OF FUND INVESTMENTS
<TABLE>
<CAPTION>
=============================================================
INVESTMENT %
<S> <C>
- -------------------------------------------------------------
General Electric Co. 2.92
- -------------------------------------------------------------
Coca-Cola Co. 2.57
- -------------------------------------------------------------
Microsoft Corp. 2.38
- -------------------------------------------------------------
Exxon Corp. 2.30
- -------------------------------------------------------------
Intel Corp. 2.07
- -------------------------------------------------------------
Merck & Co., Inc. 1.84
- -------------------------------------------------------------
Royal Dutch Petroleum Co. 1.60
- -------------------------------------------------------------
Philip Morris Companies, Inc. 1.54
- -------------------------------------------------------------
International Business Machines Corp. 1.39
- -------------------------------------------------------------
Procter & Gamble Co. 1.37
=============================================================
TOTAL 19.98%
</TABLE>
6
<PAGE> 13
SCHWAB S&P 500 FUND
ECONOMIC SECTOR DIVERSIFICATION
<TABLE>
<S> <C>
Capital Goods 5.02%
Consumer Durables 2.44% [PIE GRAPH]
Consumer Non-Durables 32.51%
Energy 9.41%
Finance 15.19%
Materials & Services 7.70%
Technology 17.06%
Transportation 1.51%
Utilities 9.16%
</TABLE>
7
<PAGE> 14
THE PORTFOLIO MANAGEMENT TEAM
STEPHEN B. WARD - Senior Vice President and Chief Investment Officer, has
overall responsibility for the management of the Fund's portfolio. Steve joined
CSIM as Vice President and Portfolio Manager in April 1991 and was promoted to
his current position in August 1993. Prior to joining CSIM, Steve was the Vice
President and Portfolio Manager at Federated Investors.
GERI HOM - Vice President and Senior Portfolio Manager, has primary
responsibility for the day-to-day management of the Fund's portfolio. Geri
joined CSIM in March 1995 as Portfolio Manager and was promoted to her current
position in December 1996. She currently manages approximately $4 billion in
assets. Prior to joining CSIM, Geri was a Principal for Wells Fargo Nikko
Investment Advisors and Vice President and Manager of the Domestic Equity
Portfolio Management Group for Wells Fargo Nikko.
The following market overview and answers to questions are provided by the
Portfolio Management Team.
8
<PAGE> 15
MARKET OVERVIEW
REAL GDP GROWTH RATE
[BAR CHART]
Real GDP
Real Gross Domestic Product
Chain Weighted
Percent change from preceeding quarter, seasonally adjusted at annual rates
Source: Bloomberg
<TABLE>
<CAPTION>
Real GDP
<S> <C>
Q1 1990 4.1%
Q2 1990 1.3%
Q3 1990 -1.9%
Q4 1990 -4.1%
Q1 1991 -2.2%
Q2 1991 1.7%
Q3 1991 1.0%
Q4 1991 1.0%
Q1 1992 4.7%
Q2 1992 2.5%
Q3 1992 3.0%
Q4 1992 4.3%
Q1 1993 -0.1%
Q2 1993 1.9%
Q3 1993 2.3%
Q4 1993 4.8%
Q1 1994 2.5%
Q2 1994 4.9%
Q3 1994 3.5%
Q4 1994 3.0%
Q1 1995 0.4%
Q2 1995 0.7%
Q3 1995 3.8%
Q4 1995 0.3%
Q1 1996 2.0%
Q2 1996 4.7%
Q3 1996 2.1%
Q4 1996 3.8%
Q1 1997 5.8%
</TABLE>
- - The economy continued to expand at a healthy rate during the reporting
period. The GDP growth rate was 3.2% for the 1996 calendar year and a very
strong 5.8% for the first quarter of 1997 -- the highest level since the
fourth quarter of 1987.
- - These strong growth rates resulted in a focus on the apparent strength of
the economy, its potential impact on future inflation, and the potential
for more restrictive Federal Reserve policy.
- - At the time of this writing, the economy appears to be on track for
moderate growth, continuing the six-year expansion which began in 1991.
9
<PAGE> 16
U.S. UNEMPLOYMENT RATE
[LINE GRAPH]
<TABLE>
<S> <C>
Jan-90 5.3%
Feb-90 5.3%
Mar-90 5.2%
Apr-90 5.4%
May-90 5.3%
Jun-90 5.1%
Jul-90 5.4%
Aug-90 5.6%
Sep-90 5.7%
Oct-90 5.8%
Nov-90 6.0%
Dec-90 6.2%
Jan-91 6.3%
Feb-91 6.5%
Mar-91 6.8%
Apr-91 6.6%
May-91 6.8%
Jun-91 6.8%
Jul-91 6.7%
Aug-91 6.8%
Sep-91 6.8%
Oct-91 6.9%
Nov-91 6.9%
Dec-91 7.1%
Jan-92 7.1%
Feb-92 7.3%
Mar-92 7.3%
Apr-92 7.3%
May-92 7.4%
Jun-92 7.7%
Jul-92 7.6%
Aug-92 7.6%
Sep-92 7.5%
Oct-92 7.4%
Nov-92 7.3%
Dec-92 7.3%
Jan-93 7.1%
Feb-93 7.0%
Mar-93 7.0%
Apr-93 7.0%
May-93 6.9%
Jun-93 6.9%
Jul-93 6.8%
Aug-93 6.7%
Sep-93 6.7%
Oct-93 6.7%
Nov-93 6.5%
Dec-93 6.4%
Jan-94 6.7%
Feb-94 6.6%
Mar-94 6.5%
Apr-94 6.4%
May-94 6.0%
Jun-94 6.0%
Jul-94 6.1%
Aug-94 6.1%
Sep-94 5.9%
Oct-94 5.6%
Nov-94 5.6%
Dec-94 5.4%
Jan-95 5.6%
Feb-95 5.4%
Mar-95 5.8%
Apr-95 5.7%
May-95 5.7%
Jun-95 5.6%
Jul-95 5.7%
Aug-95 5.3%
Sep-95 5.6%
Oct-95 5.5%
Nov-95 5.6%
Dec-95 5.6%
Jan-96 5.8%
Feb-96 5.5%
Mar-96 5.6%
Apr-96 5.4%
May-96 5.6%
Jun-96 5.3%
Jul-96 5.4%
Aug-96 5.1%
Sep-96 5.2%
Oct-96 5.2%
Nov-96 5.3%
Dec-96 5.3%
Jan-97 5.4%
Feb-97 5.3%
Mar-97 5.2%
Apr-97 4.9%
</TABLE>
- - The unemployment rate during 1996 remained near its lows for the decade,
and declined further to 4.9% in April 1997, the lowest rate since December
1973. Many economists have questioned how long such low levels of
unemployment can continue without generating inflationary pressures on
wages and, ultimately, prices.
10
<PAGE> 17
MEASURES OF INFLATION
[BAR CHART]
CPI & ECI
CONSUMER PRICE INDEX - ALL ITEMS YOY 0/0 CHANGE
EMPLOYMENT COST INDEX SA (INCLUDES BOTH WAGES AND SALARIES AND BENEFITS
COMPONENTS) - YOY 0/0 CHANGE
SOURCE: BLOOMBERG L.P.
RED = DATA INPUTS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Monthly Quarterly
Consumer Price Employment Cost
Index - YOY 0/0 Index - YOY 0/0
Change Change
- --------------------------------------------------------------------------------
<S> <C> <C>
Jan-90 5.2% 5.3%
Feb-90 5.3% 5.3%
Mar-90 5.2% 5.3%
Apr-90 4.7% 5.4%
May-90 4.4% 5.4%
Jun-90 4.7% 5.4%
Jul-90 4.8% 5.1%
Aug-90 5.6% 5.1%
Sep-90 6.2% 5.1%
Oct-90 6.3% 4.8%
Nov-90 6.3% 4.8%
Dec-90 6.1% 4.8%
Jan-91 5.7% 4.6%
Feb-91 5.3% 4.6%
Mar-91 4.9% 4.6%
Apr-91 4.9% 4.5%
May-91 5.0% 4.5%
Jun-91 4.7% 4.5%
Jul-91 4.4% 4.3%
Aug-91 3.8% 4.3%
Sep-91 3.4% 4.3%
Oct-91 2.9% 4.2%
Nov-91 3.0% 4.2%
Dec-91 3.1% 4.2%
Jan-92 2.6% 4.1%
Feb-92 2.8% 4.1%
Mar-92 3.2% 4.1%
Apr-92 3.2% 3.5%
May-92 3.0% 3.5%
Jun-92 3.1% 3.5%
Jul-92 3.2% 3.4%
Aug-92 3.1% 3.4%
Sep-92 3.0% 3.4%
Oct-92 3.2% 3.5%
Nov-92 3.0% 3.5%
Dec-92 2.9% 3.5%
Jan-93 3.3% 3.4%
Feb-93 3.2% 3.4%
Mar-93 3.1% 3.4%
Apr-93 3.2% 3.6%
May-93 3.2% 3.6%
Jun-93 3.0% 3.6%
Jul-93 2.8% 3.6%
Aug-93 2.8% 3.6%
Sep-93 2.7% 3.6%
Oct-93 2.8% 3.4%
Nov-93 2.7% 3.4%
Dec-93 2.7% 3.4%
Jan-94 2.5% 3.2%
Feb-94 2.5% 3.2%
Mar-94 2.5% 3.2%
Apr-94 2.4% 3.1%
May-94 2.3% 3.1%
Jun-94 2.5% 3.1%
Jul-94 2.8% 3.1%
Aug-94 2.9% 3.1%
Sep-94 3.0% 3.1%
Oct-94 2.6% 3.0%
Nov-94 2.7% 3.0%
Dec-94 2.7% 3.0%
Jan-95 2.8% 3.0%
Feb-95 2.9% 3.0%
Mar-95 2.9% 3.0%
Apr-95 3.1% 3.0%
May-95 3.2% 3.0%
Jun-95 3.0% 3.0%
Jul-95 2.8% 2.8%
Aug-95 2.6% 2.8%
Sep-95 2.5% 2.8%
Oct-95 2.8% 2.8%
Nov-95 2.6% 2.8%
Dec-95 2.5% 2.8%
Jan-96 2.7% 2.9%
Feb-96 2.7% 2.9%
Mar-96 2.8% 2.9%
Apr-96 2.9% 2.9%
May-96 2.9% 2.9%
Jun-96 2.8% 2.9%
Jul-96 3.0% 2.9%
Aug-96 2.9% 2.9%
Sep-96 3.0% 2.9%
Oct-96 3.0% 3.0%
Nov-96 3.3% 3.0%
Dec-96 3.3% 3.0%
Jan-97 3.0% 2.8%
Feb-97 3.0% 2.8%
Mar-97 2.8% 2.8%
Apr-97 2.5%
- --------------------------------------------------------------------------------
</TABLE>
- - Both the Employment Cost Index and Consumer Price Index (CPI) remained in
check throughout 1996 as well as the first quarter of 1997, reflecting
continued low levels of inflation.
- - CPI rose 3.3% in 1996, the highest annual rate since 1990. However, the
core rate (which excludes the more volatile food and energy components)
rose just 2.6%, the lowest rate since 1965.
- - The Federal Reserve has indicated its belief that the economy remains at
risk to inflation and that it is poised to act preemptively by raising
interest rates if necessary. The Federal Reserve did take action in March,
increasing the Fed Funds Rate by 0.25% to 5.50%.
11
<PAGE> 18
TOTAL RETURN OF A HYPOTHETICAL DOLLAR INVESTED
IN FOUR BROAD MARKET INDICES
[LINE GRAPH]
PLOT POINTS
Growth of a $ Investment
<TABLE>
<CAPTION>
Lehman
MF
Schwab Schwab General
Small Cap International US Govt.
S&P 500 Index Index Index
<S> <C> <C> <C> <C>
$ 1.000 $ 1.000 $ 1.000 $ 1.000
Nov-96 $ 1.076 $ 1.040 $ 1.046 $ 1.017
Dec-96 $ 1.054 $ 1.059 $ 1.037 $ 1.007
Jan-97 $ 1.120 $ 1.084 $ 1.003 $ 1.008
Feb-97 $ 1.129 $ 1.058 $ 1.019 $ 1.010
Mar-97 $ 1.083 $ 1.006 $ 1.026 $ 0.999
Apr-97 $ 1.147 $ 1.009 $ 1.037 $ 1.013
</TABLE>
Schwab Small-Cap Index(R) S&P 500(R) Index
Schwab International Index(R) Lehman Brothers
General U.S. Govt. Index
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. PRINCIPAL VALUE AND
INVESTMENT RETURNS WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED,
MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. Total return assumes
reinvestment of all dividend and capital gain distributions. Indices are
unmanaged, and unlike funds, do not reflect advisory and other fees associated
with an investment in funds. Investors cannot invest in an index directly.
- - Large-cap domestic stocks, as represented by the S&P 500 Index, were
clearly the strongest performing asset class -- achieving a 14.71% return
during the six-month reporting period.
- - Although positive, domestic small-cap stocks (as represented by the Schwab
Small-Cap Index) and international stocks (as represented by the Schwab
International Index) both lagged the S&P 500 Index significantly, with six-
month returns of 0.92% and 3.74%, respectively.
- - The six-month total return for U.S. Government bonds (as represented by the
Lehman Brothers General U.S. Government Index) was 1.32%.
12
<PAGE> 19
S & P PRICE/EARNINGS RATIO
[LINE GRAPH]
S&P 500 P/E Ratio
Source Bloomberg
S&P 500 PRICE EARNINGS RATIO
Jan-90 14.37
Feb-90 14.21
Mar-90 14.77
Apr-90 14.82
May-90 15,84
Jun-90 16.66
Jul-90 16.65
Aug-90 15.57
Sep-90 14.9
Oct-90 14.36
Nov-90 14.59
Dec-90 15.19
Jan-91 14.95
Feb-91 16.82
Mar-91 17.48
Apr-91 17.85
May-91 17.92
Jun-91 17.96
Jul-91 18.07
Aug-91 19.72
Sep-91 19.88
Oct-91 19.92
Nov-91 21.02
Dec-91 21.85
Jan-92 23.35
Feb-92 23.83
Mar-92 25.45
Apr-92 25.51
May-92 25.71
Jun-92 25.08
Jul-92 25.61
Aug-92 25.5
Sep-92 24.37
Oct-92 23.94
Nov-92 24.08
Dec-92 24.01
Jan-93 24.2
Feb-93 24.25
Mar-93 24.22
Apr-93 23.2
May-93 23.21
Jun-93 22.58
Jul-93 22.52
Aug-93 23.02
Sep-93 23.74
Oct-93 23.97
Nov-93 22.55
Dec-93 23.55
Jan-94 22.98
Feb-94 21.17
Mar-94 20.34
Apr-94 20.1
May-94 20.16
Jun-94 19.76
Jul-94 18.64
Aug-94 18.9
Sep-94 18.26
Oct-94 17.55
Nov-94 16.58
Dec-94 16.98
Jan-95 16.23
Feb-95 16.2
Mar-95 16.5
Apr-95 16.02
May-95 16.43
Jun-95 16.82
Jul-95 16.55
Aug-95 16.18
Sep-95 16.86
Oct-95 16.18
Nov-95 17.14
Dec-95 17.41
Jan-96 18.11
Feb-96 18.56
Mar-96 18.94
Apr-96 19.16
May-96 19.48
Jun-96 19.3
Jul-96 18.31
Aug-96 18.62
Sep-96 19.75
Oct-96 19.6
Nov-96 21.05
Dec-96 20.7
Jan-97 20.55
Feb-97 20.98
Mar-97 19.87
Apr-97 20.24
The price/earnings ratio, also known as a multiple, is the price of a stock
divided by its earnings per share and generally indicates how much investors are
willing to pay for a company's earning potential.
- - The price/earnings ratio for the S&P 500 Index was 20 at the close of the
reporting period, well above its 30-year mean of 15, but below its 1991 and
1987 highs of 26 and 22, respectively.
- - Based on other traditional measures such as the price-to-book value ratio
or dividend yield, the U.S. stock market valuation reached historical highs
during the reporting period.
13
<PAGE> 20
QUESTIONS TO THE PORTFOLIO MANAGEMENT TEAM
Q. HOW DID THE SCHWAB S&P 500 FUND (THE FUND) PERFORM DURING THE REPORTING
PERIOD?
A. The Investor Shares and the e.Shares of the Fund achieved strong total
returns of 14.24% and 14.34%, respectively, for the six-month period ended April
30, 1997. As discussed in the Market Overview section, large-cap domestic stocks
(such as those in the S&P 500(R) Index) were clearly a strong performing asset
class for the reporting period. As shown on the chart below, the Fund continued
to closely track the performance of its benchmark, the S&P 500 Index.
COMPARISON OF CHANGE IN VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN SCHWAB S&P
500 FUND - INVESTOR SHARES, SCHWAB S&P 500 FUND - e.SHARES(TM), AND THE S&P 500
INDEX.
[LINE GRAPH]
SEMI ANNUAL REPORT / 4/30/97
S&P 500 FUND
HYPOTHETICAL $10,000 CHART
Schwab S&P 500 Fund
Cumulative Total Returns
Through April 30, 1997
------------------------
Since Inception
Investor Shares 24.30%
e.Shares 24.52%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Date S&P 500 INDEX S&P 500 FUND S&P 500 FUND e.Shares
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
4/30/96 $10,000 $10,000 $10,000
5/31/96 $10,257 $10,250 $10,250
6/30/96 $10,296 $10,290 $10,290
7/31/96 $ 9,841 $ 9,840 $ 9,840
8/31/96 $10,049 $10,040 $10,050
9/30/96 $10,613 $10,600 $10,600
10/31/96 $10,906 $10,880 $10,890
11/30/96 $11,731 $11,690 $11,710
12/31/96 $11,498 $11,462 $11,473
1/31/97 $12,216 $12,157 $12,179
2/28/97 $12,312 $12,248 $12,270
3/31/97 $11,808 $11,744 $11,766
4/30/97 $12,512 $12,430 $12,452
- --------------------------------------------------------------------------------
</TABLE>
Schwab S&P 500 Fund -- Investor Shares $12,430
Schwab S&P 500 Fund -- e.Shares $12,452
S&P 500 Index $12,512
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. PRINCIPAL VALUE AND
INVESTMENT RETURNS WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED,
MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. The performance graph
compares a hypothetical $10,000 investment in the Schwab S&P 500 Fund Investor
Shares and e.Shares, since inception, with a hypothetical investment in the S&P
500 Index. Total return assumes reinvestment of all dividend and capital gain
distributions, if any. Indices are unmanaged, and unlike the Fund, do not
reflect advisory and other fees associated with an investment in the Fund.
Investors cannot invest in an index directly. The Investment Manager and Schwab
waived a portion of the fees during the period, and have guaranteed that maximum
total operating expenses will not exceed 0.35% for Investor Shares and 0.28% for
e.Shares through at least 2/29/2000. Without fee waivers and guarantees, the
Fund's total returns would have been lower.
14
<PAGE> 21
Q. WHAT ACCOUNTS FOR THE DIFFERENCE BETWEEN THE PERFORMANCE OF THE SCHWAB S&P
500 FUND (THE FUND) AND THE S&P 500 INDEX (THE INDEX)?
A. Unlike the Fund, the Index does not incur management and other Fund operating
expenses that reduce returns to the shareholders. Additionally, the Fund, unlike
the Index, holds a small portion of its assets in cash to meet shareholder
redemptions and to pay Fund expenses. This cash portion earns interest at money
market rates, which may be more or less than the returns of the Index during a
given period. Also, the precise weighting of any particular security in the Fund
can be greater or less than in the Index. Lastly, unlike the Index, the Fund
incurs trading costs when it buys or sells stocks.
Taken together, these factors cause the difference in the returns of the Fund
compared to the Index, a difference referred to as the Fund's tracking error.
The tracking error for the Fund during the reporting period was 0.48% and 0.38%
for the Investor Shares and e.Shares, respectively. The tracking error since May
1, 1996, the Fund's inception, was 0.81% and 0.59%, for Investor Shares and
e.Shares, respectively. Given the Fund's current operating expense ratio of
0.35% for the Investor Shares and 0.28% for the e.Shares and the components of
the tracking error as discussed above, we are satisfied with this level of
tracking error.
Q. ARE INDEX FUNDS LESS RISKY THAN ACTIVELY MANAGED FUNDS? HOW DO INDEX FUNDS
BEHAVE IN A BEAR MARKET?
A. While broad-based index funds like the Schwab S&P 500 Fund help reduce the
risk associated with investing in individual stocks or a specific market sector,
they do not provide protection against market risk. It's important to realize
that the market can fluctuate significantly. Because equity index funds are
designed to track stock market performance in both directions, down as well as
up, their values will fall and rise with the markets they seek to track.
We feel the most meaningful way for investors to think about their exposure to
market risk is not on a fund by fund basis, but on the basis of their overall
investment portfolio. One of the greatest risks of a bear market is the risk of
selling at the bottom of a market downturn. It is for this reason that you
should set your asset allocation strategy and total portfolio market exposure at
an
15
<PAGE> 22
appropriate level for you -- one that can help you to "ride out" bear markets
over the long-term. When used as part of a long-term strategy, index funds offer
an excellent way to achieve exposure to the equity markets; however, each
individual investor has a different tolerance for risk and should have a
portfolio with a risk profile that reflects that tolerance level.
Q. HOW IS THE S&P 500(R) INDEX CONSTRUCTED? WERE THERE ANY CHANGES TO THE INDEX
DURING THE REPORTING PERIOD?
A. The stocks comprising the S&P 500 Index are selected by the Standard & Poor's
Index Committee. Stocks in the Index are chosen based on market size, liquidity,
and industry group representation, with the overall objective that the Index be
representative of the U.S. economy. ADR's (American Depository Receipts), mutual
funds, limited partnerships, royalty trusts, and REIT's (real estate investment
trusts) are excluded from the Index. Stocks in the Index must be traded on the
NYSE, ASE, or NASDAQ.
The following substitutions were made to the Index during the reporting period:
<TABLE>
<CAPTION>
DATE ADDED DELETED
========================================================================
<S> <C> <C>
November 1, 1996 Cognizant Corp. Yellow Corporation
December 2, 1996 MBIA Consolidated Freightways
December 31, 1996 Autozone Luby's Cafeterias
Frontier Corp. Ryan's Family Steakhouses
Thermo Electron Shoney's, Inc.
January 7, 1997 Healthsouth Corp. Boatmens Bancshares
January 14, 1997 Conseco, Inc. Alexander & Alexander
</TABLE>
16
<PAGE> 23
SCHWAB S&P 500 FUND
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
April 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- --------
<S> <C> <C>
COMMON STOCK--99.8%
AEROSPACE/DEFENSE--1.8%
BFGoodrich Co. 6,100 $ 243
Boeing Co. 37,116 3,662
General Dynamics Corp. 8,200 584
Lockheed Martin Corp. 20,800 1,862
McDonnell Douglas Corp. 23,400 1,389
Northrop Grumman Corp. 8,900 743
Raytheon Co. 22,300 973
Textron, Inc. 8,100 902
United Technologies Corp. 24,600 1,860
------
12,218
------
AIR TRANSPORTATION--0.4%
AMR Corp.+ 8,400 782
Delta Airlines, Inc. 10,800 996
Southwest Airlines Co. 14,700 404
USAir Group, Inc.+ 7,200 233
------
2,415
------
ALCOHOLIC BEVERAGES--0.6%
Adolph Coors Co. Class B 2,800 64
Anheuser-Busch Companies, Inc. 50,900 2,183
Brown-Forman Corp. Class B 6,700 338
Seagram Co. Ltd. 38,900 1,488
------
4,073
------
APPAREL--0.5%
Fruit of the Loom, Inc. Class A+ 7,700 277
Liz Claiborne, Inc. 11,200 507
NIKE, Inc. Class B 31,000 1,744
Reebok International Ltd. 6,600 252
Russell Corp. 2,000 56
Springs Industries, Inc. 1,900 89
Stride Rite Corp. 4,100 56
V.F. Corp. 7,700 555
------
3,536
------
AUTOMOTIVE PRODUCTS--0.2%
Cooper Tire & Rubber Co. 5,200 114
Goodyear Tire & Rubber Co. 19,700 1,037
------
1,151
------
BANKS--8.0%
Banc One Corp. 49,300 2,089
Bank of New York Co., Inc. 44,800 1,770
BankAmerica Corp. 40,000 4,675
BankBoston Corp. 15,900 1,157
Bankers Trust New York Corp. 7,500 610
</TABLE>
17
<PAGE> 24
SCHWAB S&P 500 FUND
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
April 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- --------
<S> <C> <C>
Barnett Banks, Inc. 20,100 $ 982
Chase Manhattan Corp. (New) 49,500 4,585
Citicorp 49,600 5,585
Comerica, Inc. 11,900 696
CoreStates Financial Corp. 23,500 1,190
Fifth Third Bancorp 10,600 791
First Bank System, Inc. 13,000 998
First Chicago NBD Corp. 31,400 1,766
First Union Corp. 28,500 2,394
Fleet Financial Group, Inc. 29,800 1,818
J.P. Morgan & Co., Inc. 20,000 2,038
KeyCorp, Inc. 22,100 1,152
MBNA Corp. 35,600 1,175
Mellon Bank Corp. 17,800 1,480
National City Corp. 26,800 1,307
NationsBank Corp. 86,144 5,201
Norwest Corp. 38,900 1,940
PNC Bank Corp. 36,200 1,489
Republic New York Corp. 5,800 531
SunTrust Banks, Inc. 21,700 1,101
U.S. Bancorp 23,200 1,325
Wachovia Corp. 15,900 930
Wells Fargo & Co. 9,200 2,454
------
53,229
------
BUSINESS MACHINES & SOFTWARE--8.5%
3COM Corp.+ 19,500 566
Amdahl Corp.+ 5,700 49
Apple Computer, Inc.+ 13,300 226
Autodesk, Inc. 2,700 96
Bay Networks, Inc.+ 18,800 334
Cabletron Systems, Inc.+ 17,800 614
Ceridian Corp.+ 8,700 290
Cisco Systems, Inc.+ 76,600 3,964
Compaq Computer Corp.+ 30,200 2,578
Computer Associates International, Inc. 38,000 1,976
Computer Sciences Corp.+ 8,400 525
Data General Corp.+ 3,300 62
Dell Computer Corp.+ 16,900 1,414
Digital Equipment Corp.+ 15,200 454
EMC Corp.+ 28,400 1,033
Hewlett-Packard Co. 120,300 6,316
Honeywell, Inc. 13,600 961
Intergraph Corp.+ 3,700 24
International Business Machines Corp. 57,800 9,291
Microsoft Corp.+ 131,400 15,965
Novell, Inc.+ 38,400 290
Oracle Systems Corp.+ 70,900 2,818
</TABLE>
18
<PAGE> 25
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- --------
<S> <C> <C>
Parametric Technology Corp.+ 13,500 $ 611
Pitney Bowes, Inc. 14,400 922
Seagate Technology, Inc.+ 27,800 1,275
Silicon Graphics, Inc.+ 23,000 342
Sun Microsystems, Inc.+ 40,900 1,178
Tandem Computers, Inc.+ 5,600 72
Unisys Corp.+ 8,800 53
Xerox Corp. 34,200 2,103
------
56,402
------
BUSINESS SERVICES--1.7%
Automatic Data Processing, Inc. 32,600 1,475
Browning-Ferris Industries, Inc. 35,900 1,019
Cognizant Corp. 15,600 509
Deluxe Corp. 7,000 214
Dun & Bradstreet Corp. 21,900 539
Ecolab, Inc. 10,300 420
First Data Corp. 46,600 1,607
H & R Block, Inc. 14,100 455
IKON Office Solutions 11,700 314
Interpublic Group of Companies, Inc. 8,200 464
John H. Harland Co. 2,400 50
Laidlaw, Inc. Class B 28,900 394
Moore Corp. Ltd. 15,200 306
National Service Industries, Inc. 4,800 202
R.R. Donnelley & Sons Co. 15,700 538
Safety-Kleen Corp. 3,300 49
Service Corp. International 28,000 959
Shared Medical Systems Corp. 1,700 72
SUPERVALU, Inc. 6,600 202
WMX Technologies, Inc. 49,900 1,466
------
11,254
------
CHEMICAL--3.4%
Air Products & Chemicals, Inc. 12,900 926
Dow Chemical Co. 24,200 2,054
E.I. du Pont de Nemours & Co. 63,700 6,760
Eastman Chemical Co. 9,600 490
Great Lakes Chemical Corp. 6,300 267
Hercules, Inc. 11,000 433
Minnesota Mining & Manufacturing Co. 46,300 4,028
Monsanto Co. 68,500 2,928
Morton International, Inc. 12,600 528
Nalco Chemical Co. 5,200 187
PPG Industries, Inc. 17,100 930
Praxair, Inc. 18,200 940
Rohm & Haas Co. 7,400 616
Sigma-Aldrich Corp. 9,500 285
</TABLE>
19
<PAGE> 26
SCHWAB S&P 500 FUND
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
April 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- --------
<S> <C> <C>
Union Carbide Corp. 12,400 $ 618
W.R. Grace & Co. 7,600 395
------
22,385
------
CONSTRUCTION--0.3%
Armstrong World Industries, Inc. 3,700 243
Centex Corp. 2,300 83
Crane Co. 3,750 140
Fluor Corp. 7,200 396
Kaufman & Broad Home Corp. 3,200 44
Owens Corning 3,800 154
Pulte Corp. 600 17
Sherwin-Williams Co. 20,000 605
Stanley Works 11,800 459
------
2,141
------
CONSUMER-DURABLE--0.4%
Black & Decker Corp. 10,600 355
Masco Corp. 19,600 741
Maytag Corp. 15,600 357
Newell Co. 15,200 532
Snap-on, Inc. 6,450 248
Whirlpool Corp. 11,900 556
------
2,789
------
CONSUMER-NONDURABLE--1.2%
American Greetings Corp. Class A 11,600 371
Corning, Inc. 23,900 1,153
Darden Restaurants, Inc. 7,500 58
Hasbro, Inc. 13,800 345
Jostens, Inc. 2,800 67
Mattel, Inc. 34,200 953
McDonald's Corp. 79,600 4,269
Premark International, Inc. 2,100 51
Rubbermaid, Inc. 19,400 466
Wendy's International, Inc. 13,600 281
------
8,014
------
CONTAINERS--0.2%
Ball Corp. 3,100 83
Bemis Co., Inc. 5,900 225
Crown Cork & Seal Co., Inc. 12,800 701
Stone Container Corp. 4,600 47
------
1,056
------
ELECTRONICS--4.7%
Advanced Micro Devices, Inc.+ 14,300 608
AMP, Inc. 27,000 969
Applied Materials, Inc.+ 21,700 1,191
</TABLE>
20
<PAGE> 27
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- --------
<S> <C> <C>
EG&G, Inc. 3,000 $ 57
General Instrument Corp.+ 13,500 316
General Signal Corp. 5,500 216
Harris Corp. 3,300 282
Intel Corp. 90,400 13,841
LSI Logic Corp.+ 12,800 490
Lucent Technologies, Inc. 66,019 3,903
Micron Technology, Inc. 25,700 906
Motorola, Inc. 61,400 3,515
National Semiconductor Corp.+ 17,700 443
Perkin Elmer Corp. 3,500 254
Rockwell International Corp. (New) 23,500 1,563
Scientific-Atlanta, Inc. 3,700 59
Tektronix, Inc. 1,600 87
Texas Instruments, Inc. 19,500 1,740
Thermo Electron Corp.+ 14,300 493
Thomas & Betts Corp. 9,900 449
------
31,382
------
ENERGY-DEVELOPMENT--1.2%
Baker Hughes, Inc. 18,500 638
Burlington Resources, Inc. 11,300 479
Dresser Industries, Inc. 17,700 529
Halliburton Co. 11,500 812
Helmerich & Payne, Inc. 1,600 76
Louisiana Land & Exploration Co. 5,400 270
Occidental Petroleum Corp. 32,700 723
Rowan Companies, Inc.+ 11,900 214
Schlumberger Ltd. 29,100 3,224
Union Pacific Resources Group 27,832 755
Western Atlas, Inc.+ 6,000 372
------
8,092
------
FOOD-AGRICULTURE--6.6%
Archer-Daniels Midland Co. 58,035 1,066
Campbell Soup Co. 48,600 2,485
Coca-Cola Co. 270,600 17,217
ConAgra, Inc. 26,200 1,510
CPC International, Inc. 19,200 1,586
Fleming Companies, Inc. 3,300 54
General Mills, Inc. 19,200 1,190
H.J. Heinz Co. 38,000 1,577
Hershey Foods Corp. 15,200 825
Kellogg Co. 23,000 1,604
PepsiCo, Inc. 165,300 5,765
Pioneer Hi-Bred International, Inc. 7,100 501
Quaker Oats Co. 14,500 580
Ralston Purina Co. 11,700 964
</TABLE>
21
<PAGE> 28
SCHWAB S&P 500 FUND
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
April 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- --------
<S> <C> <C>
Sara Lee Corp. 48,300 $ 2,029
SYSCO Corp. 15,700 557
Unilever N V 16,500 3,238
Whitman Corp. 11,300 261
Wm. Wrigley Jr. Co. 13,300 775
------
43,784
------
GOLD--0.4%
Barrick Gold Corp. 43,100 964
Battle Mountain Gold Co. 12,000 69
Echo Bay Mines Ltd. 6,400 35
Homestake Mining Co. 22,800 302
Newmont Mining Corp. 12,500 433
Placer Dome, Inc. 22,000 360
Santa Fe Pacific Gold Corp. 19,400 286
------
2,449
------
HEALTHCARE--10.7%
Abbott Laboratories 80,300 4,898
Allegiance Corp. 2,600 58
Allergan, Inc. 3,800 102
ALZA Corp.+ 9,500 278
American Home Products Corp. 72,400 4,797
Amgen, Inc. 30,000 1,766
Bausch & Lomb, Inc. 3,400 137
Baxter International, Inc. 30,800 1,475
Becton, Dickinson & Co. 12,000 552
Beverly Enterprises, Inc.+ 5,200 75
Biomet, Inc. 13,300 202
Boston Scientific Corp.+ 21,100 1,018
Bristol-Myers Squibb Co. 104,500 6,845
C.R. Bard, Inc. 4,700 149
Columbia/HCA Healthcare Corp. 71,350 2,497
Eli Lilly & Co. 62,700 5,510
Fresenius Medical Care AG (Sponsored American
Depository Receipts) + 4,825 142
Guidant Corp. 7,400 505
HealthSouth Corp.+ 37,600 743
Humana, Inc.+ 21,600 470
Johnson & Johnson 145,700 8,924
Mallinckrodt, Inc. 6,100 222
Manor Care, Inc. 3,600 84
Medtronic, Inc. 26,800 1,856
Merck & Co., Inc. 136,000 12,305
Pfizer, Inc. 67,300 6,461
Pharmacia & Upjohn, Inc. 59,300 1,757
Schering Plough Corp. 42,200 3,376
St. Jude Medical, Inc.+ 7,200 234
</TABLE>
22
<PAGE> 29
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- --------
<S> <C> <C>
Tenet Healthcare Corp.+ 31,500 $ 819
U.S. Surgical Corp. 10,900 373
United Healthcare Co. 18,100 880
Warner Lambert Co. 27,100 2,656
------
72,166
------
HOUSEHOLD PRODUCTS--2.8%
Alberto-Culver Co. Class B 3,600 105
Avon Products, Inc. 12,800 789
Clorox Co. 5,200 662
Colgate-Palmolive Co. 14,400 1,598
Gillette Co. 62,200 5,287
International Flavors & Fragrances, Inc. 14,100 594
Procter & Gamble Co. 73,200 9,206
Tupperware Corp. 6,300 209
------
18,450
------
IMAGING & PHOTO -- 0.5%
Eastman Kodak Co. 37,400 3,123
Polaroid Corp. 2,800 136
------
3,259
------
INSURANCE -- 3.8%
Aetna, Inc. 14,845 1,353
Allstate Financial Corp. 46,000 3,013
American General Corp. 24,700 1,078
American International Group, Inc. 53,300 6,847
Aon Corp. 11,100 738
Chubb Corp. 16,900 976
CIGNA Corp. 8,300 1,248
Conseco, Inc. 18,000 745
General Re Corp. 9,800 1,639
ITT Hartford Group, Inc. 10,900 812
Jefferson-Pilot Corp. 8,500 491
Lincoln National Corp. 10,200 571
Marsh & McLennan Companies, Inc. 7,800 940
MBIA Corp. 4,300 419
MGIC Investment Corp. 7,600 618
Providian Corp. 9,700 560
SAFECO Corp. 11,800 472
St. Paul Companies, Inc. 9,800 657
Torchmark Corp. 6,900 429
Transamerica Corp. 7,000 593
UNUM Corp. 6,500 501
USF&G Corp. 16,000 320
USLIFE Corp. 1,900 92
------
25,112
------
</TABLE>
23
<PAGE> 30
SCHWAB S&P 500 FUND
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
April 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- --------
<S> <C> <C>
MEDIA--2.3%
Comcast Corp. Class A 40,200 $ 633
Dow Jones & Co., Inc. 11,400 462
Gannett Co., Inc. 16,100 1,405
King World Productions, Inc. 1,900 69
Knight-Ridder, Inc. 9,000 350
McGraw Hill Companies, Inc. 9,900 504
Meredith Corp. 3,200 75
New York Times Co. Class A 9,100 394
SBC Communications, Inc. 103,382 5,736
Telecommunications, Inc. Series A (TCI Group)+ 67,400 931
Time Warner, Inc. 58,300 2,624
Times Mirror Co. Series A 8,700 481
Tribune Co. (New) 11,000 483
Viacom, Inc. Class B+ 37,900 1,014
------
15,161
------
MISCELLANEOUS FINANCE--3.3%
American Express Co. 48,300 3,182
Beneficial Corp. 4,200 269
Dean Witter Discover and Company 31,200 1,193
Federal Home Loan Mortgage Corp. 80,000 2,550
Federal National Mortgage Assoc. 122,000 5,017
Golden West Financial Corp. 4,800 312
Great Western Financial Corp. 14,100 592
Green Tree Financial Corp. 13,400 397
H.F. Ahmanson & Co. 10,900 416
Household International, Inc. 12,200 1,074
Merrill Lynch & Co., Inc. 16,500 1,572
Morgan Stanley Group, Inc. 17,400 1,098
Salomon, Inc. 9,900 495
Travelers Group, Inc. 72,633 4,022
------
22,189
------
MOTOR VEHICLE--2.2%
Chrysler Corp. 71,400 2,142
Cummins Engine Co., Inc. 2,400 135
Dana Corp. 10,500 335
Eaton Corp. 8,200 614
Echlin, Inc. 7,200 235
Fleetwood Enterprises, Inc. 2,900 76
Ford Motor Co. 132,800 4,615
General Motors Corp. 86,500 5,006
Genuine Parts Co. 17,100 554
Navistar International Corp.+ 4,600 52
Paccar, Inc. 5,800 405
TRW, Inc. 12,300 641
------
14,810
------
</TABLE>
24
<PAGE> 31
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- --------
<S> <C> <C>
NON-FERROUS--0.8%
Alcan Aluminum Ltd. 25,700 $ 871
Aluminum Company of America 16,700 1,167
Asarco, Inc. 2,900 83
Cyprus Minerals Co. 13,100 293
Engelhard Corp. 14,200 298
Freeport-McMoRan Copper & Gold, Inc. Class B 17,800 518
Inco Ltd. 17,000 544
Phelps Dodge Corp. 9,800 752
Reynolds Metals Co. 8,000 543
------
5,069
------
OIL-DOMESTIC--1.1%
Amerada Hess Corp. 8,400 408
Ashland, Inc. 11,300 504
Atlantic Richfield Co. 17,400 2,368
Kerr-McGee Corp. 4,000 242
Oryx Energy Co.+ 11,500 230
Pennzoil Co. 3,600 177
Phillips Petroleum Co. 30,100 1,185
Santa Fe Energy Resources, Inc.+ 4,500 64
Sun, Inc. 11,600 318
Unocal Corp. 24,200 923
USX-Marathon Group 31,700 876
------
7,295
------
OIL-INTERNATIONAL--6.5%
Amoco Corp. 50,700 4,240
Chevron Corp. 68,600 4,699
Exxon Corp. 272,500 15,430
Mobil Corp. 40,800 5,304
Royal Dutch Petroleum Company 59,300 10,689
Texaco, Inc. 29,200 3,081
------
43,443
------
PAPER--1.5%
Boise Cascade Corp. 7,900 263
Champion International Corp. 8,900 414
Georgia-Pacific Corp. 10,500 819
International Paper Co. 33,500 1,415
James River Corp. 13,700 409
Kimberly-Clark Corp. 66,000 3,382
Louisiana-Pacific Corp. 11,600 216
Mead Corp. 6,500 365
Potlatch Corp. 2,200 90
Temple Inland, Inc. 6,200 344
Union Camp Corp. 6,900 336
Westvaco Corp. 12,900 361
</TABLE>
25
<PAGE> 32
SCHWAB S&P 500 FUND
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
April 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- --------
<S> <C> <C>
Weyerhaeuser Co. 22,600 $ 1,034
Willamette Industries, Inc. 4,500 287
------
9,735
------
PRODUCER GOODS & MANUFACTURING--5.6%
Aeroquip-Vickers, Inc. 2,300 93
Allied Signal, Inc. 28,100 2,030
Avery Dennison Corp. 10,800 397
Briggs & Stratton Corp. 2,000 98
Case Corp. 6,100 338
Caterpillar, Inc. 18,700 1,664
Cincinnati Milacron, Inc. 2,900 59
Cooper Industries, Inc. 15,200 699
Deere & Co. 26,600 1,224
Dover Corp. 10,300 546
Emerson Electric Co. 46,200 2,345
FMC Corp.+ 4,800 322
Foster Wheeler Corp. 2,200 85
General Electric Co. 176,200 19,533
Giddings & Lewis, Inc. 3,200 65
Harnischfeger Industries, Inc. 9,000 375
Illinois Tool Works, Inc. 12,300 1,124
Ingersoll-Rand Co. 10,000 491
ITT Industries, Inc. 8,800 222
Johnson Controls, Inc. 12,600 484
McDermott International, Inc. 2,800 52
Millipore Corp. 2,700 102
NACCO Industries, Inc. Class A 3,000 139
Pall Corp. 13,100 303
Parker-Hannifin Corp. 8,000 398
Raychem Corp. 5,900 381
Tenneco, Inc. (New) 18,200 726
Timken Co. 1,800 105
Tyco International Ltd. 17,200 1,049
W.W. Grainger, Inc. 10,900 822
Westinghouse Electric Corp. 64,400 1,095
------
37,366
------
RAILROAD--1.0%
Burlington Northern Santa Fe Corp. 15,200 1,197
Conrail, Inc. 8,719 996
CSX Corp. 21,600 1,007
Norfolk Southern Corp. 13,200 1,186
Union Pacific Corp. 31,800 2,028
------
6,414
------
</TABLE>
26
<PAGE> 33
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- --------
<S> <C> <C>
REAL PROPERTY--0.1%
HFS, Inc.+ 13,600 $ 806
------
RETAIL--4.6%
Albertson's, Inc. 24,800 818
American Stores Co. 17,800 810
AutoZone, Inc.+ 19,600 480
Charming Shoppes, Inc.+ 5,800 34
Circuit City Stores, Inc. 11,200 444
Costco Companies, Inc.+ 25,600 739
CUC International, Inc.+ 41,600 879
CVS Corp. 9,900 491
Dayton Hudson Corp. 23,300 1,049
Dillard Department Stores, Inc. Class A 11,100 343
Federated Department Stores, Inc.+ 24,200 823
Gap, Inc. 28,600 912
Giant Food, Inc. Class A 6,700 216
Great Atlantic & Pacific Tea Co., Inc. 2,800 70
Harcourt General, Inc. 7,700 356
Home Depot, Inc. 49,600 2,877
J.C. Penney Co., Inc. 27,200 1,299
K Mart Corp.+ 53,600 730
Kroger Co.+ 22,600 622
Limited, Inc. 45,800 830
Longs Drug Stores, Inc. 3,400 86
Lowe's Companies, Inc. 16,000 608
May Department Stores Co. 26,800 1,240
Mercantile Stores Co., Inc. 1,700 84
Nordstrom, Inc. 12,800 502
Pep Boys-Manny Moe & Jack 3,800 124
Rite Aid Corp. 13,700 630
Sears, Roebuck & Co. 39,900 1,915
Tandy Corp. 7,400 388
TJX Companies, Inc. 7,400 350
Toys 'R' Us, Inc.+ 30,500 869
Wal Mart Stores, Inc. 242,700 6,854
Walgreen Co. 35,200 1,619
Winn Dixie Stores, Inc. 13,700 476
Woolworth Corp.+ 13,800 297
------
30,864
------
STEEL--0.2%
Allegheny Teledyne, Inc. 16,235 432
Armco, Inc.+ 6,400 22
Bethlehem Steel Corp.+ 5,500 45
Inland Steel Industries, Inc. 4,600 105
Nucor Corp. 8,700 433
</TABLE>
27
<PAGE> 34
SCHWAB S&P 500 FUND
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
April 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- --------
<S> <C> <C>
USX -- U.S. Steel Group 9,200 $ 269
Worthington Industries, Inc. 15,300 289
------
1,595
------
TELEPHONE--6.2%
AirTouch Communications+ 52,500 1,339
Alltel Corp. 23,300 734
Ameritech Corp. 59,300 3,625
Andrew Corp. 9,600 238
AT&T Corp. 182,400 6,108
Bell Atlantic Corp. 50,800 3,442
BellSouth Corp. 108,200 4,815
DSC Communications Corp.+ 17,900 365
Frontier Corp. 16,000 254
GTE Corp. 108,000 4,955
MCI Communications Corp. 70,400 2,684
Northern Telecom Ltd. 27,800 2,019
Nynex Corp. 45,600 2,360
Sprint Corp. 50,700 2,224
Tellabs, Inc.+ 19,200 766
U.S. West, Inc. (Communications Group) 51,100 1,795
U.S. West, Inc. (Media Group)+ 63,700 1,099
WorldCom, Inc. 97,100 2,330
------
41,152
------
TOBACCO--1.9%
American Brands, Inc. 19,600 1,054
Loew's Corp. 12,600 1,158
Philip Morris Companies, Inc. 261,800 10,308
UST, Inc. 16,700 436
------
12,956
------
TRANSPORTATION-MISCELLANEOUS--0.2%
Caliber Systems, Inc. 5,300 158
CNF Transportation, Inc. 4,700 140
Federal Express Corp.+ 11,900 640
Ryder Systems, Inc. 9,500 296
------
1,234
------
TRAVEL & RECREATION--1.3%
Brunswick Corp. 10,700 302
Harrah's Entertainment, Inc.+ 16,300 261
Hilton Hotels Corp. 28,800 778
ITT Corp. (New)+ 10,500 622
Marriott International, Inc. 14,200 785
Walt Disney Co. 70,000 5,739
-------
8,487
-------
</TABLE>
28
<PAGE> 35
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- --------
<S> <C> <C>
UTILITIES--3.1%
American Electric Power Co., Inc. 23,000 $ 932
Baltimore Gas & Electric Co. 18,600 474
Carolina Power & Light Co. 13,900 473
Central & South West Services Corp. 18,300 368
Cinergy Corp. 15,500 515
Coastal Corp. 13,400 637
Columbia Gas System, Inc. 7,700 476
Consolidated Edison Co. of New York, Inc. 25,900 719
Consolidated Natural Gas Co. 10,200 514
Dominion Resources, Inc. 17,900 615
DTE Energy Co. 14,200 380
Duke Power Co. 19,400 851
Eastern Enterprises 1,700 58
Edison International 42,400 890
Enron Corp. 25,100 944
ENSERCH Corp. 4,500 88
Entergy Corp. 20,700 484
FPL Group, Inc. 17,800 794
GPU, Inc. 13,500 435
Houston Industries, Inc. 27,400 548
Niagara Mohawk Power Corp.+ 7,200 61
NICOR, Inc. 2,900 98
Noram Energy Corp. 8,400 123
Northern States Power Co. 11,500 523
Ohio Edison Co. 21,000 420
ONEOK, Inc. 2,100 62
Pacific Enterprises, Inc. 6,400 196
Pacific Gas & Electric Corp. 42,900 1,030
PacifiCorp. 31,300 622
Panhandle Eastern Corp. 13,700 606
PECO Energy Co. 25,100 496
Peoples Energy Corp. 1,900 64
PP&L Resources, Inc. 16,000 314
Public Service Enterprises 28,800 695
Sonat, Inc. 8,100 463
Southern Co. 67,800 1,382
Texas Utilities Co. 27,800 938
Unicom Corp. 18,000 392
Union Electric Co. 10,600 378
Williams Companies, Inc. 14,200 623
-------
20,681
-------
TOTAL COMMON STOCK (Cost $597,704) 664,614
-------
</TABLE>
29
<PAGE> 36
SCHWAB S&P 500 FUND
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
April 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- --------
<S> <C> <C>
PREFERRED STOCK--0.0%
Aetna, Inc. 6.25% Class C (Voting) 381 $ 33
Fresenius National Medical, Inc.+ 4,600 0
-------
TOTAL PREFERRED STOCK (Cost $25) 33
-------
CASH EQUIVALENTS--0.8%
Temporary Investment Fund, Inc.--TempCash
Portfolio* 5.24%, 05/07/97 5,383 5,383
-------
TOTAL CASH EQUIVALENTS (Cost $5,383) 5,383
-------
TOTAL INVESTMENTS--100.6% (Cost $603,112) 670,030
OTHER ASSETS AND LIABILITIES--(0.6)%
Other Assets 5,312
Liabilities (9,372)
-------
(4,060)
-------
NET ASSETS--100.0% (see Note 7)
Applicable to 53,990,216 outstanding $0.00001
par value shares (unlimited shares authorized) $665,970
=======
NET ASSET VALUE PER INVESTOR SHARE $12.33
=====
NET ASSET VALUE PER e.SHARE $12.34
=====
</TABLE>
- ---------------
+ Non-Income Producing Security.
* Interest rate represents the yield on report date.
See accompanying Notes to Financial Statements.
30
<PAGE> 37
SCHWAB S&P 500 FUND
- ------------------------------------------------------------------------------
STATEMENT OF OPERATIONS (in thousands)
Six months ended April 30, 1997 (Unaudited)
<TABLE>
<S> <C>
Investment income:
Dividends $ 4,418
Interest 6
-------
Total investment income 4,424
-------
Expenses:
Investment advisory and administration fee 788
Transfer agency and shareholder service fees:
Investor shares 462
e.Shares 38
Custodian fees 80
Registration fees 110
Professional fees 19
Shareholder reports 31
Trustees' fees 8
Amortization of deferred organization costs 3
Insurance and other expenses 15
-------
1,554
Less expenses reduced and absorbed (see Note 4) (659)
-------
Total expenses incurred by Fund 895
-------
Net investment income 3,529
-------
Net realized gain on investments sold 7
Net unrealized gain on investments 49,902
-------
Net gain on investments 49,909
-------
Increase in net assets resulting from operations $53,438
=======
</TABLE>
See accompanying Notes to Financial Statements.
31
<PAGE> 38
SCHWAB S&P 500 FUND
- ------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS (in thousands)
<TABLE>
<CAPTION>
Six
months Year
ended ended
April 30, October
1997 31,
(Unaudited) 1996
--------- ----------
<S> <C> <C>
Operations:
Net investment income $ 3,529 $ 1,860
Net realized gain (loss) on investments sold 7 (54)
Net unrealized gain on investments 49,902 17,016
-------- --------
Increase in net assets resulting from
operations 53,438 18,822
-------- --------
Dividends to shareholders from net investment
income:
Investor shares (2,361) --
e.Shares (498) --
-------- --------
Total dividends to shareholders (2,859) --
Capital share transactions:
Proceeds from shares sold 451,177 304,596
Net asset value of shares issued in
reinvestment of dividends 2,679 --
Less payments for shares redeemed (118,568) (43,315)
-------- --------
Increase in net assets from capital share
transactions 335,288 261,281
-------- --------
Total increase in net assets 385,867 280,103
Net assets:
Beginning of period 280,103 --
-------- --------
End of period (including undistributed net
investment income of $2,530) $ 665,970 $ 280,103
======== ========
</TABLE>
See accompanying Notes to Financial Statements.
32
<PAGE> 39
SCHWAB S&P 500 FUND
- ------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
Six months ended April 30, 1997 (Unaudited)
1. DESCRIPTION OF THE FUNDS
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.Share(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
unlisted securities 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
ask 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
33
<PAGE> 40
SCHWAB S&P 500 FUND
- ------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
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).
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. Dividend income and distributions to shareholders are recorded
on the ex-dividend date; interest income is accrued on a daily basis
Deferred organization costs -- Costs incurred in connection with the
organization of the Fund are amortized on a straightline 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 which are class
specific, are calculated daily at the class level.
Federal income taxes -- It is the Fund's policy to meet the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all net investment income and realized net capital gains, if any, to
shareholders. Therefore, no federal income tax provision is required. The Fund
is considered a separate entity for tax purposes.
At April 30, 1997 (for financial reporting and federal income tax purposes), net
unrealized gain for the Fund aggregated $66,918,000 of which $78,004,000 related
to appreciated securities and $11,086,000 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,
34
<PAGE> 41
- ------------------------------------------------------------------------------
of 0.36% of the first $1 billion of average daily net assets, 0.33% of such net
assets over $1 billion, and 0.31% of such assets in excess of $2 billion. The
Investment Manager has reduced a portion of its fees for the six months ended
April 30, 1997 (see Note 4).
Transfer agency and shareholder service agreements -- The Trust has transfer
agency and shareholder service agreements with Charles Schwab & Co., Inc.
("Schwab"). For services provided under these agreements, Schwab receives an
annual fee from each class of shares, payable monthly, of 0.05% of average daily
net assets for transfer agency services. For shareholder services provided,
Schwab will receive from the Investor Shares and e.Shares(TM) an annual fee of
0.20% and 0.05%, respectively, of average daily net assets of that class of
shares. Schwab has reduced a portion of its fees for the six months 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
six months ended April 30, 1997, 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 $8,000
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 six months ended April 30, 1997, the total of such
fees and expenses reduced and absorbed by the Investment Manager were $601,000
and the total of such fees reduced by Schwab were $40,000 and $18,000, for
Investor shares and e.Shares, respectively (see Note 9).
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. As of April 30, 1997, there were no amounts outstanding under the line of
credit arrangement.
35
<PAGE> 42
SCHWAB S&P 500 FUND
- ------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
6. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities, other than short-term obligations,
aggregated (in thousands) $340,657 and $2,887, respectively, during the six
months ended April 30, 1997.
7. COMPOSITION OF NET ASSETS
At April 30, 1997, net assets consisted of (in thousands):
<TABLE>
<S> <C>
Paid-in-capital $596,569
Undistributed net investment income 2,530
Accumulated net realized loss on investments sold (47)
Net unrealized gain on investments 66,918
--------
Total $665,970
========
</TABLE>
At April 30, 1997, the Fund's Statement of Net Assets included: $5,000 payable
for investment advisory and administration fee, $37,000 payable for transfer
agency and shareholder service fees, $2,546,000 payable for Fund shares
redeemed, $6,640,000 payable for securities purchased and $4,352,000 receivable
for Fund shares sold.
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
36
<PAGE> 43
- ------------------------------------------------------------------------------
Fund. Transactions in capital shares for the six months ended April 30, 1997
were as follows (in thousands):
<TABLE>
<CAPTION>
Investor
Shares e.Shares Total
-------- -------- ---------
<S> <C> <C> <C>
Capital share transactions:
Proceeds from shares sold $346,544 $104,633 $ 451,177
Net asset value of shares
issued in reinvestment of
dividends 2,235 444 2,679
Less payments for shares
redeemed (90,357) (28,211) (118,568)
-------- -------- --------
Increase in net assets from
capital share transactions $258,422 $ 76,866 $ 335,288
======== ======== ========
Number of Fund shares:
Sold 29,266 8,807 38,073
Reinvested 193 37 230
Redeemed (7,669) (2,384) (10,053)
-------- -------- --------
Net increase in shares
outstanding 21,790 6,460 28,250
======== ======== ========
</TABLE>
37
<PAGE> 44
SCHWAB S&P 500 FUND
- ------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
9. FINANCIAL HIGHLIGHTS
For a share outstanding throughout the period:
<TABLE>
<CAPTION>
Six months ended
April 30, 1997 Period ended
(Unaudited) October 31, 1996++
---------------------- ---------------------
Investor Investor
Shares e.Shares Shares e.Shares
--------- -------- --------- -------
<S> <C> <C> <C> <C>
Net asset value at beginning of
period $ 10.88 $ 10.89 $ 10.00 $ 10.00
Income from investment operations
- ----------------------------
Net investment income 0.06 0.09 0.08 0.04
Net realized and unrealized
gain on investments 1.48 1.46 0.80 0.85
-------- -------- -------- -------
Total from investment
operations 1.54 1.55 0.88 0.89
Less distributions
- --------------
Dividends from net investment
income (0.09) (0.10) -- --
Distributions from realized
gain on investments -- -- -- --
-------- -------- -------- -------
Total distributions (0.09) (0.10) -- --
-------- -------- -------- -------
Net asset value at end of period $ 12.33 $ 12.34 $ 10.88 $ 10.89
======== ======== ======== =======
Total return (not annualized) 14.24% 14.34% 8.80% 8.90%
- ---------
Ratios/Supplemental data
- --------------------
Net assets, end of period
(000s) $ 545,033 $120,937 $ 243,772 $36,331
Ratio of expenses to average
net assets+ 0.43%* 0.27%* 0.49%* 0.28%*
Ratio of net investment income
to average net assets+ 1.56%* 1.71%* 1.89%* 1.82%*
Portfolio turnover rate 1% 1% 1% 1%
Average commission rate $ 0.03 $ 0.03 $ 0.02 $ 0.02
</TABLE>
- ---------------
<TABLE>
<C> <S> <C> <C> <C> <C>
+ 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:
Ratio of expenses to average
net assets 0.72%* 0.60%* 0.89%* 1.19%*
Ratio of net investment
income to
average net assets 1.27%* 1.38%* 1.49%* 0.91%*
* Annualized
++ For the period May 1, 1996 (commencement of operations) to October 31, 1996.
</TABLE>
38
<PAGE> 45
THIS SPACE RESERVED FOR YOUR COMMENTS AND QUESTIONS.
A SCHWAB REPRESENTATIVE WILL BE HAPPY TO ASSIST YOU.
<PAGE> 46
SCHWABFUNDS FAMILY(R)
The SchwabFunds Family includes a variety of funds to help meet your investment
needs. You can diversify your portfolio in a single step with our asset
allocation funds. Or you can customize your portfolio with a combination of our
stock funds as well as our taxable and tax-advantaged bond and money funds.
SCHWAB ASSET ALLOCATION FUNDS
Schwab Asset Director(R) -- High Growth Fund
Schwab Asset Director -- Balanced Growth Fund
Schwab Asset Director -- Conservative Growth Fund
Schwab OneSource Portfolios -- Growth Allocation
Schwab OneSource Portfolios -- Balanced Allocation
SCHWAB STOCK FUNDS
Schwab 1000 Fund(R)
Schwab S&P 500 Fund
Schwab Analytics Fund(TM)
Schwab Small-Cap Index Fund(R)
Schwab International Index Fund(R)
Schwab OneSource Portfolios -- International
SCHWAB BOND FUNDS
Schwab Government Bond Funds -- Long-Term and Short/Intermediate
Schwab Tax-Free Bond Funds -- Long-Term and Short/Intermediate
Schwab California Tax-Free Bond Funds -- Long-Term and Short/Intermediate
SCHWAB MONEY MARKET FUNDS
Schwab offers an array of money market funds* that seek high current income with
safety and liquidity. Choose from taxable or tax-advantaged alternatives. Many
can be linked to your Schwab account to "sweep" cash balances automatically when
you're between investments. Or, for your larger cash reserves, choose one of our
Value Advantage Investments(R).
Please call 1-800-2 NO-LOAD for a free prospectus and brochure for any of the
SchwabFunds(R).
Each prospectus provides more complete information, including charges and
expenses. Please read it carefully before investing.
This report must be preceded or accompanied by a current prospectus.
* Investments in money market funds are neither insured nor guaranteed by the
U.S. government, and there is no assurance that the funds will be able to
maintain a stable share price of $1.
<PAGE> 47
==============
BULK RATE
U.S. POSTAGE
PAID
CHARLES SCHWAB
==============
SCHWABFUNDS
FAMILY (R)
101 Montgomery Street
San Francisco, California 94104
INVESTMENT ADVISOR
Charles Schwab Investment Management, Inc.
101 Montgomery Street, San Francisco, CA 94104
DISTRIBUTOR
Charles Schwab & Co., Inc.
101 Montgomery Street, San Francisco, CA 94104
This report is not authorized for distribution to prospective investors unless
preceded or accompanied by a current prospectus.
(C)1997 Charles Schwab & Co., Inc. All rights reserved.
Member SIPC/NYSE.
TF4731R(5/97) CRS 20064 Printed on recycled paper.
