<PAGE>
SCHWABFUNDS-R-
SCHWAB
ANALYTICS
FUND-R-
Semiannual Report
April 30, 1998
<PAGE>
SCHWAB ANALYTICS FUND-REGISTERED TRADEMARK-
We are pleased to bring you this semiannual report for the Schwab Analytics Fund
(the Fund) for the six-month period ended April 30, 1998.
The Fund seeks to achieve long-term capital growth. To meet its objective, the
Fund uses quantitative techniques, proprietary software models and real-time
databases to systematically select stocks that exhibit a combination of
attributes that historically have been associated with aggregate total returns
greater than that of the S&P 500-Registered Trademark-Index (the Index) over the
long term. The Fund also intends to maintain broad industry diversification
similar to that of the Index. By doing so, the Fund seeks to outperform the
Index over the long term without significantly increasing the risk to the
investor.
FUND LISTINGS
The Fund is listed in THE WALL STREET JOURNAL, USA TODAY, INVESTOR'S BUSINESS
DAILY and most local newspapers as ANALYTIC under the heading
SCHWABFUNDS-REGISTERED TRADEMARK-. Its computer quotation symbol is SWANX.
CONTENTS
<TABLE>
<S> <C>
- ------------------------------------------------
A Message from the Chairman 1
- ------------------------------------------------
What Every Investor Should Know 2
- ------------------------------------------------
Market Overview 4
- ------------------------------------------------
Fund Performance 7
- ------------------------------------------------
Portfolio Summary 8
- ------------------------------------------------
Fund Discussion 9
- ------------------------------------------------
Statement of Net Assets 11
- ------------------------------------------------
Financial Statements 15
- ------------------------------------------------
Notes to Financial Statements 20
- ------------------------------------------------
</TABLE>
<PAGE>
A MESSAGE FROM THE CHAIRMAN
Dear Shareholder,
The U.S. stock market rallied strongly over most of the six-month period ended
April 30, 1998. So did many European markets. Despite investors' concerns about
Asia's financial crisis last autumn, economic conditions continued to provide a
solid underpinning for U.S. business activity. Once again, blue chips led the
rally, though many smaller-cap stocks posted very solid gains in absolute terms.
You'll find more insight about the overall market beginning on page 4.
[PHOTO]
As pleased as we are with the performance of our Funds during
this period, we want to be realistic. Over most of this
century, for example, the U.S. stock market has returned an
average of 11% to 12% PER YEAR, not per quarter. We encourage
investors to keep that in mind should the market revert to its historical
pattern of more-moderate performance.
Our philosophy has always been that REGULAR INVESTING, regardless of short-term
market trends, is the best strategy over the long term. By investing in one of
our SchwabFunds-Registered Trademark-, you've already taken an important step in
building a portfolio that can help you meet your future goals. On the following
pages, we outline several ways to help ensure that you reach those goals by
establishing--or maintaining--an ongoing investment program.
NEW INVESTMENT OPPORTUNITIES TO CONSIDER
We are proud to introduce a new addition to our family of Funds: THE SCHWAB
MARKETTRACK ALL EQUITY PORTFOLIO. (SCHWAB MARKETTRACK PORTFOLIOS-TM- is the new
name of Schwab's Asset Director-Registered Trademark- Funds.) This Portfolio,
which targets 100% equity investing, can provide you with diversified exposure
to three different areas of the stock market: U.S. large-company, U.S.
small-company and international stocks. We also offer three other MarketTrack
Portfolios: Growth, Balanced and Conservative. Each invests a different
proportion of its assets in bonds and cash in addition to stocks.
For additional information and a free prospectus on the Schwab MarketTrack
Portfolios or any of our SchwabFunds, please call us toll free at
1-800-435-4000. Each prospectus contains more-complete information on our Funds,
including their fees and expenses; please read the prospectus carefully before
you invest.
The support of investors like you has helped Charles Schwab Investment
Management, Inc. (CSIM) become one of the largest and fastest-growing mutual
fund families in the nation. CSIM now manages more than $63 billion in assets on
behalf of more than 3.3 million SchwabFunds shareholders. We offer a full
spectrum of 34 mutual funds for investors with varying financial situations and
goals.
Once again, thank you for your investment in SchwabFunds. We continue to do
everything we can to warrant the trust you have placed in us.
Sincerely,
/s/ Charles R. Schwab
Charles R. Schwab
April 30, 1998
1
<PAGE>
WHAT EVERY INVESTOR SHOULD KNOW
WHY ASSET ALLOCATION MATTERS
As most investors know, one of the most compelling reasons to invest in a mutual
fund is diversification. By allocating your assets across many different
securities, a fund helps reduce the risk that you might otherwise encounter by
owning just a few stocks or bonds.
Don't forget, however, that diversification across your portfolio can be just as
important as diversification within one of the mutual funds you own. As you
probably know, stocks have historically offered much higher returns over the
long term than bonds, cash or other asset classes, but those returns have come
at the price of higher volatility. To help mitigate some of that risk, many
investors often include at least some bonds and cash in their portfolios. They
also diversify their equity exposure across different market segments-- such as
U.S. large-cap, U.S. small-cap and international, which have tended to move with
less than perfect correlation over time. In short, allocating assets across
market segments may help reduce your overall portfolio risk.
REGULAR-INVESTING STRATEGIES
Another way to help dampen the effects of short-term market volatility is to
invest the same amount of money on a regular basis. With this investment
strategy, known as DOLLAR-COST AVERAGING, you automatically buy more shares when
stock or bond prices are low and fewer when they're high.
A hypothetical example can help illustrate this concept. Let's say you invest
$400 on a monthly basis in a single mutual fund, as shown in the illustration
below. Because of fluctuating prices, your per-share purchase price varies
monthly. A simple average of your five purchase prices would yield $8.20 per
share; however, your AVERAGE COST BASIS (your total investment divided by the
number of shares actually purchased) would be significantly lower--by more than
$0.50 per share. The net result in this example is that your average cost per
share is reduced and you'd have purchased more shares than you would have had
you paid the average share price over the five-month period.
<TABLE>
<CAPTION>
No. of
Fixed Shares
Investment Share Price Purchased
<S> <C> <C> <C>
- -------------------------------------------------------------
Month 1 $400 $10 40
- -------------------------------------------------------------
Month 2 $400 $8 50
- -------------------------------------------------------------
Month 3 $400 $5 80
- -------------------------------------------------------------
Month 4 $400 $8 50
- -------------------------------------------------------------
Month 5 $400 $10 40
- -------------------------------------------------------------
Totals: $2,000 $41 260
AVERAGE SHARE PRICE ($41 DIVIDED BY 5 periods): $8.20
YOUR AVERAGE COST BASIS
($2,000 DIVIDED BY 260 shares): $7.69
PER-SHARE ADVANTAGE: $0.51
</TABLE>
This example is for illustrative purposes only and is not intended to predict or
guarantee the performance of any particular fund available through Schwab.
(Of course, in this example, hindsight shows you that your best move would have
been to invest your entire $2,000 in Month 3 when the share price was at a low
of $5--but it's unlikely that you would have been able to predict that.)
2
<PAGE>
THE SCHWAB APPROACH TO INVESTING
- START WITH THE BASICS FOR LONG-TERM INVESTING.
- GET STARTED NOW!
- KNOW YOURSELF.
- INVEST IN THE STOCK MARKET FOR GROWTH.
- TAKE A LONG-TERM VIEW.
- BUILD A DIVERSIFIED PORTFOLIO.
- CONSIDER BONDS AND CASH FOR DIVERSIFICATION AND INCOME.
- MINIMIZE YOUR EXPENSES.
- STAY ON TRACK.
- BECOME A LIFELONG INVESTOR.
In addition to reducing your per-share costs over time, dollar-cost averaging
provides you another benefit: the discipline of investing regularly. You're more
likely to maintain a regular investment plan if it's automatic; not only do you
not have to even think about it, but you minimize any propensity to skip an
investment in favor of some other expenditure. To encourage this discipline,
Schwab offers you two convenient, no-cost ways to begin or maintain a program of
regular investing:
Schwab's AUTOMATIC INVESTMENT PLAN (AIP) allows you to automatically
purchase--on a regular basis-- additional shares in mutual funds that you
already own. For amounts as little as $100 per month, you can use the cash or
sweep shares of your existing Schwab Money Fund,(1) or you can enroll in
Schwab's free MoneyLink Transfer Service-Registered Trademark- to automatically
transfer money to your Schwab account.
With MONEYLINK TRANSFER SERVICE, you can arrange to regularly and automatically
transfer $50 or more from your bank account, payroll or government check into
your Schwab account. It's a great way to build your investment over time.(2)
Please be aware that these programs--and dollar-cost averaging in general--do
not ensure a profit or protect against a loss, and investors should know that
markets fall as well as rise. Over the long term, however, dollar-cost averaging
may help to smooth out volatility caused by short-term market trends. For more
information about these programs, please call us at 1-800-435-4000.
WE MAKE IT EASY TO INVEST
We try to make it easy and convenient for you to invest in our
SchwabFunds-Registered Trademark-. In addition to our automated methods, you can
also invest in person at any of our nationwide branches, through our Web site at
WWW.SCHWAB.COM and through our automated touch-tone telephone service,
TELEBROKER-REGISTERED TRADEMARK-, by calling 1-800-272-4922.
(1)Includes uninvested cash and margin cash available. If sufficient cash is not
available, your automatic purchases will not be made.
(2)The terms of your specific Schwab account will dictate when your Schwab
MoneyLink transfers are swept into a money market fund and begin earning
money market dividend income.
KEEPING YOU INFORMED
One of our top priorities at Charles Schwab is to keep you informed about your
investments and potential opportunities in the marketplace. A wealth of
information about our investment philosophy and Funds, as well as the market
and economic environment, can be found at our Web site:
WWW.SCHWAB.COM/SCHWABFUNDS
3
<PAGE>
MARKET OVERVIEW
U.S. GROWTH RATE
U.S. GROSS DOMESTIC PRODUCT (GDP) grew at a strong real rate of 3.8% in 1997 and
4.2% in the first quarter of 1998--well in excess of the Federal Reserve's
estimated noninflationary growth rate of 2.0% to 2.75%.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
REAL GDP GROWTH RATE
QUARTERLY PERCENTAGE CHANGE (ANNUALIZED
RATE)
<S> <C>
Q1 1990 3.90%
Q2 1990 1.20%
Q3 1990 -1.90%
Q4 1990 -4.00%
Q1 1991 -2.10%
Q2 1991 1.80%
Q3 1991 1.00%
Q4 1991 1.00%
Q1 1992 4.70%
Q2 1992 2.50%
Q3 1992 3.00%
Q4 1992 4.30%
Q1 1993 0.10%
Q2 1993 2.00%
Q3 1993 2.10%
Q4 1993 5.30%
Q1 1994 3.00%
Q2 1994 4.70%
Q3 1994 1.80%
Q4 1994 3.60%
Q1 1995 0.90%
Q2 1995 0.30%
Q3 1995 3.00%
Q4 1995 2.20%
Q1 1996 1.80%
Q2 1996 6.00%
Q3 1996 1.00%
Q4 1996 4.30%
Q1 1997 4.90%
Q2 1997 3.30%
Q3 1997 3.10%
Q4 1997 3.70%
Q1 1998 4.20%
SOURCE: BLOOMBERG L.P.
</TABLE>
At the time of this writing, THE U.S. ECONOMY APPEARS POISED FOR CONTINUED
GROWTH, further extending the current economic expansion that began in 1991.
Many economists expect Asia's economic problems to reduce 1998 U.S. GDP growth
by only a relatively minor 0.25 to 1.0 percentage point.
PRIOR TO THE FOURTH-QUARTER ONSET OF THE "ASIAN FLU," the U.S. economy's
strength and tight labor markets led investors to speculate about whether wage
and price inflation were accelerating. Some investors also believed that the
Federal Reserve was on the verge of raising interest rates to head off a
potential acceleration in both wage and price inflation. As Federal Reserve
Chairman Alan Greenspan said in his February congressional testimony, "The key
question going forward is whether the restraint building from the turmoil in
Asia will be sufficient to check inflationary tendencies that might otherwise
result from the strength of domestic spending and tightening labor markets." At
the moment, many economists believe that Federal Reserve policy-makers are now
more inclined to raise interest rates than they have been in the past, but are
refraining from doing so because inflation remains tame and Asia's continuing
problems may dampen both global and domestic growth.
UNEMPLOYMENT
JOB GROWTH IN THE UNITED STATES HAS REMAINED ROBUST. In fact, the U.S.
unemployment rate reached 4.3% in April--the lowest level in 28 years.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
U.S. UNEMPLOYMENT RATE
<S> <C>
Jan-90 5.40%
Feb-90 5.30%
Mar-90 5.20%
Apr-90 5.40%
May-90 5.40%
Jun-90 5.20%
Jul-90 5.50%
Aug-90 5.70%
Sep-90 5.90%
Oct-90 5.90%
Nov-90 6.20%
Dec-90 6.30%
Jan-91 6.40%
Feb-91 6.60%
Mar-91 6.80%
Apr-91 6.70%
May-91 6.90%
Jun-91 6.90%
Jul-91 6.80%
Aug-91 6.90%
Sep-91 6.90%
Oct-91 7.00%
Nov-91 7.00%
Dec-91 7.30%
Jan-92 7.30%
Feb-92 7.40%
Mar-92 7.40%
Apr-92 7.40%
May-92 7.60%
Jun-92 7.80%
Jul-92 7.70%
Aug-92 7.60%
Sep-92 7.60%
Oct-92 7.30%
Nov-92 7.40%
Dec-92 7.40%
Jan-93 7.30%
Feb-93 7.10%
Mar-93 7.00%
Apr-93 7.10%
May-93 7.10%
Jun-93 7.00%
Jul-93 6.90%
Aug-93 6.80%
Sep-93 6.70%
Oct-93 6.80%
Nov-93 6.60%
Dec-93 6.50%
Jan-94 6.60%
Feb-94 6.60%
Mar-94 6.50%
Apr-94 6.40%
May-94 6.00%
Jun-94 6.10%
Jul-94 6.10%
Aug-94 6.10%
Sep-94 5.90%
Oct-94 5.80%
Nov-94 5.60%
Dec-94 5.40%
Jan-95 5.60%
Feb-95 5.40%
Mar-95 5.40%
Apr-95 5.70%
May-95 5.60%
Jun-95 5.60%
Jul-95 5.70%
Aug-95 5.70%
Sep-95 5.70%
Oct-95 5.60%
Nov-95 5.60%
Dec-95 5.60%
Jan-96 5.70%
Feb-96 5.50%
Mar-96 5.50%
Apr-96 5.50%
May-96 5.50%
Jun-96 5.30%
Jul-96 5.50%
Aug-96 5.20%
Sep-96 5.20%
Oct-96 5.30%
Nov-96 5.40%
Dec-96 5.30%
Jan-97 5.30%
Feb-97 5.30%
Mar-97 5.20%
Apr-97 5.00%
May-97 4.80%
Jun-97 5.00%
Jul-97 4.90%
Aug-97 4.90%
Sep-97 4.90%
Oct-97 4.80%
Nov-97 4.60%
Dec-97 4.70%
Jan-98 4.70%
Feb-98 4.60%
Mar-98 4.70%
Apr-98 4.30%
SOURCE: BLOOMBERG L.P.
</TABLE>
ALTHOUGH INFLATION HAS BEEN WELL CONTAINED, the combination of a tight labor
market (as evidenced by low unemployment rates) and strong economic growth
typically leads to inflationary pressures on wages and, ultimately, prices. In
this environment, productivity growth becomes particularly important.
4
<PAGE>
Strong productivity gains, such as those achieved in 1997, allow manufacturers
and other businesses to limit price increases in the face of rising wages,
without sacrificing profit margins.
INFLATION
BOTH THE EMPLOYMENT COST INDEX (ECI) AND CONSUMER PRICE INDEX (CPI) REMAINED IN
CHECK throughout 1997 and the first quarter of 1998, reflecting continued low
inflation.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
MEASURES OF INFLATION
MONTHLY CONSUMER QUARTERLY EMPLOYMENT
PRICE INDEX COST INDEX
<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% 2.8%
May-97 2.2% 2.8%
Jun-97 2.3% 2.8%
Jul-97 2.2% 3.0%
Aug-97 2.2% 3.0%
Sep-97 2.2% 3.0%
Oct-97 2.1% 3.2%
Nov-97 1.8% 3.2%
Dec-97 1.7% 3.2%
Jan-98 1.6% 3.3%
Feb-98 1.4% 3.3%
Mar-98 1.4% 3.3%
Apr-98 1.4%
SOURCE: BLOOMBERG L.P.
</TABLE>
THE CPI ROSE just 1.4% over the year ended April 1998--the lowest rate of
increase since 1986. Its core rate (which excludes the more volatile food and
energy components) rose 2.1%--the lowest rate of increase since 1965. Investors
were somewhat more concerned about the ECI, and its wages and salaries component
in particular. That segment of the ECI increased 3.7% during the year ended
April 1998.
EVEN THOUGH CURRENT LEVELS OF INFLATION ARE VERY LOW, Federal Reserve
policy-makers have indicated that they believe the risk of inflation is
increasing, and they are poised to act preemptively by raising interest rates if
they believe that is necessary. The Federal Reserve did raise interest rates in
March 1997, increasing the federal funds rate by 0.25 percentage point to 5.5%.
By the end of April, many economists believed that Federal Reserve policy-makers
were once again inclined to raise interest rates, but there was a lack of
consensus about when the Federal Reserve would raise interest rates, if in fact
it would, and by how much.
TOTAL-RETURN PERFORMANCE
MOST U.S. STOCKS posted strong total returns from November 1, 1997, through
April 30, 1998. Large-caps continued to outperform small-caps, as reflected in
the 22.5% return of the S&P 500-Registered Trademark- Index versus the 13.4%
return of the Schwab Small-Cap Index-Registered Trademark- over the period.
Amazingly, the S&P 500 Index posted its thirteenth consecutive quarterly gain
during the first quarter of 1998 and posted an incredible return of 41% for the
12-month period ended April 1998.
INTERNATIONAL STOCKS, as represented by the Schwab International
Index-Registered Trademark-, gained 15.2% over the six-month period, primarily
on the strength of European markets.
FIXED-INCOME RETURNS were more in line with long-term expectations during the
reporting period. Bond returns, as represented by the Lehman Brothers Aggregate
Bond Index, were 3.6% over the six-month reporting period.
5
<PAGE>
MARKET OVERVIEW (continued)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
TOTAL-RETURN PERFORMANCE
VALUE OF A HYPOTHETICAL
$1 INVESTMENT
SCHWAB SCHWAB LEHMAN BROTHERS
S&P 500 SMALL CAP INTERNATIONAL AGGREGATE
INDEX-R- INDEX-R- INDEX-R- BOND INDEX
<S> <C> <C> <C> <C>
Oct-97 $ 1.000 $ 1.000 $ 1.000 $ 1.000
Nov-97 $ 1.046 $ 0.991 $ 0.996 $ 1.005
Dec-97 $ 1.064 $ 1.012 $ 1.010 $ 1.015
Jan-98 $ 1.076 $ 0.996 $ 1.051 $ 1.028
Feb-98 $ 1.154 $ 1.078 $ 1.115 $ 1.027
Mar-98 $ 1.213 $ 1.127 $ 1.144 $ 1.030
Apr-98 $ 1.225 $ 1.134 $ 1.151 $ 1.036
</TABLE>
TOTAL RETURN ASSUMES REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS
DISTRIBUTIONS. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. The indices
are intended to represent the returns of specific market sectors during the
funds' six-month reporting period and do not reflect the performance of any
fund. Indices are unmanaged and, unlike a fund, do not reflect the payment of
advisory fees and other expenses associated with an investment in a fund.
Investors cannot invest in an index directly.
S&P 500 PRICE/EARNINGS RATIO
THE PRICE/EARNINGS RATIO for the S&P 500 Index reached its highest value ever
during the reporting period: It stood at 26.5 at the close of the reporting
period, well above its 30-year average of 14.8. 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.
Based on other traditional market valuation measures such as the price-to-book
value ratio or dividend yield, the U.S. stock market, as measured by the S&P 500
Index, also reached historic highs during the reporting period.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
S&P 500 INDEX PRICE/EARNINGS
RATIO
<S> <C>
Jan-90 14.37
Feb-90 14.21
Mar-90 14.77
Apr-90 14.82
May-90 15.84
Jun-90 16.66
Jul-90 16.65
Aug-90 15.57
Sep-90 14.9
Oct-90 14.36
Nov-90 14.59
Dec-90 15.19
Jan-91 14.95
Feb-91 16.82
Mar-91 17.48
Apr-91 17.85
May-91 17.92
Jun-91 17.96
Jul-91 18.07
Aug-91 19.72
Sep-91 19.88
Oct-91 19.92
Nov-91 21.02
Dec-91 21.85
Jan-92 23.35
Feb-92 23.83
Mar-92 25.45
Apr-92 25.51
May-92 25.71
Jun-92 25.08
Jul-92 25.61
Aug-92 25.5
Sep-92 24.37
Oct-92 23.94
Nov-92 24.08
Dec-92 24.01
Jan-93 24.2
Feb-93 24.25
Mar-93 24.22
Apr-93 23.2
May-93 23.21
Jun-93 22.58
Jul-93 22.52
Aug-93 23.02
Sep-93 23.74
Oct-93 23.97
Nov-93 22.55
Dec-93 23.55
Jan-94 22.98
Feb-94 21.17
Mar-94 20.34
Apr-94 20.1
May-94 20.16
Jun-94 19.76
Jul-94 18.64
Aug-94 18.9
Sep-94 18.26
Oct-94 17.55
Nov-94 16.58
Dec-94 16.98
Jan-95 16.23
Feb-95 16.2
Mar-95 16.5
Apr-95 16.02
May-95 16.43
Jun-95 16.82
Jul-95 16.55
Aug-95 16.18
Sep-95 16.86
Oct-95 16.18
Nov-95 17.14
Dec-95 17.41
Jan-96 18.11
Feb-96 18.56
Mar-96 18.94
Apr-96 19.16
May-96 19.48
Jun-96 19.3
Jul-96 18.31
Aug-96 18.62
Sep-96 19.75
Oct-96 19.6
Nov-96 21.05
Dec-96 20.7
Jan-97 20.55
Feb-97 20.98
Mar-97 19.87
Apr-97 20.24
May-97 21.43
Jun-97 22.45
Jul-97 23.92
Aug-97 22.64
Sep-97 24
Oct-97 22.84
Nov-97 24.02
Dec-97 24.51
Jan-98 24.99
Feb-98 26.44
Mar-98 27.76
Apr-98 26.51
SOURCE: BLOOMBERG L.P.
</TABLE>
THE PRIMARY FACTORS DRIVING THESE HISTORIC EQUITY VALUATIONS have been low
inflation, low interest rates, healthy corporate earnings expectations, a
decline in the amount of equities outstanding (due to merger activity and share
buybacks) and high levels of consumer optimism. Changes in any of these factors
could have a negative impact on these lofty market valuations.
6
<PAGE>
FUND PERFORMANCE
AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED 4/30/98
<TABLE>
<CAPTION>
Since Inception
Six Months One Year (7/1/96)
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------
SCHWAB ANALYTICS
FUND-Registered Trademark-(1) 21.38% 40.29% 33.36%
- ---------------------------------------------------------------------------------
S&P 500 Index-Registered Trademark- 22.47% 41.04% 34.18%
- ---------------------------------------------------------------------------------
Average Large-Cap Fund(2) 16.99% 35.44% 28.92%
- ---------------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED 3/31/98
<TABLE>
<CAPTION>
Since Inception
Six Months One Year (7/1/96)
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------
SCHWAB ANALYTICS FUND(1) 14.72% 48.85% 34.50%
- ---------------------------------------------------------------------------------
</TABLE>
(1)The Investment Manager and Schwab waived a portion of their fees during the
reporting period and have guaranteed through at least 2/28/99 that total
operating expenses will not exceed 0.75%. Without fee waivers and guarantees,
as of 4/30/98, the six-month, one-year and average annual since-inception
total returns would have been 21.22%, 39.86% and 32.84%, respectively. As of
3/31/98, the six-month, one-year and average annual since-inception total
returns would have been 14.53%,48.36% and 33.95%, respectively.
(2)Based on data supplied by Morningstar, Inc. Returns are load-adjusted.
Average total returns for 798, 761 and 684 large-cap funds, respectively, for
the six-month, one-year and average annual since-inception periods
(load-adjusted). Also, although many mutual funds have multiple classes of
shares, the category average includes only those funds that were classified
by Morningstar as a distinct portfolio. This typically means that a fund's
oldest class of shares was used.
This graph compares the growth of a hypothetical $10,000 investment in the
Schwab Analytics Fund, made at its inception, with a similar investment in the
S&P 500 Index.
THIS INFORMATION IS HISTORICAL AND DOES NOT REPRESENT FUTURE RESULTS. TOTAL
RETURNS ASSUME REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS.
PRINCIPAL VALUE AND INVESTMENT RETURNS WILL FLUCTUATE, SO AN INVESTOR'S SHARES,
WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. Indices are
unmanaged and do not reflect advisory fees and other expenses associated with an
investment in the Fund. Investors cannot invest in an index directly.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
SCHWAB ANALYTICS FUND
GROWTH OF A HYPOTHETICAL $10,000
INVESTMENT
SCHWAB ANALYTICS FUND S&P 500 INDEX
<S> <C> <C>
7/1/96 $10,000 $10,000
7/31/96 $9,690 $9,558
8/31/96 $9,880 $9,760
9/30/96 $10,620 $10,308
10/31/96 $11,010 $10,593
11/30/96 $11,640 $11,393
12/31/96 $11,368 $11,168
1/31/97 $11,959 $11,865
2/28/97 $11,908 $11,958
3/31/97 $11,287 $11,468
4/30/97 $12,081 $12,152
5/31/97 $12,722 $12,890
6/30/97 $13,272 $13,468
7/31/97 $14,462 $14,539
8/31/97 $13,821 $13,724
9/30/97 $14,646 $14,475
10/31/97 $13,964 $13,992
11/30/97 $14,676 $14,640
12/31/97 $14,963 $14,891
1/31/98 $15,054 $15,057
2/28/98 $16,155 $16,142
3/31/98 $16,801 $16,969
4/30/98 $16,949 $17,140
</TABLE>
7
<PAGE>
PORTFOLIO SUMMARY
Schwab Analytics Fund-Registered Trademark- (the Fund) invests primarily in the
common stocks of large- and medium-capitalization publicly traded U.S. companies
and will typically invest in the stocks of at least 50 issuers. The Fund intends
to maintain industry diversification similar to that of the S&P 500-Registered
Trademark- Index. Following are the Fund's 10 largest holdings and economic
sectors in which it was invested as of April 30, 1998.
TOP 10 HOLDINGS
AS A PERCENTAGE OF FUND INVESTMENTS(1)
<TABLE>
<S> <C>
- -------------------------------------------------
BellSouth Corp. 3.33%
- -------------------------------------------------
Bristol-Myers Squib Co. 3.30%
- -------------------------------------------------
Schering Plough 3.22%
- -------------------------------------------------
General Electric Co. 3.07%
- -------------------------------------------------
GAP, Inc. 2.83%
- -------------------------------------------------
Microsoft Corp. 2.51%
- -------------------------------------------------
AT&T Corp. 1.94%
- -------------------------------------------------
Coca-Cola Co. 1.86%
- -------------------------------------------------
Colgate-Palmolive Co. 1.76%
- -------------------------------------------------
Texaco Inc. 1.72%
- -------------------------------------------------
</TABLE>
PORTFOLIO BY ECONOMIC SECTOR(1)
<TABLE>
<S> <C>
- ------------------------------------------------
Consumer Nondurables 26.34%
- ------------------------------------------------
Finance 21.02%
- ------------------------------------------------
Technology 17.24%
- ------------------------------------------------
Utilities 9.14%
- ------------------------------------------------
Materials and Services 9.00%
- ------------------------------------------------
Energy 6.26%
- ------------------------------------------------
Capital Goods 6.24%
- ------------------------------------------------
Consumer Durables 2.41%
- ------------------------------------------------
Transportation 2.35%
- ------------------------------------------------
</TABLE>
(1)This information is as of 4/30/98, may not be indicative of current or future
investments and does not include cash equivalents. A complete list of the
Fund's holdings as of 4/30/98 can be found in the Schedule of Investments
later in this report.
8
<PAGE>
FUND DISCUSSION
THE PORTFOLIO MANAGEMENT TEAM
STEPHEN B. WARD, Senior Vice President and Chief Investment Officer, has
overall responsibility for the management of the Analytics 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 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 $8.6 billion in
indexed equity mutual fund 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.
PRAVEEN GOTTIPALLI, Portfolio Manager, is Director of Investments for Symphony
Asset Management (Symphony), a wholly owned subsidiary of BARRA, Inc., and the
Fund's subadvisor. Prior to joining Symphony in May 1994, Praveen was Director
of the Active Strategies Group of BARRA, which provides innovative analytical
models, software and services. Symphony, subject to the supervision of CSIM,
provides investment assistance and day-to-day management of the Fund's
non-cash investments, as well as investment research and statistical
information.
QUESTIONS TO THE
PORTFOLIO MANAGEMENT TEAM
Q. HOW DID THE FUND PERFORM DURING THE
REPORTING PERIOD?
A. As shown in the MARKET OVERVIEW section on pages 4 through 6, equity returns
for the six-month period were impressive. The Schwab Analytics Fund-Registered
Trademark-achieved a total return of 21.38% for the six months ended April 30,
1998. That gain exceeded the average U.S. large-cap fund by 4.39% according to
data provided by Morningstar, Inc. From its inception on July 1, 1996, through
April 30, 1998, the Fund's average annual total return exceeded the average U.S.
large-cap fund by 4.44%.(1)
Although the Fund's performance was impressive, it did not meet its goal of
outperforming its benchmark, the S&P 500-Registered Trademark- Index, which
gained 22.47% over the reporting period. The primary reason for the under-
performance is that the Fund held approximately 15% to 20% of its assets in
mid-cap stocks, which are not included in the Index. During the reporting
period, mid-cap stocks continued to underperform large-cap stocks. The Fund's
average annual return since inception continues to be very close to that of its
benchmark, however: 33.36% for the Fund versus 34.18% for the Index. Although
the Fund's performance may deviate from the benchmark's in the short term, its
long-term objective is to outperform the Index.
(1)Source: Morningstar, Inc. The Large-Cap Fund category contains 684 funds with
track records from the since-inception period as of 4/30/98. Also, although
many mutual funds have multiple classes of shares, the category average
includes only those funds that were classified by Morningstar as a distinct
portfolio. This typically means that a fund's oldest class of shares was
used.
9
<PAGE>
FUND DISCUSSION (continued)
Q. HOW DO THE FUND'S HOLDINGS DIFFER FROM THE STOCKS IN THE INDEX?
A. The Fund's Portfolio Management team monitors approximately 1,300 companies
with current market capitalizations of $500 million or more. This universe of
large- and medium-sized companies is then narrowed down to 50 to 100 that our
computer model identifies as having the best return potential based on valuation
factors, insider-selling activity, and projections from analysts who have
demonstrated superior forecasting skills.
Throughout the reporting period, the Fund invested approximately 15% to 20% of
its assets in companies outside the Index. As previously mentioned, these
nonindex stocks have a smaller market capitalization than those in the Index.
From an industry sector and market capitalization standpoint, this was the most
significant difference between the Fund's holdings and the stocks that make up
the Index. The Fund is designed not to deviate significantly from the Index
either in its industry weightings or its market sensitivity, however. The Fund
seeks to outperform the benchmark not by over- or underweighting an industry or
sector, but rather by selecting the most attractive companies within a given
industry.
Q. OF STOCKS THE FUND HELD AT THE CLOSE OF THE PERIOD, WHICH HAD APPRECIATED THE
MOST SINCE THE FUND ACQUIRED THEM?
A. The five stocks with the greatest appreciation as of the close of the
reporting period were:
<TABLE>
<CAPTION>
INITIAL
ACQUISITION PERCENTAGE PERCENTAGE
DATE APPRECIATION OF FUND
<S> <C> <C> <C>
- --------------------------------------------------------------------
Equitable 8/6/97 50% 1.37%
- --------------------------------------------------------------------
TJX 11/1/96 49% 1.38%
- --------------------------------------------------------------------
GAP, Inc. 10/30/96 45% 2.83%
- --------------------------------------------------------------------
Schering Plough 7/8/96 43% 3.22%
- --------------------------------------------------------------------
Colgate-Palmolive Co. 6/17/97 39% 1.76%
- --------------------------------------------------------------------
</TABLE>
10
<PAGE>
SCHWAB ANALYTICS FUND-REGISTERED TRADEMARK-
STATEMENT OF NET ASSETS (in thousands)
April 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Number of Value
Shares (000s)
---------- ----------
<S> <C> <C>
COMMON STOCK--96.5%
AEROSPACE / DEFENSE--3.3%
General Dynamics Corp. 25,800 $ 1,090
General Motors Corp. Class H+ 27,400 1,514
Thiokol Corp. 28,000 1,509
United Technologies Corp. 25,400 2,500
----------
6,613
----------
AIR TRANSPORTATION--1.2%
Continental Airlines, Inc. Class B+ 34,200 2,014
Delta Airlines, Inc. 4,000 465
----------
2,479
----------
AUTOMOTIVE PRODUCTS/MOTOR VEHICLE--1.5%
Arvin Industries, Inc. 19,500 798
Ford Motor Co. 25,900 1,186
General Motors Corp. 13,900 937
----------
2,921
----------
BANKS--8.5%
Amsouth Bancorp. 10,000 624
City National Corp. 81,700 3,038
Fifth Third Bancorp 35,100 1,931
First Chicago NBD Corp. 21,000 1,950
Southtrust Corp. 76,950 3,284
Star Bank Corp. 45,600 2,881
SunTrust Banks, Inc. 38,700 3,152
----------
16,860
----------
BUSINESS MACHINES & SOFTWARE--8.1%
Compaq Computer Corp. 49,400 1,386
Computer Associates International, Inc. 34,300 2,009
Dell Computer Corp.+ 21,700 1,752
Lexmark International Group, Inc. Class A+ 16,100 932
Microsoft Corp.+ 55,000 4,957
Storage Technology Corp.+ 31,100 2,626
Unisys Corp.+ 24,300 545
Xerox Corp. 18,000 2,043
----------
16,250
----------
BUSINESS SERVICES--2.5%
Cadence Design Systems, Inc.+ 54,600 1,983
Comdisco, Inc. 19,300 854
<CAPTION>
Number of Value
Shares (000s)
---------- ----------
<S> <C> <C>
Symantec Corp.+ 71,800 $ 2,082
----------
4,919
----------
CHEMICAL--2.7%
E.I. du Pont de Nemours & Co. 38,500 2,803
Lyondell Petrochemical Co. 81,400 2,676
----------
5,479
----------
CONSTRUCTION--2.0%
Centex Corp. 35,800 1,244
Southdown, Inc. 19,900 1,408
Vulcan Materials Co. 12,000 1,381
----------
4,033
----------
CONSUMER--DURABLE--0.5%
Maytag Corp. 19,700 1,015
----------
CONSUMER--NONDURABLE--0.1%
Brinker International, Inc.+ 10,500 252
----------
ELECTRONICS--4.2%
Applied Materials, Inc.+ 53,400 1,929
General Instrument Corp. 22,300 500
Intel Corp. 25,000 2,020
Lucent Technologies, Inc. 22,000 1,675
Texas Instruments, Inc. 34,400 2,204
----------
8,328
----------
ENERGY--RAW MATERIALS--1.2%
Apache Corp. 15,000 531
Global Marine, Inc.+ 75,900 1,788
----------
2,319
----------
FOOD--AGRICULTURE--2.9%
Coca-Cola Co. 48,600 3,688
H.J. Heinz Co. 16,200 883
Universal Corp. 30,700 1,149
----------
5,720
----------
GOLD--0.2%
Newmont Mining Corp. 15,300 492
----------
HEALTHCARE/DRUGS & MEDICINE--9.7%
Bristol-Myers Squibb Co. 61,600 6,521
</TABLE>
11
<PAGE>
SCHWAB ANALYTICS FUND-REGISTERED TRADEMARK-
STATEMENT OF NET ASSETS (in thousands) (continued)
April 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Number of Value
Shares (000s)
---------- ----------
<S> <C> <C>
Guidant Corp. 22,000 $ 1,471
Johnson & Johnson 23,200 1,656
Merck & Co., Inc. 27,600 3,326
Schering-Plough Corp. 79,400 6,362
----------
19,336
----------
HOUSEHOLD PRODUCTS--2.3%
Colgate-Palmolive Co. 38,900 3,489
Gillette Co. 9,100 1,050
----------
4,539
----------
INSURANCE--5.2%
Allstate Corp. 20,000 1,925
CIGNA Corp. 13,400 2,773
Equitable Companies, Inc. 44,500 2,731
Marsh & McLennan Companies, Inc. 10,200 929
Torchmark Corp. 46,800 2,086
----------
10,444
----------
MEDIA--3.1%
New York Times Co. Class A 22,000 1,561
Tribune Co. 32,600 2,152
Washington Post Co. 4,600 2,411
----------
6,124
----------
MISCELLANEOUS FINANCE--6.6%
A.G. Edwards & Sons, Inc. 23,000 1,035
Associates First Capital Corp. 4,796 359
Capital One Financial Corp. 20,700 1,988
Fannie Mae 21,300 1,275
Freddie Mac 31,500 1,459
Merrill Lynch & Co., Inc. 5,000 439
Morgan Stanley, Dean Witter, Discover & Co. 19,600 1,546
Providian Financial Corp. 33,000 1,986
T. Rowe Price Associates, Inc. 7,000 529
Travelers Group, Inc. 43,100 2,637
----------
13,253
----------
NON-FERROUS--0.3%
Aluminum Company of America 8,000 620
----------
OIL--INTERNATIONAL--4.2%
Chevron Corp. 29,100 2,406
Exxon Corp. 22,000 1,605
<CAPTION>
Number of Value
Shares (000s)
---------- ----------
<S> <C> <C>
Royal Dutch Petroleum Co.--Sponsored ADR** 16,000 $ 905
Texaco, Inc. 55,400 3,407
----------
8,323
----------
PAPER & FOREST PRODUCTS--0.1%
Fort James Corp. 6,000 298
----------
PRODUCER GOODS & MANUFACTURING--6.6%
Cooper Industries, Inc. 22,100 1,478
General Electric Co. 71,400 6,077
Herman Miller, Inc. 45,900 1,386
Ingersoll-Rand Co. 37,200 1,714
Parker-Hannifin Corp. 34,000 1,517
Precision Castparts Corp. 16,100 1,000
----------
13,172
----------
RAILROAD--1.0%
Kansas City Southern Industries, Inc. 33,700 1,523
Norfolk Southern Corp. 13,100 438
----------
1,961
----------
RETAIL--7.1%
Albertson's, Inc. 18,000 900
Dayton Hudson Corp. 28,300 2,471
Gap, Inc. 108,950 5,604
Kroger Co.+ 21,100 884
Safeway, Inc.+ 39,000 1,492
TJX Companies, Inc. 62,400 2,761
----------
14,112
----------
STEEL--0.4%
USX--U.S. Steel Group 18,100 708
----------
TELEPHONE--7.9%
Andrew Corp.+ 31,300 716
AT&T Corp. 64,000 3,844
Bell Atlantic Corp. 21,800 2,040
BellSouth Corp. 102,500 6,579
U.S. West, Inc. (Communications Group) 50,200 2,648
----------
15,827
----------
TOBACCO--1.1%
Fortune Brands, Inc. 33,500 1,236
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
Number of Value
Shares (000s)
---------- ----------
<S> <C> <C>
Philip Morris Companies, Inc. 25,900 $ 966
----------
2,202
----------
UTILITIES--ELECTRIC & GAS--2.0%
Consolidated Edison, Inc. 35,000 1,584
First Energy Corp. 30,800 932
Williams Companies, Inc. 45,100 1,426
----------
3,942
----------
TOTAL COMMON STOCK (Cost $149,521) 192,541
----------
</TABLE>
<TABLE>
<CAPTION>
Value
Par (000s)
---------- ----------
<S> <C> <C>
CASH EQUIVALENTS--2.6%
Temporary Investment Fund, Inc.-- TempCash Portfolio
5.23%*, 05/07/98 $5,081,174 $ 5,081
----------
TOTAL CASH EQUIVALENTS (Cost $5,081) 5,081
----------
U.S. TREASURY OBLIGATIONS--0.1%
U.S. Treasury Bills (a) (b)
4.84%, 06/18/98 200,000 199
----------
TOTAL U.S. TREASURY OBLIGATIONS (Cost $199)
199
----------
TOTAL INVESTMENTS--99.2%
(Cost $154,801) 197,821
----------
OTHER ASSETS AND LIABILITIES--0.8%
Other Assets 2,529
Liabilities (874)
----------
1,655
----------
NET ASSETS--100.0% $199,476
----------
----------
</TABLE>
SEE ACCOMPANYING NOTES TO STATEMENT OF NET ASSETS AND NOTES TO FINANCIAL
STATEMENTS.
13
<PAGE>
NOTES TO STATEMENT OF NET ASSETS
+ Non-Income Producing Security.
* Interest rate represents the yield on report date.
** ADR--American Depository Receipt.
(a) Yields shown are effective yields at the time of purchase.
(b) These securities, or portion thereof, are being used to collaterize open
futures contracts.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
SCHWAB ANALYTICS FUND-REGISTERED TRADEMARK-
STATEMENT OF ASSETS AND LIABILITIES (in thousands)
April 30, 1998 (Unaudited)
<TABLE>
<S> <C>
ASSETS
Investments, at value (Cost: $154,801) $ 197,821
Receivables:
Dividends 257
Fund shares sold 303
Investments sold 471
Amounts on deposit with broker 1,471
Deferred organization costs 14
Prepaid expenses 13
---------
Total Assets 200,350
---------
LIABILITIES
Payables:
Fund shares redeemed 236
Investment advisory and administration fees 14
Transfer agency and shareholder services fees 10
Variation margin / due to broker (see Note 2) 527
Other liabilities 87
---------
Total Liabilities 874
---------
Net assets applicable to outstanding shares $ 199,476
---------
---------
NET ASSETS CONSIST OF:
Paid-in-capital $ 147,510
Undistributed net investment income 347
Accumulated net realized gain on investments sold 8,599
Net unrealized appreciation on investments 43,020
---------
$ 199,476
---------
---------
PRICING OF SHARES
Outstanding shares, $0.00001 par value (unlimited shares
authorized) 13,349
Net asset value, offering and redemption price per share $14.94
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
15
<PAGE>
SCHWAB ANALYTICS FUND-REGISTERED TRADEMARK-
STATEMENT OF OPERATIONS (in thousands)
For the six months ended April 30, 1998 (Unaudited)
<TABLE>
<S> <C>
Investment income:
Dividends $ 1,289
Interest 14
---------
Total investment income 1,303
---------
Expenses:
Investment advisory and administration fees 632
Transfer agency and shareholder service fees 213
Custodian fees 43
Registration fees 16
Professional fees 12
Shareholder reports 31
Trustees' fees 4
Amortization of deferred organization costs 2
Insurance and other expenses 4
---------
957
Less expenses reduced (see Note 4) (323)
---------
Total expenses incurred by Fund 634
---------
Net investment income 669
---------
Net realized gain on investments sold 8,599
Net unrealized appreciation on investments 23,886
---------
Net gain on investments 32,485
---------
Increase in net assets resulting from operations $ 33,154
---------
---------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
16
<PAGE>
SCHWAB ANALYTICS FUND-REGISTERED TRADEMARK-
STATEMENT OF CHANGES IN NET ASSETS (in thousands)
<TABLE>
<CAPTION>
Six months
ended
April 30, Year ended
1998 October 31,
(Unaudited) 1997
------------ -----------
<S> <C> <C>
Operations:
Net investment income $ 669 $ 1,287
Net realized gain on investments sold 8,599 14,558
Net unrealized appreciation on investments 23,886 11,723
------------ -----------
Increase in net assets resulting from operations 33,154 27,568
------------ -----------
Dividends to shareholders from net investment income (1,345) (682)
Distributions to shareholders from net capital gains (14,558) (1,141)
------------ -----------
Total dividends and distributions to shareholders (15,903) (1,823)
------------ -----------
Capital share transactions:
Proceeds from shares sold 43,200 68,744
Net asset value of shares issued in reinvestment of
dividends 14,977 1,706
Less payments for shares redeemed (25,824) (44,112)
------------ -----------
Increase in net assets from capital share transactions 32,353 26,338
------------ -----------
Total increase in net assets 49,604 52,083
Net assets:
Beginning of period 149,872 97,789
------------ -----------
End of period (including undistributed net investment
income of $347 and $1,023, respectively) $ 199,476 $ 149,872
------------ -----------
------------ -----------
Number of Fund shares:
Sold 3,067 5,463
Reinvested 1,179 150
Redeemed (1,817) (3,574)
------------ -----------
Net increase in shares outstanding 2,429 2,039
Shares outstanding:
Beginning of period 10,920 8,881
------------ -----------
End of period 13,349 10,920
------------ -----------
------------ -----------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
17
<PAGE>
SCHWAB ANALYTICS FUND-REGISTERED TRADEMARK-
FINANCIAL HIGHLIGHTS
For a share outstanding throughout each period:
<TABLE>
<CAPTION>
Income from
Investment Operations Less Distributions
--------------------------------------- ---------------------------------------------
Net Distributions
Fiscal Net Asset Realized & Total Dividends from Net Asset
Period Value Net Unrealized from from Net Realized Value
Ended Beginning Investment Gains on Investment Investment Gain on Total End of
Oct. 31 of Period Income Investment Operation Income Investment Distributions Period
- --------- ---------- ----------- ----------- ----------- ----------- -------------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1998(2) $13.72 $0.05 $2.62 $2.67 $(0.12) $(1.33) $(1.45) $14.94
1997 $11.01 $0.13 $2.79 $2.92 $(0.08) $(0.13) $(0.21) $13.72
1996(3) $10.00 $0.05 $0.96 $1.01 -- -- -- $11.01
</TABLE>
(1) The information contained in the above table is based on actual expenses
for the periods, after giving effect to the portion of expenses reduced by
the Investment Manager and Schwab. Had these expenses not been reduced, the
Fund's expense and net investment income ratios would have been:
<TABLE>
<CAPTION>
Ratio of Net Investment
Fiscal Period Ratio of Expenses to Income to Average
Ended Oct. 31 Average Net Assets Net Assets
- ---------------- -------------------- -----------------------
<S> <C> <C>
1998(2) 1.12%* 0.40%*
1997 1.15% 0.63%
1996(3) 1.51%* 0.65%*
</TABLE>
(2) For the six months ended April 30, 1998 (Unaudited).
(3) For the period from July 1, 1996 (commencement of operations) to October
31, 1996.
* Annualized.
18
<PAGE>
<TABLE>
<CAPTION>
Ratios/Supplemental Data
-------------------------------------------------------------------------
Ratio of Net
Ratio of Investment
Expenses Income
Fiscal Total to Average to Average Portfolio
Period Return Net Assets Net Net Turnover
Ended (not annualized) End of Period Assets(1) Assets(1) Rate
Oct. 31 (%) (000's) (%) (%) (%)
- ------------ ---------------- -------------- ----------- ------------ --------
<S> <C> <C> <C> <C> <C>
1998(2) 21.38 $199,476 0.74* 0.78* 60
1997 26.83 $149,872 0.74 1.04 120
1996(3) 10.10 $ 97,789 0.75* 1.41* 33
</TABLE>
(1) The information contained in the above table is based on actual expenses
for the periods, after giving effect to the portion of expenses reduced by
the Investment Manager and Schwab. Had these expenses not been reduced, the
Fund's expense and net investment income ratios would have been:
<TABLE>
<CAPTION>
Ratio of Net Investment
Fiscal Period Ratio of Expenses to Income to Average
Ended Oct. 31 Average Net Assets Net Assets
- ---------------- -------------------- -----------------------
<S> <C> <C>
1998(2) 1.12%* 0.40%*
1997 1.15% 0.63%
1996(3) 1.51%* 0.65%*
</TABLE>
(2) For the six months ended April 30, 1998 (Unaudited).
(3) For the period from July 1, 1996 (commencement of operations) to October
31, 1996.
* Annualized.
19
<PAGE>
NOTES TO FINANCIAL STATEMENTS
For the six months ended April 30, 1998 (Unaudited)
1. DESCRIPTION OF THE FUND
The Schwab Analytics Fund-Registered Trademark- (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 investment
objective of the Fund is to seek long-term capital growth.
In addition to the Fund, the Trust also offers the Schwab S&P 500 Fund, Schwab
International Index Fund-Registered Trademark-, Schwab Small-Cap Index
Fund-Registered Trademark-, Schwab MarketTrack All Equity Portfolio-TM-
(effective on April 16, 1998 and commenced operations on May 19, 1998), Schwab
MarketTrack Growth Portfolio-TM- (formerly Schwab Asset
Director-Registered Trademark---High Growth Fund), Schwab MarketTrack Balanced
Portfolio-TM- (formerly Schwab Asset Director-Registered Trademark--- Balanced
Growth Fund), Schwab MarketTrack Conservative Portfolio-TM- (formerly Schwab
Asset Director-Registered Trademark--- Conservative Growth Fund), Schwab
MarketManager Balanced Portfolio-TM- (formerly Schwab OneSource-- Balanced
Allocation Fund), Schwab MarketManager Growth Portfolio-TM- (formerly Schwab
OneSource--Growth Allocation Fund), Schwab MarketManager International
Portfolio-TM- (formerly Schwab OneSource-- International Fund) and Schwab
MarketManager Small Cap Portfolio-TM- (formerly Schwab OneSource--Small Company
Fund). 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 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. 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.
FUTURES CONTRACTS--The Fund may invest in financial futures contracts. The Fund
is required to deposit with the broker an amount of cash or cash equivalents
equal to a certain percentage of the contract amount. This is known as the
"initial margin." Subsequent payments ("variation margin") are made or received
by the Fund each day, depending on the daily fluctuation of the value of the
contract.
The Fund will invest in these instruments to hedge against the effects of
changes in value of portfolio securities due to anticipated changes in interest
rates and/or market conditions, for duration management, or risk inherent in the
management of the Fund and not for trading purposes. The use of futures
contracts involves certain risks,
20
<PAGE>
which include (1) imperfect correlation between the price movement of the
contracts and the underlying securities, (2) inability to close out positions
due to different trading hours, or the temporary absence of a liquid market, for
either the contract or underlying securities, or (3) an inaccurate prediction by
the Adviser of the future direction of interest rates. Any of these risks may
involve amounts exceeding the amount recognized in the Fund's Statement of
Operations at any given time.
As of April 30, 1998, the Fund had the following open futures contracts:
<TABLE>
<CAPTION>
Number of Unrealized
Contracts Contract Value Expiration Appreciation
- ----------------- -------------- ----------- -------------
<S> <C> <C> <C>
6 $ 1,582,015 June '98 $ 75,150
</TABLE>
The aggregate value of cash or eligible securities pledged to cover margin
requirements for open futures positions at April 30, 1998 was $1,013,659.
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 are amortized on a straight-line basis over a five-year period from
the Fund's commencement of operations.
EXPENSES--Expenses arising in connection with the Fund are charged directly to
the Fund. Expenses common to all series of the Trust are generally allocated to
each series in proportion to their relative net assets.
FEDERAL INCOME TAXES--It is the Fund's policy to meet the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all net investment income and realized net capital gains, if any, to
shareholders. Therefore, no federal income tax provision is required. The Fund
is considered a separate entity for tax purposes.
At April 30, 1998 (for financial reporting and federal income tax purposes), net
unrealized appreciation aggregated $43,020,000 of which $43,718,000 related to
appreciated securities and $698,000 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 0.74% 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 fee
for the six months ended April 30, 1998 (see Note 4).
21
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
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 net 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.
Schwab has reduced a portion of its fee for the six months ended April 30, 1998
(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. For the six
months ended April 30, 1998, 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 $4,000 related to the
Trust's unaffiliated trustees.
4. EXPENSES REDUCED BY THE INVESTMENT MANAGER AND SCHWAB
The Investment Manager and Schwab guarantee that, through at least February 28,
1999, the Fund's total operating expenses will not exceed 0.75% of the Fund's
average daily net assets, after waivers and reimbursements. For purpose of this
guarantee, operating expenses do not include interest expenses, extraordinary
expenses, taxes, foreign taxes and capital items.
For the six months ended April 30, 1998, the total of such fees reduced by the
Investment Manager and Schwab were $323,000.
5. BORROWING AGREEMENT
The Trust has a line of credit 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. For the six months ended April 30, 1998, no borrowings were made under
this arrangement.
6. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities, other than short-term obligations,
aggregated (in thousands) $116,852 and $101,855, respectively, for the six
months ended April 30, 1998.
22
<PAGE>
THIS SPACE RESERVED FOR YOUR COMMENTS AND QUESTIONS.
A SCHWAB REPRESENTATIVE WILL BE HAPPY TO ASSIST YOU.
<PAGE>
THE SCHWABFUNDS FAMILY-REGISTERED TRADEMARK-
The SchwabFunds Family includes a variety of funds to help you meet your
investment goals. 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
market funds.
Please call 1-800-435-4000 for a free prospectus and brochure for any of these
SchwabFunds.
This report must be preceded or accompanied by a current prospectus.
SCHWAB ASSET ALLOCATION FUNDS
Schwab MarketTrack All Equity Portfolio(1)
Schwab MarketTrack Growth Portfolio(1)
Schwab MarketTrack Balanced Portfolio(1)
Schwab MarketTrack Conservative Portfolio(1)
Schwab MarketManager Growth Portfolio(2)
Schwab MarketManager Balanced Portfolio(2)
SCHWAB STOCK FUNDS
Schwab 1000 Fund-Registered Trademark-
Schwab S&P 500 Fund
Schwab Analytics Fund-Registered Trademark-
Schwab Small-Cap Index Fund-Registered Trademark-
Schwab MarketManager Small Cap Portfolio(2)
Schwab International Index Fund-Registered Trademark-
Schwab MarketManager International Portfolio(2)
SCHWAB BOND FUNDS
Schwab Total Bond Market Index Fund(3)
Schwab Short-Term Bond Market Index Fund(3)
Schwab Long-Term Tax-Free Bond Fund
Schwab Short/Intermediate Tax-Free Bond Fund
Schwab California Long-Term Tax-Free Bond Fund
Schwab California Short/Intermediate
Tax-Free Fund
SCHWAB MONEY MARKET FUNDS
Schwab offers an array of money market funds(4) 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-Registered Trademark-.
(1)Formerly the Schwab Asset Director Funds.
(2)Formerly the Schwab OneSource-TM- Portfolios.
(3)Formerly the Schwab Government Bond Funds.
(4)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>
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-1998 Charles Schwab & Co., Inc. All rights reserved.
Member SIPC/NYSE.
Printed on recycled paper. CRS 20293 (0598-2346) MKT3561(6/98)
