SCHWABFUNDS-Registered TradeMark-
SCHWAB MARKETMANAGER
PORTFOLIOS-TM-
- Growth
- Balanced
- Small Cap
- International
Semiannual Report
April 30, 1999
<PAGE>
SCHWAB MARKETMANAGER PORTFOLIOS-TM-
We are pleased to bring you this semiannual report for the Schwab MarketManager
Portfolios (the Portfolios) for the six-month period ended April 30, 1999. In
this report you will find performance statistics and other useful information
for the following four Portfolios:
- Schwab MarketManager Growth Portfolio
- Schwab MarketManager Balanced Portfolio
- Schwab MarketManager Small Cap Portfolio
- Schwab MarketManager International Portfolio
We appreciate that our investors recognize that the MarketManager Portfolios can
be a smart and efficient way to participate in a professionally managed
portfolio of actively managed mutual funds. Senior Portfolio Manager Cynthia Liu
and her team, supported by the Schwab Center for Investment Research, use
sophisticated quantitative tools and techniques to provide a level of day-to-day
portfolio analysis and management that few investors could replicate.
FUND LISTINGS
The MarketManager Portfolios are listed in THE WALL STREET JOURNAL, USA TODAY,
INVESTOR'S BUSINESS DAILY and most local newspapers as follows under the
heading SCHWABFUNDS:-Registered Trademark-
<TABLE>
<CAPTION>
NEWSPAPER LISTING* SYMBOL
<S> <C>
MM Gro SWOGX
MM Bal SWOBX
MM Intl SWOIX
MM SCp SWOSX
</TABLE>
* Note that newspaper listings will indicate the previous day's quotation.
CONTENTS
<TABLE>
<S> <C>
- ----------------------------------------------------
A Message from the Chairman 1
- ----------------------------------------------------
What Every Investor Should Know 2
- ----------------------------------------------------
Market Overview 4
- ----------------------------------------------------
Schwab MarketManager Growth Portfolio
PORTFOLIO PERFORMANCE 8
PORTFOLIO SNAPSHOT 10
- ----------------------------------------------------
Schwab MarketManager Balanced Portfolio
PORTFOLIO PERFORMANCE 12
PORTFOLIO SNAPSHOT 14
- ----------------------------------------------------
Schwab MarketManager Small Cap Portfolio
PORTFOLIO PERFORMANCE 16
PORTFOLIO SNAPSHOT 18
- ----------------------------------------------------
Schwab MarketManager International
Portfolio
PORTFOLIO PERFORMANCE 20
PORTFOLIO SNAPSHOT 22
- ----------------------------------------------------
The Portfolio Management Team 24
- ----------------------------------------------------
Portfolio Discussion 25
- ----------------------------------------------------
Glossary 30
- ----------------------------------------------------
Financial Statements and Notes 31
- ----------------------------------------------------
</TABLE>
<PAGE>
A MESSAGE FROM THE CHAIRMAN
Dear Shareholder,
[PHOTO]
During the past several years, the benefits of investing have been readily
apparent, while the risks have been somewhat less obvious. Over the past six
months, however, investors have been subject to sharp drops and big recoveries,
sometimes within the same day. After enjoying near-perfect market conditions for
years, investors have had to adjust to significant economic and political
developments, both here and abroad, that have contributed to rapid sentiment
swings and market turbulence. These developments have been accentuated by the
lingering expectation that stock prices are long overdue for a correction
according to several traditional, widely followed indicators. In spite of this
recent volatility, however, the markets continue to flourish, boosted by low
inflation, solid economic growth, low interest rates, a strong dollar and an
influx of money from investors.
All this serves to remind us that although the market's extreme ups and downs
can be harrowing, they are a natural part of market dynamics. That's why we
think it's a good time to reaffirm one of our primary investment principles:
Regardless of short-term market trends, our philosophy has always been that
REGULAR INVESTING is the best strategy over the long term. You've already taken
an important step in building a portfolio that can help you meet your future
goals. On the following pages, we've provided guidelines to help ensure that you
can reach your goals by establishing--or maintaining--an ongoing investment
program.
NEW INVESTMENT OPPORTUNITY TO CONSIDER
If you're looking for an investment that covers all the corners of the U.S.
stock market, consider Schwab's newest offering, the Schwab Total Stock Market
Index Fund.-TM- The Fund seeks to track the performance of the U.S. stock market
as measured by the Wilshire 5000 Index, the broadest measure of domestic stock
market performance available. The end result: Fund investors can benefit from
exposure to U.S. companies of all types and all sizes--all in a single, low-cost
investment. For more information, including a prospectus that details the Fund's
management fees and expenses, please call us at 800-435-4000. Please read the
prospectus carefully before investing.
The support of investors like you has helped SchwabFunds-Registered Trademark-
become one of the largest and fastest-growing mutual fund families in the
nation. SchwabFunds' Investment Adviser, Charles Schwab Investment Management,
Inc. (CSIM), now manages more than $90 billion in assets on behalf of
approximately 3.5 million shareholders. We offer a broad spectrum of 39 mutual
funds for investors with varying financial situations and goals.
Thank you for your investment in SchwabFunds. For its part, SchwabFunds will do
everything we can to warrant the trust you have placed in us and we'll continue
to provide investors with smart, high-quality, cost-efficient investment
solutions. As always, feel free to contact us if you have any questions.
Sincerely,
/s/ Charles R. Schwab
Charles R. Schwab
April 30, 1999
THE YEAR 2000 AND EURO CONVERSION ISSUES
Two issues with the potential to disrupt portfolio operations and affect
performance are the inability of some computers to recognize the year 2000,
and the conversion of certain European currencies to the euro, which began on
January 1, 1999. The Investment Adviser will continue to take steps to enable
its systems to handle these changes. With regard to the year 2000 problem,
the Investment Adviser is also seeking assurances that its service providers
and business partners are taking similar steps as well. It is impossible to
know in advance however, exactly how either of these issues will affect
portfolio administration, portfolio performance (particularly for portfolios
with European exposure) or securities markets in general.
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 can help reduce the risk that you might otherwise encounter
by owning just a few stocks or bonds.
But remember that diversification across asset classes can be just as important
as diversification within one of the mutual funds you own. As you probably know,
stocks historically have 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 exposure across different stock market segments--such as large-cap and
small-cap U.S. stocks and international stocks, 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.
Asset allocation can sound simple in theory, but most individual investors find
it difficult to put into practice. Few of us have the time or resources to keep
track of the market and maintain balanced exposure across asset classes. For
example, if stocks perform especially well during a certain period, your equity
exposure may grow to take up a bigger share of your portfolio than you're
comfortable with.
That's why it makes a lot of sense to "automate" your asset allocation
decisions. Schwab has developed a broad spectrum of portfolio solutions that
make it convenient for you to apply this time-tested investment strategy. If
you'd like more information, please access our Web site
at www.schwab.com/schwabfunds, call us at 800-435-4000 or visit the Schwab
branch nearest you.
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 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.
2
<PAGE>
(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.)
SCHWAB'S 10 INVESTING PRINCIPLES
1. START WITH THE BASICS FOR LONG-TERM INVESTING.
2. GET STARTED NOW!
3. KNOW YOURSELF.
4. INVEST IN THE STOCK MARKET FOR GROWTH.
5. TAKE A LONG-TERM VIEW.
6. BUILD A DIVERSIFIED PORTFOLIO.
7. CONSIDER BONDS AND CASH FOR DIVERSIFICATION AND INCOME.
8. MINIMIZE YOUR EXPENSES.
9. STAY ON TRACK.
10. BECOME A LIFELONG INVESTOR.
In addition to reducing your per-share costs over time, dollar-cost averaging
provides another benefit: the discipline of investing regularly. You're more
likely to maintain a regular investment plan if it's automatic: You don't have
to think about it, and 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
MONEYLINK,-Registered Trademark- Schwab's electronic transfer service, to
automatically transfer money to your Schwab account.
With MoneyLink, you can arrange to regularly and automatically transfer money
between your bank account and your Schwab account. It's a convenient way to
build your investment over time.
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. Because dollar-cost averaging involves continuous
investment in securities regardless of fluctuating prices, you should consider
your financial ability to purchase in both up and down markets. Over the long
term, however, dollar-cost averaging may help smooth out volatility caused by
short-term market trends. For more information, please call us at 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 through our Web site at www.schwab.com, through our automated
touchtone telephone service, TeleBroker,-Registered Trademark- by calling
800-272-4922, or in person at any of our nationwide branches.
KEEPING YOU INFORMED
You can find a wealth of information about our investment philosophy and
Funds, as well as the market and economic environment, at our Web site:
www.schwab.com/schwabfunds.
(1) Includes uninvested cash and margin cash available. If sufficient cash is
not available, your automatic purchases will not be made.
3
<PAGE>
MARKET OVERVIEW
U.S. ECONOMIC GROWTH
The U.S. economy, as measured by gross domestic product (GDP), continued its
remarkable expansion with a strong real growth rate of 4.3% during 1998 and 4.1%
during the first quarter of 1999--a rate well in excess of the Federal Reserve's
estimate of the long-term maximum sustainable non-inflationary growth rate. The
first quarter marked the thirty-second consecutive quarter of positive
growth--the longest peacetime expansion ever. Strong consumer spending leveraged
by record domestic stock market levels and its associated wealth effect
continued to provide momentum for this historic expansion.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
REAL GDP GROWTH RATE
QUARTERLY PERCENTAGE CHANGE
(ANNUALIZED RATE)
<S> <C>
Q1 1990 3.9%
Q2 1990 1.2%
Q3 1990 -1.9%
Q4 1990 -4.0%
Q1 1991 -2.1%
Q2 1991 1.8%
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 2.0%
Q3 1993 2.1%
Q4 1993 5.3%
Q1 1994 3.0%
Q2 1994 4.7%
Q3 1994 1.8%
Q4 1994 3.6%
Q1 1995 1.7%
Q2 1995 0.4%
Q3 1995 3.3%
Q4 1995 2.8%
Q1 1996 3.3%
Q2 1996 6.1%
Q3 1996 2.1%
Q4 1996 4.2%
Q1 1997 4.2%
Q2 1997 4.0%
Q3 1997 4.2%
Q4 1997 3.0%
Q1 1998 5.5%
Q2 1998 1.8%
Q3 1998 3.7%
Q4 1998 6.0%
Q1 1999 4.1%
Source: BLOOMBERG L.P.
</TABLE>
At the time of this writing, the consensus of most economists is that the U.S.
economy appears poised for continued growth, but at a more moderate rate than
during 1998. High levels of consumer spending and confidence, low interest
rates, rising real wages and strong gains in stock prices have been the
principal factors continuing this lengthy expansion. Although an ongoing
concern, the impact of international economic problems on the U.S. economy has
been less severe than many originally predicted. Going forward, the behavior of
domestic consumers in response to continued stock market volatility may also be
a key determinant of whether the economy continues on its current course or
softens throughout the remainder of 1999.
UNEMPLOYMENT
After declining to 4.2% in March--the lowest level in 28 years--the U.S.
unemployment rate stood at 4.3% in April. Labor markets continue to be extremely
tight, growth in the labor force has slowed, and there continues to be concern
that wage increases may begin to put more pressure on labor costs (refer to
Employment Cost Index on the facing page).
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
U.S. UNEMPLOYMENT RATE
<S> <C>
Jan-90 5.4%
Feb-90 5.3%
Mar-90 5.2%
Apr-90 5.4%
May-90 5.4%
Jun-90 5.2%
Jul-90 5.5%
Aug-90 5.7%
Sep-90 5.9%
Oct-90 5.9%
Nov-90 6.2%
Dec-90 6.3%
Jan-91 6.4%
Feb-91 6.6%
Mar-91 6.8%
Apr-91 6.7%
May-91 6.9%
Jun-91 6.9%
Jul-91 6.8%
Aug-91 6.9%
Sep-91 6.9%
Oct-91 7.0%
Nov-91 7.0%
Dec-91 7.3%
Jan-92 7.3%
Feb-92 7.4%
Mar-92 7.4%
Apr-92 7.4%
May-92 7.6%
Jun-92 7.8%
Jul-92 7.7%
Aug-92 7.6%
Sep-92 7.6%
Oct-92 7.3%
Nov-92 7.4%
Dec-92 7.4%
Jan-93 7.3%
Feb-93 7.1%
Mar-93 7.0%
Apr-93 7.1%
May-93 7.1%
Jun-93 7.0%
Jul-93 6.9%
Aug-93 6.8%
Sep-93 6.7%
Oct-93 6.8%
Nov-93 6.6%
Dec-93 6.5%
Jan-94 6.6%
Feb-94 6.6%
Mar-94 6.5%
Apr-94 6.4%
May-94 6.1%
Jun-94 6.1%
Jul-94 6.3%
Aug-94 6.0%
Sep-94 5.8%
Oct-94 5.8%
Nov-94 5.6%
Dec-94 5.5%
Jan-95 5.6%
Feb-95 5.4%
Mar-95 5.3%
Apr-95 5.8%
May-95 5.8%
Jun-95 5.6%
Jul-95 5.6%
Aug-95 5.7%
Sep-95 5.6%
Oct-95 5.5%
Nov-95 5.7%
Dec-95 5.6%
Jan-96 5.6%
Feb-96 5.5%
Mar-96 5.6%
Apr-96 5.5%
May-96 5.6%
Jun-96 5.3%
Jul-96 5.5%
Aug-96 5.1%
Sep-96 5.2%
Oct-96 5.2%
Nov-96 5.3%
Dec-96 5.4%
Jan-97 5.3%
Feb-97 5.3%
Mar-97 5.1%
Apr-97 5.0%
May-97 4.7%
Jun-97 5.0%
Jul-97 4.7%
Aug-97 4.9%
Sep-97 4.7%
Oct-97 4.7%
Nov-97 4.6%
Dec-97 4.7%
Jan-98 4.5%
Feb-98 4.6%
Mar-98 4.6%
Apr-98 4.3%
May-98 4.3%
Jun-98 4.5%
Jul-98 4.5%
Aug-98 4.5%
Sep-98 4.5%
Oct-98 4.5%
Nov-98 4.4%
Dec-98 4.3%
Jan-99 4.3%
Feb-99 4.4%
Mar-99 4.2%
Apr-99 4.3%
Source: BLOOMBERG L.P.
</TABLE>
INFLATION
Despite a surprisingly high Consumer Price Index (CPI) report for April (a 0.7%
increase for the month), price inflation continued to remain well contained. The
CPI rose just 2.3% for the year ended April 1999. Its core rate (which excludes
the more volatile food
4
<PAGE>
and energy components) rose 2.2%. For all of 1998, overall producer prices fell
0.1% after dropping 1.2% in 1997, marking the first time that the index, which
was created in 1947, has fallen for two consecutive years. The markets reacted
nervously following the April CPI report, not knowing whether it represented an
aberration or the beginning of a trend.
The Employment Cost Index, which measures inflation in wages, salaries and
benefits, was also well contained, increasing 3.0% for the year ended March
1999.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
MEASURES OF INFLATION
QUARTERLY EMPLOYMENT COST INDEX MONTHLY CONSUMER PRICE INDEX
<S> <C> <C>
Jan-90 5.5% 5.2%
Feb-90 5.5% 5.3%
Mar-90 5.5% 5.2%
Apr-90 5.4% 4.7%
May-90 5.4% 4.4%
Jun-90 5.4% 4.7%
Jul-90 5.2% 4.8%
Aug-90 5.2% 5.6%
Sep-90 5.2% 6.2%
Oct-90 4.9% 6.3%
Nov-90 4.9% 6.3%
Dec-90 4.9% 6.1%
Jan-91 4.6% 5.7%
Feb-91 4.6% 5.3%
Mar-91 4.6% 4.9%
Apr-91 4.6% 4.9%
May-91 4.6% 5.0%
Jun-91 4.6% 4.7%
Jul-91 4.3% 4.4%
Aug-91 4.3% 3.8%
Sep-91 4.3% 3.4%
Oct-91 4.3% 2.9%
Nov-91 4.3% 3.0%
Dec-91 4.3% 3.1%
Jan-92 4.0% 2.6%
Feb-92 4.0% 2.8%
Mar-92 4.0% 3.2%
Apr-92 3.6% 3.2%
May-92 3.6% 3.0%
Jun-92 3.6% 3.1%
Jul-92 3.5% 3.2%
Aug-92 3.5% 3.1%
Sep-92 3.5% 3.0%
Oct-92 3.5% 3.2%
Nov-92 3.5% 3.0%
Dec-92 3.5% 2.9%
Jan-93 3.5% 3.3%
Feb-93 3.5% 3.2%
Mar-93 3.5% 3.1%
Apr-93 3.6% 3.2%
May-93 3.6% 3.2%
Jun-93 3.6% 3.0%
Jul-93 3.6% 2.8%
Aug-93 3.6% 2.8%
Sep-93 3.6% 2.7%
Oct-93 3.5% 2.8%
Nov-93 3.5% 2.7%
Dec-93 3.5% 2.7%
Jan-94 3.2% 2.5%
Feb-94 3.2% 2.5%
Mar-94 3.2% 2.5%
Apr-94 3.2% 2.4%
May-94 3.2% 2.3%
Jun-94 3.2% 2.5%
Jul-94 3.2% 2.8%
Aug-94 3.2% 2.9%
Sep-94 3.2% 3.0%
Oct-94 3.0% 2.6%
Nov-94 3.0% 2.7%
Dec-94 3.0% 2.7%
Jan-95 2.9% 2.8%
Feb-95 2.9% 2.9%
Mar-95 2.9% 2.9%
Apr-95 2.9% 3.1%
May-95 2.9% 3.2%
Jun-95 2.9% 3.0%
Jul-95 2.7% 2.8%
Aug-95 2.7% 2.6%
Sep-95 2.7% 2.5%
Oct-95 2.7% 2.8%
Nov-95 2.7% 2.6%
Dec-95 2.7% 2.5%
Jan-96 2.8% 2.7%
Feb-96 2.8% 2.7%
Mar-96 2.8% 2.8%
Apr-96 2.9% 2.9%
May-96 2.9% 2.9%
Jun-96 2.9% 2.8%
Jul-96 2.8% 3.0%
Aug-96 2.8% 2.9%
Sep-96 2.8% 3.0%
Oct-96 2.9% 3.0%
Nov-96 2.9% 3.3%
Dec-96 2.9% 3.3%
Jan-97 2.9% 3.0%
Feb-97 2.9% 3.0%
Mar-97 2.9% 2.8%
Apr-97 2.8% 2.5%
May-97 2.8% 2.2%
Jun-97 2.8% 2.3%
Jul-97 3.0% 2.2%
Aug-97 3.0% 2.2%
Sep-97 3.0% 2.2%
Oct-97 3.3% 2.1%
Nov-97 3.3% 1.8%
Dec-97 3.3% 1.7%
Jan-98 3.3% 1.6%
Feb-98 3.3% 1.4%
Mar-98 3.3% 1.4%
Apr-98 3.5% 1.4%
May-98 3.5% 1.7%
Jun-98 3.5% 1.7%
Jul-98 3.5% 1.7%
Aug-98 3.7% 1.6%
Sep-98 3.7% 1.5%
Oct-98 3.4% 1.5%
Nov-98 3.4% 1.5%
Dec-98 3.4% 1.6%
Jan-99 3.0% 1.7%
Feb-99 3.0% 1.6%
Mar-99 3.0% 1.7%
Apr-99 2.3%
Source: BLOOMBERG L.P.
</TABLE>
Although price 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. Strong
productivity gains allow companies to pay higher wages without raising prices.
Non-farm productivity grew 2.2% in 1998 and a strong 3.5% annualized rate in the
first quarter of 1999, continuing a healthy trend that began in 1996.
ASSET CLASS PERFORMANCE
Following a sharp correction in July and August, the domestic equities market
rallied strongly during the six-month reporting period ended April 30, 1999.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
TOTAL RETURN PERFORMANCE
GROWTH OF A HYPOTHETICAL $1 INVESTMENT
MSCI-EAFE (ND) INDEX S&P 500 INDEX RUSSELL 2000 SMALL-CAP INDEX LEHMAN AGGREGATE BOND INDEX
<S> <C> <C> <C> <C>
Oct-98 $1.00 $1.00 $1.00 $1.00
Nov-98 $1.05 $1.06 $1.05 $1.01
Dec-98 $1.09 $1.12 $1.12 $1.01
Jan-99 $1.09 $1.17 $1.13 $1.02
Feb-99 $1.06 $1.13 $1.04 $1.00
Mar-99 $1.11 $1.18 $1.06 $1.00
Apr-99 $1.15 $1.22 $1.15 $1.01
COMPILED BY CHARLES SCHWAB & CO., INC.
</TABLE>
Large-cap domestic stocks, as represented by the S&P 500-Registered Trademark-
Index, continued to be the strongest-performing asset class, achieving a total
return of 22.31% for the six-month period. Even within the S&P 500, the
strongest performance was concentrated in the very largest stocks. Small-cap
stocks, as represented by the Russell 2000-Registered Trademark- Index, also
experienced a strong total return of 15.16%.
Assisted by the rebound in Asian markets, international stock returns, as
represented by the Morgan Stanley Capital International Europe,
5
<PAGE>
MARKET OVERVIEW (continued)
Australasia, Far East (MSCI-EAFE)-Registered Trademark- Index, experienced a
positive total return of 15.28% for the six-month reporting period.
Reflecting the moderate rise in intermediate and long-term interest rates, fixed
income returns were generally weak for the period. Bond returns, as represented
by the Lehman Brothers Aggregate Bond Index, were 0.69% for the six-month
reporting period.
U.S. EQUITY VALUATION
The price/earnings (P/E) ratio for the S&P 500-Registered Trademark- Index
reached new record highs during the reporting period and ended the period at a
lofty 33.9 times earnings, more than twice its long-term average. The P/E 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 earnings potential. Based on other traditional market valuation
measures, such as price/book (P/B) ratio or dividend yield, the U.S. stock
market continues to remain at record high valuation levels.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
S&P 500 PRICE/EARNINGS RATIO
<S> <C>
Jan-90 14.37
Feb-90 14.21
Mar-90 14.77
Apr-90 14.82
May-90 15.84
Jun-90 16.66
Jul-90 16.65
Aug-90 15.57
Sep-90 14.9
Oct-90 14.36
Nov-90 14.59
Dec-90 15.19
Jan-91 14.95
Feb-91 16.82
Mar-91 17.48
Apr-91 17.85
May-91 17.92
Jun-91 17.96
Jul-91 18.07
Aug-91 19.72
Sep-91 19.88
Oct-91 19.92
Nov-91 21.02
Dec-91 21.85
Jan-92 23.35
Feb-92 23.83
Mar-92 25.45
Apr-92 25.51
May-92 25.71
Jun-92 25.08
Jul-92 25.61
Aug-92 25.5
Sep-92 24.37
Oct-92 23.94
Nov-92 24.08
Dec-92 24.01
Jan-93 24.2
Feb-93 24.25
Mar-93 24.22
Apr-93 23.2
May-93 23.21
Jun-93 22.58
Jul-93 22.52
Aug-93 23.02
Sep-93 23.74
Oct-93 23.97
Nov-93 22.55
Dec-93 23.55
Jan-94 22.98
Feb-94 21.17
Mar-94 20.34
Apr-94 20.1
May-94 20.16
Jun-94 19.76
Jul-94 18.64
Aug-94 18.9
Sep-94 18.26
Oct-94 17.55
Nov-94 16.58
Dec-94 16.98
Jan-95 16.23
Feb-95 16.2
Mar-95 16.5
Apr-95 16.02
May-95 16.43
Jun-95 16.82
Jul-95 16.55
Aug-95 16.18
Sep-95 16.86
Oct-95 16.18
Nov-95 17.14
Dec-95 17.41
Jan-96 18.11
Feb-96 18.56
Mar-96 18.94
Apr-96 19.16
May-96 19.48
Jun-96 19.3
Jul-96 18.31
Aug-96 18.62
Sep-96 19.75
Oct-96 19.6
Nov-96 21.05
Dec-96 20.7
Jan-97 20.55
Feb-97 20.98
Mar-97 19.87
Apr-97 20.24
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
May-98 26.12
Jun-98 27.09
Jul-98 26.78
Aug-98 22.77
Sep-98 24.23
Oct-98 27.58
Nov-98 30.14
Dec-98 31.97
Jan-99 33.29
Feb-99 32.65
Mar-99 33.78
Apr-99 33.9
30-Year Average 15.26
Source: BLOOMBERG L.P.
</TABLE>
TREASURY YIELDS
Following an extended period of falling interest rates that began with the
market's response to developing international economic problems in the second
quarter of 1997, both long-term and intermediate-term rates reversed course and
began to trend upward in October 1998. Scaled-back concerns about the impact of
international economic problems and continued strong growth of the domestic
economy, with no evidence that it will slow soon, were the primary drivers of
the reversal of the downward trend in rates.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
30-YEAR AND FIVE-YEAR TREASURY BOND YIELDS
30-YEAR TREASURY FIVE-YEAR TREASURY
BOND YIELD NOTE YIELD
<S> <C> <C>
11/2/98 5.24% 4.40%
11/3/98 5.22% 4.37%
11/4/98 5.33% 4.48%
11/5/98 5.36% 4.49%
11/6/98 5.39% 4.59%
11/9/98 5.29% 4.54%
11/10/98 5.29% 4.50%
11/11/98 5.29% 4.50%
11/12/98 5.25% 4.47%
11/13/98 5.25% 4.50%
11/16/98 5.29% 4.57%
11/17/98 5.29% 4.57%
11/18/98 5.25% 4.58%
11/19/98 5.24% 4.62%
11/20/98 5.22% 4.60%
11/23/98 5.25% 4.62%
11/24/98 5.22% 4.62%
11/25/98 5.19% 4.63%
11/26/98 5.19% 4.63%
11/27/98 5.16% 4.59%
11/30/98 5.06% 4.48%
12/1/98 5.04% 4.41%
12/2/98 5.02% 4.32%
12/3/98 5.00% 4.26%
12/4/98 5.04% 4.39%
12/7/98 5.03% 4.44%
12/8/98 4.99% 4.38%
12/9/98 4.98% 4.36%
12/10/98 4.96% 4.32%
12/11/98 5.02% 4.39%
12/14/98 4.99% 4.33%
12/15/98 5.03% 4.39%
12/16/98 4.99% 4.29%
12/17/98 5.01% 4.35%
12/18/98 5.00% 4.36%
12/21/98 5.06% 4.44%
12/22/98 5.14% 4.51%
12/23/98 5.18% 4.64%
12/24/98 5.21% 4.71%
12/25/98 5.22% 4.71%
12/28/98 5.15% 4.63%
12/29/98 5.10% 4.57%
12/30/98 5.09% 4.53%
12/31/98 5.10% 4.54%
1/1/99 5.10% 4.54%
1/4/99 5.15% 4.56%
1/5/99 5.21% 4.62%
1/6/99 5.16% 4.57%
1/7/99 5.22% 4.63%
1/8/99 5.27% 4.73%
1/11/99 5.31% 4.79%
1/12/99 5.22% 4.67%
1/13/99 5.13% 4.56%
1/14/99 5.06% 4.46%
1/15/99 5.11% 4.55%
1/18/99 5.12% 4.55%
1/19/99 5.15% 4.61%
1/20/99 5.17% 4.64%
1/21/99 5.13% 4.56%
1/22/99 5.08% 4.52%
1/25/99 5.12% 4.55%
1/26/99 5.13% 4.58%
1/27/99 5.13% 4.55%
1/28/99 5.11% 4.56%
1/29/99 5.09% 4.55%
2/1/99 5.18% 4.64%
2/2/99 5.24% 4.70%
2/3/99 5.25% 4.73%
2/4/99 5.29% 4.79%
2/5/99 5.35% 4.86%
2/8/99 5.34% 4.84%
2/9/99 5.30% 4.80%
2/10/99 5.37% 4.82%
2/11/99 5.37% 4.84%
2/12/99 5.42% 4.96%
2/15/99 5.43% 4.98%
2/16/99 5.34% 4.94%
2/17/99 5.31% 4.90%
2/18/99 5.38% 4.97%
2/19/99 5.39% 4.99%
2/22/99 5.36% 4.94%
2/23/99 5.43% 5.04%
2/24/99 5.51% 5.12%
2/25/99 5.65% 5.29%
2/26/99 5.58% 5.22%
3/1/99 5.67% 5.31%
3/2/99 5.61% 5.23%
3/3/99 5.70% 5.29%
3/4/99 5.70% 5.31%
3/5/99 5.60% 5.22%
3/8/99 5.59% 5.19%
3/9/99 5.53% 5.10%
3/10/99 5.55% 5.12%
3/11/99 5.56% 5.12%
3/12/99 5.53% 5.06%
3/15/99 5.52% 5.06%
3/16/99 5.48% 5.02%
3/17/99 5.51% 5.04%
3/18/99 5.49% 5.01%
3/19/99 5.56% 5.08%
3/22/99 5.57% 5.12%
3/23/99 5.54% 5.05%
3/24/99 5.53% 5.06%
3/25/99 5.59% 5.10%
3/26/99 5.59% 5.08%
3/29/99 5.64% 5.13%
3/30/99 5.58% 5.05%
3/31/99 5.63% 5.10%
4/1/99 5.67% 5.14%
4/2/99 5.60% 5.05%
4/5/99 5.59% 5.05%
4/6/99 5.52% 4.99%
4/7/99 5.50% 5.01%
4/8/99 5.44% 4.94%
4/9/99 5.46% 4.96%
4/12/99 5.45% 4.96%
4/13/99 5.49% 5.00%
4/14/99 5.51% 5.03%
4/15/99 5.53% 5.06%
4/16/99 5.57% 5.11%
4/19/99 5.52% 5.03%
4/20/99 5.51% 5.03%
4/21/99 5.52% 5.08%
4/22/99 5.60% 5.13%
4/23/99 5.60% 5.14%
4/26/99 5.58% 5.11%
4/27/99 5.54% 5.10%
4/28/99 5.58% 5.14%
4/29/99 5.53% 5.08%
4/30/99 5.66% 5.21%
Source: BLOOMBERG L.P.
</TABLE>
INTERNATIONAL PERFORMANCE
The MSCI-EAFE-Registered Trademark- Index gained 15.28% in U.S. dollar terms
(excluding reinvested dividends) during the six-month reporting period. In local
currency terms, it gained 22.39%, reflecting the relative weakness of most
foreign currencies during the period.
6
<PAGE>
With the exception of Austria, Denmark and Belgium, all of the MSCI-EAFE
component countries had positive returns for the period. In particular, many of
the Asian countries reversed their severe declines to post strong returns. The
strongest-performing countries for the period were Singapore, Finland and New
Zealand.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
MSCI-EAFE COUNTRY RETURNS
SIX MONTHS ENDED 4/30/99
<S> <C>
Singapore 53.54%
Finland 47.33%
New Zealand 30.43%
Japan 26.47%
Hong Kong 25.64%
Australia 23.83%
Sweden 19.34%
Ireland 18.49%
United Kingdom 15.38%
Netherlands 11.88%
Italy 11.68%
France 10.65%
Norway 4.39%
Germany 3.58%
Spain 2.47%
Switzerland 0.52%
Austria -1.27%
Denmark -3.22%
Belgium -3.84%
Source: DATASTREAM
</TABLE>
This market overview has been provided by the portfolio management team.
7
<PAGE>
SCHWAB MARKETMANAGER GROWTH PORTFOLIO
PORTFOLIO PERFORMANCE
TOTAL RETURNS FOR THE PERIODS ENDED 4/30/99
<TABLE>
<CAPTION>
AVERAGE ANNUAL RETURNS
------------------------------------
SINCE CUMULATIVE
SIX INCEPTION RETURN(2)
MONTHS(1) ONE YEAR (11/18/96) (11/18/96-4/30/99)
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
SCHWAB MARKETMANAGER GROWTH PORTFOLIO(3) 21.40% 11.99% 17.46% 48.30%
- ------------------------------------------------------------------------------------------------------------------------
Growth Composite Index(4,5) 14.49% 5.44% 14.48% 39.25%
- ------------------------------------------------------------------------------------------------------------------------
S&P 500-Registered Trademark- Index 22.31% 21.83% 29.48% 88.26%
- ------------------------------------------------------------------------------------------------------------------------
Lehman Brothers Aggregate Bond Index 0.69% 6.27% 7.25% 18.70%
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
National Association of Securities Dealers (NASD) regulations require that we
report performance data as of the most recent calendar quarter--in this case,
the quarter ended 3/31/99. As of 3/31/99, the Portfolio's six-month, one-year
and since-inception average annual total returns were 21.46%, 8.52% and 16.19%,
respectively. Without fee waivers and guarantees, the six-month, one-year and
since-inception average annual total returns would have been 21.07%, 7.85% and
15.38%, respectively, as of 3/31/99.
(1) Actual, not annualized, because period is less than one year.
(2) Without fee waivers and guarantees, cumulative total return would have been
lower.
(3) The Investment Adviser and Schwab waived a portion of their fees during the
reporting period and have guaranteed through at least 2/29/00 that total
operating expenses will not exceed 0.50%. Without fee waivers and
guarantees, the six-month, one-year and since-inception average annual total
returns would have been 21.07%, 11.33% and 16.65%, respectively, as of
4/30/99. Underlying funds also charge fees and incur expenses.
(4) The Growth Composite Index is composed of Morningstar category averages and
cash equivalents as represented by the 90-day T-bill and is calculated using
the portfolio allocations: 35% large-cap, 20% small-cap, 25% foreign, 15%
bonds and 5% cash.
(5) As of 4/30/99 there were 1,932 large-cap funds, 799 small-cap funds, 638
foreign funds and 543 intermediate-term bond funds tracked by Morningstar.
Performance includes changes in price and reinvestment of dividends and
capital gains.
8
<PAGE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
SCHWAB MARKETMANAGER GROWTH PORTFOLIO S&P 500 INDEX LEHMAN BROTHERS AGGREGATE BOND INDEX GROWTH COMPOSITE INDEX
<S> <C> <C> <C> <C>
11/18/96 $10,000 $10,000 $10,000 $10,000
11/30/96 $10,120 $10,271 $10,071 $10,144
12/31/96 $10,077 $10,068 $9,977 $10,121
1/31/97 $10,371 $10,696 $10,008 $10,364
2/28/97 $10,310 $10,780 $10,033 $10,333
3/31/97 $10,016 $10,338 $9,922 $10,071
4/30/97 $10,229 $10,955 $10,071 $10,232
5/31/97 $10,848 $11,621 $10,166 $10,862
6/30/97 $11,274 $12,141 $10,287 $11,275
7/31/97 $11,841 $13,106 $10,565 $11,856
8/31/97 $11,547 $12,372 $10,475 $11,522
9/30/97 $12,145 $13,049 $10,630 $12,108
10/31/97 $11,760 $12,613 $10,784 $11,659
11/30/97 $11,750 $13,197 $10,834 $11,710
12/31/97 $11,927 $13,424 $10,943 $11,824
1/31/98 $11,959 $13,573 $11,084 $11,908
2/28/98 $12,622 $14,552 $11,075 $12,582
3/31/98 $13,146 $15,297 $11,112 $13,076
4/30/98 $13,242 $15,452 $11,170 $13,207
5/31/98 $13,135 $15,186 $11,276 $12,991
6/30/98 $13,306 $15,802 $11,372 $13,130
7/31/98 $13,135 $15,635 $11,396 $12,914
8/31/98 $11,639 $13,377 $11,582 $11,292
9/30/98 $11,745 $14,235 $11,853 $11,587
10/31/98 $12,216 $15,392 $11,790 $12,163
11/30/98 $12,814 $16,325 $11,857 $12,731
12/31/98 $13,734 $17,265 $11,893 $13,303
1/31/99 $14,255 $17,987 $11,977 $13,519
2/28/99 $13,712 $17,427 $11,768 $13,034
3/31/99 $14,266 $18,124 $11,832 $13,389
4/30/99 $14,830 $18,826 $11,870 $13,925
</TABLE>
The above graph compares the growth of a hypothetical $10,000 investment in the
Schwab MarketManager Growth Portfolio, made at its inception, with similar
investments in the Growth Composite Index, the S&P 500-Registered Trademark-
Index and the Lehman Brothers Aggregate Bond Index. The hypothetical $10,000
investment assumes investment on the first day of the month following inception
and includes changes in share price and reinvestment of dividends and capital
gains. A detailed analysisa of the respective performances of the Portfolios and
the indices is provided in the PORTFOLIO DISCUSSION section later in this
report.
THE INFORMATION PRESENTED 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 Portfolios. Investors cannot invest in an
index directly.
ASSETS
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------------------------
Total net assets as of 10/31/98 (000s) $ 151,854
- -------------------------------------------------------------------------------------------------
Total net assets as of 4/30/99 (000s) $ 170,367
- -------------------------------------------------------------------------------------------------
Percentage growth over reporting period 12.2%
- -------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
SCHWAB MARKETMANAGER GROWTH PORTFOLIO
PORTFOLIO SNAPSHOT
The Schwab MarketManager Growth Portfolio seeks capital growth with less
volatility than a portfolio composed entirely of stock funds. The Portfolio
allocations will vary as the portfolio managers adjust the respective asset
mixes based on changing market conditions. The information below and on the
following page provides a snapshot of the Portfolio's characteristics as of
4/30/99, and is not indicative of its composition after that date. The terms
used below are defined on page 30. A complete list of the securities in the
Portfolio as of 4/30/99 is provided in the Schedule of Investments later in this
report.
PORTFOLIO FACTS
<TABLE>
<CAPTION>
SCHWAB MARKET
MANAGER PEER GROUP
GROWTH PORTFOLIO* AVERAGE++
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------
Number of Holdings 39** 129
- --------------------------------------------------------------------------------------------------------
Median Market Cap ($ Mil) $29,320 $42,604
- --------------------------------------------------------------------------------------------------------
Price/Earnings (P/E) Ratio 30.0 33.6
- --------------------------------------------------------------------------------------------------------
Price/Book (P/B) Ratio 7.2 7.8
- --------------------------------------------------------------------------------------------------------
12-Month Yield 1.52% 0.51%
- --------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 179% 73%
- --------------------------------------------------------------------------------------------------------
Three-Year Beta N/A 0.96
- --------------------------------------------------------------------------------------------------------
Expense Ratio 0.50%+ 1.32%
- --------------------------------------------------------------------------------------------------------
</TABLE>
* Compiled by Charles Schwab & Co., Inc. This information is for illustrative
purposes only and is not intended to show, predict or guarantee future
composition of the Portfolio.
** The Portfolio invests primarily in other funds, whereas most large-cap funds
invest primarily in individual securities.
+ Reflects a voluntary reduction by the Investment Adviser and Schwab, which is
guaranteed through at least 2/29/00. Underlying funds also charge fees and
incur expenses.
++ Source: Morningstar. The peer group average is based on 1,932 large-cap
funds as tracked by Morningstar.
10
<PAGE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
ASSET MIX
AS A PERCENTAGE OF PORTFOLIO INVESTMENTS
<S> <C>
Large-Cap 44.5%
International 21.4%
Small-Cap/Mid-Cap 18.8%
Bonds 8.9%
Cash 6.3%
</TABLE>
<TABLE>
<CAPTION>
TARGET MIX IN
MIX AS OF NEUTRAL
4/30/99 MARKETS
<S> <C> <C>
- ----------------------------------------------------------
Stock Funds 84.77% 80.00%
- ----------------------------------------------------------
Bond Funds 8.92% 15.00%
- ----------------------------------------------------------
Cash Equivalents 6.31% 5.00%
- ----------------------------------------------------------
Total 100% 100%
- ----------------------------------------------------------
</TABLE>
TOP 10 HOLDINGS
AS A PERCENTAGE OF PORTFOLIO INVESTMENTS
<TABLE>
<S> <C>
- ------------------------------------------------
American Century Income & Growth
Fund, Institutional Class 12.62%
- ------------------------------------------------
Longleaf Partners Fund 7.06%
- ------------------------------------------------
Hotchkis & Wiley International Fund 4.58%
- ------------------------------------------------
American Century Ultra Fund,
Institutional Class 4.52%
- ------------------------------------------------
Oakmark International Fund 4.24%
- ------------------------------------------------
American Century International Growth
Fund, Institutional Class 4.12%
- ------------------------------------------------
Artisan International Fund 3.78%
- ------------------------------------------------
Morgan Stanley Institutional
International Equity Portfolio 3.60%
- ------------------------------------------------
Thornburg Value Fund, Class A 3.40%
- ------------------------------------------------
Marisco Growth & Income Fund 3.26%
- ------------------------------------------------
Total 51.18%
- ------------------------------------------------
</TABLE>
11
<PAGE>
SCHWAB MARKETMANAGER BALANCED PORTFOLIO
PORTFOLIO PERFORMANCE
TOTAL RETURNS FOR THE PERIODS ENDED 4/30/99
<TABLE>
<CAPTION>
AVERAGE ANNUAL RETURNS
------------------------------------
SINCE CUMULATIVE
SIX INCEPTION RETURN(2)
MONTHS(1) ONE YEAR (11/18/96) (11/18/96-4/30/99)
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
SCHWAB MARKETMANAGER BALANCED PORTFOLIO(3) 16.85% 11.37% 15.16% 41.30%
- ------------------------------------------------------------------------------------------------------------------------
Balanced Composite Index(4,5) 11.16% 6.12% 13.05% 35.04%
- ------------------------------------------------------------------------------------------------------------------------
S&P 500-Registered Trademark- Index 22.31% 21.83% 29.48% 88.26%
- ------------------------------------------------------------------------------------------------------------------------
Lehman Brothers Aggregate Bond Index 0.69% 6.27% 7.25% 18.70%
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
National Association of Securities Dealers (NASD) regulations require that we
report performance data as of the most recent calendar quarter--in this case,
the quarter ended 3/31/99. As of 3/31/99, the Portfolio's six-month, one-year
and since-inception average annual total returns were 16.26%, 8.03% and 14.05%,
respectively. Without fee waivers and guarantees, the six-month, one-year and
since-inception average annual total returns would have been 15.96%, 7.37% and
13.15%, respectively, as of 3/31/99.
(1) Actual, not annualized, because period is less than one year.
(2) Without fees and waivers, cumulative total return would have been lower.
(3) The Investment Adviser and Schwab waived a portion of their fees during the
reporting period and have guaranteed through at least 2/29/00 that total
operating expenses will not exceed 0.50%. Without fee waivers and
guarantees, the six-month, one-year and since-inception average annual total
returns would have been 16.52%, 10.70% and 14.27%, respectively, as of
4/30/99. Underlying funds also charge fees and incur expenses.
(4) The Balanced Composite Index is composed of Morningstar category averages
and cash equivalents as represented by the 90-day T-bill and is calculated
using the portfolio allocations: 30% large-cap, 15% small-cap, 15% foreign,
35% bonds and 5% cash.
(5) As of 4/30/99 there were 1,932 large-cap funds, 799 small-cap funds, 638
foreign funds and 543 intermediate-term bond funds tracked by Morningstar.
Performance includes changes in price and reinvestment of dividends and
capital gains.
12
<PAGE>
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
SCHWAB MARKETMANAGER BALANCED PORTFOLIO S&P 500 INDEX LEHMAN BROTHERS AGGREGATE BOND INDEX
<S> <C> <C> <C>
11/18/96 $10,000 $10,000 $10,000
11/30/96 $10,100 $10,271 $10,071
12/31/96 $10,059 $10,068 $9,977
1/31/97 $10,322 $10,696 $10,008
2/28/97 $10,271 $10,780 $10,033
3/31/97 $10,018 $10,338 $9,922
4/30/97 $10,200 $10,955 $10,071
5/31/97 $10,676 $11,621 $10,166
6/30/97 $11,041 $12,141 $10,287
7/31/97 $11,517 $13,106 $10,565
8/31/97 $11,284 $12,372 $10,475
9/30/97 $11,770 $13,049 $10,630
10/31/97 $11,527 $12,613 $10,784
11/30/97 $11,558 $13,197 $10,834
12/31/97 $11,719 $13,424 $10,943
1/31/98 $11,762 $13,573 $11,084
2/28/98 $12,251 $14,552 $11,075
3/31/98 $12,634 $15,297 $11,112
4/30/98 $12,688 $15,452 $11,170
5/31/98 $12,613 $15,186 $11,276
6/30/98 $12,783 $15,802 $11,372
7/31/98 $12,677 $15,635 $11,396
8/31/98 $11,581 $13,377 $11,582
9/30/98 $11,740 $14,235 $11,853
10/31/98 $12,092 $15,392 $11,790
11/30/98 $12,560 $16,325 $11,857
12/31/98 $13,311 $17,265 $11,893
1/31/99 $13,693 $17,987 $11,977
2/28/99 $13,224 $17,427 $11,768
3/31/99 $13,650 $18,124 $11,832
4/30/99 $14,130 $18,826 $11,870
<CAPTION>
BALANCED COMPOSITE INDEX
<S> <C>
11/18/96 $10,000
11/30/96 $10,134
12/31/96 $10,088
1/31/97 $10,296
2/28/97 $10,274
3/31/97 $10,036
4/30/97 $10,204
5/31/97 $10,700
6/30/97 $11,033
7/31/97 $11,553
8/31/97 $11,295
9/30/97 $11,762
10/31/97 $11,485
11/30/97 $11,550
12/31/97 $11,664
1/31/98 $11,754
2/28/98 $12,252
3/31/98 $12,620
4/30/98 $12,726
5/31/98 $12,586
6/30/98 $12,732
7/31/98 $12,564
8/31/98 $11,411
9/30/98 $11,734
10/31/98 $12,148
11/30/98 $12,595
12/31/98 $13,048
1/31/99 $13,239
2/28/99 $12,819
3/31/99 $13,105
4/30/99 $13,504
</TABLE>
The above graph compares the growth of a hypothetical $10,000 investment in the
Schwab MarketManager Balanced Portfolio, made at its inception, with similar
investments in the Balanced Composite Index, the S&P 500-Registered Trademark-
Index and the Lehman Brothers Aggregate Bond Index. The hypothetical $10,000
investment assumes investment on the first day of the month following inception
and includes changes in share price and reinvestment of dividends and capital
gains. A detailed analysis of the respective performances of the Portfolios and
the indices is provided in the PORTFOLIO DISCUSSION section later in this
report.
THE INFORMATION PRESENTED 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 Portfolios. Investors cannot invest in an
index directly.
ASSETS
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------------------------
Total net assets as of 10/31/98 (000s) $92,794
- -------------------------------------------------------------------------------------------------
Total net assets as of 4/30/99 (000s) $ 109,738
- -------------------------------------------------------------------------------------------------
Percentage growth over reporting period 18.3%
- -------------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
SCHWAB MARKETMANAGER BALANCED PORTFOLIO
PORTFOLIO SNAPSHOT
The Schwab MarketManager Balanced Portfolio seeks capital growth and income with
less volatility than the Growth Portfolio. The Portfolio's allocation will vary
as the portfolio managers adjust the respective asset mixes based on changing
market conditions. The information below and on the following page provides a
snapshot of the Portfolio's characteristics as of 4/30/99, and is not indicative
of its composition after that date. The terms used below are defined on page 30.
A complete list of the securities in the Portfolio as of 4/30/99 is provided in
the Schedule of Investments later in this report.
PORTFOLIO FACTS
<TABLE>
<CAPTION>
SCHWAB
MARKETMANAGER PEER GROUP
BALANCED PORTFOLIO* AVERAGE++
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------
Number of Holdings 36** 225
- --------------------------------------------------------------------------------------------------------
Median Market Cap ($ Mil) $23,431 $28,204
- --------------------------------------------------------------------------------------------------------
Price/Earnings (P/E) Ratio 29.3 30.2
- --------------------------------------------------------------------------------------------------------
Price/Book (P/B) Ratio 7.1 6.4
- --------------------------------------------------------------------------------------------------------
12-Month Yield 2.35% 2.40%
- --------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 175% 98%
- --------------------------------------------------------------------------------------------------------
Three-Year Beta N/A 0.56
- --------------------------------------------------------------------------------------------------------
Expense Ratio 0.50%+ 1.30%
- --------------------------------------------------------------------------------------------------------
</TABLE>
* Compiled by Charles Schwab & Co., Inc. This information is for illustrative
purposes only and is not intended to show, predict or guarantee future
composition of the Portfolio.
** The Portfolio invests primarily in other funds, whereas most domestic hybrid
funds invest primarily in individual securities.
+ Reflects a voluntary reduction by the Investment Adviser and Schwab, which is
guaranteed through at least 2/29/00. Underlying funds also charge fees and
incur expenses.
++ Source: Morningstar. This information is as of 4/30/99. The peer group
average is based on 741 domestic hybrid funds as tracked by Morningstar.
14
<PAGE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
ASSET MIX
AS A PERCENTAGE OF PORTFOLIO INVESTMENTS
<S> <C>
Large-Cap 33.7%
International 14.7%
Small-Cap/Mid-Cap 16.3%
Bonds 30.2%
Cash 5.1%
</TABLE>
<TABLE>
<CAPTION>
TARGET MIX IN
MIX AS OF NEUTRAL
4/30/99 MARKETS
<S> <C> <C>
- ----------------------------------------------------------
Stock Funds 64.71% 60.00%
- ----------------------------------------------------------
Bond Funds 30.15% 35.00%
- ----------------------------------------------------------
Cash Equivalents 5.14% 5.00%
- ----------------------------------------------------------
Total 100% 100%
- ----------------------------------------------------------
</TABLE>
TOP 10 HOLDINGS
AS A PERCENTAGE OF PORTFOLIO INVESTMENTS
<TABLE>
<S> <C>
- ------------------------------------------------
PIMCO Total Return Fund,Institutional
Class 13.44%
- ------------------------------------------------
Longleaf Partners Fund 9.12%
- ------------------------------------------------
Federated U.S. Government Securities
Fund, 2-5 Years, Institutional Class 6.62%
- ------------------------------------------------
American Century Intermediate Term
Treasury Fund 6.20%
- ------------------------------------------------
Marisco Growth & Income Fund 5.35%
- ------------------------------------------------
Oakmark International Fund 4.76%
- ------------------------------------------------
American Century Income & Growth
Fund, Institutional Class 3.99%
- ------------------------------------------------
Melody 4500 Fund, LP(1) 3.89%
- ------------------------------------------------
Artisan International Fund 3.51%
- ------------------------------------------------
Hotchkis & Wiley International Fund 3.25%
- ------------------------------------------------
Total 60.13%
- ------------------------------------------------
</TABLE>
(1) See Note 3 in the Notes to Financial Statements.
15
<PAGE>
SCHWAB MARKETMANAGER SMALL CAP PORTFOLIO
PORTFOLIO PERFORMANCE
TOTAL RETURNS FOR THE PERIODS ENDED 4/30/99
<TABLE>
<CAPTION>
AVERAGE ANNUAL RETURNS
-------------------------------------
SINCE CUMULATIVE
SIX INCEPTION RETURN(2)
MONTHS(1) ONE YEAR (9/16/97) (9/16/97-4/30/99)
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------
SCHWAB MARKETMANAGER SMALL CAP PORTFOLIO(3) 23.06% (0.55)% 4.70% 7.73%
- -----------------------------------------------------------------------------------------------------------------------
Russell 2000-Registered Trademark- Index 15.16% (9.25)% (0.63)% (1.01)%
- -----------------------------------------------------------------------------------------------------------------------
Average Small-Cap Fund(4) 14.83% (10.69)% (1.07)% (1.74)%
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
National Association of Securities Dealers (NASD) regulations require that we
report performance data as of the most recent calendar quarter--in this case,
the quarter ended 3/31/99. As of 3/31/99, the Portfolio's six-month, one-year
and since-inception average annual total returns were 18.88%, (6.98)% and 0.19%,
respectively. Without fee waivers and guarantees, the six-month, one-year and
since-inception average annual total returns would have been 18.45%, (7.73)% and
(0.62)%, respectively, as of 3/31/99.
(1) Actual, not annualized, because period is less than one year.
(2) Without fee waivers and guarantees, cumulative total returns would have been
lower.
(3) The Investment Adviser and Schwab waived a portion of their fees during the
reporting period and have guaranteed through at least 2/29/00 that total
operating expenses will not exceed 0.50%. Without fee waivers and
guarantees, the six-month, one-year and since-inception average annual total
returns would have been 22.62%, (1.32)% and 3.89%, respectively, as of
4/30/99. The underlying funds also charge fees and incur expenses.
(4) Source: Morningstar, Inc. The small-cap fund category contains 799 funds as
of 4/30/99.
16
<PAGE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
SCHWAB MARKETMANAGER SMALL CAP PORTFOLIO RUSSELL 2000 INDEX
<S> <C> <C>
9/16/97 $10,000 $10,000
9/30/97 $10,260 $10,201
10/31/97 $9,930 $9,753
11/30/97 $9,770 $9,690
12/31/97 $9,886 $9,859
1/31/98 $9,701 $9,704
2/28/98 $10,277 $10,420
3/31/98 $10,781 $10,849
4/30/98 $10,832 $10,909
5/31/98 $10,359 $10,321
6/30/98 $10,411 $10,342
7/31/98 $9,896 $9,505
8/31/98 $8,271 $7,659
9/30/98 $8,435 $8,259
10/31/98 $8,754 $8,595
11/30/98 $9,238 $9,046
12/31/98 $9,946 $9,606
1/31/99 $10,101 $9,734
2/28/99 $9,563 $8,945
3/31/99 $10,029 $9,085
4/30/99 $10,773 $9,899
</TABLE>
The above graph compares the growth of a hypothetical $10,000 investment in the
MarketManager Small Cap Portfolio, made at its inception, with a similar
investment in the Russell 2000-Registered Trademark- Index. The hypothetical
$10,000 investment assumes investment on the first day of the month following
inception and includes changes in share price and reinvestment of dividends and
capital gains. A detailed analysis of the performances of the Portfolio and its
index is provided in the PORTFOLIO DISCUSSION section later in this report.
THE INFORMATION PRESENTED 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 Portfolio. Investors cannot invest in an
index directly.
ASSETS
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------------------------
Total net assets as of 10/31/98 (000s) $ 128,547
- -------------------------------------------------------------------------------------------------
Total net assets as of 4/30/99 (000s) $ 124,951
- -------------------------------------------------------------------------------------------------
Percentage change over reporting period (2.8)%
- -------------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE>
SCHWAB MARKETMANAGER SMALL CAP PORTFOLIO
PORTFOLIO SNAPSHOT
The Schwab MarketManager Small Cap Portfolio seeks long-term capital
appreciation. It invests primarily in small-company stock funds. The information
below and on the following page provides a snapshot of the Portfolio's
characteristics as of 4/30/99, and is not indicative of its composition after
that date. The terms used below are defined on page 31. A complete list of the
securities in the Portfolio as of 4/30/99 is provided in the Schedule of
Investments later in this report.
PORTFOLIO FACTS
<TABLE>
<CAPTION>
SCHWAB
MARKETMANAGER SMALL PEER GROUP
CAP PORTFOLIO* AVERAGE++
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------
Number of Holdings 21** 159
- ---------------------------------------------------------------------------------------------------------
Median Market Cap ($ Mil) $2,004 $722
- ---------------------------------------------------------------------------------------------------------
Price/Earnings (P/E) Ratio 28.0 25.9
- ---------------------------------------------------------------------------------------------------------
Price/Book (P/B) Ratio 6.9 4.7
- ---------------------------------------------------------------------------------------------------------
12-Month Yield 0.45% 0.17%
- ---------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 67% 94%
- ---------------------------------------------------------------------------------------------------------
Three-Year Beta N/A 1.04
- ---------------------------------------------------------------------------------------------------------
Expense Ratio 0.50%+ 1.58%
- ---------------------------------------------------------------------------------------------------------
</TABLE>
* Compiled by Charles Schwab & Co., Inc. This information is for illustrative
purposes only and is not intended to show, predict or guarantee future
composition of the Portfolio.
** The Portfolio invests primarily in other funds, whereas most small-cap funds
invest primarily in individual securities.
+ Reflects a voluntary reduction by the Investment Adviser and Schwab, which is
guaranteed through at least 2/29/00. Underlying funds also charge fees and
incur expenses.
++ Source: Morningstar. The peer group average is based on 799 small-cap funds
as tracked by Morningstar.
18
<PAGE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
ASSET MIX
AS A PERCENTAGE OF PORTFOLIO INVESTMENTS
<S> <C>
Growth 19.8%
Value 39.1%
Blend 34.6%
Sector 4.9%
Cash 1.6%
</TABLE>
TOP 10 HOLDINGS
AS A PERCENTAGE OF PORTFOLIO INVESTMENTS
<TABLE>
<S> <C>
- ------------------------------------------------
Melody 4500 Fund, LP(1) 17.50%
- ------------------------------------------------
Longleaf Partners Small Cap Fund 17.38%
- ------------------------------------------------
Weitz Series Hickory Fund 11.33%
- ------------------------------------------------
Longleaf Partners Realty Fund 8.06%
- ------------------------------------------------
Janus Enterprise Fund 7.03%
- ------------------------------------------------
Ariel Appreciation Fund 6.21%
- ------------------------------------------------
Turner Small Cap Growth Fund 5.16%
- ------------------------------------------------
Robertson Stephens Emerging Growth
Fund 5.01%
- ------------------------------------------------
Fremont U.S. Micro Cap Fund 4.39%
- ------------------------------------------------
State Street Research Global
Resources Fund 3.72%
- ------------------------------------------------
Total 85.79%
- ------------------------------------------------
</TABLE>
(1) See Note 3 in the Notes to Financial Statements.
19
<PAGE>
SCHWAB MARKETMANAGER INTERNATIONAL PORTFOLIO
PORTFOLIO PERFORMANCE
TOTAL RETURNS FOR THE PERIODS ENDED 4/30/99
<TABLE>
<CAPTION>
AVERAGE ANNUAL RETURN
------------------------------------
SINCE CUMULATIVE
SIX INCEPTION RETURN(2)
MONTHS(1) ONE YEAR (10/16/96) (10/16/96-4/30/99)
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
SCHWAB MARKETMANAGER INTERNATIONAL PORTFOLIO(3) 20.78% 6.67% 13.57% 38.15%
- -------------------------------------------------------------------------------------------------------------------------
MSCI-EAFE-Registered Trademark- Index 15.28% 9.50% 10.90% 30.04%
- -------------------------------------------------------------------------------------------------------------------------
Average Foreign Fund(4) 15.71% 2.86% 10.88% 29.99%
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
National Association of Securities Dealers (NASD) regulations require that we
report performance data as of the most recent calendar quarter--in this case,
the quarter ended 3/31/99. As of 3/31/99, the Portfolio's six-month, one-year
and since-inception average annual total returns were 16.78%, 1.44% and 10.75%,
respectively. Without fee waivers and guarantees, the six-month, one-year and
since-inception average annual total returns would have been 16.37%, 10.77% and
9.94%, respectively, as of 3/31/99.
(1) Actual, not annualized, because period is less than one year.
(2) Without fee waivers and guarantees, cumulative total return would have been
lower.
(3) The Investment Adviser and Schwab waived a portion of their fees during the
reporting period and have guaranteed through at least 2/29/00 that total
operating expenses will not exceed 0.50%. Without fee waivers and
guarantees, the six-month, one-year and since-inception average annual total
returns would have been 20.41% , 5.99% and 12.75%, respectively, as of
4/30/99. The underlying funds also charge fees and incur expenses.
(4) Source: Morningstar, Inc. The foreign fund category contains 638 funds as of
4/30/99.
20
<PAGE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
SCHWAB MARKETMANAGER INTERNATIONAL PORTFOLIO MSCI-EAFE INDEX
<S> <C> <C>
10/16/96 $10,000 $10,000
10/31/96 $9,910 $9,836
11/30/96 $10,220 $10,228
12/31/96 $10,313 $10,096
1/31/97 $10,426 $9,742
2/28/97 $10,599 $9,902
3/31/97 $10,558 $9,938
4/30/97 $10,609 $9,991
5/31/97 $11,209 $10,641
6/30/97 $11,697 $11,227
7/31/97 $11,962 $11,409
8/31/97 $11,199 $10,557
9/30/97 $11,830 $11,148
10/31/97 $11,046 $10,291
11/30/97 $10,894 $10,186
12/31/97 $11,016 $10,274
1/31/98 $11,146 $10,744
2/28/98 $11,925 $11,434
3/31/98 $12,670 $11,786
4/30/98 $12,952 $11,879
5/31/98 $13,265 $11,821
6/30/98 $13,157 $11,911
7/31/98 $13,525 $12,031
8/31/98 $11,654 $10,540
9/30/98 $11,006 $10,217
10/31/98 $11,438 $11,281
11/30/98 $12,011 $11,859
12/31/98 $12,481 $12,327
1/31/99 $12,820 $12,290
2/28/99 $12,415 $11,998
3/31/99 $12,853 $12,498
4/30/99 $13,815 $13,004
</TABLE>
The above graph compares the growth of a hypothetical $10,000 investment in the
MarketManager International Portfolio, made at its inception, with a similar
investment in the Morgan Stanley Capital International Europe Australasia, Far
East (MSCI-EAFE)-Registered Trademark- Index. A detailed analysis of the
performances of the Portfolio and its index is provided in the PORTFOLIO
DISCUSSION section later in this report.
THE INFORMATION PRESENTED 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 Portfolio. Investors cannot invest in an
index directly.
ASSETS
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------------------------
Total net assets as of 10/31/98 (000s) $ 73,804
- --------------------------------------------------------------------------------------------------
Total net assets as of 4/30/99 (000s) $ 79,962
- --------------------------------------------------------------------------------------------------
Percentage change over reporting period (8.3)%
- --------------------------------------------------------------------------------------------------
</TABLE>
21
<PAGE>
SCHWAB MARKETMANAGER INTERNATIONAL PORTFOLIO
PORTFOLIO SNAPSHOT
The Schwab MarketManager International Portfolio offers broad diversification
with the convenience of a single investment. The Portfolio can be used to
fulfill all or part of the international equity component of your asset
allocation plan. The information below and on the following page provides a
snapshot of the Portfolio's characteristics as of 4/30/99, and is not indicative
of its composition after that date. The terms used below are defined on page 30.
A complete list of the securities in the Portfolio as of 4/30/99 is provided in
the Schedule of Investments later in this report.
PORTFOLIO FACTS
<TABLE>
<CAPTION>
SCHWAB MARKETMANAGER PEER GROUP
INTERNATIONAL PORTFOLIO* AVERAGE++
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------
Number of Holdings 20** 161
- ----------------------------------------------------------------------------------------------------
Median Market Cap ($ Mil) $10,175 $14,595
- ----------------------------------------------------------------------------------------------------
Price/Earnings (P/E) Ratio 31.8 28.6
- ----------------------------------------------------------------------------------------------------
Price/Book (P/B) Ratio 6.0 5.7
- ----------------------------------------------------------------------------------------------------
12-Month Yield 1.06% 0.76%
- ----------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 139% 74%
- ----------------------------------------------------------------------------------------------------
Three-Year Beta N/A 0.72
- ----------------------------------------------------------------------------------------------------
Expense Ratio 0.50%+ 1.68%
- ----------------------------------------------------------------------------------------------------
</TABLE>
* Compiled by Charles Schwab & Co., Inc. This information is not intended to
show, predict or guarantee future composition of the Portfolio. WEBS Germany
Index Series was not included when compiling Portfolio Facts because
information was not available.
** The Portfolio invests primarily in other funds, whereas most foreign funds
invest primarily in individual securities.
+ Reflects a voluntary reduction by the Investment Adviser and Schwab, which is
guaranteed through at least 2/29/00. Underlying funds also charge fees and
incur expenses.
++ Source: Morningstar. The peer group average is based on 638 foreign funds as
tracked by Morningstar.
22
<PAGE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
ASSET MIX
AS A PERCENTAGE OF PORTFOLIO INVESTMENTS
<S> <C>
International-Diversified Mutual Funds 67.4%
European Regional Mutual Funds 5.7%
Asian Regional Funds 23.0%
Latin American Mutual Funds 3.0%
CASH 0.9%
</TABLE>
TOP FIVE COUNTRIES
AS A PERCENTAGE OF PORTFOLIO INVESTMENTS
<TABLE>
<S> <C>
- ------------------------------------------------
Japan 26.64%
- ------------------------------------------------
United Kingdom 13.64%
- ------------------------------------------------
France 6.36%
- ------------------------------------------------
Germany 6.05%
- ------------------------------------------------
Hong Kong 4.91%
- ------------------------------------------------
Total 57.60%
- ------------------------------------------------
</TABLE>
REGIONAL DIVERSIFICATION
AS A PERCENTAGE OF PORTFOLIO INVESTMENTS
<TABLE>
<S> <C>
- -----------------------------------------------
Developed Europe(1) 43.71%
- -----------------------------------------------
Developed Pacific(2) 37.02%
- -----------------------------------------------
Emerging Markets 8.94%
- -----------------------------------------------
Cash 5.79%
- -----------------------------------------------
Canada 1.91%
- -----------------------------------------------
United States 1.24%
- -----------------------------------------------
Other Investments 1.39%
- -----------------------------------------------
Total 100%
- -----------------------------------------------
</TABLE>
TOP 10 HOLDINGS
AS A PERCENTAGE OF PORTFOLIO INVESTMENTS
<TABLE>
<S> <C>
- ------------------------------------------------
Scudder Japan Fund 13.85%
- ------------------------------------------------
Oakmark International Fund 9.86%
- ------------------------------------------------
Pilgrim International Small Cap
Growth Fund, Class Q 8.32%
- ------------------------------------------------
Northstar International Value Fund 8.08%
- ------------------------------------------------
Federated International Small Company
Fund 6.12%
- ------------------------------------------------
Ivy International Fund, Class A 6.08%
- ------------------------------------------------
American Century International Growth
Fund 5.94%
- ------------------------------------------------
Artisan International Fund 5.92%
- ------------------------------------------------
Janus Overseas Fund 5.88%
- ------------------------------------------------
Warburg Pincus Japan Small Company
Fund 4.77%
- ------------------------------------------------
Total 74.82%
- ------------------------------------------------
</TABLE>
(1) Developed Europe includes the following countries: Austria, Belgium,
Denmark, Finland, Germany, Ireland, Italy, Netherlands, Norway, Portugal,
Spain, Sweden, Switzerland and the United Kingdom.
(2) Developed Pacific includes the following countries: Australia, China/Hong
Kong, Indonesia, Japan, Malaysia, New Zealand, Singapore and Thailand.
23
<PAGE>
PORTFOLIO MANAGEMENT
THE PORTFOLIO MANAGEMENT TEAM
CYNTHIA LIU--senior vice president and senior portfolio manager, is the
portfolio manager of the MarketManager International and Small Cap Portfolios
and co-portfolio manager of the Growth and Balanced Portfolios. Prior to joining
Charles Schwab Investment Management, Inc. (CSIM) in 1996, Cynthia was director
of investment strategy at Jardine Fleming Unit Trust in Hong Kong. She was
honored with the Alfred Dunhill Award of Excellence in the 1995 Fund Manager of
the Year awards, sponsored by the SOUTH CHINA MORNING POST, for her management
of trusts. Cynthia holds a B.A. degree in economics from National Cheng-chi
University in Taiwan and is a Chartered Financial Analyst (CFA).
JEFFREY MORTIMER--director and portfolio manager, is co-portfolio manager of the
MarketManager Growth and Balanced Portfolios. Jeff joined CSIM in November 1997.
Prior to that, he was chief investment officer of Higgins Associates, managing
and advising close to $1 billion in assets. Prior to joining Higgins, Jeff was
employed by Gannett Welsh & Kotler, a money management firm. He holds an M.B.A.
degree from the University of Chicago and a B.S. degree in finance from Babson
College and is a CFA.
24
<PAGE>
PORTFOLIO DISCUSSION
QUESTIONS TO THE
PORTFOLIO MANAGEMENT TEAM
GROWTH AND BALANCED PORTFOLIOS
Q. HOW DID THE PORTFOLIOS PERFORM DURING THE SIX-MONTH REPORTING PERIOD?
A. The Growth and Balanced Portfolios produced total returns of 21.40% and
16.85%, respectively, for the six-month reporting period ended 4/30/99. As shown
on the preceding pages, both Portfolios achieved returns that were significantly
greater than their respective composite indices. Additionally, both Portfolios
have achieved inception-to-date total returns (from 11/18/96) in excess of their
respective composite indices.
Q. WHICH ASSET CLASSES PERFORMED WELL?
A. As shown in the following table the top-performing asset class, comprised
large-cap growth stock funds, leading the market out of its correction last
summer. Large-cap value stock funds, small-cap stock funds and international
stock funds all had positive returns for the period but didn't enjoy the very
strong performance of large-cap growth funds. The primary reason for the
difference in performance among these asset classes was the strong returns
generated in the technology sector during the reporting period, especially among
large-cap names.
ASSET CLASS
<TABLE>
<CAPTION>
SIX-MONTH
RETURN AS
OF
INDEX 4/30/99
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------
S&P
500-Registered Trademark-
Large-Cap Stocks Index 22.31%
- ------------------------------------------------------------------------------------------------------
Russell
2000-Registered Trademark-
Small-Cap Stocks Index 15.16%
- ------------------------------------------------------------------------------------------------------
MSCI-EAFE-Registered Trademark-
International Stocks Index 15.28%
- ------------------------------------------------------------------------------------------------------
Lehman Brothers Aggregate
Bonds Bond Index 0.69%
- ------------------------------------------------------------------------------------------------------
Cash Three-Month Treasury Bill 2.26%
- ------------------------------------------------------------------------------------------------------
</TABLE>
The S&P 500 index is comprised of 500 large-company common stocks representing
key industries, including many from the most recognizable companies in the
United States. The Russell 2000 Index measures the performance of U.S.
small-company stocks. The MSCI-EAFE Index measures the performance of foreign
stocks in countries with developed stock markets. The Lehman Brothers Aggregate
Bond Index includes fixed-rate debt issues rated investment grade or higher.
Q. WHICH UNDERLYING FUNDS PERFORMED PARTICULARLY WELL FOR THE PORTFOLIOS?
A. As you would expect, the strongest-performing funds during the period were
those that focused on the large-cap area of the market. Focus on the technology
sector also enhanced performance. As such, the strongest funds included the
Janus Twenty Fund, Janus Mercury Fund, Janus Olympus Fund, Twentieth Century
Ultra Fund and Marsico Growth & Income Fund. In the small- and mid-cap area, the
Thornburg Value Fund performed well. Internationally, the American Century
International Growth Fund performed admirably.
25
<PAGE>
PORTFOLIO DISCUSSION (CONTINUED)
Q. HOW DID THE PORTFOLIOS' STRATEGIES CHANGE DURING THE REPORTING PERIOD?
RELATIVE TO THEIR NEUTRAL TARGETS, HOW WERE THEY POSITIONED AT THE CLOSE OF THE
PERIOD?
A. The overall strategy of the Portfolios changed little over the reporting
period. Large-cap mutual funds remained overweighted throughout the period, with
small-cap and international mutual funds underweighted throughout. At the close
of the period, the Portfolios were overweighted in equity mutual funds relative
to their benchmarks, underweighted in fixed income funds and slightly
overweighted in cash. Within the equity component of the asset allocation, the
Portfolios were overweighted in large-cap stock mutual funds, near neutral in
small-cap mutual funds and slightly underweighted in international funds.
The following charts show the two Portfolios' actual asset mixes during the
reporting period. The cash holdings shown include both the actual cash holdings
of the Portfolios as well as the cash holdings of the underlying funds.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
SCHWAB MARKETMANAGER GROWTH PORTFOLIO
Actual Asset Mix: 10/31/98-4/30/99
<S> <C> <C> <C> <C> <C>
Cash Bonds International Equity Small-Cap Equity Large-Cap Equity
10/98 6.19% 9.92% 17.84% 13.71% 52.34%
11/98 7.29% 8.18% 19.96% 9.76% 54.81%
12/98 2.77% 11.63% 19.85% 12.82% 52.93%
1/99 6.08% 11.54% 20.07% 14.84% 47.47%
2/99 8.63% 11.97% 19.90% 13.41% 46.09%
3/99 4.24% 12.22% 18.81% 12.85% 51.87%
4/99 7.25% 8.83% 21.18% 18.65% 44.09%
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
SCHWAB MARKETMANAGER BALANCED PORTFOLIO
Actual Asset Mix: 10/31/98-4/30/99
<S> <C> <C> <C> <C> <C>
Cash Bonds International Equity Small-Cap Equity Large-Cap Equity
10/98 7.15% 28.70% 10.10% 13.28% 40.77%
11/98 5.60% 30.97% 11.15% 9.30% 42.98%
12/98 3.98% 31.00% 10.96% 11.42% 42.64%
1/99 4.70% 32.44% 13.03% 12.12% 37.71%
2/99 7.93% 32.27% 11.51% 13.16% 35.13%
3/99 3.60% 33.04% 11.36% 12.20% 39.80%
4/99 6.68% 29.66% 14.41% 15.99% 33.26%
</TABLE>
Q. CAN YOU SHARE A COUPLE EXAMPLES OF NEW FUNDS THAT THE PORTFOLIOS PURCHASED
DURING THE PERIOD, AND WHY?
A. Two funds purchased during the period were the Marsico Focused Fund and
the Robertson Stephens Growth and Income Fund. These funds were purchased
because of their managers' historical ability handle volatile markets well.
The Marsico Focused Fund is a large-cap growth fund with some exposure to the
technology sector. Tom Marsico, the Fund's manager, will change the portfolio
if other opportunities present themselves. This is also the case with John
Wallace, the manager of the Robertson Stephens Growth and Income Fund. He
will use small-, mid- and large-cap stocks, as well as fixed income (bond)
investments to create a portfolio that has a history of capturing upside
return while protecting assets in market downturns. Both of these funds are
expected to remain core holdings in the Portfolio if markets continue their
volatile ways.
26
<PAGE>
SMALL CAP PORTFOLIO
Q. HOW DID THE SMALL CAP PORTFOLIO PERFORM DURING THE REPORTING PERIOD?
A. The Portfolio achieved a total return of 23.06% for the six-month reporting
period ended April 30, 1999, comparing favorably to the average small-cap mutual
fund, which returned 11.85%, and the Russell 2000-Registered Trademark- Index,
which was up 15.16%. Although the Portfolio's return was slightly greater than
that of the S&P 500-Registered Trademark- Index, small-cap stocks as a group
continued to trail their large-cap counterparts, which were up 22.31% as
measured by the S&P 500 Index.
Q. WHICH UNDERLYING FUNDS PERFORMED PARTICULARLY WELL FOR THE PORTFOLIO?
A. The Robertson Stephens Emerging Growth Fund was a particularly strong
performer for the period, mainly due to its large Internet exposure. Other funds
that added to the Portfolio's strong relative return included Longleaf Partners
Small-Cap Fund and the Weitz Series Hickory Fund. The reason for these two
funds' strong performances was primarily superior stock selection by their
managers.
Q. HOW DID THE PORTFOLIO'S STRATEGY CHANGE DURING THE REPORTING PERIOD, AND HOW
WAS IT POSITIONED AT THE CLOSE OF THE PERIOD?
A. The Portfolio did not change significantly during the reporting period, as
the strategy in place at the start of the period continued to serve
the Portfolio well. The small adjustments that were made were a result of
changing market conditions and our attempt to position the Portfolio to take the
greatest advantage of them. In particular, small-cap growth and blend mutual
funds were increased slightly, while small-cap value funds and micro-cap funds
were reduced slightly.
Q. CAN YOU SHARE A COUPLE OF EXAMPLES OF NEW FUNDS PURCHASED DURING THE PERIOD,
AND WHY?
A. To increase our small-cap and mid-cap growth exposure, two of the funds added
during the period were Janus Enterprise and Turner Small Cap Growth. Janus
Enterprise is a mid-cap aggressive growth fund that invest in companies with
high growth rates that offer strong potential going forward, according to the
fund's manager. Turner Small Cap Growth Fund also invests in growth companies
but stays sector neutral to its benchmark, attempting to add value through stock
selection only. Both funds performed well for the reporting period.
Q. CAN YOU PROVIDE SOME HISTORICAL PERSPECTIVE ON SMALL-CAP STOCK RETURNS
COMPARED WITH LARGE-CAP STOCK RETURNS?
A. As the first of the following graphs illustrates, the total returns of U.S.
large-cap and small-cap stocks have been fairly comparable over extended periods
of time--such as from 1970 to 1998. But note how the small-cap underperformance
during 1998 stands out even in the context of such a long time period. As the
second graph illustrates, over the past 29 years small-cap stocks have
outperformed large-cap stocks 14 times. In the remaining 15 years, large-cap
stocks outperformed small-cap stocks. There appears to be little, if any,
predictability to this seesaw effect. That's why it's wise for an investor to
consider diversifying his or her portfolio by holding both small-and large-cap
stocks. For example, small-cap stocks generally outperformed large-cap stocks
for the period from 1991 through 1993. Large-cap stocks were the winners from
1994 through 1998. Although not readily apparent from viewing these graphs,
small-cap stocks have also exhibited a higher level of volatility over the
period shown.
27
<PAGE>
PORTFOLIO DISCUSSION (CONTINUED)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
LARGE-CAP AND SMALL-CAP CUMULATIVE RETURNS: 1970-1998
GROWTH OF A HYPOTHETICAL $1 INVESTMENT
<S> <C> <C>
LARGE-CAP SMALL-CAP
CUMULATIVE CUMULATIVE
RETURN RETURN
1970 $1.04 $0.88
1971 $1.19 $1.05
1972 $1.41 $1.09
1973 $1.21 $0.69
1974 $0.89 $0.50
1975 $1.22 $0.82
1976 $1.51 $1.24
1977 $1.40 $1.47
1978 $1.49 $1.73
1979 $1.77 $2.50
1980 $2.34 $3.34
1981 $2.22 $3.47
1982 $2.70 $4.45
1983 $3.31 $5.79
1984 $3.52 $5.49
1985 $4.65 $7.22
1986 $5.51 $7.73
1987 $5.79 $7.03
1988 $6.77 $8.71
1989 $8.90 $10.12
1990 $8.62 $8.08
1991 $11.25 $12.06
1992 $12.11 $14.41
1993 $13.32 $17.08
1994 $13.50 $16.76
1995 $18.55 $21.93
1996 $22.83 $25.93
1997 $30.44 $32.81
1998 $39.14 $32.06
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
LARGE-CAP AND SMALL-CAP RELATIVE PERFORMANCE: 1970-1998
<S> <C> <C>
LARGE-CAP STRONG SMALL-CAP STRONG
RELATIVE PERFORMANCE RELATIVE PERFORMANCE
1970 16.3%
1971 -5.8%
1972 15.4%
1973 22.0%
1974 1.5%
1975 -27.1%
1976 -27.3%
1977 -26.0%
1978 -11.5%
1979 -25.8%
1980 -1.0%
1981 -8.9%
1982 -6.9%
1983 -7.5%
1984 11.5%
1985 0.6%
1986 11.3%
1987 14.3%
1988 -7.1%
1989 15.3%
1990 17.0%
1991 -18.7%
1992 -11.8%
1993 -8.5%
1994 3.2%
1995 6.6%
1996 4.8%
1997 6.8%
1998 31.5%
</TABLE>
Source: Schwab Center for Investment Research. Large-cap stocks are represented
by the S&P 500 Index; small-cap stocks are represented by the Russell 2000
Index. This chart is for illustrative purposes only. Index returns include
reinvestment of dividends and cannot be invested in directly. Indices are
unmanaged and do not charge fees and expenses.
INTERNATIONAL PORTFOLIO
Q. HOW DID THE PORTFOLIO PERFORM DURING THE REPORTING PERIOD?
A. The Portfolio achieved a total return of 20.78% for the six-month reporting
period ended April 30, 1999, comparing favorably to the average interna- tional
mutual fund, which returned 15.71%, and the MSCI-EAFE-Registered Trademark-
Index, which was up 15.28%. International stocks, however, continued to trail
their domestic large-cap counterparts. Domestic large-cap stocks were up 22.31%
for the six-month period, as measured by the S&P 500 Index.
Q. WHAT WAS THE PORTFOLIO'S EXPOSURE TO EMERGING MARKETS DURING THE REPORTING
PERIOD?
A. We increased the Portfolio's emerging markets exposure slightly during the
reporting period, but it remained less than 10% of the Portfolio at the close of
the period. The Portfolio's exposure to emerging markets is broadly diversified
and includes Latin America and the Pacific Rim.
Q. WHICH SECTORS OR REGIONS PERFORMED WELL?
A. There were many strong sectors in the international market during the
six-month reporting period, as the world seemed to get back on track after a
difficult period in the late summer and early fall of 1998. The strongest
regions were those that were generally hardest hit during the Asian crisis,
including Japan, Hong Kong, Singapore and New Zealand. Another country that did
well that is outside this region was Finland. During the period, the Portfolio
had between 25% and 30% of its assets invested in the Pacific region, allowing
it to capture much of the returns offered there.
28
<PAGE>
Q. WHAT IMPACT DID CURRENCY EXCHANGE RATES HAVE ON THE PERFORMANCE OF
INTERNATIONAL EQUITIES AND THE PORTFOLIO?
A. Over the reporting period, most foreign curren- cies were weak relative to
the U.S. dollar, although the yen/ dollar relationship was more volatile. The
euro has weakened steadily against the dollar since its incep- tion on January
1, 1999. The strengthening dollar hurts Portfolio returns; however, strong
foreign markets were more than able to offset this slight negative influence.
Q. HOW DID THE PORTFOLIO'S STRATEGY CHANGE DURING THE REPORTING PERIOD, AND HOW
WAS IT POSITIONED VERSUS ITS BENCHMARK AT THE CLOSE OF THE PERIOD?
A. During the reporting period, we slightly decreased the Portfolio's weighting
in European stocks in favor of the developed Pacific region and emerging
markets. We also increased the Portfolio's small-company exposure in an attempt
to take advantage of the relative values offered at this capitalization level.
During most of the reporting period, the Portfolio was over- weighted in Europe
and small-company stocks relative to the MSCI-EAFE-Registered Trademark- Index.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
SCHWAB MARKETMANAGER INTERNATIONAL PORTFOLIO
ACTUAL ASSET MIX: 10/31/98-4/30/99
North America Developed Europe Developed Pacific
<S> <C> <C> <C>
10/98 3.26% 60.55% 24.68%
11/98 3.50% 60.37% 24.86%
12/98 3.32% 66.61% 21.35%
1/99 3.32% 66.61% 21.35%
2/99 3.59% 64.82% 21.08%
3/99 4.14% 51.47% 31.85%
4/99 3.15% 43.71% 37.02%
</TABLE>
<TABLE>
<CAPTION>
SCHWAB MARKETMANAGER INTERNATIONAL PORTFOLIO
ACTUAL ASSET MIX: 10/31/98-4/30/99
Emerging Markets Other Countries Cash
<S> <C> <C> <C>
10/98 4.77% 0.46% 6.28%
11/98 4.17% 0.95% 6.15%
12/98 2.93% 1.17% 4.62%
1/99 2.93% 1.17% 4.62%
2/99 3.42% 1.06% 6.03%
3/99 8.54% 0.86% 3.14%
4/99 8.94% 1.39% 5.79%
</TABLE>
Q. WHAT IMPACT DID THE EURO CONVERSION HAVE ON THE PORTFOLIO?
A. Overall, the conversion to the euro passed without incident on January 1,
1999. Since then the euro has weakened against the dollar, in general, and thus
any underlying mutual funds that were unhedged to the euro during this period
were hurt from this weakness.
29
<PAGE>
GLOSSARY
ASSET ALLOCATION--The division of holdings among different types of assets, such
as domestic stocks, international stocks, bonds and cashequivalent securities.
BETA--A measure of a stock's volatility relative to the overall stock market.
The beta of the S&P 500-Registered Trademark- Index is 1. Any investment that is
more volatile than the market as a whole has a beta value higher than 1. If the
beta is less than 1, the investment is considered to be less volatile than the
market.
CAPITAL GAIN (LOSS)--When a stock is sold for a profit, the difference between
the net sales price and its net purchase price, or cost basis, is a capital
gain. If a stock is sold below cost, the difference is a capital loss.
EARNINGS GROWTH RATE--The average annual rate of growth in earnings over the
past five years for the stocks in a fund's portfolio.
EARNINGS PER SHARE (EPS)--The net income (or earnings) of a company for the past
12 months divided by the current number of shares outstanding.
EXPENSE RATIO--Amount, expressed as a percentage of total investment, that
shareholders pay annually for mutual fund operating expenses and management
fees.
MARKET CAPITALIZATION--The dollar value of a company or the amount someone would
pay to buy the company today. It is calculated by multiplying the total number
of outstanding shares by the current price per share. Median market cap is the
midpoint of a fund's total market capitalization, weighted by the portion of
assets invested in each holding. As a result, half of the fund's holdings will
have market caps above the median, and the rest below it.
NET ASSET VALUE (NAV)--The market value of a fund share.
PRICE/BOOK (P/B) RATIO--Compares a stock's market value with the value of total
assets minus intangible assets and total liabilities (the book value). It is
determined by dividing the current price of the stock by common stockholder
equity per share. In evaluating stocks, comparing P/B ratios often works well in
situations where price/earnings ratios do not, because the P/B ratio is stable
over time and is always a positive number. P/B ratios are best used for
comparisons within an industry rather than between industries, as certain
industries will usually contain stocks that have all high or all low P/B ratios.
For mutual funds the P/B ratio is the weighted average of all the stocks' P/B
ratios in the portfolio.
PRICE/EARNINGS (P/E) RATIO--The ratio of a company's stock price to its earnings
per share over the past year. For mutual funds the P/E ratio is the weighted
average of all the stocks' P/E ratios in the mutual fund's portfolio. The P/E is
an indicator of market expectations about a company's prospects. Typically, the
higher the P/E, the greater the expectations for a company's future growth.
Because earnings are volatile and sometimes "negative," however, the P/E has its
limitations and may fail as a measure for a significant number of stocks at any
given time.
RETURN ON EQUITY--The average annual rate of return generated by the companies a
fund holds during the past five years for each dollar of shareholders' equity
(net income divided by shareholders' equity).
STOCK--A share of ownership, or equity, in a corporation.
TOTAL RETURN--The sum of dividends, plus capital gains (or losses).
TURNOVER RATE--An indication of a fund's trading activity. Funds with higher
turnover rates typically incur higher transaction costs and are more likely to
distribute capital gains, which are taxable to investors.
YIELD--The income generated by an investment, expressed as a percentage of its
price.
30
<PAGE>
SCHWAB MARKETMANAGER INTERNATIONAL PORTFOLIO
SCHEDULE OF INVESTMENTS
April 30, 1999 (Unaudited)
Number Value
of Shares (000s)
--------- ------
INVESTMENT FUNDS -- 98.5%
ASIAN FUNDS -- 22.8%
Colonial Newport Japan Fund+ 41,923 $ 561
Colonial Newport Tiger Fund,
Class A 295,850 2,876
Scudder Japan Fund 1,050,325 11,007
Warburg Pincus Japan Small
Company Fund 376,981 3,793
-------
18,237
-------
EUROPEAN FUNDS -- 5.7%
Bartlett Europe Fund 119,600 3,035
WEBS-Germany Index Series 70,470 1,498
-------
4,533
-------
INTERNATIONAL STOCK FUNDS - DIVERSIFIED -- 67.0%
American Century International
Discovery Fund, Institutional Class 283,103 3,106
American Century International
Growth Fund, Institutional Class 466,752 4,719
Artisan International Fund 254,972 4,704
Berger/BIAM International
Core Fund 237,305 3,161
Northstar International
Value Fund 458,177 6,419
Federated International Small
Company Fund 223,304 4,864
Ivy International Fund, Class A 108,397 4,833
Janus Overseas Fund 218,287 4,669
MMA Praxis International Fund 79,627 1,092
Oakmark International Fund 531,695 7,837
Pilgrim International Small Cap
Growth Fund, Class Q 280,552 6,610
Warburg Pincus International
Growth Fund 69,007 1,541
-------
53,555
-------
Number Value
of Shares (000s)
--------- ------
LATIN AMERICAN FUNDS -- 3.0%
Scudder Latin America Fund 108,624 $ 2,395
-------
2,395
-------
TOTAL INVESTMENT FUNDS
(Cost $67,090) 78,720
-------
SHORT-TERM INVESTMENTS -- 0.9%
MSTC Cash Reserve Liquid
Asset Fund, 5.26%* 743,291 743
-------
TOTAL SHORT-TERM INVESTMENTS
(Cost $743) 743
-------
TOTAL INVESTMENTS -- 99.4%
(Cost $67,833) 79,463
-------
OTHER ASSETS AND LIABILITIES, NET -- 0.6%
Other assets 810
Liabilities (311)
-------
499
-------
Total Net Assets -- 100.0% $79,962
=======
SEE ACCOMPANYING NOTES TO SCHEDULES OF INVESTMENTS AND NOTES TO
FINANCIAL STATEMENTS.
31
<PAGE>
SCHWAB MARKETMANAGER GROWTH PORTFOLIO
SCHEDULE OF INVESTMENTS
April 30, 1999 (Unaudited)
Number Value
of Shares (000s)
--------- ------
INVESTMENT FUNDS -- 92.8%
BOND FUNDS -- 8.8%
American Century Intermediate
Term Treasury Fund 471,881 $ 4,922
American Century Long Term
Treasury Fund 217,380 2,196
American Century Target
2020 Fund 23,276 770
Federated U.S. Government
Securities Fund, 2-5 Years,
Institutional Shares 193,958 2,077
PIMCO Total Return Fund,
Institutional Class 491,309 5,090
-------
15,055
-------
INTERNATIONAL STOCK FUNDS -- 21.2%
American Century International
Growth Fund, Institutional Class 688,415 6,960
Artisan International Fund 345,802 6,380
Federated International Small
Company Fund 83,939 1,828
Hotchkis & Wiley
International Fund 303,138 7,733
Morgan Stanley Institutional
International Equity Portfolio 311,246 6,079
Oakmark International Fund 485,776 7,160
-------
36,140
-------
LARGE-CAP FUNDS -- 44.1%
Accessor Value & Income Portfolio 95,635 2,201
American Century Income &
Growth Fund, Institutional Class 692,112 21,303
American Century Ultra Fund,
Institutional Class 207,723 7,640
Number Value
of Shares (000s)
--------- ------
Brinson U.S. Equity Fund, Class A 125,728 $ 2,645
Heritage Capital Appreciation Fund,
Class A 42,756 1,178
Hotchkis & Wiley Equity
Income Fund 138,652 2,748
Janus Mercury Fund 54,471 1,711
Janus Olympus Fund 49,991 1,715
Janus Twenty Fund 13,171 845
Longleaf Partners Fund 403,710 11,930
Marsico Focus Fund+ 239,704 4,231
Marsico Growth & Income Fund+ 336,238 5,511
Rydex Series Nova Fund 129,135 4,737
T. Rowe Price Equity Fund 119,064 3,412
White Oak Growth Stock Fund 74,649 3,402
-------
75,209
-------
SMALL-CAP/MID-CAP FUNDS -- 18.7%
Ariel Appreciation Fund 41,436 1,535
BT Investment Small Cap Fund 193,281 3,962
Janus Enterprise Fund 38,130 1,726
Longleaf Partners Realty Fund 318,223 4,742
Loomis Sayles Small Cap
Growth Fund+ 57,705 813
Melody 4500 Fund, L.P.+** 419,711 4,415
Riggs Small Company Stock Fund 90,090 1,015
Robertson Stephens Emerging
Growth Fund 49,924 1,579
Robertson Stephens Growth
and Income Fund 206,637 3,385
Thornburg Value Fund, Class A 215,171 5,743
Weitz Series Hickory Fund 78,157 2,880
-------
31,795
-------
TOTAL INVESTMENT FUNDS
(Cost $142,288) 158,199
-------
32
<PAGE>
Number Value
of Shares (000s)
--------- ------
SHORT-TERM INVESTMENTS -- 6.3%
MSTC Cash Reserve Liquid
Asset Fund, 5.26%* 1,647,045 $ 1,647
Rydex U.S. Government
Money Market Fund 9,022,993 9,023
--------
TOTAL SHORT-TERM INVESTMENTS
(Cost $10,670) 10,670
--------
TOTAL INVESTMENTS -- 99.1%
(Cost $152,958) 168,869
--------
OTHER ASSETS AND LIABILITIES, NET -- 0.9%
Other assets 6,395
Liabilities (4,897)
--------
1,498
--------
TOTAL NET ASSETS -- 100.0% $170,367
========
SEE ACCOMPANYING NOTES TO SCHEDULES OF INVESTMENTS AND NOTES TO
FINANCIAL STATEMENTS.
33
<PAGE>
SCHWAB MARKETMANAGER BALANCED PORTFOLIO
SCHEDULE OF INVESTMENTS
April 30, 1999 (Unaudited)
Number Value
of Shares (000s)
--------- ------
INVESTMENT FUNDS -- 93.4%
BOND FUNDS -- 29.7%
American Century Intermediate
Term Treasury Fund 642,088 $ 6,697
American Century Long Term
Treasury Fund 215,501 2,177
American Century Target
2020 Fund 14,547 482
Federated U.S. Government
Securities Fund, 1-3 Years,
Institutional Shares 147,182 1,540
Federated U.S. Government
Securities Fund, 2-5 Years,
Institutional Shares 668,108 7,155
PIMCO Total Return Fund,
Institutional Class 1,401,646 14,521
-------
32,572
-------
INTERNATIONAL STOCK FUNDS -- 14.4%
American Century International
Growth Fund, Institutional Class 222,057 2,245
Artisan International Fund 205,375 3,789
Federated International Small
Company Fund 52,228 1,138
Hotchkis & Wiley
International Fund 137,799 3,515
Oakmark International Fund 348,592 5,138
-------
15,825
-------
LARGE-CAP FUNDS -- 33.3%
Accessor Value & Income Portfolio 40,604 934
American Century Income &
Growth Fund, Institutional Class 139,942 4,307
Brinson U.S. Equity Fund, Class A 54,369 1,144
Number Value
of Shares (000s)
--------- ------
Heritage Capital Appreciation
Fund, Class A 42,756 $ 1,178
Hotchkis & Wiley Equity
Income Fund 54,086 1,072
Janus Mercury Fund 35,029 1,100
Janus Olympus Fund 32,148 1,103
Janus Twenty Fund 8,397 539
Longleaf Partners Fund 333,400 9,852
Marsico Focus Fund+ 124,881 2,204
Marsico Growth & Income Fund+ 352,808 5,783
Rydex Series Nova Fund 80,507 2,953
T. Rowe Price Equity Fund 76,302 2,187
White Oak Growth Stock Fund 47,598 2,169
--------
36,525
--------
SMALL-CAP/MID-CAP FUNDS -- 16.0%
BT Investment Small-Cap Fund 78,711 1,614
Longleaf Partners Realty Fund 203,931 3,039
Loomis Sayles Small Cap
Growth Fund+ 37,338 526
Melody 4500 Fund, L.P.+** 400,000 4,208
Robertson Stephens Emerging
Growth Fund 33,052 1,045
Robertson Stephens Growth
and Income Fund 100,187 1,641
Thornburg Value Fund, Class A 76,974 2,054
Thornburg Value,
Institutional Class 61,998 1,657
Weitz Series Hickory Fund 48,152 1,774
--------
17,558
--------
TOTAL INVESTMENT FUNDS
(Cost $95,123) 102,480
--------
34
<PAGE>
Number Value
of Shares (000s)
--------- ------
SHORT-TERM INVESTMENTS -- 5.1%
MSTC Cash Reserve Liquid
Asset Fund, 5.26%* 2,499,337 $ 2,499
Rydex U.S. Government
Money Market 3,060,670 3,061
--------
TOTAL SHORT-TERM INVESTMENTS
(Cost $5,560) 5,560
--------
TOTAL INVESTMENTS -- 98.5%
(Cost $100,683) 108,040
--------
OTHER ASSETS AND LIABILITIES, NET -- 1.5%
Other assets 4,842
Liabilities (3,144)
--------
1,698
--------
TOTAL NET ASSETS -- 100.0% $109,738
========
SEE ACCOMPANYING NOTES TO SCHEDULES OF INVESTMENTS AND NOTES TO
FINANCIAL STATEMENTS.
35
<PAGE>
SCHWAB MARKETMANAGER SMALL CAP PORTFOLIO
SCHEDULE OF INVESTMENTS
April 30, 1999 (Unaudited)
Number Value
of Shares (000s)
--------- ------
INVESTMENT FUNDS -- 98.3%
SECTOR FUNDS -- 4.9%
Excelsior Energy & Natural
Resources Fund 116,098 $ 1,497
State Street Research Global
Resources Fund 393,612 4,641
--------
6,138
--------
SMALL-CAP/MID-CAP FUNDS -- 93.4%
Accessor Small to Mid Cap Portfolio 2,378 58
Ariel Appreciation Fund 209,028 7,745
Baron Small Cap Fund+ 303,205 3,820
Berger Small Cap Value Fund 72,744 1,500
Brazos Micro Cap Growth Fund+ 129,173 1,978
Fremont U.S. Micro Cap Fund+ 229,319 5,478
Fremont U.S. Small Cap Fund+ 25,936 318
Janus Enterprise Fund 193,942 8,780
Kobrick Emerging Growth Fund+ 75,049 1,184
Longleaf Partners Realty Fund 675,259 10,061
Longleaf Partners Small Cap Fund 913,134 21,696
Melody 4500 Fund, L.P.+** 2,076,334 21,843
Robertson Stephens Emerging
Growth Fund 197,831 6,257
Scudder Micro Cap Fund 94,129 1,356
Turner Micro Cap Growth Fund 8,925 137
Number Value
of Shares (000s)
--------- ------
Turner Small Cap Growth Fund+ 216,166 $ 6,446
Value Line Special Situations Fund 204,485 3,881
Weitz Series Hickory Fund 383,613 14,136
--------
116,674
--------
Total Investment funds
(Cost $110,144) 122,812
--------
SHORT-TERM INVESTMENTS -- 1.6%
MSTC Cash Reserve Liquid
Asset Fund, 5.26%* 2,006,375 2,006
--------
TOTAL SHORT-TERM INVESTMENTS
(Cost $2,006) 2,006
--------
TOTAL INVESTMENTS -- 99.9%
(Cost $112,150) 124,818
--------
OTHER ASSETS AND LIABILITIES, NET -- 0.1%
Other assets 2,910
Liabilities (2,777)
--------
133
--------
TOTAL NET ASSETS -- 100.0% $124,951
========
NOTES TO SCHEDULES OF INVESTMENTS
April 30, 1999 (Unaudited)
+ Non-income producing security.
* Interest rate represents the yield on report date.
** See Note 3 of Notes to Financial Statements.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
36
<PAGE>
STATEMENTS OF ASSETS AND LIABILITIES (in thousands)
April 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
Schwab MarketManager Portfolios(TM)
-----------------------------------------------------------------------------
International Growth Balanced Small Cap
------------- ------ -------- ---------
ASSETS
<S> <C> <C> <C> <C>
Investments, at value
(Cost: $67,833, $152,958, $100,683,
and $112,150, respectively) $79,463 $168,869 $108,040 $124,818
Cash -- 5 -- --
Receivables:
Investments sold 802 6,331 4,792 2,790
Fund shares sold 4 51 36 111
Dividends -- 3 5 --
Interest 3 4 8 7
Prepaid expenses 1 1 1 2
------- -------- -------- --------
Total assets 80,273 175,264 112,882 127,728
------- -------- -------- --------
LIABILITIES
Payables:
Investments purchased -- 4,450 3,000 2,340
Fund shares redeemed 193 243 53 305
Investment advisory and
administration fees 5 15 9 11
Accrued expenses 113 189 82 121
------- -------- -------- --------
Total liabilities 311 4,897 3,144 2,777
------- -------- -------- --------
Net assets applicable to
outstanding shares $79,962 $170,367 $109,738 $124,951
======= ======== ======== ========
NET ASSETS CONSIST OF:
Paid-in capital $62,628 $133,125 $91,473 $122,810
Undistributed net investment income (loss) (20) 410 563 566
Accumulated net realized gain (loss)
on investments sold 5,724 20,921 10,345 (11,093)
Net unrealized appreciation on investments 11,630 15,911 7,357 12,668
------- -------- -------- --------
$79,962 $170,367 $109,738 $124,951
======= ======== ======== ========
PRICING OF SHARES:
Outstanding shares, $0.00001 par value
(unlimited shares authorized) 6,330 12,716 8,472 11,991
Net asset value, offering and redemption
price per share $12.63 $13.40 $12.95 $10.42
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
37
<PAGE>
STATEMENTS OF OPERATIONS (in thousands)
For the six months ended April 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
Schwab MarketManager Portfolios(TM)
-----------------------------------------------------------------------------
International Growth Balanced Small Cap
------------- ------ -------- ---------
<S> <C> <C> <C> <C>
Investment income:
Dividend $ 1,071 $ 2,042 $ 1,738 $ 1,507
Interest 18 45 50 28
------- ------- ------- -------
Total investment income 1,089 2,087 1,788 1,535
------- ------- ------- -------
Expenses:
Investment advisory and administration fees 256 546 338 431
Transfer agency and shareholder service fees 95 203 126 159
Custodian fees 2 2 1 6
Portfolio accounting fees 6 13 8 10
Registration fees 8 34 9 72
Professional fees 38 20 11 40
Shareholder reports (6) 26 21 31
Trustees' fees 3 4 3 4
Insurance and other expenses 4 4 4 8
------- ------- ------- -------
406 852 521 761
Less:expenses reduced (see Note 5) (215) (445) (269) (442)
------- ------- ------- -------
Net expenses incurred by fund 191 407 252 319
------- ------- ------- -------
Net investment income 898 1,680 1,536 1,216
------- ------- ------- -------
Net realized gain on investments:
Net realized gain on investments sold 5,525 18,140 8,806 558
Net realized gain received from underlying funds 1,149 2,776 1,367 4,625
------- ------- ------- -------
Net realized gain on investments 6,674 20,916 10,173 5,183
------- ------- ------- -------
Change in net unrealized appreciation on investments:
Net unrealized appreciation on investments 7,046 9,005 4,022 20,222
------- ------- ------- -------
Net gain on investments 13,720 29,921 14,195 25,405
------- ------- ------- -------
Increase in net assets resulting from operations $14,618 $31,601 $15,731 $26,621
======= ======= ======= =======
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
38
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS (in thousands)
<TABLE>
<CAPTION>
Schwab MarketManager Portfolios(TM)
-----------------------------------------------------------------------------------------
International Growth Balanced Small Cap
-------------------- -------------------- -------------------- --------------------
Six Months Six Months Six Months Six Months
ended Year ended Year ended Year ended Year
04/30/99 ended 04/30/99 ended 04/30/99 ended 04/30/99 ended
(Unaudited) 10/31/98 (Unaudited) 10/31/98 (Unaudited) 10/31/98 (Unaudited) 10/31/98
---------- -------- ---------- -------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operations:
Net investment income $ 898 $ 2,378 $ 1,680 $ 3,886 $ 1,536 $ 2,639 $ 1,216 $ 4,681
Net realized gain (loss)
on investments 5,525 (3,210) 18,140 1,116 8,806 (624) 558 (23,840)
Net realized gain received from
underlying funds 1,149 2,360 2,776 1,940 1,367 804 4,625 7,711
Change in net unrealized
appreciation (depreciation)
on investments 7,046 1,021 9,005 (3,418) 4,022 (812) 20,222 (4,764)
-------- -------- -------- -------- -------- -------- -------- --------
Increase (decrease) in
net assets resulting
from operations 14,618 2,549 31,601 3,524 15,731 2,007 26,621 (16,212)
-------- -------- -------- -------- -------- -------- -------- --------
Dividends and distributions:
Dividends to shareholders from net
investment income (918) (2,348) (1,673) (3,302) (1,529) (2,017) (673) (4,998)
Dividends in excess of net
investment income -- (37) (1,028) -- (962) -- -- (678)
Distributions to shareholders from
net capital gains -- (2,152) (3,029) (3,461) -- (1,265) -- --
-------- -------- -------- -------- -------- -------- -------- --------
Total dividends and distributions
to shareholders (918) (4,537) (5,730) (6,763) (2,491) (3,282) (673) (5,676)
-------- -------- -------- -------- -------- -------- -------- --------
Capital share transactions:
Proceeds from shares sold 15,221 28,116 19,840 68,937 20,190 56,699 10,081 27,954
Net asset value of shares issued
in reinvestment of dividends 879 4,313 5,639 6,623 2,389 3,111 642 5,420
Less payments for shares redeemed (23,642) (37,723) (32,837) (44,344) (18,875) (26,874) (40,267) (89,989)
-------- -------- -------- -------- -------- -------- -------- --------
Increase (decrease) in net assets
from capital share transactions (7,542) (5,294) (7,358) 31,216 3,704 32,936 (29,544) (56,615)
-------- -------- -------- -------- -------- -------- -------- --------
Total increase (decrease) in
net assets 6,158 (7,282) 18,513 27,977 16,944 31,661 (3,596) (78,503)
Net assets:
Beginning of period 73,804 81,086 151,854 123,877 92,794 61,133 128,547 207,050
-------- -------- -------- -------- -------- -------- -------- --------
End of period
(including undistributed
net investment income (loss)
of $(20), $(12), $410,
$1,428, $563, $1,515, $566,
and $22, respectively) $ 79,962 $ 73,804 $170,367 $151,854 $109,738 $ 92,794 $124,951 $128,547
======== ======== ======== ======== ======== ======== ======== ========
Number of fund shares:
Sold 1,326 2,484 1,578 5,804 1,641 4,875 1,048 2,919
Reinvested 78 424 457 596 196 284 68 569
Redeemed (2,048) (3,399) (2,602) (3,798) (1,533) (2,362) (4,230) (9,240)
-------- -------- -------- -------- -------- -------- -------- --------
Net increase (decrease) in
shares outstanding (644) (491) (567) 2,602 304 2,797 (3,114) (5,752)
Shares outstanding:
Beginning of period 6,974 7,465 13,283 10,681 8,168 5,371 15,105 20,857
-------- -------- -------- -------- -------- -------- -------- --------
End of period 6,330 6,974 12,716 13,283 8,472 8,168 11,991 15,105
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
39
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Schwab MarketManager International Portfolio
--------------------------------------------------------
1999(1) 1998 1997 1996(2)
---------- -------- -------- ---------
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
<S> <C> <C> <C> <C>
Net asset value at beginning of period $ 10.58 $ 10.86 $ 9.91 $ 10.00
-------- ------- ------- -------
From investment operations:
Net investment income 0.13 0.34 0.17 --
Net realized and unrealized gains (losses) on investments 2.05 0.02 0.95 (0.09)
-------- ------- ------- -------
Total from investment operations 2.18 0.36 1.12 (0.09)
Less distributions:
Dividends from net investment income (0.13) (0.34) (0.17) --
Dividends from capital gains -- (0.30) -- --
-------- ------- ------- -------
Total distributions (0.13) (0.64) (0.17) --
-------- ------- ------- -------
NET ASSET VALUE AT END OF PERIOD $ 12.63 $ 10.58 $ 10.86 $ 9.91
======== ======= ======= =======
Total return (%) 20.78* 3.55 11.47 (0.90)*
RATIOS/SUPPLEMENTAL DATA (%)
- -----------------------------------------------------
Ratio of net operating expenses to average net assets 0.50** 0.50 0.50 0.50 **
Reductions reflected in above expense ratio 0.57** 0.70 0.80 2.91 **
Ratio of net investment income to average net assets 2.36** 2.96 1.40 0.52 **
Portfolio turnover rate 139 236 179 --
Net assets, end of period (000s) $79,962 $73,804 $81,086 $59,180
</TABLE>
* Not Annualized.
** Annualized.
(1) For the six months ended April 30, 1999 (Unaudited).
(2) For the period from October 16, 1996 (commencement of operations) to
October 31, 1996.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
40
<PAGE>
<TABLE>
<CAPTION>
Schwab MarketManager Growth Portfolio
---------------------------------------------
1999(1) 1998 1997(2)
-------- -------- --------
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
<S> <C> <C> <C>
Net asset value at beginning of period $ 11.43 $ 11.60 $ 10.00
-------- -------- --------
From investment operations:
Net investment income 0.43 0.32 0.08
Net realized and unrealized gains on investments 1.98 0.11 1.66
-------- -------- --------
Total from investment operations 2.41 0.43 1.74
Less distributions:
Dividends from net investment income (0.21) (0.29) (0.14)
Dividends from capital gains (0.23) (0.31) --
-------- -------- --------
Total distributions (0.44) (0.60) (0.14)
-------- -------- --------
NET ASSET VALUE AT END OF PERIOD $ 13.40 $ 11.43 $ 11.60
======== ======== ========
Total return (%) 21.40* 3.87 17.60*
RATIOS/SUPPLEMENTAL DATA (%)
- ------------------------------------------------------
Ratio of net operating expenses to average net assets 0.50** 0.50 0.50**
Reductions reflected in above expense ratio 0.55** 0.67 0.77**
Ratio of net investment income to average net assets 2.07** 2.66 2.07**
Portfolio turnover rate 179 384 192
Net assets, end of period (000s) $170,367 $151,854 $123,877
</TABLE>
* Not Annualized.
** Annualized.
(1) For the six months ended April 30, 1999 (Unaudited).
(2) For the period from November 18, 1996 (commencement of operations)
to October 31, 1997.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
41
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Schwab MarketManager Balanced Portfolio
--------------------------------------------
1999(1) 1998 1997(2)
-------- ------- -------
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
<S> <C> <C> <C>
Net asset value at beginning of period $ 11.36 $ 11.38 $ 10.00
-------- ------- -------
From investment operations:
Net investment income 0.15 0.36 0.17
Net realized and unrealized gains on investments 1.74 0.18 1.34
-------- ------- -------
Total from investment operations 1.89 0.54 1.51
Less distributions:
Dividends from net investment income (0.30) (0.34) (0.13)
Dividends from capital gains -- (0.22) --
-------- ------- -------
Total distributions (0.30) (0.56) (0.13)
-------- ------- -------
NET ASSET VALUE AT END OF PERIOD $ 12.95 $ 11.36 $ 11.38
======== ======= =======
Total return (%) 16.85* 4.89 15.27*
RATIOS/SUPPLEMENTAL DATA (%)
- ------------------------------------------------------
Ratio of net operating expenses to average net assets 0.50** 0.50 0.50**
Reductions reflected in above expense ratio 0.53** 0.69 0.95**
Ratio of net investment income to average net assets 3.04** 3.21 3.03**
Portfolio turnover rate 175 353 171
Net assets, end of period (000s) $109,738 $92,794 $61,133
</TABLE>
* Not Annualized.
** Annualized.
(1) For the six months ended April 30, 1999 (Unaudited).
(2) For the period from November 18, 1996 (commencement of operations)
to October 31, 1997.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
42
<PAGE>
<TABLE>
<CAPTION>
Schwab MarketManager Small Cap Portfolio
--------------------------------------------
1999(1) 1998 1997(2)
-------- ------- --------
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
<S> <C> <C> <C>
Net asset value at beginning of period $ 8.51 $ 9.93 $ 10.00
-------- -------- --------
From investment operations:
Net investment income 0.08 0.21 0.02
Net realized and unrealized gains
(losses) on investments 1.88 (1.36) (0.09)
-------- -------- --------
Total from investment operations 1.96 (1.15) (0.07)
Less distributions:
Dividends from net investment income (0.05) (0.24) --
Dividends from capital gains -- (0.03) --
-------- -------- --------
Total distributions (0.05) (0.27) --
-------- -------- --------
NET ASSET VALUE AT END OF PERIOD $ 10.42 $ 8.51 $ 9.93
======== ======== ========
Total return (%) 23.06* (11.84) (0.70)*
RATIOS/SUPPLEMENTAL DATA (%)
- ------------------------------------------------------
Ratio of net operating expenses to average net assets 0.50** 0.50 0.50**
Reductions reflected in above expense ratio 0.69** 0.69 0.75**
Ratio of net investment income to average net assets 1.91** 2.65 1.29**
Portfolio turnover rate 67 166 10
Net assets, end of period (000s) $124,951 $128,547 $207,050
</TABLE>
* Not Annualized.
** Annualized.
(1) For the six months ended April 30, 1999 (Unaudited).
(2) For the period from November 18, 1996 (commencement of operations)
to October 31, 1997.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
43
<PAGE>
NOTES TO FINANCIAL STATEMENTS
For the six months ended April 30, 1999 (Unaudited)
(All currency amounts are in thousands unless otherwise noted.)
1. DESCRIPTION OF THE FUNDS
The Schwab MarketManager International Portfolio, Schwab MarketManager Growth
Portfolio, Schwab MarketManager Balanced Portfolio, and Schwab MarketManager
Small Cap Portfolio (the "Funds") are series of Schwab Capital Trust (the
"Trust"), a no-load, open-end, investment management company organized as a
Massachusetts business trust on May 7, 1993 and registered under the Investment
Company Act of 1940, as amended (the "1940 Act").
In addition to the Funds, the Trust also offers the Schwab Total Stock Market
Index Fund(TM) (effective on April 16, 1999, and commenced operations on June 1,
1999), Schwab S&P 500 Fund, Schwab Small-Cap Index Fund,(R) Schwab International
Index Fund,(R) Schwab MarketTrack Growth Portfolio, Schwab MarketTrack Balanced
Portfolio, Schwab MarketTrack Conservative Portfolio, Schwab MarketTrack All
Equity Portfolio, Schwab Analytics Fund,(R) Institutional Select S&P 500 Fund,
Institutional Select Large-Cap Value Index Fund and Institutional Select
Small-Cap Value Index 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. The preparation of financial statements in
accordance with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those estimates.
SECURITY VALUATION -- Investments in underlying funds are valued at their
respective net asset values as determined by those funds, in accordance with the
1940 Act, for a given day. Investments in securities traded on an exchange or in
the over-the-counter market value are valued at the last-quoted sale price for a
given day, or if a sale is not reported for that day, at the mean between the
most recent quoted bid and asked prices. Other investments, for which no
quotations are readily available, are valued at fair value as determined by the
Funds' investment adviser pursuant to guidelines adopted in good faith by the
Board of Trustees.
SECURITY TRANSACTIONS, INVESTMENT INCOME AND REALIZED GAINS (LOSSES) -- 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, including accretion of
discount, is recorded on the accrual basis. Realized gains and losses from
security transactions are determined on an identified cost basis.
EXPENSES -- Expenses arising in connection with a Fund are charged directly to
that Fund. Expenses common to all series of the Trust are generally allocated to
each series in proportion to their relative net assets.
FEDERAL INCOME TAXES -- It is each Fund's policy to meet the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all net investment income and realized net capital
gains, if any, to shareholders. Therefore, no federal income tax provision is
required. Each Fund is considered a separate entity for tax purposes.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
44
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
The aggregate gross unrealized appreciation and depreciation for securities held
by the Funds at April 30, 1999 (for financial reporting and federal income tax
purposes) is as follows:
<TABLE>
<CAPTION>
Net Unrealized
Appreciation Appreciated Depreciated
Portfolio (Depreciation) Securities Securities
-------- -------------- ----------- -----------
<S> <C> <C> <C>
Schwab MarketManager International Portfolio $11,630 $11,794 $ (164)
Schwab MarketManager Growth Portfolio 15,911 16,237 (326)
Schwab MarketManager Balanced Portfolio 7,357 7,876 (519)
Schwab MarketManager Small Cap Portfolio 12,668 14,260 (1,592)
</TABLE>
At October 31, 1998, the unused capital loss carryforwards, for federal income
tax purposes with expiration dates, are as follows:
<TABLE>
<CAPTION>
Schwab MarketManager PortfoliosTM
-----------------------------------------------
Capital Loss Expirations International Balanced Small Cap
-------------------- ------------- -------- ---------
<S> <C> <C> <C> <C>
10/31/05 $ -- $-- $ 95
10/31/06 651 27 16,686
---- --- -------
Total capital loss carryforward $651 $27 $16,781
==== === =======
</TABLE>
RECLASSIFICATION -- Generally accepted accounting principles require that
certain components of net assets be reclassified between financial and tax
reporting. These reclassifications have no effect on net assets or net asset
values per share.
On the Statements of Assets and Liabilities, the following adjustments
were made:
<TABLE>
<CAPTION>
Accumulated Undistributed
Net Realized Net Investment
Portfolio Gain (Loss) Income Paid-In Capital
------------ ----------- -------------- ---------------
<S> <C> <C> <C>
Schwab MarketManager International Portfolio -- $ 12 $ (12)
Schwab MarketManager Growth Portfolio -- 3 (3)
Schwab MarketManager Balanced Portfolio -- 3 (3)
Schwab MarketManager Small Cap Portfolio -- 1 (1)
</TABLE>
3. TRANSACTIONS WITH LIMITED PARTNERSHIPS
As of April 30, 1999, The MarketManager Growth Portfolio, the MarketManager
Balanced Portfolio, and the MarketManager Small Cap Portfolio owned 14.5%,
13.8%, and 71.7% limited partnership ownership interests, respectively, in the
Melody 4500 Fund, L.P. ("Melody"). Melody invests in publicly traded securities
of small-to-medium capitalization issuers located in the United States and will
attempt to equal or exceed the total return performance of the Wilshire 4500
Index over a market cycle of five years. As stated in the partnership agreement,
under normal market conditions, each Fund can generally redeem up to 50% of its
interest upon three business days notice to the general partner, and the
remainder of the capital account as of the last business day of any calendar
month on at least 30 days prior notice to the general partner.
45
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
4. 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 Adviser"). For advisory services and facilities furnished,
each Fund pays an annual fee, payable monthly, of 0.54% of the first $500
million of average daily net assets, and 0.49% of such assets over $500 million.
The Investment Adviser has reduced a portion of its fee for the six months ended
April 30, 1999(see Note 5).
TRANSFER AGENCY AND SHAREHOLDER SERVICE AGREEMENTS -- The Trust has transfer
agency and shareholder service agreements with Charles Schwab & Co., Inc.
("Schwab"). For services provided under these agreements, Schwab receives an
annual fee, payable monthly, of 0.05% of each Fund's average daily net assets
for transfer agency services and 0.20% of such assets for shareholder services.
Schwab has reduced a portion of its fees and Schwab has voluntarily waived all
of its transfer agency and shareholder service fees for the six months ended
April 30, 1999 (see Note 5).
OFFICERS AND TRUSTEES -- Certain officers and trustees of the Trust are also
officers and/or directors of the Investment Adviser and/or Schwab. During the
six months ended April 30, 1999, 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 Funds incurred fees aggregating
$14 related to the Trust's unaffiliated trustees.
5. EXPENSES REDUCED AND ABSORBED BY THE INVESTMENT ADVISER AND SCHWAB
The Investment Adviser and Schwab guarantee that through at least February 29,
2000, each Fund's total operating expenses will not exceed 0.50% of the Fund's
average daily net assets, after waivers and reimbursements. For the purpose of
this guarantee, operating expenses do not include interest expenses,
extraordinary expenses, taxes, foreign taxes and capital items. Schwab has
agreed to waive its transfer agency and shareholder service fees through at
least December 31, 2001.
For the six months ended April 30, 1999, the total of such fees and expenses
reduced by the Investment Adviser was $120, $242, $143 and $283 for the
MarketManager International, Growth, Balanced and Small Cap Portfolios,
respectively, and the total of such fees reduced by Schwab was $95, $203, $126
and $159, respectively for the MarketManager International, Growth, Balanced and
Small Cap Portfolios.
6. BORROWING AGREEMENT
The Trust has a line of credit arrangement with The Bank of New York whereby the
Trust may borrow on behalf of the Funds an aggregate amount of up to $150
million on a temporary basis to fund shareholder redemptions. Amounts borrowed
under this arrangement bear interest at periodically negotiated rates and may be
collateralized by the assets of the Funds. As of April 30, 1999, there were no
outstanding borrowings under these arrangements on behalf of the Funds.
7. INVESTMENT TRANSACTIONS
Aggregate purchases and sales of investment securities, other than short-term
obligations, for the six months ended April 30, 1999, were as follows:
Proceeds of
sales and
Portfolio Purchases maturities
-------- --------- -----------
Schwab MarketManager International Portfolio $105,508 $113,027
Schwab MarketManager Growth Portfolio 276,366 287,907
Schwab MarketManager Balanced Portfolio 170,816 167,388
Schwab MarketManager Small Cap Portfolio 85,685 111,883
46
<PAGE>
THIS SPACE RESERVED FOR YOUR COMMENTS AND QUESTIONS.
A SCHWAB REPRESENTATIVE WILL BE HAPPY TO ASSIST YOU.
<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 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 market
funds.
Please call 800-435-4000 for a free prospectus and brochure for any of these
SchwabFunds.-Registered Trademark-
This report must be preceded or accompanied by a current prospectus.
METHODS FOR PLACING ORDERS
The information below outlines how Schwab brokerage account investors can place
orders. If you are investing through a third-party investment provider, methods
for placing orders may be different.
PHONE
Call 800-435-4000, day or night (for TDD service, call 800-345-2550).
INTERNET
www.schwab.com/schwabfunds
MAIL
Write to SchwabFunds at:
P. O. Box 7575, San Francisco, CA 94120-7575
When selling or exchanging shares, be sure to include the signatures of at least
one of the persons whose name is on the account.
IN PERSON
Visit the nearest Charles Schwab office.
SCHWAB ASSET ALLOCATION FUNDS
Schwab MarketTrack All Equity Portfolio
Schwab MarketTrack Growth Portfolio
Schwab MarketTrack Balanced Portfolio
Schwab MarketTrack Conservative Portfolio
Schwab MarketManager Growth Portfolio
Schwab MarketManager Balanced Portfolio
SCHWAB STOCK FUNDS
Schwab S&P 500-Registered Trademark- Fund
Schwab 1000 Fund-Registered Trademark-
Schwab Total Stock Market Index Fund-TM-
Schwab Analytics Fund-Registered Trademark-
Schwab Small-Cap Index Fund-Registered Trademark-
Schwab MarketManager Small Cap Portfolio
Schwab International Index Fund-Registered Trademark-
Schwab MarketManager International Portfolio
SCHWAB BOND FUNDS
Schwab Total Bond Market Index Fund
Schwab Short-Term Bond Market Index Fund
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 Bond Fund
SCHWAB MONEY MARKET FUNDS
Schwab offers an array of money market funds that seek high current income
consistent with safety and liquidity.(1) 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)Investments in money market funds are neither insured nor guaranteed by the
Federal Deposit Insurance Corporation (FDIC) or any other government agency
and, although they seek to preserve the value of your investment at $1 per
share, it is possible to lose money.
<PAGE>
[LOGO]
INVESTMENT ADVISER
Charles Schwab Investment Management, Inc.
P.O. Box 7575, San Francisco, CA 94120-7575
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-1999 Charles Schwab & Co., Inc. All rights reserved.
Member SIPC/NYSE.
Printed on recycled paper. (0099-2264) MKT3812-1 (6/99)
