<PAGE>
SCHWABFUNDS-REGISTERED TRADEMARK-
SCHWAB
ANALYTICS
FUND-R-
ANNUAL REPORT
AND
AN IMPORTANT NOTICE REGARDING
DELIVERY OF SHAREHOLDER
DOCUMENTS
October 31, 1999
<PAGE>
IMPORTANT NOTICE REGARDING DELIVERY OF SHAREHOLDER DOCUMENTS
The Securities and Exchange Commission has adopted a rule permitting mutual
funds to deliver only one copy of shareholder documents, including prospectuses
and shareholder reports to fund investors with multiple accounts at the same
residential or post office box address. This practice is commonly called
"householding" and is intended to eliminate duplicate mailings of shareholder
documents.
Schwab may begin indefinitely householding prospectuses and shareholder reports
for SchwabFunds-Registered Trademark- effective February 29, 2000.
ADDITIONAL COPIES OF SHAREHOLDER DOCUMENTS
ALL SCHWABFUNDS PROSPECTUSES and shareholder reports ARE AVAILABLE FREE OF
CHARGE, AND MAY BE REQUESTED AT ANY TIME BY CALLING SCHWAB AS INDICATED BELOW.
SchwabFunds prospectuses are also available on our Web site at www.schwab.com.
If you would otherwise fall under our householding policy, but for any reason
prefer to receive multiple SchwabFunds prospectuses and shareholder reports,
please contact:
- - SCHWAB SIGNATURE SERVICES-TM- CLIENTS: Schwab Signature Services.
- - INVESTMENT MANAGER CLIENTS: Schwab at 1-800-515-2157, or your investment
manager.
- - ALL OTHER CLIENTS: Schwab at 1-800-435-4000.
Your instructions that householding not apply to your accounts holding
SchwabFunds will be effective within 30 days of receipt by Schwab.
<PAGE>
SCHWABFUNDS-REGISTERED TRADEMARK-
SCHWAB
ANALYTICS
FUND-R-
Annual Report
October 31, 1999
<PAGE>
SCHWAB ANALYTICS FUND-REGISTERED TRADEMARK-
We are pleased to bring you this annual report for the Schwab Analytics Fund
(the fund) for the one-year period ended October 31, 1999.
The fund seeks to achieve long-term capital growth. To meet its objective, the
fund uses quantitative techniques, proprietary software models and real-time
databases to systematically select stocks that exhibit a combination of
attributes that historically have been associated with aggregate total returns
greater than that of the S&P 500-Registered Trademark- Index (the Index) over
the long term. The fund also intends to maintain broad industry diversification
similar to that of the Index. By doing so, the fund seeks to outperform the
Index over the long term without significantly increasing the risk to the
investor.
FUND LISTINGS
The fund is listed in THE WALL STREET JOURNAL, USA TODAY, INVESTOR'S BUSINESS
DAILY and most local newspapers as ANALYTIC under the heading
SCHWABFUNDS.-Registered Trademark- Its computer quotation symbol is SWANX.
CONTENTS
<TABLE>
<S> <C>
- ---------------------------------------------
A Message from the Chairman 1
- ---------------------------------------------
What Every Investor Should Know 2
- ---------------------------------------------
Market Overview 4
- ---------------------------------------------
Schwab Analytics Fund
FUND PERFORMANCE 7
PORTFOLIO SNAPSHOT 9
- ---------------------------------------------
The Portfolio Management Team 11
- ---------------------------------------------
Fund Discussion 12
- ---------------------------------------------
Glossary 14
- ---------------------------------------------
Financial Statements and Notes 16
- ---------------------------------------------
</TABLE>
<PAGE>
A MESSAGE FROM THE CHAIRMAN
[PHOTO]
Dear Shareholder,
As 1999 draws to a close, I'd like to take this opportunity to reflect on the
year and the changes and milestones that have taken place at Charles Schwab
Investment Management, Inc. (CSIM), the investment adviser for the
SchwabFunds-Registered Trademark- Family.
First of all, we reached a significant milestone in September, when SchwabFunds
assets topped the $100 billion mark. With the support of investors like you,
SchwabFunds continue to be among the largest and fastest growing fund families
in the nation.
Secondly, we added two new products to our SchwabFunds offering:
- - SCHWAB TOTAL STOCK MARKET INDEX FUND-TM- seeks to track the total return of
the entire U.S. stock market, as measured by the Wilshire 5000 Total Market
Index, the broadest measure of U.S. stock market performance. In one single,
low-cost investment, fund investors can benefit from exposure to U.S.
companies of all types and sizes.
- - SCHWAB YIELDPLUS FUND-TM- The fund seeks high current income with minimal
changes in share price. It is designed to provide the potential for higher
yields than a money fund and lower risk than a longer-term bond fund through a
management strategy designed to minimize price fluctuation. Intended for your
long-term (over one-year) cash needs, the fund seeks to increase the overall
yield potential of the cash portion of your portfolio.
For more information on either of these funds, please call 1-800-435-4000 and
request a free prospectus. The prospectus contains more information on fund fees
and expenses. Please read it carefully before investing.
I encourage you to take a moment to read this annual report as it is designed to
provide timely information about your SchwabFunds investments. You will find
information on each fund's total returns and performance, as well as commentary
on market conditions provided by the portfolio management team. In the section
"What Every Investor Should Know", we've also provided guidelines that can help
you reach your goals by establishing--or maintaining--an ongoing investment
program.
As a leader in online brokerage, we recognize the value of the web as a means of
communicating timely, relevant information to investors. Regular updates on all
of the SchwabFunds, including performance data, are available on our Web site at
WWW.SCHWAB.COM/SCHWABFUNDS. We encourage you to take advantage of this valuable
resource which can help you keep track your funds' performance.
At Schwab our philosophy has always been that a combination of regular investing
and diversification is the best strategy over the long term. By investing in
SchwabFunds, you've already taken an important step in building a portfolio that
can help you meet your future goals. Thank you for your investment in
SchwabFunds.
Sincerely,
/s/ Charles R. Schwab
Charles R. Schwab
October 31, 1999
THE YEAR 2000
One issue with the potential to disrupt portfolio operations and affect
performance is the inability of some computers to recognize the year 2000.
The Investment Adviser will continue to take steps to enable its systems to
handle 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 this issue will affect portfolio administration, portfolio performance 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.
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 Share Shares
Investment 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 -- 260
- --------------------------------------------------------
AVERAGE SHARE PRICE ($41 DIVIDED BY 5
periods): $8.20
YOUR AVERAGE COST BASIS
($2,000 DIVIDED BY 260 shares): $7.69
PER-SHARE ADVANTAGE: $0.51
</TABLE>
This example is for illustrative purposes only and is not intended to predict or
guarantee the performance of any particular fund available through Schwab.
(Of course, in this example, hindsight shows you that your best move would have
been to invest your entire $2,000 in Month 3, when the share price was at a low
of $5--but it's unlikely that you would have been able to predict that.)
* Regular investing strategies such as dollar-cost averaging do not assure a
profit or protect against a loss in declining markets. Since such a strategy
involves continuous investment, investors should consider their ability to
continue purchases through periods of low price levels.
2
<PAGE>
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 to smooth out volatility caused by
shortterm market trends. For more information, please call us
at 1-800-435-4000.
WE MAKE IT EASY TO INVEST
We try to make it easy and convenient for you to invest in our
SchwabFunds.-Registered Trademark- In addition to our automated methods that
allow you to invest or transfer money to your Schwab account on a regular basis,
you can also invest through our Web site at WWW.SCHWAB.COM/SCHWABFUNDS; through
our automated touch-tone telephone service, TeleBroker,-Registered Trademark- by
calling 1-800-272-4922; 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 updated fund performance data 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
lengthy expansion with a strong real growth rate of 4.3% for the year ended
September 1999--a rate considered to be in excess of the long-term maximum
sustainable non-inflationary growth rate. High levels of consumer confidence and
spending, low interest rates, rising real wages and strong gains in stock prices
have been the principal factors responsible for this lengthy expansion.
In a major revision of the GDP benchmark data going back four decades, the
Commerce Department reported that, during the 1990s, growth was stronger,
personal savings higher, and inflation lower than previously calculated.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
REAL GDP GROWTH RATE
QUARTERLY PERCENTAGE CHANGE
(ANNUALIZED RATE)
<S> <C>
Q1 1990 5.0%
Q2 1990 1.0%
Q3 1990 -0.6%
Q4 1990 -3.0%
Q1 1991 -1.7%
Q2 1991 2.6%
Q3 1991 1.3%
Q4 1991 2.5%
Q1 1992 4.3%
Q2 1992 4.0%
Q3 1992 3.1%
Q4 1992 5.2%
Q1 1993 -0.7%
Q2 1993 2.1%
Q3 1993 1.5%
Q4 1993 6.0%
Q1 1994 3.6%
Q2 1994 5.7%
Q3 1994 2.2%
Q4 1994 5.1%
Q1 1995 1.5%
Q2 1995 0.8%
Q3 1995 3.2%
Q4 1995 3.3%
Q1 1996 2.9%
Q2 1996 6.9%
Q3 1996 2.2%
Q4 1996 4.9%
Q1 1997 4.9%
Q2 1997 5.1%
Q3 1997 4.0%
Q4 1997 3.1%
Q1 1998 6.7%
Q2 1998 2.1%
Q3 1998 3.8%
Q4 1998 5.9%
Q1 1999 3.7%
Q2 1999 1.9%
Q3 1999 5.5%
Source: BLOOMBERG L.P.
</TABLE>
Despite some recent slowing in the housing sector and a moderate decline in
consumer confidence, personal consumption and business fixed investment remain
strong. The consensus of most economists is that the U.S. economy appears poised
for continued growth, but at a more moderate pace than experienced so far in
1999.
Last year's concerns over the impact of international economic problems have
been displaced by concerns over imbalances in the domestic economy, namely the
surging current account (trade) deficit, record high stock valuations, and the
low savings rate. Looking ahead, 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 2000.
UNEMPLOYMENT
October's unemployment rate of 4.1% was a 29-year low. Labor markets continue to
be extremely tight in many areas of the country. Growth in the labor force has
slowed, and there continues to be concern that wage and benefits increases may
begin to put more pressure on labor costs (refer to Employment Cost Index on the
next 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 6.8%
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%
May-99 4.2%
Jun-99 4.3%
Jul-99 4.3%
Aug-99 4.2%
Sep-99 4.2%
Oct-99 4.1%
Source: BLOOMBERG L.P.
</TABLE>
INFLATION
Price inflation continued to remain well contained. The Consumer Price Index
(CPI) rose just 2.6% for the year ended October 1999. Its core rate (which
excludes
4
<PAGE>
the more volatile food and energy components) rose just 2.1%. The GDP price
deflator, the broadest measure of inflation, indicated prices rising at an
annual rate of 1.3% for the year ended September 1999.
The Employment Cost Index, which measures inflation in wages, salaries and
benefits was also well contained, increasing 3.1% for the year ended September
1999.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
MEASURES OF INFLATION
<S> <C> <C>
QUARTERLY EMPLOYMENT COST INDEX MONTHLY CONSUMER PRICE INDEX
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 3.7% 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 3.2% 2.3%
May-99 3.2% 2.1%
Jun-99 3.2% 2.0%
Jul-99 3.1% 2.1%
Aug-99 3.1% 2.3%
Sep-99 3.1% 2.6%
Oct-99 2.6%
Source: BLOOMBERG L.P.
</TABLE>
Although there is little evidence of accelerating core inflation, the U.S.
Federal Reserve Board has expressed concern that should labor markets continue
to tighten, increases in wages may outpace productivity growth. In that
environment, productivity growth becomes particularly critical, as it enables
companies to pay higher wages without raising prices. Non-farm productivity grew
2.8% in 1998 and at a 2.7% annualized rate in the first three quarters of 1999,
continuing a healthy trend that began in 1996.
ASSET CLASS PERFORMANCE
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
TOTAL RETURN PERFORMANCE
GROWTH OF A HYPOTHETICAL $1 INVESTMENT
<S> <C> <C> <C> <C>
MSCI-EAFE-REGISTERED RUSSELL 2000 LEHMAN AGGREGATE
TRADEMARK- INDEX S&P 500 INDEX SMALL-CAP INDEX BOND INDEX
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
May-99 $1.09 $1.19 $1.17 $1.00
Jun-99 $1.14 $1.26 $1.22 $0.99
Jul-99 $1.17 $1.22 $1.19 $0.99
Aug-99 $1.17 $1.22 $1.14 $0.99
Sep-99 $1.18 $1.18 $1.14 $1.00
Oct-99 $1.23 $1.26 $1.15 $1.01
</TABLE>
COMPILED BY CHARLES SCHWAB & CO., INC.
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 25.7% for the year ended October 1999. Within the S&P 500, growth
stocks continued to be the strongest performing style for the period. Small-cap
stocks as represented by the Russell 2000-Registered Trademark- Index also
experienced a positive return of 14.9%.
Assisted by the rebound in Asian markets, international stock returns, as
represented by the MSCI-EAFE Index, experienced a positive total return of
23.0% for the one-year reporting period ended October 31, 1999.
Reflecting the 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,-Registered Trademark- were 0.5% for the
one-year reporting period.
5
<PAGE>
MARKET OVERVIEW (continued)
U.S. EQUITY VALUATION
The price/earnings (P/E) ratio for the S&P 500-Registered Trademark- Index
reached record highs during the reporting period and ended the period at a lofty
29.9 times earnings, approximately 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 earning potential. Based on other traditional market valuation
measures such as the price-to-book value ratio or dividend yield, the U.S. stock
market 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
May-99 32.74
Jun-99 34.7
Jul-99 31.62
Aug-99 31.21
Sep-99 29.9
Oct-99 29.92
30-Year Average 15.5
Source: BLOOMBERG L.P.
</TABLE>
TREASURY BOND YIELDS
Continuing a trend which began in October 1998, both long-term and intermediate
term rates continued to climb upward during the reporting period. Scaled back
concerns about the impact of international economic problems and the continued
growth of the domestic economy were the primary drivers of this upward trend in
yields.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
30-YEAR AND FIVE-YEAR TREASURY BOND YIELDS
<S> <C> <C>
30-YEAR TREASURY FIVE-YEAR TREASURY
BOND YIELD NOTE YIELD
10/2/98 4.84% 4.08%
10/9/98 5.12% 4.46%
10/16/98 4.98% 4.04%
10/23/98 5.18% 4.30%
10/30/98 5.16% 4.23%
11/6/98 5.39% 4.59%
11/13/98 5.25% 4.50%
11/20/98 5.22% 4.60%
11/27/98 5.16% 4.59%
12/4/98 5.04% 4.39%
12/11/98 5.02% 4.39%
12/18/98 5.00% 4.36%
12/25/98 5.22% 4.71%
1/1/99 5.10% 4.54%
1/8/99 5.27% 4.73%
1/15/99 5.11% 4.55%
1/22/99 5.08% 4.52%
1/29/99 5.09% 4.55%
2/5/99 5.35% 4.86%
2/12/99 5.42% 4.96%
2/19/99 5.39% 4.99%
2/26/99 5.58% 5.22%
3/5/99 5.60% 5.22%
3/12/99 5.53% 5.06%
3/19/99 5.56% 5.08%
3/26/99 5.59% 5.08%
4/2/99 5.46% 4.96%
4/9/99 5.46% 4.96%
4/16/99 5.57% 5.11%
4/23/99 5.60% 5.14%
4/30/99 5.66% 5.21%
5/7/99 5.81% 5.37%
5/14/99 5.92% 5.50%
5/21/99 5.75% 5.43%
5/28/99 5.83% 5.58%
6/4/99 5.96% 5.73%
6/11/99 6.16% 5.91%
6/18/99 5.97% 5.73%
6/25/99 6.15% 5.89%
7/2/99 6.00% 5.69%
7/9/99 6.00% 5.69%
7/16/99 5.88% 5.55%
7/23/99 6.03% 5.69%
7/30/99 6.10% 5.79%
8/6/99 6.18% 5.91%
8/13/99 6.10% 5.86%
8/20/99 5.99% 5.77%
8/27/99 5.98% 5.77%
9/3/99 6.02% 5.77%
9/10/99 6.04% 5.78%
9/17/99 6.06% 5.75%
9/24/99 5.97% 5.66%
10/1/99 6.13% 5.86%
10/8/99 6.20% 5.95%
10/15/99 6.26% 5.97%
10/22/99 6.35% 6.10%
10/29/99 6.16% 5.95%
Source: BLOOMBERG L.P.
</TABLE>
6
<PAGE>
SCHWAB ANALYTICS FUND-REGISTERED TRADEMARK-
FUND PERFORMANCE
AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED 10/31/99
<TABLE>
<CAPTION>
SINCE INCEPTION
ONE YEAR (7/1/96)
<S> <C> <C>
- -------------------------------------------------------------------------------------------------------
SCHWAB ANALYTICS FUND(1) 35.20% 27.25%
- -------------------------------------------------------------------------------------------------------
S&P 500-Registered Trademark- Index 25.67% 25.71%
- -------------------------------------------------------------------------------------------------------
Average Large-Cap Fund(2) 23.61% 20.64%
- -------------------------------------------------------------------------------------------------------
</TABLE>
National Association of Securities Dealers, Inc. (NASD) regulations require that
we report performance data as of the most recent calendar quarter -- in this
case, the quarter ended 9/30/99. As of 9/30/99, the fund's one-year and
since-inception average annual total returns were 32.72% and 24.99%,
respectively. Without fee waivers and guarantees, the one-year and
since-inception average annual total returns would have been 32.44% and 24.51%,
respectively, as of 9/30/99.
(1) A portion of the fund's expenses was reduced during the reporting period.
Without such reductions, as of 10/31/99, the fund's one-year and
since-inception average annual returns would have been 34.95% and 26.77%.
(2) Based on data supplied by Morningstar, Inc. Average annual total returns for
2,173 large-cap funds, for the one-year and since-inception periods. These
funds may or may not follow a strategy similar to that followed by the
Schwab Analytics Fund.
7
<PAGE>
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
SCHWAB ANALYTICS FUND S&P 500
<S> <C> <C>
07/01/96 $10,000 $10,000
07/31/96 $9,690 $9,558
08/31/96 $9,880 $9,760
09/30/96 $10,620 $10,308
10/31/96 $11,010 $10,593
11/30/96 $11,640 $11,393
12/31/96 $11,368 $11,168
01/31/97 $11,959 $11,865
02/28/97 $11,908 $11,958
03/31/97 $11,287 $11,468
04/30/97 $12,081 $12,152
05/31/97 $12,722 $12,890
06/30/97 $13,272 $13,468
07/31/97 $14,462 $14,539
08/31/97 $13,821 $13,724
09/30/97 $14,646 $14,475
10/31/97 $13,964 $13,992
11/30/97 $14,676 $14,640
12/31/97 $14,963 $14,891
01/31/98 $15,054 $15,057
02/28/98 $16,155 $16,142
03/31/98 $16,801 $16,969
04/30/98 $16,949 $17,140
05/31/98 $16,620 $16,845
06/30/98 $17,448 $17,529
07/31/98 $17,198 $17,343
08/31/98 $14,555 $14,839
09/30/98 $15,565 $15,790
10/31/98 $16,529 $17,074
11/30/98 $17,561 $18,109
12/31/98 $19,158 $19,152
01/31/99 $20,138 $19,952
02/28/99 $19,134 $19,332
03/31/99 $19,961 $20,105
04/30/99 $20,882 $20,883
05/31/99 $20,493 $20,390
06/30/99 $21,910 $21,522
07/31/99 $21,189 $20,850
08/31/99 $21,154 $20,746
09/30/99 $20,658 $20,177
10/31/99 $22,347 $21,455
</TABLE>
The above graph compares the growth of a hypothetical $10,000 investment in the
Schwab Analytics Fund,-Registered Trademark- made at its inception, with similar
investments in the S&P 500-Registered Trademark- Index.
THIS INFORMATION IS HISTORICAL AND DOES NOT REPRESENT FUTURE RESULTS. TOTAL
RETURNS ASSUME REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS.
PRINCIPAL VALUE AND INVESTMENT RETURNS WILL FLUCTUATE, SO AN INVESTOR'S SHARES,
WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. Indices are
unmanaged and do not reflect advisory fees and other expenses associated with an
investment in the fund. Investors cannot invest in an index directly.
ASSETS
<TABLE>
<S> <C>
- ----------------------------------------------------------------------
Total net assets as of 10/31/98 (000s) $191,513
- ----------------------------------------------------------------------
Total net assets as of 10/31/99 (000s) $288,655
- ----------------------------------------------------------------------
Percentage growth over reporting period 50.70%
- ----------------------------------------------------------------------
</TABLE>
8
<PAGE>
SCHWAB ANALYTICS FUND-REGISTERED TRADEMARK-
PORTFOLIO SNAPSHOT
Schwab Analytics Fund (the fund) invests primarily in the common stocks of
large- and mid-cap publicly traded U.S. companies. The fund will typically
invest in the stocks of at least 50 issuers, and intends to maintain industry
diversification similar to that of the S&P 500-Registered Trademark- Index. The
information below and on the following page provides a snapshot of the fund's
portfolio characteristics as of 10/31/99 and is not indicative of its
composition after that date. The terms used below are defined on page 14. A
complete list of the securities in the fund's portfolio as of 10/31/99 is
provided in the Schedule of Investments later in this report.
FUND FACTS
<TABLE>
<CAPTION>
SCHWAB ANALYTICS FUND PEER GROUP AVERAGE+
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
Number of Issues 84 131
- -----------------------------------------------------------------------------------------------------------------------------
Median Market Cap ($ Mil) $47,855+ $45,601
- -----------------------------------------------------------------------------------------------------------------------------
Price/Earnings (P/E) Ratio 33.2+ 33.6
- -----------------------------------------------------------------------------------------------------------------------------
Price/Book (P/B) Ratio 9.0+ 8.0
- -----------------------------------------------------------------------------------------------------------------------------
12-Month Yield 0.45%+ 0.47%
- -----------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 99% 75%
- -----------------------------------------------------------------------------------------------------------------------------
Three-Year Beta 1.05+ 0.95
- -----------------------------------------------------------------------------------------------------------------------------
Expense Ratio 0.75%* 1.34%
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Reflects a voluntary reduction by the Investment Adviser and Schwab, which is
guaranteed through at least 2/29/00.
+ Source: Morningstar. This information is as of 10/31/99 and is for
illustrative purposes only. It is not intended to show, predict or guarantee
future composition of the fund. The peer group average is based on 2,173
large-cap funds as tracked by Morningstar.
9
<PAGE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
PORTFOLIO COMPOSITION BY INDUSTRY
AS OF 10/31/99
<TABLE>
<S> <C>
Business Machines and Software 15.8%
Healthcare/Drugs and Medicine 14.2%
Electronics 10.0%
Telephone 9.7%
Miscellaneous Finance 8.9%
Retail 7.8%
Banks 4.5%
Oil-International 3.9%
Media 3.4%
Insurance 3.1%
Other 18.7%
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
EQUITY INVESTMENT STYLE BOX(1)
AS OF 10/31/99
<TABLE>
<S> <C> <C> <C>
- -Style-
Value Blend Growth -Market Cap-
x Large
Medium
Small
</TABLE>
TOP 10 HOLDINGS
AS A PERCENTAGE OF FUND INVESTMENTS
<TABLE>
<S> <C>
- -------------------------------------------
Microsoft Corp. 4.88%
- -------------------------------------------
Bristol-Myers Squibb Co. 3.55%
- -------------------------------------------
Cisco Systems, Inc. 3.43%
- -------------------------------------------
Citigroup, Inc. 3.31%
- -------------------------------------------
Wal-Mart Stores, Inc. 3.16%
- -------------------------------------------
- -------------------------------------------
Nortel Networks Corp. 2.80%
- -------------------------------------------
Johnson & Johnson 2.52%
- -------------------------------------------
Tribune Co. 2.34%
- -------------------------------------------
BellSouth Corp. 2.27%
- -------------------------------------------
General Electric Co. 2.27%
- -------------------------------------------
</TABLE>
(1) Source: Morningstar, Inc. The style box illustrates the composition of the
fund's portfolio as of 10/31/99. It is not indicative of its holdings after
that date, nor does it represent an exact assessment of risk or future
assessment or any type of future performance. Placement is based on the
fund's P/E and P/B ratios relative to the S&P 500-Registered Trademark-
Index, as well as the size of the companies in which it invests, or median
market capitalization.
10
<PAGE>
PORTFOLIO MANAGEMENT
THE PORTFOLIO MANAGEMENT TEAM
GERI HOM--vice president and senior portfolio manager, has primary
responsibility for the day-to-day management of the fund's portfolio. Geri
joined CSIM in March 1995 as portfolio manager and was promoted to her current
position in December 1996. She currently manages approximately $17 billion in
indexed equity mutual fund assets. Prior to joining CSIM, Geri was a principal
for Wells Fargo Nikko Investment Advisors and vice president and manager of the
Domestic Equity Portfolio Management Group for Wells Fargo Nikko.
PRAVEEN GOTTIPALLI--portfolio manager, is director of investments for Symphony
Asset Management (Symphony), a wholly owned subsidiary of BARRA, Inc., and the
fund's sub-adviser. He joined Symphony in May 1994. Prior to that, Praveen was
director of the Active Strategies Group of BARRA, Inc. BARRA, founded in 1975,
provides innovative analytical models, software, and services. Symphony, subject
to the supervision of CSIM, provides investment assistance and day-to-day
management of the fund's non-cash investments, as well as investment research
and statistical information.
11
<PAGE>
FUND DISCUSSION
QUESTIONS TO THE
PORTFOLIO MANAGEMENT TEAM
Q. HOW DID THE FUND PERFORM DURING THE REPORTING PERIOD?
A. As shown in the MARKET OVERVIEW section, large-cap equity returns continued
to be the strongest performing major asset class for the one-year period. The
Schwab Analytics Fund achieved a total return of 35.20% for the one-year period
ended October 31, 1999. That return exceeded the average large-cap fund by
11.59% according to data provided by Morningstar, Inc. From its inception on
July 1, 1996, through October 31, 1999, the fund's average annual total return
of 27.25% exceeded the average large cap fund by 6.61%. As shown in the table
below, the fund also out-performed the S&P 500 Index for the reporting period
and has achieved a total return 1.54% greater than to the S&P 500 Index since
its inception on July 1, 1996.
<TABLE>
<CAPTION>
AVERAGE ANNUAL RETURNS
------------------------------------
ONE THREE SINCE
YEAR YEARS INCEPTION (7/1/96)
<S> <C> <C> <C>
- -----------------------------------------------------------------------------
Schwab Analytics Fund 35.20% 26.61% 27.25%
- -----------------------------------------------------------------------------
S&P 500 Index 25.67% 26.52% 25.71%
- -----------------------------------------------------------------------------
</TABLE>
Q. HOW ARE THE HOLDINGS OF THE SCHWAB ANALYTICS FUND DIFFERENT FROM THE STOCKS
IN THE S&P 500-REGISTERED TRADEMARK- INDEX?
A. First, there are significantly fewer holdings in the fund--84 as of
October 31, 1999. The fund's management team monitors approximately 1,300
companies with current market capitalizations of $500 million or more. This
universe of large and medium sized companies is then narrowed down to 50 to 100
that our computer model identifies as having the best return potential based on
valuation factors, projections of analysts identified for their superior
forecasting skills and insider selling activity.
Second, although historically the average market capitalization of the fund is
somewhat smaller than the S&P 500 Index, during the most recent reporting
period, the average market capitalization increased, relative the S&P 500 Index.
Because the management team selects securities from a universe of 1,300
companies, the fund can have relatively more or less mid-cap exposure through
holdings in non-S&P 500 companies. Historically, the fund has maintained
approximately 10% to 20% of its holdings in companies outside the S&P 500 Index.
This percentage was maintained at approximately 10% during the reporting period.
These non-index stocks, as a group, had a smaller average market capitalization
than the S&P 500 Index.
Finally, from an investment style perspective, the fund often has more of a
value orientation than the S&P 500 Index. Frequently, the fund's selection
criteria will favor stocks with a value orientation, or those stocks with
relatively lower price-to-earnings and/or price-to-book value ratios. During
this particular reporting period, this was not the case--the fund's growth/value
orientation was very similar to the S&P 500 Index.
Q. WHICH ELEMENTS OF THE FUND'S STRATEGY HAVE WORKED PARTICULARLY WELL?
A. Successful stock selection and holding many strong performers while avoiding
many negative performing stocks accounted for the majority of the fund's
positive
12
<PAGE>
performance relative to the S&P 500 Index. Throughout most of the reporting
period the fund was not significantly different than the S&P 500 Index in terms
of industry sector weights, style (growth vs. value) or market capitalization.
The fund was slightly tilted toward growth oriented stocks, relative to the
S&P 500 Index, at the close of the period.
Q. OF THOSE STOCKS HELD BY THE FUND AT THE CLOSE OF THE REPORTING PERIOD, WHICH
HAD EXPERIENCED THE GREATEST APPRECIATION SINCE BEING ACQUIRED BY THE FUND?
A. The five stocks with the greatest appreciation as of the close of the
reporting period were:
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE OF
INITIAL APPRECIATION(1) TOTAL
ACQUISITION SINCE INVESTMENT
DATE INCEPTION (10/31/99)
<S> <C> <C> <C>
- ---------------------------------------------------------------------
Sun Microsystems Inc. 1/22/99 76.9% 2.3%
- ---------------------------------------------------------------------
Commscope Inc. 12/28/98 63.6% 1.8%
- ---------------------------------------------------------------------
Amgen Inc. 2/16/99 29.8% 1.4%
- ---------------------------------------------------------------------
General Elec Co. 6/28/96 28.6% 2.4%
- ---------------------------------------------------------------------
Intel Corp. 6/28/96 26.6% 1.7%
- ---------------------------------------------------------------------
</TABLE>
(1) Past performance does not guarantee future results. This information
measures the percentage change of each stock's price from the acquisition by
the fund through 10/31/99. It is not intended to show, predict or guarantee
future holdings, composition or performance of the fund, and it should not
be considered recommendation for any specific security.
13
<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.
14
<PAGE>
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.
15
<PAGE>
SCHWAB ANALYTICS FUND(R)
SCHEDULE OF INVESTMENTS
October 31, 1999
Number Value
of Shares (000s)
--------- --------
- ----------------------------------------------------------
COMMON STOCK -- 94.4%
- ----------------------------------------------------------
AEROSPACE / DEFENSE -- 1.6%
- ----------------------------------------------------------
General Dynamics Corp. 40,600 $ 2,251
United Technologies Corp. 41,300 2,499
--------
4,750
---------
- -----------------------------------------------------------
AUTOMOTIVE PRODUCTS / MOTOR VEHICLES -- 1.0%
- -----------------------------------------------------------
Ford Motor Co. 38,600 2,118
Navistar International Corp.+ 17,500 730
-------
2,848
-------
- ------------------------------------------------------------
BANKS -- 4.5%
- ------------------------------------------------------------
Chase Manhattan Corp. 25,300 2,211
City National Corp. 92,600 3,588
Firstar Corp. 91,500 2,688
Hudson United Bancorp. 34,300 1,078
Roslyn Bancorp., Inc. 56,800 1,100
SouthTrust Corp. 57,300 2,292
-------
12,957
-------
- -------------------------------------------------------------
BUSINESS MACHINES & SOFTWARE -- 15.6%
- -------------------------------------------------------------
3Com Corp.+ 54,800 1,589
Cisco Systems, Inc.+ 132,300 9,790
Concord Communications, Inc.+ 48,900 2,540
Dell Computer Corp.+ 100,200 4,021
International Business
Machines Corp. 17,300 1,702
Lexmark International Group, Inc.,
Class A+ 36,000 2,810
Microsoft Corp.+ 150,500 13,931
Novell, Inc.+ 119,200 2,391
Sun Microsystems, Inc.+ 59,000 6,243
-------
45,017
-------
- -------------------------------------------------------------
BUSINESS SERVICES -- 1.1%
- -------------------------------------------------------------
America Online, Inc.+ 24,000 3,112
-------
- -------------------------------------------------------------
CHEMICAL -- 0.9%
- -------------------------------------------------------------
E. I. du Pont de Nemours & Co. 42,200 2,719
-------
- -------------------------------------------------------------
CONSUMER - NONDURABLE -- 1.2%
- -------------------------------------------------------------
Darden Restaurants, Inc. 139,500 2,659
McDonald's Corp. 18,400 759
-------
3,418
-------
Number Value
of Shares (000s)
--------- --------
- -------------------------------------------------------------
ELECTRONICS -- 9.9%
- -------------------------------------------------------------
Analog Devices, Inc.+ 26,000 $ 1,381
Cable Design Technologies
Corp.+ 64,100 1,242
Cadence Design Systems, Inc.+ 92,600 1,406
CommScope, Inc.+ 123,400 4,921
Intel Corp. 59,000 4,569
LSI Logic Corp.+ 25,800 1,372
Lucent Technologies, Inc. 48,890 3,141
Smart Modular Technologies,
Inc.+ 43,000 1,596
Tellabs, Inc.+ 48,500 3,068
Texas Instruments, Inc. 64,600 5,798
-------
28,494
-------
- -------------------------------------------------------------
ENERGY - RAW MATERIALS -- 1.1%
- -------------------------------------------------------------
ENSCO International, Inc. 55,800 1,081
Occidental Petroleum Corp. 89,200 2,035
-------
3,116
-------
- -------------------------------------------------------------
FOOD & AGRICULTURE -- 2.6%
- -------------------------------------------------------------
General Mills, Inc. 22,500 1,962
IBP, Inc. 82,300 1,970
Quaker Oats Co. 30,900 2,163
Sara Lee Corp. 50,300 1,361
-------
7,456
-------
- -------------------------------------------------------------
HEALTHCARE / DRUG & MEDICINE -- 14.1%
- -------------------------------------------------------------
Allergan, Inc. 39,000 4,188
Amgen, Inc.+ 48,000 3,828
Baxter International, Inc. 39,700 2,576
Bristol-Myers Squibb Co. 131,800 10,124
Johnson & Johnson 68,600 7,186
Merck & Co., Inc. 56,000 4,455
Schering-Plough Corp. 95,200 4,712
Warner Lambert Co. 44,200 3,528
-------
40,597
-------
- -------------------------------------------------------------
INSURANCE -- 3.1%
- -------------------------------------------------------------
American International Group,
Inc. 20,000 2,059
AXA Financial, Inc. 158,000 5,066
Marsh & McLennan Cos., Inc. 23,100 1,826
-------
8,951
-------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
16
<PAGE>
Number Value
of Shares (000s)
--------- --------
- -------------------------------------------------------------
MEDIA -- 3.4%
- -------------------------------------------------------------
McGraw Hill Cos., Inc. 35,200 $ 2,099
Tribune Co. 111,200 6,672
Washington Post Co. 1,700 905
-------
9,676
-------
- -------------------------------------------------------------
MISCELLANEOUS FINANCE -- 8.8%
- -------------------------------------------------------------
Capital One Financial Corp. 46,700 2,475
Citigroup, Inc. 174,450 9,442
Fannie Mae 33,300 2,356
Freddie Mac 37,500 2,027
Lehman Brothers Holdings, Inc. 20,000 1,474
Morgan Stanley Dean Witter
Discover & Co. 36,700 4,048
Providian Financial Corp. 33,100 3,608
-------
25,430
-------
- -------------------------------------------------------------
NON-FERROUS METALS -- 0.3%
- -------------------------------------------------------------
Engelhard Corp. 56,800 1,001
-------
- -------------------------------------------------------------
OIL - INTERNATIONAL -- 3.8%
- -------------------------------------------------------------
Chevron Corp. 25,000 2,283
Exxon Corp. 22,000 1,629
Royal Dutch Petroleum Co. -
Sponsored ADR 68,000 4,076
Texaco, Inc. 50,800 3,118
-------
11,106
-------
- -------------------------------------------------------------
PRODUCER GOODS & MANUFACTURING -- 2.2%
General Electric Co. (b) 47,700 6,466
-------
Number Value
of Shares (000s)
--------- -------
- -------------------------------------------------------------
RETAIL -- 7.7%
- -------------------------------------------------------------
Gap, Inc. 183,537 $ 6,814
Kroger Co.+ 80,000 1,665
Tandy Corp. 40,800 2,568
TJX Cos., Inc. 75,900 2,059
Wal-Mart Stores, Inc. 159,100 9,019
-------
22,125
--------
- -------------------------------------------------------------
TELEPHONE -- 9.6%
- -------------------------------------------------------------
AT&T Corp. 22,400 1,047
Bell Atlantic Corp. 25,400 1,649
BellSouth Corp. 143,900 6,476
CenturyTel, Inc. 103,500 4,185
Cincinnati Bell, Inc.+ 94,700 1,971
GTE Corp. 37,700 2,828
Nortel Networks Corp. 128,800 7,978
US West, Inc. 25,700 1,569
-------
27,703
-------
- -------------------------------------------------------------
TRAVEL & RECREATION -- 0.7%
- -------------------------------------------------------------
Harrah's Entertainment, Inc.+ 70,200 2,031
-------
- -------------------------------------------------------------
UTILITIES - ELECTRIC & GAS -- 1.2%
- -------------------------------------------------------------
Edison International 58,000 1,718
Public Service Enterprise
Group, Inc. 41,900 1,658
-------
3,376
-------
TOTAL COMMON STOCK
(Cost $193,544) 272,349
-------
17
<PAGE>
SCHWAB ANALYTICS FUND(R)
SCHEDULE OF INVESTMENTS (concluded)
October 31, 1999
Par Value
(000s) (000s)
--------- -------
- -------------------------------------------------------------
U.S. TREASURY OBLIGATIONS -- 0.1%
- -------------------------------------------------------------
U.S. Treasury Bill (a)(b)
4.71%, 12/16/99 $ 300 $ 298
-------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $298) 298
-------
Number Value
of Shares (000s)
--------- --------
- -------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 4.4%
- -------------------------------------------------------------
Provident Institutional
TempCash, 5.01%* 12,658,748 $ 12,659
--------
TOTAL SHORT-TERM INVESTMENTS
(Cost $12,659) 12,659
--------
TOTAL INVESTMENTS -- 98.9%
(COST $206,501) 285,306
--------
OTHER ASSETS AND LIABILITIES, NET -- 1.1%
Other assets 9,467
Liabilities (6,118)
--------
3,349
--------
TOTAL NET ASSETS -- 100.0% $288,655
========
NOTES TO SCHEDULE OF INVESTMENTS
October 31, 1999
+ Non-income producing security.
* Interest rate represents the yield on report date.
ADR -- American Depository Receipt.
(a) Yields shown are effective yields at time of purchase.
(b) These securities, or portion thereof, are being used to collateralize open
futures contracts.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
18
<PAGE>
SCHWAB ANALYTICS FUND(R)
STATEMENT OF ASSETS AND LIABILITIES (in thousands)
October 31, 1999
ASSETS
Investments, at value (Cost: $206,501) $285,306
Amounts on deposit with broker 630
Receivables:
Investments sold 955
Fund shares sold 7,519
Variation margin 130
Dividends 195
Interest 19
Prepaid expenses 19
--------
Total assets 294,773
--------
LIABILITIES
Payables:
Investments purchased 5,590
Fund shares redeemed 403
Investment advisory and administration fees 31
Transfer agency and shareholder service fees 18
Accrued expenses 76
---------
Total liabilities 6,118
---------
Net assets applicable to outstanding shares $ 288,655
=========
NET ASSETS CONSIST OF:
Paid-in capital $183,746
Undistributed net investment income 630
Accumulated net realized gain on investments sold
and futures contracts 25,329
Net unrealized appreciation on investments and futures
contracts 78,950
--------
$288,655
========
PRICING OF SHARES
Outstanding shares, $0.00001 par value (unlimited shares
authorized) 15,263
Net asset value, offering and redemption price per share $ 18.91
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
19
<PAGE>
SCHWAB ANALYTICS FUND(R)
STATEMENT OF OPERATIONS (in thousands)
For the year ended October 31, 1999
Investment income:
Dividends (net of foreign tax withheld of $7) $ 2,356
Interest 183
-------
Total investment income 2,539
-------
Expenses:
Investment advisory and administration fees 1,401
Transfer agency and shareholder service fees 584
Custodian fees 27
Portfolio accounting fees 35
Registration fees 44
Professional fees 23
Shareholder reports 39
Trustees' fees 5
Other expenses 8
------
2,166
Less: expenses reduced (see Note 4) (414)
-------
Net expenses incurred by fund 1,752
-------
Net investment income 787
-------
Net realized gain on investments and futures contracts:
Net realized gain on investments sold 25,545
Net realized gain on futures contracts 44
-------
Net realized gain on investments and futures contracts 25,589
-------
Change in net unrealized appreciation on investments and
futures contracts:
Net unrealized appreciation on investments 40,822
Net unrealized appreciation on futures contracts 54
-------
Net unrealized appreciation on investments and futures
contracts 40,876
-------
Net gain on investments 66,465
-------
Increase in net assets resulting from operations $67,252
=======
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
20
<PAGE>
SCHWAB ANALYTICS FUND(R)
STATEMENTS OF CHANGES IN NET ASSETS (in thousands)
For the years ended October 31,
<TABLE>
<CAPTION>
1999 1998
------- -------
Operations:
<S> <C> <C>
Net investment income $ 787 $ 1,281
Net realized gain on investments and futures contracts 25,589 7,130
Change in net unrealized appreciation on investments and futures contracts 40,876 18,940
-------- --------
Increase in net assets resulting from operations 67,252 27,351
-------- --------
Dividends and distributions:
Dividends to shareholders from net investment income (1,124) (1,345)
Distributions to shareholders from net capital gains (7,390) (14,558)
-------- --------
Total dividends and distributions to shareholders (8,514) (15,903)
-------- --------
Capital share transactions:
Proceeds from shares sold 90,154 72,094
Net asset value of shares issued in reinvestment of dividends 7,968 14,976
Payments for shares redeemed (59,718) (56,877)
-------- --------
Increase in net assets from capital share transactions 38,404 30,193
-------- --------
Total increase in net assets 97,142 41,641
Net assets:
Beginning of period 191,513 149,872
-------- --------
End of period (including undistributed net investment
income of $630 and $965, respectively) $288,655 $191,513
======== ========
Number of fund shares:
Sold 5,132 5,018
Reinvested 499 1,179
Redeemed (3,510) (3,975)
-------- --------
Net increase in shares outstanding 2,121 2,222
Shares outstanding:
Beginning of period 13,142 10,920
-------- --------
End of period 15,263 13,142
======== ========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
21
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
- ------------------------------------------------------------------------------------------------------------------------------------
11/1/98- 11/1/97- 11/1/96- 7/1/96-
SCHWAB ANALYTICS FUND(R) 10/31/99 10/31/98 10/31/97 10/31/96
- ------------------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA ($)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value at beginning of period 14.57 13.72 11.01 10.00
- ------------------------------------------------------------------------------------------------------------------------------------
From investment operations:
Net investment income 0.06 0.10 0.13 0.05
Net realized and unrealized gain
on investments 4.94 2.20 2.79 0.96
- ------------------------------------------------------------------------------------------------------------------------------------
Total income from investment operations 5.00 2.30 2.92 1.01
Less distributions:
Dividends from net investment income (0.09) (0.12) (0.08) --
Distributions from capital gains (0.57) (1.33) (0.13) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.66) (1.45) (0.21) --
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE AT END OF PERIOD $ 18.91 $ 14.57 $ 13.72 $11.01
- ------------------------------------------------------------------------------------------------------------------------------------
Total return (%) 35.20 18.37 26.83 10.10(1)
RATIOS/SUPPLEMENTAL DATA (%)
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net operating expenses to average
net assets 0.75 0.75 0.74 0.75(2)
Expense reductions reflected in above ratio 0.18 0.37 0.41 0.76(2)
Ratio of net investment income to average
net assets 0.34 0.70 1.04 1.41(2)
Portfolio turnover rate 99 115 120 33
Net assets, end of period ($ x 1,000) 288,655 191,513 149,872 97,789
1 Not annualized.
2 Annualized.
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
22
<PAGE>
NOTES TO FINANCIAL STATEMENTS
For the year ended October 31, 1999
(All currency amounts are in thousands unless otherwise noted)
1. DESCRIPTION OF THE FUND
The Schwab Analytics Fund(R) (the "fund") is a series of Schwab Capital Trust
(the "trust"), a no load, open-end, management investment company organized as a
Massachusetts business trust on May 7, 1993 and registered under the Investment
Company Act of 1940, as amended.
In addition to the fund, the trust also offers the Schwab Total Stock Market
Index Fund(TM), 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 MarketManager Growth Portfolio,
Schwab MarketManager Balanced Portfolio, Schwab MarketManager Small Cap
Portfolio, Schwab MarketManager International Portfolio, 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 securities traded on an exchange or in the
over-the-counter market 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. Securities for which no quotations are
readily available are valued at fair value as determined by the fund's
investment adviser pursuant to guidelines adopted in good faith by the Board of
Trustees. Futures contracts, which are traded on exchanges, are valued at their
settlement prices as of the close of such exchanges. Short-term securities with
60 days or less to maturity are stated at amortized cost, which approximates
market value.
SECURITIES 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.
FUTURES CONTRACTS -- The fund may invest in futures contracts. The fund is
required to deposit with the broker an amount of cash or cash equivalents equal
to a certain percentage of the contract amount. This is known as the "initial
margin." The "variation margin" represents the daily fluctuation in the value of
the contract. When the contract is closed, the fund records a realized gain or
loss equal to the difference between the value of the
23
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
contract at the time is was opened and the time it was closed.
The fund will invest in these instruments to participate in the return of an
index. The use of futures contracts involves certain risks, which include (1)
imperfect correlation between the price movement of the contracts and the
underlying securities, or (2) inability to close out positions due to different
trading hours, or the temporary absence of a liquid market, for either the
contract or underlying securities. These risks may involve amounts exceeding the
amount recognized in the fund's statement of operations at any given time.
As of October 31, 1999, the fund had the following S&P 500 Index futures
contracts:
Number of Unrealized
Contacts Contract Value Expiration Appreciation
---------- -------------- ------------ -------------
20 $6,881 12/17/99 $145
The cash and eligible securities on deposit with a broker available to cover
margin requirements for open financial futures contracts at October 31, 1999
were $630 and $298, respectively. The fund has segregated short-term investments
for the remaining portion of the contracts.
EXPENSES -- Expenses arising in connection with the fund are charged directly to
the fund. Expenses common to all series of the trust are generally allocated to
each series in proportion to their relative net assets.
FEDERAL INCOME TAXES -- It is the fund's policy to meet the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all net investment income and realized net capital
gains, if any, to shareholders. Therefore, no federal income tax provision is
required. The fund is considered a separate entity for tax purposes.
At October 31, 1999 (for financial reporting and federal income tax purposes),
net unrealized appreciation aggregated $78,950 of which $81,327 related to
appreciated securities and $2,377 related to depreciated securities.
RECLASSIFICATIONS -- Generally accepted accounting principles require that
certain components of net assets be reclassified to reflect permanent
differences between financial and tax reporting. Accordingly, current year's
permanent book/tax differences of $2 for the fund has been reclassified from
paid-in capital to undistributed net investment income. These reclassifications
have no effect on net assets or net asset value per share.
24
<PAGE>
3. TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY AND ADMINISTRATION AGREEMENT -- The trust has an investment
advisory and administration agreement with Charles Schwab Investment Management,
Inc. (the "investment adviser"). For advisory services and facilities furnished,
the 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 net assets over $500 million.
Prior to March 1, 1999, the fund paid an annual fee, payable monthly, of 0.74%
on the first $1 billion of average daily net assets, and 0.69% on the next $1
billion and 0.64% of such net assets over $2 billion. The investment adviser
has reduced a portion of its fee for the year ended October
31, 1999 (see Note 4).
SUB-ADVISORY AGREEMENT -- The investment adviser has a sub-advisory agreement
with Symphony Asset Management, Inc. ("Symphony") to serve as sub-adviser to the
fund.Symphony does not receive compensation directly from the fund. However, the
investment adviser pays Symphony an annual fee, payable monthly, of 0.20% of the
fund's average daily net assets on the first $300 million, 0.15% of the next
$500 million, and 0.10% of such net assets over $800 million.
TRANSFER AGENCY AND SHAREHOLDER SERVICE AGREEMENTS -- The trust has transfer
agency and shareholder service agreements with Charles Schwab & Co., Inc.
("Schwab"). For services provided under these agreements, Schwab receives an
annual fee, payable monthly, of 0.05% of the fund's average daily net assets for
transfer agency services and 0.20% of such net assets for shareholder services.
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
year ended October 31, 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 fund incurred fees aggregating $5 related
to the trust's unaffiliated trustees.
4. EXPENSES REDUCED AND ABSORBED BY THE INVESTMENT ADVISER AND SCHWAB
The investment adviser and Schwab guarantee that, through at least February 29,
2000, the fund's total operating expenses will not exceed 0.75% of the fund's
average daily net assets, after waivers and reimbursements. For purposes of this
guarantee, operating expenses do not include interest expenses, extraordinary
expenses, taxes, foreign taxes and capital items.
For the year ended October 31, 1999, the total of such fees reduced by the
investment adviser was $414.
25
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
5. BORROWING AGREEMENTS
The trust has lines of credit arrangements with PNC Bank, N.A., Bank of America
NT & SA and The Bank of New York whereby the trust may borrow on behalf of the
fund, on a temporary basis, to fund shareholder redemptions. The trust may
borrow an aggregate amount of up to $100 million from PNC Bank N.A., $100
million from Bank of America NT & SA and $250 million from The Bank of New York.
Amounts borrowed under these arrangements bear interest at periodically
negotiated rates and may be collateralized by the assets of the fund. As of
October 31, 1999, there were no outstanding borrowings under this arrangement on
behalf of the fund.
6. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities, other than short-term obligations
and U.S. Government securities, for the year ended October 31, 1999, were
$247,644 and $227,741, respectively.
26
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees and Shareholders of
Schwab Analytics Fund(R)
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Schwab Analytics Fund (one of the
portfolios constituting Schwab Capital Trust, hereafter referred to as the
"Fund") at October 31, 1999, and the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the year then
ended and the financial highlights for each of the periods presented, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at October 31, 1999 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
San Francisco, CA
December 9, 1999
27
<PAGE>
TAX DESIGNATIONS (unaudited)
Pursuant to Section 854(b)(2) of the Internal Revenue Code, the Schwab Analytics
Fund hereby designates 21% of the ordinary income dividends as qualifying for
the dividends received deduction for the fiscal year ended October 31, 1999.
<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 YieldPlus Fund-TM-
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>
SCHWABFUNDS-REGISTERED TRADEMARK-
INVESTMENT ADVISER
Charles Schwab Investment Management, Inc.
101 Montgomery Street, San Francisco, CA 94104
DISTRIBUTOR
Charles Schwab & Co., Inc.
101 Montgomery Street, San Francisco, CA 94104
This report is not authorized for distribution to prospective investors
unless preceded or accompanied by a current prospectus.
- -C- 1999 Charles Schwab & Co., Inc. All rights reserved.
Member SIPC/NYSE.
Printed on recycled paper. MKT3811-2 (12/99)
<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>
