<PAGE> 1
IMPORTANT NOTICE REGARDING DELIVERY OF SHAREHOLDER DOCUMENTS
SCHWAB
FOCUS FUNDS
October 31, 2000
Annual Report enclosed
COMMUNICATIONS FOCUS FUND
FINANCIAL SERVICES FOCUS FUND
HEALTH CARE FOCUS FUND
TECHNOLOGY FOCUS FUND
[CHARLES SCHWAB LOGO]
<PAGE> 2
IMPORTANT NOTICE REGARDING DELIVERY OF SHAREHOLDER DOCUMENTS
The Securities and Exchange Commission (SEC) permits 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.
MAILING OF YOUR SCHWABFUNDS(R) SHAREHOLDER DOCUMENTS MAY BE HOUSEHOLDED
INDEFINITELY UNLESS YOU INSTRUCT US OTHERWISE.
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/schwabfunds.
If you would prefer that your SchwabFunds mailings
not be householded, please contact:
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Schwab Signature Services.
INVESTMENT MANAGER CLIENTS
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ALL OTHER CLIENTS
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Your instructions that householding not apply to your accounts holding
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<PAGE> 3
SCHWAB
FOCUS FUNDS
OCTOBER 31, 2000
ANNUAL REPORT
COMMUNICATIONS FOCUS FUND
FINANCIAL SERVICES FOCUS FUND
HEALTH CARE FOCUS FUND
TECHNOLOGY FOCUS FUND
[PHOTO OF STOCK BROKERS]
CHARLESSCHWAB
<PAGE> 4
SCHWAB
FOCUS FUNDS
[PHOTO OF CHARLES SCHWAB]
Dear Shareholder,
We're pleased to bring you the first report for these funds that uses our new
"plain English" format. This format is part of a major initiative to make
SchwabFunds(R) materials easier to use.
We've given the report a simpler organization and a new look. Our goal has been
to focus on presenting information clearly and explaining what it means to
shareholders.
The most significant change is the new section on how to read and understand the
report's financial data. We've even found ways to make the financial statements
and notes more accessible. We will continue to actively look for ways to improve
these reports even further.
We hope you find this report helpful and we welcome your feedback. Thank you for
choosing SchwabFunds.
Sincerely,
/s/ Charles Schwab
Charles Schwab
ANNUAL REPORT
July 3, 2000 (inception) - October 31, 2000
1 Market Overview
5 Communications Focus Fund
The fund was hurt by poor performance in two of the sector's largest
industries.
14 Financial Services Focus Fund
Banking, insurance and brokerage stocks benefited from a relatively
stable interest rate environment.
23 Health Care Focus Fund
Substantial market volatility did not prevent the sector from rising
slightly overall.
32 Technology Focus Fund
Numerous factors drove stock prices down in this often-volatile sector.
41 Financial Notes
-------------------------------------------------------------------------------
46 HOW TO READ THIS REPORT
An illustrated guide to the financials, along with a glossary.
<PAGE> 5
MARKET OVERVIEW 1
GROWTH PERIOD IS THE LONGEST IN U.S. HISTORY.
As of October 31, 2000, U.S. economic expansion was in the middle of its tenth
year, marking the longest period of continuous growth in U.S. history. The main
force behind the expansion has been high levels of consumer spending, fueled by
increases in personal income, personal wealth and consumer confidence.
The pace of economic growth remained robust through the second quarter of 2000,
then moderated somewhat in the third quarter, in part due to reduced government
spending. Actual Q3 growth was lower than many analysts had expected.
Although energy prices soared, inflation still appears to remain in check. The
GDP price deflator, a widely used inflation indicator, declined slightly from
2.4% in the second quarter to 2.0% in the third quarter. Source: Bloomberg L.P.
PRODUCTIVITY EMERGES AS A KEY FACTOR.
[GRAPHIC]
In recent years, the Federal Reserve Bank (the Fed) demonstrated its resolve to
moderate the pace of the economy's growth by raising short-term interest rates
(since June 1999, it has raised these rates six times). The Fed has voiced
concern that increases in wages could outpace gains in productivity, forcing
companies to boost prices and potentially sparking inflation.
ASSET CLASS PERFORMANCE COMPARISON % returns over the 12 months ended October
31, 2000
This graph compares the performance of four widely used measures of securities
market performance, including U.S. stocks and bonds and international stocks.
These figures assume dividends and distributions were reinvested. Index figures
don't include trading and management costs, which would lower performance.
Indices are unmanaged and you can't invest in them directly. Remember that past
performance isn't an indication of future results. Data source: Charles Schwab &
Co., Inc. (Schwab).
1 Because this is an annual report, the overview discusses economic and market
events for the 12 months ended October 31, 2000, even though the Schwab Focus
Funds were not in operation until July 3, 2000.
[GRAPH]
<TABLE>
<CAPTION>
Lehman Brothers U.S.
Aggregate Bond Index* MSCI-EAFE(R) Index** Russell 2000(R) Index*** S&P 500(R) Index****
<S> <C> <C> <C> <C>
11/5/99 0.0061 0.005 0.0323 0.0054
11/12/99 0.0073 0.02 0.0495 0.0244
11/19/99 0.0032 0.039 0.0762 0.0435
11/26/99 0.0011 0.052 0.0708 0.0395
12/3/99 0.0015 0.053 0.0843 0.0522
12/10/99 0.0078 0.067 0.0894 0.041
12/17/99 -0.003 0.068 0.0889 0.0439
12/24/99 -0.0061 0.107 0.1268 0.0713
12/31/99 -0.0051 0.126 0.1796 0.0804
1/7/00 -0.0057 0.074 0.1415 0.06
1/14/00 -0.0103 0.101 0.1867 0.0774
1/21/00 -0.0119 0.076 0.2483 0.0599
1/28/00 -0.0052 0.071 0.1801 0.0002
2/4/00 -0.0039 0.093 0.2292 0.0481
2/11/00 -0.0068 0.1 0.2568 0.0207
2/18/00 -0.0015 0.083 0.277 -0.0095
2/25/00 0.005 0.092 0.3029 -0.0189
3/3/00 0.0068 0.115 0.4004 0.0381
3/10/00 0.0048 0.114 0.4137 0.0277
3/17/00 0.0118 0.101 0.3458 0.0788
3/24/00 0.0105 0.123 0.3449 0.1251
3/31/00 0.0168 0.121 0.2632 0.1049
4/7/00 0.0249 0.11 0.2726 0.118
4/14/00 0.0242 0.071 0.064 0.0002
4/21/00 0.0233 0.062 0.1297 0.0577
4/28/00 0.0138 0.061 0.1872 0.0717
5/5/00 -0.0004 0.057 0.203 0.0571
5/12/00 -0.0017 0.046 0.1521 0.0485
5/19/00 0.0003 0.008 0.1258 0.0381
5/26/00 0.0112 0.014 0.0738 0.0168
6/2/00 0.023 0.081 0.2045 0.0916
6/9/00 0.0262 0.079 0.2287 0.0766
6/16/00 0.0349 0.075 0.2075 0.0822
6/23/00 0.0253 0.065 0.2002 0.0652
6/30/00 0.0344 0.073 0.2155 0.0757
7/7/00 0.0391 0.083 0.2406 0.0937
7/14/00 0.0376 0.079 0.2748 0.1166
7/21/00 0.0434 0.055 0.228 0.0946
7/28/00 0.0433 0.02 0.152 0.0501
8/4/00 0.0513 0.016 0.1839 0.0827
8/11/00 0.0531 0.031 0.2002 0.0893
8/18/00 0.0544 0.039 0.2129 0.104
8/25/00 0.0584 0.046 0.2359 0.115
09/01/200 0.0616 0.057 0.2758 0.127
9/8/00 0.0606 0.014 0.2598 0.1075
9/15/00 0.0588 -0.009 0.2506 0.0862
9/22/00 0.0613 -0.024 0.2224 0.0735
9/29/00 0.0657 -0.017 0.2293 0.0653
10/6/00 0.0654 -0.02 0.1579 0.0448
10/13/00 0.0692 -0.051 0.1332 0.019
10/20/00 0.0749 -0.052 0.15 0.0361
10/27/00 0.0736 -0.037 0.1321 0.0233
10/31/00 0.073 -0.029 0.174 0.0609
</TABLE>
* measures the U.S. bond market
** measures (in U.S. dollars) large-cap stocks in Europe, Australasia and the
Far East
*** measures U.S. small-cap stocks
**** measures U.S. large-cap stocks
1
<PAGE> 6
MARKET OVERVIEW Continued
Productivity gains are important because they enable companies to achieve
greater output for every dollar spent for labor costs. Spurred mainly by
technological advances, productivity grew at 4.0% during the first half of 2000
and 3.3% during the third quarter (these figures include all economic sectors
except farming). However, third quarter productivity gains were partially offset
by a 2.5% increase in unit labor costs -- costs that had declined in the
previous quarter. Source: Bloomberg L.P.
UNEMPLOYMENT HITS NEW LOWS, YET INFLATION REMAINS AT BAY.
The unemployment rate has been trending downward for years. In April it fell
below 4% -- the lowest level in 30 years and one previously considered
improbable without high inflation.
[GRAPHIC]
Overall, labor markets continue to be extremely tight, and there has been
evidence in some regions of labor shortages driving up wages. In spite of these
regional trends, overall increases in prices and wages during the report period
were relatively modest, due in part to strong productivity gains. However, an
upturn in labor costs may make the Fed more sensitive to other potential signs
of inflation.
STOCKS STUMBLE, RECOVER; MOST BONDS POST HEALTHY RETURNS.
U.S. equities, as measured by the major indices (chart, page 1) had positive
returns for the report period. By historical standards, they also remained
highly valued.
FOUR FACTORS AND THEIR EFFECTS ON THESE FUNDS.
The following charts show recent figures for four common measures of the state
of the U.S. economy and the stock market.
While the relationship of each of these factors to the performance of the funds
is complex, the captions over each chart and the discussion above include
analysis of how we believe these factors may have influenced market behavior
during the report period.
REAL GDP GROWTH
Annualized growth rate for each quarter shown
The U.S. economy has grown steadily for more than nine years. Real GDP grew at a
2.4% annualized rate in Q3 2000 -- slower than the 5.2% for the first half of
the year.
[GRAPHIC]
<TABLE>
<S> <C>
Dec-90 -3.2
Mar-91 -2
Jun-91 2.3
Sep-91 1
Dec-91 2.2
Mar-92 3.8
Jun-92 3.8
Sep-92 3.1
Dec-92 5.4
Mar-93 -0.1
Jun-93 2.5
Sep-93 1.8
Dec-93 6.2
Mar-94 3.4
Jun-94 5.7
Sep-94 2.2
Dec-94 5
Mar-95 1.5
Jun-95 0.8
Sep-95 3.1
Dec-95 3.2
Mar-96 2.9
Jun-96 6.8
Sep-96 2
Dec-96 4.6
Mar-97 4.4
Jun-97 5.9
Sep-97 4.2
Dec-97 2.8
Mar-98 6.5
Jun-98 2.9
Sep-98 3.4
Dec-98 5.6
Mar-99 3.5
Jun-99 2.5
Sep-99 5.7
Dec-99 8.3
Mar-00 4.8
Jun-00 5.6
Sep-00 2.4
</TABLE>
Gross domestic product (GDP), a broad measure of the goods and services produced
in the United States during a given time period, is a prime indicator of the
health of the country's economy. Typically, stock investors see increases in GDP
as a positive, since it indicates stronger demand, production and corporate
earnings. The figures shown here are adjusted for inflation.
Data source: Bloomberg L.P.
2
<PAGE> 7
"Old economy" stocks and value stocks regained popularity as many newer company
stocks fell.
However, the report period saw extreme volatility in the stock market,
particularly for U.S. stocks. In March and April, the P/E for the Nasdaq 100
Index lost one-third of its value in just a two-week period. (The Nasdaq 100
Index reflects 100 of the largest Nasdaq companies across major industry groups,
including computers, telecommunications, retail/wholesale and biotechnology, but
excluding financial companies.) Volatility continued through the end of the
report period as investors shifted their focus from hard-hit sectors such as
technology to undervalued and established companies.
Outside the U.S., stocks were held back by uncertainty over oil prices and
corporate earnings. For U.S. investors, the continued rise of the dollar against
the euro and yen was a factor as well, because it eroded the dollar value of
foreign stocks.
A major factor for bonds during the report period was the U.S. Treasury's
decision to use some of the budget surplus to buy back its own bonds. This
created a major change in the picture for supply and demand of bonds, and
resulted in an inverted yield curve (a situation where short-term bonds actually
pay higher yields than long-term
[PHOTO OF STOCK BROKERS]
U.S. UNEMPLOYMENT RATE
Adjusted for seasonal variations
Unemployment hit a three-decade low of 3.9% in April. Although it trended up to
4.1% during the summer months, it closed the reporting period back at 3.9%.
[LINE GRAPH]
<TABLE>
<S> <C>
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
Nov-91 7
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
Apr-93 7.1
May-93 7.1
Jun-93 7
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
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 5.4
Apr-95 5.8
May-95 5.6
Jun-95 5.6
Jul-95 5.7
Aug-95 5.7
Sep-95 5.6
Oct-95 5.5
Nov-95 5.6
Dec-95 5.6
Jan-96 5.7
Feb-96 5.5
Mar-96 5.5
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 5.4
Dec-96 5.4
Jan-97 5.3
Feb-97 5.3
Mar-97 5.2
Apr-97 5
May-97 4.9
Jun-97 5
Jul-97 4.8
Aug-97 4.8
Sep-97 4.9
Oct-97 4.7
Nov-97 4.6
Dec-97 4.7
Jan-98 4.7
Feb-98 4.6
Mar-98 4.7
Apr-98 4.3
May-98 4.4
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 4.4
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
Nov-99 4.1
Dec-99 4.1
Jan-00 4
Feb-00 4.1
Mar-00 4.1
Apr-00 3.9
May-00 4.1
Jun-00 4
Jul-00 4
Aug-00 4.1
Sep-00 3.9
Oct-00 3.9
</TABLE>
This measures the portion of the U.S. labor force that is unemployed and is
either seeking a job or waiting to return to one. Low unemployment often
accompanies prosperity and is generally a positive factor for investors,
although very low unemployment may boost inflation as employers raise pay to
compete for workers. Rising unemployment may mean a softening economy.
Data source: Bloomberg L.P.
MEASURES OF INFLATION
Annualized figures for the Consumer Price Index (monthly) and Employment Cost
Index (quarterly)
CPI was up 3.4% for the 12 months ended October 31, 2000 (2.5% if food and
energy are excluded). ECI rose 4.3% for the 12 months ended September 30, 2000.
[LINE GRAPH]
<TABLE>
<CAPTION>
Date CPI ECI
<S> <C> <C> <C>
Sep-90 6.2 5.2
Oct-90 6.4 5.2
Nov-90 6.3 5.2
Dec-90 6.3 4.9
Jan-91 5.6 4.9
Feb-91 5.3 4.9
Mar-91 4.9 4.6
Apr-91 4.8 4.6
May-91 5 4.6
Jun-91 4.7 4.6
Jul-91 4.4 4.6
Aug-91 3.8 4.6
Sep-91 3.4 4.3
Oct-91 2.8 4.3
Nov-91 3.1 4.3
Dec-91 3 4.3
Jan-92 2.7 4.3
Feb-92 2.8 4.3
Mar-92 3.2 4
Apr-92 3.2 4
May-92 3 4
Jun-92 3 3.6
Jul-92 3.2 3.6
Aug-92 3.1 3.6
Sep-92 3 3.5
Oct-92 3.3 3.5
Nov-92 3.1 3.5
Dec-92 3 3.5
Jan-93 3.2 3.5
Feb-93 3.2 3.5
Mar-93 3 3.5
Apr-93 3.2 3.5
May-93 3.2 3.5
Jun-93 3 3.6
Jul-93 2.8 3.6
Aug-93 2.8 3.6
Sep-93 2.8 3.6
Oct-93 2.8 3.6
Nov-93 2.7 3.6
Dec-93 2.8 3.5
Jan-94 2.5 3.5
Feb-94 2.5 3.5
Mar-94 2.6 3.2
Apr-94 2.4 3.2
May-94 2.3 3.2
Jun-94 2.5 3.2
Jul-94 2.7 3.2
Aug-94 2.9 3.2
Sep-94 3 3.2
Oct-94 2.6 3.2
Nov-94 2.7 3.2
Dec-94 2.6 3
Jan-95 2.8 3
Feb-95 2.9 3
Mar-95 2.9 2.9
Apr-95 2.8 2.9
May-95 3.1 2.9
Jun-95 3 2.9
Jul-95 2.8 2.9
Aug-95 2.6 2.9
Sep-95 2.5 2.7
Oct-95 2.8 2.7
Nov-95 2.6 2.7
Dec-95 2.6 2.8
Jan-96 2.7 2.8
Feb-96 2.7 2.8
Mar-96 2.9 2.8
Apr-96 2.8 2.8
May-96 2.9 2.8
Jun-96 2.8 2.9
Jul-96 2.9 2.9
Aug-96 2.8 2.9
Sep-96 3 2.8
Oct-96 3 2.8
Nov-96 3.2 2.8
Dec-96 3.2 2.9
Jan-97 3 2.9
Feb-97 3 2.9
Mar-97 2.8 2.9
Apr-97 2.5 2.9
May-97 2.2 2.9
Jun-97 2.3 2.8
Jul-97 2.2 2.8
Aug-97 2.2 2.8
Sep-97 2.2 3
Oct-97 2.1 3
Nov-97 1.9 3
Dec-97 1.7 3.3
Jan-98 1.6 3.3
Feb-98 1.4 3.3
Mar-98 1.4 3.3
Apr-98 1.5 3.3
May-98 1.7 3.3
Jun-98 1.6 3.5
Jul-98 1.7 3.5
Aug-98 1.7 3.5
Sep-98 1.4 3.7
Oct-98 1.4 3.7
Nov-98 1.5 3.7
Dec-98 1.6 3.4
Jan-99 1.7 3.4
Feb-99 1.7 3.4
Mar-99 1.8 3
Apr-99 2.3 3
May-99 2.1 3
Jun-99 2 3.2
Jul-99 2.1 3.2
Aug-99 2.3 3.2
Sep-99 2.6 3.1
Oct-99 2.6 3.1
Nov-99 2.6 3.1
Dec-99 2.7 3.4
Jan-00 2.7 3.4
Feb-00 3.2 3.4
Mar-00 3.8 4.3
Apr-00 3.1 4.3
May-00 3.2 4.3
Jun-00 3.7 4.4
Jul-00 3.7 4.4
Aug-00 3.4 4.4
Sep-00 3.5 4.3
Oct-00 3.4
</TABLE>
The Consumer Price Index (CPI) tracks changes in the cost of goods and services
and is the most common measure of inflation. The Employment Cost Index (ECI)
measures the cost of employing workers, including benefits costs. Financial
markets are very sensitive to increases in inflation because of the potentially
negative impact on corporate earnings, investors and consumers.
Data source: Bloomberg L.P.
3
<PAGE> 8
MARKET OVERVIEW Continued
bonds). While short-term interest rates rose during the report period,
intermediate and long-term rates actually fell. Although these events were
comparatively unusual, their net effect on performance was generally positive
for bond investments.
--------------------------------------------------------------------------
The consensus among economists is that the U.S. economy appears poised for
continued growth, albeit at lower rates than those of the past few years.
--------------------------------------------------------------------------
Source: Schwab.
LOOKING AHEAD: GROWTH MAY CONTINUE, BUT RATE MAY SLOW.
[PHOTO OF PEOPLE IN FRONT OF WINDOWS]
Through its aggressive tightening of short-term interest rates in late 1999 and
the first half of 2000, the Fed has sought to slow the economy to a "soft
landing" -- a growth rate that is high enough to avoid recession but not so high
as to tempt inflation.
Recent evidence indicates that economic growth has indeed slowed from its torrid
pace of the first half of 2000.
The question remains whether the slowdown is only a temporary condition prompted
by a build-up of manufacturing inventories or is the "soft landing" desired by
the Fed.
Factors to watch may include consumer spending and employer competition for
workers. If the slowdown is in fact the desired "soft landing," we would expect
to see a slackening in one or both of these factors.
PERFORMANCE OVERALL AND BY SECTOR
Total returns since inception for the S&P 500(R) Index and the S&P indices that
track its 11 component sectors.
As the reporting period came to a close, "value" sectors rebounded as investors
cooled on communications and technology issues.
-------------------------------------------------------------------------------
The stocks in the S&P 500 Index are divided into 11 sectors, each of which
represents a cluster of related industries. This chart shows how each sector
performed during the report period, as measured by the S&P index that tracks the
S&P 500 stocks in each sector.
The performance of different sectors may vary widely within a given report
period. Similarly, the performance of any given sector relative to the others
may vary widely from period to period. Historically, it has been unusual for any
one sector to maintain the same performance ranking over a long period of time
(although it has not been uncommon for one sector or another to show
above-average performance over longer periods).
[BAR CHART]
S&P 500 AND S&P SECTOR INDICES, 10/31/99-10/31/00
<TABLE>
<S> <C>
Utilities 37.57
Capital Goods 16.11
Health Care 15.79
Financials 14.65
Energy 13.29
Technology 12.25
S&P 500 INDEX 6.09
Consumer Staples 5.42
Transportation 2.31
Basic Materials -15.05
Consumer Cyclicals -15.23
Communication Services -20.78
</TABLE>
Data source: Wilshire Associates.
4
<PAGE> 9
COMMUNICATIONS FOCUS FUND
[PHOTO OF GERI HOM AND LARRY MANO]
"While we see no reason to change our opinion of the long-term potential of
this sector, the fund's performance over its first four months has been
disappointing."
Portfolio Managers
Geri Hom and
Larry Mano
GERI HOM, a vice president of the investment adviser, has overall responsibility
for the management of the fund. Prior to joining the firm in 1995, she worked
for nearly 15 years in equity index management.
LARRY MANO, a portfolio manager, is responsible for the day-to-day management of
the fund. Prior to joining the firm in 1998, he worked for 20 years in equity
index management.
TICKER SYMBOL SWCFX
-------------------------------------------------------------------------------
Investors who believe that communications firms may be a good long-term
investment and are able to accept the risks may want to consider this fund.
-------------------------------------------------------------------------------
THE FUND'S GOAL IS TO SEEK LONG-TERM CAPITAL GROWTH.
MANAGER'S PERSPECTIVE
THE FUND HAS FACED A DIFFICULT ENVIRONMENT SINCE ITS INCEPTION IN JULY 2000, AS
VOLATILE CONDITIONS AFFECTED THE EQUITY MARKETS. A combination of factors caused
investors to trim their overall exposure to stocks. Among these factors were
high stock prices, uncertainty over the outcome of the presidential election and
potential interest rate hikes. Toward the end of the report period, evidence of
a slowing economy reduced fears of interest rate hikes. Ordinarily this might
have helped the market regain its footing, but concerns about high oil prices
kept stocks in flux.
LED BY WEAKNESS IN TWO OF ITS LARGEST INDUSTRIES, THE FUND POSTED DISAPPOINTING
RESULTS FOR THE PERIOD. Like the communications sector overall, the fund was
heavily weighted in the communications equipment and telecom industries, which
performed poorly. Lucent, in which the fund had taken a large position, fell
more than 58% during the report period, hurt by problems in its development,
manufacturing and credit operations.
THROUGHOUT THE SECTOR, GROWING COMPETITION COMBINED WITH SLACKENING DEMAND,
causing analysts to lower their expectations for earnings. Even so, earnings at
many companies came in below these reduced estimates, prompting concerns that
the sector may have been substantially overvalued and that its fundamental
problems had been underestimated.
5
<PAGE> 10
COMMUNICATIONS FOCUS FUND
PERFORMANCE
AVERAGE ANNUAL TOTAL RETURNS as of 10/31/00
This chart compares performance of the fund with the S&P Communications Sector
Index and the Morningstar Communications Fund category.
[BAR CHART]
<TABLE>
<CAPTION>
TOTAL RETURN 2
-----------------------------
AfterTax Lost To Tax
<S> <C> <C>
FUND (18.70%) 3 0
S&P COMMUNICATIONS SECTOR INDEX (8.70%) 3 0
PEER GROUP AVERAGE 1 (11.71%) 3 0
</TABLE>
PERFORMANCE OF A $10,000 INVESTMENT
Shows performance since inception of a hypothetical $10,000 investment in the
fund, compared to a similar investment in two indices: the S&P 500(R) Index and
the S&P Communications Sector Index.
[LINE GRAPH]
<TABLE>
<CAPTION>
FUND S&P COMMUNICATIONS SECTOR INDEX S&P 500 INDEX
<S> <C> <C> <C>
7/3/00 10000 10000 10000
7/31/00 9490 9206 9844
8/31/00 9720 8987 10455
9/30/00 8510 8910 9903
10/31/00 8130 9130 9862
</TABLE>
All figures on this page assume dividends and distributions were reinvested.
Index figures do not include trading and management costs, which would lower
performance. The indices are unmanaged, and you cannot invest in them directly.
When you sell your shares, they may be worth more or less than what you paid for
them. Past performance doesn't indicate future results.
1 Source: Morningstar, Inc. As of 10/31/00, there were 34 funds in the
Communications Fund category that had track records of at least four months.
2 Fund returns reflect expense reductions by the fund's investment adviser
(CSIM) and Schwab. Without these reductions, the fund's returns would have
been lower.
3 Not annualized.
6
<PAGE> 11
FUND FACTS
TOP TEN HOLDINGS 1 AS OF 10/31/00
<TABLE>
<S> <C>
1 SBC COMMUNICATIONS, INC. 9.0%
2 VERIZON COMMUNICATIONS 5.2%
3 TIME WARNER, INC. 4.8%
4 BELLSOUTH CORP. 4.6%
5 NOKIA OYJ 4.5%
6 NORTEL NETWORKS CORP. 4.4%
7 QWEST COMMUNICATIONS INTERNATIONAL, INC. 4.4%
8 AT&T CORP. 4.0%
9 CORNING, INC. 3.7%
10 WORLDCOM, INC. 3.6%
======================================================
TOTAL PERCENTAGE OF INVESTMENTS 48.2%
</TABLE>
INDUSTRY WEIGHTINGS AS OF 10/31/00
This shows the composition by industry of the fund's portfolio as of the report
date.
INDUSTRIES IN THE COMMUNICATIONS FOCUS FUND
[GRAPHIC OF PIE CHART]
<TABLE>
<S> <C>
1 51.7% Telephone
2 20.2% Electronics
3 15.9% Media
4 6.0% Business Services
5 3.7% Producer Goods & Manufacturing
6 1.3% Business Machines Software
7 0.8% Automotive Products/Motor Vehicles
8 0.4% Other
</TABLE>
STATISTICS AS OF 10/31/00
<TABLE>
<CAPTION>
PEER GROUP
FUND AVERAGE 2
<S> <C> <C>
---------------------------------------------------
Number of Holdings 51 73
---------------------------------------------------
Median Market Cap ($ Mil) $63,562 $35,544
---------------------------------------------------
Price/Earnings (P/E) Ratio 37.6 44.5
---------------------------------------------------
Price/Book (P/B) Ratio 5.9 9.6
---------------------------------------------------
12-Month Yield 3 -- --
---------------------------------------------------
Portfolio Turnover Rate 45% 4 230%
---------------------------------------------------
Three-Year Beta 3 -- --
---------------------------------------------------
</TABLE>
EXPENSE RATIO AS OF 10/31/00
[GRAPHIC OF BAR CHART]
<TABLE>
<CAPTION>
Fund Peer Group Average
<S> <C> <C>
0.89% 5 1.4% 2
</TABLE>
1 This list is not a recommendation of any security by the investment adviser.
Portfolio holdings may have changed since the report date.
2 Source: Morningstar, Inc. As of 10/31/00, there were 34 funds in the
Communications Fund category.
3 Not available until the fund has sufficient performance to report.
4 Not annualized.
5 Guaranteed by Schwab and the investment adviser through 5/15/01 (excluding
interest, taxes and certain non-routine expenses).
7
<PAGE> 12
COMMUNICATIONS FOCUS FUND -- FINANCIALS
FINANCIAL TABLES
These pages provide additional data on the fund's performance, portfolio
holdings, expenses and business operations. These figures have been audited by
PricewaterhouseCoopers LLP.
Two other sections of this report provide context for the data in these
financials. THE FINANCIAL NOTES section contains information about the fund's
business structure, accounting practices and other matters, completing the data
given in these tables. The final section, HOW TO READ THIS REPORT, includes
guides designed to make the financials easy to read and understand.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
7/3/00 1 -
10/31/00
PER-SHARE DATA ($)
-------------------------------------------------------------------------------
<S> <C>
Net asset value at beginning of period 10.00
---------
Income from investment operations:
Net investment income 0.00*
Net realized and unrealized losses (1.87)
---------
Total loss from investment operations (1.87)
---------
Net asset value at end of period 8.13
=========
Total return (%) (18.70) 2
RATIOS/SUPPLEMENTAL DATA (%)
-------------------------------------------------------------------------------
Ratio of net operating expenses to
average net assets 0.89 3
Expense reductions reflected in above ratio 0.82 3
Ratio of net investment income to
average net assets 0.07 3
Portfolio turnover rate 45
Net assets, end of period ($ x 1,000,000) 32
</TABLE>
* Per-share amount was less than $0.01.
1 Commencement of operations.
2 Not annualized.
3 Annualized.
8 See the Financial Notes, which are integral to this information.
<PAGE> 13
PORTFOLIO HOLDINGS
As of October 31, 2000
This section shows all the securities in the fund's portfolio and their market
value, as of the report date.
We use the symbols below to designate certain characteristics. With the top ten
holdings, the number in the circle is the security's rank among the top ten.
(1) Top ten holding
- Non-income producing security
* American Depositary Receipt
+ Global Depositary Receipt
The pie chart below shows the fund's major asset categories and the market value
and cost of the securities in each category.
ALL DOLLAR VALUES ARE IN THOUSANDS.
[GRAPHIC OF PIE CHART]
<TABLE>
<S> <C> <C>
99.6% COMMON STOCK Market Value: $32,432 Cost: $37,466
0.4% SHORT TERM INVESTMENTS Market Value: $132 Cost: $132
100.0% TOTAL INVESTMENTS Market Value: $32,564 Cost: $37,598
</TABLE>
COMMON STOCK 99.6% OF INVESTMENTS
<TABLE>
<CAPTION>
MKT. VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
<S> <C>
AUTOMOTIVE PRODUCTS / MOTOR VEHICLES 0.8%
-----------------------------------------------------------
- General Motors Corp., Class H 7,700 249
BUSINESS MACHINES & SOFTWARE 1.3%
-----------------------------------------------------------
- Comverse Technology, Inc. 3,789 423
</TABLE>
<TABLE>
<CAPTION>
MKT. VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
<S> <C>
BUSINESS SERVICES 6.0%
-----------------------------------------------------------
6 Nortel Networks Corp. 31,352 1,427
* Quinenco SA 29,363 246
- Sycamore Networks, Inc. 4,538 287
------
1,960
ELECTRONICS 20.2%
- ADC Telecommunications, Inc. 13,600 291
- CIENA Corp. 5,036 529
*- Deutsche Telekom AG 5,460 209
- Globespan, Inc. 2,500 192
Lucent Technologies, Inc. 49,382 1,151
- Metromedia Fiber Network, Inc.,
Class A 9,100 173
Motorola, Inc. 36,090 900
- Nextel Communications, Inc.,
Class A 17,683 680
*(5) Nokia Oyj 34,053 1,456
Scientific-Atlanta, Inc. 4,821 330
* Telefonos de Mexico SA 5,737 309
- Tellabs, Inc. 7,507 375
------
6,595
MEDIA 15.9%
-----------------------------------------------------------
BHC Communications, Inc.,
Class A 4,921 709
- Clear Channel Communications,
Inc. 10,042 603
- Comcast Corp., Class A 6,100 245
- EchoStar Communications Corp.,
Class A 6,297 285
+- Gaylord Entertainment Co. 14,600 347
Grupo Televisa SA 5,238 284
- Infinity Broadcasting Corp.,
Class A 11,630 387
Media General, Inc., Class A 11,830 450
The Walt Disney Co. 8,395 301
(3) Time Warner, Inc. 20,563 1,561
------
5,172
</TABLE>
See the Financial Notes, which are integral to this information. 9
<PAGE> 14
COMMUNICATIONS FOCUS FUND -- FINANCIALS
PORTFOLIO HOLDINGS Continued
As of October 31,2000
<TABLE>
<CAPTION>
MKT. VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
<S> <C>
PRODUCER GOODS & MANUFACTURING 3.7%
-----------------------------------------------------------------
(9) Corning, Inc. 15,561 1,190
TELEPHONE 51.7%
-----------------------------------------------------------------
* Alcatel SA 7,738 483
(8) AT&T Corp. 56,292 1,305
- AT&T Corp. -- Liberty Media Group,
Class A 55,254 995
- AT&T Wireless Group 17,500 436
(4) BellSouth Corp. 30,837 1,490
- Global Crossing Ltd. 7,890 186
* Korean Telecom Corp. 4,848 179
- NTL, Inc. 5,700 250
- Powertel, Inc. 2,672 233
* PT Indosat (Persero) 25,414 179
- 7 Qwest Communications
International, Inc. 29,233 1,421
(1) SBC Communications, Inc. 50,804 2,931
- Spectrasite Holdings, Inc. 12,000 237
- Sprint Corp. (PCS Group) 20,409 778
* Tele Denmark A/S 8,319 202
* Telecom Argentina SA 10,469 180
* Telefonaktiebolaget LM
Ericsson 50,866 706
Telephone & Data Systems,
Inc. 7,635 805
(2) Verizon Communications 29,082 1,681
* Vodafone Group PLC 15,172 646
- VoiceStream Wireless Corp. 2,600 342
-1 10 Worldcom, Inc. 49,611 1,178
-------
16,843
</TABLE>
SHORT-TERM INVESTMENTS
0.4% OF INVESTMENTS
<TABLE>
<CAPTION>
SECURITY FACE VALUE MKT. VALUE
RATE, MATURITY DATE ($ x 1,000) ($ x 1,000)
<S> <C> <C>
Citibank Nassau Time Deposit
6.03%, 11/01/00 132 132
</TABLE>
END OF PORTFOLIO HOLDINGS. For totals, please see the first page of holdings for
this fund.
10 See the Financial Notes, which are integral to this information.
<PAGE> 15
Statement of
ASSETS AND LIABILITIES
As of October 31, 2000. All numbers x 1,000 except NAV.
<TABLE>
<S> <C>
ASSETS
----------------------------------------------------------------------
Investments, at market value $32,564*
Receivables:
Fund shares sold 29
Dividends 51
Reimbursement to fund 5
Prepaid expenses + 5
-------------
TOTAL ASSETS 32,654
LIABILITIES
----------------------------------------------------------------------
Payables:
Fund shares redeemed 29
Investments bought 168
Accrued expenses + 44
-------------
TOTAL LIABILITIES 241
NET ASSETS
----------------------------------------------------------------------
TOTAL ASSETS 32,654
TOTAL LIABILITIES - 241
-------------
NET ASSETS $32,413
NET ASSETS BY SOURCE
Capital received from investors 39,702
Net investment income not yet distributed 8
Net realized capital losses (2,263)
Net unrealized capital losses (5,034)
</TABLE>
NET ASSET VALUE (NAV)
<TABLE>
<CAPTION>
SHARES
NET ASSETS / OUTSTANDING = NAV
<S> <C> <C>
$32,413 3,988 $8.13
</TABLE>
<TABLE>
<CAPTION>
FEDERAL TAX DATA
-----------------------------------------------
<S> <C>
COST BASIS OF PORTFOLIO $38,635
NET UNREALIZED GAINS AND LOSSES:
Gains $ 1,707
Losses + (7,778)
-----------
($6,071)
</TABLE>
UNUSED CAPITAL LOSSES:
<TABLE>
<CAPTION>
Expires 10/31 of: Loss amount
<S> <C>
2008 $1,226
</TABLE>
*The fund paid $37,598 for these securities. Not counting short-term obligations
and government securities, the fund paid $54,865 for securities during the
report period and received $15,136 from securities it sold or that matured.
See the Financial Notes, which are integral to this information. 11
<PAGE> 16
COMMUNICATIONS FOCUS FUND -- FINANCIALS
Statement of
OPERATIONS
For July 3, 2000 (commencement of operations) through October 31, 2000. All
numbers x 1,000.
<TABLE>
<S> <C>
INVESTMENT INCOME
---------------------------------------------------------------------
Dividends $86
Interest + 23
-------------
TOTAL INVESTMENT INCOME 109
NET REALIZED GAINS AND LOSSES
---------------------------------------------------------------------
Net realized losses on investments sold (2,263)
NET UNREALIZED GAINS AND LOSSES
---------------------------------------------------------------------
Net unrealized losses on investments (5,034)
EXPENSES
---------------------------------------------------------------------
Investment adviser and administrator fees 61*
Transfer agent and shareholder service fees 28**
Trustees' fees 4***
Custodian fees 5
Portfolio accounting fees 2
Professional fees 18
Registration fees 63
Shareholder reports 8
Other expenses + 5
-------------
Total expenses 194
Expense reduction - 93(+)
-------------
NET EXPENSES 101
DECREASE IN NET ASSETS FROM OPERATIONS
---------------------------------------------------------------------
TOTAL INVESTMENT INCOME 109
NET EXPENSES - 101
-------------
NET INVESTMENT INCOME 8
NET REALIZED LOSSES (2,263)(++)
NET UNREALIZED LOSSES + (5,034)(++)
-------------
DECREASE IN NET ASSETS FROM OPERATIONS ($7,289)
</TABLE>
* Calculated as 0.54% of average daily net assets.
** Calculated as a percentage of average daily net assets: for transfer agent
services, 0.05% of the fund's assets; for shareholder services, 0.20% of
the fund's assets.
*** For the fund's independent trustees only.
(+) Includes $61 from the investment adviser (CSIM) and $25 from the transfer
agent and shareholder service agent (Schwab). In addition, the total
expenses reimbursed by the investment adviser was $7. These reductions
reflect a guarantee by CSIM and Schwab to limit the operating expenses of
this fund through at least May 15, 2001, to 0.89% of average daily net
assets. This limit does not include interest, taxes and certain
non-routine expenses.
(++) These add up to a net loss on investments of $7,297.
12 See the Financial Notes, which are integral to this information.
<PAGE> 17
Statement of
CHANGES IN NET ASSETS
For the current report period only. Because the fund commenced operations on
7/3/00, it has no prior report period.
All numbers x 1,000.
OPERATIONS
----------------------------------------------------------------
<TABLE>
<CAPTION>
7/3/00-10/31/00
<S> <C>
Net investment income $8
Net realized losses (2,263)
Net unrealized losses (5,034)
--------
DECREASE IN NET ASSETS FROM OPERATIONS ($7,289)
</TABLE>
TRANSACTIONS IN FUND SHARES
----------------------------------------------------------------
<TABLE>
<CAPTION>
7/3/00-10/31/00
<S> <C> <C>
QUANTITY VALUE
Shares sold 4,323 $42,627
Shares redeemed + (335) (2,925)*
-------------------------
NET INCREASE 3,988 $39,702
</TABLE>
SHARES OUTSTANDING AND NET ASSETS
----------------------------------------------------------------
<TABLE>
<CAPTION>
7/3/00-10/31/00
SHARES NET ASSETS
<S> <C> <C>
Beginning of period -- $ --
Total increase + 3,988 32,413**
-------------------------
END OF PERIOD 3,988 $32,413***
-------------------------
</TABLE>
* Dollar amounts are net of $22 in proceeds received from early withdrawal
fees that the fund charges on shares sold 180 days or less after buying
them.
** Figures for shares represent the net changes in shares from the transactions
described above. Figures for net assets represent the changes in net assets
from operations plus the value of transactions in fund shares.
*** Includes net investment income not yet distributed in the amount of $8 for
the current period.
See the Financial Notes, which are integral to this information. 13
<PAGE> 18
FINANCIAL SERVICES FOCUS FUND
TICKER SYMBOL SWFFX
This fund may appeal to long-term investors who are interested in a fund that
seeks to capture the performance of the U.S. financial services sector.
THE FUND'S GOAL IS TO SEEK LONG-TERM CAPITAL GROWTH.
MANAGER'S PERSPECTIVE
IN SPITE OF THE VOLATILE CONDITIONS THAT PREVAILED IN EQUITY MARKETS, THE FUND
PERFORMED WELL SINCE ITS INCEPTION IN JULY 2000. A combination of factors caused
investors to trim their overall exposure to stocks. Among these factors were
high stock prices, uncertainty over the outcome of the presidential election and
potential interest rate hikes. Toward the end of the report period, evidence of
a slowing economy reduced fears of interest rate hikes. Ordinarily this might
have helped the market regain its footing, but concerns about high oil prices
kept stocks in flux.
STRENGTH IN THE BANKING, INSURANCE AND BROKERAGE INDUSTRIES SET THE PACE FOR THE
FINANCIAL SERVICES SECTOR. Heavy exposure to these industries allowed the fund
to benefit from this trend. Financial sector performance got a boost from
continued consolidation within the industry, notably the mergers of Citicorp
with Associates First Capital and J.P. Morgan with Chase Manhattan.
The perception that the Federal Reserve has completed its current round of rate
hikes also helped, as most financial industries do not benefit from a rising
interest rate environment.
[GRAPHIC OF LARRY & GERI]
"During its first four months of operation, the fund outpaced the S&P 500(R)
Index."
Portfolio Managers
Geri Hom and
Larry Mano
GERI HOM, a vice president of the investment adviser, has overall
responsibility for the management of the fund. Prior to joining the firm in
1995, she worked for nearly 15 years in equity index management.
LARRY MANO, a portfolio manager, is responsible for the day-to-day management
of the fund. Prior to joining the firm in 1998, he worked for 20 years in
equity index management.
14
<PAGE> 19
PERFORMANCE
AVERAGE ANNUAL TOTAL RETURNS as of 10/31/00
This chart compares performance of the fund with the S&P Financial Services
Sector Index and the Morningstar Financial Services Fund category.
[BAR CHART]
SINCE INCEPTION: 7/3/00
<TABLE>
<CAPTION>
Total Return 2
--------------
<S> <C>
FUND 18.60% 3
S&P FINANCIAL SERVICES SECTOR INDEX 23.31% 3
PEER GROUP AVERAGE 1 21.52% 3
</TABLE>
PERFORMANCE OF A $10,000 INVESTMENT
Shows performance since inception of a hypothetical $10,000 investment in the
fund, compared to a similar investment in two indices: the S&P 500(R) Index and
the S&P Financial Services Sector Index.
[LINE GRAPH]
<TABLE>
<CAPTION>
S&P FINANCIAL
SERVICES SECTOR
FUND INDEX S&P 500 INDEX
----- -------------- -------------
<S> <C> <C> <C>
7/3/00 10000 10000 10000
7/31/00 10770 11030 9844
8/31/00 11830 12076 10455
9/30/00 12050 12368 9903
10/31/00 11860 12331 9862
</TABLE>
All figures on this page assume dividends and distributions were reinvested.
Index figures do not include trading and management costs, which would lower
performance. The indices are unmanaged, and you cannot invest in them directly.
When you sell your shares, they may be worth more or less than what you paid for
them. Past performance doesn't indicate future results.
1 Source: Morningstar, Inc. As of 10/31/00, there were 78 funds in the
Financial Services Fund category that had track records of at least four
months.
2 Fund returns reflect expense reductions by the fund's investment adviser
(CSIM) and Schwab. Without these reductions, the fund's returns would have
been lower.
3 Not annualized.
15
<PAGE> 20
FINANCIAL SERVICES FOCUS FUND
FUND FACTS
<TABLE>
<CAPTION>
TOP TEN HOLDINGS 1 as of 10/31/00
---------------------------------------------------------------------------
<S> <C>
1 GENERAL ELECTRIC CO. 17.7%
2 AMERICAN INTERNATIONAL GROUP, INC. 7.1%
3 CITIGROUP, INC. 4.4%
4 MORGAN STANLEY DEAN WITTER & CO. 4.0%
5 BERKSHIRE HATHAWAY, INC., CLASS A 3.4%
6 BANK OF AMERICA CORP. 3.3%
7 FLEET BOSTON FINANCIAL CORP. 2.6%
8 CHASE MANHATTAN CORP. 2.5%
9 WELLS FARGO & CO. 2.4%
10 FANNIE MAE 2.4%
---------------------------------------------------------------------------
TOTAL PERCENTAGE OF INVESTMENTS 49.8%
</TABLE>
STATISTICS as of 10/31/00
<TABLE>
<CAPTION>
PEER GROUP
FUND AVERAGE 2
-------------------------------------------------------------------------------
<S> <C> <C>
Number of Holdings 101 71
Median Market Cap ($ Mil) $51,138 $22,022
Price/Earnings (P/E) Ratio 26.2 21.2
Price/Book (P/B) Ratio 5.3 4.2
12-Month Yield 3 -- --
Portfolio Turnover Rate 40% 4 289%
Three-Year Beta 3 -- --
</TABLE>
EXPENSE RATIO as of 10/31/00
[BAR CHART]
FUND PEER GROUP AVERAGE
0.89% 5 1.67% 2
INDUSTRY WEIGHTINGS as of 10/31/00
This shows the composition by industry of the fund's portfolio as of the report
date.
[PIE CHART]
<TABLE>
<CAPTION>
INDUSTRIES IN THE FINANCIAL SERVICES FOCUS FUND
-----------------------------------------------
<S> <C>
1 Miscellaneous Finance 28.0%
2 Banks 24.2%
3 Insurance 24.1%
4 Producer Goods & Manufacturing 17.7%
5 Real Property 4.7%
6 Healthcare/Drugs & Medicine 0.5%
7 Other 0.8%
</TABLE>
1 This list is not a recommendation of any security by the investment adviser.
Portfolio holdings may have changed since the report date.
2 Source: Morningstar, Inc. As of 10/31/00, there were 78 funds in the
Financial Services Fund category.
3 Not available until the fund has sufficient performance to report.
4 Not annualized.
5 Guaranteed by Schwab and the investment adviser through 5/15/01 (excluding
interest, taxes and certain non-routine expenses).
16
<PAGE> 21
FINANCIAL SERVICES FOCUS FUND -- FINANCIALS
FINANCIAL TABLES
These pages provide additional data on the fund's performance, portfolio
holdings, expenses and business operations. These figures have been audited by
PricewaterhouseCoopers LLP.
Two other sections of this report provide context for the data in these
financials. THE FINANCIAL NOTES section contains information about the fund's
business structure, accounting practices and other matters, completing the data
given in these tables. The final section, HOW TO READ THIS REPORT, includes
guides designed to make the financials easy to read and understand.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
7/3/00 1 -
10/31/00
PER-SHARE DATA ($)
--------------------------------------------------------------------------------
<S> <C>
Net asset value at beginning of period 10.00
----------
Income from investment operations:
Net investment income 0.04
Net realized and unrealized gains 1.82
----------
Total income from investment operations 1.86
----------
Net asset value at end of period 11.86
==========
Total return (%) 18.60 2
RATIOS/SUPPLEMENTAL DATA (%)
--------------------------------------------------------------------------------
Ratio of net operating expenses to
average net assets 0.89 3
Expense reductions reflected in above ratio 1.10 3
Ratio of net investment income to
average net assets 1.04 3
Portfolio turnover rate 40
Net assets, end of period ($ x 1,000,000) 24
</TABLE>
1 Commencement of operations.
2 Not annualized.
3 Annualized.
See the Financial Notes, which 17
are integral to this information.
<PAGE> 22
FINANCIAL SERVICES FOCUS FUND -- FINANCIALS
PORTFOLIO HOLDINGS
As of October 31, 2000
This section shows all the securities in the fund's portfolio and their market
value, as of the report date.
We use the symbols below to designate certain characteristics. With the top ten
holdings, the number in the circle is the security's rank among the top ten.
(1) Top ten holding
- Non-income producing security
The pie chart below shows the fund's major asset categories and the market value
and cost of the securities in each category.
ALL DOLLAR VALUES ARE IN THOUSANDS.
[PIE CHART]
<TABLE>
<S> <C>
99.6% COMMON STOCK
Market Value: $24,151
Cost: $21,757
0.4% SHORT TERM INVESTMENTS
Market Value: $101
Cost: $101
----------------------------------
100.0% TOTAL INVESTMENTS
Market Value: $24,252
Cost: $21,858
</TABLE>
<TABLE>
<CAPTION>
COMMON STOCK 99.6% OF INVESTMENTS
MKT. VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
BANKS 24.2%
---------------------------------------------------------------------------------
<S> <C>
BancWest Corp. 4,760 97
(6) Bank of America Corp. 16,680 802
Bank of New York Co., Inc. 5,360 309
Bank One Corp. 3,500 128
BB&T Corp. 6,560 209
(8) Chase Manhattan Corp. 13,060 594
Fifth Third Bancorp. 4,390 226
Firstar Corp. 8,800 173
(7) FleetBoston Financial Corp. 16,680 634
Golden West Financial Corp. 4,520 253
Huntington Bancshares, Inc. 28,798 414
- Imperial Bancorp. 1,300 32
J.P. Morgan & Co., Inc. 1,320 218
Mellon Financial Corp. 6,240 301
National City Corp. 760 16
Northern Trust Corp. 1,880 161
Providian Financial Corp. 440 46
Roslyn Bancorp., Inc. 3,520 76
- Silicon Valley Bancshares 1,700 79
State Street Corp. 1,740 217
SunTrust Banks, Inc. 940 46
The Colonial BancGroup, Inc. 2,200 19
U.S. Bancorp. 4,660 113
Union Planters Corp. 360 12
UnionBanCal Corp. 3,100 65
(9) Wells Fargo & Co. 12,700 588
Whitney Holding Corp. 1,000 37
------
5,865
BUSINESS MACHINES & SOFTWARE 0.1%
---------------------------------------------------------------------------------
Comdisco, Inc. 1,620 20
BUSINESS SERVICES 0.3%
---------------------------------------------------------------------------------
- Cendant Corp. 3,240 39
- National Processing, Inc. 3,000 47
------
86
HEALTHCARE / DRUGS & MEDICINE 0.5%
---------------------------------------------------------------------------------
UnitedHealth Group, Inc. 1,200 131
INSURANCE 24.1%
---------------------------------------------------------------------------------
AFLAC, Inc. 1,700 124
Allstate Corp. 5,720 230
American Financial Group, Inc. 16,880 362
American General Corp. 780 63
(2) American International Group, Inc. 17,470 1,712
American National Insurance Co. 4,320 293
Aon Corp. 1,640 68
Arthur J. Gallagher & Co. 760 48
Chubb Corp. 1,200 101
CIGNA Corp. 20 2
Cincinnati Financial Corp. 2,360 87
- CNA Financial Corp. 7,000 256
- Delphi Financial Group, Inc., Class A 240 9
</TABLE>
18 See the Financial Notes, which
are integral to this information.
<PAGE> 23
<TABLE>
<CAPTION>
MKT. VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
<S> <C>
Hartford Financial Services Group, Inc. 2,340 174
- John Hancock Financial Services 7,820 247
Lincoln National Corp. 2,300 111
Loew's Corp. 2,200 200
Manulife Financial Corp. 3,680 95
Marsh & McLennan Cos., Inc. 2,180 285
- Metlife, Inc. 13,700 378
Mony Group, Inc. 10,460 430
Nationwide Financial Services, Inc., Class A 1,900 92
Old Republic International Corp. 3,500 91
St. Paul Cos., Inc. 3,500 179
The PMI Group, Inc. 920 68
W.R. Berkley Corp. 2,260 77
White Mountains Insurance Group, Inc. 240 63
------
5,845
MISCELLANEOUS FINANCE 28.0%
---------------------------------------------------------------------------------
A.G. Edwards, Inc. 1,540 78
- Affiliated Managers Group, Inc. 100 6
Alliance Capital Management Holding L.P. 1,660 80
Allied Capital Corp. 600 12
American Express Co. 7,860 472
Associates First Capital Corp., Class A 4,740 176
AXA Financial, Inc. 3,680 199
Bear Stearns Cos., Inc. 2,400 146
-(5) Berkshire Hathaway, Inc., Class A 13 828
Capital One Financial Corp. 200 13
CIT Group, Inc., Class A 1,700 30
(3) Citigroup, Inc. 20,086 1,057
- CompuCredit Corp. 300 9
Downey Financial Corp. 2,960 141
Eaton Vance Corp. 1,360 68
(10) Fannie Mae 7,520 579
Federated Investors, Inc., Class B 1,850 54
Freddie Mac 3,300 198
Goldman Sachs Group, Inc. 5,420 541
Heller Financial, Inc. 700 20
Household International, Inc. 3,100 156
IndyMac Bancorp., Inc. 3,360 70
Investors Financial Services Corp. 480 34
Lehman Brothers Holdings, Inc. 3,360 217
MBNA Corp. 5,560 209
(4) Morgan Stanley Dean Witter & Co. 12,120 973
Paine Webber Group, Inc. 920 66
Student Loan Corp. 1,500 80
Waddell & Reed Financial, Inc., Class A 1,700 54
Waddell & Reed Financial, Inc., Class B 920 29
Wesco Financial Corp. 700 187
------
6,782
PRODUCER GOODS & MANUFACTURING 17.7%
---------------------------------------------------------------------------------
(1) General Electric Co. 78,160 4,284
- Harbor Global Co., Ltd. 224 1
------
4,285
REAL PROPERTY 4.7%
---------------------------------------------------------------------------------
Archstone Communities Trust 7,660 181
Cabot Industrial Trust 4,000 76
Equity Office Properties Trust 3,840 116
iStar Financial, Inc. 1,600 32
Mack-Cali Realty Corp. 8,100 220
Pacific Gulf Properties, Inc. 6,000 159
- Pinnacle Holdings, Inc. 2,200 35
- Security Capital Group, Inc., Class B 11,700 223
Summit Properties, Inc. 3,940 95
------
1,137
</TABLE>
SHORT-TERM INVESTMENTS
0.4% OF INVESTMENTS
<TABLE>
<CAPTION>
SECURITY FACE VALUE MKT. VALUE
RATE, MATURITY DATE ($ x 1,000) ($ x 1,000)
<S> <C> <C>
Chase Manhattan Bank Time Deposit
6.03%, 11/01/00 101 101
</TABLE>
END OF PORTFOLIO HOLDINGS. For totals, please see the first page of holdings for
this fund.
See the Financial Notes, which 19
are integral to this information.
<PAGE> 24
FINANCIAL SERVICES FOCUS FUND -- FINANCIALS
Statement of
ASSETS AND LIABILITIES
As of October 31, 2000. All numbers x 1,000 except NAV.
<TABLE>
<CAPTION>
ASSETS
-------------------------------------------------------------------------------
<S> <C>
Investments, at market value $24,252*
Receivables:
Fund shares sold 39
Dividends + 12
------------
TOTAL ASSETS 24,303
LIABILITIES
-------------------------------------------------------------------------------
Payables:
Fund shares redeemed 26
Investments bought 90
Accrued expenses + 47
------------
TOTAL LIABILITIES 163
NET ASSETS
-------------------------------------------------------------------------------
TOTAL ASSETS 24,303
TOTAL LIABILITIES - 163
------------
NET ASSETS $24,140
NET ASSETS BY SOURCE
Capital received from investors 20,957
Net investment income not yet distributed 75
Net realized capital gains 714
Net unrealized capital gains 2,394
</TABLE>
NET ASSET VALUE (NAV)
<TABLE>
<CAPTION>
SHARES
NET ASSETS / OUTSTANDING = NAV
<S> <C> <C>
$24,140 2,035 $11.86
</TABLE>
* The fund paid $21,858 for these securities. Not counting short-term
obligations and government securities, the fund paid $29,638 for securities
during the report period and received $8,595 from securities it sold or that
matured.
<TABLE>
<CAPTION>
FEDERAL TAX DATA
------------------------------------------------------------------------------
<S> <C>
COST BASIS OF PORTFOLIO $21,953
NET UNREALIZED GAINS AND LOSSES:
Gains $2,751
Losses + (452)
-----------
$2,299
</TABLE>
20 See the Financial Notes, which
are integral to this information.
<PAGE> 25
Statement of
OPERATIONS
For July 3, 2000 (commencement of operations) through October 31, 2000. All
numbers x 1,000.
<TABLE>
<CAPTION>
INVESTMENT INCOME
------------------------------------------------------------------------------
<S> <C>
Dividends $126
Interest + 12
------------
TOTAL INVESTMENT INCOME 138
NET REALIZED GAINS AND LOSSES
------------------------------------------------------------------------------
Net realized gains on investments sold 714
NET UNREALIZED GAINS AND LOSSES
------------------------------------------------------------------------------
Net unrealized gains on investments 2,394
EXPENSES
------------------------------------------------------------------------------
Investment adviser and administrator fees 38*
Transfer agent and shareholder service fees 18**
Trustees' fees 4***
Custodian fees 9
Portfolio accounting fees 1
Professional fees 18
Registration fees 41
Shareholder reports 8
Other expenses + 5
------------
Total expenses 142
Expense reduction - 79#
------------
NET EXPENSES 63
INCREASE IN NET ASSETS FROM OPERATIONS
------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME 138
NET EXPENSES - 63
------------
NET INVESTMENT INCOME 75
NET REALIZED GAINS 714##
NET UNREALIZED GAINS + 2,394##
------------
INCREASE IN NET ASSETS FROM OPERATIONS $3,183
</TABLE>
* Calculated as 0.54% of average daily net assets.
** Calculated as a percentage of average daily net assets: for transfer agent
services, 0.05% of the fund's assets; for shareholder services, 0.20% of the
fund's assets.
*** For the fund's independent trustees only.
# Includes $38 from the investment adviser (CSIM) and $18 from the transfer
agent and shareholder service agent (Schwab). In addition, the total
expenses reimbursed by the investment adviser was $23. These reductions
reflect a guarantee by CSIM and Schwab to limit the operating expenses of
this fund through at least May 15, 2001, to 0.89% of average daily net
assets. This limit does not include interest, taxes and certain non-routine
expenses.
## These add up to a net gain on investments of $3,108.
See the Financial Notes, which 21
are integral to this information.
<PAGE> 26
FINANCIAL SERVICES FOCUS FUND -- FINANCIALS
Statement of
CHANGES IN NET ASSETS
For the current report period only. Because the fund commenced operations on
7/3/00, it has no prior report period.
All numbers x 1,000.
OPERATIONS
------------------------------------------------------------------------------
<TABLE>
<S> <C>
7/3/00-10/31/00
Net investment income $75
Net realized gains 714
Net unrealized gains 2,394
---------------
INCREASE IN NET ASSETS FROM OPERATIONS $3,183
</TABLE>
TRANSACTIONS IN FUND SHARES
------------------------------------------------------------------------------
<TABLE>
<CAPTION>
7/3/00-10/31/00
QUANTITY VALUE
<S> <C> <C>
Shares sold 2,202 $22,882
Shares redeemed + (167) (1,925)*
---------------------------------------------
NET INCREASE 2,035 $20,957
</TABLE>
SHARES OUTSTANDING AND NET ASSETS
------------------------------------------------------------------------------
<TABLE>
<CAPTION>
7/3/00-10/31/00
SHARES NET ASSETS
<S> <C> <C>
Beginning of period -- $ --
Total increase + 2,035 24,140**
----------------------------------------------
END OF PERIOD 2,035 $24,140#
</TABLE>
* Dollar amounts are net of $13 in proceeds received from early withdrawal fees
that the fund charges on shares sold 180 days or less after buying them.
** Figures for shares represent the net changes in shares from the transactions
described above. Figures for net assets represent the changes in net assets
from operations plus the value of transactions in fund shares.
# Includes net investment income not yet distributed in the amount of $75 for
the current period.
22 See the Financial Notes, which
are integral to this information.
<PAGE> 27
HEALTH CARE
FOCUS FUND
[PHOTO OF GERI HOM AND LARRY MANO]
" If economic growth does indeed slow and if we don't see any new federal health
care or Medicare initiatives, we believe stocks in this sector may generate
strong relative earnings growth."
Portfolio Managers
Geri Hom and
Larry Mano
GERI HOM, a vice president of the investment adviser, has overall responsibility
for the management of the fund. Prior to joining the firm in 1995, she worked
for nearly 15 years in equity index management.
LARRY MANO, a portfolio manager, is responsible for the day-to-day management of
the fund. Prior to joining the firm in 1998, he worked for 20 years in equity
index management.
TICKER SYMBOL SWHFX
--------------------------------------------------------------------------------
Investors who believe that U.S. health care companies may show potential
long-term growth may want to consider this fund.
--------------------------------------------------------------------------------
THE FUND'S GOAL IS TO SEEK LONG-TERM CAPITAL GROWTH.
MANAGER'S PERSPECTIVE
IN SPITE OF THE VOLATILE CONDITIONS THAT PREVAILED IN EQUITY MARKETS, THE FUND
REPORTED POSITIVE PERFORMANCE SINCE ITS INCEPTION IN JULY 2000. A combination of
factors caused investors to trim their overall exposure to stocks. Among these
factors were high stock prices, uncertainty over the outcome of the presidential
election and potential interest rate hikes. Toward the end of the report period,
evidence of a slowing economy reduced fears of interest rate hikes. Ordinarily
this might have helped the market regain its footing, but concerns about high
oil prices kept stocks in flux.
HOSPITAL MANAGEMENT, SPECIAL SERVICES, MEDICAL PRODUCTS, MANAGED CARE AND
BIOTECH ALL CONTRIBUTED TO POSITIVE RETURNS FOR THE HEALTH CARE SECTOR. As the
economy slowed and overall stock prices weakened, investors sought steady
earnings growth and the health care sector delivered. The fund benefited from
the fact that Merck, one of its main holdings, returned 17.61% since the fund's
inception, based in part on favorable comments from investment firms after a
third-quarter rise in income.
While the old-line drug companies have expressed concern over proposed
government actions that would affect the sector, we believe that such factors as
medical advances, DNA research and an aging population could be favorable for
the sector's long-term investment outlook.
23
<PAGE> 28
HEALTH CARE FOCUS FUND
PERFORMANCE
AVERAGE ANNUAL TOTAL RETURNS as of 10/31/00
This chart compares performance of the fund with the S&P Health Care Sector
Index and the Morningstar Health Care Fund category.
[BAR GRAPH]
<TABLE>
<CAPTION>
S&P HEALTH CARE PEER GROUP
FUND SECTOR INDEX AVERAGE 1
<S> <C> <C> <C>
Total Return 2 2.70% 3 2.67% 3 10.26% 3
</TABLE>
PERFORMANCE OF A $10,000 INVESTMENT
Shows performance since inception of a hypothetical $10,000 investment in the
fund, compared to a similar investment in two indices: the S&P 500(R) Index and
the S&P Health Care Sector Index.
<TABLE>
<CAPTION>
FUND S&P HEALTH CARE SECTOR GROUP S&P 500 INDEX
<S> <C> <C> <C>
7/3/00 10000 10000 10000
7/31/00 9450 9411 9844
8/31/00 9820 9464 10455
9/30/00 10160 9918 9903
10/31/00 10270 10267 9862
</TABLE>
All figures on this page assume dividends and distributions were reinvested.
Index figures do not include trading and management costs, which would lower
performance. The indices are unmanaged, and you cannot invest in them directly.
When you sell your shares, they may be worth more or less than what you paid for
them. Past performance doesn't indicate future results.
1 Source: Morningstar, Inc. As of 10/31/00, there were 82 funds in the Health
Care Fund category that had track records of at least four months.
2 Fund returns reflect expense reductions by the fund's investment adviser
(CSIM) and Schwab. Without these reductions, the fund's returns would have
been lower.
3 Not annualized.
24
<PAGE> 29
FUND FACTS
<TABLE>
<CAPTION>
TOP TEN HOLDINGS 1 as of 10/31/00
--------------------------------------------------------------------------------
<S> <C>
1 PFIZER, INC. 14.6%
2 MERCK & CO., INC. 10.8%
3 JOHNSON & JOHNSON 6.3%
4 BRISTOL-MYERS SQUIBB CO. 5.4%
5 ELI LILLY & CO. 5.2%
6 AMERICAN HOME PRODUCTS CORP. 4.6%
7 PHARMACIA CORP. 3.9%
8 MEDTRONIC, INC. 3.5%
9 AMGEN, INC. 3.5%
10 SCHERING-PLOUGH CORP. 3.4%
--------------------------------------------------------------------------------
TOTAL PERCENTAGE OF INVESTMENTS 61.2%
</TABLE>
STATISTICS as of 10/31/00
<TABLE>
<CAPTION>
PEER GROUP
FUND AVERAGE 2
--------------------------------------------------------------------------------
<S> <C> <C>
Number of Holdings 51 79
--------------------------------------------------------------------------------
Median Market Cap ($ Mil) $69,483 $19,314
--------------------------------------------------------------------------------
Price/Earnings (P/E) Ratio 40.6 43.4
--------------------------------------------------------------------------------
Price/Book (P/B) Ratio 12 12.6
--------------------------------------------------------------------------------
12-Month Yield 3 -- --
--------------------------------------------------------------------------------
Portfolio Turnover Rate 41% 4 310%
--------------------------------------------------------------------------------
Three-Year Beta 3 -- --
--------------------------------------------------------------------------------
</TABLE>
EXPENSE RATIO as of 10/31/00
[BAR GRAPH]
<TABLE>
<S> <C>
FUND 0.89% 5
PEER GROUP AVERAGE 1.67% 2
</TABLE>
INDUSTRY WEIGHTINGS as of 10/31/00
This shows the composition by industry of the fund's portfolio as of the report
date.
INDUSTRIES IN THE HEALTH CARE FOCUS FUND
--------------------------------------------------------------------------------
[PIE CHART]
1 97.4% Healthcare/Drugs & Medicine
2 1.9% Electronics
3 0.7% Other
1 This list is not a recommendation of any security by the investment adviser.
Portfolio holdings may have changed since the report date.
2 Source: Morningstar, Inc. As of 10/31/00, there were 82 funds in the Health
Care Fund category.
3 Not available until the fund has sufficient performance to report.
4 Not annualized.
5 Guaranteed by Schwab and the investment adviser through 5/15/01 (excluding
interest, taxes and certain non-routine expenses).
25
<PAGE> 30
HEALTH CARE FOCUS FUND -- FINANCIALS
FINANCIAL TABLES
These pages provide additional data on the fund's performance, portfolio
holdings, expenses and business operations. These figures have been audited by
PricewaterhouseCoopers LLP.
Two other sections of this report provide context for the data in these
financials. THE FINANCIAL NOTES section contains information about the fund's
business structure, accounting practices and other matters, completing the data
given in these tables. The final section, HOW TO READ THIS REPORT, includes
guides designed to make the financials easy to read and understand.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
7/3/00 1-
10/31/00
<S> <C>
PER-SHARE DATA ($)
--------------------------------------------------------------------------------
Net asset value at beginning of period 10.00
------------------------
Income from investment operations:
Net investment income 0.00 *
Net realized and unrealized gains 0.27
------------------------
Total income from investment operations 0.27
------------------------
Net asset value at end of period 10.27
========================
Total return (%) 2.70 2
RATIOS/SUPPLEMENTAL DATA (%)
--------------------------------------------------------------------------------
Ratio of net operating expenses to
average net assets 0.89 3
Expense reductions reflected in above ratio 1.15 3
Ratio of net investment loss to
average net assets (0.02) 3
Portfolio turnover rate 41
Net assets, end of period ($ x 1,000,000) 28
</TABLE>
* Per-share amount was less than $0.01.
1 Commencement of operations.
2 Not annualized.
3 Annualized.
26 See the Financial Notes, which are
integral to this information.
<PAGE> 31
PORTFOLIO HOLDINGS
As of October 31, 2000
This section shows all the securities in the fund's portfolio and their market
value, as of the report date.
We use the symbols below to designate certain characteristics. With the top ten
holdings, the number in the circle is the security's rank among the top ten.
(1) Top ten holding
- Non-income producing security
The pie chart below shows the fund's major asset categories and the market value
and cost of the securities in each category.
ALL DOLLAR VALUES ARE IN THOUSANDS.
[PIE CHART]
99.7% COMMON STOCK
Market Value: $28,230
Cost: $27,395
0.3% SHORT TERM INVESTMENTS
Market Value: $90
Cost: $90
-------------------------------
100.0% TOTAL INVESTMENTS
Market Value: $28,320
Cost: $27,485
COMMON STOCK 99.7% of investments
<TABLE>
<CAPTION>
MKT. VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
<S> <C>
ELECTRONICS 1.9%
--------------------------------------------------------------------------
PE Corp. -- PE Biosystems Group 4,500 527
HEALTHCARE / DRUGS & MEDICINE 97.4%
--------------------------------------------------------------------------
Abbott Laboratories 17,385 918
- Abgenix, Inc. 3,350 264
Allergan, Inc. 6,385 537
(6) American Home Products Corp. 20,700 1,314
- (9) Amgen, Inc. 17,155 994
- Andrx Group 2,385 172
- Apria Healthcare Group, Inc. 10,850 217
Arrow International, Inc. 8,215 331
- Aviron 3,600 235
Baxter International, Inc. 3,300 271
Beckman Coulter, Inc. 3,645 255
- Boston Scientific Corp. 9,100 145
(4) Bristol-Myers Squibb Co. 24,910 1,518
Cardinal Health, Inc. 3,000 284
- Cell Genesys, Inc. 6,035 139
- Digene Corp. 3,900 127
- Edwards Lifesciences Corp. 17,700 238
(5) Eli Lilly & Co. 16,420 1,468
- Foundation Health Systems, Inc., Class A 11,750 237
- Genentech, Inc. 9,370 773
- Guidant Corp. 2,700 143
- Haemonetics Corp. 7,830 184
HCA -- The Healthcare Co. 12,435 497
- HealthSouth Corp. 20,600 247
- Human Genome Sciences, Inc. 2,500 221
ICN Pharmaceuticals, Inc. 8,200 312
- Immunex Corp. 9,295 396
- IVAX Corp. 4,490 195
(3) Johnson & Johnson 19,240 1,773
- Ligand Pharmaceuticals, Inc., Class B 11,305 168
- Maxim Pharmaceuticals, Inc. 2,985 133
McKesson HBOC, Inc. 7,300 205
- Medarex, Inc. 2,500 153
- Medimmune, Inc. 4,405 288
(8) Medtronic, Inc. 18,320 995
(2) Merck & Co., Inc. 34,105 3,067
- Millennium Pharmaceuticals, Inc. 3,600 261
- Oxford Health Plans, Inc. 8,135 275
- PacifiCare Health Systems, Inc. 7,975 83
(1) Pfizer, Inc. 96,055 4,148
(7) Pharmacia Corp. 20,220 1,112
- Quest Diagnostic, Inc. 1,400 135
</TABLE>
See the Financial Notes, which
are integral to this information. 27
<PAGE> 32
HEALTH CARE FOCUS FUND -- FINANCIALS
PORTFOLIO HOLDINGS Continued
As of October 31, 2000
<TABLE>
<CAPTION>
MKT. VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
<S> <C>
(10) Schering-Plough Corp. 18,765 970
- Sepracor, Inc. 1,600 109
- Tenet Healthcare Corp. 7,800 307
- Texas Biotech Corp. 9,700 143
- Triad Hospitals, Inc. 7,490 208
UnitedHealth Group, Inc. 3,925 429
-----------
27,594
MISCELLANEOUS 0.4%
--------------------------------------------------------------------------
- United Therapeutics Corp. 2,045 109
</TABLE>
SHORT-TERM INVESTMENTS
0.3% of investments
<TABLE>
<CAPTION>
SECURITY FACE VALUE MKT. VALUE
RATE, MATURITY DATE ($ x 1,000) ($ x 1,000)
<S> <C> <C>
HSBC Holdings PLC
Grand Cayman Time Deposit
6.03%, 11/01/00 90 90
</TABLE>
--------------------------------------------------------------------------------
END OF PORTFOLIO HOLDINGS. For totals, please see the first page of holdings for
this fund.
28 See the Financial Notes, which
are integral to this information.
<PAGE> 33
Statement of
ASSETS AND LIABILITIES
As of October 31, 2000. All numbers x 1,000 except NAV.
<TABLE>
<CAPTION>
<S> <C>
ASSETS
------------------------------------------------------------------------------
Investments, at market value $28,320*
Receivables:
Fund shares sold 111
Dividends 12
Reimbursement to fund 7
Prepaid expenses + 7
------------
TOTAL ASSETS 28,457
LIABILITIES
-----------------------------------------------------------------------------
Payables:
Fund shares redeemed 15
Investments bought 167
Accrued expenses + 41
------------
TOTAL LIABILITIES 223
NET ASSETS
-----------------------------------------------------------------------------
TOTAL ASSETS 28,457
TOTAL LIABILITIES - 223
------------
NET ASSETS $28,234
NET ASSETS BY SOURCE
Capital received from investors 27,375
Net realized capital gains 24
Net unrealized capital gains 835
</TABLE>
NET ASSET VALUE (NAV)
SHARES
NET ASSETS / OUTSTANDING = NAV
$28,234 2,748 $10.27
* The fund paid $27,485 for these securities. Not counting short-term
obligations and government securities, the fund paid $37,427 for securities
during the report period and received $10,058 from securities it sold
or that matured.
<TABLE>
<S> <C>
FEDERAL TAX DATA
------------------------------------------------------------------------------
COST BASIS OF PORTFOLIO $27,945
NET UNREALIZED GAINS AND LOSSES:
Gains $2,025
Losses + (1,650)
------------
$375
RECLASSIFICATIONS:
Net investment income not
yet distributed $2
Reclassified as:
Net realized capital gains ($2)
</TABLE>
See the Financial Notes, which
are integral to this information. 29
<PAGE> 34
HEALTH CARE FOCUS FUND -- FINANCIALS
Statement of
OPERATIONS
For July 3, 2000 (commencement of operations) through October 31, 2000.
All numbers x 1,000.
<TABLE>
<S> <C>
INVESTMENT INCOME
--------------------------------------------------------------------------------
Dividends $56
Interest + 15
-------------
TOTAL INVESTMENT INCOME 71
NET REALIZED GAINS AND LOSSES
--------------------------------------------------------------------------------
Net realized gains on investments sold 26
NET UNREALIZED GAINS AND LOSSES
--------------------------------------------------------------------------------
Net unrealized gains on investments 835
EXPENSES
--------------------------------------------------------------------------------
Investment adviser and administrator fees 44*
Transfer agent and shareholder service fees 20**
Trustees' fees 4***
Custodian fees 5
Portfolio accounting fees 1
Professional fees 18
Registration fees 61
Shareholder reports 8
Other expenses + 5
-------------
Total expenses 166
Expense reduction - 93****
-------------
NET EXPENSES 73
INCREASE IN NET ASSETS FROM OPERATIONS
--------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME 71
NET EXPENSES - 73
-------------
NET INVESTMENT LOSS (2)
NET REALIZED GAINS 26*****
NET UNREALIZED GAINS + 835*****
-------------
INCREASE IN NET ASSETS FROM OPERATIONS $859
</TABLE>
* Calculated as 0.54% of average daily net assets.
** Calculated as a percentage of average daily net assets: for transfer agent
services, 0.05% of the fund's assets; for shareholder services, 0.20% of
the fund's assets.
*** For the fund's independent trustees only.
**** Includes $44 from the investment adviser (CSIM) and $20 from the transfer
agent and shareholder service agent (Schwab). In addition, the total
expenses reimbursed by the investment adviser was $29. These reductions
reflect a guarantee by CSIM and Schwab to limit the operating expenses of
this fund through at least May 15, 2001, to 0.89% of average daily net
assets. This limit does not include interest, taxes and certain
non-routine expenses.
***** These add up to a net gain on investments of $861.
30 See the Financial Notes, which
are integral to this information.
<PAGE> 35
Statement of
CHANGES IN NET ASSETS
For the current report period only. Because the fund commenced operations on
7/3/00, it has no prior report period.
All numbers x 1,000.
<TABLE>
<S> <C>
OPERATIONS
--------------------------------------------------------------------------------
7/3/00-10/31/00
Net investment loss $(2)
Net realized gains 26
Net unrealized gains 835
---------------------------
INCREASE IN NET ASSETS FROM OPERATIONS $859
</TABLE>
<TABLE>
<S> <C> <C>
TRANSACTIONS IN FUND SHARES
--------------------------------------------------------------------------------
7/3/00-10/31/00
QUANTITY VALUE
Shares sold 2,923 $29,085
Shares redeemed + (175) (1,710) *
--------------------------------
NET INCREASE 2,748 $27,375
</TABLE>
<TABLE>
<S> <C> <C>
SHARES OUTSTANDING AND NET ASSETS
--------------------------------------------------------------------------------
7/3/00-10/31/00
SHARES NET ASSETS
Beginning of period -- $ --
Total increase + 2,748 28,234 **
--------------------------------
END OF PERIOD 2,748 $28,234 ***
</TABLE>
* Dollar amounts are net of $13 in proceeds received from early withdrawal
fees that the fund charges on shares sold 180 days or less after buying
them.
** Figures for shares represent the net changes in shares from the transactions
described above. Figures for net assets represent the changes in net assets
from operations plus the value of transactions in fund shares.
*** Includes a net investment loss of $2 for the current period.
See the Financial Notes, which 31
are integral to this information.
<PAGE> 36
TECHNOLOGY
FOCUS FUND
[PHOTO OF GERI HOM & LARRY MANO]
" Technology stocks found themselves under pressure from many directions,
ranging from evidence of a cooling economy to lower-than-expected earnings
from a number of high-profile companies."
Portfolio Managers
Geri Hom and
Larry Mano
GERI HOM, a vice president of the investment adviser, has overall
responsibility for the management of the fund. Prior to joining the firm in
1995, she worked for nearly 15 years in equity index management.
LARRY MANO, a portfolio manager, is responsible for the day-to-day management
of the fund. Prior to joining the firm in 1998, he worked for 20 years in
equity index management.
TICKER SYMBOL SWTFX
________________________________________________________________________________
This fund is designed for long-term investors seeking a way to gain exposure to
the technology segment of the U.S. economy.
________________________________________________________________________________
THE FUND'S GOAL IS TO SEEK LONG-TERM CAPITAL GROWTH.
MANAGER'S PERSPECTIVE
THE FUND HAS FACED A DIFFICULT ENVIRONMENT SINCE ITS INCEPTION IN JULY 2000, AS
VOLATILE CONDITIONS AFFECTED THE EQUITY MARKETS. A combination of factors caused
investors to trim their overall exposure to stocks. Among these factors were
high stock prices, uncertainty over the outcome of the presidential election and
potential interest rate hikes, among others. Toward the end of the report
period, evidence of a slowing economy reduced fears of interest rate hikes.
Ordinarily this might have helped the market regain its footing, but concerns
about high oil prices kept stocks in flux.
WEAKNESS IN THE COMPUTER SERVICES, SEMICONDUCTOR AND EQUIPMENT INDUSTRIES HURT
THE OVERALL PERFORMANCE OF THE TECHNOLOGY SECTOR. Both the fund and the sector
were heavily weighted in the latter two industries, and their respective
performance suffered accordingly.
Many factors contributed to poor performance. Predicting lower demand for
technology products in a slowing economy, analysts lowered target prices for
many key stocks. This action fueled worries about stock valuations and
fundamental problems. Once technology stocks began to slip, some mutual funds
sold them in quantity in order to minimize taxable distributions to
shareholders. Even the fund's largest holdings, which have been synonymous with
a rising technology market, were not exempt from these factors, and their
declines hurt fund performance.
While it's always difficult to know when conditions may improve, we continue to
believe in the long-term potential of this important sector.
32
<PAGE> 37
PERFORMANCE
AVERAGE ANNUAL TOTAL RETURNS as of 10/31/00
This chart compares performance of the fund with the S&P Technology Sector Index
and the Morningstar Technology Fund category.
[BAR CHART]
SINCE INCEPTION: 7/3/00
<TABLE>
<CAPTION>
TOTAL RETURN 2
--------------
<S> <C>
FUND (14.80%) 3
S&P TECHNOLOGY SECTOR INDEX (18.38%) 3
PEER GROUP AVERAGE 1 (13.15%) 3
</TABLE>
PERFORMANCE OF A $10,000 INVESTMENT
Shows performance since inception of a hypothetical $10,000 investment in the
fund, compared to a similar investment in two indices: the S&P 500(R) Index and
the S&P Technology Sector Index.
[LINE GRAPH]
<TABLE>
<CAPTION>
S&P TECHNOLOGY
FUND SECTOR INDEX S&P 500 INDEX
---- -------------- -------------
<S> <C> <C> <C>
7/3/00 10000 10000 10000
7/31/00 9480 9523 9844
8/31/00 10910 10583 10455
9/30/00 9220 8634 9903
10/31/00 8520 8161 9862
</TABLE>
All figures on this page assume dividends and distributions were reinvested.
Index figures do not include trading and management costs, which would lower
performance. The indices are unmanaged, and you cannot invest in them directly.
When you sell your shares, they may be worth more or less than what you paid for
them. Past performance doesn't indicate future results.
1 Source: Morningstar, Inc. As of 10/31/00, there were 260 funds in the
Technology Fund category that had track records of at least four months.
2 Fund returns reflect expense reductions by the fund's investment adviser
(CSIM) and Schwab. Without these reductions, the fund's returns would have
been lower.
3 Not annualized.
33
<PAGE> 38
TECHNOLOGY FOCUS FUND
FUND FACTS
<TABLE>
<CAPTION>
TOP TEN HOLDINGS 1 as of 10/31/00
------------------------------------------------
<S> <C>
1 MICROSOFT CORP. 9.2%
2 CISCO SYSTEMS, INC. 8.7%
3 INTEL CORP. 6.4%
4 ORACLE CORP. 5.7%
5 EMC CORP. 4.7%
6 SUN MICROSYSTEMS, INC. 4.5%
7 INTERNATIONAL BUSINESS MACHINES CORP. 3.7%
8 HEWLETT-PACKARD CO. 2.5%
9 AMERICA ONLINE, INC. 2.4%
10 DELL COMPUTER CORP. 2.0%
------------------------------------------------
TOTAL PERCENTAGE OF INVESTMENTS 49.8%
</TABLE>
STATISTICS as of 10/31/00
<TABLE>
<CAPTION>
PEER GROUP
FUND AVERAGE 2
---- ---------
<S> <C> <C>
Number of Holdings 101 76
Median Market Cap ($ Mil) $75,485 $25,835
Price/Earnings (P/E) Ratio 40.8 48.5
Price/Book (P/B) Ratio 13.8 13.7
12-Month Yield 3 -- --
Portfolio Turnover Rate 37% 4 231%
Three-Year Beta 3 -- --
</TABLE>
EXPENSE RATIO as of 10/31/00
[BAR CHART]
<TABLE>
<CAPTION>
FUND PEER GROUP AVERAGE
---- ------------------
<S> <C>
0.89% 5 1.68% 2
</TABLE>
INDUSTRY WEIGHTINGS as of 10/31/00
This shows the composition by industry of the fund's portfolio as of the report
date.
[PIE CHART]
<TABLE>
<CAPTION>
INDUSTRIES IN THE TECHNOLOGY FOCUS FUND
--------------------------------------------------------------------------------
<S> <C>
1 Business Machines & Software 51.0%
2 Electronics 25.1%
3 Business Services 16.4%
4 Producer Goods & Manufacturing 2.4%
5 Miscellaneous 1.4%
6 Aerospace/Defense 1.3%
7 Telephone 0.7%
Other 1.7%
</TABLE>
1 This list is not a recommendation of any security by the investment adviser.
Portfolio holdings may have changed since the report date.
2 Source: Morningstar, Inc. As of 10/31/00, there were 260 funds in the
Technology Fund category.
3 Not available until the fund has sufficient performance to report.
4 Not annualized.
5 Guaranteed by Schwab and the investment adviser through 5/15/01 (excluding
interest, taxes and certain non-routine expenses).
34
<PAGE> 39
TECHNOLOGY FOCUS FUND -- FINANCIALS
FINANCIAL TABLES
These pages provide additional data on the fund's performance, portfolio
holdings, expenses and business operations. These figures have been audited by
PricewaterhouseCoopers LLP.
Two other sections of this report provide context for the data in these
financials. THE FINANCIAL NOTES section contains information about the fund's
business structure, accounting practices and other matters, completing the data
given in these tables. The final section, HOW TO READ THIS REPORT, includes
guides designed to make the financials easy to read and understand.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
7/3/00 1-
10/31/00
--------------------------------------------------------------------------------
<S> <C>
PER-SHARE DATA ($)
--------------------------------------------------------------------------------
Net asset value at beginning of period 10.00
---------
Income from investment operations:
Net investment loss (0.02)
Net realized and unrealized losses (1.46)
---------
Total loss from investment operations (1.48)
---------
Net asset value at end of period 8.52
=========
Total return (%) (14.80) 2
RATIOS/SUPPLEMENTAL DATA (%)
--------------------------------------------------------------------------------
Ratio of net operating expenses to
average net assets 0.89 3
Expense reductions reflected in above ratio 0.63 3
Ratio of net investment income to
average net assets (0.63) 3
Portfolio turnover rate 37
Net assets, end of period ($ x 1,000,000) 48
</TABLE>
1 Commencement of operations.
2 Not annualized.
3 Annualized.
See the Financial Notes, which 35
are integral to this information.
<PAGE> 40
TECHNOLOGY FOCUS FUND -- FINANCIALS
PORTFOLIO HOLDINGS
As of October 31, 2000
This section shows all the securities in the fund's portfolio and their market
value, as of the report date.
We use the symbols below to designate certain characteristics. With the top ten
holdings, the number in the circle is the security's rank among the top ten.
(1) Top ten holding
- Non-income producing security
The pie chart below shows the fund's major asset categories and the market value
and cost of the securities in each category.
ALL DOLLAR VALUES ARE IN THOUSANDS.
[PIE CHART]
<TABLE>
<CAPTION>
COMMON STOCK SHORT TERM INVESTMENTS TOTAL INVESTMENTS
99.3% 0.7% 100.0%
------- ------ --------
<S> <C> <C> <C>
Market Value: $47,828 $316 $48,144
Cost: $54,558 $316 $54,874
</TABLE>
COMMON STOCK 99.3% of investments
<TABLE>
<CAPTION>
MKT. VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
<S> <C>
AEROSPACE / DEFENSE 1.3%
--------------------------------------------------------------------------
Boeing Co. 5,000 339
- Sequa Corp., Class A 7,852 290
------
629
AUTOMOTIVE PRODUCTS / MOTOR VEHICLES 0.4%
--------------------------------------------------------------------------
- SPX Corp. 1,564 193
BUSINESS MACHINES & SOFTWARE 51.0%
--------------------------------------------------------------------------
- 3Com Corp. 14,500 257
Adobe Systems, Inc. 1,800 137
- Cabletron Systems, Inc. 6,316 171
-(2) Cisco Systems, Inc. 77,860 4,195
- Commerce One, Inc. 3,564 229
Compaq Computer Corp. 24,168 735
-(10) Dell Computer Corp. 31,916 942
-(5) EMC Corp. 25,416 2,264
(8) Hewlett-Packard Co. 25,848 1,200
IKON Office Solutions, Inc. 69,340 225
- Integrated Device Technology,
Inc. 3,284 185
(7) International Business
Machines Corp. 18,136 1,786
- Iomega Corp. 34,668 170
- Juniper Networks, Inc. 4,408 860
- Micromuse, Inc. 1,484 252
-(1) Microsoft Corp. 64,392 4,435
- Network Appliance, Inc. 5,532 658
-(4) Oracle Corp. 83,348 2,750
- Quantum Corp. -- Hard Disk
Drive Group 23,264 266
- Saba Software, Inc. 4,500 105
- Silicon Graphics, Inc. 39,848 179
-(6) Sun Microsystems, Inc. 19,428 2,154
- Systems & Computer
Technology Corp. 16,868 244
- Tech Data Corp. 3,500 146
------
24,545
BUSINESS SERVICES 16.4%
--------------------------------------------------------------------------
- Alliance Semiconductor Corp. 8,492 170
-(9) America Online, Inc. 22,864 1,153
- Ariba, Inc. 3,100 392
- Art Technology Group, Inc. 2,960 186
- At Home Corp., Class A 16,720 172
- BEA Systems, Inc. 6,792 487
- BroadVision, Inc. 6,548 195
- Brocade Communications
Systems, Inc. 1,900 432
Computer Associates
International, Inc. 7,700 245
- Credence Systems, Corp. 7,544 141
- Gemstar -- TV Guide International,
Inc. 4,100 281
- I2 Technologies, Inc. 2,808 477
- Inktomi Corp. 1,900 121
- Integrated Silicon Solutions, Inc. 7,500 100
- Liberate Technologies 6,764 129
</TABLE>
36 See the Financial Notes, which
are integral to this information.
<PAGE> 41
<TABLE>
<CAPTION>
MKT. VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
<S> <C>
- LifeMinders, Inc. 8,692 101
- Mercury Interactive Corp. 900 100
- Redback Networks, Inc. 1,700 181
- SDL, Inc. 1,000 259
- Siebel Systems, Inc. 5,276 554
- TIBCO Software, Inc. 3,992 251
- VeriSign, Inc. 2,916 385
- VERITAS Software Corp. 6,052 853
- WatchGuard Technologies, Inc. 2,832 142
- Yahoo!, Inc. 7,176 421
------
7,928
ELECTRONICS 25.1%
--------------------------------------------------------------------------
- Advanced Micro Devices, Inc. 9,672 219
- Altera Corp. 2,900 119
- Analog Devices, Inc. 5,172 336
- Applied Materials, Inc. 14,856 789
- Arrow Electronics, Inc. 4,740 152
Avnet, Inc. 4,880 131
AVX Corp. 14,408 412
- Broadcom Corp., Class A 2,304 512
- Cirrus Logic, Inc. 4,472 193
- Cypress Semiconductor Corp. 4,000 150
- DDI Corp. 3,900 156
- Electro Scientific Industries,
Inc. 5,600 196
- Imation Corp. 7,700 153
(3) Intel Corp. 68,460 3,081
- JDS Uniphase Corp. 9,544 777
- Kemet Corp. 11,140 311
- KLA-Tencor Corp. 3,000 101
- LSI Logic Corp. 4,100 135
- Maxim Integrated Products,
Inc. 1,500 99
- MEMC Electronic Materials,
Inc. 14,808 147
- Merix Corp. 5,400 252
- Micron Technology, Inc. 10,828 376
- National Semiconductor Corp. 7,736 201
Newport Corp. 1,200 137
- QUALCOMM, Inc. 6,952 453
- Sanmina Corp. 1,400 160
- Silicon Storage Technology, Inc. 10,804 246
- Silicon Valley Group, Inc. 6,080 200
- Solectron Corp. 5,328 234
Technitrol, Inc. 1,400 155
- Teradyne, Inc. 4,420 138
Texas Instruments, Inc. 14,300 702
- Varian Semiconductor Equipment 4,392 101
- Varian, Inc. 3,796 117
- Vishay Intertechnology, Inc. 10,852 326
- Xilinx, Inc. 1,600 116
------
12,083
MISCELLANEOUS 1.4%
--------------------------------------------------------------------------
- Agilent Technologies, Inc. 3,784 175
- Palm, Inc. 3,900 209
- Stanford Microdevices, Inc. 4,300 108
- Viasystems Group, Inc. 15,000 213
------
705
MISCELLANEOUS FINANCE 0.3%
--------------------------------------------------------------------------
- TD Waterhouse Group, Inc. 7,700 128
PRODUCER GOODS & MANUFACTURING 2.4%
--------------------------------------------------------------------------
- Applied Micro Circuits Corp. 2,768 212
- Fisher Scientific International 5,208 200
Honeywell International, Inc. 8,800 474
- PMC Sierra, Inc. 1,684 285
------
1,171
RETAIL 0.3%
--------------------------------------------------------------------------
- Amazon.com, Inc. 3,600 132
TELEPHONE 0.7%
--------------------------------------------------------------------------
- Exodus Communications, Inc. 6,612 222
- Tut Systems, Inc. 2,768 92
------
314
</TABLE>
SHORT-TERM INVESTMENTS
0.7% of investments
<TABLE>
<CAPTION>
SECURITY FACE VALUE MKT. VALUE
RATE, MATURITY DATE ($ x 1,000) ($ x 1,000)
<S> <C> <C>
HSBC Holdings PLC
Grand Cayman Time Deposit
6.03%, 11/01/00 316 316
--------------------------------------------------------------------------------
</TABLE>
END OF PORTFOLIO HOLDINGS. For totals, please see the first page of
holdings for this fund.
See the Financial Notes, which 37
are integral to this information.
<PAGE> 42
TECHNOLOGY FOCUS FUND -- FINANCIALS
Statement of
ASSETS AND LIABILITIES
As of October 31, 2000. All numbers x 1,000 except NAV.
<TABLE>
<S> <C>
ASSETS
--------------------------------------------------------------------------------
Investments, at market value $48,144*
Receivables:
Fund shares sold 95
Prepaid expenses + 7
-------------
TOTAL ASSETS 48,246
LIABILITIES
--------------------------------------------------------------------------------
Payables:
Fund shares redeemed 30
Investments bought 374
Accrued expenses + 51
-------------
TOTAL LIABILITIES 455
NET ASSETS
--------------------------------------------------------------------------------
TOTAL ASSETS 48,246
TOTAL LIABILITIES - 455
-------------
NET ASSETS $47,791
NET ASSETS BY SOURCE
Capital received from investors 55,652
Net realized capital losses (1,131)
Net unrealized capital losses (6,730)
</TABLE>
NET ASSET VALUE (NAV)
<TABLE>
<CAPTION>
SHARES
NET ASSETS / OUTSTANDING = NAV
<S> <C> <C>
$47,791 5,608 $8.52
</TABLE>
* The fund paid $54,874 for these securities. Not counting short-term
obligations and government securities, the fund paid $72,966 for securities
during the report period and received $17,277 from securities it sold or that
matured.
<TABLE>
<CAPTION>
FEDERAL TAX DATA
--------------------------------------------------------------------------------
<S> <C>
COST BASIS OF PORTFOLIO $55,282
NET UNREALIZED GAINS AND LOSSES:
Gains $2,784
Losses + (9,922)
-----------
($7,138)
RECLASSIFICATIONS:
Net investment income not
yet distributed $100
Reclassified as:
Capital received
from investors ($100)
UNUSED CAPITAL LOSSES:
Expires 10/31 of: Loss amount
2008 $723
</TABLE>
38 See the Financial Notes, which
are integral to this information.
<PAGE> 43
Statement of
OPERATIONS
For July 3, 2000 (commencement of operations) through October 31, 2000.
All numbers x 1,000.
<TABLE>
<S> <C>
INVESTMENT INCOME
--------------------------------------------------------------------------------
Dividends $9
Interest + 31
-------------
TOTAL INVESTMENT INCOME 40
NET REALIZED GAINS AND LOSSES
--------------------------------------------------------------------------------
Net realized losses on investments sold (1,131)
NET UNREALIZED GAINS AND LOSSES
--------------------------------------------------------------------------------
Net unrealized losses on investments (6,730)
EXPENSES
--------------------------------------------------------------------------------
Investment adviser and administrator fees 85*
Transfer agent and shareholder service fees 39**
Trustees' fees 4#
Custodian fees 9
Portfolio accounting fees 2
Professional fees 18
Registration fees 69
Shareholder reports 8
Other expenses + 5
-------------
Total expenses 239
Expense reduction - 99##
-------------
NET EXPENSES 140
DECREASE IN NET ASSETS FROM OPERATIONS
--------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME 40
NET EXPENSES - 140
-------------
NET INVESTMENT LOSS (100)
NET REALIZED LOSS (1,131)###
NET UNREALIZED LOSS + (6,730)###
-------------
DECREASE IN NET ASSETS FROM OPERATIONS ($7,961)
</TABLE>
* Calculated as 0.54% of average daily net assets.
** Calculated as a percentage of average daily net assets: for transfer agent
services, 0.05% of the fund's assets; for shareholder services, 0.20% of the
fund's assets.
# For the fund's independent trustees only.
## Includes $85 from the investment adviser (CSIM) and $14 from the transfer
agent and shareholder service agent (Schwab). These reductions reflect a
guarantee by CSIM and Schwab to limit the operating expenses of this fund
through at least May 15, 2001, to 0.89% of average daily net assets. This
limit does not include interest, taxes and certain non-routine expenses.
### These add up to a net loss on investments of $7,861.
See the Financial Notes, which 39
are integral to this information.
<PAGE> 44
TECHNOLOGY FOCUS FUND -- FINANCIALS
Statement of
CHANGES IN NET ASSETS
For the current report period only. Because the fund commenced operations on
7/3/00, it has no prior report period.
All numbers x 1,000.
<TABLE>
<CAPTION>
OPERATIONS
--------------------------------------------------------------------------------
7/3/00-10/31/00
<S> <C>
Net investment loss $(100)
Net realized losses (1,131)
Net unrealized losses (6,730)
----------------
DECREASE IN NET ASSETS FROM OPERATIONS ($7,961)
</TABLE>
<TABLE>
<CAPTION>
TRANSACTIONS IN FUND SHARES
--------------------------------------------------------------------------------
7/3/00-10/31/00
QUANTITY VALUE
<S> <C> <C>
Shares sold 5,936 $58,805
Shares redeemed + (328) (3,053)*
-------------------------
NET INCREASE 5,608 $55,752
</TABLE>
<TABLE>
<CAPTION>
SHARES OUTSTANDING AND NET ASSETS
--------------------------------------------------------------------------------
7/3/00-10/31/00
SHARES NET ASSETS
<S> <C> <C>
Beginning of period -- $ --
Total increase + 5,608 47,791**
-------------------------
END OF PERIOD 5,608 $47,791***
</TABLE>
* Dollar amounts are net of $23 in proceeds received from early withdrawal
fees that the fund charges on shares sold 180 days or less after buying
them.
** Figures for shares represent the net changes in shares from the transactions
described above. Figures for net assets represent the changes in net assets
from operations plus the value of transactions in fund shares.
*** Includes a net investment loss of $100 for the current period.
40 See the Financial Notes, which
are integral to this information.
<PAGE> 45
FINANCIAL NOTES
FINANCIAL NOTES
BUSINESS STRUCTURE OF THE FUNDS
EACH OF THE FUNDS DISCUSSED IN THIS REPORT IS A SERIES OF SCHWAB CAPITAL TRUST,
A NO-LOAD, OPEN-END MANAGEMENT INVESTMENT COMPANY. The company is organized as a
Massachusetts business trust and is registered under the Investment Company Act
of 1940, as amended. The sidebar shows the funds in this report and their trust.
THE FUNDS OFFER ONE SHARE CLASS. For these funds, shares are bought and sold at
net asset value, or NAV, which is the price for all outstanding shares. Each
share has a par value of 1/1,000 of a cent, and the trustees may issue as many
shares as necessary.
THE TRUST AND ITS FUNDS
--------------------------------------------------------------------------------
This list shows all of the funds included in Schwab Capital Trust. The funds
discussed in this report are highlighted.
SCHWAB CAPITAL TRUST
Organized May 7, 1993
Schwab S&P 500 Fund
Schwab Small-Cap Index Fund(R)
Schwab Total Stock Market Index Fund(TM)
Schwab International Index Fund(R)
Schwab Analytics Fund(R)
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 MarketManager Small Cap Portfolio
Schwab MarketManager International Portfolio
Communications Focus Fund
Financial Services Focus Fund
Health Care Focus Fund
Technology Focus Fund
Institutional Select(TM) S&P 500 Fund
Institutional Select(TM) Large-Cap Value Index Fund
Institutional Select(TM) Small-Cap Value Index Fund
41
<PAGE> 46
FINANCIAL NOTES
FUND OPERATIONS
Most of the funds' investments are described in the fund-by-fund sections
earlier in this report. However, there are certain other investments and
policies that may affect a fund's financials. The most significant of these are
described below. Other policies concerning the funds' business operations also
are described here.
THE FUNDS PAY DIVIDENDS from net investment income and make distributions from
net capital gains once a year.
THE FUNDS MAY INVEST IN FUTURES CONTRACTS TO PARTICIPATE IN THE RETURN OF AN
INDEX. Futures contracts involve certain risks, because they can be sensitive to
market movements.
One risk is that the price of a futures contract may not move in perfect
correlation with the price of the underlying securities. Another risk is that,
at certain times, it may be impossible for the fund to close out a position in a
futures contract due to a difference in trading hours or to market conditions
that may reduce the liquidity for a futures contract or its underlying
securities.
Because futures carry inherent risks, a fund must give the broker a deposit of
cash and/or securities (the "initial margin") whenever it enters into a futures
contract. The amount of the deposit may vary from one contract to another, but
it is generally a percentage of the contract amount.
Futures are traded publicly on exchanges, and their market value changes daily.
The fund records the change in market value of futures, and also the change in
the amount of margin deposit required ("variation margin").
THE COMMUNICATIONS FOCUS FUND MAY INVEST IN FORWARD CURRENCY CONTRACTS IN
CONNECTION WITH THE PURCHASE AND SALE OF PORTFOLIO SECURITIES TO MINIMIZE THE
UNCERTAINTY OF CHANGES IN FUTURE EXCHANGE RATES. "Forwards," as they are known,
are contracts to buy and sell a currency at a set price on a future date.
Forwards are similar to futures except that they are not publicly traded, but
are agreements directly between two parties. As of the report date, the fund had
no forwards in its portfolio.
As with futures, forwards involve certain risks that are not fully reflected in
the fund's financials. If counterparties to the contracts are unable to meet the
terms of the contracts or if the value of the foreign currency changes
unfavorably, the fund could sustain a loss.
THE FUNDS MAY ENTER INTO REPURCHASE AGREEMENTS. In a repurchase agreement, a
fund buys a security from another party (usually a financial institution) with
the agreement that it be sold back in the future. The date, price and other
conditions are all specified when the agreement is created.
Among the terms of the funds' repurchase agreements is that they be fully
collateralized by U.S. Treasury or government agency securities. All collateral
is held by the funds' custodian and is monitored daily to ensure that its market
value at least equals the repurchase price under the agreement.
42
<PAGE> 47
THE FUNDS MAY LOAN SECURITIES TO CERTAIN BROKERS, DEALERS AND OTHER FINANCIAL
INSTITUTIONS WHO PAY THE FUNDS NEGOTIATED FEES. The funds receive cash, letters
of credit or U.S. government securities as collateral on these loans, and the
value of the collateral must be at least 102% of the market value of the loaned
securities as of the first day of the loan, and at least 100% each day
thereafter.
THE FUNDS MAY BORROW MONEY FROM BANKS. The funds may obtain temporary bank loans
through the trusts to which they belong, to use for meeting shareholder
redemptions or for extraordinary or emergency purposes. The trusts have line of
credit arrangements with PNC Bank, N.A., Bank of America, N.A. and The Bank of
New York. The funds pay interest on the amounts they borrow at rates that are
negotiated periodically. As of the end of the report period there were no
borrowings outstanding.
THE FUNDS PAY FEES FOR VARIOUS SERVICES. Through their trusts, the funds have
agreements with Charles Schwab Investment Management, Inc. (CSIM) to provide
investment advisory and administrative services and with Charles Schwab & Co.,
Inc. (Schwab) to provide transfer agent and shareholder services. Although these
agreements specify certain fees for these services, CSIM and Schwab have made
additional agreements with the funds limiting certain expenses.
The rates and limitations for these fees vary from fund to fund, and are
described in each fund's Statement of Operations.
TRUSTEES MAY INCLUDE PEOPLE WHO ARE OFFICERS AND/OR DIRECTORS OF THE INVESTMENT
ADVISER AND/OR SCHWAB. Federal securities law limits the percentage of such
"interested persons" who may serve on a trust's board, and the trusts were in
compliance with these limitations throughout the report period. The trusts did
not pay any of these persons for their service as trustees, but they did pay the
independent trustees, as noted in each fund's Statement of Operations.
THE FUNDS MAY ENGAGE IN CERTAIN TRANSACTIONS INVOLVING AFFILIATES. For instance,
a fund may own shares of The Charles Schwab Corp. if that company is included in
its index.
The funds may make direct transactions with certain other SchwabFunds(R) when
practical. When one fund is seeking to sell a security that another is seeking
to buy, an interfund transaction can allow both funds to benefit by reducing
transaction costs. This practice is limited to funds that share the same
investment adviser, trustees and officers.
THE FUNDS INTEND TO MEET FEDERAL INCOME AND EXCISE TAX REQUIREMENTS FOR
REGULATED INVESTMENT COMPANIES. Accordingly, the funds distribute substantially
all of their net investment income and realized net capital gains (if any) to
their respective shareholders each year. As long as a fund meets the tax
requirements, it is not required to pay federal income tax.
43
<PAGE> 48
FINANCIAL NOTES
ACCOUNTING POLICIES
The following are the main policies the funds use in preparing their financial
statements.
THE FUNDS VALUE THE SECURITIES IN THEIR PORTFOLIOS EVERY BUSINESS DAY. The funds
use the following policies to value various types of securities:
EXCHANGE-TRADED SECURITIES: valued at the last-quoted sale price for the day,
or, on days when no sale has been reported, halfway between the most recent
bid and asked quotes.
SECURITIES TRADED OVER-THE-COUNTER: same as exchange-traded securities.
SECURITIES FOR WHICH NO QUOTED VALUE IS AVAILABLE, INCLUDING RESTRICTED
SECURITIES: valued at fair value, as determined in good faith by the fund's
investment adviser using guidelines adopted by the fund's Board of Trustees.
FUTURES AND FORWARDS: open contracts are valued at their settlement prices as
of the close of their exchanges (for futures) or at a market value based on
that day's exchange rates (for forwards). When a fund closes out a futures or
forwards position, it calculates the difference between the value of the
position at the beginning and at the end, and records a realized gain or loss
accordingly.
SHORT-TERM SECURITIES (60 DAYS OR LESS TO MATURITY): valued at amortized
cost.
SECURITY TRANSACTIONS are recorded as of the date the order to buy or sell the
security is executed.
DIVIDENDS AND DISTRIBUTIONS FROM PORTFOLIO SECURITIES are recorded on the date
they are effective (the ex-dividend date), although the funds record certain
foreign security dividends on the day they learn of the ex-dividend date.
INCOME FROM INTEREST AND THE ACCRETION OF DISCOUNTS is recorded as it accrues.
REALIZED GAINS AND LOSSES from security transactions are based on the identified
costs of the securities involved.
ASSETS AND LIABILITIES DENOMINATED IN FOREIGN CURRENCIES are reported in U.S.
dollars. For assets and liabilities held on a given date, the dollar value is
based on market exchange rates in effect on that date. Transactions involving
foreign currencies, including purchases, sales, income receipts and expense
payments, are figured using exchange rates in effect on the transaction date.
EXPENSES that are specific to a fund are charged directly to that fund. Expenses
that are common to all funds within a trust generally are allocated among the
funds in proportion to their net assets.
EACH FUND MAINTAINS ITS OWN ACCOUNT FOR PURPOSES OF HOLDING ASSETS AND
ACCOUNTING, and is considered a separate entity for tax purposes. Within its
account, each fund also keeps certain assets in segregated accounts, as may be
required by securities law.
THE ACCOUNTING POLICIES DESCRIBED ABOVE CONFORM WITH GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES. Notwithstanding this, shareholders should understand that
in order to follow these principles, fund management has to make estimates and
assumptions that affect the information reported in the financial statements.
It's possible that once the results are known, they may turn out to be different
from these estimates.
44
<PAGE> 49
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF:
Communications Focus Fund
Financial Services Focus Fund
Health Care Focus Fund
Technology Focus Fund
In our opinion, the accompanying statements of assets and liabilities, including
the portfolio holdings, 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 Communications Focus Fund, Financial
Services Focus Fund, Health Care Focus Fund and Technology Focus Fund (four of
the portfolios constituting Schwab Capital Trust)(hereafter collectively
referred to as the "funds") at October 31, 2000, and the results of each of
their operations, the changes in each of their net assets and the financial
highlights for the period July 3, 2000 (commencement of operations) through
October 31, 2000, in conformity with accounting principles generally accepted in
the United States of America. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the funds' management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our audit
of these financial statements in accordance with auditing standards generally
accepted in the United States of America, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit, which included confirmation of securities at October 31,
2000 by correspondence with the custodian and brokers, provides a reasonable
basis for our opinion.
PRICEWATERHOUSECOOPERS LLP
San Francisco, CA
December 12, 2000
45
<PAGE> 50
HOW TO READ THIS REPORT
This report, including the financial tables, has been designed to be EASY TO
READ. The next few pages provide additional information that can help you more
fully understand the financial tables and why they are important to ALL FUND
INVESTORS.
In this section, we take a closer look at the types of information presented in
the financial tables.
Brief CALLOUTS add context to some of the most important elements in the tables,
and help explain certain fund operations and accounting principles.
At the end, a GLOSSARY defines many of the technical financial terms that are
used in this report.
[GRAPHIC OF FINANCIAL HIGHLIGHTS SAMPLE TABLE]
FINANCIAL HIGHLIGHTS 1
PER-SHARE DATA ($) 2
Income from investment operations: 3
Net investment income
Net realized and unrealized gains
Total income from investment operations
Total return (%) 4
1 The financial highlights summarize a fund's activities over the past five
years (or since inception, if the fund doesn't yet have five years of
operating history).
2 The figures in the first part of the table are for a single share of a fund
that was "outstanding," or in existence, during the periods indicated.
3 These lines show how much the fund earned per share, and where these earnings
came from: how much was from interest and dividends, and how much from capital
appreciation (that is, price increases of investments the fund owned). A fund
may show losses in this section if its expenses exceeded its income or its
capital losses exceeded its capital gains.
Some funds, such as money funds, typically receive all their earnings as
interest, while some equity funds may have only appreciation, or may receive
interest and dividends only occasionally.
4 Total return shows what an investor in a fund would have earned or lost during
each period indicated, assuming that all dividends and distributions were
reinvested. Because the numbers in the financial highlights are for a fund's
fiscal year, they will be different from calendar year numbers, except for
funds whose fiscal year is the same as the calendar year.
46
<PAGE> 51
[GRAPHIC OF FINANCIAL HIGHLIGHTS SAMPLE TABLE]
* 1/1/97-10/31/97
** (0.19)
(-) 0.49
(-) 0.40
(+) 1.89
(++) 1
Table is for illustration only.
* In some cases, such as with funds that started partway through their
planned fiscal year or have changed their fiscal year, the financial
highlights may contain a "stub period" that is less than 12 months.
** In financial tables, parentheses around numbers are used to indicate a
negative number, such as a loss, or a number that is being subtracted, such
as a distribution paid by a fund to its shareholders.
(-) The figures in this part of the table disclose a fund's annual operating
expenses. The expenses are shown as a percentage of a fund's average net
assets because they are paid from these assets.
(-) For some funds, the annual expenses are capped at a certain level. With
these funds, there are two sets of expense figures: net expenses and the
amounts of any expense reductions. The net figures reflect what the
expenses actually were, after the reductions.
(+) This shows you how much a fund netted in dividend and interest income
(i.e., total dividends and interest minus expenses), expressed as a
percentage of the fund's average net assets.
(++) The turnover rate tells you how actively a fund has traded securities.
A rate of 100% would be the equivalent of replacing every security in the
portfolio over the period of a year.
(++) Consistently high turnover can result in taxable distributions, which
can lower after-tax performance -- although this is not a concern if your
investment is held in an IRA, 401(k) or other tax-deferred account.
47
<PAGE> 52
HOW TO READ THIS REPORT Continued
The Portfolio Holdings (sometimes also called the Schedule of Investments) is a
snapshot of all securities a fund held on the last day of the report
period.
Symbols that may appear in the Portfolio Holdings:
(1) Top ten holding -- shows a fund's ten largest positions, as measured by
market value.
+ New holding -- a security the fund added during the report period.
[BULLET] Non-income producing security -- this includes several categories of
securities: those that never pay dividends (such as many growth stocks);
those that sometimes pay dividends, but have not done so in the past 12
months; and those that typically do pay dividends, but have missed a recent
dividend payment.
[GREATER THAN ARROW] Global Depositary Receipt (GDR) -- a security issued in one
country that represents a stock issued in another country.
[DIAMOND] American Depositary Receipt (ADR) -- a type of GDR that is traded in
the United States and priced in U.S. dollars.
[TRIANGLE] Collateral for open futures contracts -- indicates a security the
fund has set aside in a separate account to cover possible losses that may
result from a futures contract. The fund is not permitted to sell a security
while it is pledged as collateral.
[RECTANGLE] Issuer is affiliated with the fund's adviser -- indicates a security
issued by the company that manages the fund, or an affiliate of that
company. Substantial ownership of such securities could represent conflict
of interest, which is why this disclosure is required.
This shows a breakdown of holdings by asset type. To the right of the pie chart
are figures showing the total market value of securities of each asset type, and
also what a fund paid for those securities.
PORTFOLIO HOLDINGS
(1) Top ten holding
+ New holding
[BULLET] Non-income producing security
[GREATER THAN ARROW] Global Depositary Receipt
[DIAMOND] American Depositary Receipt
[TRIANGLE] Collateral for open futures contracts
[RECTANGLE] Issuer is affiliated with the fund's adviser
[GRAPHIC OF PORTFOLIO HOLDINGS SAMPLE TABLE]
<TABLE>
<CAPTION>
MARKET VALUE COST
------------ ----
<S> <C> <C> <C>
COMMON STOCK 99.9% $7,368,959 $5,767,040
U.S. TREASURY OBLIGATIONS 0.1% 3,778 3,778
SHORT-TERM INVESTMENTS 1,864 1,864
----- ---------- ----------
TOTAL INVESTMENTS 100.0% 7,374,601 5,772,682
</TABLE>
Table is for illustration only.
48
<PAGE> 53
* In some cases, securities are organized into sub-groups (in this example,
stock holdings are organized by industry). For each sub-group, there are
figures showing the percentage of investments represented and the total
market value of the securities in the subgroup. Note that for all dollar
values, you need to add three zeroes after each number to get the
approximate value.
** For all bonds, the report shows the security name, the rate the security
pays and the maturity date. The maturity date is the date when the bond is
retired and the issuer returns the money borrowed ("principal" or "face
value") to the bondholder.
** During its lifetime, a bond may trade at a premium or a discount to its par
value, depending on interest rate trends and other factors. When a bond
begins to approach maturity, its market value typically moves closer to its
face value.
(+) In this example, the investment shown is one that seeks to maintain a stable
$1.00 share price, so the number of shares is typically the same as the
market value (allowing for rounding in the value column).
[GRAPHIC OF PORTFOLIO HOLDINGS SAMPLE TABLE]
Table is for illustration only.
(-) Most equity funds keep a small percentage of assets in high quality, liquid
investments, in order to manage their cash flow needs.
* UTILITIES: ELECTRIC & GAS 2.6%
** U.S. Treasury Bills
(+) Provident Institutional TempCash
(-) Other Investment Companies
49
<PAGE> 54
HOW TO READ THIS REPORT Continued
* The Statement of Assets and Liabilities is a snapshot of a fund's balance
sheet on the last day of the report period.
(-) At any given time, a fund is likely to be owed money from various sources
that it has not yet received, and to owe money it hasn't yet paid.
(++) This section gathers the totals from the first two sections in order to
compute net assets.
(-X) This section shows where the assets described above came from. "Capital
received from investors" is money a fund received from investors buying its
shares during the report period, and is a net figure (meaning that money
the fund remitted to investors who redeemed their shares has already been
subtracted from it).
[GRAPHIC OF ASSETS AND LIABILITIES SAMPLE TABLE]
Table is for illustration only.
** As with the Portfolio Holdings, the figures in these statements need to be
multiplied by 1,000. This includes the figures in the notes.
(+) The collateral is simultaneously counted as an asset (because the fund held
it as of the report date) and as a liability (because it is owned by the
institutions that provided it as collateral).
(+X) Although a mutual fund doesn't expect to pay federal income tax, it does
have to file a return with the IRS and disclose certain tax information to
shareholders. In some cases, the requirements of tax accounting differ from
the requirements of the accounting practices used in keeping a fund's
books, so the figures in this box may differ from those shown elsewhere in
the financials. These differences may require that some values be
reclassified in the financials, but this does not affect a fund's NAV.
[GRAPHIC OF FEDERAL TAX DATA SAMPLE TABLE]
Table is for illustration only.
* Assets and Liabilities
** As of October 31, 2000
(-) Receivables
(-) Payables
(+) Collateral held for securities on loan
(++) Net Assets
(+X) Federal Tax Data
(-X) Net Assets by Source
50
<PAGE> 55
[GRAPHIC OF STATEMENT OF OPERATIONS SAMPLE TABLE]
* Statement of OPERATIONS
** NET REALIZED GAINS AND LOSSES
*** NET UNREALIZED GAINS AND LOSSES
**** Custodian fees
# Investment adviser and administrator fees
## Transfer agent and shareholder service fees:
Investor Shares
Select Shares(R)
### INCREASE IN NET ASSETS FROM OPERATIONS
Table is for illustration only.
*The Statement of Operations tells you how much money a fund earned and spent
over the course of the report period, and how much it gained and lost on its
investments.
**These are the capital gains or losses resulting from securities a fund sold
during the report period.
***These represent the change in unrealized gains or losses over the report
period.
****To safeguard the interests of shareholders, mutual funds must keep their
portfolio securities in accounts at a financial institution, whose tasks include
maintaining records of a fund's holdings.
#Covers most activities related to managing a fund's portfolio.
##Covers most activities associated with shareholders, including processing
transactions in fund shares and providing services such as account statements
and information. In funds with more than one share class, these figures are
reported by class.
###This section gathers the totals from the first four sections in order to
compute the net earnings or losses that resulted from a fund's operations during
the report period. These figures also appear, in summary form, on the Statements
of Changes in Net Assets.
51
<PAGE> 56
HOW TO READ THIS REPORT Continued
[GRAPHIC OF CHANGES IN NET ASSETS SAMPLE TABLE]
* Statements of CHANGES IN NET ASSETS
** TRANSACTIONS IN FUND SHARES
***
<TABLE>
<CAPTION>
OPERATIONS
--------------------------------------------------------
11/1/99-10/31/00
<S> <C>
Net investment income .................. $65,370
Net realized gains ..................... 22,632
Net unrealized gains ................... +1,063,273
----------
INCREASE IN NET ASSETS FROM OPERATIONS.. 1,151,275
</TABLE>
****
<TABLE>
<CAPTION>
OPERATIONS
--------------------------------------------------------
11/1/98-10/31/99
<S> <C>
Net investment income ..................... $35,310
Net realized gains ........................ (8,303)
Net unrealized gains ...................... 371,823
-------
INCREASE IN NET ASSETS FROM OPERATIONS..... 398,830
</TABLE>
# SHARES OUTSTANDING AND NET ASSETS
Table is for illustration only.
*The Statements of Changes in Net Assets compare a fund's performance
during the current report period with its performance from the previous report
period.
Keep in mind that if the current report is a semiannual report, its figures are
only for six months, whereas the figures for the previous period are generally
for a full year.
**From this section, you can see how the size of a fund was affected by
investors buying and selling shares (as opposed to changes due to fund
performance, shown above in "Operations").
**The information shows how many shares the fund sold to investors, how many
shares the fund issued in connection with investors who reinvested their
dividends or distributions, and how many shares the fund redeemed (bought back
from investors).
In funds with more than one share class, these figures are reported by class.
***These are the figures for the current report period.
****These are the figures for the previous report period.
#For mutual funds, the number of "shares outstanding" is the number of shares in
existence.
52
<PAGE> 57
GLOSSARY
ASSET ALLOCATION The practice of dividing a portfolio among different asset
classes, with each asset class assigned a particular percentage.
ASSET CLASS A group of securities with similar structure and basic
characteristics. Stocks, bonds and cash are the three main examples of asset
classes.
BETA A historical measure of an investment's volatility relative to a market
index (usually the S&P 500). The index is defined as having a beta of 1.00.
Investments with a beta higher than 1.00 have been more volatile than the index;
those with a beta of less than 1.00 have been less volatile.
BOND A security representing a loan from the investor to the issuer. A bond
typically pays interest at a fixed rate (the "coupon rate") until a specified
date (the "maturity date"), at which time the issuer returns the money borrowed
("principal" or "face value") to the bondholder. Because of their structure,
bonds are sometimes called "fixed income securities" or "debt securities."
CAP, CAPITALIZATION See "market cap."
CAPITAL GAIN, CAPITAL LOSS The difference between the amount paid for an
investment and its value at a later time. If the investment has been sold, the
capital gain or loss is considered a realized gain or loss. If the investment is
still held, the gain or loss is still "on paper" and is considered unrealized.
EARNINGS GROWTH RATE For a mutual fund, the average yearly rate at which the
earnings of the companies in the fund's portfolio have grown, measured over the
past five years.
EARNINGS PER SHARE (EPS) A company's earnings, or net income, for the past 12
months, divided by the number of shares outstanding.
EXPENSE RATIO The amount that is taken from a mutual fund's assets each year to
cover the fund's operating expenses. An expense ratio of 0.50% means that a
fund's expenses amount to half of one percent of its average net assets a year.
MARKET CAP, MARKET CAPITALIZATION The value of a company as determined by the
total value of all shares of its stock outstanding.
MEDIAN MARKET CAP The midpoint of the range of market caps of the stocks held by
a fund. There are different ways of calculating median market cap. With a simple
median, half of the stocks in the fund's portfolio would be larger than the
median, and half would be smaller. With a weighted median (the type that is
calculated for these funds), half of the fund's assets are invested in stocks
that are larger than the median market cap, and half in stocks that are smaller.
NET ASSET VALUE (NAV) The value of one share of a mutual fund. NAV is calculated
by taking the fund's total assets, subtracting liabilities, and dividing by the
number of shares outstanding.
OUTSTANDING SHARES, SHARES OUTSTANDING When speaking of a company or mutual
fund, indicates all shares currently held by investors.
PRICE-TO-BOOK RATIO (P/B) The market price of a company's stock compared with
its "book value." A mutual fund's P/B is the weighted average of the P/B of all
stocks in the fund's portfolio.
PRICE-TO-EARNINGS RATIO (P/E) The market price of a company's stock compared
with earnings over the past year. A mutual fund's P/E is the weighted average of
the P/E of all stocks in the fund's portfolio.
RETURN ON EQUITY (ROE) The average yearly rate of return for each dollar of
investors' money, measured over the past five years.
STOCK A share of ownership, or equity, in the issuing company.
TOTAL RETURN The overall performance of an investment over a given period,
including any expenses, any income or distributions paid out and any capital
gain or loss (increases or decreases in portfolio value).
WEIGHTED AVERAGE For mutual funds, an average that gives the same weight to each
security as the security represents in the fund's portfolio.
YIELD The income paid out by an investment, expressed as a percentage of the
investment's market value.
53
<PAGE> 58
NOTES
<PAGE> 59
CONTACT SCHWAB
The SchwabFunds(R) 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 1-800-435-4000 for a free prospectus and brochure for any of these
SchwabFunds.
This report must be preceded or accompanied by a current prospectus.
METHODS FOR PLACING ORDERS
The following information 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.
INTERNET
www.schwab.com
SCHWAB BY PHONE(TM)
Use our automated voice service or speak to a representative. Call
1-800-435-4000, day or night (for TDD service, call 1-800-345-2550).
TELEBROKER(R)
Automated touch-tone phone service at 1-800-272-4922
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.
THE SCHWABFUNDS FAMILY
EQUITY INDEX FUNDS
Schwab S&P 500 Fund
Schwab 1000 Fund(R)
Schwab Small-Cap Index Fund(R)
Schwab Total Stock Market Index Fund(TM)
Schwab International Index Fund(R)
QUANTITATIVE/SECTOR FUNDS
Schwab Analytics Fund(R)
Schwab Focus Funds
Communications Focus Fund
Financial Services Focus Fund
Health Care Focus Fund
Technology Focus Fund
ASSET ALLOCATION FUNDS
Schwab MarketTrack Portfolios(R)
All Equity Portfolio
Growth Portfolio
Balanced Portfolio
Conservative Portfolio
Schwab MarketManager Portfolios(R)
Growth Portfolio
Balanced Portfolio
Small Cap Portfolio
International Portfolio
BOND FUNDS
Schwab Short-Term Bond Market Index Fund
Schwab Total Bond Market Index Fund
Schwab YieldPlus Fund(TM)
Schwab Short/Intermediate Tax-Free Bond Fund
Schwab Long-Term Tax-Free Bond Fund
Schwab California Short/Intermediate Tax-Free Bond Fund
Schwab California Long-Term Tax-Free Bond Fund
SCHWAB MONEY 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.(R)
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> 60
CHARLES SCHWAB
INVESTMENT ADVISER
Charles Schwab Investment Management, Inc.
101 Montgomery Street, San Francisco, CA 94104
DISTRIBUTOR
Charles Schwab & Co., Inc.
PO Box 7575, San Francisco, CA 94120-7575
This report is not authorized for distribution to prospective investors unless
preceded or accompanied by a current prospectus.
(C) 2000 Charles Schwab & Co., Inc. All rights reserved.
Member SIPC/NYSE.
Printed on recycled paper. MKT4995 (12/00)