N-CSR 1 f04029bnvcsr.txt SCHWAB CAPITAL TRUST FORM N-CSR UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number: 811-7704 Schwab Capital Trust ----------------------------------------------- (Exact name of registrant as specified in charter) 101 Montgomery Street, San Francisco, California 94104 ------------------------------------------------------------------- (Address of principal executive offices) (Zip code) Evelyn Dilsaver Schwab Capital Trust 101 Montgomery Street, San Francisco, California 94104 ----------------------------------------------------------- (Name and address of agent for service) Registrant's telephone number, including area code: (415) 627-7000 Date of fiscal year end: October 31 Date of reporting period: October 31, 2004 ITEM 1: REPORT(S) TO SHAREHOLDERS. SCHWAB EQUITY INDEX FUNDS ANNUAL REPORT October 31, 2004 Schwab S&P 500 Fund Schwab 1000 Fund(R) Schwab Small-Cap Index Fund(R) Schwab Total Stock Market Index Fund(R) Schwab International Index Fund(R) [CHARLES SCHWAB LOGO] Five ways to put the power of the stock market in your portfolio--with some of the lowest expenses in the industry. IN THIS REPORT Management's Discussion.................................................. 2 The president of SchwabFunds(R) and the funds' managers take a look at the factors that shaped fund performance during the report period. Performance at a Glance.......... 5 Schwab S&P 500 Fund Investor Shares: SWPIX Select Shares(R): SWPPX e.Shares(R): SWPEX The fund's goal is to track the total return of the S&P 500(R) Index. 1 Performance and Fund Facts....... 7 Financial Statements............. 25 Schwab 1000 Fund(R) Investor Shares: SNXFX Select Shares: SNXSX The fund's goal is to match the total return of the Schwab 1000 Index(R). Performance and Fund Facts....... 11 Financial Statements............. 35 Schwab Small-Cap Index Fund(R) Investor Shares: SWSMX Select Shares: SWSSX The fund's goal is to track the total return of small capitalization U.S. stocks, as measured by the Schwab Small-Cap Index(R). Performance and Fund Facts....... 14 Financial Statements............. 44 Schwab Total Stock Market Index Fund(R) Investor Shares: SWTIX Select Shares: SWTSX The fund's goal is to track the total return of the entire U.S. stock market, as measured by the Dow Jones Wilshire 5000 Composite Index(SM). 2 Performance and Fund Facts....... 17 Financial Statements............. 53 Schwab International Index Fund(R) Investor Shares: SWINX Select Shares: SWISX The fund's goal is to track the total return of large, publicly traded non-U.S. companies from countries with developed equity markets outside the United States, as measured by the Schwab International Index(R). Performance and Fund Facts....... 20 Financial Statements............. 63 Fund Expenses............................................................ 23 Financial Notes.......................................................... 71 Fund Trustees............................................................ 77 Glossary................................................................. 80 Fund investment adviser: Charles Schwab Investment Management, Inc. (CSIM) Distributor and transfer agent: Charles Schwab & Co., Inc. (Schwab). 1 Standard & Poor's(R), S&P(R), S&P 500(R), Standard & Poor's 500(R) and 500(R) are trademarks of The McGraw-Hill Companies, Inc. and have been licensed for use by the fund. The fund is not sponsored, endorsed, sold or promoted by Standard & Poor's, and Standard & Poor's makes no representation regarding the advisability of investing in the fund. 2 "Dow Jones", "Wilshire", "The DJW 5000(SM)", "The Dow Jones Wilshire 5000(SM)" and "The Dow Jones Wilshire 5000 Composite Index(SM)" are service marks of Dow Jones & Company, Inc. and Wilshire Associates Incorporated. The Schwab Total Stock Market Index Fund, based on The Dow Jones Wilshire 5000 Composite Index(SM), is not sponsored, endorsed, sold or promoted by Dow Jones or Wilshire; and, neither Dow Jones nor Wilshire makes any representation regarding the advisability of investing in such a product. [PHOTO OF CHARLES SCHWAB] Charles Schwab Chairman FROM THE CHAIRMAN Dear Shareholder: As we get ready for 2005, I want to remind you that you might want to add one more item to your list of New Year's resolutions--to review and, if necessary, rebalance your investment portfolio. After all, staying on track is as important in investing as it is in any other part of life. No matter whether it's a good or bad investment climate, you need to make sure that you own a diversified mix of investments and that your asset allocation matches your individual goals, time frame and tolerance for risk. One efficient way to be diversified is by owning a broad-based mutual fund. Equity mutual funds also can help you to diversify the stock side of your portfolio. While our experienced portfolio managers adhere to each fund's objective, it still is important to review your portfolio to make sure the holdings in your funds don't overlap and you're not overconcentrated in one asset class. On a final note, I'm very happy to announce that Evelyn Dilsaver has been named CEO and President of SchwabFunds(R). Although new to the position, Evelyn is no stranger to SchwabFunds, having been an officer in several other capacities at Schwab. Her broad experience in product creation, coupled with a comprehensive understanding of your financial needs and her commitment to you, make her the ideal candidate for her new role. Thank you for investing with us. Sincerely, /s/ Charles Schwab MANAGEMENT'S DISCUSSION for the year ended October 31, 2004 [PHOTO OF EVELYN DILSAVER] EVELYN DILSAVER is President and CEO of Charles Schwab Investment Management, Inc. and is president of each of the funds covered in this report. She joined the firm in 1992 and has held a variety of executive positions at Schwab. Dear Shareholder: I am very excited about my new role as President and CEO of SchwabFunds(R). I believe that my experience at Schwab has prepared me well for this role, as each position has been focused on meeting the needs of our clients. I promise that I will continue on this path and that my goal is to offer you even better service and more relevant choices. When we discuss SchwabFunds with our clients, for example, we often hear that you want to know that you're getting excellent value. Oftentimes, we find that shareholders are unaware that some of the more popular SchwabFunds offer Select Shares(R), a share class that carries lower expenses in exchange for higher investment minimums. My plan is to build on this legacy of value and continue to offer unique investment solutions to help you meet your financial goals. I also want to let you know that we plan to continue to provide and expand information on SchwabFunds on schwab.com. Providing this information is one of the many ways we help individual investors choose investments that are appropriate for their financial goals and time horizons. I look forward to serving you in my new role. I also want to remind you that your trust is very important to us, and I will do all I can to earn and maintain that trust. Thank you for investing in SchwabFunds. Sincerely, /s/ Evelyn Dilsaver 2 Schwab Equity Index Funds [PHOTO OF JEFFREY MORTIMER] JEFFREY MORTIMER, CFA, senior vice president and chief investment officer, equities, of the investment adviser is responsible for the overall management of each of the funds. Prior to joining the firm in October 1997, he worked for more than nine years in asset management. [PHOTO OF LARRY MANO] LARRY MANO, a director and a portfolio manager, is responsible for the day-to-day management of the funds. Prior to joining the firm in 1998, he worked for 20 years in equity management. THE INVESTMENT ENVIRONMENT AND THE FUNDS THE ENCOURAGING ECONOMIC NEWS THAT WAS REPORTED TOWARD THE END OF 2003 CONTINUED TO IMPROVE INTO 2004. Businesses added to their inventories, factory orders rose and production gained some strength. Retail sales continued to rise and higher commodity prices were holding. Mortgage refinancing activity, while still significant, waned as mortgage rates inched slightly upward. And finally, the last piece of the economic puzzle--job growth--began to pick up some steam. In fact, aside from a "soft patch" in early summer, the economy was clicking on all cylinders. With the economic recovery more broad-based, investors, who only a year ago feared deflation, started to worry about inflation. Their inflationary concerns were based on surging oil prices, which had hit an all-time high amid fears of supply interruptions. And while commodity prices moderated somewhat later in the report period, previous increases started to show up in broad measures of inflation. Labor costs also were beginning to rise. Nonetheless, the Federal Reserve (the Fed) continued to hold the Fed funds rate near a 45-year low until June 2004. While third-quarter GDP moved in the right direction, up to an annualized 3.7% from 3.3% in second quarter, higher commodity prices had effectively eroded many consumers' purchasing power. Geopolitical events also had wreaked havoc on oil markets and, after a brief decline in the price of oil following OPEC's decision to boost production, a confluence of supply concerns and robust global demand pushed crude to new highs. In addition to these issues, daily headlines about terrorism and the fierce run for the White House all added up to an uncomfortable sense of uncertainty, keeping many investors on the sidelines. Despite all these concerns, which escalated toward the end of the report period, the strength of the market early in the period, combined with strong second- and third-quarter valuations and earnings resulted in a positive showing for equities. Schwab Equity Index Funds 3 MANAGEMENT'S DISCUSSION continued The strength of the market early in the period, combined with strong second- and third-quarter valuations and earnings resulted in a positive showing for equities. More specifically, the S&P 500(R) Index was up 9.42% for the 12-month report period, while the Russell 2000(R) Index was up 11.73%. In terms of style, value edged out growth early in the period and gained momentum, significantly outperforming growth at the end of the period. THE SCHWAB S&P 500 FUND ended the 12-month report period up 9.03%, closely tracking its benchmark, the S&P 500(R) Index, which was up 9.42%. Interestingly, most of this appreciation occurred during the beginning of the report period. Since then--starting in February 2004--the market traded in a relatively narrow trading range. During the report period, the price of crude oil increased substantially, making energy-related stocks, which were up 44.49%, the top performers in the fund. Exxon Mobil Corp. and ChevronTexaco Corp. were the biggest contributors to returns. On the flip side, the Information Technology sector continued to have problems and was down 0.88%, the only sector to have a net negative return. Hurting returns the most was technology giant Intel Corp., which was down 32.30% for the report period. ASSET CLASS PERFORMANCE COMPARISON % returns during the report period This graph compares the performance of various asset classes during the report period. Final performance figures for the period are in the key below. 9.42% S&P 500(R) INDEX: measures U.S. large-cap stocks 11.73% RUSSELL 2000(R) INDEX: measures U.S. small-cap stocks 18.84% MSCI-EAFE(R) INDEX: measures (in U.S. dollars) large-cap stocks in Europe, Australasia and the Far East 5.53% LEHMAN BROTHERS U.S. AGGREGATE BOND INDEX: measures the U.S. bond market [LINE GRAPH]
LEHMAN S&P RUSSELL MSCI- BROTHERS 500(R) 2000(R) EAFE(R) U.S. AGGREGATE INDEX INDEX INDEX BOND INDEX 31-Oct-03 0.00 0.00 0.00 0.00 07-Nov-03 0.29 2.82 0.78 -0.63 14-Nov-03 0.08 0.94 1.80 0.61 21-Nov-03 -1.33 -0.38 0.15 0.86 28-Nov-03 0.88 3.55 2.22 0.24 05-Dec-03 1.24 2.14 4.70 0.95 12-Dec-03 2.48 3.80 5.04 0.97 19-Dec-03 3.90 3.68 6.46 1.50 26-Dec-03 4.59 5.21 7.84 1.53 02-Jan-04 5.85 6.40 10.98 0.81 09-Jan-04 7.16 9.14 13.86 2.16 16-Jan-04 8.89 12.04 12.31 2.46 23-Jan-04 9.07 13.13 15.10 2.33 30-Jan-04 8.12 10.24 11.77 2.07 06-Feb-04 9.26 10.89 13.33 2.35 13-Feb-04 9.63 11.12 15.41 2.80 20-Feb-04 9.49 10.13 15.13 2.64 27-Feb-04 9.62 11.23 14.35 3.18 05-Mar-04 10.80 13.90 16.17 3.85 12-Mar-04 7.38 10.77 11.07 4.12 19-Mar-04 6.36 8.49 13.10 4.07 26-Mar-04 6.20 8.91 12.52 3.88 02-Apr-04 9.47 14.78 16.39 2.72 09-Apr-04 9.27 13.73 16.44 2.62 16-Apr-04 8.83 10.99 15.04 2.03 23-Apr-04 9.42 12.39 14.61 1.51 30-Apr-04 6.27 6.54 12.39 1.25 07-May-04 5.47 4.43 10.88 -0.19 14-May-04 5.27 3.54 6.99 0.03 21-May-04 5.09 3.93 9.59 0.21 28-May-04 7.73 8.24 12.63 0.84 04-Jun-04 7.95 8.15 12.87 0.36 11-Jun-04 9.32 8.43 13.42 0.32 18-Jun-04 9.21 8.73 14.66 0.78 25-Jun-04 9.18 12.01 15.45 1.18 02-Jul-04 8.35 11.13 15.27 2.16 09-Jul-04 7.18 7.52 15.10 2.22 16-Jul-04 6.10 5.96 14.50 2.69 23-Jul-04 4.64 2.87 10.84 2.41 30-Jul-04 6.19 5.20 11.50 2.42 06-Aug-04 2.58 -0.81 10.63 3.63 13-Aug-04 2.74 -1.21 9.57 3.72 20-Aug-04 6.01 4.63 11.08 3.79 27-Aug-04 6.95 5.36 12.29 3.89 03-Sep-04 7.56 6.26 12.42 3.70 10-Sep-04 8.58 8.88 14.40 4.31 17-Sep-04 9.07 9.54 14.32 4.59 24-Sep-04 7.31 8.18 13.88 4.93 01-Oct-04 9.41 11.89 16.43 4.38 08-Oct-04 8.56 10.13 17.91 4.79 15-Oct-04 7.23 8.95 16.46 5.20 22-Oct-04 6.03 8.64 17.65 5.54 29-Oct-04 9.42 11.73 18.84 5.53 31-Oct-04 9.42 11.73 18.84 5.53
These figures assume dividends and distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged and you cannot invest in them directly. Remember that past performance is not an indication of future results. Data source: Charles Schwab & Co., Inc. 4 Schwab Equity Index Funds PERFORMANCE AT A GLANCE Total return for the 12 months ended 10/31/04 THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN PERFORMANCE DATA QUOTED. TO OBTAIN PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH END, PLEASE VISIT WWW.SCHWAB.COM/SCHWABFUNDS. SCHWAB S&P 500 FUND Investor Shares............ 9.03% Select(R) Shares........... 9.25% e.Shares(R)................ 9.10% Benchmark.................. 9.42% Performance Details........ pages 7-9 SCHWAB 1000 FUND(R) Investor Shares............ 8.78% Select Shares.............. 8.90% Benchmark.................. 9.23% Performance Details........ pages 11-12 SCHWAB SMALL-CAP INDEX FUND(R) Investor Shares............ 9.98% Select Shares.............. 10.16% Benchmark.................. 10.38% Performance Details........ pages 14-15 SCHWAB TOTAL STOCK MARKET INDEX FUND(R) Investor Shares............ 9.93% Select Shares.............. 10.16% Benchmark.................. 10.00% Performance Details........ pages 17-18 SCHWAB INTERNATIONAL INDEX FUND(R) Investor Shares............ 18.40% Select Shares.............. 18.56% Benchmark.................. 19.32% Performance Details........ pages 20-21 THE SCHWAB 1000 FUND was up 8.78% for the report period, tracking its benchmark, the Schwab 1000 Index(R), which was up 9.23%. During the report period, the price of crude oil increased substantially, making energy-related stocks, which were up 44.49%, the top performers in the fund. Exxon Mobil Corp. and ChevronTexaco Corp. were the biggest contributors to returns. On the flip side, the Information Technology sector continued to have problems and was down 0.88%, the only sector to have a net negative return. Hurting returns the most was technology giant Intel Corp., which was down 32.30% for the report period. THE SCHWAB SMALL-CAP INDEX FUND was up 9.98% for the period, closely tracking its benchmark, the Schwab Small-Cap Index(R). The price of oil impacted performance significantly, and just as its larger-cap cohorts rallied in the Energy sector, so, too, did small-cap. Energy was up 66.00%, with Tesoro Petroleum Corp. and Quicksilver Resources, Inc. having the biggest positive impact. The Telecommunications sector fell approximately 36.22%, with Primus Telecommunications and Dobson Communications Corp. having the most negative impact. THE SCHWAB TOTAL STOCK MARKET INDEX FUND was up 9.93% for the 12-month report period, closely tracking its benchmark, the Dow Jones Wilshire 5000 Composite Index(SM). The best performing sectors were Energy and Utilities, with Exxon Mobil Corp. and TXU Corp. (Utilities) contributing most to returns. The fund also benefited from its exposure to small-cap stocks, which led the market for most of the report period. The worst performing sectors were Information Technology and Health Care, with Intel Corp. and Merck & Co. negatively impacting returns. All fund and index figures on this page assume dividends and distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged, and you cannot invest in them directly. Expenses may be partially absorbed by CSIM and Schwab. Without these reductions, the funds' total returns would have been lower. Performance does not reflect the deduction of taxes that a shareholder would pay on fund distributions or on the redemption of fund shares. Small company stocks are subject to greater volatility than other asset categories. Foreign securities can involve risks such as political and economic instability and currency risk. Schwab Equity Index Funds 5 MANAGEMENT'S DISCUSSION continued All countries in the International Index Fund, as well as all sectors, posted positive returns. THE SCHWAB INTERNATIONAL INDEX FUND was up 18.40% for the period, slightly trailing its benchmark, the Schwab International Index(R). All countries in the fund, as well as all sectors, posted positive returns. The best performing countries were Belgium, Sweden, Italy and Spain. The worst performing country was Japan but it still posted an 8.00% gain. The best sectors were Energy and Utilities. The worst performing sector was Information Technology, which also still was positive for the 12-month period. Nothing in this report represents a recommendation of a security by the investment adviser. Manager views and portfolio holdings may have changed since the report date. 6 Schwab Equity Index Funds SCHWAB S&P 500 FUND INVESTOR SHARES PERFORMANCE as of 10/31/04 PRE- AND POST-TAX AVERAGE ANNUAL TOTAL RETURNS 1, 2 This bar chart compares pre-tax performance of the fund's Investor Shares with its benchmark and Morningstar category. The table below the chart shows two types of after-tax returns. [BAR CHART]
Fund: Benchmark: Fund Category: INVESTOR S&P 500(R) MORNINGSTAR SHARES INDEX LARGE-CAP BLEND 1 YEAR 9.03% 9.42% 7.89% 5 YEARS -2.50% -2.21% -1.72% SINCE INCEPTION: 5/1/96 7.92% 8.33% 6.80%
1 YEAR 5 YEARS SINCE INCEPTION Fund: Fund Category: Fund: Fund Category: Fund: Fund Category: INVESTOR MORNINGSTAR INVESTOR MORNINGSTAR INVESTOR MORNINGSTAR TOTAL RETURNS AFTER TAX SHARES LARGE-CAP BLEND SHARES LARGE-CAP BLEND SHARES LARGE-CAP BLEND ------------------------------------------------------------------------------------------------------------------------------------ PRE-LIQUIDATION (still own shares) 8.82% 5.88% -2.87% -2.76% 7.55% n/a ------------------------------------------------------------------------------------------------------------------------------------ POST-LIQUIDATION (shares were sold) 6.12% 4.04% -2.31% -1.93% 6.75% n/a ------------------------------------------------------------------------------------------------------------------------------------
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN PERFORMANCE DATA QUOTED. TO OBTAIN PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH END, PLEASE VISIT WWW.SCHWAB.COM/SCHWABFUNDS. PERFORMANCE OF A HYPOTHETICAL $10,000 INVESTMENT 2 This graph shows performance since inception of a hypothetical $10,000 investment in the fund's Investor Shares, compared with a similar investment in its benchmark. [LINE GRAPH] $19,123 INVESTOR SHARES $19,753 S&P 500(R) INDEX
S&P INVESTOR 500(R) SHARES INDEX 01-May-96 $10,000 $10,000 31-May-96 $10,250 $10,257 30-Jun-96 $10,290 $10,296 31-Jul-96 $9,840 $9,841 31-Aug-96 $10,040 $10,049 30-Sep-96 $10,600 $10,613 31-Oct-96 $10,880 $10,906 30-Nov-96 $11,690 $11,731 31-Dec-96 $11,462 $11,498 31-Jan-97 $12,157 $12,216 28-Feb-97 $12,248 $12,312 31-Mar-97 $11,744 $11,808 30-Apr-97 $12,430 $12,511 31-May-97 $13,186 $13,272 30-Jun-97 $13,760 $13,867 31-Jul-97 $14,849 $14,969 31-Aug-97 $14,012 $14,131 30-Sep-97 $14,778 $14,904 31-Oct-97 $14,284 $14,406 30-Nov-97 $14,930 $15,073 31-Dec-97 $15,184 $15,332 31-Jan-98 $15,357 $15,502 28-Feb-98 $16,455 $16,620 31-Mar-98 $17,289 $17,471 30-Apr-98 $17,452 $17,647 31-May-98 $17,147 $17,344 30-Jun-98 $17,838 $18,048 31-Jul-98 $17,645 $17,857 31-Aug-98 $15,092 $15,278 30-Sep-98 $16,058 $16,257 31-Oct-98 $17,340 $17,579 30-Nov-98 $18,387 $18,645 31-Dec-98 $19,443 $19,718 31-Jan-99 $20,253 $20,543 28-Feb-99 $19,617 $19,904 31-Mar-99 $20,397 $20,700 30-Apr-99 $21,176 $21,501 31-May-99 $20,663 $20,994 30-Jun-99 $21,812 $22,159 31-Jul-99 $21,125 $21,467 31-Aug-99 $21,012 $21,360 30-Sep-99 $20,428 $20,775 31-Oct-99 $21,709 $22,090 30-Nov-99 $22,150 $22,539 31-Dec-99 $23,448 $23,866 31-Jan-00 $22,266 $22,668 29-Feb-00 $21,841 $22,239 31-Mar-00 $23,967 $24,414 30-Apr-00 $23,241 $23,679 31-May-00 $22,753 $23,194 30-Jun-00 $23,313 $23,767 31-Jul-00 $22,940 $23,396 31-Aug-00 $24,361 $24,849 30-Sep-00 $23,075 $23,537 31-Oct-00 $22,971 $23,438 30-Nov-00 $21,156 $21,591 31-Dec-00 $21,261 $21,697 31-Jan-01 $22,014 $22,467 28-Feb-01 $19,996 $20,418 31-Mar-01 $18,730 $19,124 30-Apr-01 $20,174 $20,610 31-May-01 $20,310 $20,748 30-Jun-01 $19,808 $20,244 31-Jul-01 $19,609 $20,045 31-Aug-01 $18,375 $18,790 30-Sep-01 $16,890 $17,272 31-Oct-01 $17,204 $17,602 30-Nov-01 $18,521 $18,952 31-Dec-01 $18,678 $19,119 31-Jan-02 $18,403 $18,840 28-Feb-02 $18,044 $18,476 31-Mar-02 $18,710 $19,171 30-Apr-02 $17,579 $18,009 31-May-02 $17,442 $17,876 30-Jun-02 $16,195 $16,603 31-Jul-02 $14,938 $15,310 31-Aug-02 $15,023 $15,409 30-Sep-02 $13,396 $13,734 31-Oct-02 $14,568 $14,943 30-Nov-02 $15,424 $15,823 31-Dec-02 $14,516 $14,894 31-Jan-03 $14,130 $14,504 28-Feb-03 $13,915 $14,286 31-Mar-03 $14,044 $14,425 30-Apr-03 $15,202 $15,614 31-May-03 $15,995 $16,436 30-Jun-03 $16,188 $16,647 31-Jul-03 $16,478 $16,940 31-Aug-03 $16,788 $17,270 30-Sep-03 $16,606 $17,087 31-Oct-03 $17,539 $18,054 30-Nov-03 $17,689 $18,213 31-Dec-03 $18,601 $19,167 31-Jan-04 $18,938 $19,520 29-Feb-04 $19,199 $19,791 31-Mar-04 $18,906 $19,493 30-Apr-04 $18,601 $19,187 31-May-04 $18,851 $19,449 30-Jun-04 $19,210 $19,827 31-Jul-04 $18,569 $19,170 31-Aug-04 $18,645 $19,247 30-Sep-04 $18,840 $19,455 31-Oct-04 $19,123 $19,753
All figures on this page assume dividends and distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged, and you cannot invest in them directly. 1 The pre-tax total return and the graph do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. After-tax returns are calculated using the highest historical individual federal marginal income tax rates in effect as of 10/31/04 and do not reflect the impact of state and local taxes or the alternative minimum tax. Actual returns depend on an investor's situation and may differ from those shown. After-tax returns may not be relevant to investors who hold their fund shares through tax-deferred arrangements. Pre-liquidation after-tax returns reflect the tax effects of purchases and sales of securities within the fund portfolios and assume investors continue to hold fund shares at the end of the measurement periods. Post-liquidation figures assume investors sold fund shares at the end of the measurement periods and reflect both the effects of taxable distributions and any taxable gains or losses realized upon the sale of shares. Source for category information: Morningstar, Inc. Some funds in this category may not use tax-efficient strategies. 2 Fund expenses have been partially absorbed by CSIM and Schwab. Without these reductions, the fund's returns would have been lower. Schwab Equity Index Funds 7 SCHWAB S&P 500 FUND SELECT SHARES(R) PERFORMANCE as of 10/31/04 PRE- AND POST-TAX AVERAGE ANNUAL TOTAL RETURNS 1, 2 This bar chart compares pre-tax performance of the fund's Select Shares with its benchmark and Morningstar category. The table below the chart shows two types of after-tax returns. [BAR CHART]
Fund: Benchmark: Fund Category: SELECT S&P 500(R) MORNINGSTAR SHARES INDEX LARGE-CAP BLEND 1 YEAR 9.25% 9.42% 7.89% 5 YEARS -2.34% -2.21% -1.72% SINCE INCEPTION: 5/19/97 5.55% 5.74% 1.14%
1 YEAR 5 YEARS SINCE INCEPTION Fund: Fund Category: Fund: Fund Category: Fund: Fund Category: SELECT MORNINGSTAR SELECT MORNINGSTAR SELECT MORNINGSTAR TOTAL RETURNS AFTER TAX SHARES LARGE-CAP BLEND SHARES LARGE-CAP BLEND SHARES LARGE-CAP BLEND ------------------------------------------------------------------------------------------------------------------------------------ PRE-LIQUIDATION (still own shares) 9.02% 5.88% -2.75% -2.76% 5.14% n/a ------------------------------------------------------------------------------------------------------------------------------------ POST-LIQUIDATION (shares were sold) 6.28% 4.04% -2.20% -1.93% 4.58% n/a ------------------------------------------------------------------------------------------------------------------------------------
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN PERFORMANCE DATA QUOTED. TO OBTAIN PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH END, PLEASE VISIT WWW.SCHWAB.COM/SCHWABFUNDS. PERFORMANCE OF A HYPOTHETICAL $25,000 INVESTMENT 2 This graph shows performance since inception of a hypothetical $25,000 investment (the minimum investment for this share class) in the fund's Select Shares, compared with a similar investment in its benchmark. [LINE GRAPH] $37,405 SELECT SHARES $37,900 S&P 500(R) INDEX
S&P SELECT 500(R) SHARES INDEX 19-May-97 $25,000 $25,000 31-May-97 $25,468 $25,465 30-Jun-97 $26,595 $26,606 31-Jul-97 $28,698 $28,721 31-Aug-97 $27,083 $27,113 30-Sep-97 $28,560 $28,596 31-Oct-97 $27,608 $27,641 30-Nov-97 $28,873 $28,920 31-Dec-97 $29,373 $29,418 31-Jan-98 $29,688 $29,744 28-Feb-98 $31,830 $31,889 31-Mar-98 $33,440 $33,522 30-Apr-98 $33,775 $33,860 31-May-98 $33,185 $33,278 30-Jun-98 $34,520 $34,629 31-Jul-98 $34,148 $34,262 31-Aug-98 $29,218 $29,314 30-Sep-98 $31,083 $31,193 31-Oct-98 $33,578 $33,729 30-Nov-98 $35,623 $35,773 31-Dec-98 $37,670 $37,834 31-Jan-99 $39,238 $39,415 28-Feb-99 $38,008 $38,190 31-Mar-99 $39,515 $39,717 30-Apr-99 $41,043 $41,254 31-May-99 $40,070 $40,281 30-Jun-99 $42,273 $42,516 31-Jul-99 $40,943 $41,190 31-Aug-99 $40,745 $40,984 30-Sep-99 $39,615 $39,860 31-Oct-99 $42,115 $42,384 30-Nov-99 $42,968 $43,245 31-Dec-99 $45,500 $45,792 31-Jan-00 $43,210 $43,494 29-Feb-00 $42,385 $42,670 31-Mar-00 $46,525 $46,843 30-Apr-00 $45,118 $45,433 31-May-00 $44,175 $44,502 30-Jun-00 $45,258 $45,601 31-Jul-00 $44,555 $44,890 31-Aug-00 $47,328 $47,678 30-Sep-00 $44,818 $45,161 31-Oct-00 $44,615 $44,971 30-Nov-00 $41,100 $41,427 31-Dec-00 $41,328 $41,630 31-Jan-01 $42,770 $43,108 28-Feb-01 $38,873 $39,177 31-Mar-01 $36,418 $36,693 30-Apr-01 $39,240 $39,544 31-May-01 $39,483 $39,809 30-Jun-01 $38,528 $38,842 31-Jul-01 $38,143 $38,461 31-Aug-01 $35,750 $36,053 30-Sep-01 $32,868 $33,140 31-Oct-01 $33,478 $33,773 30-Nov-01 $36,033 $36,364 31-Dec-01 $36,350 $36,684 31-Jan-02 $35,818 $36,148 28-Feb-02 $35,120 $35,450 31-Mar-02 $36,433 $36,783 30-Apr-02 $34,215 $34,554 31-May-02 $33,970 $34,299 30-Jun-02 $31,548 $31,856 31-Jul-02 $29,085 $29,375 31-Aug-02 $29,290 $29,566 30-Sep-02 $26,088 $26,352 31-Oct-02 $28,388 $28,671 30-Nov-02 $30,070 $30,360 31-Dec-02 $28,293 $28,578 31-Jan-03 $27,543 $27,829 28-Feb-03 $27,125 $27,411 31-Mar-03 $27,395 $27,677 30-Apr-03 $29,650 $29,958 31-May-03 $31,215 $31,537 30-Jun-03 $31,590 $31,940 31-Jul-03 $32,153 $32,502 31-Aug-03 $32,780 $33,136 30-Sep-03 $32,425 $32,785 31-Oct-03 $34,240 $34,641 30-Nov-03 $34,533 $34,946 31-Dec-03 $36,348 $36,777 31-Jan-04 $37,005 $37,453 29-Feb-04 $37,513 $37,974 31-Mar-04 $36,940 $37,401 30-Apr-04 $36,348 $36,813 31-May-04 $36,855 $37,318 30-Jun-04 $37,555 $38,042 31-Jul-04 $36,305 $36,782 31-Aug-04 $36,455 $36,930 30-Sep-04 $36,855 $37,328 31-Oct-04 $37,405 $37,900
All figures on this page assume dividends and distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged, and you cannot invest in them directly. 1 The pre-tax total return and the graph do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. After-tax returns are calculated using the highest historical individual federal marginal income tax rates in effect as of 10/31/04 and do not reflect the impact of state and local taxes or the alternative minimum tax. Actual returns depend on an investor's situation and may differ from those shown. After-tax returns may not be relevant to investors who hold their fund shares through tax-deferred arrangements. Pre-liquidation after-tax returns reflect the tax effects of purchases and sales of securities within the fund portfolios and assume investors continue to hold fund shares at the end of the measurement periods. Post-liquidation figures assume investors sold fund shares at the end of the measurement periods and reflect both the effects of taxable distributions and any taxable gains or losses realized upon the sale of shares. Source for category information: Morningstar, Inc. Some funds in this category may not use tax-efficient strategies. 2 Fund expenses have been partially absorbed by CSIM and Schwab. Without these reductions, the fund's returns would have been lower. 8 Schwab Equity Index Funds SCHWAB S&P 500 FUND E.SHARES(R) PERFORMANCE as of 10/31/04 PRE- AND POST-TAX AVERAGE ANNUAL TOTAL RETURNS 1, 2 This bar chart compares pre-tax performance of the fund's e.Shares with its benchmark and Morningstar category. The table below the chart shows two types of after-tax returns.
Benchmark: Fund Category: Fund: S&P 500(R) MORNINGSTAR E.SHARES INDEX LARGE-CAP BLEND 1 YEAR 9.10% 9.42% 7.89% 5 YEARS -2.44% -2.21% -1.72% SINCE INCEPTION: 5/1/96 8.01% 8.33% 6.80%
1 YEAR 5 YEARS SINCE INCEPTION Fund Category: Fund Category: Fund Category: Fund: MORNINGSTAR Fund: MORNINGSTAR Fund: MORNINGSTAR TOTAL RETURNS AFTER TAX E.SHARES LARGE-CAP BLEND E.SHARES LARGE-CAP BLEND E.SHARES LARGE-CAP BLEND ------------------------------------------------------------------------------------------------------------------------------------ PRE-LIQUIDATION (still own shares) 8.88% 5.88% -2.83% -2.76% 7.61% n/a ------------------------------------------------------------------------------------------------------------------------------------ POST-LIQUIDATION (shares were sold) 6.18% 4.04% -2.27% -1.93% 6.81% n/a ------------------------------------------------------------------------------------------------------------------------------------
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN PERFORMANCE DATA QUOTED. TO OBTAIN PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH END, PLEASE VISIT WWW.SCHWAB.COM/SCHWABFUNDS. PERFORMANCE OF A HYPOTHETICAL $10,000 INVESTMENT 2 This graph shows performance since inception of a hypothetical $10,000 investment in the fund's e.Shares, compared with a similar investment in its benchmark. [LINE GRAPH] $19,263 E.SHARES $19,753 S&P 500(R) INDEX
S&P 500(R) E.SHARES INDEX 01-May-96 $10,000 $10,000 31-May-96 $10,250 $10,257 30-Jun-96 $10,290 $10,296 31-Jul-96 $9,840 $9,841 31-Aug-96 $10,050 $10,049 30-Sep-96 $10,600 $10,613 31-Oct-96 $10,890 $10,906 30-Nov-96 $11,710 $11,731 31-Dec-96 $11,473 $11,498 31-Jan-97 $12,179 $12,216 28-Feb-97 $12,270 $12,312 31-Mar-97 $11,766 $11,808 30-Apr-97 $12,452 $12,511 31-May-97 $13,209 $13,272 30-Jun-97 $13,794 $13,867 31-Jul-97 $14,873 $14,969 31-Aug-97 $14,036 $14,131 30-Sep-97 $14,803 $14,904 31-Oct-97 $14,318 $14,406 30-Nov-97 $14,964 $15,073 31-Dec-97 $15,227 $15,332 31-Jan-98 $15,390 $15,502 28-Feb-98 $16,490 $16,620 31-Mar-98 $17,336 $17,471 30-Apr-98 $17,499 $17,647 31-May-98 $17,193 $17,344 30-Jun-98 $17,886 $18,048 31-Jul-98 $17,692 $17,857 31-Aug-98 $15,136 $15,278 30-Sep-98 $16,103 $16,257 31-Oct-98 $17,397 $17,579 30-Nov-98 $18,446 $18,645 31-Dec-98 $19,504 $19,718 31-Jan-99 $20,316 $20,543 28-Feb-99 $19,679 $19,904 31-Mar-99 $20,459 $20,700 30-Apr-99 $21,240 $21,501 31-May-99 $20,737 $20,994 30-Jun-99 $21,878 $22,159 31-Jul-99 $21,199 $21,467 31-Aug-99 $21,086 $21,360 30-Sep-99 $20,501 $20,775 31-Oct-99 $21,795 $22,090 30-Nov-99 $22,227 $22,539 31-Dec-99 $23,536 $23,866 31-Jan-00 $22,350 $22,668 29-Feb-00 $21,924 $22,239 31-Mar-00 $24,057 $24,414 30-Apr-00 $23,328 $23,679 31-May-00 $22,850 $23,194 30-Jun-00 $23,401 $23,767 31-Jul-00 $23,037 $23,396 31-Aug-00 $24,462 $24,849 30-Sep-00 $23,172 $23,537 31-Oct-00 $23,068 $23,438 30-Nov-00 $21,247 $21,591 31-Dec-00 $21,364 $21,697 31-Jan-01 $22,110 $22,467 28-Feb-01 $20,092 $20,418 31-Mar-01 $18,821 $19,124 30-Apr-01 $20,271 $20,610 31-May-01 $20,407 $20,748 30-Jun-01 $19,903 $20,244 31-Jul-01 $19,703 $20,045 31-Aug-01 $18,463 $18,790 30-Sep-01 $16,971 $17,272 31-Oct-01 $17,297 $17,602 30-Nov-01 $18,610 $18,952 31-Dec-01 $18,768 $19,119 31-Jan-02 $18,492 $18,840 28-Feb-02 $18,141 $18,476 31-Mar-02 $18,810 $19,171 30-Apr-02 $17,674 $18,009 31-May-02 $17,536 $17,876 30-Jun-02 $16,282 $16,603 31-Jul-02 $15,019 $15,310 31-Aug-02 $15,114 $15,409 30-Sep-02 $13,468 $13,734 31-Oct-02 $14,647 $14,943 30-Nov-02 $15,507 $15,823 31-Dec-02 $14,593 $14,894 31-Jan-03 $14,216 $14,504 28-Feb-03 $14,000 $14,286 31-Mar-03 $14,129 $14,425 30-Apr-03 $15,294 $15,614 31-May-03 $16,092 $16,436 30-Jun-03 $16,297 $16,647 31-Jul-03 $16,578 $16,940 31-Aug-03 $16,890 $17,270 30-Sep-03 $16,707 $17,087 31-Oct-03 $17,656 $18,054 30-Nov-03 $17,807 $18,213 31-Dec-03 $18,727 $19,167 31-Jan-04 $19,066 $19,520 29-Feb-04 $19,328 $19,791 31-Mar-04 $19,033 $19,493 30-Apr-04 $18,738 $19,187 31-May-04 $18,989 $19,449 30-Jun-04 $19,350 $19,827 31-Jul-04 $18,705 $19,170 31-Aug-04 $18,782 $19,247 30-Sep-04 $18,978 $19,455 31-Oct-04 $19,263 $19,753
All figures on this page assume dividends and distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged, and you cannot invest in them directly. 1 The pre-tax total return and the graph do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. After-tax returns are calculated using the highest historical individual federal marginal income tax rates in effect as of 10/31/04 and do not reflect the impact of state and local taxes or the alternative minimum tax. Actual returns depend on an investor's situation and may differ from those shown. After-tax returns may not be relevant to investors who hold their fund shares through tax-deferred arrangements. Pre-liquidation after-tax returns reflect the tax effects of purchases and sales of securities within the fund portfolios and assume investors continue to hold fund shares at the end of the measurement periods. Post-liquidation figures assume investors sold fund shares at the end of the measurement periods and reflect both the effects of taxable distributions and any taxable gains or losses realized upon the sale of shares. Source for category information: Morningstar, Inc. Some funds in this category may not use tax-efficient strategies. 2 Fund expenses have been partially absorbed by CSIM and Schwab. Without these reductions, the fund's returns would have been lower. Schwab Equity Index Funds 9 SCHWAB S&P 500 FUND FUND FACTS as of 10/31/04 STYLE ASSESSMENT 1 [GRAPHIC]
INVESTMENT STYLE Value Blend Growth MARKET CAP Large / / /X/ / / Medium / / / / / / Small / / / / / /
STATISTICS NUMBER OF HOLDINGS 502 -------------------------------------------------------------------------------- WEIGHTED AVERAGE MARKET CAP ($ x 1,000,000) $89,813 -------------------------------------------------------------------------------- PRICE/EARNINGS RATIO (P/E) 20.2 -------------------------------------------------------------------------------- PRICE/BOOK RATIO (P/B) 3.1 -------------------------------------------------------------------------------- PORTFOLIO TURNOVER RATE 3% -------------------------------------------------------------------------------- MINIMUM INITIAL INVESTMENT 2 Investor Shares ($1,000 for retirement and custodial accounts) $2,500 Select Shares $25,000 e.Shares ($500 for retirement and custodial accounts) $1,000 --------------------------------------------------------------------------------
TOP HOLDINGS 3
% OF SECURITY NET ASSETS -------------------------------------------------------------------------------- (1) GENERAL ELECTRIC CO. 3.4% -------------------------------------------------------------------------------- (2) EXXON MOBIL CORP. 3.0% -------------------------------------------------------------------------------- (3) MICROSOFT CORP. 2.9% -------------------------------------------------------------------------------- (4) CITIGROUP, INC. 2.2% -------------------------------------------------------------------------------- (5) WAL-MART STORES, INC. 2.2% -------------------------------------------------------------------------------- (6) PFIZER, INC. 2.1% -------------------------------------------------------------------------------- (7) BANK OF AMERICA CORP. 1.7% -------------------------------------------------------------------------------- (8) JOHNSON & JOHNSON 1.7% -------------------------------------------------------------------------------- (9) AMERICAN INTERNATIONAL GROUP, INC. 1.5% -------------------------------------------------------------------------------- (10) INTERNATIONAL BUSINESS MACHINES CORP. 1.4% -------------------------------------------------------------------------------- TOTAL 22.1%
SECTOR WEIGHTINGS % of Portfolio This chart shows the fund's sector composition as of the report date. A sector is a portion of the overall stock market that is made up of industries whose business components share similar characteristics. [PIE CHART] 30.4% CONSUMER NON-DURABLES 21.0% FINANCE 19.2% TECHNOLOGY 7.3% ENERGY 7.3% MATERIALS 6.1% UTILITIES 5.2% CAPITAL GOODS 1.8% TRANSPORTATION 1.6% CONSUMER DURABLES 0.1% OTHER Portfolio holdings may have changed since the report date. 1 Source: Morningstar, Inc. This style assessment is the result of evaluating the fund based on a ten-factor model for value and growth characteristics. The fund's market capitalization placement is determined by the geometric mean of its holdings' market capitalizations. The assessment reflects the fund's portfolio as of 10/31/04, which may have changed since then, and is not a precise indication of risk or performance--past, present, or future. 2 Please see prospectus for further detail and eligibility requirements. 3 This list is not a recommendation of any security by the investment adviser. 10 Schwab Equity Index Funds SCHWAB 1000 FUND(R) INVESTOR SHARES PERFORMANCE as of 10/31/04 PRE- AND POST-TAX AVERAGE ANNUAL TOTAL RETURNS 1 This bar chart compares pre-tax performance of the fund's Investor Shares with its benchmark and Morningstar category. The table below the chart shows two types of after-tax returns. [BAR CHART]
Fund: Benchmark: Fund Category: INVESTOR SCHWAB 1000 MORNINGSTAR SHARES INDEX(R) LARGE-CAP BLEND 1 YEAR 8.78% 9.23% 7.89% 5 YEARS 2 -1.70% -1.41% -1.72% 10 YEARS 2 10.69% 11.10% 9.38%
1 YEAR 5 YEARS 10 YEARS Fund: Fund Category: Fund: Fund Category: Fund: Fund Category: INVESTOR MORNINGSTAR INVESTOR MORNINGSTAR INVESTOR MORNINGSTAR TOTAL RETURNS AFTER TAX SHARES LARGE-CAP BLEND SHARES LARGE-CAP BLEND SHARES LARGE-CAP BLEND ------------------------------------------------------------------------------------------------------------------------------------ PRE-LIQUIDATION (still own shares) 8.60% 5.88% -2.00% -2.76% 10.28% 7.61% ------------------------------------------------------------------------------------------------------------------------------------ POST-LIQUIDATION (shares were sold) 5.93% 4.04% -1.61% -1.93% 9.29% 7.34% ------------------------------------------------------------------------------------------------------------------------------------
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN PERFORMANCE DATA QUOTED. TO OBTAIN PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH END, PLEASE VISIT WWW.SCHWAB.COM/SCHWABFUNDS. PERFORMANCE OF A HYPOTHETICAL $10,000 INVESTMENT 2 This graph shows performance over ten years of a hypothetical $10,000 investment in the fund's Investor Shares, compared with a similar investment in its benchmark and an additional index. [LINE GRAPH] $27,627 INVESTOR SHARES $28,681 SCHWAB 1000 INDEX(R) $28,399 S&P 500(R) INDEX
INVESTOR SCHWAB 1000 S&P 500(R) SHARES INDEX(R) INDEX 31-Oct-94 $10,000 $10,000 $10,000 30-Nov-94 $9,639 $9,642 $9,636 31-Dec-94 $9,755 $9,768 $9,779 31-Jan-95 $10,004 $10,019 $10,032 28-Feb-95 $10,399 $10,430 $10,422 31-Mar-95 $10,671 $10,709 $10,730 30-Apr-95 $10,935 $10,980 $11,045 31-May-95 $11,331 $11,386 $11,486 30-Jun-95 $11,633 $11,699 $11,752 31-Jul-95 $12,076 $12,140 $12,141 31-Aug-95 $12,168 $12,235 $12,172 30-Sep-95 $12,650 $12,735 $12,685 31-Oct-95 $12,588 $12,671 $12,640 30-Nov-95 $13,131 $13,229 $13,193 31-Dec-95 $13,326 $13,427 $13,448 31-Jan-96 $13,720 $13,835 $13,905 29-Feb-96 $13,924 $14,040 $14,034 31-Mar-96 $14,049 $14,176 $14,169 30-Apr-96 $14,286 $14,417 $14,377 31-May-96 $14,624 $14,766 $14,747 30-Jun-96 $14,585 $14,742 $14,803 31-Jul-96 $13,892 $14,043 $14,149 31-Aug-96 $14,270 $14,422 $14,447 30-Sep-96 $15,065 $15,230 $15,259 31-Oct-96 $15,371 $15,537 $15,680 30-Nov-96 $16,481 $16,663 $16,865 31-Dec-96 $16,201 $16,392 $16,531 31-Jan-97 $17,133 $17,341 $17,563 28-Feb-97 $17,197 $17,402 $17,702 31-Mar-97 $16,432 $16,643 $16,976 30-Apr-97 $17,316 $17,522 $17,988 31-May-97 $18,416 $18,654 $19,081 30-Jun-97 $19,180 $19,442 $19,936 31-Jul-97 $20,734 $21,011 $21,521 31-Aug-97 $19,738 $20,019 $20,316 30-Sep-97 $20,798 $21,095 $21,427 31-Oct-97 $20,112 $20,402 $20,712 30-Nov-97 $20,956 $21,273 $21,671 31-Dec-97 $21,373 $21,698 $22,043 31-Jan-98 $21,526 $21,865 $22,288 28-Feb-98 $23,111 $23,495 $23,895 31-Mar-98 $24,286 $24,712 $25,118 30-Apr-98 $24,536 $24,982 $25,372 31-May-98 $23,996 $24,436 $24,936 30-Jun-98 $24,962 $25,417 $25,948 31-Jul-98 $24,616 $25,062 $25,673 31-Aug-98 $20,938 $21,320 $21,966 30-Sep-98 $22,290 $22,714 $23,374 31-Oct-98 $24,060 $24,550 $25,274 30-Nov-98 $25,557 $26,082 $26,806 31-Dec-98 $27,178 $27,734 $28,350 31-Jan-99 $28,207 $28,788 $29,535 28-Feb-99 $27,259 $27,852 $28,616 31-Mar-99 $28,353 $28,962 $29,761 30-Apr-99 $29,505 $30,157 $30,913 31-May-99 $28,824 $29,469 $30,183 30-Jun-99 $30,259 $30,960 $31,858 31-Jul-99 $29,294 $29,974 $30,864 31-Aug-99 $29,011 $29,728 $30,710 30-Sep-99 $28,240 $28,844 $29,868 31-Oct-99 $30,106 $30,790 $31,759 30-Nov-99 $30,836 $31,509 $32,405 31-Dec-99 $32,885 $33,620 $34,313 31-Jan-00 $31,342 $32,054 $32,591 29-Feb-00 $31,351 $32,096 $31,974 31-Mar-00 $34,061 $34,888 $35,101 30-Apr-00 $32,779 $33,578 $34,044 31-May-00 $31,922 $32,704 $33,346 30-Jun-00 $32,779 $33,599 $34,170 31-Jul-00 $32,298 $33,084 $33,637 31-Aug-00 $34,486 $35,333 $35,726 30-Sep-00 $32,893 $33,701 $33,840 31-Oct-00 $32,616 $33,432 $33,698 30-Nov-00 $29,832 $30,582 $31,042 31-Dec-00 $30,185 $30,937 $31,195 31-Jan-01 $31,211 $31,968 $32,302 28-Feb-01 $28,319 $29,006 $29,356 31-Mar-01 $26,388 $27,033 $27,495 30-Apr-01 $28,541 $29,254 $29,631 31-May-01 $28,722 $29,446 $29,830 30-Jun-01 $28,089 $28,803 $29,105 31-Jul-01 $27,711 $28,426 $28,820 31-Aug-01 $25,944 $26,623 $27,015 30-Sep-01 $23,766 $24,391 $24,833 31-Oct-01 $24,300 $24,948 $25,307 30-Nov-01 $26,157 $26,859 $27,248 31-Dec-01 $26,485 $27,204 $27,488 31-Jan-02 $26,178 $26,894 $27,086 28-Feb-02 $25,673 $26,383 $26,564 31-Mar-02 $26,701 $27,449 $27,562 30-Apr-02 $25,250 $25,965 $25,892 31-May-02 $25,009 $25,722 $25,701 30-Jun-02 $23,202 $23,864 $23,871 31-Jul-02 $21,461 $22,077 $22,011 31-Aug-02 $21,594 $22,220 $22,154 30-Sep-02 $19,348 $19,911 $19,746 31-Oct-02 $20,931 $21,551 $21,484 30-Nov-02 $22,141 $22,800 $22,749 31-Dec-02 $20,872 $21,496 $21,414 31-Jan-03 $20,351 $20,972 $20,853 28-Feb-03 $20,016 $20,631 $20,540 31-Mar-03 $20,242 $20,864 $20,739 30-Apr-03 $21,854 $22,530 $22,448 31-May-03 $23,038 $23,767 $23,631 30-Jun-03 $23,332 $24,078 $23,934 31-Jul-03 $23,802 $24,571 $24,355 31-Aug-03 $24,289 $25,091 $24,830 30-Sep-03 $24,003 $24,807 $24,567 31-Oct-03 $25,397 $26,258 $25,957 30-Nov-03 $25,683 $26,557 $26,185 31-Dec-03 $26,871 $27,798 $27,558 31-Jan-04 $27,347 $28,301 $28,065 29-Feb-04 $27,737 $28,719 $28,455 31-Mar-04 $27,380 $28,356 $28,025 30-Apr-04 $26,880 $27,844 $27,585 31-May-04 $27,253 $28,240 $27,963 30-Jun-04 $27,729 $28,751 $28,505 31-Jul-04 $26,752 $27,744 $27,562 31-Aug-04 $26,862 $27,868 $27,672 30-Sep-04 $27,202 $28,232 $27,971 31-Oct-04 $27,627 $28,681 $28,399
All figures on this page assume dividends and distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged, and you cannot invest in them directly. 1 The pre-tax total return and the graph do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. After-tax returns are calculated using the highest historical individual federal marginal income tax rates in effect as of 10/31/04 and do not reflect the impact of state and local taxes or the alternative minimum tax. Actual returns depend on an investor's situation and may differ from those shown. After-tax returns may not be relevant to investors who hold their fund shares through tax-deferred arrangements. Pre-liquidation after-tax returns reflect the tax effects of purchases and sales of securities within the fund portfolios and assume investors continue to hold fund shares at the end of the measurement periods. Post-liquidation figures assume investors sold fund shares at the end of the measurement periods and reflect both the effects of taxable distributions and any taxable gains or losses realized upon the sale of shares. Source for category information: Morningstar, Inc. Some funds in this category may not use tax-efficient strategies. 2 Fund expenses have been partially absorbed by CSIM and Schwab. Without these reductions, the fund's returns would have been lower. Schwab Equity Index Funds 11 SCHWAB 1000 FUND SELECT SHARES(R) PERFORMANCE as of 10/31/04 PRE- AND POST-TAX AVERAGE ANNUAL TOTAL RETURNS 1 This bar chart compares pre-tax performance of the fund's Select Shares with its benchmark and Morningstar category. The table below the chart shows two types of after-tax returns. [BAR CHART]
Fund: Benchmark: Fund Category: SELECT SCHWAB 1000 MORNINGSTAR SHARES INDEX(R) LARGE-CAP BLEND 1 YEAR 8.90% 9.23% 7.89% 5 YEARS 2 -1.58% -1.41% -1.72% SINCE INCEPTION: 5/19/97 2 6.02% 6.24% 1.14%
1 YEAR 5 YEARS SINCE INCEPTION Fund: Fund Category: Fund: Fund Category: Fund: Fund Category: SELECT MORNINGSTAR SELECT MORNINGSTAR SELECT MORNINGSTAR TOTAL RETURNS AFTER TAX SHARES LARGE-CAP BLEND SHARES LARGE-CAP BLEND SHARES LARGE-CAP BLEND ------------------------------------------------------------------------------------------------------------------------------------ PRE-LIQUIDATION (still own shares) 8.70% 5.88% -1.92% -2.76% 5.66% n/a ------------------------------------------------------------------------------------------------------------------------------------ POST-LIQUIDATION (shares were sold) 6.03% 4.04% -1.53% -1.93% 5.02% n/a ------------------------------------------------------------------------------------------------------------------------------------
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN PERFORMANCE DATA QUOTED. TO OBTAIN PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH END, PLEASE VISIT WWW.SCHWAB.COM/SCHWABFUNDS. PERFORMANCE OF A HYPOTHETICAL $50,000 INVESTMENT 2 This graph shows performance since inception of a hypothetical $50,000 investment (the minimum investment for this share class) in the fund's Select Shares, compared with a similar investment in its benchmark and an additional index. [LINE GRAPH] $77,310 SELECT SHARES $78,514 SCHWAB 1000 INDEX(R) $75,799 S&P 500(R) INDEX
SELECT SCHWAB 1000 S&P 500(R) SHARES INDEX(R) INDEX 19-May-97 $50,000 $50,000 $50,000 31-May-97 $51,040 $51,064 $50,930 30-Jun-97 $53,180 $53,222 $53,212 31-Jul-97 $57,490 $57,518 $57,442 31-Aug-97 $54,750 $54,801 $54,225 30-Sep-97 $57,685 $57,746 $57,191 31-Oct-97 $55,785 $55,851 $55,281 30-Nov-97 $58,150 $58,233 $57,841 31-Dec-97 $59,325 $59,398 $58,836 31-Jan-98 $59,725 $59,855 $59,489 28-Feb-98 $64,145 $64,318 $63,778 31-Mar-98 $67,405 $67,648 $67,043 30-Apr-98 $68,100 $68,387 $67,720 31-May-98 $66,625 $66,893 $66,556 30-Jun-98 $69,305 $69,578 $69,258 31-Jul-98 $68,345 $68,606 $68,524 31-Aug-98 $58,140 $58,362 $58,629 30-Sep-98 $61,915 $62,179 $62,387 31-Oct-98 $66,825 $67,206 $67,459 30-Nov-98 $71,000 $71,400 $71,547 31-Dec-98 $75,505 $75,922 $75,668 31-Jan-99 $78,385 $78,805 $78,831 28-Feb-99 $75,750 $76,244 $76,379 31-Mar-99 $78,795 $79,282 $79,434 30-Apr-99 $82,015 $82,553 $82,509 31-May-99 $80,120 $80,671 $80,561 30-Jun-99 $84,110 $84,753 $85,033 31-Jul-99 $81,450 $82,052 $82,380 31-Aug-99 $80,665 $81,380 $81,968 30-Sep-99 $78,545 $78,960 $79,721 31-Oct-99 $83,725 $84,287 $84,767 30-Nov-99 $85,755 $86,255 $86,491 31-Dec-99 $91,470 $92,034 $91,585 31-Jan-00 $87,180 $87,747 $86,987 29-Feb-00 $87,225 $87,861 $85,341 31-Mar-00 $94,765 $95,504 $93,687 30-Apr-00 $91,200 $91,917 $90,867 31-May-00 $88,835 $89,525 $89,004 30-Jun-00 $91,220 $91,977 $91,203 31-Jul-00 $89,905 $90,566 $89,780 31-Aug-00 $95,990 $96,722 $95,356 30-Sep-00 $91,585 $92,255 $90,322 31-Oct-00 $90,810 $91,519 $89,942 30-Nov-00 $83,065 $83,717 $82,855 31-Dec-00 $84,050 $84,689 $83,261 31-Jan-01 $86,935 $87,511 $86,217 28-Feb-01 $78,875 $79,404 $78,354 31-Mar-01 $73,515 $74,002 $73,386 30-Apr-01 $79,515 $80,081 $79,088 31-May-01 $80,020 $80,608 $79,618 30-Jun-01 $78,280 $78,847 $77,683 31-Jul-01 $77,225 $77,815 $76,922 31-Aug-01 $72,325 $72,879 $72,107 30-Sep-01 $66,255 $66,771 $66,280 31-Oct-01 $67,745 $68,296 $67,546 30-Nov-01 $72,920 $73,526 $72,727 31-Dec-01 $73,845 $74,470 $73,367 31-Jan-02 $72,990 $73,622 $72,296 28-Feb-02 $71,600 $72,223 $70,901 31-Mar-02 $74,445 $75,140 $73,567 30-Apr-02 $70,445 $71,078 $69,108 31-May-02 $69,775 $70,413 $68,597 30-Jun-02 $64,710 $65,326 $63,713 31-Jul-02 $59,875 $60,436 $58,750 31-Aug-02 $60,245 $60,827 $59,132 30-Sep-02 $53,980 $54,506 $52,704 31-Oct-02 $58,420 $58,995 $57,342 30-Nov-02 $61,795 $62,414 $60,719 31-Dec-02 $58,255 $58,846 $57,155 31-Jan-03 $56,805 $57,410 $55,658 28-Feb-03 $55,865 $56,475 $54,823 31-Mar-03 $56,500 $57,115 $55,355 30-Apr-03 $61,025 $61,676 $59,916 31-May-03 $64,355 $65,062 $63,073 30-Jun-03 $65,175 $65,913 $63,881 31-Jul-03 $66,490 $67,261 $65,005 31-Aug-03 $67,875 $68,686 $66,273 30-Sep-03 $67,075 $67,908 $65,570 31-Oct-03 $70,990 $71,880 $69,281 30-Nov-03 $71,790 $72,699 $69,891 31-Dec-03 $75,105 $76,095 $73,553 31-Jan-04 $76,455 $77,473 $74,907 29-Feb-04 $77,550 $78,618 $75,948 31-Mar-04 $76,550 $77,622 $74,801 30-Apr-04 $75,175 $76,223 $73,627 31-May-04 $76,220 $77,305 $74,635 30-Jun-04 $77,575 $78,705 $76,083 31-Jul-04 $74,840 $75,948 $73,565 31-Aug-04 $75,175 $76,288 $73,859 30-Sep-04 $76,125 $77,284 $74,657 31-Oct-04 $77,310 $78,514 $75,799
All figures on this page assume dividends and distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged, and you cannot invest in them directly. 1 The pre-tax total return and the graph do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. After-tax returns are calculated using the highest historical individual federal marginal income tax rates in effect as of 10/31/04 and do not reflect the impact of state and local taxes or the alternative minimum tax. Actual returns depend on an investor's situation and may differ from those shown. After-tax returns may not be relevant to investors who hold their fund shares through tax-deferred arrangements. Pre-liquidation after-tax returns reflect the tax effects of purchases and sales of securities within the fund portfolios and assume investors continue to hold fund shares at the end of the measurement periods. Post-liquidation figures assume investors sold fund shares at the end of the measurement periods and reflect both the effects of taxable distributions and any taxable gains or losses realized upon the sale of shares. Source for category information: Morningstar, Inc. Some funds in this category may not use tax-efficient strategies. 2 Fund expenses have been partially absorbed by CSIM and Schwab. Without these reductions, the fund's returns would have been lower. 12 Schwab Equity Index Funds SCHWAB 1000 FUND FUND FACTS as of 10/31/04 STYLE ASSESSMENT 1 [GRAPHIC]
INVESTMENT STYLE Value Blend Growth MARKET CAP Large / / /X/ / / Medium / / / / / / Small / / / / / /
STATISTICS NUMBER OF HOLDINGS 986 -------------------------------------------------------------------------------- WEIGHTED AVERAGE MARKET CAP ($ x 1,000,000) $79,733 -------------------------------------------------------------------------------- PRICE/EARNINGS RATIO (P/E) 20.6 -------------------------------------------------------------------------------- PRICE/BOOK RATIO (P/B) 2.9 -------------------------------------------------------------------------------- PORTFOLIO TURNOVER RATE 5% -------------------------------------------------------------------------------- MINIMUM INITIAL INVESTMENT 2 Investor Shares ($1,000 for retirement and custodial accounts) $2,500 Select Shares $50,000 --------------------------------------------------------------------------------
TOP HOLDINGS 3
% OF SECURITY NET ASSETS -------------------------------------------------------------------------------- (1) GENERAL ELECTRIC CO. 3.0% -------------------------------------------------------------------------------- (2) EXXON MOBIL CORP. 2.7% -------------------------------------------------------------------------------- (3) MICROSOFT CORP. 2.5% -------------------------------------------------------------------------------- (4) WAL-MART STORES, INC. 1.9% -------------------------------------------------------------------------------- (5) CITIGROUP, INC. 1.9% -------------------------------------------------------------------------------- (6) PFIZER, INC. 1.8% -------------------------------------------------------------------------------- (7) BANK OF AMERICA CORP. 1.5% -------------------------------------------------------------------------------- (8) JOHNSON & JOHNSON 1.4% -------------------------------------------------------------------------------- (9) AMERICAN INTERNATIONAL GROUP, INC. 1.3% -------------------------------------------------------------------------------- (10) INTERNATIONAL BUSINESS MACHINES CORP. 1.3% -------------------------------------------------------------------------------- TOTAL 19.3%
SECTOR WEIGHTINGS % of Portfolio This chart shows the fund's sector composition as of the report date. A sector is a portion of the overall stock market that is made up of industries whose business components share similar characteristics. [PIE CHART] 29.7% CONSUMER NON-DURABLES 22.6% FINANCE 18.3% TECHNOLOGY 7.7% MATERIALS 6.8% ENERGY 6.2% UTILITIES 4.9% CAPITAL GOODS 1.8% TRANSPORTATION 1.8% CONSUMER DURABLES 0.2% OTHER Portfolio holdings may have changed since the report date. 1 Source: Morningstar, Inc. This style assessment is the result of evaluating the fund based on a ten-factor model for value and growth characteristics. The fund's market capitalization placement is determined by the geometric mean of its holdings' market capitalizations. The assessment reflects the fund's portfolio as of 10/31/04, which may have changed since then, and is not a precise indication of risk or performance--past, present, or future. 2 Please see prospectus for further detail and eligibility requirements. 3 This list is not a recommendation of any security by the investment adviser. Schwab Equity Index Funds 13 SCHWAB SMALL-CAP INDEX FUND(R) INVESTOR SHARES PERFORMANCE as of 10/31/04 PRE- AND POST-TAX AVERAGE ANNUAL TOTAL RETURNS 1 This bar chart compares pre-tax performance of the fund's Investor Shares with its benchmark and Morningstar category. The table below the chart shows two types of after-tax returns. [BAR CHART]
Fund: Benchmark: Fund Category: INVESTOR SCHWAB MORNINGSTAR SHARES SMALL-CAP INDEX(R) SMALL-CAP BLEND 1 YEAR 9.98% 10.38% 13.51% 5 YEARS 2 6.63% 6.82% 12.25% 10 YEARS 2 9.94% 10.89% 11.83%
1 YEAR 5 YEARS 10 YEARS Fund: Fund Category: Fund: Fund Category: Fund: Fund Category: INVESTOR MORNINGSTAR INVESTOR MORNINGSTAR INVESTOR MORNINGSTAR TOTAL RETURNS AFTER TAX SHARES SMALL-CAP BLEND SHARES SMALL-CAP BLEND SHARES SMALL-CAP BLEND ------------------------------------------------------------------------------------------------------------------------------------ PRE-LIQUIDATION (still own shares) 9.88% 11.50% 5.55% 10.91% 9.17% 9.79% ------------------------------------------------------------------------------------------------------------------------------------ POST-LIQUIDATION (shares were sold) 6.61% 8.05% 5.14% 9.94% 8.43% 9.39% ------------------------------------------------------------------------------------------------------------------------------------
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN PERFORMANCE DATA QUOTED. TO OBTAIN PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH END, PLEASE VISIT WWW.SCHWAB.COM/SCHWABFUNDS. PERFORMANCE OF A HYPOTHETICAL $10,000 INVESTMENT 2 This graph shows performance over ten years of a hypothetical $10,000 investment in the fund's Investor Shares, compared with a similar investment in its benchmark and an additional index. [LINE GRAPH] $25,809 INVESTOR SHARES $28,150 SCHWAB SMALL-CAP INDEX(R) $26,238 RUSSELL 2000(R) INDEX
SCHWAB INVESTOR SMALL-CAP RUSSELL SHARES INDEX(R) 2000(R) INDEX 31-Oct-94 $10,000 $10,000 $10,000 30-Nov-94 $9,602 $9,623 $9,596 31-Dec-94 $9,778 $9,853 $9,853 31-Jan-95 $9,668 $9,693 $9,729 28-Feb-95 $10,019 $10,080 $10,134 31-Mar-95 $10,269 $10,289 $10,307 30-Apr-95 $10,499 $10,515 $10,536 31-May-95 $10,649 $10,651 $10,717 30-Jun-95 $11,140 $11,189 $11,273 31-Jul-95 $11,791 $11,844 $11,923 31-Aug-95 $12,001 $12,090 $12,169 30-Sep-95 $12,231 $12,326 $12,387 31-Oct-95 $11,710 $11,735 $11,834 30-Nov-95 $12,251 $12,299 $12,331 31-Dec-95 $12,482 $12,595 $12,656 31-Jan-96 $12,412 $12,562 $12,642 29-Feb-96 $12,885 $13,067 $13,037 31-Mar-96 $13,087 $13,294 $13,303 30-Apr-96 $13,811 $13,997 $14,014 31-May-96 $14,293 $14,476 $14,566 30-Jun-96 $13,760 $14,014 $13,968 31-Jul-96 $12,563 $12,883 $12,748 31-Aug-96 $13,328 $13,700 $13,489 30-Sep-96 $13,921 $14,204 $14,016 31-Oct-96 $13,670 $13,961 $13,801 30-Nov-96 $14,253 $14,517 $14,369 31-Dec-96 $14,416 $14,787 $14,746 31-Jan-97 $14,801 $15,136 $15,041 28-Feb-97 $14,285 $14,767 $14,677 31-Mar-97 $13,568 $14,048 $13,984 30-Apr-97 $13,669 $14,089 $14,023 31-May-97 $15,286 $15,815 $15,582 30-Jun-97 $16,023 $16,632 $16,251 31-Jul-97 $17,104 $17,581 $17,006 31-Aug-97 $17,427 $17,976 $17,396 30-Sep-97 $18,731 $19,386 $18,669 31-Oct-97 $17,912 $18,540 $17,850 30-Nov-97 $17,730 $18,371 $17,734 31-Dec-97 $18,121 $18,756 $18,044 31-Jan-98 $17,674 $18,461 $17,759 28-Feb-98 $19,073 $19,988 $19,071 31-Mar-98 $19,915 $20,888 $19,857 30-Apr-98 $20,016 $21,031 $19,966 31-May-98 $18,810 $19,795 $18,890 30-Jun-98 $18,840 $19,851 $18,930 31-Jul-98 $17,360 $18,324 $17,396 31-Aug-98 $13,973 $14,791 $14,018 30-Sep-98 $14,896 $15,719 $15,116 31-Oct-98 $15,606 $16,464 $15,732 30-Nov-98 $16,427 $17,318 $16,557 31-Dec-98 $17,473 $18,445 $17,582 31-Jan-99 $17,505 $18,525 $17,815 28-Feb-99 $16,043 $16,976 $16,372 31-Mar-99 $16,268 $17,301 $16,628 30-Apr-99 $17,548 $18,884 $18,118 31-May-99 $17,860 $19,214 $18,382 30-Jun-99 $18,849 $20,473 $19,213 31-Jul-99 $18,753 $20,313 $18,687 31-Aug-99 $18,193 $19,740 $17,995 30-Sep-99 $18,376 $19,908 $17,999 31-Oct-99 $18,720 $20,236 $18,073 30-Nov-99 $19,881 $21,500 $19,152 31-Dec-99 $21,701 $23,548 $21,320 31-Jan-00 $20,882 $22,668 $20,976 29-Feb-00 $23,650 $25,634 $24,439 31-Mar-00 $22,929 $24,962 $22,829 30-Apr-00 $21,797 $23,755 $21,455 31-May-00 $20,772 $22,603 $20,204 30-Jun-00 $22,530 $24,492 $21,966 31-Jul-00 $21,636 $23,540 $21,258 31-Aug-00 $23,812 $25,906 $22,880 30-Sep-00 $23,091 $25,117 $22,208 31-Oct-00 $22,691 $24,656 $21,217 30-Nov-00 $20,515 $22,309 $19,038 31-Dec-00 $22,511 $24,471 $20,674 31-Jan-01 $22,878 $24,800 $21,751 28-Feb-01 $21,150 $22,929 $20,324 31-Mar-01 $20,193 $21,893 $19,330 30-Apr-01 $21,812 $23,667 $20,842 31-May-01 $22,400 $24,302 $21,354 30-Jun-01 $23,394 $25,390 $22,091 31-Jul-01 $22,339 $24,262 $20,896 31-Aug-01 $21,714 $23,574 $20,221 30-Sep-01 $18,648 $20,253 $17,499 31-Oct-01 $19,593 $21,267 $18,523 30-Nov-01 $21,027 $22,835 $19,957 31-Dec-01 $22,309 $24,211 $21,188 31-Jan-02 $21,506 $23,310 $20,968 28-Feb-02 $20,741 $22,481 $20,393 31-Mar-02 $22,538 $24,443 $22,033 30-Apr-02 $22,423 $24,312 $22,233 31-May-02 $21,391 $23,200 $21,246 30-Jun-02 $20,269 $21,980 $20,192 31-Jul-02 $17,502 $18,972 $17,143 31-Aug-02 $17,592 $19,082 $17,100 30-Sep-02 $16,457 $17,849 $15,872 31-Oct-02 $16,916 $18,346 $16,382 30-Nov-02 $18,217 $19,757 $17,843 31-Dec-02 $17,297 $18,781 $16,849 31-Jan-03 $16,486 $17,853 $16,383 28-Feb-03 $15,931 $17,270 $15,888 31-Mar-03 $16,125 $17,486 $16,093 30-Apr-03 $17,800 $19,317 $17,618 31-May-03 $19,718 $21,392 $19,509 30-Jun-03 $20,066 $21,778 $19,862 31-Jul-03 $21,110 $22,927 $21,105 31-Aug-03 $22,140 $24,049 $22,072 30-Sep-03 $21,676 $23,554 $21,664 31-Oct-03 $23,466 $25,502 $23,483 30-Nov-03 $24,290 $26,405 $24,317 31-Dec-03 $24,798 $26,978 $24,811 31-Jan-04 $25,498 $27,720 $25,888 29-Feb-04 $25,602 $27,833 $26,120 31-Mar-04 $25,705 $27,955 $26,363 30-Apr-04 $24,422 $26,563 $25,019 31-May-04 $24,811 $27,002 $25,417 30-Jun-04 $25,977 $28,280 $26,487 31-Jul-04 $24,242 $26,406 $24,704 31-Aug-04 $24,060 $26,210 $24,578 30-Sep-04 $25,304 $27,583 $25,731 31-Oct-04 $25,809 $28,150 $26,238
All figures on this page assume dividends and distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged, and you cannot invest in them directly. 1 The pre-tax total return and the graph do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. After-tax returns are calculated using the highest historical individual federal marginal income tax rates in effect as of 10/31/04 and do not reflect the impact of state and local taxes or the alternative minimum tax. Actual returns depend on an investor's situation and may differ from those shown. After-tax returns may not be relevant to investors who hold their fund shares through tax-deferred arrangements. Pre-liquidation after-tax returns reflect the tax effects of purchases and sales of securities within the fund portfolios and assume investors continue to hold fund shares at the end of the measurement periods. Post-liquidation figures assume investors sold fund shares at the end of the measurement periods and reflect both the effects of taxable distributions and any taxable gains or losses realized upon the sale of shares. Source for category information: Morningstar, Inc. Some funds in this category may not use tax-efficient strategies. 2 Fund expenses have been partially absorbed by CSIM and Schwab. Without these reductions, the fund's returns would have been lower. 14 Schwab Equity Index Funds SCHWAB SMALL-CAP INDEX FUND SELECT SHARES(R) PERFORMANCE as of 10/31/04 PRE- AND POST-TAX AVERAGE ANNUAL TOTAL RETURNS 1, 2 This bar chart compares pre-tax performance of the fund's Select Shares with its benchmark and Morningstar category. The table below the chart shows two types of after-tax returns. [BAR CHART]
Fund: Benchmark: Fund Category: SELECT SCHWAB MORNINGSTAR SHARES SMALL-CAP INDEX(R) SMALL-CAP BLEND 1 YEAR 10.16% 10.38% 13.51% 5 YEARS 6.77% 6.82% 12.25% SINCE INCEPTION: 5/19/97 8.04% 8.68% 6.70%
1 YEAR 5 YEARS SINCE INCEPTION Fund: Fund Category: Fund: Fund Category: Fund: Fund Category: SELECT MORNINGSTAR SELECT MORNINGSTAR SELECT MORNINGSTAR TOTAL RETURNS AFTER TAX SHARES SMALL-CAP BLEND SHARES SMALL-CAP BLEND SHARES SMALL-CAP BLEND ------------------------------------------------------------------------------------------------------------------------------------ PRE-LIQUIDATION (still own shares) 10.04% 11.50% 5.65% 10.91% 7.07% n/a ------------------------------------------------------------------------------------------------------------------------------------ POST-LIQUIDATION (shares were sold) 6.75% 8.05% 5.23% 9.94% 6.51% n/a ------------------------------------------------------------------------------------------------------------------------------------
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN PERFORMANCE DATA QUOTED. TO OBTAIN PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH END, PLEASE VISIT WWW.SCHWAB.COM/SCHWABFUNDS. PERFORMANCE OF A HYPOTHETICAL $50,000 INVESTMENT 2 This graph shows performance since inception of a hypothetical $50,000 investment (the minimum investment for this share class) in the fund's Select Shares, compared with a similar investment in its benchmark and an additional index. [LINE GRAPH] $88,980 SELECT SHARES $92,989 SCHWAB SMALL-CAP INDEX(R) $87,491 RUSSELL 2000(R) INDEX
SCHWAB RUSSELL SELECT SMALL-CAP 2000(R) SHARES INDEX(R) INDEX 19-May-97 $50,000 $50,000 $50,000 31-May-97 $52,170 $52,242 $51,960 30-Jun-97 $54,690 $54,942 $54,189 31-Jul-97 $58,415 $58,075 $56,709 31-Aug-97 $59,485 $59,380 $58,008 30-Sep-97 $63,965 $64,039 $62,254 31-Oct-97 $61,205 $61,244 $59,521 30-Nov-97 $60,550 $60,687 $59,134 31-Dec-97 $61,920 $61,958 $60,169 31-Jan-98 $60,400 $60,983 $59,218 28-Feb-98 $65,175 $66,026 $63,594 31-Mar-98 $68,050 $69,002 $66,214 30-Apr-98 $68,430 $69,473 $66,578 31-May-98 $64,310 $65,391 $62,990 30-Jun-98 $64,415 $65,575 $63,122 31-Jul-98 $59,360 $60,531 $58,009 31-Aug-98 $47,790 $48,861 $46,744 30-Sep-98 $50,945 $51,924 $50,404 31-Oct-98 $53,365 $54,386 $52,460 30-Nov-98 $56,170 $57,207 $55,209 31-Dec-98 $59,775 $60,929 $58,627 31-Jan-99 $59,925 $61,193 $59,407 28-Feb-99 $54,925 $56,079 $54,595 31-Mar-99 $55,660 $57,152 $55,446 30-Apr-99 $60,070 $62,380 $60,414 31-May-99 $61,140 $63,470 $61,296 30-Jun-99 $64,555 $67,629 $64,067 31-Jul-99 $64,225 $67,099 $62,311 31-Aug-99 $62,315 $65,206 $60,006 30-Sep-99 $62,940 $65,762 $60,018 31-Oct-99 $64,115 $66,846 $60,264 30-Nov-99 $68,125 $71,021 $63,862 31-Dec-99 $74,390 $77,788 $71,091 31-Jan-00 $71,585 $74,879 $69,946 29-Feb-00 $81,065 $84,677 $81,495 31-Mar-00 $78,595 $82,458 $76,124 30-Apr-00 $74,755 $78,471 $71,541 31-May-00 $71,250 $74,666 $67,371 30-Jun-00 $77,265 $80,904 $73,245 31-Jul-00 $74,205 $77,761 $70,887 31-Aug-00 $81,655 $85,575 $76,295 30-Sep-00 $79,185 $82,968 $74,052 31-Oct-00 $77,820 $81,448 $70,749 30-Nov-00 $70,405 $73,694 $63,484 31-Dec-00 $77,230 $80,834 $68,937 31-Jan-01 $78,490 $81,923 $72,528 28-Feb-01 $72,565 $75,742 $67,770 31-Mar-01 $69,285 $72,319 $64,457 30-Apr-01 $74,875 $78,181 $69,497 31-May-01 $76,850 $80,277 $71,207 30-Jun-01 $80,300 $83,871 $73,663 31-Jul-01 $76,685 $80,145 $69,678 31-Aug-01 $74,540 $77,873 $67,427 30-Sep-01 $64,030 $66,902 $58,352 31-Oct-01 $67,265 $70,251 $61,765 30-Nov-01 $72,230 $75,432 $66,546 31-Dec-01 $76,610 $79,977 $70,652 31-Jan-02 $73,855 $77,001 $69,917 28-Feb-02 $71,230 $74,261 $68,001 31-Mar-02 $77,400 $80,744 $73,469 30-Apr-02 $77,005 $80,311 $74,137 31-May-02 $73,505 $76,636 $70,846 30-Jun-02 $69,655 $72,606 $67,332 31-Jul-02 $60,160 $62,669 $57,165 31-Aug-02 $60,465 $63,034 $57,022 30-Sep-02 $56,530 $58,961 $52,927 31-Oct-02 $58,105 $60,603 $54,626 30-Nov-02 $62,610 $65,263 $59,499 31-Dec-02 $59,485 $62,041 $56,185 31-Jan-03 $56,655 $58,974 $54,629 28-Feb-03 $54,795 $57,049 $52,979 31-Mar-03 $55,460 $57,761 $53,662 30-Apr-03 $61,255 $63,810 $58,749 31-May-03 $67,805 $70,666 $65,053 30-Jun-03 $69,000 $71,940 $66,231 31-Jul-03 $72,630 $75,736 $70,377 31-Aug-03 $76,170 $79,443 $73,600 30-Sep-03 $74,625 $77,805 $72,238 31-Oct-03 $80,775 $84,240 $78,307 30-Nov-03 $83,610 $87,223 $81,086 31-Dec-03 $85,415 $89,118 $82,732 31-Jan-04 $87,820 $91,568 $86,323 29-Feb-04 $88,180 $91,940 $87,100 31-Mar-04 $88,535 $92,345 $87,910 30-Apr-04 $84,120 $87,745 $83,427 31-May-04 $85,505 $89,198 $84,753 30-Jun-04 $89,515 $93,417 $88,321 31-Jul-04 $83,545 $87,229 $82,377 31-Aug-04 $82,920 $86,580 $81,957 30-Sep-04 $87,245 $91,115 $85,801 31-Oct-04 $88,980 $92,989 $87,491
All figures on this page assume dividends and distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged, and you cannot invest in them directly. 1 The pre-tax total return and the graph do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. After-tax returns are calculated using the highest historical individual federal marginal income tax rates in effect as of 10/31/04 and do not reflect the impact of state and local taxes or the alternative minimum tax. Actual returns depend on an investor's situation and may differ from those shown. After-tax returns may not be relevant to investors who hold their fund shares through tax-deferred arrangements. Pre-liquidation after-tax returns reflect the tax effects of purchases and sales of securities within the fund portfolios and assume investors continue to hold fund shares at the end of the measurement periods. Post-liquidation figures assume investors sold fund shares at the end of the measurement periods and reflect both the effects of taxable distributions and any taxable gains or losses realized upon the sale of shares. Source for category information: Morningstar, Inc. Some funds in this category may not use tax-efficient strategies. 2 Fund expenses have been partially absorbed by CSIM and Schwab. Without these reductions, the fund's returns would have been lower. Schwab Equity Index Funds 15 SCHWAB SMALL-CAP INDEX FUND FUND FACTS as of 10/31/04 STYLE ASSESSMENT 1 [GRAPHIC]
INVESTMENT STYLE Value Blend Growth MARKET CAP Large / / / / / / Medium / / / / / / Small / / /X/ / /
STATISTICS NUMBER OF HOLDINGS 974 -------------------------------------------------------------------------------- WEIGHTED AVERAGE MARKET CAP ($ x 1,000,000) $973 -------------------------------------------------------------------------------- PRICE/EARNINGS RATIO (P/E) 35.5 -------------------------------------------------------------------------------- PRICE/BOOK RATIO (P/B) 2.1 -------------------------------------------------------------------------------- PORTFOLIO TURNOVER RATE 39% -------------------------------------------------------------------------------- MINIMUM INITIAL INVESTMENT 2 Investor Shares ($1,000 for retirement and custodial accounts) $2,500 Select Shares $50,000 --------------------------------------------------------------------------------
TOP HOLDINGS 3
% OF SECURITY NET ASSETS -------------------------------------------------------------------------------- (1) WYNN RESORTS LTD. 0.7% -------------------------------------------------------------------------------- (2) UNITEDGLOBALCOM, INC. Class A 0.4% -------------------------------------------------------------------------------- (3) UNITED DEFENSE INDUSTRIES, INC. 0.3% -------------------------------------------------------------------------------- (4) LANDSTAR SYSTEMS, INC. 0.3% -------------------------------------------------------------------------------- (5) TESORO PETROLEUM CORP. 0.3% -------------------------------------------------------------------------------- (6) CATHAY GENERAL BANCORP., INC. 0.3% -------------------------------------------------------------------------------- (7) EAST-WEST BANCORP, INC. 0.3% -------------------------------------------------------------------------------- (8) NEW CENTURY FINANCIAL CORP. 0.3% -------------------------------------------------------------------------------- (9) PLAINS EXPLORATION & PRODUCTION CO. 0.3% -------------------------------------------------------------------------------- (10) SCIENTIFIC GAMES CORP. Class A 0.3% -------------------------------------------------------------------------------- TOTAL 3.5%
SECTOR WEIGHTINGS % of Portfolio This chart shows the fund's sector composition as of the report date. A sector is a portion of the overall stock market that is made up of industries whose business components share similar characteristics. [PIE CHART] 22.6% MATERIALS 21.8% FINANCE 17.6% CONSUMER NON-DURABLES 15.6% TECHNOLOGY 6.3% ENERGY 6.1% CAPITAL GOODS 3.8% CONSUMER DURABLES 3.2% TRANSPORTATION 2.9% UTILITIES 0.1% OTHER Portfolio holdings may have changed since the report date. 1 Source: Morningstar, Inc. This style assessment is the result of evaluating the fund based on a ten-factor model for value and growth characteristics. The fund's market capitalization placement is determined by the geometric mean of its holdings' market capitalizations. The assessment reflects the fund's portfolio as of 10/31/04, which may have changed since then, and is not a precise indication of risk or performance--past, present, or future. 2 Please see prospectus for further detail and eligibility requirements. 3 This list is not a recommendation of any security by the investment adviser. 16 Schwab Equity Index Funds SCHWAB TOTAL STOCK MARKET INDEX FUND(R) INVESTOR SHARES PERFORMANCE as of 10/31/04 PRE- AND POST-TAX AVERAGE ANNUAL TOTAL RETURNS 1 This bar chart compares pre-tax performance of the fund's Investor Shares with its benchmark and Morningstar category. The table below the chart shows two types of after-tax returns. [BAR CHART]
Benchmark: Fund: DOW JONES Fund Category: INVESTOR WILSHIRE 5000 MORNINGSTAR SHARES COMPOSITE INDEX(SM) LARGE-CAP BLEND 1 YEAR 9.93% 10.00% 7.89% 5 YEARS 2 -0.99% -0.93% -1.72% SINCE INCEPTION: 6/1/99 2 -0.14% -0.06% -0.85%
1 YEAR 5 YEARS SINCE INCEPTION Fund: Fund Category: Fund: Fund Category: Fund: Fund Category: INVESTOR MORNINGSTAR INVESTOR MORNINGSTAR INVESTOR MORNINGSTAR TOTAL RETURNS AFTER TAX SHARES LARGE-CAP BLEND SHARES LARGE-CAP BLEND SHARES LARGE-CAP BLEND ------------------------------------------------------------------------------------------------------------------------------------ PRE-LIQUIDATION (still own shares) 9.78% 5.88% -1.27% -2.76% -0.40% n/a ------------------------------------------------------------------------------------------------------------------------------------ POST-LIQUIDATION (shares were sold) 6.63% 4.04% -1.00% -1.93% -0.27% n/a ------------------------------------------------------------------------------------------------------------------------------------
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN PERFORMANCE DATA QUOTED. TO OBTAIN PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH END, PLEASE VISIT WWW.SCHWAB.COM/SCHWABFUNDS. PERFORMANCE OF A HYPOTHETICAL $10,000 INVESTMENT 2 This graph shows performance since inception of a hypothetical $10,000 investment in the fund's Investor Shares, compared with a similar investment in its benchmark. [LINE GRAPH] $9,926 INVESTOR SHARES $9,970 DOW JONES WILSHIRE 5000 COMPOSITE INDEX(SM)
DOW JONES WILSHIRE 5000 INVESTOR COMPOSITE SHARES INDEX(SM) 01-Jun-99 $10,000 $10,000 30-Jun-99 $10,515 $10,518 31-Jul-99 $10,165 $10,180 31-Aug-99 $10,070 $10,086 30-Sep-99 $9,820 $9,822 31-Oct-99 $10,435 $10,447 30-Nov-99 $10,790 $10,797 31-Dec-99 $11,605 $11,617 31-Jan-00 $11,108 $11,135 29-Feb-00 $11,374 $11,384 31-Mar-00 $12,022 $12,060 30-Apr-00 $11,399 $11,432 31-May-00 $11,012 $11,033 30-Jun-00 $11,484 $11,519 31-Jul-00 $11,258 $11,284 31-Aug-00 $12,077 $12,104 30-Sep-00 $11,520 $11,538 31-Oct-00 $11,294 $11,294 30-Nov-00 $10,179 $10,170 31-Dec-00 $10,371 $10,351 31-Jan-01 $10,746 $10,748 28-Feb-01 $9,724 $9,729 31-Mar-01 $9,066 $9,074 30-Apr-01 $9,815 $9,821 31-May-01 $9,911 $9,919 30-Jun-01 $9,754 $9,752 31-Jul-01 $9,587 $9,591 31-Aug-01 $9,010 $9,011 30-Sep-01 $8,206 $8,202 31-Oct-01 $8,408 $8,410 30-Nov-01 $9,046 $9,054 31-Dec-01 $9,211 $9,217 31-Jan-02 $9,093 $9,102 28-Feb-02 $8,915 $8,915 31-Mar-02 $9,308 $9,305 30-Apr-02 $8,874 $8,851 31-May-02 $8,766 $8,747 30-Jun-02 $8,169 $8,132 31-Jul-02 $7,516 $7,476 31-Aug-02 $7,567 $7,520 30-Sep-02 $6,816 $6,765 31-Oct-02 $7,327 $7,283 30-Nov-02 $7,740 $7,722 31-Dec-02 $7,320 $7,294 31-Jan-03 $7,139 $7,111 28-Feb-03 $7,010 $6,990 31-Mar-03 $7,098 $7,069 30-Apr-03 $7,656 $7,649 31-May-03 $8,105 $8,116 30-Jun-03 $8,229 $8,237 31-Jul-03 $8,415 $8,435 31-Aug-03 $8,611 $8,637 30-Sep-03 $8,513 $8,542 31-Oct-03 $9,030 $9,064 30-Nov-03 $9,164 $9,190 31-Dec-03 $9,566 $9,603 31-Jan-04 $9,769 $9,817 29-Feb-04 $9,910 $9,961 31-Mar-04 $9,811 $9,854 30-Apr-04 $9,603 $9,644 31-May-04 $9,733 $9,777 30-Jun-04 $9,936 $9,981 31-Jul-04 $9,571 $9,599 31-Aug-04 $9,603 $9,631 30-Sep-04 $9,764 $9,802 31-Oct-04 $9,926 $9,970
All figures on this page assume dividends and distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged, and you cannot invest in them directly. 1 The pre-tax total return and the graph do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. After-tax returns are calculated using the highest historical individual federal marginal income tax rates in effect as of 10/31/04 and do not reflect the impact of state and local taxes or the alternative minimum tax. Actual returns depend on an investor's situation and may differ from those shown. After-tax returns may not be relevant to investors who hold their fund shares through tax-deferred arrangements. Pre-liquidation after-tax returns reflect the tax effects of purchases and sales of securities within the fund portfolios and assume investors continue to hold fund shares at the end of the measurement periods. Post-liquidation figures assume investors sold fund shares at the end of the measurement periods and reflect both the effects of taxable distributions and any taxable gains or losses realized upon the sale of shares. Source for category information: Morningstar, Inc. Some funds in this category may not use tax-efficient strategies. 2 Fund expenses have been partially absorbed by CSIM and Schwab. Without these reductions, the fund's returns would have been lower. Schwab Equity Index Funds 17 SCHWAB TOTAL STOCK MARKET INDEX FUND SELECT SHARES(R) PERFORMANCE as of 10/31/04 PRE- AND POST-TAX AVERAGE ANNUAL TOTAL RETURNS 1, 2 This bar chart compares pre-tax performance of the fund's Select Shares with its benchmark and Morningstar category. The table below the chart shows two types of after-tax returns. [BAR CHART]
Benchmark: Fund: DOW JONES Fund Category: SELECT WILSHIRE 5000 MORNINGSTAR SHARES COMPOSITE INDEX(SM) LARGE-CAP BLEND 1 YEAR 10.16% 10.00% 7.89% 5 YEARS -0.85% -0.93% -1.72% SINCE INCEPTION: 6/1/99 0.02% -0.06% -0.85%
YEAR 5 YEARS SINCE INCEPTION Fund: Fund Category: Fund: Fund Category: Fund: Fund Category: SELECT MORNINGSTAR SELECT MORNINGSTAR SELECT MORNINGSTAR TOTAL RETURNS AFTER TAX SHARES LARGE-CAP BLEND SHARES LARGE-CAP BLEND SHARES LARGE-CAP BLEND ------------------------------------------------------------------------------------------------------------------------------------ PRE-LIQUIDATION (still own shares) 9.99% 5.88% -1.16% -2.76% -0.27% n/a ------------------------------------------------------------------------------------------------------------------------------------ POST-LIQUIDATION (shares were sold) 6.81% 4.04% -0.90% -1.93% -0.15% n/a ------------------------------------------------------------------------------------------------------------------------------------
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN PERFORMANCE DATA QUOTED. TO OBTAIN PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH END, PLEASE VISIT WWW.SCHWAB.COM/SCHWABFUNDS. PERFORMANCE OF A HYPOTHETICAL $50,000 INVESTMENT 2 This graph shows performance since inception of a hypothetical $50,000 investment (the minimum investment for this share class) in the fund's Select Shares, compared with a similar investment in its benchmark. [LINE GRAPH] $50,050 SELECT SHARES $49,850 DOW JONES WILSHIRE 5000 COMPOSITE INDEX(SM)
DOW JONES WILSHIRE 5000 SELECT COMPOSITE SHARES INDEX(SM) 01-Jun-99 $50,000 $50,000 30-Jun-99 $52,600 $52,590 31-Jul-99 $50,850 $50,902 31-Aug-99 $50,350 $50,428 30-Sep-99 $49,125 $49,112 31-Oct-99 $52,225 $52,236 30-Nov-99 $53,975 $53,986 31-Dec-99 $58,065 $58,083 31-Jan-00 $55,605 $55,673 29-Feb-00 $56,935 $56,920 31-Mar-00 $60,150 $60,301 30-Apr-00 $57,060 $57,159 31-May-00 $55,130 $55,164 30-Jun-00 $57,515 $57,597 31-Jul-00 $56,385 $56,422 31-Aug-00 $60,480 $60,518 30-Sep-00 $57,715 $57,692 31-Oct-00 $56,560 $56,469 30-Nov-00 $51,010 $50,850 31-Dec-00 $51,975 $51,755 31-Jan-01 $53,850 $53,738 28-Feb-01 $48,730 $48,643 31-Mar-01 $45,435 $45,370 30-Apr-01 $49,185 $49,104 31-May-01 $49,695 $49,595 30-Jun-01 $48,910 $48,761 31-Jul-01 $48,070 $47,957 31-Aug-01 $45,185 $45,055 30-Sep-01 $41,155 $41,009 31-Oct-01 $42,190 $42,051 30-Nov-01 $45,385 $45,268 31-Dec-01 $46,210 $46,083 31-Jan-02 $45,645 $45,511 28-Feb-02 $44,725 $44,574 31-Mar-02 $46,720 $46,526 30-Apr-02 $44,520 $44,256 31-May-02 $44,010 $43,734 30-Jun-02 $41,015 $40,659 31-Jul-02 $37,735 $37,378 31-Aug-02 $37,990 $37,598 30-Sep-02 $34,230 $33,827 31-Oct-02 $36,790 $36,415 30-Nov-02 $38,860 $38,611 31-Dec-02 $36,775 $36,472 31-Jan-03 $35,865 $35,553 28-Feb-03 $35,245 $34,952 31-Mar-03 $35,660 $35,347 30-Apr-03 $38,485 $38,245 31-May-03 $40,740 $40,582 30-Jun-03 $41,365 $41,183 31-Jul-03 $42,325 $42,175 31-Aug-03 $43,310 $43,187 30-Sep-03 $42,815 $42,708 31-Oct-03 $45,435 $45,318 30-Nov-03 $46,110 $45,952 31-Dec-03 $48,165 $48,015 31-Jan-04 $49,160 $49,086 29-Feb-04 $49,895 $49,803 31-Mar-04 $49,395 $49,270 30-Apr-04 $48,345 $48,220 31-May-04 $49,030 $48,886 30-Jun-04 $50,050 $49,903 31-Jul-04 $48,215 $47,996 31-Aug-04 $48,375 $48,155 30-Sep-04 $49,185 $49,012 31-Oct-04 $50,050 $49,850
All figures on this page assume dividends and distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged, and you cannot invest in them directly. 1 The pre-tax total return and the graph do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. After-tax returns are calculated using the highest historical individual federal marginal income tax rates in effect as of 10/31/04 and do not reflect the impact of state and local taxes or the alternative minimum tax. Actual returns depend on an investor's situation and may differ from those shown. After-tax returns may not be relevant to investors who hold their fund shares through tax-deferred arrangements. Pre-liquidation after-tax returns reflect the tax effects of purchases and sales of securities within the fund portfolios and assume investors continue to hold fund shares at the end of the measurement periods. Post-liquidation figures assume investors sold fund shares at the end of the measurement periods and reflect both the effects of taxable distributions and any taxable gains or losses realized upon the sale of shares. Source for category information: Morningstar, Inc. Some funds in this category may not use tax-efficient strategies. 2 Fund expenses have been partially absorbed by CSIM and Schwab. Without these reductions, the fund's returns would have been lower. 18 Schwab Equity Index Funds SCHWAB TOTAL STOCK MARKET INDEX FUND FUND FACTS as of 10/31/04 STYLE ASSESSMENT 1 [GRAPHIC]
INVESTMENT STYLE Value Blend Growth MARKET CAP Large / / /X/ / / Medium / / / / / / Small / / / / / /
STATISTICS NUMBER OF HOLDINGS 2,965 -------------------------------------------------------------------------------- WEIGHTED AVERAGE MARKET CAP ($ x 1,000,000) $70,406 -------------------------------------------------------------------------------- PRICE/EARNINGS RATIO (P/E) 21.0 -------------------------------------------------------------------------------- PRICE/BOOK RATIO (P/B) 2.8 -------------------------------------------------------------------------------- PORTFOLIO TURNOVER RATE 2% -------------------------------------------------------------------------------- MINIMUM INITIAL INVESTMENT 2 Investor Shares ($1,000 for retirement and custodial accounts) $2,500 Select Shares $50,000 --------------------------------------------------------------------------------
TOP HOLDINGS 3
% OF SECURITY NET ASSETS -------------------------------------------------------------------------------- (1) GENERAL ELECTRIC CO. 2.6% -------------------------------------------------------------------------------- (2) EXXON MOBIL CORP. 2.3% -------------------------------------------------------------------------------- (3) MICROSOFT CORP. 2.2% -------------------------------------------------------------------------------- (4) WAL-MART STORES, INC. 1.7% -------------------------------------------------------------------------------- (5) CITIGROUP, INC. 1.7% -------------------------------------------------------------------------------- (6) PFIZER, INC. 1.6% -------------------------------------------------------------------------------- (7) BANK OF AMERICA CORP. 1.3% -------------------------------------------------------------------------------- (8) JOHNSON & JOHNSON 1.3% -------------------------------------------------------------------------------- (9) AMERICAN INTERNATIONAL GROUP, INC. 1.2% -------------------------------------------------------------------------------- (10) INTERNATIONAL BUSINESS MACHINES CORP. 1.1% -------------------------------------------------------------------------------- TOTAL 17.0%
SECTOR WEIGHTINGS % of Portfolio This chart shows the fund's sector composition as of the report date. A sector is a portion of the overall stock market that is made up of industries whose business components share similar characteristics. [PIE CHART] 28.4% CONSUMER NON-DURABLES 22.3% FINANCE 18.0% TECHNOLOGY 9.2% MATERIALS 7.0% ENERGY 5.8% UTILITIES 4.7% CAPITAL GOODS 2.0% TRANSPORTATION 1.9% CONSUMER DURABLES 0.7% OTHER Portfolio holdings may have changed since the report date. 1 Source: Morningstar, Inc. This style assessment is the result of evaluating the fund based on a ten-factor model for value and growth characteristics. The fund's market capitalization placement is determined by the geometric mean of its holdings' market capitalizations. The assessment reflects the fund's portfolio as of 10/31/04, which may have changed since then, and is not a precise indication of risk or performance--past, present, or future. 2 Please see prospectus for further detail and eligibility requirements. 3 This list is not a recommendation of any security by the investment adviser. Schwab Equity Index Funds 19 SCHWAB INTERNATIONAL INDEX FUND(R) INVESTOR SHARES PERFORMANCE as of 10/31/04 PRE- AND POST-TAX AVERAGE ANNUAL TOTAL RETURNS 1, 2 This bar chart compares pre-tax performance of the fund's Investor Shares with its benchmark and Morningstar category. The table below the chart shows two types of after-tax returns. [BAR CHART]
Benchmark: Fund: SCHWAB Fund Category: INVESTOR INTERNATIONAL MORNINGSTAR FOREIGN SHARES INDEX(R) LARGE-CAP BLEND 1 YEAR 18.40% 19.32% 16.12% 5 YEARS -2.32% -1.71% -1.56% 10 YEARS 4.47% 5.07% 4.69%
1 YEAR 5 YEARS 10 YEARS Fund Category: Fund Category: Fund Category: Fund: MORNINGSTAR Fund: MORNINGSTAR Fund: MORNINGSTAR INVESTOR FOREIGN INVESTOR FOREIGN INVESTOR FOREIGN TOTAL RETURNS AFTER TAX SHARES LARGE-CAP BLEND SHARES LARGE-CAP BLEND SHARES LARGE-CAP BLEND ------------------------------------------------------------------------------------------------------------------------------------ PRE-LIQUIDATION (still own shares) 18.30% 13.82% -2.67% -2.72% 4.12% 3.16% ------------------------------------------------------------------------------------------------------------------------------------ POST-LIQUIDATION (shares were sold) 12.51% 9.24% -2.11% -1.89% 3.72% 3.26% ------------------------------------------------------------------------------------------------------------------------------------
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN PERFORMANCE DATA QUOTED. TO OBTAIN PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH END, PLEASE VISIT WWW.SCHWAB.COM/SCHWABFUNDS. PERFORMANCE OF A HYPOTHETICAL $10,000 INVESTMENT 2 This graph shows performance over ten years of a hypothetical $10,000 investment in the fund's Investor Shares, compared with a similar investment in its benchmark and an additional index. [LINE GRAPH] $15,485 INVESTOR SHARES $16,411 SCHWAB INTERNATIONAL INDEX(R) $14,837 MSCI-EAFE(R) INDEX
SCHWAB INVESTOR INTERNATIONAL MSCI-EAFE(R) SHARES INDEX(R) INDEX 31-Oct-94 $10,000 $10,000 $10,000 30-Nov-94 $9,523 $9,503 $9,519 31-Dec-94 $9,575 $9,581 $9,579 31-Jan-95 $9,231 $9,300 $9,211 28-Feb-95 $9,305 $9,325 $9,184 31-Mar-95 $9,825 $9,944 $9,758 30-Apr-95 $10,178 $10,290 $10,124 31-May-95 $10,206 $10,251 $10,004 30-Jun-95 $10,104 $10,129 $9,829 31-Jul-95 $10,615 $10,725 $10,441 31-Aug-95 $10,262 $10,324 $10,043 30-Sep-95 $10,475 $10,576 $10,239 31-Oct-95 $10,336 $10,394 $9,964 30-Nov-95 $10,559 $10,685 $10,241 31-Dec-95 $10,936 $11,099 $10,654 31-Jan-96 $10,964 $11,134 $10,697 29-Feb-96 $10,982 $11,155 $10,734 31-Mar-96 $11,170 $11,363 $10,961 30-Apr-96 $11,443 $11,632 $11,280 31-May-96 $11,320 $11,495 $11,073 30-Jun-96 $11,405 $11,573 $11,135 31-Jul-96 $11,086 $11,273 $10,809 31-Aug-96 $11,190 $11,371 $10,833 30-Sep-96 $11,499 $11,706 $11,121 31-Oct-96 $11,480 $11,666 $11,008 30-Nov-96 $11,996 $12,208 $11,446 31-Dec-96 $11,933 $12,100 $11,298 31-Jan-97 $11,543 $11,698 $10,903 28-Feb-97 $11,714 $11,893 $11,082 31-Mar-97 $11,810 $11,973 $11,122 30-Apr-97 $11,895 $12,102 $11,181 31-May-97 $12,770 $12,990 $11,908 30-Jun-97 $13,485 $13,749 $12,565 31-Jul-97 $13,894 $14,121 $12,768 31-Aug-97 $12,885 $13,102 $11,814 30-Sep-97 $13,770 $13,925 $12,476 31-Oct-97 $12,665 $12,797 $11,517 30-Nov-97 $12,656 $12,747 $11,399 31-Dec-97 $12,805 $12,927 $11,498 31-Jan-98 $13,276 $13,450 $12,024 28-Feb-98 $14,047 $14,263 $12,796 31-Mar-98 $14,412 $14,637 $13,190 30-Apr-98 $14,509 $14,736 $13,294 31-May-98 $14,509 $14,700 $13,229 30-Jun-98 $14,634 $14,796 $13,329 31-Jul-98 $14,673 $14,891 $13,464 31-Aug-98 $12,863 $13,015 $11,796 30-Sep-98 $12,449 $12,588 $11,434 31-Oct-98 $13,681 $13,908 $12,625 30-Nov-98 $14,384 $14,690 $13,271 31-Dec-98 $14,834 $15,172 $13,796 31-Jan-99 $14,785 $15,091 $13,754 28-Feb-99 $14,455 $14,793 $13,427 31-Mar-99 $15,106 $15,472 $13,987 30-Apr-99 $15,718 $16,138 $14,553 31-May-99 $14,950 $15,324 $13,804 30-Jun-99 $15,524 $15,949 $14,342 31-Jul-99 $16,087 $16,542 $14,768 31-Aug-99 $16,232 $16,696 $14,823 30-Sep-99 $16,534 $16,982 $14,972 31-Oct-99 $17,418 $17,886 $15,534 30-Nov-99 $18,214 $18,664 $16,073 31-Dec-99 $19,820 $20,303 $17,516 31-Jan-00 $18,263 $18,829 $16,404 29-Feb-00 $18,518 $19,133 $16,845 31-Mar-00 $19,595 $20,219 $17,499 30-Apr-00 $18,537 $19,126 $16,578 31-May-00 $18,009 $18,565 $16,174 30-Jun-00 $18,684 $19,257 $16,806 31-Jul-00 $17,960 $18,511 $16,102 31-Aug-00 $18,284 $18,837 $16,242 30-Sep-00 $17,333 $17,863 $15,451 31-Oct-00 $16,775 $17,307 $15,086 30-Nov-00 $16,011 $16,528 $14,521 31-Dec-00 $16,334 $16,876 $15,036 31-Jan-01 $16,473 $17,056 $15,041 28-Feb-01 $15,061 $15,575 $13,916 31-Mar-01 $14,047 $14,498 $12,971 30-Apr-01 $15,011 $15,496 $13,862 31-May-01 $14,475 $14,917 $13,349 30-Jun-01 $13,858 $14,280 $12,800 31-Jul-01 $13,510 $13,935 $12,579 31-Aug-01 $13,122 $13,545 $12,287 30-Sep-01 $11,939 $12,318 $11,042 31-Oct-01 $12,149 $12,554 $11,325 30-Nov-01 $12,526 $12,947 $11,743 31-Dec-01 $12,619 $13,035 $11,812 31-Jan-02 $11,966 $12,356 $11,185 28-Feb-02 $12,056 $12,462 $11,263 31-Mar-02 $12,719 $13,119 $11,873 30-Apr-02 $12,759 $13,228 $11,951 31-May-02 $12,931 $13,414 $12,103 30-Jun-02 $12,408 $12,872 $11,621 31-Jul-02 $11,191 $11,616 $10,474 31-Aug-02 $11,161 $11,591 $10,450 30-Sep-02 $9,954 $10,339 $9,328 31-Oct-02 $10,528 $10,955 $9,828 30-Nov-02 $10,970 $11,438 $10,275 31-Dec-02 $10,646 $11,073 $9,929 31-Jan-03 $10,184 $10,608 $9,515 28-Feb-03 $9,979 $10,390 $9,298 31-Mar-03 $9,773 $10,186 $9,115 30-Apr-03 $10,697 $11,186 $10,009 31-May-03 $11,344 $11,857 $10,615 30-Jun-03 $11,612 $12,138 $10,872 31-Jul-03 $11,847 $12,415 $11,135 31-Aug-03 $12,033 $12,625 $11,403 30-Sep-03 $12,360 $12,977 $11,755 31-Oct-03 $13,079 $13,754 $12,487 30-Nov-03 $13,429 $14,119 $12,764 31-Dec-03 $14,493 $15,257 $13,761 31-Jan-04 $14,608 $15,393 $13,955 29-Feb-04 $14,932 $15,739 $14,277 31-Mar-04 $14,890 $15,702 $14,357 30-Apr-04 $14,598 $15,412 $14,033 31-May-04 $14,660 $15,514 $14,081 30-Jun-04 $14,932 $15,800 $14,389 31-Jul-04 $14,556 $15,392 $13,921 31-Aug-04 $14,566 $15,416 $13,983 30-Sep-04 $14,974 $15,845 $14,348 31-Oct-04 $15,485 $16,411 $14,837
All figures on this page assume dividends and distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged, and you cannot invest in them directly. 1 The pre-tax total return and the graph do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. After-tax returns are calculated using the highest historical individual federal marginal income tax rates in effect as of 10/31/04 and do not reflect the impact of state and local taxes or the alternative minimum tax. Actual returns depend on an investor's situation and may differ from those shown. After-tax returns may not be relevant to investors who hold their fund shares through tax-deferred arrangements. Pre-liquidation after-tax returns reflect the tax effects of purchases and sales of securities within the fund portfolios and assume investors continue to hold fund shares at the end of the measurement periods. Post-liquidation figures assume investors sold fund shares at the end of the measurement periods and reflect both the effects of taxable distributions and any taxable gains or losses realized upon the sale of shares. Source for category information: Morningstar, Inc. Some funds in this category may not use tax-efficient strategies. 2 Fund expenses have been partially absorbed by CSIM and Schwab. Without these reductions, the fund's returns would have been lower. 20 Schwab Equity Index Funds SCHWAB INTERNATIONAL INDEX FUND SELECT SHARES(R) PERFORMANCE as of 10/31/04 PRE- AND POST-TAX AVERAGE ANNUAL TOTAL RETURNS 1, 2 This bar chart compares pre-tax performance of the fund's Select Shares with its benchmark and Morningstar category. The table below the chart shows two types of after-tax returns. [BAR CHART]
Benchmark: Fund: SCHWAB Fund Category: SELECT INTERNATIONAL MORNINGSTAR FOREIGN SHARES INDEX(R) LARGE-CAP BLEND 1 YEAR 18.56% 19.32% 16.12% 5 YEARS -2.21% -1.71% -1.56% SINCE INCEPTION: 5/19/97 2.58% 2.99% -0.64%
1 YEAR 5 YEARS SINCE INCEPTION Fund Category: Fund Category: Fund Category: Fund: MORNINGSTAR Fund: MORNINGSTAR Fund: MORNINGSTAR SELECT FOREIGN SELECT FOREIGN SELECT FOREIGN TOTAL RETURNS AFTER TAX SHARES LARGE-CAP BLEND SHARES LARGE-CAP BLEND SHARES LARGE-CAP BLEND ------------------------------------------------------------------------------------------------------------------------------------ PRE-LIQUIDATION (still own shares) 18.43% 13.82% -2.60% -2.72% 2.21% n/a ------------------------------------------------------------------------------------------------------------------------------------ POST-LIQUIDATION (shares were sold) 12.63% 9.24% -2.04% -1.89% 2.03% n/a ------------------------------------------------------------------------------------------------------------------------------------
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN PERFORMANCE DATA QUOTED. TO OBTAIN PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH END, PLEASE VISIT WWW.SCHWAB.COM/SCHWABFUNDS. PERFORMANCE OF A HYPOTHETICAL $50,000 INVESTMENT 2 This graph shows performance since inception of a hypothetical $50,000 investment (the minimum investment for this share class) in the fund's Select Shares, compared with a similar investment in its benchmark and an additional index. [LINE GRAPH] $60,440 SELECT SHARES $62,259 SCHWAB INTERNATIONAL INDEX(R) $61,358 MSCI-EAFE(R) INDEX
SCHWAB SELECT INTERNATIONAL MSCI-EAFE(R) SHARES INDEX(R) INDEX 19-May-97 $50,000 $50,000 $50,000 31-May-97 $49,375 $49,283 $49,248 30-Jun-97 $52,170 $52,161 $51,961 31-Jul-97 $53,755 $53,571 $52,803 31-Aug-97 $49,815 $49,706 $48,859 30-Sep-97 $53,240 $52,827 $51,595 31-Oct-97 $49,005 $48,550 $47,627 30-Nov-97 $48,970 $48,360 $47,141 31-Dec-97 $49,580 $49,042 $47,551 31-Jan-98 $51,405 $51,027 $49,725 28-Feb-98 $54,385 $54,111 $52,917 31-Mar-98 $55,800 $55,529 $54,547 30-Apr-98 $56,175 $55,905 $54,978 31-May-98 $56,175 $55,770 $54,708 30-Jun-98 $56,655 $56,133 $55,124 31-Jul-98 $56,845 $56,493 $55,681 31-Aug-98 $49,840 $49,376 $48,782 30-Sep-98 $48,240 $47,757 $47,284 31-Oct-98 $53,005 $52,763 $52,211 30-Nov-98 $55,725 $55,732 $54,885 31-Dec-98 $57,490 $57,561 $57,053 31-Jan-99 $57,305 $57,252 $56,881 28-Feb-99 $56,025 $56,122 $55,528 31-Mar-99 $58,585 $58,699 $57,843 30-Apr-99 $60,955 $61,225 $60,186 31-May-99 $57,980 $58,137 $57,086 30-Jun-99 $60,200 $60,507 $59,313 31-Jul-99 $62,385 $62,757 $61,074 31-Aug-99 $62,950 $63,342 $61,300 30-Sep-99 $64,115 $64,425 $61,919 31-Oct-99 $67,575 $67,857 $64,241 30-Nov-99 $70,660 $70,806 $66,470 31-Dec-99 $76,920 $77,025 $72,439 31-Jan-00 $70,880 $71,433 $67,839 29-Feb-00 $71,870 $72,588 $69,664 31-Mar-00 $76,050 $76,708 $72,367 30-Apr-00 $71,905 $72,561 $68,561 31-May-00 $69,895 $70,431 $66,888 30-Jun-00 $72,515 $73,058 $69,503 31-Jul-00 $69,740 $70,228 $66,591 31-Aug-00 $70,995 $71,462 $67,169 30-Sep-00 $67,310 $67,769 $63,898 31-Oct-00 $65,110 $65,658 $62,390 30-Nov-00 $62,185 $62,703 $60,050 31-Dec-00 $63,455 $64,024 $62,182 31-Jan-01 $63,955 $64,706 $62,201 28-Feb-01 $58,470 $59,090 $57,548 31-Mar-01 $54,570 $55,001 $53,641 30-Apr-01 $58,315 $58,788 $57,326 31-May-01 $56,230 $56,592 $55,205 30-Jun-01 $53,835 $54,175 $52,936 31-Jul-01 $52,485 $52,866 $52,020 31-Aug-01 $51,015 $51,386 $50,813 30-Sep-01 $46,385 $46,733 $45,666 31-Oct-01 $47,235 $47,628 $46,835 30-Nov-01 $48,700 $49,119 $48,563 31-Dec-01 $49,040 $49,452 $48,850 31-Jan-02 $46,540 $46,876 $46,256 28-Feb-02 $46,890 $47,279 $46,579 31-Mar-02 $49,430 $49,771 $49,099 30-Apr-02 $49,590 $50,183 $49,423 31-May-02 $50,255 $50,891 $50,051 30-Jun-02 $48,220 $48,833 $48,059 31-Jul-02 $43,525 $44,067 $43,316 31-Aug-02 $43,410 $43,973 $43,216 30-Sep-02 $38,715 $39,225 $38,575 31-Oct-02 $40,945 $41,560 $40,646 30-Nov-02 $42,665 $43,395 $42,491 31-Dec-02 $41,385 $42,009 $41,064 31-Jan-03 $39,625 $40,243 $39,351 28-Feb-03 $38,825 $39,419 $38,450 31-Mar-03 $38,025 $38,642 $37,697 30-Apr-03 $41,625 $42,438 $41,391 31-May-03 $44,140 $44,981 $43,899 30-Jun-03 $45,180 $46,051 $44,961 31-Jul-03 $46,140 $47,098 $46,050 31-Aug-03 $46,860 $47,898 $47,159 30-Sep-03 $48,140 $49,233 $48,612 31-Oct-03 $50,980 $52,179 $51,640 30-Nov-03 $52,300 $53,566 $52,787 31-Dec-03 $56,485 $57,881 $56,909 31-Jan-04 $56,935 $58,400 $57,712 29-Feb-04 $58,195 $59,711 $59,045 31-Mar-04 $58,035 $59,572 $59,376 30-Apr-04 $56,935 $58,470 $58,034 31-May-04 $57,180 $58,857 $58,231 30-Jun-04 $58,240 $59,940 $59,506 31-Jul-04 $56,770 $58,393 $57,572 31-Aug-04 $56,810 $58,483 $57,826 30-Sep-04 $58,400 $60,114 $59,335 31-Oct-04 $60,440 $62,259 $61,358
All figures on this page assume dividends and distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged, and you cannot invest in them directly. 1 The pre-tax total return and the graph do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. After-tax returns are calculated using the highest historical individual federal marginal income tax rates in effect as of 10/31/04 and do not reflect the impact of state and local taxes or the alternative minimum tax. Actual returns depend on an investor's situation and may differ from those shown. After-tax returns may not be relevant to investors who hold their fund shares through tax-deferred arrangements. Pre-liquidation after-tax returns reflect the tax effects of purchases and sales of securities within the fund portfolios and assume investors continue to hold fund shares at the end of the measurement periods. Post-liquidation figures assume investors sold fund shares at the end of the measurement periods and reflect both the effects of taxable distributions and any taxable gains or losses realized upon the sale of shares. Source for category information: Morningstar, Inc. Some funds in this category may not use tax-efficient strategies. 2 Fund expenses have been partially absorbed by CSIM and Schwab. Without these reductions, the fund's returns would have been lower. Schwab Equity Index Funds 21 SCHWAB INTERNATIONAL INDEX FUND FUND FACTS as of 10/31/04 STYLE ASSESSMENT 1
INVESTMENT STYLE MARKET CAP Value Blend Growth Large / / /X/ / / Medium / / / / / / Small / / / / / /
TOP HOLDINGS 2
% OF SECURITY NET ASSETS -------------------------------------------------------------------------------- (1) BP PLC 3.3% -------------------------------------------------------------------------------- (2) HSBC HOLDINGS PLC 2.7% -------------------------------------------------------------------------------- (3) VODAFONE GROUP PLC 2.7% -------------------------------------------------------------------------------- (4) GLAXOSMITHKLINE PLC 1.9% -------------------------------------------------------------------------------- (5) TOTAL SA 1.9% -------------------------------------------------------------------------------- (6) NOVARTIS AG, Registered 1.8% -------------------------------------------------------------------------------- (7) ROYAL DUTCH PETROLEUM CO. 1.7% -------------------------------------------------------------------------------- (8) TOYOTA MOTOR CORP. 1.7% -------------------------------------------------------------------------------- (9) NESTLE SA, Registered 1.5% -------------------------------------------------------------------------------- (10) ROYAL BANK OF SCOTLAND GROUP PLC 1.3% -------------------------------------------------------------------------------- TOTAL 20.5%
STATISTICS NUMBER OF HOLDINGS 335 -------------------------------------------------------------------------------- WEIGHTED AVERAGE MARKET CAP ($ x 1,000,000) $57,013 -------------------------------------------------------------------------------- PRICE/EARNINGS RATIO (P/E) 19.6 -------------------------------------------------------------------------------- PRICE/BOOK RATIO (P/B) 2.1 -------------------------------------------------------------------------------- PORTFOLIO TURNOVER RATE 1% -------------------------------------------------------------------------------- MINIMUM INITIAL INVESTMENT 3 Investor Shares ($1,000 for retirement and custodial accounts) $2,500 Select Shares $50,000 --------------------------------------------------------------------------------
SECTOR AND COUNTRY WEIGHTINGS % of Portfolio These charts show the fund's sector and country composition as of the report date. A sector is a portion of the overall stock market that is made up of industries whose business components share similar characteristics. SECTOR --------------------------- [PIE CHART] 27.9% FINANCE 24.8% MATERIALS 15.6% CONSUMER NON-DURABLES 10.7% UTILITIES 7.7% TRANSPORTATION 4.4% ENERGY 3.9% CAPITAL GOODS 2.6% TECHNOLOGY 2.1% CONSUMER DURABLES 0.3% OTHER COUNTRY --------------------------- [PIE CHART] 27.8% UNITED KINGDOM 17.8% JAPAN 10.6% FRANCE 7.8% SWITZERLAND 7.2% GERMANY 6.2% CANADA 5.6% NETHERLANDS 4.1% AUSTRALIA 3.9% SPAIN 9.0% OTHER Portfolio holdings may have changed since the report date. 1 Source: Morningstar, Inc. This style assessment is the result of evaluating the fund based on a ten-factor model for value and growth characteristics. The fund's market capitalization placement is determined by the geometric mean of its holdings' market capitalizations. The assessment reflects the fund's portfolio as of 10/31/04, which may have changed since then, and is not a precise indication of risk or performance--past, present, or future. 2 This list is not a recommendation of any security by the investment adviser. 3 Please see prospectus for further detail and eligibility requirements. 22 Schwab Equity Index Funds FUND EXPENSES EXAMPLES FOR A $1,000 INVESTMENT As a fund shareholder, you incur two types of costs: transaction costs, such as redemption fees; and, ongoing costs, such as management fees, transfer agent and shareholder services fees, and other fund expenses. The expense examples below are intended to help you understand your ongoing cost (in dollars) of investing in a fund and to compare this cost with the ongoing cost of investing in other mutual funds. These examples are based on an investment of $1,000 invested for six-months beginning May 1, 2004 and held through October 31, 2004. ACTUAL RETURN lines in the table below provide information about actual account values and actual expenses. You may use this information, together with the amount you invested, to estimate the expenses that you paid over the period. To do so, simply divide your account value by $1,000 (for example, an $8,600 account value / $1,000 = 8.6), then multiply the result by the number given for your fund or share class under the heading entitled "Expenses Paid During Period." HYPOTHETICAL RETURN lines in the table below provide information about hypothetical account values and hypothetical expenses based on a fund's or share class' actual expense ratio and an assumed return of 5% per year before expenses. Because the return used is not an actual return, it may not be used to estimate the actual ending account value or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only, and do not reflect any transactional costs, such as redemption fees. If these transactional costs were included, your costs would have been higher.
ENDING BEGINNING ACCOUNT VALUE EXPENSES EXPENSE RATIO 1 ACCOUNT VALUE (NET OF EXPENSES) PAID DURING PERIOD 2 (ANNUALIZED) AT 5/1/04 AT 10/31/04 5/1/04-10/31/04 ------------------------------------------------------------------------------------------------------------------------------------ SCHWAB S&P 500 FUND Investor Shares Actual Return 0.37% $1,000 $1,028.00 $1.89 Hypothetical 5% Return 0.37% $1,000 $1,023.28 $1.88 Select Shares(R) Actual Return 0.19% $1,000 $1,029.10 $0.97 Hypothetical 5% Return 0.19% $1,000 $1,024.18 $0.97 e.Shares(R) Actual Return 0.28% $1,000 $1,028.00 $1.43 Hypothetical 5% Return 0.28% $1,000 $1,023.73 $1.42 ------------------------------------------------------------------------------------------------------------------------------------ SCHWAB 1000 FUND(R) Investor Shares Actual Return 0.50% $1,000 $1,027.80 $2.55 Hypothetical 5% Return 0.50% $1,000 $1,022.62 $2.54 Select Shares Actual Return 0.35% $1,000 $1,028.40 $1.78 Hypothetical 5% Return 0.35% $1,000 $1,023.38 $1.78
1 Based on the most recent six-month expense ratio; may differ from the expense ratio provided in Financial Highlights. 2 Expenses for each share class are equal to that share class' annualized expense ratio, multiplied by the average account value over the period, multiplied by 184 days of the period, and divided by 366 days of the fiscal year. Schwab Equity Index Funds 23 FUND EXPENSES continued
ENDING BEGINNING ACCOUNT VALUE EXPENSES EXPENSE RATIO 1 ACCOUNT VALUE (NET OF EXPENSES) PAID DURING PERIOD 2 (ANNUALIZED) AT 5/1/04 AT 10/31/04 5/1/04-10/31/04 ------------------------------------------------------------------------------------------------------------------------------------ SCHWAB SMALL-CAP INDEX FUND(R) Investor Shares Actual Return 0.59% $1,000 $1,056.80 $3.05 Hypothetical 5% Return 0.59% $1,000 $1,022.17 $3.00 Select Shares Actual Return 0.42% $1,000 $1,057.80 $2.17 Hypothetical 5% Return 0.42% $1,000 $1,023.03 $2.14 ------------------------------------------------------------------------------------------------------------------------------------ SCHWAB TOTAL STOCK MARKET INDEX FUND(R) Investor Shares Actual Return 0.56% $1,000 $1,033.70 $2.81 Hypothetical 5% Return 0.56% $1,000 $1,022.37 $2.80 Select Shares Actual Return 0.39% $1,000 $1,035.20 $2.00 Hypothetical 5% Return 0.39% $1,000 $1,023.18 $1.98 ------------------------------------------------------------------------------------------------------------------------------------ SCHWAB INTERNATIONAL INDEX FUND(R) Investor Shares Actual Return 0.69% $1,000 $1,060.80 $3.57 Hypothetical 5% Return 0.69% $1,000 $1,021.67 $3.51 Select Shares Actual Return 0.50% $1,000 $1,061.60 $2.59 Hypothetical 5% Return 0.50% $1,000 $1,022.62 $2.54
1 Based on the most recent six-month expense ratio; may differ from the expense ratio provided in Financial Highlights. 2 Expenses for each share class are equal to that share class' annualized expense ratio, multiplied by the average account value over the period, multiplied by 184 days of the period, and divided by 366 days of the fiscal year. 24 Schwab Equity Index Funds SCHWAB S&P 500 FUND FINANCIAL STATEMENTS FINANCIAL HIGHLIGHTS
11/1/03- 11/1/02- 11/1/01- 11/1/00- 11/1/99- INVESTOR SHARES 10/31/04 10/31/03 10/31/02 10/31/01 10/31/00 ------------------------------------------------------------------------------------------------------------------------------------ PER-SHARE DATA ($) ------------------------------------------------------------------------------------------------------------------------------------ Net asset value at beginning of period 16.36 13.79 16.45 22.15 21.17 ------------------------------------------------------------------------------ Income or loss from investment operations: Net investment income 0.23 0.20 0.20 0.17 0.17 Net realized and unrealized gains or losses 1.23 2.57 (2.68) (5.70) 1.06 ------------------------------------------------------------------------------ Total income or loss from investment operations 1.46 2.77 (2.48) (5.53) 1.23 Less distributions: Dividends from net investment income (0.21) (0.20) (0.18) (0.17) (0.18) Distributions from net realized gains -- -- -- -- (0.07) ------------------------------------------------------------------------------ Total distributions (0.21) (0.20) (0.18) (0.17) (0.25) ------------------------------------------------------------------------------ Net asset value at end of period 17.61 16.36 13.79 16.45 22.15 ------------------------------------------------------------------------------ Total return (%) 9.03 20.39 (15.32) (25.11) 5.81 RATIOS/SUPPLEMENTAL DATA (%) ------------------------------------------------------------------------------------------------------------------------------------ Ratios to average net assets: Net operating expenses 0.37 0.36 0.35 0.35 0.36 1 Gross operating expenses 0.45 0.46 0.46 0.46 0.52 Net investment income 1.35 1.45 1.21 0.95 0.81 Portfolio turnover rate 3 3 8 4 9 Net assets, end of period ($ x 1,000,000) 3,849 3,510 2,760 3,070 3,617
1 The ratio of net operating expenses would have been 0.35% if certain non-routine expenses (proxy fees) had not been included. See financial notes. 25 SCHWAB S&P 500 FUND FINANCIAL HIGHLIGHTS
11/1/03- 11/1/02- 11/1/01- 11/1/00- 11/1/99- SELECT SHARES 10/31/04 10/31/03 10/31/02 10/31/01 10/31/00 ------------------------------------------------------------------------------------------------------------------------------------ PER-SHARE DATA ($) ------------------------------------------------------------------------------------------------------------------------------------ Net asset value at beginning of period 16.41 13.83 16.50 22.21 21.23 ------------------------------------------------------------------------------ Income or loss from investment operations: Net investment income 0.26 0.24 0.22 0.20 0.20 Net realized and unrealized gains or losses 1.24 2.57 (2.69) (5.71) 1.06 ------------------------------------------------------------------------------ Total income or loss from investment operations 1.50 2.81 (2.47) (5.51) 1.26 Less distributions: Dividends from net investment income (0.23) (0.23) (0.20) (0.20) (0.21) Distributions from net realized gains -- -- -- -- (0.07) ------------------------------------------------------------------------------ Total distributions (0.23) (0.23) (0.20) (0.20) (0.28) ------------------------------------------------------------------------------ Net asset value at end of period 17.68 16.41 13.83 16.50 22.21 ------------------------------------------------------------------------------ Total return (%) 9.25 20.62 (15.20) (24.97) 5.94 RATIOS/SUPPLEMENTAL DATA (%) ------------------------------------------------------------------------------------------------------------------------------------ Ratios to average net assets: Net operating expenses 0.19 0.19 0.19 0.19 0.20 1 Gross operating expenses 0.30 0.31 0.31 0.31 0.36 Net investment income 1.53 1.63 1.37 1.11 0.98 Portfolio turnover rate 3 3 8 4 9 Net assets, end of period ($ x 1,000,000) 4,119 3,692 3,029 3,563 4,357
1 The ratio of net operating expenses would have been 0.19% if certain non-routine expenses (proxy fees) had not been included. 26 See financial notes. SCHWAB S&P 500 FUND
11/1/03- 11/1/02- 11/1/01- 11/1/00- 11/1/99- E.SHARES 10/31/04 10/31/03 10/31/02 10/31/01 10/31/00 ------------------------------------------------------------------------------------------------------------------------------------ PER-SHARE DATA ($) ------------------------------------------------------------------------------------------------------------------------------------ Net asset value at beginning of period 16.37 13.79 16.46 22.17 21.21 ------------------------------------------------------------------------------ Income or loss from investment operations: Net investment income 0.26 0.23 0.23 0.20 0.20 Net realized and unrealized gains or losses 1.21 2.56 (2.71) (5.71) 1.04 ------------------------------------------------------------------------------ Total income or loss from investment operations 1.47 2.79 (2.48) (5.51) 1.24 Less distributions: Dividends from net investment income (0.22) (0.21) (0.19) (0.20) (0.21) Distributions from net realized gains -- -- -- -- (0.07) ------------------------------------------------------------------------------ Total distributions (0.22) (0.21) (0.19) (0.20) (0.28) ------------------------------------------------------------------------------ Net asset value at end of period 17.62 16.37 13.79 16.46 22.17 ------------------------------------------------------------------------------ Total return (%) 9.10 20.55 (15.32) (25.02) 5.84 RATIOS/SUPPLEMENTAL DATA (%) ------------------------------------------------------------------------------------------------------------------------------------ Ratios to average net assets: Net operating expenses 0.28 0.28 0.28 0.28 0.29 1 Gross operating expenses 0.30 0.31 0.31 0.31 0.36 Net investment income 1.44 1.54 1.28 1.02 0.88 Portfolio turnover rate 3 3 8 4 9 Net assets, end of period ($ x 1,000,000) 249 246 220 304 441
1 The ratio of net operating expenses would have been 0.28% if certain non-routine expenses (proxy fees) had not been included. See financial notes. 27 SCHWAB S&P 500 FUND SUMMARY OF PORTFOLIO HOLDINGS as of October 31, 2004 This section shows the fund's 50 largest portfolio holdings in unaffiliated issuers and any holding exceeding 1% of the fund's net assets. The remaining securities held by the fund are grouped as "Other Securities" in each category. You can request a complete schedule of portfolio holdings as of the end of the report period, free of charge, by calling SchwabFunds(R) at 1-800-435-4000. This complete schedule, filed on the fund's Form N-CSR, is also available on the SEC's website at http://www.sec.gov. In addition, the fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The fund's Form N-Q is available on the SEC's website and may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Call 1-800-SEC-0330 for information on the operation of the Public Reference Room. A copy of the fund's most recently filed quarterly schedule of portfolio holdings, included on the fund's Form N-CSR (with respect to the fund's second and fourth fiscal quarters) or Form N-Q (with respect to the fund's first and third fiscal quarters), is available by visiting Schwab's website at www.schwab.com/schwabfunds. We use the symbols below to designate certain characteristics of the securities. With the top ten holdings, the number in the circle is the security's rank among the top ten. For the characteristics of the securities included under "Other Securities", please refer to the complete schedule of portfolio holdings. (1) Top Ten Holding o Non-income producing security = All or a portion of this security is held as collateral for open futures contracts / Issuer is affiliated with the fund's adviser @ This security or a portion of this security is on loan
COST VALUE HOLDINGS BY CATEGORY ($x1,000) ($x1,000) -------------------------------------------------------------------------------- 99.9% COMMON STOCK 7,443,407 8,204,858 0.1% SHORT-TERM INVESTMENT 9,415 9,415 0.0% U.S. TREASURY OBLIGATIONS 973 973 -------------------------------------------------------------------------------- 100.0% TOTAL INVESTMENTS 7,453,795 8,215,246 7.8% COLLATERAL INVESTED FOR SECURITIES ON LOAN 641,932 641,932 (7.8)% OTHER ASSETS AND LIABILITIES, NET (639,803) -------------------------------------------------------------------------------- 100.0% TOTAL NET ASSETS 8,217,375
% OF NET VALUE SECURITY AND NUMBER OF SHARES ASSETS ($ x 1,000) COMMON STOCK 99.9% of net assets AEROSPACE / DEFENSE 1.9% -------------------------------------------------------------------------- Other Securities 1.9 154,257 AIR TRANSPORTATION 1.3% -------------------------------------------------------------------------- United Parcel Service, Inc., Class B 875,969 0.9 69,359 Other Securities 0.4 33,712 ------- ----------- 1.3 103,071 ALCOHOLIC BEVERAGES 0.5% -------------------------------------------------------------------------- Other Securities 0.5 37,410 APPAREL 0.5% -------------------------------------------------------------------------- Other Securities 0.5 36,764 AUTOMOTIVE PRODUCTS / MOTOR VEHICLES 1.1% -------------------------------------------------------------------------- Other Securities 1.1 87,613 BANKS 8.0% -------------------------------------------------------------------------- (7) Bank of America Corp. 3,185,172 1.7 142,664 JPMorgan Chase & Co. 2,789,215 1.3 107,664 U.S. Bancorp 1,460,541 0.5 41,786 Wachovia Corp. 1,021,821 0.6 50,284 Wells Fargo & Co. 1,322,357 1.0 78,971 Other Securities 2.9 236,220 ------- ----------- 8.0 657,589 BUSINESS MACHINES & SOFTWARE 9.0% -------------------------------------------------------------------------- o Cisco Systems, Inc. 5,294,483 1.2 101,707 o Dell, Inc. 1,955,032 0.8 68,543 Hewlett-Packard Co. 2,349,878 0.5 43,849 (10) International Business Machines Corp. 1,311,743 1.4 117,729 =(3) Microsoft Corp. 8,513,790 2.9 238,301 @o Oracle Corp. 4,033,549 0.6 51,065 Other Securities 1.6 122,082 ------- ----------- 9.0 743,276
28 See financial notes. SCHWAB S&P 500 FUND
% OF NET VALUE SECURITY AND NUMBER OF SHARES ASSETS ($ x 1,000) BUSINESS SERVICES 4.5% -------------------------------------------------------------------------- o eBay, Inc. 514,370 0.6 50,208 Tyco International Ltd. 1,573,000 0.6 48,999 o Yahoo! Inc. 1,058,458 0.5 38,306 Other Securities 2.8 228,310 ------- ----------- 4.5 365,823 CHEMICALS 1.5% -------------------------------------------------------------------------- Other Securities 1.5 125,594 CONSTRUCTION 0.5% -------------------------------------------------------------------------- Other Securities 0.5 39,639 CONSUMER DURABLES 0.2% -------------------------------------------------------------------------- Other Securities 0.2 18,034 CONTAINERS 0.1% -------------------------------------------------------------------------- Other Securities 0.1 11,796 ELECTRONICS 5.0% -------------------------------------------------------------------------- @ Intel Corp. 5,023,205 1.4 111,817 Qualcomm, Inc. 1,266,736 0.7 52,962 Other Securities 2.9 248,887 ------- ----------- 5.0 413,666 ENERGY: RAW MATERIALS 1.8% -------------------------------------------------------------------------- Other Securities 1.8 150,220 FOOD & AGRICULTURE 3.4% -------------------------------------------------------------------------- The Coca-Cola Co. 1,893,069 0.9 76,972 PepsiCo, Inc. 1,326,494 0.8 65,768 Other Securities 1.7 137,711 ------- ----------- 3.4 280,451 GOLD 0.2% -------------------------------------------------------------------------- Other Securities 0.2 16,425 HEALTHCARE / DRUGS & MEDICINE 12.2% -------------------------------------------------------------------------- Abbott Laboratories 1,222,533 0.6 52,117 @o Amgen, Inc. 985,789 0.7 55,993 Eli Lilly & Co. 878,527 0.6 48,240 @(8) Johnson & Johnson 2,324,156 1.7 135,684 Medtronic, Inc. 942,124 0.6 48,152 Merck & Co., Inc. 1,730,042 0.7 54,168 (6) Pfizer, Inc. 5,912,611 2.1 171,170 UnitedHealth Group, Inc. 517,316 0.5 37,454 Wyeth 1,034,682 0.5 41,025 Other Securities 4.2 359,941 ------- ----------- 12.2 1,003,944 HOUSEHOLD PRODUCTS 2.2% -------------------------------------------------------------------------- = Procter & Gamble Co. 1,990,726 1.3 101,886 Other Securities 0.9 80,423 ------- ----------- 2.2 182,309 INSURANCE 4.6% -------------------------------------------------------------------------- (9) American International Group, Inc. 2,040,150 1.5 123,858 Other Securities 3.1 253,208 ------- ----------- 4.6 377,066 MEDIA 3.5% -------------------------------------------------------------------------- @o Comcast Corp., Class A 1,742,810 0.6 51,413 o Time Warner, Inc. 3,558,276 0.7 59,210 @ Viacom, Inc., Class B 1,358,469 0.6 49,571 The Walt Disney Co. 1,593,305 0.5 40,183 Other Securities 1.1 83,012 ------- ----------- 3.5 283,389 MISCELLANEOUS 0.6% -------------------------------------------------------------------------- 3M Co. 607,876 0.6 47,153 MISCELLANEOUS FINANCE 7.7% -------------------------------------------------------------------------- American Express Co. 990,581 0.6 52,570 / The Charles Schwab Corp. 1,063,150 0.1 9,728 (4) Citigroup, Inc. 4,056,339 2.2 179,980 Fannie Mae 753,227 0.6 52,839 Merrill Lynch & Co., Inc. 730,834 0.5 39,421 Morgan Stanley 855,539 0.5 43,709 Other Securities 3.2 254,466 ------- ----------- 7.7 632,713
See financial notes. 29 SCHWAB S&P 500 FUND SUMMARY OF PORTFOLIO HOLDINGS continued % OF NET VALUE SECURITY AND NUMBER OF SHARES ASSETS ($ x 1,000) NON-DURABLES & ENTERTAINMENT 1.2% -------------------------------------------------------------------------- Other Securities 1.2 96,787 NON-FERROUS METALS 0.4% -------------------------------------------------------------------------- Other Securities 0.4 35,915 OIL: DOMESTIC 1.2% -------------------------------------------------------------------------- ConocoPhillips 535,948 0.5 45,186 Other Securities 0.7 53,440 ----- ----------- 1.2 98,626 OIL: INTERNATIONAL 4.1% -------------------------------------------------------------------------- ChevronTexaco Corp. 1,663,314 1.1 88,255 (2) Exxon Mobil Corp. 5,094,097 3.0 250,732 ----- ----------- 4.1 338,987 OPTICAL & PHOTO 0.2% -------------------------------------------------------------------------- Other Securities 0.2 19,067 PAPER & FOREST PRODUCTS 0.8% -------------------------------------------------------------------------- Other Securities 0.8 67,738 PRODUCER GOODS & MANUFACTURING 5.4% -------------------------------------------------------------------------- @=(1) General Electric Co. 8,267,470 3.4 282,086 Other Securities 2.0 159,500 ----- ----------- 5.4 441,586 RAILROAD & SHIPPING 0.5% -------------------------------------------------------------------------- Other Securities 0.5 41,153 REAL PROPERTY 0.5% -------------------------------------------------------------------------- Other Securities 0.5 39,573 RETAIL 6.7% -------------------------------------------------------------------------- @ Home Depot, Inc. 1,719,111 0.9 70,621 =(5) Wal-Mart Stores, Inc. 3,322,091 2.2 179,127 Other Securities 3.6 300,572 ----- ----------- 6.7 550,320 STEEL 0.1% -------------------------------------------------------------------------- Other Securities 0.1 10,943 TELEPHONE 3.4% -------------------------------------------------------------------------- BellSouth Corp. 1,425,708 0.5 38,024 SBC Communications, Inc. 2,594,733 0.8 65,543 @ Verizon Communications, Inc. 2,167,822 1.0 84,762 Other Securities 1.1 86,995 ----- ----------- 3.4 275,324 TOBACCO 1.1% -------------------------------------------------------------------------- Altria Group, Inc. 1,606,665 0.9 77,859 Other Securities 0.2 13,173 ----- ----------- 1.1 91,032 TRAVEL & RECREATION 0.7% -------------------------------------------------------------------------- Other Securities 0.7 56,548 TRUCKING & FREIGHT 0.1% -------------------------------------------------------------------------- Other Securities 0.1 11,899 UTILITIES: ELECTRIC & GAS 3.2% -------------------------------------------------------------------------- Other Securities 3.2 261,158 SHORT-TERM INVESTMENT 0.1% of net assets Provident Institutional TempFund 9,414,995 0.1 9,415
SECURITY RATE, MATURITY DATE FACE AMOUNT ($ x 1,000) U.S. TREASURY OBLIGATIONS 0.0% of net assets = U.S. Treasury Bills, 1.54%-1.66%, 12/16/04 975 0.0 973
END OF INVESTMENTS. 30 See financial notes. SCHWAB S&P 500 FUND
SECURITY FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) COLLATERAL INVESTED FOR SECURITIES ON LOAN 7.8% of net assets COMMERCIAL PAPER & OTHER CORPORATE OBLIGATIONS 3.3% -------------------------------------------------------------------------- Canadian Imperial Bank of Commerce/New York 1.92%, 11/29/04 23,101 23,097 1.72%, 05/25/05 21,894 21,890 Crown Point Capital 1.80%, 11/05/04 8,536 8,523 Foreningssparbanken AB 1.83%, 11/15/04 63,439 63,430 Fortis Bank NY 1.78%, 06/06/05 9,163 9,162 2.06%, 06/08/05 6,590 6,589 Societe Generale NY 1.95%, 11/01/04 60,728 60,715 1.83%, 11/15/04 21,790 21,782 Westdeutsche Landesbank AG 1.50%, 01/10/05 54,770 54,756 ----------- 269,944 SHORT-TERM INVESTMENTS 4.5% -------------------------------------------------------------------------- Citibank, Time Deposit 1.76%, 11/01/04 15,069 15,069
SECURITY AND NUMBER OF SHARES Institutional Money Market Trust 356,919,456 356,919 ----------- 371,988
END OF COLLATERAL INVESTED FOR SECURITIES ON LOAN. In addition to the above, the fund held the following at 10/31/04. All numbers x 1,000 except number of contracts. FUTURES CONTRACTS
NUMBER OF CONTRACT UNREALIZED CONTRACTS VALUE GAINS S&P 500 Index, Long expires 12/17/04 10 2,826 68
See financial notes. 31 SCHWAB S&P 500 FUND Statement of ASSETS AND LIABILITIES As of October 31, 2004. All numbers x 1,000 except NAV. ASSETS -------------------------------------------------------------------------------- Investments, at value (including $620,138 of securities on loan) $8,215,246 a Collateral invested for securities on loan 641,932 Receivables: Fund shares sold 8,988 Interest 10 Dividends 10,572 Due from brokers for futures 16 Income from securities on loan 50 Prepaid expenses + 89 -------------- TOTAL ASSETS 8,876,903 LIABILITIES -------------------------------------------------------------------------------- Collateral invested for securities on loan 641,932 Payables: Fund shares redeemed 13,877 Interest expense 1 Investments bought 3,181 Investment adviser and administrator fees 85 Transfer agent and shareholder service fees 68 Trustees' fees 4 Accrued expenses + 380 -------------- TOTAL LIABILITIES 659,528 NET ASSETS -------------------------------------------------------------------------------- TOTAL ASSETS 8,876,903 TOTAL LIABILITIES - 659,528 -------------- NET ASSETS $8,217,375 NET ASSETS BY SOURCE Capital received from investors 8,026,861 Net investment income not yet distributed 94,491 Net realized capital losses (665,496) b Net unrealized capital gains 761,519 b NET ASSET VALUE (NAV) BY SHARE CLASS SHARES SHARE CLASS NET ASSETS / OUTSTANDING = NAV Investor Shares $3,849,213 218,576 $17.61 Select Shares $4,118,961 232,983 $17.68 e.Shares $249,201 14,142 $17.62
Unless stated, all numbers x 1,000. a The fund paid $7,453,795 for these securities. Not counting short-term obligations and government securities, the fund's security transactions during the period were: Purchases $486,090 Sales/maturities $277,754 The fund's total security transactions with other SchwabFunds(R) during the period were $5,033. b These derive from investments and futures. FEDERAL TAX DATA -------------------------------------------------- PORTFOLIO COST $7,540,237 NET UNREALIZED GAINS AND LOSSES: Gains $1,985,732 Losses + (1,310,723) -------------- $675,009 AS OF OCTOBER 31, 2004: NET UNDISTRIBUTED EARNINGS: Ordinary income $94,491 Long-term capital gains $-- UNUSED CAPITAL LOSSES: Expires 10/31 of: Loss amount 2008 $26,504 2009 50,224 2010 400,268 2011 72,381 2012 + 29,609 -------------- $578,986 32 See financial notes. SCHWAB S&P 500 FUND Statement of OPERATIONS For November 1, 2003 through October 31, 2004. All numbers x 1,000. INVESTMENT INCOME -------------------------------------------------------------------------------- Dividends $136,896 Interest 78 Securities on loan + 1,155 ------------ TOTAL INVESTMENT INCOME 138,129 NET REALIZED GAINS AND LOSSES -------------------------------------------------------------------------------- Net realized losses on investments (34,701) Net realized gains on futures contracts + 817 ------------ NET REALIZED LOSSES (33,884) NET UNREALIZED GAINS AND LOSSES -------------------------------------------------------------------------------- Net unrealized gains on investments 600,786 Net unrealized losses on futures contracts + (316) ------------ NET UNREALIZED GAINS 600,470 EXPENSES -------------------------------------------------------------------------------- Investment adviser and administrator fees 13,834 a Transfer agent and shareholder service fees: Investor Shares 9,494 b Select Shares 3,998 b e.Shares 254 b Trustees' fees 60 c Custodian fees 226 Portfolio accounting fees 1,116 Professional fees 69 Registration fees 168 Shareholder reports 456 Interest expense 9 Other expenses + 148 ------------ Total expenses 29,832 Expense reduction - 7,465 d ------------ NET EXPENSES 22,367 INCREASE IN NET ASSETS FROM OPERATIONS -------------------------------------------------------------------------------- TOTAL INVESTMENT INCOME 138,129 NET EXPENSES - 22,367 ------------ NET INVESTMENT INCOME 115,762 NET REALIZED LOSSES (33,884) e NET UNREALIZED GAINS + 600,470 e ------------ INCREASE IN NET ASSETS FROM OPERATIONS $682,348
Unless stated, all numbers x 1,000. a Calculated as a percentage of average daily net assets: 0.20% of the first $500 million and 0.17% of the assets beyond that. These fees are paid to Charles Schwab Investment Management, Inc. (CSIM). b 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%, 0.05%, and 0.05% of the assets of each respective share class. These fees are paid to Charles Schwab & Co., Inc. (Schwab). c For the fund's independent trustees only. d Includes $1,591 from the investment adviser (CSIM) and $5,874 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 February 28, 2005, as follows: % OF AVERAGE SHARE CLASS DAILY NET ASSETS -------------------------------------- Investor Shares 0.37 Select Shares 0.19 e.Shares 0.28 This limit excludes interest, taxes and certain non-routine expenses. e These add up to a net gain on investments of $566,586. See financial notes. 33 SCHWAB S&P 500 FUND Statements of CHANGES IN NET ASSETS For the current and prior report periods. All numbers x 1,000.
OPERATIONS -------------------------------------------------------------------------------- 11/1/03-10/31/04 11/1/02-10/31/03 Net investment income $115,762 $99,392 Net realized losses (33,884) (59,341) Net unrealized gains + 600,470 1,201,943 ------------------------------------ INCREASE IN NET ASSETS FROM OPERATIONS 682,348 1,241,994 DISTRIBUTIONS PAID -------------------------------------------------------------------------------- DIVIDENDS FROM NET INVESTMENT INCOME Investor Shares 46,375 40,628 Select Shares 52,459 49,532 e.Shares + 3,356 3,378 ------------------------------------ TOTAL DIVIDENDS FROM NET INVESTMENT INCOME $102,190 $93,538 a,b
TRANSACTIONS IN FUND SHARES -------------------------------------------------------------------------------- 11/1/03-10/31/04 11/1/02-10/31/03 SHARES VALUE SHARES VALUE SHARES SOLD Investor Shares 43,461 $748,116 50,095 $730,445 Select Shares 48,984 845,969 51,800 753,457 e.Shares + 3,507 60,506 4,668 67,061 ----------------------------------------------------- TOTAL SHARES SOLD 95,952 $1,654,591 106,563 $1,550,963 SHARES REINVESTED Investor Shares 2,680 $44,333 2,857 $39,062 Select Shares 2,844 47,146 3,300 45,211 e.Shares + 182 3,018 224 3,062 ----------------------------------------------------- TOTAL SHARES REINVESTED 5,706 $94,497 6,381 $87,335 SHARES REDEEMED Investor Shares (42,120) ($725,021) (38,573) ($558,964) Select Shares (43,789) (755,806) (49,150) (705,422) e.Shares + (4,554) (78,428) (5,869) (84,347) ----------------------------------------------------- TOTAL SHARES REDEEMED (90,463) ($1,559,255) (93,592) ($1,348,733) c NET TRANSACTIONS IN FUND SHARES 11,195 $189,833 19,352 $289,565
SHARES OUTSTANDING AND NET ASSETS -------------------------------------------------------------------------------- 11/1/03-10/31/04 11/1/02-10/31/03 SHARES NET ASSETS SHARES NET ASSETS Beginning of period 454,506 $7,447,384 435,154 $6,009,363 Total increase + 11,195 769,991 19,352 1,438,021 ----------------------------------------------------- END OF PERIOD 465,701 $8,217,375 454,506 $7,447,384 d
Unless stated, all numbers x 1,000. a UNAUDITED For corporations, 100% of the fund's dividends for the report period qualify for the dividends-received deduction. The fund designates $102,190 of the dividend distribution for the fiscal year ended 10/31/04 as qualified dividends for the purpose of the maximum rate under Section 1(h)(ii) of the Internal Revenue Code. Shareholders will be notified in January 2005 via IRS Form 1099 of the amounts for use in preparing their 2004 income tax return. b The tax-basis components of distributions paid are: CURRENT PRIOR PERIOD PERIOD Ordinary income $102,190 $93,538 Long-term capital gains $-- $-- c The fund charges 0.75% of early withdrawal fees on shares redeemed 180 days or less after the purchase. CURRENT PRIOR PERIOD PERIOD Investor Shares $238 $236 Select Shares 238 302 e.Shares + 10 + 22 ------- ------ TOTAL $486 $560 Dollar amounts are net of the redemption proceeds. d Includes distributable net investment income in the amount of $94,491 and $80,919 at the end of the current period and prior period, respectively. Percent of fund shares owned by other SchwabFunds(R) as of the end of the current period: SCHWAB MARKETTRACK PORTFOLIOS All Equity Portfolio 2.4% Growth Portfolio 1.7% Balanced Portfolio 1.1% Conservative Portfolio 0.5% 34 See financial notes. SCHWAB 1000 FUND(R) FINANCIAL STATEMENTS FINANCIAL HIGHLIGHTS
11/1/03- 11/1/02- 11/1/01- 11/1/00- 11/1/99- INVESTOR SHARES 10/31/04 10/31/03 10/31/02 10/31/01 10/31/00 ------------------------------------------------------------------------------------------------------------------------------------ PER-SHARE DATA ($) ------------------------------------------------------------------------------------------------------------------------------------ Net asset value at beginning of period 30.25 25.25 29.57 39.95 37.12 --------------------------------------------------------------------------- Income or loss from investment operations: Net investment income 0.37 0.33 0.31 0.26 0.26 Net realized and unrealized gains or losses 2.26 4.99 (4.36) (10.40) 2.83 --------------------------------------------------------------------------- Total income or loss from investment operations 2.63 5.32 (4.05) (10.14) 3.09 Less distributions: Dividends from net investment income (0.34) (0.32) (0.27) (0.24) (0.26) --------------------------------------------------------------------------- Net asset value at end of period 32.54 30.25 25.25 29.57 39.95 --------------------------------------------------------------------------- Total return (%) 8.78 21.34 (13.87) (25.50) 8.34 RATIOS/SUPPLEMENTAL DATA (%) ------------------------------------------------------------------------------------------------------------------------------------ Ratios to average net assets: Net operating expenses 0.50 0.49 0.46 0.46 0.47 1 Gross operating expenses 0.50 0.51 0.52 0.51 0.51 Net investment income 1.15 1.27 1.04 0.78 0.63 Portfolio turnover rate 5 5 9 8 9 Net assets, end of period ($ x 1,000,000) 4,258 3,974 3,223 3,852 5,083
1 The ratio of net operating expenses would have been 0.46% if certain non-routine expenses (proxy fees) had not been included. See financial notes. 35 SCHWAB 1000 FUND
11/1/03- 11/1/02- 11/1/01- 11/1/00- 11/1/99- SELECT SHARES 10/31/04 10/31/03 10/31/02 10/31/01 10/31/00 ------------------------------------------------------------------------------------------------------------------------------------ PER-SHARE DATA ($) ------------------------------------------------------------------------------------------------------------------------------------ Net asset value at beginning of period 30.27 25.26 29.58 39.98 37.16 --------------------------------------------------------------------------- Income or loss from investment operations: Net investment income 0.42 0.37 0.35 0.31 0.29 Net realized and unrealized gains or losses 2.25 4.99 (4.36) (10.41) 2.84 --------------------------------------------------------------------------- Total income or loss from investment operations 2.67 5.36 (4.01) (10.10) 3.13 Less distributions: Dividends from net investment income (0.38) (0.35) (0.31) (0.30) (0.31) --------------------------------------------------------------------------- Net asset value at end of period 32.56 30.27 25.26 29.58 39.98 --------------------------------------------------------------------------- Total return (%) 8.90 21.52 (13.77) (25.40) 8.46 RATIOS/SUPPLEMENTAL DATA (%) ------------------------------------------------------------------------------------------------------------------------------------ Ratios to average net assets: Net operating expenses 0.35 0.35 0.35 0.35 0.36 1 Gross operating expenses 0.35 0.36 0.37 0.36 0.36 Net investment income 1.30 1.41 1.15 0.89 0.74 Portfolio turnover rate 5 5 9 8 9 Net assets, end of period ($ x 1,000,000) 2,138 1,996 1,588 1,911 2,159
1 The ratio of net operating expenses would have been 0.35% if certain non-routine expenses (proxy fees) had not been included. 36 See financial notes. SCHWAB 1000 FUND SUMMARY OF PORTFOLIO HOLDINGS as of October 31, 2004 This section shows the fund's 50 largest portfolio holdings in unaffiliated issuers and any holding exceeding 1% of the fund's net assets. The remaining securities held by the fund are grouped as "Other Securities" in each category. You can request a complete schedule of portfolio holdings as of the end of the report period, free of charge, by calling SchwabFunds(R) at 1-800-435-4000. This complete schedule, filed on the fund's Form N-CSR, is also available on the SEC's website at http://www.sec.gov. In addition, the fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The fund's Form N-Q is available on the SEC's website and may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Call 1-800-SEC-0330 for information on the operation of the Public Reference Room. A copy of the fund's most recently filed quarterly schedule of portfolio holdings, included on the fund's Form N-CSR (with respect to the fund's second and fourth fiscal quarters) or Form N-Q (with respect to the fund's first and third fiscal quarters), is available by visiting Schwab's website at www.schwab.com/schwabfunds. We use the symbols below to designate certain characteristics of the securities. With the top ten holdings, the number in the circle is the security's rank among the top ten. For the characteristics of the securities included under "Other Securities" and for securities valued at fair value, please refer to the complete schedule of portfolio holdings. (1) Top Ten Holding o Non-income producing security = All or a portion of this security is held as collateral for open futures contracts / Issuer is affiliated with the fund's adviser @ This security or a portion of this security is on loan
COST VALUE HOLDINGS BY CATEGORY ($x1,000) ($x1,000) -------------------------------------------------------------------------------- 99.7% COMMON STOCK 3,915,127 6,375,544 0.2% SHORT-TERM INVESTMENT 13,754 13,754 0.0% PREFERRED STOCK 376 382 0.0% U.S. TREASURY OBLIGATION 299 299 0.0% WARRANTS -- 9 -------------------------------------------------------------------------------- 99.9% TOTAL INVESTMENTS 3,929,556 6,389,988 10.3% COLLATERAL INVESTED FOR SECURITIES ON LOAN 659,658 659,658 (10.2)% OTHER ASSETS AND LIABILITIES, NET (654,395) -------------------------------------------------------------------------------- 100.0% TOTAL NET ASSETS 6,395,251
% OF NET VALUE SECURITY AND NUMBER OF SHARES ASSETS ($ x 1,000) COMMON STOCK 99.7% of net assets AEROSPACE / DEFENSE 1.7% ------------------------------------------------------------------------ Other Securities 1.7 107,928 AIR TRANSPORTATION 1.1% ------------------------------------------------------------------------ United Parcel Service, Inc., Class B 598,100 0.8 47,358 Other Securities 0.3 24,752 ------ ----------- 1.1 72,110 ALCOHOLIC BEVERAGES 0.4% ------------------------------------------------------------------------ Other Securities 0.4 27,707 APPAREL 0.4% ------------------------------------------------------------------------ Other Securities 0.4 26,306 AUTOMOTIVE PRODUCTS / MOTOR VEHICLES 1.1% ------------------------------------------------------------------------ Other Securities 1.1 69,892 BANKS 7.9% ------------------------------------------------------------------------ (7) Bank of America Corp. 2,158,336 1.5 96,672 JPMorgan Chase & Co. 1,886,776 1.2 72,830 U.S. Bancorp 993,453 0.5 28,423 @ Wachovia Corp. 692,320 0.5 34,069 Wells Fargo & Co. 895,032 0.8 53,451 Other Securities 3.4 221,051 ------ ----------- 7.9 506,496 BUSINESS MACHINES & SOFTWARE 8.4% ------------------------------------------------------------------------ o Cisco Systems, Inc. 3,607,000 1.1 69,290 o Dell, Inc. 1,336,000 0.7 46,840 Hewlett-Packard Co. 1,629,340 0.5 30,403 (10) International Business Machines Corp. 912,900 1.3 81,933 =(3) Microsoft Corp. 5,769,100 2.5 161,477 o Oracle Corp. 2,770,014 0.6 35,068 Other Securities 1.7 112,116 ------ ----------- 8.4 537,127
See financial notes. 37 SCHWAB 1000 FUND SUMMARY OF PORTFOLIO HOLDINGS continued
% OF NET VALUE SECURITY AND NUMBER OF SHARES ASSETS ($ x 1,000) BUSINESS SERVICES 4.6% ------------------------------------------------------------------------ o eBay, Inc. 349,500 0.5 34,115 o Yahoo! Inc. 721,912 0.4 26,126 Other Securities 3.7 232,239 ------ ----------- 4.6 292,480 CHEMICALS 1.5% ------------------------------------------------------------------------ Other Securities 1.5 96,447 CONSTRUCTION 0.8% ------------------------------------------------------------------------ Other Securities 0.8 48,773 CONSUMER DURABLES 0.3% ------------------------------------------------------------------------ Other Securities 0.3 19,079 CONTAINERS 0.2% ------------------------------------------------------------------------ Other Securities 0.2 12,027 ELECTRONICS 5.0% ------------------------------------------------------------------------ @ Intel Corp. 3,413,800 1.2 75,991 Qualcomm, Inc. 862,200 0.6 36,049 Other Securities 3.2 211,199 ------ ----------- 5.0 323,239 ENERGY: RAW MATERIALS 1.7% ------------------------------------------------------------------------ Other Securities 1.7 106,631 FOOD & AGRICULTURE 3.4% ------------------------------------------------------------------------ The Coca-Cola Co. 1,299,300 0.8 52,830 PepsiCo, Inc. 898,860 0.7 44,565 Other Securities 1.9 119,281 ------ ----------- 3.4 216,676 GOLD 0.2% ------------------------------------------------------------------------ Other Securities 0.2 10,228 HEALTHCARE / DRUGS & MEDICINE 11.8% ------------------------------------------------------------------------ Abbott Laboratories 827,500 0.6 35,276 @o Amgen, Inc. 670,140 0.6 38,064 Eli Lilly & Co. 601,568 0.5 33,032 (8) Johnson & Johnson 1,574,920 1.4 91,944 Medtronic, Inc. 641,000 0.5 32,762 Merck & Co., Inc. 1,176,008 0.6 36,821 (6) Pfizer, Inc. 4,009,712 1.8 116,081 UnitedHealth Group, Inc. 355,181 0.4 25,715 Wyeth 712,200 0.5 28,239 Other Securities 4.9 314,623 ------ ----------- 11.8 752,557 HOUSEHOLD PRODUCTS 2.0% ------------------------------------------------------------------------ = Procter & Gamble Co. 1,364,000 1.1 69,810 Other Securities 0.9 58,843 ------ ----------- 2.0 128,653 INSURANCE 4.5% ------------------------------------------------------------------------- (9) American International Group, Inc. 1,382,471 1.3 83,930 Other Securities 3.2 201,136 ------ ----------- 4.5 285,066 MEDIA 4.0% ------------------------------------------------------------------------ o Comcast Corp., Class A 1,192,880 0.6 35,190 o Time Warner, Inc. 2,338,630 0.6 38,915 @ Viacom, Inc., Class B 927,579 0.5 33,847 @ The Walt Disney Co. 1,097,021 0.4 27,667 Other Securities 1.9 121,163 ------ ----------- 4.0 256,782 MISCELLANEOUS 0.5% ------------------------------------------------------------------------ @ 3M Co. 416,900 0.5 32,339 MISCELLANEOUS FINANCE 8.3% ------------------------------------------------------------------------ @ American Express Co. 672,700 0.6 35,700 o Berkshire Hathaway, Inc., Class A 617 0.8 51,982 / The Charles Schwab Corp. 730,497 0.1 6,684 (5) Citigroup, Inc. 2,744,001 1.9 121,751 @ Fannie Mae 517,800 0.6 36,324 Merrill Lynch & Co., Inc. 497,400 0.4 26,830 Morgan Stanley 586,010 0.5 29,939 Other Securities 3.4 220,208 ------- ----------- 8.3 529,418
38 See financial notes. SCHWAB 1000 FUND
% OF NET VALUE SECURITY AND NUMBER OF SHARES ASSETS ($ x 1,000) NON-DURABLES & ENTERTAINMENT 1.3% ------------------------------------------------------------------------ Other Securities 1.3 80,258 NON-FERROUS METALS 0.4% ------------------------------------------------------------------------ Other Securities 0.4 24,519 OIL: DOMESTIC 1.4% ------------------------------------------------------------------------ ConocoPhillips 364,678 0.5 30,746 Other Securities 0.9 59,788 ------ ----------- 1.4 90,534 OIL: INTERNATIONAL 3.6% ------------------------------------------------------------------------ ChevronTexaco Corp. 1,135,092 0.9 60,228 (2) Exxon Mobil Corp. 3,473,230 2.7 170,952 ------ ----------- 3.6 231,180 OPTICAL & PHOTO 0.2% ------------------------------------------------------------------------ Other Securities 0.2 14,253 PAPER & FOREST PRODUCTS 0.8% ------------------------------------------------------------------------ Other Securities 0.8 51,877 PRODUCER GOODS & MANUFACTURING 5.0% ------------------------------------------------------------------------ @=(1) General Electric Co. 5,602,200 3.0 191,147 Other Securities 2.0 130,694 ------ ----------- 5.0 321,841 RAILROAD & SHIPPING 0.4% ------------------------------------------------------------------------ Other Securities 0.4 28,373 REAL PROPERTY 1.7% ------------------------------------------------------------------------ Other Securities 1.7 108,603 RETAIL 6.6% ------------------------------------------------------------------------ Home Depot, Inc. 1,179,397 0.8 48,450 =(4) Wal-Mart Stores, Inc. 2,267,900 1.9 122,285 Other Securities 3.9 251,037 ------ ----------- 6.6 421,772 STEEL 0.1% ------------------------------------------------------------------------ Other Securities 0.1 6,524 TELEPHONE 3.3% ------------------------------------------------------------------------ BellSouth Corp. 979,400 0.4 26,121 SBC Communications, Inc. 1,750,128 0.7 44,208 Verizon Communications, Inc. 1,464,693 0.9 57,270 Other Securities 1.3 85,115 ------ ----------- 3.3 212,714 TOBACCO 1.0% ------------------------------------------------------------------------ @ Altria Group, Inc. 1,093,500 0.8 52,991 Other Securities 0.2 9,078 ------ ----------- 1.0 62,069 TRAVEL & RECREATION 0.5% ------------------------------------------------------------------------ Other Securities 0.5 32,593 TRUCKING & FREIGHT 0.3% ------------------------------------------------------------------------ Other Securities 0.3 19,789 UTILITIES: ELECTRIC & GAS 3.3% ------------------------------------------------------------------------ Other Securities 3.3 210,684 PREFERRED STOCK 0.0% of net assets REAL PROPERTY 0.0% ------------------------------------------------------------------------ Other Securities 0.0 382 WARRANTS 0.0% of net assets Other Securities 0.0 9 SHORT-TERM INVESTMENT 0.2% of net assets Provident Institutional TempFund 13,754,005 0.2 13,754
SECURITY RATE, MATURITY DATE FACE AMOUNT ($ x 1,000) U.S. TREASURY OBLIGATION 0.0% of net assets = U.S. Treasury Bill, 1.63%, 12/16/04 300 0.0 299
END OF INVESTMENTS. See financial notes. 39 SCHWAB 1000 FUND SUMMARY OF PORTFOLIO HOLDINGS continued
SECURITY FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) COLLATERAL INVESTED FOR SECURITIES ON LOAN 10.3% of net assets COMMERCIAL PAPER & OTHER CORPORATE OBLIGATIONS 4.0% ------------------------------------------------------------------------ Canadian Imperial Bank of Commerce/New York 1.92%, 11/29/04 36,821 36,815 1.72%, 05/25/05 35,997 35,989 Crown Point Capital 1.80%, 11/05/04 19,819 19,788 Foreningssparbanken AB 1.83%, 11/15/04 58,583 58,574 Fortis Bank NY 1.78%, 06/06/05 21,855 21,853 2.06%, 06/08/05 8,015 8,014 Societe Generale NY 1.95%, 11/01/04 35,907 35,900 1.83%, 11/15/04 9,413 9,409 Westdeutsche Landesbank AG 1.50%, 01/10/05 27,833 27,826 ----------- 254,168 SHORT-TERM INVESTMENTS 6.3% ------------------------------------------------------------------------ Citibank, Time Deposit 1.76%, 11/01/04 16,254 16,254
SECURITY AND NUMBER OF SHARES Institutional Money Market Trust 389,235,872 389,236 ----------- 405,490
END OF COLLATERAL INVESTED FOR SECURITIES ON LOAN. In addition to the above, the fund held the following at 10/31/04. All numbers x 1,000 except number of contracts. FUTURES CONTRACTS
NUMBER OF CONTRACT UNREALIZED CONTRACTS VALUE GAINS S&P 500 Index, Long expires 12/17/04 30 8,477 87
40 See financial notes. SCHWAB 1000 FUND Statement of ASSETS AND LIABILITIES As of October 31, 2004. All numbers x 1,000 except NAV. ASSETS -------------------------------------------------------------------------------- Investments, at value (including $637,824 of securities on loan) $6,389,988 a Collateral invested for securities on loan 659,658 Receivables: Fund shares sold 2,095 Interest 3 Dividends 7,575 Investments sold 110 Due from brokers for futures 15 Income from securities on loan 46 Prepaid expenses + 71 -------------- TOTAL ASSETS 7,059,561 LIABILITIES -------------------------------------------------------------------------------- Collateral invested for securities on loan 659,658 Payables: Fund shares redeemed 4,151 Interest expense 3 Investment adviser and administrator fees 119 Transfer agent and shareholder service fees 105 Trustees' fees 3 Accrued expenses + 271 -------------- TOTAL LIABILITIES 664,310 NET ASSETS -------------------------------------------------------------------------------- TOTAL ASSETS 7,059,561 TOTAL LIABILITIES - 664,310 -------------- NET ASSETS $6,395,251 NET ASSETS BY SOURCE Capital received from investors 4,432,434 Net investment income not yet distributed 61,505 Net realized capital losses (559,207) b Net unrealized capital gains 2,460,519 b NET ASSET VALUE (NAV) BY SHARE CLASS SHARES SHARE CLASS NET ASSETS / OUTSTANDING = NAV Investor Shares $4,257,718 130,855 $32.54 Select Shares $2,137,533 65,647 $32.56
Unless stated, all numbers x 1,000. a The fund paid $3,929,556 for these securities. Not counting short-term obligations and government securities, the fund's security transactions during the period were: Purchases $303,687 Sales/maturities $335,286 The fund's total security transactions with other SchwabFunds(R) during the period were $88,439. b These derive from investments and futures. FEDERAL TAX DATA ----------------------------------------------- PORTFOLIO COST $3,949,178 NET UNREALIZED GAINS AND LOSSES: Gains $2,869,565 Losses + (428,755) -------------- $2,440,810 AS OF OCTOBER 31, 2004: NET UNDISTRIBUTED EARNINGS: Ordinary income $61,505 Long-term capital gains $-- UNUSED CAPITAL LOSSES: Expires 10/31 of: Loss amount 2005 $2,606 2006 650 2007 11,853 2009 97,811 2010 250,410 2011 164,037 2012 + 12,131 -------------- $539,498 RECLASSIFICATIONS: Net investment income not yet distributed $212 Net realized capital losses $632 Reclassified as: Capital received from investors ($844) See financial notes. 41 SCHWAB 1000 FUND Statement of OPERATIONS For November 1, 2003 through October 31, 2004. All numbers x 1,000. INVESTMENT INCOME -------------------------------------------------------------------------------- Dividends $103,511 Interest 41 Securities on loan + 1,292 ------------ TOTAL INVESTMENT INCOME 104,844 NET REALIZED GAINS AND LOSSES -------------------------------------------------------------------------------- Net realized losses on investments (10,857) Net realized gains on futures contracts + 56 ------------ NET REALIZED LOSSES (10,801) NET UNREALIZED GAINS AND LOSSES -------------------------------------------------------------------------------- Net unrealized gains on investments 458,496 Net unrealized losses on futures contracts + (19) ------------ NET UNREALIZED GAINS 458,477 EXPENSES -------------------------------------------------------------------------------- Investment adviser and administrator fees 14,342 a Transfer agent and shareholder service fees: Investor Shares 10,556 b Select Shares 2,115 b Trustees' fees 43 c Custodian fees 178 Portfolio accounting fees 870 Professional fees 66 Registration fees 132 Shareholder reports 452 Interest expense 6 Other expenses + 59 ------------ Total expenses 28,819 Expense reduction - 7 d ------------ NET EXPENSES 28,812 INCREASE IN NET ASSETS FROM OPERATIONS -------------------------------------------------------------------------------- TOTAL INVESTMENT INCOME 104,844 NET EXPENSES - 28,812 ------------ NET INVESTMENT INCOME 76,032 NET REALIZED LOSSES (10,801) e NET UNREALIZED GAINS + 458,477 e ------------ INCREASE IN NET ASSETS FROM OPERATIONS $523,708
Unless stated, all numbers x 1,000. a Calculated as a percentage of average daily net assets: 0.30% of the first $500 million and 0.22% of the assets beyond that. These fees are paid to Charles Schwab Investment Management, Inc. (CSIM). b 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%, and 0.05% of the assets of each respective share class. These fees are paid to Charles Schwab & Co., Inc. (Schwab). c For the fund's independent trustees only. d This reduction was made by the investment adviser (CSIM). It reflects a guarantee by CSIM and the transfer agent and shareholder service agent (Schwab) to limit the operating expenses of this fund through February 28, 2005, as follows: % OF AVERAGE SHARE CLASS DAILY NET ASSETS --------------------------------------------------------- Investor Shares 0.51 Select Shares 0.36 This limit excludes interest, taxes and certain non-routine expenses. e These add up to a net gain on investments of $447,676. 42 See financial notes. SCHWAB 1000 FUND Statements of CHANGES IN NET ASSETS For the current and prior report periods. All numbers x 1,000.
OPERATIONS -------------------------------------------------------------------------------- 11/1/03-10/31/04 11/1/02-10/31/03 Net investment income $76,032 $68,476 Net realized losses (10,801) (168,829) Net unrealized gains + 458,477 1,141,148 ------------------------------------- INCREASE IN NET ASSETS FROM OPERATIONS 523,708 1,040,795 DISTRIBUTIONS PAID -------------------------------------------------------------------------------- DIVIDENDS FROM NET INVESTMENT INCOME Investor Shares 45,314 40,944 Select Shares + 25,058 22,368 ------------------------------------- TOTAL DIVIDENDS FROM NET INVESTMENT INCOME $70,372 $63,312 a,b
TRANSACTIONS IN FUND SHARES -------------------------------------------------------------------------------- 11/1/03-10/31/04 11/1/02-10/31/03 SHARES VALUE SHARES VALUE SHARES SOLD Investor Shares 19,479 $619,405 23,357 $623,574 Select Shares + 9,808 311,874 14,563 384,508 ------------------------------------------------ TOTAL SHARES SOLD 29,287 $931,279 37,920 $1,008,082 SHARES REINVESTED Investor Shares 1,365 $41,809 1,516 $38,050 Select Shares + 698 21,363 766 19,200 ------------------------------------------------ TOTAL SHARES REINVESTED 2,063 $63,172 2,282 $57,250 SHARES REDEEMED Investor Shares (21,346) ($679,008) (21,127) ($560,404) Select Shares + (10,792) (343,161) (12,277) (323,765) ------------------------------------------------ TOTAL SHARES REDEEMED (32,138) ($1,022,169) (33,404) ($884,169) c NET TRANSACTIONS IN FUND SHARES (788) ($27,718) 6,798 $181,163
SHARES OUTSTANDING AND NET ASSETS -------------------------------------------------------------------------------- 11/1/03-10/31/04 11/1/02-10/31/03 SHARES NET ASSETS SHARES NET ASSETS Beginning of period 197,290 $5,969,633 190,492 $4,810,987 Total increase or decrease + (788) 425,618 6,798 1,158,646 ------------------------------------------------ END OF PERIOD 196,502 $6,395,251 197,290 $5,969,633 d
Unless stated, all numbers x 1,000. a UNAUDITED For corporations, 100% of the fund's dividends for the report period qualify for the dividends-received deduction. The fund designates $70,372 of the dividend distribution for the fiscal year ended 10/31/04 as qualified dividends for the purpose of the maximum rate under Section 1(h)(ii) of the Internal Revenue Code. Shareholders will be notified in January 2005 via IRS Form 1099 of the amounts for use in preparing their 2004 income tax return. b The tax-basis components of distributions paid are: CURRENT PRIOR PERIOD PERIOD Ordinary income $70,372 $63,312 Long-term capital gains $-- $-- c The fund charges 0.75% of early withdrawal fees on shares redeemed 180 days or less after the purchase. CURRENT PERIOD: Investor Shares $218 Select Shares + 83 ------- TOTAL $301 PRIOR PERIOD: Investor Shares $222 Select Shares + 163 ------- TOTAL $385 Dollar amounts are net of the redemption proceeds. d Includes distributable net investment income in the amount of $61,505 and $55,633 at the end of the current period and prior period, respectively. See financial notes. 43 SCHWAB SMALL-CAP INDEX FUND(R) FINANCIAL STATEMENTS FINANCIAL HIGHLIGHTS
11/1/03- 11/1/02- 11/1/01- 11/1/00- 11/1/99- INVESTOR SHARES 10/31/04 10/31/03 10/31/02 10/31/01 10/31/00 ------------------------------------------------------------------------------------------------------------------------------------ PER-SHARE DATA ($) ------------------------------------------------------------------------------------------------------------------------------------ Net asset value at beginning of period 18.22 13.27 15.98 21.06 17.41 -------------------------------------------------------------------- Income or loss from investment operations: Net investment income 0.13 0.11 0.13 0.07 0.07 Net realized and unrealized gains or losses 1.68 4.98 (2.17) (2.76) 3.62 -------------------------------------------------------------------- Total income or loss from investment operations 1.81 5.09 (2.04) (2.69) 3.69 Less distributions: Dividends from net investment income (0.11) (0.14) (0.09) (0.08) (0.04) Distributions from net realized gains -- -- (0.58) (2.31) -- -------------------------------------------------------------------- Total distributions (0.11) (0.14) (0.67) (2.39) (0.04) -------------------------------------------------------------------- Net asset value at end of period 19.92 18.22 13.27 15.98 21.06 -------------------------------------------------------------------- Total return (%) 9.98 38.72 (13.66) (13.66) 21.22 RATIOS/SUPPLEMENTAL DATA (%) ------------------------------------------------------------------------------------------------------------------------------------ Ratios to average net assets: Net operating expenses 0.59 0.56 0.49 0.49 0.50 1 Gross operating expenses 0.59 0.60 0.60 0.61 0.66 Net investment income 0.66 0.74 0.77 0.49 0.44 Portfolio turnover rate 39 34 44 49 54 Net assets, end of period ($ x 1,000,000) 869 886 722 804 803
1 The ratio of net operating expenses would have been 0.49% if certain non-routine expenses (proxy fees) had not been included. 44 See financial notes. SCHWAB SMALL-CAP INDEX FUND FINANCIAL HIGHLIGHTS
11/1/03- 11/1/02- 11/1/01- 11/1/00- 11/1/99- SELECT SHARES 10/31/04 10/31/03 10/31/02 10/31/01 10/31/00 ------------------------------------------------------------------------------------------------------------------------------------ PER-SHARE DATA ($) ------------------------------------------------------------------------------------------------------------------------------------ Net asset value at beginning of period 18.25 13.28 16.00 21.09 17.44 -------------------------------------------------------------------- Income or loss from investment operations: Net investment income 0.17 0.14 0.14 0.11 0.11 Net realized and unrealized gains or losses 1.68 4.99 (2.18) (2.78) 3.61 -------------------------------------------------------------------- Total income or loss from investment operations 1.85 5.13 (2.04) (2.67) 3.72 Less distributions: Dividends from net investment income (0.14) (0.16) (0.10) (0.11) (0.07) Distributions from net realized gains -- -- (0.58) (2.31) -- -------------------------------------------------------------------- Total distributions (0.14) (0.16) (0.68) (2.42) (0.07) -------------------------------------------------------------------- Net asset value at end of period 19.96 18.25 13.28 16.00 21.09 -------------------------------------------------------------------- Total return (%) 10.16 39.02 (13.62) (13.56) 21.37 RATIOS/SUPPLEMENTAL DATA (%) ------------------------------------------------------------------------------------------------------------------------------------ Ratios to average net assets: Net operating expenses 0.42 0.41 0.38 0.38 0.39 1 Gross operating expenses 0.44 0.45 0.45 0.46 0.51 Net investment income 0.82 0.89 0.88 0.60 0.55 Portfolio turnover rate 39 34 44 49 54 Net assets, end of period ($ x 1,000,000) 761 759 638 727 757
1 The ratio of net operating expenses would have been 0.38% if certain non-routine expenses (proxy fees) had not been included. See financial notes. 45 SCHWAB SMALL-CAP INDEX FUND SUMMARY OF PORTFOLIO HOLDINGS as of October 31, 2004 This section shows the fund's 50 largest portfolio holdings in unaffiliated issuers and any holding exceeding 1% of the fund's net assets. The remaining securities held by the fund are grouped as "Other Securities" in each category. You can request a complete schedule of portfolio holdings as of the end of the report period, free of charge, by calling SchwabFunds(R) at 1-800-435-4000. This complete schedule, filed on the fund's Form N-CSR, is also available on the SEC's website at http://www.sec.gov. In addition, the fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The fund's Form N-Q is available on the SEC's website and may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Call 1-800-SEC-0330 for information on the operation of the Public Reference Room. A copy of the fund's most recently filed quarterly schedule of portfolio holdings, included on the fund's Form N-CSR (with respect to the fund's second and fourth fiscal quarters) or Form N-Q (with respect to the fund's first and third fiscal quarters), is available by visiting Schwab's website at www.schwab.com/schwabfunds. We use the symbols below to designate certain characteristics of the securities. With the top ten holdings, the number in the circle is the security's rank among the top ten. For the characteristics of the securities included under "Other Securities", please refer to the complete schedule of portfolio holdings. (1) Top Ten Holding o Non-income producing security = All or a portion of this security is held as collateral for open futures contracts @ This security or a portion of this security is on loan
COST VALUE HOLDINGS BY CATEGORY ($x1,000) ($x1,000) -------------------------------------------------------------------------------- 100.0% COMMON STOCK 1,387,803 1,628,595 0.0% SHORT-TERM INVESTMENT 787 787 0.0% U.S. TREASURY OBLIGATIONS 120 120 -------------------------------------------------------------------------------- 100.0% TOTAL INVESTMENTS 1,388,710 1,629,502 8.6% COLLATERAL INVESTED FOR SECURITIES ON LOAN 140,272 140,272 (8.6)% OTHER ASSETS AND LIABILITIES, NET (140,048) -------------------------------------------------------------------------------- 100.0% TOTAL NET ASSETS 1,629,726
% OF NET VALUE SECURITY AND NUMBER OF SHARES ASSETS ($ x 1,000) COMMON STOCK 100.0% of net assets AEROSPACE / DEFENSE 1.0% ------------------------------------------------------------------------ Other Securities 1.0 16,871 AIR TRANSPORTATION 1.1% ------------------------------------------------------------------------ Other Securities 1.1 17,661 ALCOHOLIC BEVERAGES 0.1% ------------------------------------------------------------------------ Other Securities 0.1 1,994 APPAREL 1.6% ------------------------------------------------------------------------ o Aeropostale, Inc. 120,950 0.2 3,816 o Quiksilver, Inc. 130,000 0.2 3,543 Other Securities 1.2 18,357 ------ ----------- 1.6 25,716 AUTOMOTIVE PRODUCTS / MOTOR VEHICLES 1.6% ------------------------------------------------------------------------ =o(3) United Defense Industries, Inc. 118,600 0.3 4,761 Other Securities 1.3 20,616 ------ ----------- 1.6 25,377 BANKS 7.0% ------------------------------------------------------------------------ = Southwest Bancorp of Texas, Inc. 156,200 0.2 3,661 Texas Regional Bancshares, Inc., Class A 106,628 0.2 3,405 Other Securities 6.6 106,334 ------ ----------- 7.0 113,400 BUSINESS MACHINES & SOFTWARE 2.2% ------------------------------------------------------------------------ Other Securities 2.2 35,871 BUSINESS SERVICES 14.5% ------------------------------------------------------------------------ o Ask Jeeves, Inc. 127,500 0.2 3,287 =o CACI International, Inc., Class A 65,700 0.2 4,006 @=o Cerner Corp. 77,700 0.2 3,508 o Hewitt Associates, Inc., Class A 118,380 0.2 3,318 o Infospace, Inc. 71,390 0.2 3,748 =o R.H. Donnelley Corp. 67,700 0.2 3,673 o Waste Connections, Inc. 106,950 0.2 3,371
46 See financial notes. SCHWAB SMALL-CAP INDEX FUND
% OF NET VALUE SECURITY AND NUMBER OF SHARES ASSETS ($ x 1,000) @o(1) Wynn Resorts Ltd. 183,440 0.7 10,667 Other Securities 12.4 199,888 ------ ----------- 14.5 235,466 CHEMICALS 2.2% ------------------------------------------------------------------------ Georgia Gulf Corp. 71,100 0.2 3,219 Other Securities 2.0 32,243 ------ ----------- 2.2 35,462 CONSTRUCTION 2.0% ------------------------------------------------------------------------ @= Beazer Homes USA, Inc. 30,369 0.2 3,334 = Simpson Manufacturing Co., Inc. 52,700 0.2 3,388 Other Securities 1.6 26,459 ------ ----------- 2.0 33,181 CONSUMER DURABLES 1.1% ------------------------------------------------------------------------ @ Toro Co. 54,500 0.2 3,720 Other Securities 0.9 14,699 ------ ----------- 1.1 18,419 CONTAINERS 0.3% ------------------------------------------------------------------------ Other Securities 0.3 4,066 ELECTRONICS 7.8% ------------------------------------------------------------------------ @o Macromedia, Inc. 150,600 0.2 4,087 Other Securities 7.6 122,210 ------ ----------- 7.8 126,297 ENERGY: RAW MATERIALS 3.4% ------------------------------------------------------------------------ o Cimarex Energy Co. 93,900 0.2 3,369 o Southwestern Energy Co. 81,820 0.2 3,759 Unit Corp. 99,500 0.2 3,690 Other Securities 2.8 44,840 ------ ----------- 3.4 55,658 FOOD & AGRICULTURE 1.2% ------------------------------------------------------------------------ Other Securities 1.2 19,796 GOLD 0.0% ------------------------------------------------------------------------ Other Securities 0.0 767 HEALTHCARE / DRUGS & MEDICINE 11.0% ------------------------------------------------------------------------ o AMERIGROUP Corp. 55,600 0.2 3,336 Mentor Corp. 95,600 0.2 3,327 @=o MGI Pharma, Inc. 153,200 0.3 4,086 Mine Safety Appliances Co. 88,000 0.2 3,319 =o Resmed, Inc. 76,200 0.2 3,581 Other Securities 9.9 161,548 ------ ----------- 11.0 179,197 HOUSEHOLD PRODUCTS 0.1% ------------------------------------------------------------------------ Other Securities 0.1 2,376 INSURANCE 3.1% ------------------------------------------------------------------------ Commerce Group, Inc. 74,100 0.2 3,750 Other Securities 2.9 47,458 ------ ----------- 3.1 51,208 MEDIA 2.1% ------------------------------------------------------------------------ Other Securities 2.1 34,959 MISCELLANEOUS 0.3% ------------------------------------------------------------------------ Other Securities 0.3 4,935 MISCELLANEOUS FINANCE 5.3% ------------------------------------------------------------------------ =(6) Cathay General Bancorp., Inc. 112,400 0.3 4,429 = Downey Financial Corp. 60,440 0.2 3,340 (7) East-West Bancorp, Inc. 109,700 0.3 4,392 =o La Quinta Corp. 396,700 0.2 3,193 @o(2) UnitedGlobalCom, Inc., Class A 858,200 0.4 6,419 Other Securities 3.9 64,240 ------ ----------- 5.3 86,013 NON-DURABLES & ENTERTAINMENT 2.7% ------------------------------------------------------------------------ o Penn National Gaming, Inc. 90,240 0.2 3,748 Other Securities 2.5 40,296 ------ ----------- 2.7 44,044
See financial notes. 47 SCHWAB SMALL-CAP INDEX FUND SUMMARY OF PORTFOLIO HOLDINGS continued
% OF NET VALUE SECURITY AND NUMBER OF SHARES ASSETS ($ x 1,000) NON-FERROUS METALS 0.9% ------------------------------------------------------------------------ Other Securities 0.9 13,821 OIL: DOMESTIC 2.8% ------------------------------------------------------------------------ o(9) Plains Exploration & Production Co. 167,478 0.3 4,187 @ Quicksilver Resources, Inc. 107,600 0.2 3,403 o(5) Tesoro Petroleum Corp. 148,100 0.3 4,485 Other Securities 2.0 33,720 ------ ----------- 2.8 45,795 OPTICAL & PHOTO 0.1% ------------------------------------------------------------------------ Other Securities 0.1 1,616 PAPER & FOREST PRODUCTS 0.8% ------------------------------------------------------------------------ Other Securities 0.8 13,355 PRODUCER GOODS & MANUFACTURING 6.0% ------------------------------------------------------------------------ = Aptargroup, Inc. 79,100 0.2 3,711 = Hughes Supply, Inc. 133,800 0.2 3,801 = IDEX Corp. 108,300 0.2 3,996 = Kennametal, Inc. 79,300 0.2 3,690 MSC Industrial Direct Co., Class A 94,000 0.2 3,209 Other Securities 5.0 79,234 ------ ----------- 6.0 97,641 RAILROAD & SHIPPING 0.4% ------------------------------------------------------------------------ Other Securities 0.4 6,587 REAL PROPERTY 6.3% ------------------------------------------------------------------------ = Brandywine Realty Trust 119,300 0.2 3,510 (8) New Century Financial Corp. 77,200 0.3 4,258 Other Securities 5.8 94,749 ------ ----------- 6.3 102,517 RETAIL 3.4% ------------------------------------------------------------------------ =o United Stationers, Inc. 73,100 0.2 3,253 =o Zale Corp. 112,500 0.2 3,209 Other Securities 3.0 49,285 ------ ----------- 3.4 55,747 STEEL 1.1% ------------------------------------------------------------------------ Allegheny Technologies, Inc. 208,000 0.2 3,497 Steel Dynamics, Inc. 111,900 0.2 3,715 Other Securities 0.7 10,181 ------ ----------- 1.1 17,393 TELEPHONE 1.2% ------------------------------------------------------------------------ Other Securities 1.2 19,350 TOBACCO 0.3% ------------------------------------------------------------------------ Other Securities 0.3 4,963 TRAVEL & RECREATION 1.6% ------------------------------------------------------------------------ o(10) Scientific Games Corp., Class A 194,200 0.3 4,113 Other Securities 1.3 21,611 ------ ----------- 1.6 25,724 TRUCKING & FREIGHT 1.1% ------------------------------------------------------------------------ o(4) Landstar Systems, Inc. 67,300 0.3 4,573 Other Securities 0.8 13,866 ------ ----------- 1.1 18,439 UTILITIES: ELECTRIC & GAS 2.3% ------------------------------------------------------------------------ PNM Resources, Inc. 136,250 0.2 3,172 Other Securities 2.1 33,741 ------ ----------- 2.3 36,913
SECURITY RATE, MATURITY DATE FACE AMOUNT ($ x 1,000) SHORT-TERM INVESTMENT 0.0% of net assets HSBC Bank, USA Grand Cayman Time Deposit 1.29%, 11/01/04 787 0.0 787
48 See financial notes. SCHWAB SMALL-CAP INDEX FUND
SECURITY RATE, MATURITY DATE % OF NET VALUE FACE AMOUNT ($ x 1,000) ASSETS ($ x 1,000) U.S. TREASURY OBLIGATIONS 0.0% of net assets = U.S. Treasury Bills, 1.59%-1.65%, 12/16/04 120 0.0 120
END OF INVESTMENTS.
VALUE SECURITY AND NUMBER OF SHARES ($ x 1,000) COLLATERAL INVESTED FOR SECURITIES ON LOAN 8.6% of net assets SHORT-TERM INVESTMENT 8.6% ------------------------------------------------------------------------ Securities Lending Investment Fund 140,271,911 140,272
END OF COLLATERAL INVESTED FOR SECURITIES ON LOAN. In addition to the above, the fund held the following at 10/31/04. All numbers x 1,000 except number of contracts. FUTURES CONTRACTS
NUMBER OF CONTRACT UNREALIZED CONTRACTS VALUE GAINS Russell 2000 Index, Long expires 12/17/04 4 1,169 35
See financial notes. 49 SCHWAB SMALL-CAP INDEX FUND Statement of ASSETS AND LIABILITIES As of October 31, 2004. All numbers x 1,000 except NAV. ASSETS -------------------------------------------------------------------------------- Investments, at value (including $133,167 of securities on loan) $1,629,502 a Collateral invested for securities on loan 140,272 Receivables: Fund shares sold 441 Dividends 914 Investments sold 253 Income from securities on loan 52 Prepaid expenses + 26 -------------- TOTAL ASSETS 1,771,460 LIABILITIES -------------------------------------------------------------------------------- Collateral invested for securities on loan 140,272 Payables: Fund shares redeemed 1,244 Interest expense 3 Due to brokers for futures 1 Investment adviser and administrator fees 40 Transfer agent and shareholder service fees 22 Trustees' fees 1 Accrued expenses + 151 -------------- TOTAL LIABILITIES 141,734 NET ASSETS -------------------------------------------------------------------------------- TOTAL ASSETS 1,771,460 TOTAL LIABILITIES - 141,734 -------------- NET ASSETS $1,629,726 NET ASSETS BY SOURCE Capital received from investors 1,451,903 Net investment income not yet distributed 9,047 Net realized capital losses (72,051) b Net unrealized capital gains 240,827 b NET ASSET VALUE (NAV) BY SHARE CLASS SHARES SHARE CLASS NET ASSETS / OUTSTANDING = NAV Investor Shares $868,933 43,629 $19.92 Select Shares $760,793 38,121 $19.96
Unless stated, all numbers x 1,000. a The fund paid $1,388,710 for these securities. Not counting short-term obligations and government securities, the fund's security transactions during the period were: Purchases $656,852 Sales/maturities $818,350 The fund's total security transactions with other SchwabFunds(R) during the period were $86,623. b These derive from investments and futures. FEDERAL TAX DATA --------------------------------------------------------- PORTFOLIO COST $1,391,370 NET UNREALIZED GAINS AND LOSSES: Gains $443,325 Losses + (205,193) -------------- $238,132 AS OF OCTOBER 31, 2004: NET UNDISTRIBUTED EARNINGS: Ordinary income $9,047 Long-term capital gains $-- CAPITAL LOSSES UTILIZED $214,814 UNUSED CAPITAL LOSSES: Expires 10/31 of: Loss amount 2011 $69,356 RECLASSIFICATIONS: Net investment income not yet distributed $30 Reclassified as: Net realized capital losses ($30) 50 See financial notes. SCHWAB SMALL-CAP INDEX FUND Statement of OPERATIONS For November 1, 2003 through October 31, 2004. All numbers x 1,000. INVESTMENT INCOME -------------------------------------------------------------------------------- Dividends $20,182 a Interest 18 Securities on loan + 693 ------------ TOTAL INVESTMENT INCOME 20,893 NET REALIZED GAINS AND LOSSES -------------------------------------------------------------------------------- Net realized gains on investments 215,204 Net realized gains on futures contracts + 406 ------------ NET REALIZED GAINS 215,610 NET UNREALIZED GAINS AND LOSSES -------------------------------------------------------------------------------- Net unrealized losses on investments (67,232) Net unrealized losses on futures contracts + (18) ------------ NET UNREALIZED LOSSES (67,250) EXPENSES -------------------------------------------------------------------------------- Investment adviser and administrator fees 4,956 b Transfer agent and shareholder service fees: Investor Shares 2,247 c Select Shares 782 c Trustees' fees 16 d Custodian fees 167 Portfolio accounting fees 242 Professional fees 45 Registration fees 61 Shareholder reports 166 Interest expense 12 Other expenses + 22 ------------ Total expenses 8,716 Expense reduction - 139 e ------------ NET EXPENSES 8,577 INCREASE IN NET ASSETS FROM OPERATIONS -------------------------------------------------------------------------------- TOTAL INVESTMENT INCOME 20,893 NET EXPENSES - 8,577 ------------ NET INVESTMENT INCOME 12,316 NET REALIZED GAINS 215,610 f NET UNREALIZED LOSSES + (67,250) f ------------ INCREASE IN NET ASSETS FROM OPERATIONS $160,676
Unless stated, all numbers x 1,000. a Net of $3 foreign withholding tax. b Calculated as a percentage of average daily net assets: 0.33% of the first $500 million and 0.28% of the assets beyond that. These fees are paid to Charles Schwab Investment Management, Inc. (CSIM). c 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%, and 0.05% of the assets of each respective share class. These fees are paid to Charles Schwab & Co., Inc. (Schwab). d For the fund's independent trustees only. e This reduction was made by the transfer agent and shareholder service agent (Schwab). It reflects a guarantee by the investment adviser (CSIM) and Schwab to limit the operating expenses of this fund through February 28, 2005, as follows: % OF AVERAGE SHARE CLASS DAILY NET ASSETS ---------------------------------------- Investor Shares 0.60 Select Shares 0.42 This limit excludes interest, taxes and certain non-routine expenses. f These add up to a net gain on investments of $148,360. See financial notes. 51 SCHWAB SMALL-CAP INDEX FUND Statements of CHANGES IN NET ASSETS For the current and prior report periods. All numbers x 1,000.
OPERATIONS -------------------------------------------------------------------------------- 11/1/03-10/31/04 11/1/02-10/31/03 Net investment income $12,316 $11,374 Net realized gains or losses 215,610 (193,979) Net unrealized gains or losses + (67,250) 656,467 ------------------------------------ INCREASE IN NET ASSETS FROM OPERATIONS 160,676 473,862 DISTRIBUTIONS PAID -------------------------------------------------------------------------------- DIVIDENDS FROM NET INVESTMENT INCOME Investor Shares 5,423 7,507 Select Shares + 5,623 7,345 ------------------------------------ TOTAL DIVIDENDS FROM NET INVESTMENT INCOME $11,046 $14,852 a,b
TRANSACTIONS IN FUND SHARES -------------------------------------------------------------------------------- 11/1/03-10/31/04 11/1/02-10/31/03 SHARES VALUE SHARES VALUE SHARES SOLD Investor Shares 5,935 $114,857 6,678 $101,578 Select Shares + 6,358 121,773 6,760 99,820 ---------------------------------------------------- TOTAL SHARES SOLD 12,293 $236,630 13,438 $201,398 SHARES REINVESTED Investor Shares 270 $5,073 522 $7,085 Select Shares + 278 5,234 503 6,844 ---------------------------------------------------- TOTAL SHARES REINVESTED 548 $10,307 1,025 $13,929 SHARES REDEEMED Investor Shares (11,208) ($215,266) (12,997) ($188,682) Select Shares + (10,118) (196,867) (13,679) (200,308) ---------------------------------------------------- TOTAL SHARES REDEEMED (21,326) ($412,133) (26,676) ($388,990) c NET TRANSACTIONS IN FUND SHARES (8,485) ($165,196) (12,213) ($173,663)
SHARES OUTSTANDING AND NET ASSETS -------------------------------------------------------------------------------- 11/1/03-10/31/04 11/1/02-10/31/03 SHARES NET ASSETS SHARES NET ASSETS Beginning of period 90,235 $1,645,292 102,448 $1,359,945 Total increase or decrease + (8,485) (15,566) (12,213) 285,347 ---------------------------------------------------- END OF PERIOD 81,750 $1,629,726 90,235 $1,645,292 d
Unless stated, all numbers x 1,000. a UNAUDITED For corporations, 100% of the fund's dividends for the report period qualify for the dividends-received deduction. The fund designates $11,046 of the dividend distribution for the fiscal year ended 10/31/04 as qualified dividends for the purpose of the maximum rate under Section 1(h)(ii) of the Internal Revenue Code. Shareholders will be notified in January 2005 via IRS Form 1099 of the amounts for use in preparing their 2004 income tax return. b The tax-basis components of distributions paid are: CURRENT PRIOR PERIOD PERIOD Ordinary income $11,046 $14,852 Long-term capital gains $-- $-- c The fund charges 0.75% of early withdrawal fees on shares redeemed 180 days or less after the purchase. CURRENT PRIOR PERIOD PERIOD Investor Shares $68 $70 Select Shares + 33 + 39 -------------------- TOTAL $101 $109 Dollar amounts are net of the redemption proceeds. d Includes distributable net investment income in the amount of $9,047 and $7,747 at the end of the current period and prior period, respectively. Percent of fund shares owned by other SchwabFunds(R) as of the end of the current period: SCHWAB MARKETTRACK PORTFOLIOS All Equity Portfolio 6.9% Growth Portfolio 7.6% Balanced Portfolio 5.0% Conservative Portfolio 1.8% SCHWAB ANNUITY PORTFOLIOS Growth Portfolio II 0.4% 52 See financial notes. SCHWAB TOTAL STOCK MARKET INDEX FUND(R) FINANCIAL STATEMENTS FINANCIAL HIGHLIGHTS
11/1/03- 11/1/02- 11/1/01- 11/1/00- 11/1/99- INVESTOR SHARES 10/31/04 10/31/03 10/31/02 10/31/01 10/31/00 ------------------------------------------------------------------------------------------------------------------------------------ PER-SHARE DATA ($) ------------------------------------------------------------------------------------------------------------------------------------ Net asset value at beginning of period 17.48 14.35 16.62 22.49 20.87 ------------------------------------------------------------------------------ Income or loss from investment operations: Net investment income 0.19 0.16 0.16 0.15 0.16 Net realized and unrealized gains or losses 1.53 3.14 (2.27) (5.87) 1.56 ------------------------------------------------------------------------------ Total income or loss from investment operations 1.72 3.30 (2.11) (5.72) 1.72 Less distributions: Dividends from net investment income (0.16) (0.17) (0.16) (0.15) (0.10) ------------------------------------------------------------------------------ Net asset value at end of period 19.04 17.48 14.35 16.62 22.49 ------------------------------------------------------------------------------ Total return (%) 9.93 23.24 (12.86) (25.55) 8.23 RATIOS/SUPPLEMENTAL DATA (%) ------------------------------------------------------------------------------------------------------------------------------------ Ratios to average net assets: Net operating expenses 0.56 0.53 0.40 0.40 0.41 1 Gross operating expenses 0.56 0.59 0.62 0.65 0.67 Net investment income 1.07 1.18 1.11 0.94 0.76 Portfolio turnover rate 2 3 2 2 2 Net assets, end of period ($ x 1,000,000) 592 469 263 224 218
1 The ratio of net operating expenses would have been 0.40% if certain non-routine expenses (proxy fees) had not been included. See financial notes. 53 SCHWAB TOTAL STOCK MARKET INDEX FUND FINANCIAL HIGHLIGHTS
11/1/03- 11/1/02- 11/1/01- 11/1/00- 11/1/99- SELECT SHARES 10/31/04 10/31/03 10/31/02 10/31/01 10/31/00 ------------------------------------------------------------------------------------------------------------------------------------ PER-SHARE DATA ($) ------------------------------------------------------------------------------------------------------------------------------------ Net asset value at beginning of period 17.52 14.37 16.65 22.52 20.89 ------------------------------------------------------------------------------ Income or loss from investment operations: Net investment income 0.22 0.20 0.19 0.18 0.17 Net realized and unrealized gains or losses 1.54 3.14 (2.29) (5.87) 1.56 ------------------------------------------------------------------------------ Total income or loss from investment operations 1.76 3.34 (2.10) (5.69) 1.73 Less distributions: Dividends from net investment income (0.19) (0.19) (0.18) (0.18) (0.10) ------------------------------------------------------------------------------ Net asset value at end of period 19.09 17.52 14.37 16.65 22.52 ------------------------------------------------------------------------------ Total return (%) 10.10 23.50 (12.81) (25.40) 8.30 RATIOS/SUPPLEMENTAL DATA (%) ------------------------------------------------------------------------------------------------------------------------------------ Ratios to average net assets: Net operating expenses 0.39 0.36 0.27 0.27 0.28 1 Gross operating expenses 0.41 0.44 0.47 0.50 0.52 Net investment income 1.23 1.35 1.24 1.07 0.89 Portfolio turnover rate 2 3 2 2 2 Net assets, end of period ($ x 1,000,000) 548 429 264 257 262
1 The ratio of net operating expenses would have been 0.27% if certain non-routine expenses (proxy fees) had not been included. 54 See financial notes. SCHWAB TOTAL STOCK MARKET INDEX FUND SUMMARY OF PORTFOLIO HOLDINGS as of October 31, 2004 This section shows the fund's 50 largest portfolio holdings in unaffiliated issuers and any holding exceeding 1% of the fund's net assets. The remaining securities held by the fund are grouped as "Other Securities" in each category. You can request a complete schedule of portfolio holdings as of the end of the report period, free of charge, by calling SchwabFunds(R) at 1-800-435-4000. This complete schedule, filed on the fund's Form N-CSR, is also available on the SEC's website at http://www.sec.gov. In addition, the fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The fund's Form N-Q is available on the SEC's website and may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Call 1-800-SEC-0330 for information on the operation of the Public Reference Room. A copy of the fund's most recently filed quarterly schedule of portfolio holdings, included on the fund's Form N-CSR (with respect to the fund's second and fourth fiscal quarters) or Form N-Q (with respect to the fund's first and third fiscal quarters), is available by visiting Schwab's website at www.schwab.com/schwabfunds. We use the symbols below to designate certain characteristics of the securities. With the top ten holdings, the number in the circle is the security's rank among the top ten. For the characteristics of the securities included under "Other Securities" and for securities valued at fair value, please refer to the complete schedule of portfolio holdings. (1) Top Ten Holding o Non-income producing security = All or a portion of this security is held as collateral for open futures contracts / Issuer is affiliated with the fund's adviser @ This security or a portion of this security is on loan For fixed-rate obligations, the rate shown is the interest rate (the rate established when the obligation was issued) and the maturity date shown is the stated legal maturity.
COST VALUE HOLDINGS BY CATEGORY ($x1,000) ($x1,000) --------------------------------------------------------------------------------- 98.9% COMMON STOCK 1,070,799 1,127,570 0.7% SHORT-TERM INVESTMENT 8,015 8,015 0.0% U.S. TREASURY OBLIGATION 399 399 0.0% PREFERRED STOCK 68 69 0.0% CORPORATE BONDS 15 16 0.0% RIGHTS 130 8 0.0% WARRANTS 286 2 --------------------------------------------------------------------------------- 99.6% TOTAL INVESTMENTS 1,079,712 1,136,079 6.3% COLLATERAL INVESTED FOR SECURITIES ON LOAN 71,496 71,496 (5.9)% OTHER ASSETS AND LIABILITIES, NET (66,895) --------------------------------------------------------------------------------- 100.0% TOTAL NET ASSETS 1,140,680
% OF NET VALUE SECURITY AND NUMBER OF SHARES ASSETS ($ x 1,000) COMMON STOCK 98.9% of net assets AEROSPACE / DEFENSE 1.6% -------------------------------------------------------------------------- Other Securities 1.6 17,869 AIR TRANSPORTATION 1.0% -------------------------------------------------------------------------- United Parcel Service, Inc., Class B 91,480 0.7 7,243 Other Securities 0.3 4,734 ----- ----------- 1.0 11,977 ALCOHOLIC BEVERAGES 0.4% -------------------------------------------------------------------------- Other Securities 0.4 4,500 APPAREL 0.6% -------------------------------------------------------------------------- Other Securities 0.6 6,415 AUTOMOTIVE PRODUCTS / MOTOR VEHICLES 1.1% -------------------------------------------------------------------------- Other Securities 1.1 12,658 BANKS 7.7% -------------------------------------------------------------------------- (7) Bank of America Corp. 338,518 1.3 15,162 JPMorgan Chase & Co. 295,944 1.0 11,423 U.S. Bancorp 158,531 0.4 4,536
See financial notes. 55 SCHWAB TOTAL STOCK MARKET INDEX FUND SUMMARY OF PORTFOLIO HOLDINGS continued
% OF NET VALUE SECURITY AND NUMBER OF SHARES ASSETS ($ x 1,000) Wachovia Corp. 108,236 0.5 5,326 Wells Fargo & Co. 140,077 0.8 8,365 Other Securities 3.7 42,863 ------ ----------- 7.7 87,675 BUSINESS MACHINES & SOFTWARE 7.5% -------------------------------------------------------------------------- o Cisco Systems, Inc. 563,969 1.0 10,834 o Dell, Inc. 209,300 0.7 7,338 Hewlett-Packard Co. 252,916 0.4 4,719 (10) International Business Machines Corp. 139,850 1.1 12,552 =(3) Microsoft Corp. 892,760 2.2 24,988 o Oracle Corp. 429,500 0.5 5,437 Other Securities 1.6 19,495 ------ ----------- 7.5 85,363 BUSINESS SERVICES 5.8% -------------------------------------------------------------------------- o eBay, Inc. 52,924 0.5 5,166 @o Google, Inc., Class A 22,500 0.4 4,291 o Yahoo! Inc. 111,144 0.4 4,022 Other Securities 4.5 52,191 ------ ----------- 5.8 65,670 CHEMICALS 1.5% -------------------------------------------------------------------------- Other Securities 1.5 17,539 CONSTRUCTION 0.9% -------------------------------------------------------------------------- Other Securities 0.9 9,898 CONSUMER DURABLES 0.4% -------------------------------------------------------------------------- Other Securities 0.4 4,237 CONTAINERS 0.2% -------------------------------------------------------------------------- Other Securities 0.2 2,183 ELECTRONICS 5.3% -------------------------------------------------------------------------- Intel Corp. 533,832 1.1 11,883 Qualcomm, Inc. 135,100 0.5 5,649 Other Securities 3.7 43,042 ------ ----------- 5.3 60,574 ENERGY: RAW MATERIALS 2.0% -------------------------------------------------------------------------- Other Securities 2.0 23,419 FOOD & AGRICULTURE 3.1% -------------------------------------------------------------------------- The Coca-Cola Co. 202,200 0.7 8,221 PepsiCo, Inc. 140,800 0.6 6,981 Other Securities 1.8 20,755 ------ ----------- 3.1 35,957 GOLD 0.2% -------------------------------------------------------------------------- Other Securities 0.2 2,009 HEALTHCARE / DRUGS & MEDICINE 11.5% -------------------------------------------------------------------------- Abbott Laboratories 128,205 0.5 5,465 o Amgen, Inc. 107,168 0.6 6,087 Eli Lilly & Co. 92,400 0.5 5,074 (8) Johnson & Johnson 246,370 1.3 14,383 Medtronic, Inc. 100,974 0.5 5,161 Merck & Co., Inc. 183,552 0.5 5,747 (6) Pfizer, Inc. 631,552 1.6 18,283 UnitedHealth Group, Inc. 66,300 0.4 4,800 Wyeth 109,400 0.4 4,338 Other Securities 5.2 62,410 ------ ----------- 11.5 131,748 HOUSEHOLD PRODUCTS 1.8% -------------------------------------------------------------------------- = Procter & Gamble Co. 213,400 1.0 10,922 Other Securities 0.8 9,485 ------ ----------- 1.8 20,407 INSURANCE 4.3% -------------------------------------------------------------------------- (9) American International Group, Inc. 216,222 1.2 13,127 Other Securities 3.1 36,098 ------ ----------- 4.3 49,225 MEDIA 3.8% -------------------------------------------------------------------------- o Comcast Corp., Class A 148,336 0.4 4,376 o Time Warner, Inc. 367,052 0.6 6,108 Viacom, Inc., Class B 144,012 0.5 5,255 The Walt Disney Co. 167,150 0.4 4,216 Other Securities 1.9 23,289 ------ ----------- 3.8 43,244 MISCELLANEOUS 0.5% -------------------------------------------------------------------------- 3M Co. 65,000 0.5 5,042 Other Securities 0.0 687 ------ ----------- 0.5 5,729
56 See financial notes. SCHWAB TOTAL STOCK MARKET INDEX FUND
% OF NET VALUE SECURITY AND NUMBER OF SHARES ASSETS ($ x 1,000) MISCELLANEOUS FINANCE 7.9% -------------------------------------------------------------------------- American Express Co. 105,150 0.5 5,580 o Berkshire Hathaway, Inc., Class A 96 0.7 8,088 / The Charles Schwab Corp. 111,120 0.1 1,017 =(5) Citigroup, Inc. 424,936 1.7 18,854 Fannie Mae 81,400 0.5 5,710 Merrill Lynch & Co., Inc. 79,800 0.4 4,304 Morgan Stanley 90,300 0.4 4,613 Other Securities 3.6 41,680 ------ ----------- 7.9 89,846 NON-DURABLES & ENTERTAINMENT 1.4% -------------------------------------------------------------------------- Other Securities 1.4 16,109 NON-FERROUS METALS 0.4% -------------------------------------------------------------------------- Other Securities 0.4 4,931 OIL: DOMESTIC 1.6% -------------------------------------------------------------------------- ConocoPhillips 56,098 0.4 4,730 Other Securities 1.2 13,653 ------ ----------- 1.6 18,383 OIL: INTERNATIONAL 3.2% -------------------------------------------------------------------------- ChevronTexaco Corp. 179,634 0.8 9,532 =(2) Exxon Mobil Corp. 537,816 2.3 26,471 Other Securities 0.1 586 ------ ----------- 3.2 36,589 OPTICAL & PHOTO 0.2% -------------------------------------------------------------------------- Other Securities 0.2 2,465 PAPER & FOREST PRODUCTS 0.8% -------------------------------------------------------------------------- Other Securities 0.8 8,757 PRODUCER GOODS & MANUFACTURING 4.9% -------------------------------------------------------------------------- =(1) General Electric Co. 863,066 2.6 29,448 Other Securities 2.3 26,142 ------ ----------- 4.9 55,590 RAILROAD & SHIPPING 0.5% -------------------------------------------------------------------------- Other Securities 0.5 5,533 REAL PROPERTY 2.1% -------------------------------------------------------------------------- Other Securities 2.1 23,704 RETAIL 6.1% -------------------------------------------------------------------------- Home Depot, Inc. 187,000 0.7 7,682 =(4) Wal-Mart Stores, Inc. 354,600 1.7 19,120 Other Securities 3.7 43,354 ------ ----------- 6.1 70,156 STEEL 0.2% -------------------------------------------------------------------------- Other Securities 0.2 2,003 TELEPHONE 3.1% -------------------------------------------------------------------------- SBC Communications, Inc. 273,212 0.6 6,901 Verizon Communications, Inc. 228,786 0.8 8,946 Other Securities 1.7 19,561 ------ ----------- 3.1 35,408 TOBACCO 0.9% -------------------------------------------------------------------------- Altria Group, Inc. 168,800 0.7 8,180 Other Securities 0.2 1,637 ------ ----------- 0.9 9,817 TRAVEL & RECREATION 0.9% -------------------------------------------------------------------------- Other Securities 0.9 9,761 TRUCKING & FREIGHT 0.4% -------------------------------------------------------------------------- Other Securities 0.4 4,328 UTILITIES: ELECTRIC & GAS 3.1% -------------------------------------------------------------------------- Other Securities 3.1 35,894 PREFERRED STOCK 0.0% of net assets REAL PROPERTY 0.0% -------------------------------------------------------------------------- Other Securities 0.0 69
SECURITY RATE, MATURITY DATE FACE AMOUNT ($ x 1,000) CORPORATE BONDS 0.0% of net assets FIXED-RATE OBLIGATIONS 0.0% -------------------------------------------------------------------------- Brookfield Homes Corp. 12.00%, 06/30/20 15 0.0 16
See financial notes. 57 SCHWAB TOTAL STOCK MARKET INDEX FUND SUMMARY OF PORTFOLIO HOLDINGS continued
% OF NET VALUE SECURITY AND NUMBER OF SHARES ASSETS ($ x 1,000) WARRANTS 0.0% of net assets Other Securities 0.0 2 RIGHTS 0.0% of net assets Other Securities 0.0 8 SHORT-TERM INVESTMENT 0.7% of net assets Provident Institutional TempFund 8,014,950 0.7 8,015
SECURITY RATE, MATURITY DATE FACE AMOUNT ($ x 1,000) U.S. TREASURY OBLIGATION 0.0% of net assets = U.S. Treasury Bill, 1.63%, 12/16/04 400 0.0 399
END OF INVESTMENTS.
SECURITY FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) COLLATERAL INVESTED FOR SECURITIES ON LOAN 6.3% of net assets COMMERCIAL PAPER & OTHER CORPORATE OBLIGATIONS 2.5% -------------------------------------------------------------------------- Canadian Imperial Bank of Commerce/New York 1.92%, 11/29/04 3,848 3,847 1.72%, 05/25/05 1,516 1,516 Crown Point Capital 1.80%, 11/05/04 1,851 1,851 Foreningssparbanken AB 1.83%, 11/15/04 10,855 10,853 Fortis Bank 1.78%, 06/06/05 1,381 1,381 Societe Generale NY 1.95%, 11/01/04 5,456 5,455 1.83%, 11/15/04 1,571 1,570 Westdeutsche Landesbank AG 1.50%, 01/10/05 2,340 2,339 ----------- 28,812 SHORT-TERM INVESTMENTS 3.8% -------------------------------------------------------------------------- Citibank, Time Deposit 1.76%, 11/01/04 1,709 1,709
SECURITY AND NUMBER OF SHARES Institutional Money Market Trust 40,974,861 40,975 ----------- 42,684
END OF COLLATERAL INVESTED FOR SECURITIES ON LOAN. 58 See financial notes. SCHWAB TOTAL STOCK MARKET INDEX FUND In addition to the above, the fund held the following at 10/31/04. All numbers x 1,000 except number of contracts. FUTURES CONTRACTS
NUMBER OF CONTRACT UNREALIZED CONTRACTS VALUE GAINS Russell 2000 Index, Long expires 12/17/04 4 1,169 29 S&P 500 Index, Long expires 12/17/04 23 6,499 50 ---- 79
See financial notes. 59 SCHWAB TOTAL STOCK MARKET INDEX FUND Statement of ASSETS AND LIABILITIES As of October 31, 2004. All numbers x 1,000 except NAV. ASSETS -------------------------------------------------------------------------------- Investments, at market value (including $68,742 of securities on loan) $1,136,079 a Collateral invested for securities on loan 71,496 Receivables: Fund shares sold 3,993 Interest 6 Dividends 1,263 Investments sold 14 Due from brokers for futures 10 Income from securities on loan 10 Prepaid expenses + 22 -------------- TOTAL ASSETS 1,212,893 LIABILITIES -------------------------------------------------------------------------------- Collateral invested for securities on loan 71,496 Payables: Fund shares redeemed 580 Investment adviser and administrator fees 24 Transfer agent and shareholder service fees 19 Trustee fees 1 Accrued expenses + 93 -------------- TOTAL LIABILITIES 72,213 NET ASSETS -------------------------------------------------------------------------------- TOTAL ASSETS 1,212,893 TOTAL LIABILITIES - 72,213 -------------- NET ASSETS $1,140,680 NET ASSETS BY SOURCE Capital received from investors 1,096,490 Net investment income not yet distributed 10,037 Net realized capital losses (22,293) b Net unrealized capital gains 56,446 b NET ASSET VALUE (NAV) BY SHARE CLASS SHARES SHARE CLASS NET ASSETS / OUTSTANDING = NAV Investor Shares $592,410 31,108 $19.04 Select Shares $548,270 28,713 $19.09
Unless stated, all numbers x 1,000. a The fund paid $1,079,712 for these securities. Includes securities valued at fair value worth $13 or 0.0% of the fund's total net assets. Not counting short-term obligations and government securities, the fund's security transactions during the period were: Purchases $169,426 Sales/maturities $16,950 The fund's total security transactions with other SchwabFunds(R) during the period were $3,569. b These derive from investments and futures. FEDERAL TAX DATA -------------------------------------------------- PORTFOLIO COST $1,080,161 NET UNREALIZED GAINS AND LOSSES: Gains $226,948 Losses + (171,030) -------------- $55,918 AS OF OCTOBER 31, 2004: NET UNDISTRIBUTED EARNINGS: Ordinary income $10,037 Long-term capital gains $-- UNUSED CAPITAL LOSSES: Expires 10/31 of: Loss amount 2007 $18 2008 3,413 2009 2,000 2010 11,485 2011 3,975 2012 + 874 -------------- $21,765 RECLASSIFICATIONS: Net investment income not yet distributed $1 Reclassified as: Realized capital losses ($1) 60 See financial notes. SCHWAB TOTAL STOCK MARKET INDEX FUND Statement of OPERATIONS For November 1, 2003 through October 31, 2004. All numbers x 1,000. INVESTMENT INCOME -------------------------------------------------------------------------------- Dividends $17,028 Interest 59 Securities on loan + 180 ----------- TOTAL INVESTMENT INCOME 17,267 NET REALIZED GAINS AND LOSSES -------------------------------------------------------------------------------- Net realized losses on investments (92) Net realized gains on futures contracts + 378 ----------- NET REALIZED GAINS 286 NET UNREALIZED GAINS AND LOSSES -------------------------------------------------------------------------------- Net unrealized gains on investments 83,808 Net unrealized losses on futures contracts + (107) ----------- NET UNREALIZED GAINS 83,701 EXPENSES -------------------------------------------------------------------------------- Investment adviser and administrator fees 2,743 a Transfer agent and shareholder service fees: Investor Shares 1,384 b Select Shares 511 b Trustees' fees 12 c Custodian fees 81 Portfolio accounting fees 159 Professional fees 42 Registration fees 99 Shareholder reports 79 Interest expense 1 Other expenses + 33 ----------- Total expenses 5,144 Expense reduction - 85 d ----------- NET EXPENSES 5,059 INCREASE IN NET ASSETS FROM OPERATIONS -------------------------------------------------------------------------------- TOTAL INVESTMENT INCOME 17,267 NET EXPENSES - 5,059 ----------- NET INVESTMENT INCOME 12,208 NET REALIZED GAINS 286 e NET UNREALIZED GAINS + 83,701 e ----------- INCREASE IN NET ASSETS FROM OPERATIONS $96,195
Unless stated, all numbers x 1,000. a Calculated as a percentage of average daily net assets: 0.30% of the first $500 million and 0.22% of the assets beyond that. These fees are paid to Charles Schwab Investment Management, Inc. (CSIM). b 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%, and 0.05% of the assets of each respective share class. These fees are paid to Charles Schwab & Co., Inc. (Schwab). c For the fund's independent trustees only. d Includes $4 from the investment adviser (CSIM) and $81 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 February 28, 2005, as follows: % OF AVERAGE SHARE CLASS DAILY NET ASSETS -------------------------------------- Investor Shares 0.58 Select Shares 0.39 This limit excludes interest, taxes and certain non-routine expenses. d These add up to a net gain on investments of $83,987 See financial notes. 61 SCHWAB TOTAL STOCK MARKET INDEX FUND Statements of CHANGES IN NET ASSETS For the current and prior report periods. All numbers x 1,000.
OPERATIONS -------------------------------------------------------------------------------- 11/1/03-10/31/04 11/1/02-10/31/03 Net investment income $12,208 $8,702 Net realized gains or losses 286 (5,294) Net unrealized gains + 83,701 155,552 ------------------------------------ INCREASE IN NET ASSETS FROM OPERATIONS 96,195 158,960 DISTRIBUTIONS PAID -------------------------------------------------------------------------------- DIVIDENDS FROM NET INVESTMENT INCOME Investor Shares 4,522 3,195 Select Shares + 4,835 3,512 ------------------------------------ TOTAL DIVIDENDS FROM NET INVESTMENT INCOME $9,357 $6,707 a,b
TRANSACTIONS IN FUND SHARES -------------------------------------------------------------------------------- 11/1/03-10/31/04 11/1/02-10/31/03 SHARES VALUE SHARES VALUE SHARES SOLD Investor Shares 9,767 $180,735 12,774 $194,287 Select Shares + 8,998 165,692 11,399 172,567 ----------------------------------------------------- TOTAL SHARES SOLD 18,765 $346,427 24,173 $366,854 SHARES REINVESTED Investor Shares 237 $4,213 209 $2,984 Select Shares + 222 3,957 203 2,911 ----------------------------------------------------- TOTAL SHARES REINVESTED 459 $8,170 412 $5,895 SHARES REDEEMED Investor Shares (5,759) ($106,552) (4,461) ($68,649) Select Shares + (5,002) (92,791) (5,507) (85,326) ----------------------------------------------------- TOTAL SHARES REDEEMED (10,761) ($199,343) (9,968) ($153,975) c NET TRANSACTIONS IN FUND SHARES 8,463 $155,254 14,617 $218,774
SHARES OUTSTANDING AND NET ASSETS -------------------------------------------------------------------------------- 11/1/03-10/31/04 11/1/02-10/31/03 SHARES NET ASSETS SHARES NET ASSETS Beginning of period 51,358 $898,588 36,741 $527,561 Total increase + 8,463 242,092 14,617 371,027 ----------------------------------------------------- END OF PERIOD 59,821 $1,140,680 51,358 $898,588 d
Unless stated, all numbers x 1,000. a UNAUDITED For corporations, 100% of the fund's dividends for the report period qualify for the dividends-received deduction. The fund designates $9,357 of the dividend distribution for the fiscal year ended 10/31/04 as qualified dividends for the purpose of the maximum rate under Section 1(h)(ii) of the Internal Revenue Code. Shareholders will be notified in January 2005 via IRS Form 1099 of the amounts for use in preparing their 2004 income tax return. b The tax-basis components of distributions paid are: CURRENT PRIOR PERIOD PERIOD Ordinary income $9,357 $6,707 Long-term capital gains $-- $-- c The fund charges 0.75% of early withdrawal fees on shares redeemed 180 days or less after the purchase. CURRENT PERIOD: Investor Shares $70 Select Shares + 59 ------- TOTAL $129 PRIOR PERIOD: Investor Shares $76 Select Shares + 173 ------- TOTAL $249 Dollar amounts are net of the redemption proceeds. d Includes distributable net investment income in the amount of $10,037 and $7,185 at the end of the current period and prior period, respectively. 62 See financial notes. SCHWAB INTERNATIONAL INDEX FUND(R) FINANCIAL STATEMENTS FINANCIAL HIGHLIGHTS
11/1/03- 11/1/02- 11/1/01- 11/1/00- 11/1/99- INVESTOR SHARES 10/31/04 10/31/03 10/31/02 10/31/01 10/31/00 ------------------------------------------------------------------------------------------------------------------------------------ PER-SHARE DATA ($) ------------------------------------------------------------------------------------------------------------------------------------ Net asset value at beginning of period 12.74 10.47 12.22 17.13 17.93 -------------------------------------------------------------------------- Income or loss from investment operations: Net investment income 0.26 0.23 0.21 0.15 0.20 Net realized and unrealized gains or losses 2.05 2.25 (1.82) (4.81) (0.85) -------------------------------------------------------------------------- Total income or loss from investment operations 2.31 2.48 (1.61) (4.66) (0.65) Less distributions: Dividends from net investment income (0.23) (0.21) (0.14) (0.25) (0.15) -------------------------------------------------------------------------- Net asset value at end of period 14.82 12.74 10.47 12.22 17.13 -------------------------------------------------------------------------- Total return (%) 18.40 24.24 (13.34) (27.58) (3.69) RATIOS/SUPPLEMENTAL DATA (%) ------------------------------------------------------------------------------------------------------------------------------------ Ratios to average net assets: Net operating expenses 0.69 0.65 0.58 0.58 0.59 1 Gross operating expenses 0.73 0.74 0.76 0.75 0.82 Net investment income 1.78 2.01 1.70 1.14 1.60 Portfolio turnover rate 1 7 13 18 16 Net assets, end of period ($ x 1,000,000) 550 494 443 519 637
1 The ratio of net operating expenses would have been 0.58% if certain non-routine expenses (proxy fees) had not been included. See financial notes. 63 SCHWAB INTERNATIONAL INDEX FUND
11/1/03- 11/1/02- 11/1/01- 11/1/00- 11/1/99- SELECT SHARES 10/31/04 10/31/03 10/31/02 10/31/01 10/31/00 ------------------------------------------------------------------------------------------------------------------------------------ PER-SHARE DATA ($) ------------------------------------------------------------------------------------------------------------------------------------ Net asset value at beginning of period 12.75 10.47 12.23 17.14 17.96 Income or loss from investment operations: Net investment income 0.28 0.25 0.21 0.16 0.27 Net realized and unrealized gains or losses 2.05 2.26 (1.82) (4.80) (0.91) ----------------------------------------------------------------------------- Total income or loss from investment operations 2.33 2.51 (1.61) (4.64) (0.64) Less distributions: Dividends from net investment income (0.25) (0.23) (0.15) (0.27) (0.18) ----------------------------------------------------------------------------- Net asset value at end of period 14.83 12.75 10.47 12.23 17.14 ----------------------------------------------------------------------------- Total return (%) 18.56 24.50 (13.31) (27.45) (3.65) RATIOS/SUPPLEMENTAL DATA (%) ------------------------------------------------------------------------------------------------------------------------------------ Ratios to average net assets: Net operating expenses 0.50 0.49 0.47 0.47 0.48 1 Gross operating expenses 0.58 0.59 0.61 0.60 0.67 Net investment income 1.97 2.19 1.81 1.25 1.71 Portfolio turnover rate 1 7 13 18 16 Net assets, end of period ($ x 1,000,000) 687 629 536 616 700
1 The ratio of net operating expenses would have been 0.47% if certain non-routine expenses (proxy fees) had not been included. 64 See financial notes. SCHWAB INTERNATIONAL INDEX FUND SUMMARY OF PORTFOLIO HOLDINGS as of October 31, 2004 This section shows the fund's 50 largest portfolio holdings in unaffiliated issuers and any holding exceeding 1% of the fund's net assets. The remaining securities held by the fund are grouped as "Other Securities" in each category. You can request a complete schedule of portfolio holdings as of the end of the report period, free of charge, by calling SchwabFunds(R) at 1-800-435-4000. This complete schedule, filed on the fund's Form N-CSR, is also available on the SEC's website at http://www.sec.gov. In addition, the fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The fund's Form N-Q is available on the SEC's website and may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Call 1-800-SEC-0330 for information on the operation of the Public Reference Room. A copy of the fund's most recently filed quarterly schedule of portfolio holdings, included on the fund's Form N-CSR (with respect to the fund's second and fourth fiscal quarters) or Form N-Q (with respect to the fund's first and third fiscal quarters), is available by visiting Schwab's website at www.schwab.com/schwabfunds. We use the symbols below to designate certain characteristics of the securities. With the top ten holdings, the number in the circle is the security's rank among the top ten. For the characteristics of the securities included under "Other Securities" and for securities valued at fair value, please refer to the complete schedule of portfolio holdings. (1) Top Ten Holding o Non-income producing security @ The security or a portion of this security is on loan.
COST VALUE HOLDINGS BY CATEGORY ($x1,000) ($x1,000) -------------------------------------------------------------------------------- 99.3% FOREIGN COMMON STOCK 995,647 1,228,866 0.4% FOREIGN PREFERRED STOCK 3,801 5,016 0.2% SHORT-TERM INVESTMENT 1,954 1,954 0.0% RIGHTS -- 107 0.0% WARRANTS 200 -- -------------------------------------------------------------------------------- 99.9% TOTAL INVESTMENTS 1,001,602 1,235,943 8.4% COLLATERAL INVESTED FOR SECURITIES ON LOAN 103,711 103,711 (8.3)% OTHER ASSETS AND LIABILITIES, NET (102,147) -------------------------------------------------------------------------------- 100.0% TOTAL NET ASSETS 1,237,507
% OF NET VALUE SECURITY AND NUMBER OF SHARES ASSETS ($ x 1,000) FOREIGN COMMON STOCK 99.3% of net assets AUSTRALIA 4.1% -------------------------------------------------------------------------- BHP Billiton Ltd. 727,139 0.6 7,521 Commonwealth Bank of Australia 245,112 0.5 5,877 @ National Australia Bank Ltd. 296,328 0.5 6,257 Other Securities 2.5 31,088 ----- ----------- 4.1 50,743 BELGIUM 0.9% -------------------------------------------------------------------------- Other Securities 0.9 10,810 CANADA 6.2% -------------------------------------------------------------------------- @ Bank of Nova Scotia 198,704 0.5 6,451 Manulife Financial Corp. 156,550 0.6 7,300 @ Royal Bank of Canada 127,717 0.5 6,638 Other Securities 4.6 56,071 ----- ----------- 6.2 76,460 DENMARK 0.6% -------------------------------------------------------------------------- Other Securities 0.6 7,414 FRANCE 10.6% -------------------------------------------------------------------------- BNP Paribas 157,814 0.9 10,710 France Telecom SA 209,724 0.5 5,986 Sanofi-Aventis 173,827 1.0 12,670 @(5) Total SA 110,932 1.9 23,001 Other Securities 6.3 78,375 ----- ----------- 10.6 130,742 GERMANY 7.2% -------------------------------------------------------------------------- BASF AG 103,335 0.5 6,428 DaimlerChrysler AG 168,370 0.6 6,935 Deutsche Bank AG 99,862 0.6 7,570 o Deutsche Telekom AG 487,262 0.8 9,310 E.ON AG 118,150 0.8 9,586 SAP AG 39,024 0.5 6,628 Siemens AG 153,790 0.9 11,415 Other Securities 2.5 31,371 ----- ----------- 7.2 89,243 HONG KONG / CHINA 1.3% -------------------------------------------------------------------------- Other Securities 1.3 16,095
See financial notes. 65 SCHWAB INTERNATIONAL INDEX FUND SUMMARY OF PORTFOLIO HOLDINGS continued
% OF NET VALUE SECURITY AND NUMBER OF SHARES ASSETS ($ x 1,000) ITALY 3.5% -------------------------------------------------------------------------- ENI-Ente Nazionale Idrocarburi SPA 490,576 0.9 11,108 Other Securities 2.6 32,589 ----- ----------- 3.5 43,697 JAPAN 17.8% -------------------------------------------------------------------------- Canon, Inc. 162,000 0.6 7,979 Honda Motor Co. Ltd. 152,700 0.6 7,362 Mitsubishi Tokyo Financial Group, Inc. 787 0.5 6,670 NTT DoCoMo, Inc. 3,541 0.5 6,236 Takeda Pharmaceutical Co. Ltd. 160,200 0.6 7,724 (8) Toyota Motor Corp. 538,500 1.7 20,944 Other Securities 13.3 162,981 ----- ----------- 17.8 219,896 NETHERLANDS 5.6% -------------------------------------------------------------------------- ABN Amro Holdings NV 298,017 0.6 7,108 ING Groep NV 340,404 0.7 8,985 Koninklijke Philips Electronics NV 255,925 0.5 6,039 (7) Royal Dutch Petroleum Co. 398,487 1.7 21,589 Unilever NV 110,002 0.5 6,381 Other Securities 1.6 18,982 ----- ----------- 5.6 69,084 SINGAPORE 0.1% -------------------------------------------------------------------------- Other Securities 0.1 1,593 SPAIN 3.9% -------------------------------------------------------------------------- Banco Bilbao Vizcaya Argentaria SA 587,573 0.7 9,193 @ Banco Santander Central Hispano SA 834,597 0.8 9,290 Telefonica SA 900,159 1.2 14,817 Other Securities 1.2 15,297 ----- ----------- 3.9 48,597 SWEDEN 1.9% -------------------------------------------------------------------------- o Telefonaktiebolaget LM Ericsson, Class B 2,846,579 0.7 8,244 Other Securities 1.2 15,679 ----- ----------- 1.9 23,923 SWITZERLAND 7.8% -------------------------------------------------------------------------- o Credit Suisse Group 218,120 0.6 7,434 (9) Nestle SA, Registered 77,668 1.5 18,311 (6) Novartis AG, Registered 460,530 1.8 21,887 Roche Holdings- Genus 135,932 1.1 13,848 UBS AG, Registered 216,176 1.3 15,528 Other Securities 1.5 19,536 ----- ----------- 7.8 96,544 UNITED KINGDOM 27.8% -------------------------------------------------------------------------- AstraZeneca PLC 328,216 1.1 13,423 Barclays PLC 1,265,372 1.0 12,335 (1) BP PLC 4,216,549 3.3 40,755 Diageo PLC 596,684 0.6 7,965 (4) GlaxoSmithKline PLC 1,142,422 1.9 24,010 HBOS PLC 747,598 0.8 9,993 (2) HSBC Holdings PLC 2,103,680 2.7 33,901 Lloyds TSB Group PLC 1,065,026 0.7 8,411 (10) Royal Bank of Scotland Group PLC 547,776 1.3 16,109 o Shell Transport & Trading Co. PLC 1,852,117 1.2 14,550 Tesco PLC 1,445,671 0.6 7,602 (3) Vodafone Group PLC 12,980,507 2.7 33,179 Other Securities 9.9 121,792 ----- ----------- 27.8 344,025 FOREIGN PREFERRED STOCK 0.4% of net assets AUSTRALIA 0.3% -------------------------------------------------------------------------- Other Securities 0.3 4,113 GERMANY 0.1% -------------------------------------------------------------------------- Other Securities 0.1 903
66 See financial notes. SCHWAB INTERNATIONAL INDEX FUND
% OF NET VALUE SECURITY AND NUMBER OF SHARES ASSETS ($ x 1,000) WARRANTS 0.0% of net assets Other Securities 0.0 -- * RIGHTS 0.0% of net assets Other Securities 0.0 107
SECURITY RATE, MATURITY DATE FACE AMOUNT ($ x 1,000) SHORT-TERM INVESTMENT 0.2% of net assets HSBC Bank, USA Grand Cayman Time Deposit 1.29%, 11/01/04 1,954 0.2 1,954
END OF INVESTMENTS. * Amounts stated as "--" are less than $1.
VALUE SECURITY AND NUMBER OF SHARES ($ x 1,000) COLLATERAL INVESTED FOR SECURITIES ON LOAN 8.4% of net assets SHORT-TERM INVESTMENT 8.4% -------------------------------------------------------------------------- Securities Lending Investment Fund 103,710,647 103,711
END OF COLLATERAL INVESTED FOR SECURITIES ON LOAN. See financial notes. 67 SCHWAB INTERNATIONAL INDEX FUND Statement of ASSETS AND LIABILITIES As of October 31, 2004. All numbers x 1,000 except NAV. ASSETS -------------------------------------------------------------------------------- Investments, at market value (including $98,966 of securities on loan) $1,235,943 a Collateral invested for securities on loan 103,711 Foreign currency 30 b Receivables: Fund shares sold 290 Dividends 1,941 Income from securities on loan 39 Dividend tax reclaim 136 Prepaid expenses + 21 -------------- TOTAL ASSETS 1,342,111 LIABILITIES -------------------------------------------------------------------------------- Collateral invested for securities on loan 103,711 Payables: Fund shares redeemed 619 Interest expense 1 Withholding taxes 48 Investment adviser and administrator fees 36 Transfer agent and shareholder service fees 15 Trustees' fees 1 Accrued expenses + 173 -------------- TOTAL LIABILITIES 104,604 NET ASSETS -------------------------------------------------------------------------------- TOTAL ASSETS 1,342,111 TOTAL LIABILITIES - 104,604 -------------- NET ASSETS $1,237,507 NET ASSETS BY SOURCE Capital received from investors 1,294,974 Net investment income not yet distributed 21,478 Net realized capital losses (313,335) Net unrealized capital gains 234,390 NET ASSET VALUE (NAV) BY SHARE CLASS SHARES SHARE CLASS NET ASSETS / OUTSTANDING = NAV Investor Shares $550,263 37,126 $14.82 Select Shares $687,244 46,340 $14.83
Unless stated, all numbers x 1,000. a The fund paid $1,001,602 for these securities. Not counting short-term obligations and government securities, the fund's security transactions during the period were: Purchases $16,070 Sales/maturities $82,592 b The fund paid $27 for these currencies. FEDERAL TAX DATA ------------------------------------------------------------------- PORTFOLIO COST $1,006,740 NET UNREALIZED GAINS AND LOSSES: Gains $316,555 Losses + (87,352) ------------ $229,203 AS OF OCTOBER 31, 2004: NET UNDISTRIBUTED EARNINGS: Ordinary income $21,655 Long-term capital gains $-- UNUSED CAPITAL LOSSES: Expires 10/31 of: Loss amount 2005 $1,837 2006 11,905 2007 7 2008 3,669 2009 130,942 2010 112,722 2011 39,016 2012 + 8,278 ------------ $308,376 RECLASSIFICATIONS: Net investment income not yet distributed $6 Net realized capital losses $1,737 Reclassified as: Capital received from investors ($1,743) 68 See financial notes. SCHWAB INTERNATIONAL INDEX FUND Statement of OPERATIONS For November 1, 2003 through October 31, 2004. All numbers x 1,000. INVESTMENT INCOME -------------------------------------------------------------------------------- Dividends $29,068 a Interest 22 Securities on loan + 976 ------------ TOTAL INVESTMENT INCOME 30,066 NET REALIZED GAINS AND LOSSES -------------------------------------------------------------------------------- Net realized losses on investments (7,823) Net realized gains on foreign currency transactions + 6 ------------ NET REALIZED LOSSES (7,817) NET UNREALIZED GAINS AND LOSSES -------------------------------------------------------------------------------- Net unrealized gains on investments 187,878 Net unrealized gains on foreign currency transactions + 14 ------------ NET UNREALIZED GAINS 187,892 EXPENSES -------------------------------------------------------------------------------- Investment adviser and administrator fees 4,870 b Transfer agent and shareholder service fees: Investor Shares 1,346 c Select Shares 677 c Trustees' fees 13 d Custodian fees 514 Portfolio accounting fees 179 Professional fees 46 Registration fees 48 Shareholder reports 120 Interest expense 3 Other expenses + 29 ------------ Total expenses 7,845 Expense reduction - 741 e ------------ NET EXPENSES 7,104 INCREASE IN NET ASSETS FROM OPERATIONS -------------------------------------------------------------------------------- TOTAL INVESTMENT INCOME 30,066 NET EXPENSES - 7,104 ------------ NET INVESTMENT INCOME 22,962 NET REALIZED LOSSES (7,817) f NET UNREALIZED GAINS + 187,892 f ------------ INCREASE IN NET ASSETS FROM OPERATIONS $203,037
Unless stated, all numbers x 1,000. a Net of $3,668 foreign withholding tax. b Calculated as a percentage of average daily net assets: 0.43% of the first $500 million and 0.38% of the assets beyond that. These fees are paid to Charles Schwab Investment Management, Inc. (CSIM). c 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%, and 0.05% of the assets of each respective share class. These fees are paid to Charles Schwab & Co., Inc. (Schwab). d For the fund's independent trustees only. e Includes $470 from the investment adviser (CSIM) and $271 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 February 28, 2005, as follows: % OF AVERAGE SHARE CLASS DAILY NET ASSETS ------------------------------------------------ Investor Shares 0.69 Select Shares 0.50 This limit excludes interest, taxes and certain non-routine expenses. f These add up to a net gain on investments of $180,075. See financial notes. 69 SCHWAB INTERNATIONAL INDEX FUND Statements of CHANGES IN NET ASSETS For the current and prior report periods. All numbers x 1,000.
OPERATIONS -------------------------------------------------------------------------------- 11/1/03-10/31/04 11/1/02-10/31/03 Net Investment income $22,962 $21,074 Net realized losses (7,817) (37,839) Net unrealized gains + 187,892 241,954 ----------------------------------- INCREASE IN NET ASSETS FROM OPERATIONS 203,037 225,189 DISTRIBUTIONS PAID -------------------------------------------------------------------------------- DIVIDENDS FROM NET INVESTMENT INCOME Investor Shares 9,069 9,001 Select Shares + 12,465 11,662 ----------------------------------- TOTAL DIVIDENDS FROM NET INVESTMENT INCOME $21,534 $20,663 a,b
TRANSACTIONS IN FUND SHARES -------------------------------------------------------------------------------- 11/1/03-10/31/04 11/1/02-10/31/03 SHARES VALUE SHARES VALUE SHARES SOLD Investor Shares 5,725 $80,057 5,440 $59,471 Select Shares + 5,772 80,804 8,086 86,648 -------------------------------------------------- TOTAL SHARES SOLD 11,497 $160,861 13,526 $146,119 SHARES REINVESTED Investor Shares 629 $8,293 815 $8,329 Select Shares + 882 11,628 1,072 10,936 -------------------------------------------------- TOTAL SHARES REINVESTED 1,511 $19,921 1,887 $19,265 SHARES REDEEMED Investor Shares (7,955) ($111,302) (9,803) ($105,853) Select Shares + (9,688) (136,414) (10,942) (119,750) -------------------------------------------------- TOTAL SHARES REDEEMED (17,643) ($247,716) (20,745) ($225,603) c NET TRANSACTIONS IN FUND SHARES (4,635) ($66,934) (5,332) ($60,219)
SHARES OUTSTANDING AND NET ASSETS -------------------------------------------------------------------------------- 11/1/03-10/31/04 11/1/02-10/31/03 SHARES NET ASSETS SHARES NET ASSETS Beginning of period 88,101 $1,122,938 93,433 $978,631 Total increase or decrease + (4,635) 114,569 (5,332) 144,307 -------------------------------------------------- END OF PERIOD 83,466 $1,237,507 88,101 $1,122,938 d
Unless stated, all numbers x 1,000. a UNAUDITED The fund designates $20,935 of the dividend distribution for the fiscal year ended 10/31/04 as qualified dividends for the purpose of the maximum rate under Section 1(h)(ii) of the Internal Revenue Code. Shareholders will be notified in January 2005 via IRS Form 1099 of the amounts for use in preparing their 2004 income tax return. b The tax-basis components of distributions paid were: CURRENT PRIOR PERIOD PERIOD Ordinary income $21,534 $20,663 Long-term capital gains $-- $-- c The fund charges 1.50% of early withdrawal fees on shares redeemed 180 days or less after the purchase. CURRENT PERIOD: Investor Shares $50 Select Shares + 22 -------- TOTAL $72 PRIOR PERIOD: Investor Shares $62 Select Shares + 46 -------- TOTAL $108 Dollar amounts are net of the redemption proceeds. d Includes distributable net investment income in the amount of $21,478 and $20,044 at the end of the current period and prior period, respectively. Percent of fund shares owned by other SchwabFunds(R) as of the end of the current period: SCHWAB MARKETTRACK PORTFOLIOS All Equity Portfolio 10.9% Growth Portfolio 10.0% Balanced Portfolio 6.7% Conservative Portfolio 2.4% SCHWAB ANNUITY PORTFOLIOS Growth Portfolio II 0.5% 70 See financial notes. SCHWAB EQUITY INDEX FUNDS FINANCIAL NOTES BUSINESS STRUCTURE OF THE FUNDS EACH OF THE FUNDS DISCUSSED IN THIS REPORT IS A SERIES OF A NO-LOAD, OPEN-END MANAGEMENT INVESTMENT COMPANY. Each of these companies 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 by trust. THE FUNDS OFFER MULTIPLE SHARE CLASSES. For any given fund, shares of each class represent interests in the same portfolio, but each class has different expenses and investment minimums. In addition, one share class, e.Shares, is available only to clients of Schwab Institutional(R), Charles Schwab Trust Company and certain tax-advantaged retirement plans, and can only be traded electronically.
INVESTOR SELECT FUND SHARES SHARES E.SHARES -------------------------------------------------------------------------------- S&P 500 - - - -------------------------------------------------------------------------------- SCHWAB 1000 - - -------------------------------------------------------------------------------- SMALL-CAP INDEX - - -------------------------------------------------------------------------------- TOTAL STOCK MARKET INDEX - - -------------------------------------------------------------------------------- INTERNATIONAL INDEX - - --------------------------------------------------------------------------------
For these funds, shares are bought and sold at net asset value (NAV), which is the price for all outstanding shares. Each share has a par value of 1/1,000 of a cent, and the trusts may issue as many shares as necessary. THE TRUSTS AND THEIR FUNDS This list shows the trust containing each fund in this report, along with all other funds included in these trusts. The funds discussed in this report are highlighted. SCHWAB INVESTMENTS organized October 26, 1990 SCHWAB 1000 FUND Schwab Short-Term Bond Market Fund Schwab Total Bond Market Fund Schwab YieldPlus Fund 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 GNMA Fund SCHWAB CAPITAL TRUST organized May 7, 1993 SCHWAB S&P 500 FUND SCHWAB SMALL-CAP INDEX FUND SCHWAB TOTAL STOCK MARKET INDEX FUND SCHWAB INTERNATIONAL INDEX FUND Schwab MarketTrack All Equity Portfolio Schwab MarketTrack Growth Portfolio Schwab MarketTrack Balanced Portfolio Schwab MarketTrack Conservative Portfolio Laudus U.S. MarketMasters Fund Laudus Balanced MarketMasters Fund Laudus Small-Cap MarketMasters Fund Laudus International MarketMasters Fund Schwab Core Equity Fund Schwab Dividend Equity Fund Schwab Small-Cap Equity Fund Schwab Hedged Equity Fund Communications Focus Fund Financial Services Focus Fund Health Care Focus Fund Technology Focus Fund Schwab Institutional Select S&P 500 Fund Schwab Institutional Select Large-Cap Value Index Fund Schwab Institutional Select Small-Cap Value Index Fund 71 SCHWAB EQUITY INDEX FUNDS FUND OPERATIONS Most of the funds' investments are described in the fund-by-fund sections earlier in this report. However, there are certain other fund operations and policies that may affect a fund's financials, as 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. Futures contracts involve certain risks because they can be very 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 a 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. The potential for losses associated with futures contracts may exceed amounts recorded in the Statement of Assets and Liabilities. 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. A fund records the change in market value of futures, and also the change in the amount of margin deposit required ("variation margin"). THE SCHWAB INTERNATIONAL INDEX 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 with futures, forwards involve certain risks that are not fully reflected in the fund's financials. If counter-parties 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. The funds' repurchase agreements will be fully collateralized by U.S. government securities. All collateral is held by the funds' custodian (or, with tri-party agreements, the agent's bank) and is monitored daily to ensure that its market value is at least equal to the repurchase price under the agreement. 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. All of the cash collateral received is reinvested in high quality, short-term investments. 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 PAY FEES TO AFFILIATES OF THE INVESTMENT ADVISER 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. 72 SCHWAB EQUITY INDEX FUNDS Although these agreements specify certain fees for these services, CSIM and Schwab have made additional agreements with the funds that may limit the total expenses charged. The rates and limitations for these fees vary from fund to fund, and are described in each fund's Statement of Operations. THE FUNDS MAY ENGAGE IN CERTAIN TRANSACTIONS INVOLVING RELATED PARTIES. For instance, a fund may own shares of The Charles Schwab Corporation if that company is included in its index. The funds also may let other SchwabFunds(R) buy and sell fund shares, particularly Schwab MarketTrack Portfolios(R), which seek to provide investors with allocated portfolios of Schwab index funds. The funds may make direct transactions with certain other SchwabFunds 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. Pursuant to an exemptive order issued by the SEC, the funds may enter into interfund borrowing and lending transactions within the SchwabFunds. All loans are for temporary or emergency purposes only. The interest rate charged on the loan is the average of the overnight repurchase agreement rate and the short-term bank loan rate. The interfund lending facility is subject to the oversight and periodic review of the Board of Trustees of the SchwabFunds. TRUSTEES MAY INCLUDE PEOPLE WHO ARE OFFICERS AND/ OR DIRECTORS OF THE INVESTMENT ADVISER 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 non-interested persons (independent trustees), as noted in each fund's Statement of Operations. THE FUNDS MAY BORROW MONEY FROM BANKS AND CUSTODIANS. 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 SchwabFunds have custodian overdraft facilities and line of credit arrangements of $150 million and $100 million with PNC Bank, N.A. and Bank of America, N.A., respectively. The funds pay interest on the amounts they borrow at rates that are negotiated periodically.
WEIGHTED AMOUNT AVERAGE OUTSTANDING AVERAGE INTEREST AT 10/31/04 BORROWING* RATE* FUND ($ x 1,000) ($ x 1,000) (%) -------------------------------------------------------------------------------- SCHWAB S&P 500 FUND -- 4,982 1.46 -------------------------------------------------------------------------------- SCHWAB 1000 -- 1,749 1.93 -------------------------------------------------------------------------------- SCHWAB SMALL-CAP INDEX FUND -- 2,007 1.78 -------------------------------------------------------------------------------- SCHWAB TOTAL STOCK MARKET INDEX FUND -- 5,425 1.40 -------------------------------------------------------------------------------- SCHWAB INTERNATIONAL INDEX FUND -- 1,147 2.00 --------------------------------------------------------------------------------
* Based on the number of days for which the borrowing is outstanding. 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 net realized 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. The net investment income and net realized capital gains and losses may differ for financial statement and tax purposes primarily due to differing treatments of wash sale losses and foreign currency transactions. UNDER THE FUNDS' ORGANIZATIONAL DOCUMENTS, ITS OFFICERS AND TRUSTEES ARE INDEMNIFIED AGAINST CERTAIN LIABILITY ARISING OUT OF THE PERFORMANCE OF THEIR DUTIES TO THE FUNDS. In addition, in the normal course of business the funds enter into contracts with their vendors and others that provide general indemnifications. The funds' maximum 73 SCHWAB EQUITY INDEX FUNDS exposure under these arrangements is unknown as this would involve future claims that may be made against the funds. However, based on experience, the funds expect the risk of loss to be remote. 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: - SECURITIES TRADED ON AN EXCHANGE OR OVER-THE-COUNTER: valued at the closing value for the day, or, on days when no closing value has been reported, halfway between the most recent bid and asked quotes. Securities that are primarily traded on foreign exchanges are valued at the closing values of such securities on their respective exchanges with these values then translated into U.S. dollars at the current exchange rate. - SECURITIES FOR WHICH NO MARKET QUOTATIONS ARE READILY AVAILABLE or when a significant event has occurred between the time of the security's last close and the time that a fund calculates net asset value: 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 and the Pricing Committee. Some of the more common reasons that may necessitate that a security be valued at fair value include: the security's trading has been halted or suspended; the security has been de-listed from a national exchange; the security's primary trading market is temporarily closed at a time when under normal conditions it would be open; or the security's primary pricing source is not able or willing to provide a price. Also, the foreign securities held by International Index Fund are fair valued if a movement in the U.S. market exceeds a specific threshold that has been established using the guideline adopted by the fund's Board of Trustees. The fund uses a third party vendor to provide the fair valuation based on certain factors and methodologies including tracking valuation correlations between the U.S. market and each non-U.S. security. - 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 DISCOUNT 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 74 SCHWAB EQUITY INDEX FUNDS based on market exchange rates in effect on that date. Transactions involving foreign currencies, including purchases, sales, income receipts and expense payments, are calculated 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 average daily net assets. FOR FUNDS OFFERING MULTIPLE SHARE CLASSES, all of the realized and unrealized gains or losses and net investment income, other than class specific expenses, are allocated daily to each class in proportion to its average daily 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 ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES OF AMERICA. 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. 75 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF: Schwab S&P 500 Fund Schwab 1000 Fund(R) Schwab Small-Cap Index Fund(R) Schwab Total Stock Market Index Fund(R) Schwab International Index Fund(R) In our opinion, the accompanying statements of assets and liabilities, including the summary of 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 Schwab 1000 Fund (one of the portfolios constituting Schwab Investments), Schwab S&P 500 Fund, Schwab Small-Cap Index Fund, Schwab Total Stock Market Index Fund and Schwab International Index Fund (four of the portfolios constituting Schwab Capital Trust) (hereafter collectively referred to as the "Funds") at October 31, 2004, the results of each of their operations for the year then ended, and the changes in each of their net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, 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 audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at October 31, 2004 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. PRICEWATERHOUSECOOPERS LLP San Francisco, CA December 16, 2004 76 FUND TRUSTEES A fund's Board of Trustees is responsible for protecting the interests of that fund's shareholders. The tables below give information about the people who serve as trustees and officers for the SchwabFunds(R), including the funds covered in this report. Trustees remain in office until they resign, retire or are removed by shareholder vote. 1 Under the Investment Company Act of 1940, any officer, director, or employee of Schwab or CSIM is considered an "interested person," meaning that he or she is considered to have a business interest in Schwab or CSIM. These individuals are listed as "interested trustees." The "independent trustees" are individuals who, under the 1940 Act, are not considered to have a business interest in Schwab or CSIM. Each of the SchwabFunds (of which there were 51 as of 10/31/04) belongs to one of these trusts: The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust or Schwab Annuity Portfolios. Currently all these trusts have the same trustees and officers. The address for all trustees and officers is 101 Montgomery Street, San Francisco, CA 94104. You can find more information about the trustees and officers in the Statement of Additional Information, which is available free by calling 1-800-435-4000. INDIVIDUALS WHO ARE INTERESTED TRUSTEES AND OFFICERS OF THE TRUST
TRUST POSITION(S); NAME AND BIRTHDATE TRUSTEE SINCE MAIN OCCUPATIONS AND OTHER DIRECTORSHIPS AND AFFILIATIONS ------------------------------------------------------------------------------------------------------------------------------------ CHARLES R. SCHWAB 2 Chair, Trustee: Chair, CEO, Director, The Charles Schwab Corp., Charles Schwab & 7/29/37 Family of Funds, 1989; Co., Inc.; Chair, Director, Charles Schwab Investment Management, Investments, 1991; Inc.; Chair, Charles Schwab Holdings (UK); CEO, Director, Charles Capital Trust, 1993; Schwab Holdings, Inc.; Chair, CEO Schwab (SIS) Holdings, Inc. I, Annuity Portfolios, 1994. Schwab International Holdings, Inc.; Director, Charles Schwab Bank, N.A., U.S. Trust Corp., United States Trust Co. of New York, Siebel Systems (software), Xsign, Inc. (electronic payment systems), TrustMark, Inc., All Kinds of Minds (education); Trustee, Stanford University. Until 5/04: Director, The Gap, Inc. (clothing retailer). Until 5/03: Co-CEO, The Charles Schwab Corp. Until 3/02: Director, Audiobase, Inc. (Internet audio solutions). Until 5/02: Director, Vodaphone AirTouch PLC (telecommunications). Until 7/01: Director, The Charles Schwab Trust Co.
1 The SchwabFunds retirement policy requires that independent trustees elected after January 1, 2000 retire at age 72 or after twenty years of service as a trustee, whichever comes first. Independent trustees elected prior to January 1, 2000 will retire on the following schedule: Messrs. Holmes and Dorward will retire on December 31, 2007, and Messrs. Stephens and Wilsey will retire on December 31, 2010. 2 In addition to his position with the investment adviser and the distributor, Mr. Schwab also owns stock of The Charles Schwab Corporation. 77 INDIVIDUALS WHO ARE OFFICERS OF THE TRUST BUT NOT TRUSTEES
NAME AND BIRTHDATE TRUST OFFICERS HELD MAIN OCCUPATIONS AND OTHER DIRECTORSHIPS AND AFFILIATIONS ------------------------------------------------------------------------------------------------------------------------------------ EVELYN DILSAVER President, CEO EVP, President, Charles Schwab Investment Management, Inc; 5/4/55 (all trusts). Until 7/04: SVP for Development and Distribution, Asset Management Products and Services Enterprise; Until 6/03: EVP, CFO, Administrative Officer, U.S. Trust Corp. ------------------------------------------------------------------------------------------------------------------------------------ STEPHEN B. WARD SVP, Chief Investment SVP, Chief Investment Officer, Director, Charles Schwab Investment 4/5/55 Officer (all trusts). Management, Inc.; Chief Investment Officer, The Charles Schwab Trust Co. ------------------------------------------------------------------------------------------------------------------------------------ KIMON DAIFOTIS SVP, Chief Investment Since 9/04: Chief Investment Officer, Fixed Income, Charles Schwab 7/10/59 Officer (all trusts). Investment Management, Inc.; Since 6/04: SVP, Charles Schwab Investment Management, Inc.; Until 6/04: VP, Charles Schwab Investment Management, Inc. ------------------------------------------------------------------------------------------------------------------------------------ JEFF MORTIMER SVP, Chief Investment Since 5/04: SVP, Chief Investment Officer, Equities, Charles Schwab 9/29/63 Officer (all trusts). Investment Management, Inc.; Since 6/04: VP, Chief Investment Officer, Laudus Trust; Until 5/04: VP, Charles Schwab Investment Management, Inc. ------------------------------------------------------------------------------------------------------------------------------------ RANDALL FILLMORE Chief Compliance Since 9/04: SVP, Institutional Compliance and Chief Compliance 11/11/60 Officer (all trusts). Officer, Charles Schwab Investment Management, Inc.; Until 9/04: VP, Charles Schwab & Co., Charles Schwab Investment Management, Inc.; Until 2002: VP of Internal Audit, Charles Schwab & Co.; Prior to 2000: PricewaterhouseCoopers. ------------------------------------------------------------------------------------------------------------------------------------ KOJI E. FELTON Secretary (all trusts). SVP, Chief Counsel, Assistant Corporate Secretary, Charles Schwab 3/13/61 Investment Management, Inc. Until 6/98: Branch Chief in Enforcement, U.S. Securities and Exchange Commission, San Francisco. ------------------------------------------------------------------------------------------------------------------------------------ GEORGE PEREIRA 1 Treasurer, Principal Since 11/04: SVP, CFO, Charles Schwab Investment Management, 6/9/64 Financial Officer Inc.; Until 11/04: SVP, Financial Reporting, Charles Schwab & Co., Inc.; (all trusts). Until 12/99: Chief Financial Officer, Commerzbank Capital Markets; Until 9/99: Managing Director at the New York Stock Exchange.
1 Elected to his position on the SchwabFunds Board on November 16, 2004. 78 INDIVIDUALS WHO ARE INDEPENDENT TRUSTEES
NAME AND BIRTHDATE TRUSTEE SINCE MAIN OCCUPATIONS AND OTHER DIRECTORSHIPS AND AFFILIATIONS ------------------------------------------------------------------------------------------------------------------------------------ MARIANN BYERWALTER 2000 (all trusts). Chair, JDN Corp. Advisory LLC; Trustee, Stanford University, America 8/13/60 First Cos., (venture capital/fund management), Redwood Trust, Inc. (mortgage finance), Stanford Hospitals and Clinics, SRI International (research), PMI Group, Inc. (mortgage insurance), Lucile Packard Children's Hospital, Laudus Trust, Laudus Variable Insurance Trust. 2001: Special Advisor to the President, Stanford University. Until 2002: Director, LookSmart, Ltd. (Internet infrastructure). Until 2001: VP, Business Affairs, CFO, Stanford University. ------------------------------------------------------------------------------------------------------------------------------------ DONALD F. DORWARD Family of Funds, 1989; CEO, Dorward & Associates (corporate management, marketing and 9/23/31 Investments, 1991; communications consulting). Until 1999: EVP, Managing Director, Capital Trust, 1993; Grey Advertising. Annuity Portfolios,1994. ------------------------------------------------------------------------------------------------------------------------------------ WILLIAM A. HASLER 2000 (all trusts). Co-CEO, Aphton Corp. (bio-pharmaceuticals). Trustee, Solectron Corp. 11/22/41 (manufacturing), Airlease Ltd. (aircraft leasing), Mission West Properties (commercial real estate), Stratex Corp. (network equipment); Public Governor, Laudus Trust, Laudus Variable Insurance Trust; Member, executive committee, Pacific Stock & Options Exchange. Until 2003: Trustee, Tenera, Inc. (services and software). Until 1998: Dean, Haas School of Business, University of California, Berkeley. ------------------------------------------------------------------------------------------------------------------------------------ ROBERT G. HOLMES Family of Funds, 1989; Chair, CEO, Director, Semloh Financial, Inc. (international financial 5/15/31 Investments, 1991; services and investment advice). Capital Trust, 1993; Annuity Portfolios,1994. ------------------------------------------------------------------------------------------------------------------------------------ GERALD B. SMITH 2000 (all trusts). Chair, CEO, Founder, Smith Graham & Co. (investment advisors); 9/28/50 Trustee, Rorento N.V. (investments -- Netherlands), Cooper Industries (electrical products, tools and hardware); Member, audit committee, Northern Border Partners, L.P. (energy). Until 2002: Director, Pennzoil- Quaker State Co. (oil and gas). ------------------------------------------------------------------------------------------------------------------------------------ DONALD R. STEPHENS Family of Funds, 1989; Managing Partner, D.R. Stephens & Co. (investments). Until 1996: 6/28/38 Investments, 1991; Chair, CEO, North American Trust (real estate investment trust). Capital Trust, 1993; Annuity Portfolios, 1994. ------------------------------------------------------------------------------------------------------------------------------------ MICHAEL W. WILSEY Family of Funds, 1989; Chair, CEO, Wilsey Bennett, Inc. (transportation, real estate 8/18/43 Investments, 1991; and investments). Capital Trust, 1993; Annuity Portfolios, 1994.
79 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(R)). 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." An individual bond is subject to the credit risk of the issuer. Changes in interest rates can affect a bond's market value prior to call or maturity. There is no guarantee that a bond's yield to call or maturity will provide a positive return over the rate of inflation. BOND FUND A bond fund is subject to the same credit, interest rate, and inflation risks as bonds. In addition, a bond fund incurs ongoing fees and expenses. A bond fund's net asset value will fluctuate with the price of the underlying bonds and the portfolio turnover activity; return of principal is not guaranteed. 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 percentage that an investor would have earned or lost on an investment in the fund assuming dividends and distributions were reinvested. 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. 80 SchwabFunds(R) offers you a complete family of mutual funds, each one based on a clearly defined investment approach and using disciplined management strategies. The list at right shows all currently available SchwabFunds. Whether you're an experienced investor or just starting out, SchwabFunds can help you achieve your financial goals. An investor should consider a fund's investment objectives, risks, and charges and expenses carefully before investing or sending money. This and other important information can be found in the fund's prospectus. Please call 1-800-435-4000 for a prospectus and brochure for any SchwabFund. Please read the prospectus carefully before you invest. This report must be preceded or accompanied by a current prospectus. METHODS FOR PLACING ORDERS The following information outlines how Schwab investors can place orders. If you are investing through a third-party investment provider, methods for placing orders may be different. INTERNET 1 www.schwab.com SCHWAB BY PHONE(TM) 2 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) Use our automated touch-tone phone service at 1-800-272-4922. MAIL Write to SchwabFunds at: P.O. Box 3812 Englewood, CO 80155-3812 When selling or exchanging shares, be sure to include the signatures of at least one of the persons whose name is on the account. PROXY VOTING POLICIES, PROCEDURES AND RESULTS A description of the proxy voting policies and procedures used to determine how to vote proxies on behalf of the funds is available without charge, upon request, by visiting Schwab's web site at www.schwab.com/schwabfunds, the SEC's web site at http://www.sec.gov, or by contacting SchwabFunds at 1-800-435-4000. Information regarding how a fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is available, without charge, by visiting Schwab's web site at www.schwab.com/schwabfunds or the SEC's website at http://www.sec.gov. 1 Shares of Sweep Investments(TM) may not be purchased directly over the Internet. 2 Orders placed in person or through a telephone representative may be subject to a service fee payable to Schwab. THE SCHWABFUNDS FAMILY(R) STOCK FUNDS Schwab S&P 500 Fund Schwab 1000 Fund(R) Schwab Small-Cap Index Fund(R) Schwab Total Stock Market Index Fund(R) Schwab International Index Fund(R) Schwab Core Equity Fund(TM) Schwab Dividend Equity Fund(TM) Schwab Small-Cap Equity Fund(TM) Schwab Hedged Equity Fund(TM) Schwab Focus Funds Communications Focus Fund Financial Services Focus Fund Health Care Focus Fund Technology Focus Fund Schwab(R) Institutional Select(R) Funds Schwab(R) Institutional Select(R) S&P 500 Fund Schwab(R) Institutional Select(R) Large-Cap Value Index Fund Schwab(R) Institutional Select(R) Small-Cap Value Index Fund ASSET ALLOCATION FUNDS Schwab MarketTrack Portfolios(R) Schwab MarketTrack All Equity Portfolio(TM) Schwab MarketTrack Growth Portfolio(TM) Schwab MarketTrack Balanced Portfolio(TM) Schwab MarketTrack Conservative Portfolio(TM) BOND FUNDS Schwab YieldPlus Fund(R) Schwab Short-Term Bond Market Fund(TM) Schwab Total Bond Market Fund(TM) Schwab GNMA Fund(TM) Schwab Short/Intermediate Tax-Free Bond Fund(TM) Schwab Long-Term Tax-Free Bond Fund(TM) Schwab California Short/Intermediate Tax-Free Bond Fund(TM) Schwab California Long-Term Tax-Free Bond Fund(TM) SCHWAB MONEY FUNDS Schwab offers an array of money market funds that seek high current income consistent with safety and liquidity. 3 Choose from taxable or tax-advantaged alternatives. Many can be linked to your Schwab account to "sweep" cash balances automatically, subject to availability, when you're between investments. Or, for your larger cash reserves, choose one of our Value Advantage Investments(R). 3 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. [CHARLES SCHWAB LOGO] INVESTMENT ADVISER Charles Schwab Investment Management, Inc. 101 Montgomery Street, San Francisco, CA 94104 DISTRIBUTOR Charles Schwab & Co., Inc. (Schwab) FUNDS SchwabFunds(R) P.O. Box 3812, Englewood, CO 80155-3812 This report is not authorized for distribution to prospective investors unless preceded or accompanied by a current prospectus. (C) 2004 Charles Schwab & Co., Inc. All rights reserved. Member SIPC Printed on recycled paper. REG13810-07 ANNUAL REPORT October 31, 2004 [LAUDUS FUNDS LOGO] COMMAND PERFORMANCE(TM) LAUDUS MARKETMASTERS FUNDS(TM) (effective November 1, 2004 the Funds changed their name from the Schwab MarketMasters Funds(R) to the Laudus MarketMasters Funds(TM)) Laudus U.S. MarketMasters Fund(TM) Laudus Balanced MarketMasters Fund(TM) Laudus Small-Cap MarketMasters Fund(TM) Laudus International MarketMasters Fund(TM) Four distinct Funds, each combining the expertise of leading investment managers with Schwab's overall supervision. IN THIS REPORT Management's Discussion ............................................... 1 The president of Laudus Funds and the Funds' managers take a look at the factors that shaped Fund performance during the report period. Performance at a Glance .............. 4 Laudus U.S. MarketMasters Fund(TM) Investor Shares: SWOGX Select Shares(R): SWMGX The Fund seeks capital growth. Performance and Fund Facts ........... 6 Financial Statements ................. 20 Laudus Balanced MarketMasters Fund(TM) Investor Shares: SWOBX Select Shares: SWMBX The Fund seeks capital growth and income. Performance and Fund Facts ........... 9 Financial Statements ................. 29 Laudus Small-Cap MarketMasters Fund(TM) Investor Shares: SWOSX Select Shares: SWMSX The Fund seeks long-term capital appreciation. Performance and Fund Facts ........... 12 Financial Statements ................. 47 Laudus International MarketMasters Fund(TM) Investor Shares: SWOIX Select Shares: SWMIX The Fund seeks long-term capital appreciation. Performance and Fund Facts ........... 15 Financial Statements ................. 56 Fund Expenses ........................................................ 18 Financial Notes ...................................................... 70 Fund Trustees ........................................................ 77 Glossary ............................................................. 80 -------------------------------------------------------------------------------- INTRODUCING SELECT SHARES FOR THE LAUDUS MARKETMASTERS FUNDS(TM) On April 1, 2004 SchwabFunds announced the availability of a new lower operating expense share class of the Laudus International MarketMasters Fund. The availability of this new share class came as good news to investors seeking exposure to international equities as well as those who already own the Fund who were now eligible to lower their net operating expenses. We are pleased to announce that effective June 1, 2004, Select Shares became available for the U.S., Balanced and Small-Cap MarketMasters Funds. (See the table at right for specifics.) The new Select Shares, have lower net operating expense and higher investment minimums compared with Investor Shares. (See the prospectus for additional information). Select Shares are also available to current shareholders who have positions of $25,000 or greater in Investor Shares of one of the Laudus MarketMasters Funds. We encourage shareholders of Investor Shares to review their portfolio along with the Fund's prospectus to see if they are eligible to exchange into Select Shares. If an investor is eligible, they should contact Schwab to do an interclass exchange.
INVESTMENT SELECT SHARES OER MINIMUM -------------------------------------------------------------------------------- U.S. MarketMasters Fund 1.07% $25,000 Balanced MarketMasters Fund 0.95% $25,000 Small-Cap MarketMasters Fund 1.37% $25,000 International MarketMasters Fund 1.47% $25,000
To learn more, please see the Funds' prospectus at WWW.LAUDUSFUNDS.COM. Or, call 1.800.435.4000 to order a prospectus or to speak with a representative. Fund investment adviser: Charles Schwab Investment Management, Inc. (CSIM) Distributor and transfer agent: Charles Schwab & Co., Inc. (Schwab). MANAGEMENT'S DISCUSSION for the year ended October 31, 2004 [PHOTO OF EVELYN DILSAVER] EVELYN DILSAVER is President and CEO of Charles Schwab Investment Management, Inc. (CSIM). She joined the firm in 1992 and has held a variety of executive positions at Schwab. [PHOTO OF JANA THOMPSON] JANA THOMPSON is President of Laudus Funds. Prior to joining Charles Schwab & Co., Inc. in 2000, she enjoyed a 16-year career in asset management and client services. Dear Shareholder: We are pleased to announce that, effective November 1, 2004 the Schwab MarketMasters Funds(R) were renamed the Laudus MarketMasters Funds(TM). SchwabFunds and Laudus Funds are two of Schwab's unique fund families that benefit from the management oversight of CSIM. While SchwabFunds(R) focuses on the needs of individual investors, Laudus Funds focuses on the institutional-investing markets. This change will have little, if any, effect on current shareholders, as neither the portfolio management team, nor the objectives of each of the four Funds has changed. Jeff Mortimer and Kim Formon will continue to manage the Funds in conjunction with some of the most talented money managers in the industry. The only change you should expect to see is in the name Laudus MarketMastersFunds. We made this change because we believe it will help our shareholders. The MarketMasters Funds have experienced impressive asset growth over the past few years. Making the Funds available with the Laudus name presents an opportunity to open up the Funds to a greater pool of investors, including institutional investment managers. As the MarketMasters Funds grow, the costs of operating the Funds are reduced. While this won't result in an immediate reduction in the net operating expenses, the fees you pay are likely to be reduced over time, as the Funds reach certain asset milestones. We are very excited about this change, and we hope you share our enthusiasm. Once again, we thank you for investing with us, as we continue to build both SchwabFunds and Laudus Funds' mutual fund families. Sincerely, /s/ Evelyn Dilsaver /s/ Jana Thompson Laudus MarketMasters Funds 1 [PHOTO OF JEFFREY MORTIMER & KIMBERLY FORMON] JEFFREY MORTIMER, CFA, senior vice president and chief investment officer, equities, of the investment adviser, has overall responsibility for the management of the Funds. Prior to joining the firm in 1997, he worked for nine years in asset allocation and manager selection. KIMBERLY FORMON, CFA, a director and portfolio manager of the investment adviser, co-manages the Schwab MarketMasters Funds. Prior to joining the firm in 1999, she worked for 10 years in equity and fixed-income analysis. THE INVESTMENT ENVIRONMENT AND THE FUNDS THE ENCOURAGING ECONOMIC NEWS THAT WAS REPORTED TOWARD THE END OF 2003 CONTINUED TO IMPROVE INTO 2004. Businesses added to their inventories, factory orders rose and production gained some strength. Retail sales continued to rise and higher commodity prices were holding. Mortgage refinancing activity, while still significant, waned as mortgage rates inched slightly upward. And finally, the last piece of the economic puzzle--job growth--began to pick up some steam. In fact, aside from a "soft patch" in early summer, the economy was clicking on all cylinders. With the economic recovery more broad-based, investors, who only a year ago feared deflation, started to worry about inflation. Their inflationary concerns were based on surging oil prices, which had hit an all-time high amid fears of supply interruptions. And while commodity prices moderated somewhat later in the report period, previous increases started to show up in broad measures of inflation. Labor costs also were beginning to rise. Nonetheless, the Federal Reserve (the Fed) continued to hold the Fed funds rate near a 45-year low until June 2004. While third-quarter GDP moved in the right direction, up to an annualized 3.7% from 3.3% in second quarter, higher commodity prices had effectively eroded many consumers' purchasing power. Geopolitical ASSET CLASS PERFORMANCE COMPARISON % returns during the report period This graph compares the performance of various asset classes during the report period. Final performance figures for the period are in the key below. 9.42% S&P 500(R) INDEX: measures U.S. large-cap stocks 11.73% RUSSELL 2000(R) INDEX: measures U.S. small-cap stocks 18.84% MSCI-EAFE(R) INDEX: measures (in U.S. dollars) large-cap stocks in Europe, Australasia and the Far East 5.53% LEHMAN BROTHERS U.S. AGGREGATE BOND INDEX: measures the U.S. bond market
LEHMAN BROTHERS S&P 500(R) RUSSELL 2000(R) MSCI-EAFE(R) U.S. AGGREGATE INDEX INDEX INDEX BOND INDEX 31-Oct-03 0.00% 0.00% 0.00% 0.00% 07-Nov-03 0.29% 2.82% 0.78% -0.63% 14-Nov-03 0.08% 0.94% 1.80% 0.61% 21-Nov-03 -1.33% -0.38% 0.15% 0.86% 28-Nov-03 0.88% 3.55% 2.22% 0.24% 05-Dec-03 1.24% 2.14% 4.70% 0.95% 12-Dec-03 2.48% 3.80% 5.04% 0.97% 19-Dec-03 3.90% 3.68% 6.46% 1.50% 26-Dec-03 4.59% 5.21% 7.84% 1.53% 02-Jan-04 5.85% 6.40% 10.98% 0.81% 09-Jan-04 7.16% 9.14% 13.86% 2.16% 16-Jan-04 8.89% 12.04% 12.31% 2.46% 23-Jan-04 9.07% 13.13% 15.10% 2.33% 30-Jan-04 8.12% 10.24% 11.77% 2.07% 06-Feb-04 9.26% 10.89% 13.33% 2.35% 13-Feb-04 9.63% 11.12% 15.41% 2.80% 20-Feb-04 9.49% 10.13% 15.13% 2.64% 27-Feb-04 9.62% 11.23% 14.35% 3.18% 05-Mar-04 10.80% 13.90% 16.17% 3.85% 12-Mar-04 7.38% 10.77% 11.07% 4.12% 19-Mar-04 6.36% 8.49% 13.10% 4.07% 26-Mar-04 6.20% 8.91% 12.52% 3.88% 02-Apr-04 9.47% 14.78% 16.39% 2.72% 09-Apr-04 9.27% 13.73% 16.44% 2.62% 16-Apr-04 8.83% 10.99% 15.04% 2.03% 23-Apr-04 9.42% 12.39% 14.61% 1.51% 30-Apr-04 6.27% 6.54% 12.39% 1.25% 07-May-04 5.47% 4.43% 10.88% -0.19% 14-May-04 5.27% 3.54% 6.99% 0.03% 21-May-04 5.09% 3.93% 9.59% 0.21% 28-May-04 7.73% 8.24% 12.63% 0.84% 04-Jun-04 7.95% 8.15% 12.87% 0.36% 11-Jun-04 9.32% 8.43% 13.42% 0.32% 18-Jun-04 9.21% 8.73% 14.66% 0.78% 25-Jun-04 9.18% 12.01% 15.45% 1.18% 02-Jul-04 8.35% 11.13% 15.27% 2.16% 09-Jul-04 7.18% 7.52% 15.10% 2.22% 16-Jul-04 6.10% 5.96% 14.50% 2.69% 23-Jul-04 4.64% 2.87% 10.84% 2.41% 30-Jul-04 6.19% 5.20% 11.50% 2.42% 06-Aug-04 2.58% -0.81% 10.63% 3.63% 13-Aug-04 2.74% -1.21% 9.57% 3.72% 20-Aug-04 6.01% 4.63% 11.08% 3.79% 27-Aug-04 6.95% 5.36% 12.29% 3.89% 03-Sep-04 7.56% 6.26% 12.42% 3.70% 10-Sep-04 8.58% 8.88% 14.40% 4.31% 17-Sep-04 9.07% 9.54% 14.32% 4.59% 24-Sep-04 7.31% 8.18% 13.88% 4.93% 01-Oct-04 9.41% 11.89% 16.43% 4.38% 08-Oct-04 8.56% 10.13% 17.91% 4.79% 15-Oct-04 7.23% 8.95% 16.46% 5.20% 22-Oct-04 6.03% 8.64% 17.65% 5.54% 29-Oct-04 9.42% 11.73% 18.84% 5.53% 31-Oct-04 9.42% 11.73% 18.84% 5.53%
These figures assume dividends and distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged and you cannot invest in them directly. Remember that past performance is not an indication of future results. Data source: Charles Schwab & Co., Inc. 2 Laudus MarketMasters Funds MANAGEMENT'S DISCUSSION continued The strength of the market early in the period, combined with strong second- and third-quarter valuations and earnings resulted in a positive showing for equities. events also had wreaked havoc on oil markets and, after a brief decline in the price of oil following OPEC's decision to boost production, a confluence of supply concerns and robust global demand pushed crude to new highs. In addition to these issues, daily headlines about terrorism and the fierce run for the White House all added up to an uncomfortable sense of uncertainty, keeping many investors on the sidelines. Despite all these concerns, which escalated toward the end of the report period, the strength of the market early in the period, combined with strong second- and third-quarter valuations and earnings resulted in a positive showing for equities. More specifically, the S&P 500(R) Index was up 9.42% for the 12-month report period, while the Russell 2000(R) Index was up 11.73%. In terms of style, value edged out growth early in the period and gained momentum, significantly outperforming growth at the end of the period. All four Funds posted positive returns over the 12-month report period, although three of the Funds trailed their respective benchmarks. Longer-term results are stronger, with three of the Funds outperforming their benchmarks. During the period, we were in close contact with the Funds' sub-advisors and made adjustments to their allocations based on a combination of market conditions and daily cash flows. We maintained our small-cap bias and since this asset class was the strongest performer through the end of the report period, this strategy helped the Funds. More recently, we shifted assets from a value tilt toward a growth bias. THE LAUDUS U.S. MARKETMASTERS FUND returned 3.62% versus 9.42% for the S&P 500(R) Index. With value the style in favor for much of the reporting period, Eagle Asset Management, Inc.'s growth bias hurt performance. Eagle's stock selection was also a contributing factor. More specifically, the Fund's exposure to technology and semiconductor stocks contributed to its underperformance. Sub-advisor, Harris Associates L.P., which focuses on large-cap value stocks, helped performance, as did sub-advisor Laudus MarketMasters Funds 3 PERFORMANCE AT A GLANCE Total return for the 12 months ended 10/31/04, except where noted. THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN PERFORMANCE DATA QUOTED. TO OBTAIN MORE CURRENT PERFORMANCE INFORMATION, PLEASE VISIT WWW.SCHWAB.COM/MARKETMASTERS. LAUDUS U.S. MARKETMASTERS FUND(TM) Investor Shares ........... 3.62% Select Shares(R) 1 ........ -0.96% Benchmark ................. 9.42% Fund Category 2 ........... 7.89% Performance Details ....... pages 6-7 LAUDUS BALANCED MARKETMASTERS FUND(TM) Investor Shares ........... 8.59% Select Shares 3 ........... 2.77% Benchmark ................. 7.91% Fund Category 2 ........... 7.40% Performance Details ....... pages 9-10 LAUDUS SMALL-CAP MARKETMASTERS FUND(TM) Investor Shares ........... 9.93% Select Shares 4 ........... 0.66% Benchmark ................. 11.73% Fund Category 2 ........... 13.51% Performance Details ....... pages 12-13 LAUDUS INTERNATIONAL MARKETMASTERS FUND(TM) Investor Shares ........... 14.06% Select Shares 5 ........... -0.22% Benchmark ................. 18.84% Fund Category 2 ........... 12.54% Performance Details ....... pages 15-16
TCW Investment Management Company, which focuses on small- to mid-cap value stocks. These two sub-advisors' performance helped to offset Eagle's growth orientation. Thornburg Investment Management, Inc. slightly underperformed the S&P 500(R) Index during the period. THE LAUDUS BALANCED MARKETMASTERS FUND outperformed the Balanced Blended Index (60% S&P 500(R) Index /40% Lehman Brothers U.S. Aggregate Bond Index) by 0.68%. The Fund was overweight in stocks for most of the reporting period, as we believed stocks would have the potential for higher returns. This overweight helped performance, as did sub-advisors Janus Capital Management LLC/Perkins, Wolf, McDonnell and Company, LLC and Aronson+Johnson+Ortiz, LP. Perkins performed particularly well, helped not only by strong stock selection but also by being overweight in top performing sectors such as Energy and Health Care. On the fixed-income side, sub-advisor Pacific Investment Management Company LLC also performed well, beating its benchmark (Lehman Brothers U.S. Aggregate Bond Index) by 1.54%. Eagle Asset Management, our growth manager, lagged for the period as growth stocks underperformed value stocks. Eagle's stock selection and sector allocation also hurt performance. THE LAUDUS SMALL-CAP MARKETMASTERS FUND underperformed its benchmark, the Russell 2000(R) Index, by 1.80%. This was largely due to sub-advisor TAMRO Capital Partners LLC, which only recently became a sub-advisor of the Fund and struggled with stock selection and sector allocations. (During the report period, on April 1, 2004, TAMRO replaced sub-advisor Royce & Associates, LLC.) Veredus Asset Management LLC, whose focus is on growth stocks, trailed the broader Russell 2000(R) Index, which modestly hampered returns. TCW Investment Management All Fund and index figures on this page assume dividends and distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged, and you cannot invest in them directly. Expenses may be partially absorbed by CSIM and Schwab. Without these reductions, the Funds' total returns would have been lower. Performance does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or on the redemption of Fund shares. Small company stocks are subject to greater volatility than other asset categories. Foreign securities can involve risks such as political and economic instability and currency risk. These risks may be greater in emerging markets. 1 Select Shares total return is for 6/4/04 -- 10/31/04. (Not annualized.) 2 Source for category information: Morningstar, Inc. 3 Select Shares total return is for 6/3/04 -- 10/31/04. (Not annualized.) 4 Select Shares total return is for 6/9/04 -- 10/31/04. (Not annualized.) 5 Select Shares total return is for 4/2/04 -- 10/31/04. (Not annualized.) 4 Laudus MarketMasters Funds MANAGEMENT'S DISCUSSION continued With many economic indicators continuing to be positive and the economy seemingly on track, larger-cap stocks became the more dominant asset class. Company also trailed the Russell 2000 benchmark slightly, as its focus on mid/small names slightly hurt performance in a market that was led by small-cap stocks. Offsetting that performance was sub-advisor Tocqueville Asset Management LP, which outperformed the Russell 2000(R) Index with strong stock selection and an overweight in the Energy sector. THE LAUDUS INTERNATIONAL MARKETMASTERS FUND trailed its benchmark, the MSCI-EAFE(R) Index, by 4.78%. The growth focus of sub-advisors' William Blair & Company, LLC and Artisan Partners Limited Partnership hurt performance, as the market favored value during the report period. American Century Investment Management, Inc. also trailed the broader MSCI-EAFE(R) because of its relative high weighting in Japanese stocks, which underperformed their European counterparts over the reporting period. Harris Associates benefited from its value emphasis and its overweighting of European stocks, which were among the strongest performers of all international regions during the period. All the managers' exposure to emerging markets was nearly neutral to returns, as performance was only modestly different than the developed markets over the period. Small company stocks are subject to greater volatility than other asset categories. Foreign securities can involve risks such as political and economic instability and currency risk. These risks may be greater in emerging markets. Nothing in this report represents a recommendation of a security by the investment adviser. Manager views and portfolio holdings may have changed since the report date. Laudus MarketMasters Funds 5 LAUDUS U.S. MARKETMASTERS FUND(TM) INVESTOR SHARES PERFORMANCE as of 10/31/04 AVERAGE ANNUAL TOTAL RETURNS 1, 2 This chart compares performance of the Fund with a benchmark and the Fund's Morningstar category. [BAR CHART]
Fund: Benchmark: Fund Category: INVESTOR S&P 500(R) MORNINGSTAR SHARES INDEX LARGE-CAP BLEND 1 YEAR 3.62% 9.42% 7.89% 5 YEARS -0.29% -2.21% -1.72% SINCE INCEPTION: 11/18/96 5.52% 7.12% 2.31%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN PERFORMANCE DATA QUOTED. TO OBTAIN PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH END, PLEASE VISIT WWW.SCHWAB.COM/MARKETMASTERS. PERFORMANCE OF A HYPOTHETICAL $10,000 INVESTMENT 1 This graph shows performance since inception of a hypothetical $10,000 investment in the Fund, compared with a similar investment in a benchmark. $15,337 INVESTOR SHARES $17,295 S&P 500(R) INDEX [LINE GRAPH]
INVESTOR S&P 500(R) DATE SHARES INDEX 18-Nov-96 $10,000 $10,000 30-Nov-96 $10,120 $10,271 31-Dec-96 $10,077 $10,068 31-Jan-97 $10,371 $10,696 28-Feb-97 $10,310 $10,780 31-Mar-97 $10,016 $10,338 30-Apr-97 $10,229 $10,955 31-May-97 $10,848 $11,621 30-Jun-97 $11,274 $12,141 31-Jul-97 $11,841 $13,106 31-Aug-97 $11,547 $12,372 30-Sep-97 $12,145 $13,049 31-Oct-97 $11,760 $12,613 30-Nov-97 $11,750 $13,197 31-Dec-97 $11,927 $13,424 31-Jan-98 $11,959 $13,573 28-Feb-98 $12,622 $14,552 31-Mar-98 $13,146 $15,297 30-Apr-98 $13,242 $15,452 31-May-98 $13,135 $15,186 30-Jun-98 $13,306 $15,802 31-Jul-98 $13,135 $15,635 31-Aug-98 $11,639 $13,377 30-Sep-98 $11,745 $14,235 31-Oct-98 $12,216 $15,392 30-Nov-98 $12,814 $16,325 31-Dec-98 $13,734 $17,265 31-Jan-99 $14,255 $17,987 28-Feb-99 $13,712 $17,427 31-Mar-99 $14,266 $18,124 30-Apr-99 $14,830 $18,826 31-May-99 $14,487 $18,381 30-Jun-99 $15,118 $19,402 31-Jul-99 $14,919 $18,796 31-Aug-99 $14,896 $18,702 30-Sep-99 $14,819 $18,190 31-Oct-99 $15,560 $19,341 30-Nov-99 $16,557 $19,734 31-Dec-99 $18,630 $20,897 31-Jan-00 $17,808 $19,848 29-Feb-00 $19,681 $19,472 31-Mar-00 $19,516 $21,376 30-Apr-00 $18,086 $20,733 31-May-00 $17,289 $20,308 30-Jun-00 $18,263 $20,809 31-Jul-00 $17,922 $20,485 31-Aug-00 $18,997 $21,757 30-Sep-00 $18,213 $20,608 31-Oct-00 $17,580 $20,522 30-Nov-00 $16,099 $18,905 31-Dec-00 $16,401 $18,997 31-Jan-01 $16,873 $19,672 28-Feb-01 $15,516 $17,878 31-Mar-01 $14,690 $16,744 30-Apr-01 $15,855 $18,045 31-May-01 $15,782 $18,166 30-Jun-01 $15,634 $17,725 31-Jul-01 $15,206 $17,551 31-Aug-01 $14,557 $16,452 30-Sep-01 $13,186 $15,123 31-Oct-01 $13,569 $15,412 30-Nov-01 $14,602 $16,594 31-Dec-01 $14,979 $16,740 31-Jan-02 $14,696 $16,496 28-Feb-02 $14,324 $16,177 31-Mar-02 $14,801 $16,785 30-Apr-02 $14,146 $15,768 31-May-02 $13,848 $15,652 30-Jun-02 $12,716 $14,537 31-Jul-02 $11,495 $13,405 31-Aug-02 $11,570 $13,492 30-Sep-02 $10,453 $12,025 31-Oct-02 $11,138 $13,084 30-Nov-02 $12,135 $13,854 31-Dec-02 $11,316 $13,041 31-Jan-03 $11,123 $12,699 28-Feb-03 $10,959 $12,509 31-Mar-03 $11,093 $12,630 30-Apr-03 $12,254 $13,671 31-May-03 $13,252 $14,391 30-Jun-03 $13,475 $14,575 31-Jul-03 $13,773 $14,832 31-Aug-03 $14,250 $15,121 30-Sep-03 $13,878 $14,961 31-Oct-03 $14,801 $15,808 30-Nov-03 $15,128 $15,947 31-Dec-03 $15,679 $16,782 31-Jan-04 $16,007 $17,091 29-Feb-04 $16,185 $17,329 31-Mar-04 $15,992 $17,067 30-Apr-04 $15,471 $16,799 31-May-04 $15,694 $17,029 30-Jun-04 $15,858 $17,360 31-Jul-04 $14,920 $16,785 31-Aug-04 $14,696 $16,852 30-Sep-04 $14,920 $17,034 31-Oct-04 $15,337 $17,295
All figures on this page assume dividends and distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged, and you cannot invest in them directly. Because the Fund was originally an asset allocation Fund with a multi-fund strategy, its performance prior to June 3, 2002 does not reflect the current strategy and may have been different if it did. 1 Fund expenses have been partially absorbed by CSIM and Schwab. Without these reductions, the Fund's returns would have been lower. These returns do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. 2 Source for category information: Morningstar, Inc. 6 Laudus MarketMasters Funds LAUDUS U.S. MARKETMASTERS FUND SELECT SHARES(R) PERFORMANCE as of 10/31/04 TOTAL RETURNS 1, 2 This chart compares performance of the Fund's Select Shares with its benchmark and Morningstar category. [BAR CHART]
Fund: Benchmark: Fund Category: SELECT S&P 500(R) MORNINGSTAR SHARES INDEX LARGE-CAP BLEND SINCE INCEPTION: 6/4/04 -0.96% 1.90% 1.52%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN PERFORMANCE DATA QUOTED. TO OBTAIN PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH END, PLEASE VISIT WWW.SCHWAB.COM/MARKETMASTERS. PERFORMANCE OF A HYPOTHETICAL $25,000 INVESTMENT 1 This graph shows performance since inception of a hypothetical $25,000 investment (the minimum investment for this share class) in the Fund's Select Shares, compared with a similar investment in its benchmark. $24,760 SELECT SHARES $25,474 S&P 500(R) INDEX [LINE GRAPH]
SELECT S&P 500(R) DATE SHARES INDEX 04-Jun-04 $25,000 $25,000 30-Jun-04 $25,575 $25,570 31-Jul-04 $24,065 $24,723 31-Aug-04 $23,728 $24,822 30-Sep-04 $24,088 $25,090 31-Oct-04 $24,760 $25,474
All figures on this page assume dividends and distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged, and you cannot invest in them directly. 1 Fund expenses have been partially absorbed by CSIM and Schwab. Without these reductions, the Fund's returns would have been lower. These returns do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. 2 Source for category information: Morningstar, Inc. Laudus MarketMasters Funds 7 LAUDUS U.S. MARKETMASTERS FUND FUND FACTS as of 10/31/04 STYLE ASSESSMENT 1 [GRAPHIC]
INVESTMENT STYLE Value Blend Growth MARKET CAP Large / / /X/ / / Medium / / / / / / Small / / / / / /
STATISTICS NUMBER OF HOLDINGS 163 -------------------------------------------------------------------------------- WEIGHTED AVERAGE MARKET CAP ($ x 1,000,000) $52,045 -------------------------------------------------------------------------------- PRICE/EARNINGS RATIO (P/E) 24.4 -------------------------------------------------------------------------------- PRICE/BOOK RATIO (P/B) 2.6 -------------------------------------------------------------------------------- PORTFOLIO TURNOVER RATE 72% -------------------------------------------------------------------------------- MINIMUM INITIAL INVESTMENT 2 Investor Shares ($1,000 for retirement and custodial accounts) $2,500 Select Shares $25,000 --------------------------------------------------------------------------------
INVESTMENT MANAGERS AND ALLOCATIONS
% OF INVESTMENT MANAGER INVESTMENT STYLE NET ASSETS -------------------------------------------------------------------------------- EAGLE ASSET Large-Cap Growth 24.4% MANAGEMENT, INC. -------------------------------------------------------------------------------- HARRIS ASSOCIATES L.P. Mid/Large-Cap 22.5% Value -------------------------------------------------------------------------------- TCW INVESTMENT Small/Mid-Cap 23.6% MANAGEMENT COMPANY Blend -------------------------------------------------------------------------------- THORNBURG INVESTMENT Large-Cap Blend 29.8% MANAGEMENT, INC. --------------------------------------------------------------------------------
TOP HOLDINGS 3
% OF SECURITY NET ASSETS -------------------------------------------------------------------------------- (1) TIME WARNER, INC. 2.3% -------------------------------------------------------------------------------- (2) GUIDANT CORP. 2.1% -------------------------------------------------------------------------------- (3) GENERAL ELECTRIC CO. 2.0% -------------------------------------------------------------------------------- (4) MICROSOFT CORP. 1.7% -------------------------------------------------------------------------------- (5) PFIZER, INC. 1.7% -------------------------------------------------------------------------------- (6) CITIGROUP, INC. 1.4% -------------------------------------------------------------------------------- (7) CARNIVAL CORP. 1.4% -------------------------------------------------------------------------------- (8) JPMORGAN CHASE & CO. 1.4% -------------------------------------------------------------------------------- (9) YUM! BRANDS, INC. 1.3% -------------------------------------------------------------------------------- (10) COSTCO COS., INC. 1.3% -------------------------------------------------------------------------------- TOTAL 16.6%
SECTOR WEIGHTINGS % of Portfolio This chart shows the Fund's sector composition as of the report date. A sector is a portion of the overall stock market that is made up of industries whose business components share similar characteristics. [PIE CHART] 30.5% CONSUMER NON-DURABLES 23.6% TECHNOLOGY 16.6% FINANCE 11.9% MATERIALS & SERVICES 4.1% ENERGY 3.6% CAPITAL GOODS 2.6% UTILITIES 2.3% TRANSPORTATION 1.2% CONSUMER DURABLES 3.6% CASH & CASH EQUIVALENTS Portfolio holdings may have changed since the report date. 1 Source: Morningstar, Inc. This style assessment is the result of evaluating the Fund based on a ten-factor model for value and growth characteristics. The Fund's market capitalization placement is determined by the geometric mean of its holdings' market capitalizations. The assessment reflects the Fund's portfolio as of 10/31/04, which may have changed since then, and is not a precise indication of risk or performance--past, present, or future. 2 Please see prospectus for further detail and eligibility requirements. 3 This list is not a recommendation of any security by the investment adviser. 8 Laudus MarketMasters Funds LAUDUS BALANCED MARKETMASTERS FUND(TM) INVESTOR SHARES PERFORMANCE as of 10/31/04 AVERAGE ANNUAL TOTAL RETURNS 1, 2 This chart compares performance of the Fund with a benchmark and the Fund's Morningstar category. [BAR CHART]
Benchmark: Fund Category: Fund: BALANCED MORNINGSTAR INVESTOR BLENDED MODERATE SHARES INDEX ALLOCATION 1 YEAR 8.59% 7.91% 7.40% 5 YEARS 3.51% 1.99% 2.24% SINCE INCEPTION: 11/18/96 7.23% 7.46% 2.61%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN PERFORMANCE DATA QUOTED. TO OBTAIN PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH END, PLEASE VISIT WWW.SCHWAB.COM/MARKETMASTERS. PERFORMANCE OF A HYPOTHETICAL $10,000 INVESTMENT 1 This graph shows performance since inception of a hypothetical $10,000 investment in the Fund, compared with a similar investment in a benchmark and two additional indices. $17,430 INVESTOR SHARES $17,729 BALANCED BLENDED INDEX $17,295 S&P 500(R) INDEX $17,079 LEHMAN BROTHERS U.S. AGGREGATE BOND INDEX [LINE GRAPH]
LEHMAN BROS. INVESTOR BALANCED S&P 500(R) U.S. AGGREGATE DATE SHARES BLENDED INDEX INDEX BOND INDEX 18-Nov-96 $10,000 $10,000 $10,000 $10,000 30-Nov-96 $10,100 $10,191 $10,271 $10,071 31-Dec-96 $10,059 $10,032 $10,068 $ 9,977 31-Jan-97 $10,322 $10,420 $10,696 $10,008 28-Feb-97 $10,271 $10,480 $10,780 $10,033 31-Mar-97 $10,018 $10,175 $10,338 $ 9,922 30-Apr-97 $10,200 $10,600 $10,955 $10,071 31-May-97 $10,676 $11,027 $11,621 $10,166 30-Jun-97 $11,041 $11,376 $12,141 $10,287 31-Jul-97 $11,517 $12,042 $13,106 $10,565 31-Aug-97 $11,284 $11,596 $12,372 $10,475 30-Sep-97 $11,770 $12,046 $13,049 $10,630 31-Oct-97 $11,527 $11,874 $12,613 $10,784 30-Nov-97 $11,558 $12,226 $13,197 $10,834 31-Dec-97 $11,719 $12,401 $13,424 $10,943 31-Jan-98 $11,762 $12,547 $13,573 $11,084 28-Feb-98 $12,251 $13,086 $14,552 $11,075 31-Mar-98 $12,634 $13,506 $15,297 $11,112 30-Apr-98 $12,688 $13,616 $15,452 $11,170 31-May-98 $12,613 $13,527 $15,186 $11,276 30-Jun-98 $12,783 $13,903 $15,802 $11,372 31-Jul-98 $12,677 $13,826 $15,635 $11,396 31-Aug-98 $11,581 $12,718 $13,377 $11,582 30-Sep-98 $11,740 $13,326 $14,235 $11,853 31-Oct-98 $12,092 $13,948 $15,392 $11,790 30-Nov-98 $12,560 $14,487 $16,325 $11,857 31-Dec-98 $13,311 $15,005 $17,265 $11,893 31-Jan-99 $13,693 $15,424 $17,987 $11,977 28-Feb-99 $13,224 $15,028 $17,427 $11,768 31-Mar-99 $13,650 $15,422 $18,124 $11,832 30-Apr-99 $14,130 $15,800 $18,826 $11,870 31-May-99 $13,868 $15,521 $18,381 $11,766 30-Jun-99 $14,326 $16,018 $19,402 $11,728 31-Jul-99 $14,141 $15,691 $18,796 $11,679 31-Aug-99 $14,119 $15,641 $18,702 $11,673 30-Sep-99 $14,119 $15,456 $18,190 $11,808 31-Oct-99 $14,664 $16,066 $19,341 $11,852 30-Nov-99 $15,341 $16,261 $19,734 $11,851 31-Dec-99 $16,742 $16,805 $20,897 $11,794 31-Jan-00 $16,155 $16,276 $19,848 $11,755 29-Feb-00 $17,353 $16,170 $19,472 $11,897 31-Mar-00 $17,390 $17,204 $21,376 $12,054 30-Apr-00 $16,534 $16,874 $20,733 $12,019 31-May-00 $16,033 $16,663 $20,308 $12,013 30-Jun-00 $16,705 $17,048 $20,809 $12,263 31-Jul-00 $16,498 $16,951 $20,485 $12,375 31-Aug-00 $17,341 $17,681 $21,757 $12,554 30-Sep-00 $16,815 $17,165 $20,608 $12,633 31-Oct-00 $16,424 $17,167 $20,522 $12,717 30-Nov-00 $15,508 $16,468 $18,905 $12,925 31-Dec-00 $15,879 $16,639 $18,997 $13,166 31-Jan-01 $16,326 $17,102 $19,672 $13,380 28-Feb-01 $15,502 $16,226 $17,878 $13,497 31-Mar-01 $14,887 $15,641 $16,744 $13,564 30-Apr-01 $15,669 $16,344 $18,045 $13,507 31-May-01 $15,683 $16,449 $18,166 $13,588 30-Jun-01 $15,530 $16,234 $17,725 $13,640 31-Jul-01 $16,748 $16,284 $17,551 $13,945 31-Aug-01 $14,873 $15,747 $16,452 $14,106 30-Sep-01 $13,826 $15,057 $15,123 $14,269 31-Oct-01 $14,133 $15,355 $15,412 $14,568 30-Nov-01 $14,859 $15,977 $16,594 $14,367 31-Dec-01 $15,090 $16,021 $16,740 $14,275 31-Jan-02 $14,933 $15,932 $16,496 $14,390 28-Feb-02 $14,733 $15,810 $16,177 $14,530 31-Mar-02 $15,133 $16,061 $16,785 $14,289 30-Apr-02 $14,919 $15,602 $15,768 $14,566 31-May-02 $14,776 $15,586 $15,652 $14,690 30-Jun-02 $14,219 $14,974 $14,537 $14,817 31-Jul-02 $13,534 $14,347 $13,405 $14,997 31-Aug-02 $13,734 $14,500 $13,492 $15,250 30-Sep-02 $12,963 $13,648 $12,025 $15,497 31-Oct-02 $13,348 $14,343 $13,084 $15,426 30-Nov-02 $13,891 $14,849 $13,854 $15,421 31-Dec-02 $13,659 $14,449 $13,041 $15,741 31-Jan-03 $13,572 $14,227 $12,699 $15,755 28-Feb-03 $13,528 $14,177 $12,509 $15,972 31-Mar-03 $13,557 $14,255 $12,630 $15,959 30-Apr-03 $14,210 $15,007 $13,671 $16,092 31-May-03 $14,906 $15,593 $14,391 $16,391 30-Jun-03 $15,051 $15,701 $14,575 $16,358 31-Jul-03 $15,065 $15,656 $14,832 $15,809 31-Aug-03 $15,428 $15,880 $15,121 $15,913 30-Sep-03 $15,486 $15,947 $14,961 $16,335 31-Oct-03 $16,051 $16,430 $15,808 $16,183 30-Nov-03 $16,327 $16,532 $15,947 $16,222 31-Dec-03 $16,829 $17,119 $16,782 $16,387 31-Jan-04 $17,107 $17,363 $17,091 $16,518 29-Feb-04 $17,386 $17,583 $17,329 $16,697 31-Mar-04 $17,371 $17,476 $17,067 $16,822 30-Apr-04 $16,814 $17,130 $16,799 $16,384 31-May-04 $16,961 $17,243 $17,029 $16,319 30-Jun-04 $17,239 $17,483 $17,360 $16,412 31-Jul-04 $16,755 $17,205 $16,785 $16,574 31-Aug-04 $16,814 $17,378 $16,852 $16,891 30-Sep-04 $17,166 $17,510 $17,034 $16,937 31-Oct-04 $17,430 $17,729 $17,295 $17,079
All figures on this page assume dividends and distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged, and you cannot invest in them directly. Because the Fund originally used a different asset allocation strategy and a multi-fund strategy, its performance prior to June 3, 2002 does not reflect the current strategy and may have been different if it did. 1 Fund expenses have been partially absorbed by CSIM and Schwab. Without these reductions, the Fund's returns would have been lower. These returns do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. The Balanced Blended Index is composed of 60% S&P 500(R) Index and 40% Lehman Brothers U.S. Aggregate Bond Index. 2 Source for category information: Morningstar, Inc. Laudus MarketMasters Funds 9 LAUDUS BALANCED MARKETMASTERS FUND SELECT SHARES(R) PERFORMANCE as of 10/31/04 TOTAL RETURNS 1, 2 This chart compares performance of the Fund's Select Shares with its benchmark and Morningstar category. [BAR CHART]
Fund: Benchmark: Fund Category: SELECT BALANCED MORNINGSTAR SHARES BLENDED INDEX MODERATE ALLOCATION SINCE INCEPTION: 6/3/04 2.77% 2.71% 2.28%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN PERFORMANCE DATA QUOTED. TO OBTAIN PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH END, PLEASE VISIT WWW.SCHWAB.COM/MARKETMASTERS. PERFORMANCE OF A HYPOTHETICAL $25,000 INVESTMENT 1 This graph shows performance since inception of a hypothetical $25,000 investment (the minimum investment for this share class) in the Fund's Select Shares, compared with a similar investment in its benchmark. $25,693 SELECT SHARES $25,677 BALANCED BLENDED INDEX $25,286 S&P 500(R) INDEX $26,257 LEHMAN BROTHERS U.S. AGGREGATE BOND INDEX [LINE GRAPH]
DATE SELECT BALANCED S&P 500(R) LEHMAN BROS. U.S. SHARES BLENDED INDEX INDEX AGG BOND INDEX 03-Jun-04 $25,000 $25,000 $25,000 $25,000 30-Jun-04 $25,390 $25,321 $25,380 $25,231 31-Jul-04 $24,698 $24,918 $24,540 $25,481 31-Aug-04 $24,785 $25,168 $24,638 $25,968 30-Sep-04 $25,303 $25,359 $24,905 $26,038 31-Oct-04 $25,693 $25,677 $25,286 $26,257
All figures on this page assume dividends and distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged, and you cannot invest in them directly. 1 Fund expenses have been partially absorbed by CSIM and Schwab. Without these reductions, the Fund's returns would have been lower. These returns do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. The Balanced Blended Index is composed of 60% S&P 500(R) Index and 40% Lehman Brothers U.S. Aggregate Bond Index. 2 Source for category information: Morningstar, Inc. 10 Laudus MarketMasters Funds LAUDUS BALANCED MARKETMASTERS FUND FUND FACTS as of 10/31/04 TOP HOLDINGS 1
% OF SECURITY NET ASSETS -------------------------------------------------------------------------------- (1) U.S. TREASURY INFLATION-PROTECTED SECURITY 3.63%, 01/15/2008 2.8% -------------------------------------------------------------------------------- (2) FANNIE MAE 5.50%, 11/15/2034 1.9% -------------------------------------------------------------------------------- (3) BUNDES REPUBLIC OF DEUTSCHLAND Series 99, 3.75%, 01/04/2009 1.9% -------------------------------------------------------------------------------- (4) CITIGROUP, INC. 1.7% -------------------------------------------------------------------------------- (5) U.S. TREASURY NOTE 1.63%, 04/30/2005 1.5% -------------------------------------------------------------------------------- (6) FANNIE MAE 5.00%, 11/15/2034 1.5% -------------------------------------------------------------------------------- (7) FANNIE MAE 4.50%, 11/15/2034 1.5% -------------------------------------------------------------------------------- (8) U.S. TREASURY NOTE 4.88%, 02/15/2012 1.5% -------------------------------------------------------------------------------- (9) U.S. TREASURY NOTE 2.00%, 11/30/2004 1.1% -------------------------------------------------------------------------------- (10) BANK OF AMERICA CORP. 1.0% -------------------------------------------------------------------------------- TOTAL 16.4%
STATISTICS NUMBER OF LONG HOLDINGS 407 -------------------------------------------------------------------------------- NUMBER OF SHORT POSITIONS 6 -------------------------------------------------------------------------------- WEIGHTED AVERAGE MARKET CAP ($ x 1,000,000) $43,622 -------------------------------------------------------------------------------- PRICE/EARNINGS RATIO (P/E) 17.3 -------------------------------------------------------------------------------- PRICE/BOOK RATIO (P/B) 2.3 -------------------------------------------------------------------------------- PORTFOLIO TURNOVER RATE 242% -------------------------------------------------------------------------------- MINIMUM INITIAL INVESTMENT 2 Investor Shares ($1,000 for retirement and custodial accounts) $2,500 Select Shares $25,000 --------------------------------------------------------------------------------
INVESTMENT MANAGERS AND ALLOCATIONS
% OF INVESTMENT MANAGER INVESTMENT STYLE NET ASSETS -------------------------------------------------------------------------------- ARONSON + JOHNSON + Large-Cap Value 31.8% ORTIZ, LP -------------------------------------------------------------------------------- EAGLE ASSET Large-Cap Growth 14.9% MANAGEMENT, INC. -------------------------------------------------------------------------------- JANUS CAPITAL Mid-Cap Value 17.1% MANAGEMENT LLC/ PERKINS, WOLF, MCDONNELL AND COMPANY, LLC -------------------------------------------------------------------------------- PACIFIC INVESTMENT Total Return 31.1% MANAGEMENT Fixed-Income COMPANY LLC --------------------------------------------------------------------------------
SECTOR WEIGHTINGS % of Equity Securities This chart shows the Fund's sector composition as of the report date. A sector is a portion of the overall stock market that is made up of industries whose business components share similar characteristics. [PIE CHART] 25.6% FINANCE 21.5% CONSUMER NON-DURABLES 14.1% TECHNOLOGY 12.4% MATERIALS & SERVICES 9.9% ENERGY 7.3% UTILITIES 4.2% CAPITAL GOODS 3.3% CONSUMER DURABLES 1.7% TRANSPORTATION Portfolio holdings may have changed since the report date. 1 This list is not a recommendation of any security by the investment adviser. 2 Please see prospectus for further detail and eligibility requirements. Laudus MarketMasters Funds 11 LAUDUS SMALL-CAP MARKETMASTERS FUND(TM) INVESTOR SHARES PERFORMANCE as of 10/31/04 AVERAGE ANNUAL TOTAL RETURNS 1, 2 This chart compares performance of the Fund with a benchmark and the Fund's Morningstar category. [BAR CHART]
Fund: Benchmark: Fund Category: INVESTOR RUSSELL 2000(R) MORNINGSTAR SHARES INDEX SMALL-CAP BLEND 1 YEAR 9.93% 11.73% 13.51% 5 YEARS 5.25% 7.73% 12.25% SINCE INCEPTION: 9/16/97 5.60% 5.35% 4.03%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN PERFORMANCE DATA QUOTED. TO OBTAIN PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH END, PLEASE VISIT WWW.SCHWAB.COM/MARKETMASTERS. PERFORMANCE OF A HYPOTHETICAL $10,000 INVESTMENT This graph shows performance since inception of a hypothetical $10,000 investment in the Fund, compared with a similar investment in a benchmark. $14,748 INVESTOR SHARES $14,502 RUSSELL 2000(R) INDEX [LINE GRAPH]
DATE INVESTOR RUSSELL 2000(R) SHARES INDEX 16-Sep-97 $10,000 $10,000 30-Sep-97 $10,260 $10,319 31-Oct-97 $ 9,930 $ 9,866 30-Nov-97 $ 9,770 $ 9,802 31-Dec-97 $ 9,886 $ 9,973 31-Jan-98 $ 9,701 $ 9,816 28-Feb-98 $10,277 $10,541 31-Mar-98 $10,781 $10,976 30-Apr-98 $10,832 $11,036 31-May-98 $10,359 $10,441 30-Jun-98 $10,411 $10,463 31-Jul-98 $ 9,896 $ 9,615 31-Aug-98 $ 8,271 $ 7,748 30-Sep-98 $ 8,435 $ 8,355 31-Oct-98 $ 8,754 $ 8,696 30-Nov-98 $ 9,238 $ 9,151 31-Dec-98 $ 9,946 $ 9,718 31-Jan-99 $10,101 $ 9,847 28-Feb-99 $ 9,563 $ 9,049 31-Mar-99 $10,029 $ 9,191 30-Apr-99 $10,773 $10,014 31-May-99 $10,752 $10,160 30-Jun-99 $11,311 $10,620 31-Jul-99 $11,228 $10,329 31-Aug-99 $10,938 $ 9,946 30-Sep-99 $10,990 $ 9,948 31-Oct-99 $11,414 $ 9,989 30-Nov-99 $12,272 $10,586 31-Dec-99 $13,714 $11,784 31-Jan-00 $13,339 $11,594 29-Feb-00 $15,171 $13,508 31-Mar-00 $14,496 $12,618 30-Apr-00 $13,178 $11,859 31-May-00 $12,482 $11,167 30-Jun-00 $14,003 $12,141 31-Jul-00 $13,478 $11,750 31-Aug-00 $14,924 $12,647 30-Sep-00 $14,164 $12,275 31-Oct-00 $13,146 $11,727 30-Nov-00 $11,325 $10,523 31-Dec-00 $12,156 $11,427 31-Jan-01 $12,795 $12,022 28-Feb-01 $11,698 $11,233 31-Mar-01 $10,879 $10,684 30-Apr-01 $11,927 $11,520 31-May-01 $12,325 $11,803 30-Jun-01 $12,674 $12,210 31-Jul-01 $12,168 $11,550 31-Aug-01 $11,590 $11,177 30-Sep-01 $10,012 $ 9,672 31-Oct-01 $10,518 $10,238 30-Nov-01 $11,421 $11,030 31-Dec-01 $12,144 $11,711 31-Jan-02 $11,951 $11,589 28-Feb-02 $11,612 $11,272 31-Mar-02 $12,520 $12,178 30-Apr-02 $12,471 $12,289 31-May-02 $12,060 $11,743 30-Jun-02 $11,164 $11,161 31-Jul-02 $ 9,469 $ 9,475 31-Aug-02 $ 9,323 $ 9,452 30-Sep-02 $ 8,476 $ 8,773 31-Oct-02 $ 8,694 $ 9,055 30-Nov-02 $ 9,481 $ 9,862 31-Dec-02 $ 8,997 $ 9,313 31-Jan-03 $ 8,864 $ 9,055 28-Feb-03 $ 8,585 $ 8,782 31-Mar-03 $ 8,573 $ 8,895 30-Apr-03 $ 9,384 $ 9,738 31-May-03 $10,668 $10,783 30-Jun-03 $10,946 $10,978 31-Jul-03 $11,600 $11,665 31-Aug-03 $12,314 $12,200 30-Sep-03 $12,193 $11,974 31-Oct-03 $13,416 $12,980 30-Nov-03 $13,913 $13,441 31-Dec-03 $14,276 $13,714 31-Jan-04 $14,942 $14,309 29-Feb-04 $15,075 $14,437 31-Mar-04 $15,075 $14,572 30-Apr-04 $14,143 $13,829 31-May-04 $14,458 $14,048 30-Jun-04 $15,075 $14,640 31-Jul-04 $14,046 $13,655 31-Aug-04 $13,719 $13,585 30-Sep-04 $14,470 $14,222 31-Oct-04 $14,748 $14,502
All figures on this page assume dividends and distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged, and you cannot invest in them directly. Because the Fund originally used a multi-fund strategy, its performance prior to June 3, 2002 does not reflect the current strategy and may have been different if it did. 1 Fund expenses have been partially absorbed by CSIM and Schwab. Without these reductions, the Fund's returns would have been lower. These returns do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. 2 Source for category information: Morningstar, Inc. 12 Laudus MarketMasters Funds LAUDUS SMALL-CAP MARKETMASTERS FUND SELECT SHARES(R) PERFORMANCE as of 10/31/04 TOTAL RETURNS 1, 2 This chart compares performance of the Fund's Select Shares with its benchmark and Morningstar category. [BAR CHART]
Fund: Benchmark: Fund Category: SELECT RUSSELL 2000(R) MORNINGSTAR SHARES INDEX SMALL-CAP BLEND SINCE INCEPTION: 6/9/04 0.66% 1.50% 1.97%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN PERFORMANCE DATA QUOTED. TO OBTAIN PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH END, PLEASE VISIT WWW.SCHWAB.COM/MARKETMASTERS. PERFORMANCE OF A HYPOTHETICAL $25,000 INVESTMENT 1 This graph shows performance since inception of a hypothetical $25,000 investment (the minimum investment for this share class) in the Fund's Select Shares, compared with a similar investment in its benchmark. $25,165 SELECT SHARES $25,374 RUSSELL 2000(R) INDEX [LINE GRAPH]
DATE SELECT RUSSELL 2000(R) SHARES INDEX 09-Jun-04 $25,000 $25,000 30-Jun-04 $25,723 $25,615 31-Jul-04 $23,948 $23,891 31-Aug-04 $23,390 $23,769 30-Sep-04 $24,690 $24,884 31-Oct-04 $25,165 $25,374
All figures on this page assume dividends and distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged, and you cannot invest in them directly. 1 Fund expenses have been partially absorbed by CSIM and Schwab. Without these reductions, the Fund's returns would have been lower. These returns do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. 2 Source for category information: Morningstar, Inc. Laudus MarketMasters Funds 13 LAUDUS SMALL-CAP MARKETMASTERS FUND FUND FACTS as of 10/31/04 STYLE ASSESSMENT 1 [GRAPHIC]
INVESTMENT STYLE Value Blend Growth MARKET CAP Large / / / / / / Medium / / / / / / Small / / / / /X/
STATISTICS NUMBER OF HOLDINGS 209 -------------------------------------------------------------------------------- WEIGHTED AVERAGE MARKET CAP ($ x 1,000,000) $1,742 -------------------------------------------------------------------------------- PRICE/EARNINGS RATIO (P/E) 38.7 -------------------------------------------------------------------------------- PRICE/BOOK RATIO (P/B) 2.2 -------------------------------------------------------------------------------- PORTFOLIO TURNOVER RATE 140% -------------------------------------------------------------------------------- MINIMUM INITIAL INVESTMENT 2 Investor Shares ($1,000 for retirement and custodial accounts) $2,500 Select Shares $25,000 --------------------------------------------------------------------------------
INVESTMENT MANAGERS AND ALLOCATIONS
% OF INVESTMENT MANAGER INVESTMENT STYLE NET ASSETS -------------------------------------------------------------------------------- TAMRO CAPITAL Small-Cap Value 25.1% PARTNERS LLC 3 -------------------------------------------------------------------------------- TCW INVESTMENT Small/Mid-Cap 15.3% MANAGEMENT COMPANY Blend -------------------------------------------------------------------------------- TOCQUEVILLE ASSET Small-Cap Blend 21.2% MANAGEMENT LP -------------------------------------------------------------------------------- VEREDUS ASSET Small-Cap Growth 38.1% MANAGEMENT LLC --------------------------------------------------------------------------------
TOP HOLDINGS 4
% OF SECURITY NET ASSETS -------------------------------------------------------------------------------- (1) CYTYC CORP. 1.7% -------------------------------------------------------------------------------- (2) TOLL BROTHERS, INC. 1.4% -------------------------------------------------------------------------------- (3) GENESCO, INC. 1.4% -------------------------------------------------------------------------------- (4) THE CHICAGO MERCANTILE EXCHANGE 1.4% -------------------------------------------------------------------------------- (5) PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. 1.3% -------------------------------------------------------------------------------- (6) CLEVELAND CLIFFS, INC. 1.2% -------------------------------------------------------------------------------- (7) TIDEWATER, INC. 1.1% -------------------------------------------------------------------------------- (8) PORTFOLIO RECOVERY ASSOCIATES, INC. 1.1% -------------------------------------------------------------------------------- (9) HOOPER HOLMES, INC. 1.1% -------------------------------------------------------------------------------- (10) AKAMAI TECHNOLOGIES, INC. 1.1% -------------------------------------------------------------------------------- TOTAL 12.8%
SECTOR WEIGHTINGS % of Portfolio This chart shows the Fund's sector composition as of the report date. A sector is a portion of the overall stock market that is made up of industries whose business components share similar characteristics. [PIE CHART] 29.3% MATERIALS & SERVICES 23.0% TECHNOLOGY 20.2% CONSUMER NON-DURABLES 8.4% FINANCE 8.1% ENERGY 5.7% CAPITAL GOODS 2.1% CONSUMER DURABLES 1.1% TRANSPORTATION 2.1% CASH & CASH EQUIVALENTS Portfolio holdings may have changed since the report date. 1 Source: Morningstar, Inc. This style assessment is the result of evaluating the Fund based on a ten-factor model for value and growth characteristics. The Fund's market capitalization placement is determined by the geometric mean of its holdings' market capitalizations. The assessment reflects the Fund's portfolio as of 10/31/04, which may have changed since then, and is not a precise indication of risk or performance--past, present, or future. 2 Please see prospectus for further detail and eligibility requirements. 3 TAMRO Capital Partners replaced Royce & Associates as of 4/1/04. 4 This list is not a recommendation of any security by the investment adviser. 14 Laudus MarketMasters Funds SCHWAB INTERNATIONAL MARKETMASTERS FUND(TM) INVESTOR SHARES PERFORMANCE as of 10/31/04 AVERAGE ANNUAL TOTAL RETURNS 1, 2 This chart compares performance of the Fund's Investor Shares with a benchmark and the Fund's Morningstar category. [BAR CHART]
Fund: Benchmark: Fund Category: INVESTOR MSCI-EAFE(R) MORNINGSTAR FOREIGN SHARES INDEX LARGE-CAP GROWTH 1 YEAR 14.06% 18.84% 12.54% 5 YEARS 4.38% -0.91% -2.84% SINCE INCEPTION: 10/16/96 9.07% 3.56% 0.89%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN PERFORMANCE DATA QUOTED. TO OBTAIN PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH END, PLEASE VISIT WWW.SCHWAB.COM/MARKETMASTERS. PERFORMANCE OF A HYPOTHETICAL $10,000 INVESTMENT 1 This graph shows performance since inception of a hypothetical $10,000 investment in the Fund's Investor Shares, compared with a similar investment in a benchmark. $20,118 INVESTOR SHARES $13,258 MSCI-EAFE(R) INDEX [LINE GRAPH]
INVESTOR MSCI-EAFE(R) SHARES INDEX 16-Oct-96 $10,000 $10,000 31-Oct-96 $ 9,910 $ 9,836 30-Nov-96 $10,220 $10,228 31-Dec-96 $10,313 $10,096 31-Jan-97 $10,426 $ 9,742 28-Feb-97 $10,599 $ 9,902 31-Mar-97 $10,558 $ 9,938 30-Apr-97 $10,609 $ 9,991 31-May-97 $11,209 $10,641 30-Jun-97 $11,697 $11,227 31-Jul-97 $11,962 $11,409 31-Aug-97 $11,199 $10,557 30-Sep-97 $11,830 $11,148 31-Oct-97 $11,046 $10,291 30-Nov-97 $10,894 $10,186 31-Dec-97 $11,016 $10,274 31-Jan-98 $11,146 $10,744 28-Feb-98 $11,925 $11,434 31-Mar-98 $12,670 $11,786 30-Apr-98 $12,952 $11,879 31-May-98 $13,265 $11,821 30-Jun-98 $13,157 $11,911 31-Jul-98 $13,525 $12,031 31-Aug-98 $11,654 $10,540 30-Sep-98 $11,006 $10,217 31-Oct-98 $11,438 $11,281 30-Nov-98 $12,011 $11,859 31-Dec-98 $12,481 $12,327 31-Jan-99 $12,820 $12,290 28-Feb-99 $12,415 $11,998 31-Mar-99 $12,853 $12,498 30-Apr-99 $13,815 $13,004 31-May-99 $13,170 $12,335 30-Jun-99 $14,428 $12,816 31-Jul-99 $14,985 $13,196 31-Aug-99 $15,248 $13,245 30-Sep-99 $15,401 $13,379 31-Oct-99 $16,232 $13,881 30-Nov-99 $18,683 $14,362 31-Dec-99 $21,819 $15,652 31-Jan-00 $21,236 $14,658 29-Feb-00 $24,410 $15,052 31-Mar-00 $23,356 $15,636 30-Apr-00 $21,149 $14,814 31-May-00 $20,120 $14,452 30-Jun-00 $21,100 $15,018 31-Jul-00 $20,554 $14,388 31-Aug-00 $21,249 $14,513 30-Sep-00 $20,120 $13,806 31-Oct-00 $19,253 $13,481 30-Nov-00 $18,050 $12,975 31-Dec-00 $18,672 $13,436 31-Jan-01 $18,893 $13,440 28-Feb-01 $17,883 $12,434 31-Mar-01 $16,680 $11,590 30-Apr-01 $17,538 $12,386 31-May-01 $17,496 $11,928 30-Jun-01 $17,178 $11,438 31-Jul-01 $16,639 $11,240 31-Aug-01 $16,182 $10,979 30-Sep-01 $14,495 $ 9,867 31-Oct-01 $14,937 $10,120 30-Nov-01 $15,588 $10,493 31-Dec-01 $16,028 $10,555 31-Jan-02 $15,659 $ 9,994 28-Feb-02 $15,762 $10,064 31-Mar-02 $16,515 $10,609 30-Apr-02 $16,397 $10,679 31-May-02 $16,338 $10,815 30-Jun-02 $15,674 $10,384 31-Jul-02 $14,006 $ 9,359 31-Aug-02 $13,947 $ 9,338 30-Sep-02 $12,368 $ 8,335 31-Oct-02 $12,899 $ 8,782 30-Nov-02 $13,548 $ 9,181 31-Dec-02 $13,092 $ 8,873 31-Jan-03 $12,560 $ 8,503 28-Feb-03 $12,103 $ 8,308 31-Mar-03 $11,911 $ 8,145 30-Apr-03 $13,224 $ 8,943 31-May-03 $14,184 $ 9,485 30-Jun-03 $14,700 $ 9,715 31-Jul-03 $15,291 $ 9,950 31-Aug-03 $15,925 $10,190 30-Sep-03 $16,368 $10,504 31-Oct-03 $17,638 $11,158 30-Nov-03 $17,756 $11,406 31-Dec-03 $18,845 $12,296 31-Jan-04 $19,423 $12,470 29-Feb-04 $19,837 $12,758 31-Mar-04 $19,896 $12,829 30-Apr-04 $19,497 $12,539 31-May-04 $19,393 $12,582 30-Jun-04 $19,955 $12,858 31-Jul-04 $19,038 $12,440 31-Aug-04 $18,978 $12,494 30-Sep-04 $19,511 $12,821 31-Oct-04 $20,118 $13,258
All figures on this page assume dividends and distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged, and you cannot invest in them directly. Because the Fund originally used a multi-fund strategy, its performance prior to June 3, 2002 does not reflect the current strategy and may have been different if it did. 1 Fund expenses have been partially absorbed by CSIM and Schwab. Without these reductions, the Fund's returns would have been lower. These returns do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. 2 Source for category information: Morningstar, Inc. Laudus MarketMasters Funds 15 LAUDUS INTERNATIONAL MARKETMASTERS FUND SELECT SHARES(R) PERFORMANCE as of 10/31/04 TOTAL RETURNS 1, 2 This chart compares performance of the Fund's Select Shares with its benchmark and Morningstar category. [BAR CHART]
Fund: Benchmark: Fund Category: SELECT MSCI-EAFE(R) MORNINGSTAR FOREIGN SHARES INDEX LARGE-CAP GROWTH SINCE INCEPTION: 4/2/04 -0.22% 2.01% 0.90%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN PERFORMANCE DATA QUOTED. TO OBTAIN PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH END, PLEASE VISIT WWW.SCHWAB.COM/MARKETMASTERS. PERFORMANCE OF A HYPOTHETICAL $25,000 INVESTMENT 1 This graph shows performance since inception of a hypothetical $25,000 investment (the minimum investment for this share class) in the Fund's Select Shares, compared with a similar investment in its benchmark. $24,945 SELECT SHARES $25,504 MSCI-EAFE(R) INDEX [LINE GRAPH]
SELECT MSCI-EAFE(R) SHARES INDEX 02-Apr-04 25,000 25,000 30-Apr-04 24,158 24,122 31-May-04 24,028 24,204 30-Jun-04 24,725 24,734 31-Jul-04 23,608 23,930 31-Aug-04 23,533 24,035 30-Sep-04 24,193 24,663 31-Oct-04 24,945 25,504
All figures on this page assume dividends and distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged, and you cannot invest in them directly. 1 Fund expenses have been partially absorbed by CSIM and Schwab. Without these reductions, the Fund's returns would have been lower. These returns do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. 2 Source for category information: Morningstar, Inc. 16 Laudus MarketMasters Funds LAUDUS INTERNATIONAL MARKETMASTERS FUND FUND FACTS as of 10/31/04 TOP HOLDINGS 1
% OF SECURITY NET ASSETS -------------------------------------------------------------------------------- (1) NESTLE SA 1.4% -------------------------------------------------------------------------------- (2) GLAXOSMITHKLINE PLC 1.3% -------------------------------------------------------------------------------- (3) BAYERISCHE MOTOREN-WERKE AG 1.2% -------------------------------------------------------------------------------- (4) DIAGEO PLC 1.2% -------------------------------------------------------------------------------- (5) CREDIT SUISSE GROUP 1.2% -------------------------------------------------------------------------------- (6) ERICSSON TELEFONAB LM SP 1.2% -------------------------------------------------------------------------------- (7) BANK OF IRELAND 1.1% -------------------------------------------------------------------------------- (8) GRUPO TELEVISA SA DE CV 1.1% -------------------------------------------------------------------------------- (9) EURONEXT N.V. 1.1% -------------------------------------------------------------------------------- (10) TESCO PLC 1.0% -------------------------------------------------------------------------------- TOTAL 11.8%
INVESTMENT MANAGERS AND ALLOCATIONS
% OF INVESTMENT MANAGER INVESTMENT STYLE NET ASSETS -------------------------------------------------------------------------------- AMERICAN CENTURY International 20.6% INVESTMENT Small Company MANAGEMENT, INC. -------------------------------------------------------------------------------- ARTISAN PARTNERS International 20.2% LIMITED PARTNERSHIP Growth -------------------------------------------------------------------------------- HARRIS ASSOCIATES L.P. International 34.9% Value -------------------------------------------------------------------------------- WILLIAM BLAIR & International 22.8% COMPANY, LLC Growth --------------------------------------------------------------------------------
STATISTICS NUMBER OF HOLDINGS 405 -------------------------------------------------------------------------------- WEIGHTED AVERAGE MARKET CAP ($ x 1,000,000) $22,116 -------------------------------------------------------------------------------- PRICE/EARNINGS RATIO (P/E) 21.0 -------------------------------------------------------------------------------- PRICE/BOOK RATIO (P/B) 2.5 -------------------------------------------------------------------------------- PORTFOLIO TURNOVER RATE 69% -------------------------------------------------------------------------------- MINIMUM INITIAL INVESTMENT 2 Investor Shares ($1,000 for retirement and custodial accounts) $2,500 Select Shares $25,000 --------------------------------------------------------------------------------
SECTOR AND COUNTRY WEIGHTINGS % of portfolio These charts show the Fund's sector and country composition as of the report date. A sector is a portion of the overall stock market that is made up of industries whose business components share similar characteristics. SECTOR [PIE CHART] 30.0% MATERIALS & SERVICES 21.8% FINANCE 16.3% CONSUMER NON-DURABLES 6.4% TRANSPORTATION 5.6% TECHNOLOGY 5.5% CAPITAL GOODS 3.8% CONSUMER DURABLES 3.4% ENERGY 3.4% UTILITIES 3.8% CASH & CASH EQUIVALENTS COUNTRY [PIE CHART] 18.0% UNITED KINGDOM 15.9% JAPAN 8.7% SWITZERLAND 8.0% FRANCE 7.8% GERMANY 3.8% NETHERLANDS 3.3% ITALY 3.2% CANADA 2.6% AUSTRALIA 24.9% OTHER COUNTRIES 3.8% CASH & CASH EQUIVALENTS Portfolio holdings may have changed since the report date. 1 This list is not a recommendation of any security by the investment adviser. 2 Please see prospectus for further detail and eligibility requirements. Laudus MarketMasters Funds 17 FUND EXPENSES EXAMPLES FOR A $1,000 INVESTMENT As a Fund shareholder, you incur two types of costs: transaction costs, such as redemption fees; and, ongoing costs, such as management fees, transfer agent and shareholder services fees, and other fund expenses. The expense examples below are intended to help you understand your ongoing cost (in dollars) of investing in a fund and to compare this cost with the ongoing cost of investing in other mutual funds. These examples are based on an investment of $1,000 invested for six-months beginning May 1, 2004 and held through October 31, 2004. ACTUAL RETURN lines in the table below provide information about actual account values and actual expenses. You may use this information, together with the amount you invested, to estimate the expenses that you paid over the period. To do so, simply divide your account value by $1,000 (for example, an $8,600 account value / $1,000 = 8.6), then multiply the result by the number given for your fund or share class under the heading entitled "Expenses Paid During Period." HYPOTHETICAL RETURN lines in the table below provide information about hypothetical account values and hypothetical expenses based on a fund's or share class' actual expense ratio and an assumed return of 5% per year before expenses. Because the return used is not an actual return, it may not be used to estimate the actual ending account value or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only, and do not reflect any transactional costs, such as redemption fees. If these transactional costs were included, your costs would have been higher.
ENDING BEGINNING ACCOUNT VALUE EXPENSES EXPENSE RATIO 1 ACCOUNT VALUE (Net of Expenses) PAID DURING PERIOD (Annualized) at 5/1/04 at 10/31/04 5/1/04-10/31/04 --------------------------------------------------------------------------------------------------------------- LAUDUS U.S. MARKETMASTERS FUND(TM) Investor Shares Actual Return 1.25% $1,000 $991.30 $6.26 2 Hypothetical 5% Return 1.25% $1,000 $1,018.85 $6.34 2 Select Shares(R) Actual Return 1.07% $1,000 $990.40 $4.36 3 Hypothetical 5% Return 1.07% $1,000 $1,019.76 $4.43 3 --------------------------------------------------------------------------------------------------------------- LAUDUS BALANCED MARKETMASTERS FUND(TM) Investor Shares Actual Return 1.10% $1,000 $1,036.70 $5.63 2 Hypothetical 5% Return 1.10% $1,000 $1,019.61 $5.58 2 Select Shares Actual Return 0.95% $1,000 $1,027.70 $3.97 4 Hypothetical 5% Return 0.95% $1,000 $1,020.36 $3.96 4
1 Based on the most recent six-month expense ratio; may differ from the expense ratio provided in Financial Highlights. 2 Expenses for the share class are equal to that share class' annualized expense ratio, multiplied by the average account value over the period, multiplied by 184 days of the period, and divided by 366 days of the fiscal year. 3 Expenses for the share class are equal to the share class' annualized expense ratio, multiplied by the average account value over the period, multiplied by 150 days of the period (from 6/4/04, commencement of operations through 10/31/04), and divided by 366 days of the fiscal year. 4 Expenses for the share class are equal to the share class' annualized expense ratio, multiplied by the average account value over the period, multiplied by 151 days of the period (from 6/3/04, commencement of operations through 10/31/04), and divided by 366 days of the fiscal year. 18 Laudus MarketMasters Funds FUND EXPENSES continued
ENDING BEGINNING ACCOUNT VALUE EXPENSES EXPENSE RATIO 1 ACCOUNT VALUE (Net of Expenses) PAID DURING PERIOD (Annualized) at 5/1/04 at 10/31/04 5/1/04-10/31/04 ------------------------------------------------------------------------------------------------ LAUDUS SMALL-CAP MARKETMASTERS FUND(TM) Investor Shares Actual Return 1.55% $1,000 $1,042.80 $7.96 2 Hypothetical 5% Return 1.55% $1,000 $1,017.34 $7.86 2 Select Shares Actual Return 1.37% $1,000 $1,006.60 $5.45 3 Hypothetical 5% Return 1.37% $1,000 $1,018.25 $5.48 3 ------------------------------------------------------------------------------------------------ LAUDUS INTERNATIONAL MARKETMASTERS FUND(TM) Investor Shares Actual Return 1.65% $1,000 $1,031.90 $8.43 2 Hypothetical 5% Return 1.65% $1,000 $1,016.84 $8.36 2 Select Shares Actual Return 1.47% $1,000 $1,032.60 $7.51 2 Hypothetical 5% Return 1.47% $1,000 $1,017.75 $7.46 2
1 Based on the most recent six-month expense ratio; may differ from the expense ratio provided in Financial Highlights. 2 Expenses for the share class are equal to that share class' annualized expense ratio, multiplied by the average account value over the period, multiplied by 184 days of the period, and divided by 366 days of the fiscal year. 3 Expenses for the share class are equal to the share class' annualized expense ratio, multiplied by the average account value over the period, multiplied by 145 days of the period (from 6/9/04, commencement of operations through 10/31/04), and divided by 366 days of the fiscal year. Laudus MarketMasters Funds 19 LAUDUS U.S. MARKETMASTERS FUND(TM) FINANCIAL STATEMENTS FINANCIAL HIGHLIGHTS
11/1/03- 11/1/02- 11/1/01- 11/1/00- 11/1/99- INVESTOR SHARES 10/31/04 10/31/03 10/31/02 10/31/01 10/31/00 ----------------------------------------------------------------------------------------------------------------- PER-SHARE DATA ($) ----------------------------------------------------------------------------------------------------------------- Net asset value at beginning of period 9.94 7.48 9.20 13.89 14.06 ------------------------------------------------------------- Income or loss from investment operations: Net investment income or loss (0.03) (0.01) 0.06 0.38 0.38 Net realized and unrealized gains or losses 0.39 2.47 (1.68) (3.21) 1.55 ------------------------------------------------------------- Total income or loss from investment operations 0.36 2.46 (1.62) (2.83) 1.93 Less distributions: Dividends from net investment income -- -- (0.10) (0.46) (0.33) Distributions from net realized gains -- -- -- (1.40) (1.77) ------------------------------------------------------------- Total distributions -- -- (0.10) (1.86) (2.10) ------------------------------------------------------------- Net asset value at end of period 10.30 9.94 7.48 9.20 13.89 ------------------------------------------------------------- Total return (%) 3.62 32.89 (17.92) (22.81) 12.98 RATIOS/SUPPLEMENTAL DATA (%) ----------------------------------------------------------------------------------------------------------------- Ratios to average net assets: Net operating expenses 1.25 1.25 0.83 1,2 0.50 2 0.51 2,3 Gross operating expenses 1.39 1.42 1.16 2 0.89 2 0.89 2 Net investment income or loss (0.25) (0.12) 0.50 3.27 2.34 Portfolio turnover rate 72 97 390 145 179 Net assets, end of period ($ x 1,000,000) 180 169 129 176 248
1 The ratio of net operating expenses would have been 0.74% if certain non-routine expenses (proxy fees) had not been included. 2 Prior to the fund's change in structure on June 3, 2002, the expenses incurred by underlying funds in which the fund invested were not included in this ratio. 3 The ratio of net operating expenses would have been 0.50% if certain non-routine expenses (proxy fees) had not been included. 20 See financial notes. LAUDUS U.S. MARKETMASTERS FUND
6/4/04 1- SELECT SHARES 10/31/04 -------------------------------------------------------------------------------- PER-SHARE DATA ($) -------------------------------------------------------------------------------- Net asset value at beginning of period 10.42 ----------------------------- Income or loss from investment operations: Net investment loss (0.00) 2 Net realized and unrealized losses (0.10) ----------------------------- Total loss from investment operations (0.10) ----------------------------- Net asset value at end of period 10.32 ----------------------------- Total return (%) (0.96) 3 RATIOS/SUPPLEMENTAL DATA (%) -------------------------------------------------------------------------------- Ratios to average net assets: Net operating expenses 1.07 4 Gross operating expenses 1.37 4 Net investment loss (0.08) 4 Portfolio turnover rate 72 3 Net assets, end of period ($ x 1,000,000) 1
1 Commencement of operations. 2 Per share amount was less than $0.01. 3 Not annualized. 4 Annualized. See financial notes. 21 LAUDUS U.S. MARKETMASTERS FUND PORTFOLIO HOLDINGS as of October 31, 2004 This section shows all the securities in the fund's portfolio by industry classification and their value, as of the report date. The fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The fund's Form N-Q will be available on the SEC'S website at http://www.sec.gov and may be reviewed and copied at the SEC'S Public Reference Room in Washington, D.C. Call 1-800-SEC-0330 for information on the operation of the Public Reference Room. The schedule of portfolio holdings filed on the fund's most recent Form N-Q will be available by visiting Schwab's website at www.schwab.com/schwabfunds. We use the symbol below to designate certain characteristics of the securities. With the top ten holdings, the number in the circle is the security's rank among the top ten. (1) Top ten holding o Non-income producing security
COST VALUE HOLDINGS BY CATEGORY ($x1,000) ($x1,000) -------------------------------------------------------------------------------- 95.5% COMMON STOCK 152,925 172,855 1.0% FOREIGN COMMON STOCK 1,558 1,850 0.0% SHORT-TERM INVESTMENTS 100 100 3.6% OTHER INVESTMENTS 6,444 6,444 -------------------------------------------------------------------------------- 100.1% TOTAL INVESTMENTS 161,027 181,249 (0.1)% OTHER ASSETS AND LIABILITIES, NET (240) -------------------------------------------------------------------------------- 100.0% TOTAL NET ASSETS 181,009
VALUE SECURITY AND NUMBER OF SHARES ($ x 1,000) COMMON STOCK 95.5% of net assets AIR TRANSPORTATION 1.3% -------------------------------------------------------------------------- Southwest Airlines, Inc. 143,832 2,268 APPAREL 0.5% -------------------------------------------------------------------------- Jones Apparel Group, Inc. 26,465 934 BANKS 5.3% -------------------------------------------------------------------------- Bank of America Corp. 29,900 1,339 Bank of New York Co., Inc. 57,700 1,873 BankNorth Group, Inc. 24,100 850 (8) JP Morgan Chase & Co. 63,700 2,459 Mellon Financial Corp. 23,900 691 North Fork Bancorp, Inc. 24,100 1,063 Wells Fargo & Co. 13,900 830 Zions Bancorp. 7,400 489 ----------- 9,594 BUSINESS MACHINES & SOFTWARE 4.4% -------------------------------------------------------------------------- o Cisco Systems, Inc. 67,850 1,303 o Dell Computer Corp. 46,700 1,637 o EMC Corp. 51,980 669 o Maxtor Corp. 10,100 30 (4) Microsoft Corp. 112,250 3,142 o Siebel Systems, Inc. 57,100 543 o Unisys Corp. 64,600 686 ----------- 8,010 BUSINESS SERVICES 9.6% -------------------------------------------------------------------------- o Accenture Ltd. 15,650 379 o Affiliated Computer Services, Inc. 17,500 955 Cendant Corp. 70,000 1,441 o CheckFree Corp. 18,850 584 o eBay, Inc. 16,800 1,640 o Eclipsys Corp. 50,700 860 First Data Corp. 56,300 2,324 o FTI Consulting, Inc. 31,900 599 o IAC InterActiveCorp. 29,400 636 o Interpublic Group of Cos., Inc. 71,400 875 o McAfee, Inc. 51,100 1,237 o Nortel Networks Corp. 194,200 658 Reynolds & Reynolds Co., Class A 26,000 640 o Sungard Data Systems, Inc. 25,600 678 o Veritas Software Corp. 50,500 1,105 Waste Management, Inc. 70,000 1,994 o Yahoo! Inc. 23,800 861 ----------- 17,466
22 See financial notes. LAUDUS U.S. MARKETMASTERS FUND
VALUE SECURITY AND NUMBER OF SHARES ($ x 1,000) CHEMICAL 0.4% -------------------------------------------------------------------------- o Entegris, Inc. 73,800 683 CONSUMER DURABLES 1.3% -------------------------------------------------------------------------- Hillenbrand Industries, Inc. 19,300 960 Leggett & Platt, Inc. 23,100 650 o Tempur-Pedic International, Inc. 47,650 774 ----------- 2,384 ELECTRONICS 13.1% -------------------------------------------------------------------------- o Agere Systems, Inc., Class B 737,600 848 o Alliant Techsystems, Inc. 13,900 799 o Altera Corp. 30,800 700 o Andrew Corp. 62,500 874 Anixter International, Inc. 23,000 889 o Applied Materials, Inc. 59,150 952 o Arrow Electronics, Inc. 37,600 901 o Broadcom Corp., Class A 34,600 936 o Celestica, Inc. 52,335 758 o Cox Radio, Inc. 14,800 235 o Cypress Semiconductor Corp. 77,100 812 o Fairchild Semiconductor Corp. 69,900 1,005 Intel Corp. 65,450 1,457 o Jabil Circuit, Inc. 17,500 425 Maxim Integrated Products, Inc. 16,550 728 National Semiconductor Corp. 62,025 1,036 o Nextel Communications, Inc., Class A 45,900 1,216 o Novellus Systems, Inc. 41,600 1,078 PerkinElmer, Inc. 41,450 851 Qualcomm, Inc. 12,650 529 o Teradyne, Inc. 67,700 1,121 Texas Instruments, Inc. 88,950 2,175 o Thermo Electron Corp. 30,100 873 o Ultra Clean Holdings, Inc. 74,500 390 o Uniphase Corp. 156,850 497 o Varian, Inc. 17,200 628 o Vishay Intertechnology, Inc. 80,300 1,038 ----------- 23,751 ENERGY: RAW MATERIALS 1.3% -------------------------------------------------------------------------- o Cooper Cameron Corp. 18,100 875 Devon Energy Corp. 13,500 999 ENSCO International, Inc. 14,300 437 ----------- 2,311 FOOD & AGRICULTURE 1.7% -------------------------------------------------------------------------- Coca-Cola Co. 25,400 1,033 The Pepsi Bottling Group, Inc. 74,000 2,075 ----------- 3,108 HEALTHCARE / DRUGS & MEDICINE 13.1% -------------------------------------------------------------------------- Abbott Laboratories 18,050 770 Allergan, Inc. 7,150 512 o Amgen, Inc. 27,600 1,568 o Anthem, Inc. 11,900 957 Baxter International, Inc. 60,000 1,846 Beckman Coulter, Inc. 12,300 732 Cardinal Health, Inc. 20,500 958 o Caremark Rx, Inc. 25,500 764 o Charles River Laboratories, Inc. 17,900 838 o Edwards Lifesciences Corp. 24,500 837 o Genzyme Corp. 13,100 687 (2) Guidant Corp. 58,150 3,874 Health Management Associates, Inc. 79,500 1,642 o Health Net, Inc. 46,350 1,124 Johnson & Johnson, Inc. 15,100 882 (5) Pfizer, Inc. 107,950 3,125 o St. Jude Medical, Inc. 1,950 149 United Healthcare Corp. 16,400 1,187 Wyeth 14,100 559 o Zimmer Holdings, Inc. 8,650 671 ----------- 23,682 HOUSEHOLD PRODUCTS 0.5% -------------------------------------------------------------------------- Colgate-Palmolive Co. 18,300 816 INSURANCE 3.9% -------------------------------------------------------------------------- Aetna, Inc. 6,000 570 American International Group, Inc. 32,250 1,958 Arthur J. Gallagher & Co. 11,900 334 Assurant, Inc. 40,500 1,093 Lincoln National Corp. 1,600 70
See financial notes. 23 LAUDUS U.S. MARKETMASTERS FUND PORTFOLIO HOLDINGS continued
VALUE SECURITY AND NUMBER OF SHARES ($ x 1,000) Marsh & McLennan Cos., Inc. 37,400 1,035 Old Republic International Corp. 28,800 672 St. Paul Cos., Inc. 39,000 1,324 ----------- 7,056 MEDIA 8.5% -------------------------------------------------------------------------- o Cablevision Systems New York Group, Class A 100,000 2,058 o Comcast Corp., Class A 55,450 1,610 o Directv Group, Inc. 79,111 1,327 o Dreamworks Animation 2,500 98 o EchoStar Communications Corp. 24,700 781 o Entercom Communications Corp. 8,200 272 o Fox Entertainment Group, Inc., Class A 40,200 1,192 Gannett, Inc. 7,550 626 o Liberty Media International, Inc., Class A 11,400 411 Nokia Corp., Class A 45,800 706 Readers Digest Association, Inc. 36,470 514 The Walt Disney Co. 29,800 752 o(1) Time Warner, Inc. 248,500 4,135 Viacom, Inc., Class B 13,950 509 o Westwood One, Inc. 14,600 337 ----------- 15,328 MISCELLANEOUS FINANCE 6.9% -------------------------------------------------------------------------- (6) Citigroup, Inc. 57,050 2,531 o E*TRADE Group, Inc. 46,500 600 Fannie Mae 27,900 1,957 o Jackson Hewitt Tax Service, Inc. 4,550 96 Merrill Lynch & Co., Inc. 12,250 661 o Piper Jaffray Cos., Inc. 11,300 494 Sovereign Bancorp, Inc. 100,000 2,165 T.Rowe Price Group, Inc. 21,100 1,177 The Goldman Sachs Group, Inc. 7,650 753 Washington Mutual, Inc. 50,200 1,943 ----------- 12,377 NON-DURABLES & ENTERTAINMENT 4.1% -------------------------------------------------------------------------- o American Greetings Corp., Class A 37,800 1,000 Darden Restaurants, Inc. 38,800 951 o EMCOR Group, Inc. 16,355 647 McDonalds Corp. 80,000 2,332 (9) Yum! Brands, Inc. 56,000 2,436 ----------- 7,366 OIL: DOMESTIC 1.6% -------------------------------------------------------------------------- o Transocean, Inc. 29,650 1,045 Unocal Corp. 46,700 1,950 ----------- 2,995 OIL: INTERNATIONAL 1.2% -------------------------------------------------------------------------- Exxon Mobil Corp. 43,100 2,121 PAPER & FOREST PRODUCTS 0.3% -------------------------------------------------------------------------- o Smurfit-Stone Container Corp. 27,700 481 PRODUCER GOODS & MANUFACTURING 3.9% -------------------------------------------------------------------------- Dover Corp. 13,600 534 Emerson Electric Co. 11,400 730 (3) General Electric Co. 105,750 3,608 Grainger, Inc. 18,400 1,078 Pall Corp. 22,600 585 York International Corp. 18,600 592 ----------- 7,127 RAILROADS 0.7% -------------------------------------------------------------------------- Union Pacific Corp. 20,600 1,297 RETAIL 7.2% -------------------------------------------------------------------------- o Autozone, Inc. 5,100 417 (10) Costco Cos., Inc. 50,000 2,397 Home Depot, Inc. 14,650 602 o Linens 'n Things, Inc. 38,391 925 Lowe's Cos., Inc. 25,400 1,430 Talbots, Inc. 32,700 863 Target Corp. 18,800 940 The Gap, Inc. 90,000 1,798 The TJX Max Cos., Inc. 24,700 592 Tiffany & Co. 72,200 2,118 Wal-Mart Stores, Inc. 18,850 1,016 ----------- 13,098
24 See financial notes. LAUDUS U.S. MARKETMASTERS FUND
VALUE SECURITY AND NUMBER OF SHARES ($ x 1,000) TELEPHONE 2.9% -------------------------------------------------------------------------- Alltel Corp. 24,300 1,335 o Crown Castle International Corp. 25,900 396 o Ditech Communications Corp. 21,800 500 o Liberty Media Corp., Class A 190,000 1,695 o NII Holdings, Inc. 30,600 1,355 ----------- 5,281 TRAVEL & RECREATION 1.8% -------------------------------------------------------------------------- (7) Carnival Corp. 50,000 2,528 Harrah's Entertainment, Inc. 13,550 793 ----------- 3,321 FOREIGN COMMON STOCK 1.0% of net assets SOUTH KOREA 0.4% -------------------------------------------------------------------------- Samsung Electronics Co. Ltd. Preferred 1,800 707 UNITED KINGDOM 0.6% -------------------------------------------------------------------------- o Lloyds TSB Group PLC 144,800 1,143
SECURITY FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) SHORT-TERM INVESTMENTS 0.0% of net assets U.S. GOVERNMENT SECURITIES 0.0% -------------------------------------------------------------------------- U.S. Treasury Bills 1.63%, 12/15/04 100 100
VALUE SECURITY AND NUMBER OF SHARES ($ x 1,000) OTHER INVESTMENTS 3.6% of net assets OTHER INVESTMENT COMPANIES 3.6% -------------------------------------------------------------------------- Provident Institutional Funds- TempCash 2,023,212 2,023 Provident Institutional Funds- TempFund 4,420,945 4,421 ----------- 6,444
END OF INVESTMENTS. See financial notes. 25 LAUDUS U.S. MARKETMASTERS FUND Statement of ASSETS AND LIABILITIES As of October 31, 2004. All numbers x 1,000 except NAV. ASSETS ------------------------------------------------------------------------------ Investments, at value $181,249 a Receivables: Fund shares sold 39 Dividends 160 Investments sold 1,198 Prepaid expenses + 37 ----------- TOTAL ASSETS 182,683 LIABILITIES ------------------------------------------------------------------------------ Bank overdraft 632 Payables: Fund shares redeemed 154 Investments bought 824 Investment adviser and administrator fees 13 Transfer agency and shareholder service fees 4 Accrued expenses + 47 ----------- TOTAL LIABILITIES 1,674 NET ASSETS ------------------------------------------------------------------------------ TOTAL ASSETS 182,683 TOTAL LIABILITIES - 1,674 ----------- NET ASSETS $181,009 NET ASSETS BY SOURCE Capital received from investors 214,420 Net realized capital losses (53,633) b Net unrealized capital gains 20,222 b NET ASSET VALUE (NAV) BY SHARE CLASS SHARES SHARE CLASS NET ASSETS / OUTSTANDING = NAV Investor Shares $179,799 17,461 $10.30 Select Shares $1,210 117 $10.32
Unless stated, all numbers x 1,000. a The fund paid $161,027 for these securities. Not counting short-term obligations and government securities, the fund's security transactions during the period were: Purchases $136,745 Sales/maturities $125,930 b These derive from investments, foreign currency transactions and futures. FEDERAL TAX DATA ----------------------------------------------------- PORTFOLIO COST $163,640 NET UNREALIZED GAINS AND LOSSES: Gains $23,579 Losses + (5,970) ------------- $17,609 AS OF OCTOBER 31, 2004: NET UNDISTRIBUTED EARNINGS: Ordinary income $-- Long-term capital gains $-- CAPITAL LOSSES UTILIZED $11,740 UNUSED CAPITAL LOSSES: Expires 10/31 of: Loss amount: 2009 $16,032 2010 34,385 2011 + 604 ------------- $51,021 RECLASSIFICATIONS: Net investment income not yet distributed $469 RECLASSIFIED AS: Net realized capital gains $20 Capital received from investors ($489) 26 See financial notes. LAUDUS U.S. MARKETMASTERS FUND Statement of OPERATIONS For November 1, 2003 through October 31, 2004. All numbers x 1,000. INVESTMENT INCOME ------------------------------------------------------------------------------ Dividends $1,874 a Interest + 6 ---------- TOTAL INVESTMENT INCOME 1,880 NET REALIZED GAINS AND LOSSES ------------------------------------------------------------------------------ Net realized gains on investments 9,937 Net realized gains of futures contracts 608 Net realized losses on foreign currency transactions + (13) ---------- NET REALIZED GAINS 10,532 NET UNREALIZED GAINS AND LOSSES ------------------------------------------------------------------------------ Net unrealized losses on investments (4,861) Net unrealized losses on futures contracts + (169) ---------- NET UNREALIZED LOSSES (5,030) EXPENSES ------------------------------------------------------------------------------ Investment adviser and administrator fees 1,880 b Transfer agent and shareholder service fees: Investor shares 469 c Select shares 1 c Trustees' fees 6 d Custodian and portfolio accounting fees 131 Professional fees 44 Registration fees 22 Shareholder reports 57 Other expenses + 6 ---------- Total expenses 2,616 Expense reduction - 267 e ---------- NET EXPENSES 2,349 INCREASE IN NET ASSETS FROM OPERATIONS ------------------------------------------------------------------------------ TOTAL INVESTMENT INCOME 1,880 NET EXPENSES - 2,349 ---------- NET INVESTMENT LOSS (469) NET REALIZED GAINS 10,532 f NET UNREALIZED LOSSES + (5,030) f ---------- INCREASE IN NET ASSETS FROM OPERATIONS $5,033
Unless stated, all numbers x 1,000. a Net of $13 foreign withholding tax. b Calculated as 1.00% of average daily net assets. These fees are paid to Charles Schwab Investment Management, Inc. (CSIM) c 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% and 0.15% of the assets of each respective share class. These fees are paid to Charles Schwab & Co., Inc. (Schwab). d For the fund's independent trustees only. e This reduction was made by the investment advisor (CSIM). It reflects a guarantee by CSIM and the transfer agent and shareholder service agent (Schwab) to limit the operating expenses of this fund through February 28, 2005 for Investor shares and February 28, 2006 for Select shares, as follows: % OF AVERAGE SHARE CLASS DAILY NET ASSETS ----------------------------------------- Investor Shares 1.25 Select Shares 1.07 This limit excludes interest, taxes and certain non-routine expenses. f These add up to a net gain on investments of $5,502. See financial notes. 27 LAUDUS U.S. MARKETMASTERS FUND Statements of CHANGES IN NET ASSETS For the current and prior report periods. All numbers x 1,000.
OPERATIONS -------------------------------------------------------------------------------- 11/1/03-10/31/04 11/1/02-10/31/03 Net investment loss (469) ($170) Net realized gains 10,532 30 Net unrealized gains or losses + (5,030) 40,130 ------------------------------------ INCREASE IN NET ASSETS FROM OPERATIONS $5,033 $39,990
TRANSACTIONS IN FUND SHARES a -------------------------------------------------------------------------------- 11/1/03-10/31/04 11/1/02-10/31/03 SHARES VALUE SHARES VALUE SHARES SOLD Investor Shares 4,950 $52,179 3,184 $28,358 Select Shares + 118 1,210 -- -- --------------------------------------------------- TOTAL SHARES SOLD 5,068 $53,389 3,184 $28,358 SHARES REDEEMED Investor Shares (4,454) ($46,021) (3,420) ($28,461) Select Shares + (1) (11) -- -- --------------------------------------------------- TOTAL SHARES REDEEMED (4,455) ($46,032) (3,420) ($26,461) NET TRANSACTIONS IN FUND SHARES 613 $7,357 (236) ($103)
SHARES OUTSTANDING AND NET ASSETS -------------------------------------------------------------------------------- 11/1/03-10/31/04 11/1/02-10/31/03 SHARES NET ASSETS SHARES NET ASSETS Beginning of period 16,965 $168,619 17,201 $128,732 Total increase or decrease + 613 12,390 (236) 39,887 b --------------------------------------------------- END OF PERIOD 17,578 $181,009 16,965 $168,619 c
Unless stated, all numbers x 1,000. a The fund started offering Select shares on June 4, 2004. b Figures for shares represent shares sold plus shares reinvested, minus shares redeemed. Figures for net assets represent the changes in net assets from operations plus the changes in value of transactions in fund shares, minus distributions paid. c There was no distributable net investment income at the end of the current and prior period. 28 See financial notes. LAUDUS BALANCED MARKETMASTERS FUND(TM) Financial Statements FINANCIAL HIGHLIGHTS
11/1/03- 11/1/02- 11/1/01- 11/1/00- 11/1/99- INVESTOR SHARES 10/31/04 10/31/03 10/31/02 10/31/01 10/31/00 ------------------------------------------------------------------------------------------------------------------------------------ PER-SHARE DATA ($) ------------------------------------------------------------------------------------------------------------------------------------ Net asset value at beginning of period 11.07 9.35 10.12 13.44 13.44 -------------------------------------------------------------------- Income or loss from investment operations: Net investment income 0.08 0.12 0.20 0.43 0.45 Net realized and unrealized gains or losses 0.86 1.75 (0.73) (2.12) 1.18 -------------------------------------------------------------------- Total income or loss from investment operations 0.94 1.87 (0.53) (1.69) 1.63 Less distributions: Dividends from net investment income (0.13) (0.15) (0.24) (0.52) (0.35) Distributions from net realized gains -- -- -- (1.11) (1.28) -------------------------------------------------------------------- Total distributions (0.13) (0.15) (0.24) (1.63) (1.63) -------------------------------------------------------------------- Net asset value at end of period 11.88 11.07 9.35 10.12 13.44 -------------------------------------------------------------------- Total return (%) 8.59 20.25 (5.55) (13.95) 12.00 RATIOS/SUPPLEMENTAL DATA (%) ------------------------------------------------------------------------------------------------------------------------------------ Ratios to average net assets: Net operating expenses 1.10 1.10 0.76 1,2 0.50 2 0.51 2,3 Gross operating expenses 1.32 1.33 1.10 2 0.89 2 0.90 2 Net investment income 0.68 1.13 1.89 3.67 3.18 Portfolio turnover rate 242 256 380 95 114 Net assets, end of period ($ x 1,000,000) 130 109 97 118 153
1 The ratio of net operating expenses would have been 0.72% if certain non-routine expenses (proxy fees) had not been included. 2 Prior to the fund's change in structure on June 3, 2002, the expenses incurred by underlying funds in which the fund invested were not included in this ratio. 3 The ratio of net operating expenses would have been 0.50% if certain non-routine expenses (proxy fees) had not been included. See financial notes. 29 LAUDUS BALANCED MARKETMASTERS FUND
6/3/04 1- SELECT SHARES 10/31/04 -------------------------------------------------------------------------------- PER-SHARE DATA ($) -------------------------------------------------------------------------------- Net asset value at beginning of period 11.57 ------------------ Income or loss from investment operations: Net investment income 0.02 Net realized and unrealized gains 0.30 ------------------ Total income from investment operations 0.32 ------------------ Net asset value at end of period 11.89 ------------------ Total return (%) 2.77 2 RATIOS/SUPPLEMENTAL DATA (%) -------------------------------------------------------------------------------- Ratios to average net assets: Net operating expenses 0.95 3 Gross operating expenses 1.29 3 Net investment income 0.73 3 Portfolio turnover rate 242 2 Net assets, end of period ($ x 1,000,000) 2
1 Commencement of operations. 2 Not annualized. 3 Annualized. 30 See financial notes. LAUDUS BALANCED MARKETMASTERS FUND PORTFOLIO HOLDINGS as of October 31, 2004 This section shows all the securities in the fund's portfolio by industry classification and their value, as of the report date. The fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The fund's Form N-Q will be available on the SEC'S website at http://www.sec.gov and may be reviewed and copied at the SEC'S Public Reference Room in Washington, D.C. Call 1-800-SEC-0330 for information on the operation of the Public Reference Room. The schedule of portfolio holdings filed on the fund's most recent Form N-Q will be available by visiting Schwab's website at www.schwab.com/schwabfunds. We use the symbol below to designate certain characteristics of the securities. With the top ten holdings, the number in the circle is the security's rank among the top ten. (1) Top ten holding o Non-income producing security = All or a portion of this security is held as collateral for futures contracts, short sales, swap agreements and delayed-delivery security * American Depository Receipt + Credit-enhanced security ~ Delayed-delivery security For fixed-rate obligations, the rate shown is the interest rate (the rate established when the obligation was issued) and the maturity date shown is the stated legal maturity. For variable-rate obligations, the rate shown is the rate as of the report date, and the maturity shown is the later of the next interest rate change or demand date.
COST/PROCEEDS VALUE HOLDINGS BY CATEGORY ($x1,000) ($x1,000) -------------------------------------------------------------------------------- 62.1% COMMON STOCK 72,379 81,999 9.1% U.S. GOVERNMENT SECURITIES 11,915 12,020 4.1% FOREIGN GOVERNMENT SECURITIES 5,291 5,443 3.2% CORPORATE BONDS 3,947 4,189 1.3% MUNICIPAL BONDS 1,708 1,712 5.7% AGENCY MORTGAGE- BACKED SECURITIES 7,491 7,562 1.3% NON-AGENCY MORTGAGE- BACKED SECURITIES 1,726 1,719 13.2% SHORT-TERM INVESTMENTS 17,496 17,494 6.8% OTHER INVESTMENTS 8,995 8,995 0.0% OPTIONS 1 1 -------------------------------------------------------------------------------- 106.8% TOTAL INVESTMENTS 130,949 141,134 (6.5)% SHORT SALES (8,460) (8,544) (0.1)% OPTIONS WRITTEN (219) (211) (0.2)% OTHER ASSETS AND LIABILITIES (248) -------------------------------------------------------------------------------- 100.0% TOTAL NET ASSETS 132,131
VALUE SECURITY AND NUMBER OF SHARES ($ x 1,000) COMMON STOCK 62.1% of net assets AEROSPACE / DEFENSE 0.4% -------------------------------------------------------------------------- = Northrop Grumman Corp. 9,700 503 ALCOHOLIC BEVERAGES 0.1% -------------------------------------------------------------------------- = Coors (Adolph) Co., Class B 1,600 107 APPAREL 0.7% -------------------------------------------------------------------------- o= Aeropostale, Inc. 9,800 309 = Jones Apparel Group, Inc. 2,300 81 = Liz Claiborne, Inc. 5,800 237 o= Timberland Co., Class A 5,000 307 ----------- 934
VALUE SECURITY AND NUMBER OF SHARES ($ x 1,000) AUTOMOBILE PRODUCTS / MOTOR VEHICLES 1.7% -------------------------------------------------------------------------- = Autoliv, Inc. 9,000 385 = Cooper Tire & Rubber Co. 5,900 115 = Cummins Engine, Inc. 2,300 161 = Eaton Corp. 2,600 166 = Ford Motor Co. 24,600 321 = Genuine Parts Co. 6,000 239 =* Magna International, Inc. 3,200 233 = Polars Industries Partners LP 6,200 368 o= United Defense Industries, Inc. 4,800 193 ----------- 2,181
See financial notes. 31 LAUDUS BALANCED MARKETMASTERS FUND PORTFOLIO HOLDINGS continued
VALUE SECURITY AND NUMBER OF SHARES ($ x 1,000) BANKS 5.1% -------------------------------------------------------------------------- =(10) Bank of America Corp. 30,200 1,353 = Brookline Bancorp, Inc. 9,900 153 = Comerica, Inc. 7,400 455 = Compass Bancshares, Inc. 4,400 210 =* Doral Financial Corp. 8,300 348 = Hibernia Corp., Class A 5,100 148 = JP Morgan Chase & Co. 12,450 481 = Keycorp 15,400 517 = National City Corp. 14,600 569 = Peoples Bank 5,100 191 = PNC Financial Services Group 11,500 601 = State Street Corp. 4,700 212 = Suntrust Banks, Inc. 2,278 160 = U.S. Bancorp 14,600 418 = UnionBanCal Corp. 6,400 389 = Wachovia Corp. 11,800 581 ----------- 6,786 BUSINESS MACHINES & SOFTWARE 2.7% -------------------------------------------------------------------------- o= 3Com Corp. 22,700 94 o= Advanced Digital Information Corp. 5,500 49 o= Cisco Systems, Inc. 36,500 701 o= Dell Computer Corp. 20,250 710 o= EMC Corp. 22,850 294 o= Foundry Networks, Inc. 12,900 157 o= Integrated Device Technology, Inc. 15,200 180 = International Business Machines Corp. 4,500 404 = Microsoft Corp. 21,450 600 o= Siebel Systems, Inc. 24,900 237 o= Xerox Corp. 7,200 106 ----------- 3,532 BUSINESS SERVICES 3.6% -------------------------------------------------------------------------- o= Accenture Ltd. 6,650 161 = Cendant Corp. 10,300 212 o= Check Point Software Technologies Ltd. 8,300 188 o= CheckFree Corp. 8,150 253 = Deluxe Corp. 7,400 282 o= Earthlink, Inc. 9,200 95 o= eBay, Inc. 7,450 727 = First Data Corp. 4,550 188 = H&R Block, Inc. 3,700 176 o= IAC InterActiveCorp. 20,600 445 o= IDT Corp. 8,700 114 o= Jacobs Engineering Group, Inc. 5,700 232 = Manpower, Inc. 1,500 68 o= Netiq Corp. 10,000 127 o= Nortel Networks Corp. 90,450 307 = Omnicom Group, Inc. 2,000 158 o= Priority Healthcare Corp., Class B 3,700 67 = Republic Services, Inc., Class A 5,200 160 = The ServiceMaster Co. 12,300 158 o= Veritas Software Corp. 5,400 118 o= Verity, Inc. 6,300 81 o= Wireless Facilities, Inc. 13,600 100 o= Yahoo! Inc. 10,050 364 ----------- 4,781 CHEMICAL 0.7% -------------------------------------------------------------------------- = Air Products & Chemicals, Inc. 2,400 128 o= Entegris, Inc. 35,200 326 = Lubrizol Corp. 8,300 288 = The Mosaic Co. 10,800 162 ----------- 904 CONSTRUCTION 2.0% -------------------------------------------------------------------------- = Centex Corp. 3,400 177 = D.R. Horton, Inc. 8,300 249 = KB Home 4,100 337 = Lafarge North America, Inc. 3,700 181 = Masco Corp. 5,000 171 o= NVR, Inc. 600 376 = Pulte Corp. 3,800 209 = Standard Pacific Corp. 5,300 298 = The Ryland Group, Inc. 3,900 372 = The Stanley Works 5,300 236 ----------- 2,606 CONSUMER DURABLES 0.5% -------------------------------------------------------------------------- = Hillenbrand Industries, Inc. 5,400 269 o= Tempur-Pedic International, Inc. 22,300 362 ----------- 631
32 See financial notes. LAUDUS BALANCED MARKETMASTERS FUND
VALUE SECURITY AND NUMBER OF SHARES ($ x 1,000) ELECTRONICS 4.2% -------------------------------------------------------------------------- o= Altera Corp. 13,150 299 = American Power Conversion Corp. 9,000 174 o= Applied Materials, Inc. 25,850 416 o= Arrow Electronics, Inc. 6,600 158 o= Avnet, Inc. 10,200 173 o= Broadcom Corp., Class A 15,600 422 o= Cree, Inc. 2,100 73 o= Fairchild Semiconductor International, Inc. 35,400 509 = Intel Corp. 28,850 642 = Intersil Holding Corp., Class A 10,200 166 o= Jabil Circuit, Inc. 7,750 188 = Maxim Integrated Products, Inc. 7,350 323 = National Semiconductor Corp. 8,700 145 o= Pinnacle Systems, Inc. 5,600 26 = Plantronics, Inc. 1,600 70 o= QLogic Corp. 5,300 172 = Qualcomm, Inc. 9,900 414 o= Synopsys, Inc. 7,500 122 = Texas Instruments, Inc. 16,750 410 o= Ultra Clean Holdings, Inc. 32,150 168 o= Uniphase Corp. 70,950 225 o= Vishay Intertechnology, Inc. 11,600 150 o= Zoran Corp 7,000 71 ----------- 5,516 ENERGY: RAW MATERIALS 1.4% -------------------------------------------------------------------------- = Arch Coal, Inc. 3,700 120 = Canadian Natural Resources Ltd. 5,800 243 o= Cooper Cameron Corp. 3,800 184 = Devon Energy Corp. 2,000 148 o= FMC Technologies, Inc. 2,900 88 o= Forest Oil Corp. 7,600 232 = Hewlett Packard Co. 7,600 142 = Joy Global, Inc. 3,600 121 o= Key Energy Group, Inc. 5,800 67 o= Noble Corp. 1,700 78 = Noble Energy, Inc. 3,200 185 = Valero Energy Corp. 5,400 232 o= Weatherford International Ltd. 1,400 73 ----------- 1,913 FOOD & AGRICULTURE 1.9% -------------------------------------------------------------------------- o= 7-Eleven, Inc. 2,500 53 = Agrium, Inc. 30,500 506 = Coca-Cola Co. 11,250 457 = H.J. Heinz Co. 5,100 185 = Potash Corporation of Saskatchewan, Inc. 6,200 414 = Supervalu, Inc. 20,400 602 = The Pepsi Bottling Group, Inc. 8,900 250 = Tyson Foods, Inc. 2,400 35 ----------- 2,502 HEALTHCARE / DRUGS & MEDICINE 4.8% -------------------------------------------------------------------------- = Abbott Laboratories 7,150 305 o= Accredo Heath, Inc. 5,900 136 = Allergan, Inc. 3,150 225 o= Amgen, Inc. 5,200 295 = Bausch & Lomb, Inc. 2,800 171 = Cardinal Health, Inc. 8,600 402 o= Caremark Rx, Inc. 11,000 330 o= Genzyme Corp. 5,600 294 = Guidant Corp. 5,250 350 = HCA, Inc. 5,300 195 o= Humana, Inc. 3,900 75 = Invacare Corp. 1,800 83 = Johnson & Johnson, Inc. 9,900 578 o= Laboratory Corporation of America Holdings 5,200 238 o= Lifepoint Hospitals, Inc. 3,800 123 = Manor Care, Inc. 5,200 170 = McKesson Corp. 7,550 201 = Merck & Co., Inc. 6,700 210 = Omnicare, Inc. 8,500 235 = Pfizer, Inc. 24,600 712 o= Province Healthcare Co. 6,600 141 o= St. Jude Medical, Inc. 850 65 o= Steris Corp. 11,200 232 = Wyeth 6,600 262 o= Zimmer Holdings, Inc. 4,050 314 ----------- 6,342
See financial notes. 33 LAUDUS BALANCED MARKETMASTERS FUND PORTFOLIO HOLDINGS continued
VALUE SECURITY AND NUMBER OF SHARES ($ x 1,000) HOUSEHOLD PRODUCTS 0.2% -------------------------------------------------------------------------- = Clorox Co. 4,700 257 INSURANCE 3.1% -------------------------------------------------------------------------- = Aetna, Inc. 7,700 731 = Allstate Corp. 14,000 673 = American International Group, Inc. 4,950 300 = Everest Reinsurance Group Ltd. 1,900 151 = Fidelity National Financial, Inc. 10,037 379 = Fremont General Corp. 11,300 243 = Loews Corp. 3,600 216 = Mercury General Corp. 4,600 237 = Old Republic International Corp. 14,450 337 = PMI Group, Inc. 8,400 326 = Principal Financial Group, Inc. 4,600 174 = Radian Group, Inc. 7,600 364 ----------- 4,131 MEDIA 2.2% -------------------------------------------------------------------------- = Belo Corp., Class A 5,100 119 o= Comcast Corp., Class A 8,300 241 o= Dreamworks Animation 1,100 43 o= EchoStar Communications Corp. 11,050 349 = Gannett, Inc. 3,600 299 = McGraw Hill Cos., Inc. 5,300 457 = Nokia Corp., Class A 20,050 309 = The Walt Disney Co. 13,200 333 o= Time Warner, Inc. 21,200 353 = Tribune Co. 4,000 173 = Viacom, Inc., Class B 7,250 264 ----------- 2,940 MISCELLANEOUS FINANCE 7.4% -------------------------------------------------------------------------- = Archstone Communities Trust 4,900 164 = Astoria Financial Corp. 4,800 188 o= Berkshire Hathaway, Inc., Class B 126 353 = CIT Group, Inc. 18,800 759 =(4) Citigroup, Inc. 51,050 2,265 = Countrywide Credit Industries, Inc. 15,600 498 = Fannie Mae 2,000 140 = Federated Investors, Inc. 6,300 183 = Franklin Resources, Inc. 2,400 145 = Home Properties of New York, Inc. 5,500 226 = Independence Community Bank Corp. 11,000 414 = IndyMac Bankcorp., Inc. 8,500 274 = IPC Holdings Ltd. 14,500 587 o= Jackson Hewitt Tax Service, Inc. 1,900 40 = Legg Mason, Inc. 2,850 182 = LNR Property Corp. 3,000 188 = MBNA Corp. 8,400 215 = MDC Holdings, Inc. 4,400 338 = Merrill Lynch & Co., Inc. 5,450 294 = Provident Financial Services, Inc. 10,700 193 o= Providian Financial Corp. 12,200 190 = R & G Financial Corp., Class B 6,900 260 = The Bear Stearns Cos., Inc. 2,400 227 = The Goldman Sachs Group, Inc. 7,750 762 = Waddell & Reed Financial, Inc. 8,600 181 = Washington Federal, Inc. 12,700 324 = Webster Financial Corp. 3,600 172 ----------- 9,762 NON-DURABLES & ENTERTAINMENT 1.3% -------------------------------------------------------------------------- o= Activision, Inc. 17,850 259 o= American Greetings Corp., Class A 6,000 159 = Bob Evans Farms, Inc. 3,200 76 o= Brinker International, Inc. 4,900 158 = Darden Restaurants, Inc. 7,400 181 o= Energizer Holdings, Inc. 4,200 195 = Mattel, Inc. 8,600 151 = McDonald's Corp. 5,700 166 = Wendy's International, Inc. 4,500 150 = Yum! Brands, Inc. 4,100 178 ----------- 1,673 NON-FERROUS METALS 0.2% -------------------------------------------------------------------------- = Alcan Aluminum Ltd. 2,200 102 = Southern Peru Copper Corp. 3,300 142 ----------- 244
34 See financial notes. LAUDUS BALANCED MARKETMASTERS FUND
VALUE SECURITY AND NUMBER OF SHARES ($ x 1,000) OIL: DOMESTIC 4.2% -------------------------------------------------------------------------- = Amerada Hess Corp. 5,200 420 = ChevronTexaco Corp. 21,200 1,125 = Conoco Phillips 10,600 894 = Marathon Oil Corp. 2,700 103 o= National Oilwell, Inc. 2,900 98 o= Newfield Exploration Co. 3,900 227 = Patterson Energy, Inc. 16,100 309 = Petrokazakhstan, Inc., Class A 10,600 391 = Pioneer Natural Resouces Co. 5,000 162 o= Plains Exploration & Production Co. 2,900 72 o= Precision Drilling Corp. 4,200 259 o= Stone Energy Corp. 3,000 123 = Sunoco, Inc. 6,400 476 = Teekay Shipping Corp. 9,800 453 o= Tesoro Petroleum Corp. 10,100 306 = Unocal Corp. 2,100 88 o= Varco International, Inc. 2,500 69 ----------- 5,575 OIL: INTERNATIONAL 0.6% -------------------------------------------------------------------------- = Exxon Mobil Corp. 16,200 797 OPTICAL & PHOTO 0.3% -------------------------------------------------------------------------- = Eastman Kodak Co. 2,500 76 o= Ingram Micro, Inc., Class A 18,900 326 ----------- 402 PAPER & FOREST PRODUCTS 0.4% -------------------------------------------------------------------------- = Louisiana-Pacific Corp. 6,700 164 = Rayonier, Inc. 5,575 264 = Temple-Inland, Inc. 1,600 95 ----------- 523 PRODUCER GOODS & MANUFACTURING 1.6% -------------------------------------------------------------------------- = Albany International Corp. Class A 2,900 87 = Briggs & Stratton Corp. 2,300 165 = Dover Corp. 2,400 94 = Emerson Electric Co. 4,950 317 = Federal Signal Corp. 4,700 78 = General Electric Co. 21,650 739 = Grainger, Inc. 4,400 258 = HNI Corp. 2,900 117 = Honeywell International, Inc. 4,600 155 = Snap-On Tools Corp. 2,400 71 o= Terex Corp. 2,400 91 ----------- 2,172 RAILROAD & SHIPPING 0.2% -------------------------------------------------------------------------- = Burlington Nothern Santa Fe Corp. 3,000 126 o= Kansas City Southern Industries, Inc. 8,400 142 ----------- 268 REAL PROPERTY 0.8% -------------------------------------------------------------------------- = Brascan Corp. 9,900 353 = Plum Creek Timber Co., Inc. 3,300 120 = Prentiss Properties Trust 4,900 176 = The Macerich Co. 4,100 245 = Weingarten Realty Investors 3,800 138 ----------- 1,032 RETAIL 2.5% -------------------------------------------------------------------------- o= Advance Auto Parts, Inc. 3,100 121 o= American Eagle Outfitters, Inc. 5,700 233 o= Ann Taylor Stores Corp. 3,600 81 o= Big Lots, Inc. 13,200 164 o= BJ's Wholesale Club, Inc. 8,200 238 = Circuit City Stores, Inc. 10,800 175 = Claire's Stores, Inc. 7,800 203 = CVS Corp. 4,400 191 = Home Depot, Inc. 7,000 288 o= Kroger Co. 21,300 322 = Limited Brands, Inc. 12,600 312 = Radio Shack Corp. 4,300 129 = Talbots, Inc. 6,400 169 o= Toys `R' Us, Inc. 6,300 113 = Wal-Mart Stores, Inc. 9,350 504 ----------- 3,243 STEEL 0.7% -------------------------------------------------------------------------- o= International Steel Group, Inc. 3,200 118 = Nucor Corp. 9,400 397 = Steel Dynamics, Inc. 7,800 259 = Worthington Industries, Inc. 8,000 159 ----------- 933
See financial notes. 35 LAUDUS BALANCED MARKETMASTERS FUND PORTFOLIO HOLDINGS continued
VALUE SECURITY AND NUMBER OF SHARES ($ x 1,000) TELEPHONE 2.2% -------------------------------------------------------------------------- = Alltel Corp. 4,300 236 = BellSouth Corp. 26,100 696 = Century Telephone Enterprises, Inc. 5,100 164 o= Liberty Media Corp., Class A 17,300 154 = SBC Communications, Inc. 15,600 394 = Telephone & Data Systems, Inc. 4,500 337 = Verizon Communications, Inc. 22,400 876 ----------- 2,857 TOBACCO 0.4% -------------------------------------------------------------------------- = Altria Group, Inc. 3,100 150 = Reynolds American, Inc. 6,400 441 ----------- 591 TRAVEL & RECREATION 0.7% -------------------------------------------------------------------------- =* Fairmont Hotels & Resorts, Inc. 5,700 162 = Harrah's Entertainment, Inc. 6,300 369 o= MGM Mirage 7,800 419 ----------- 950 TRUCKING & FREIGHT 1.2% -------------------------------------------------------------------------- o= Laidlaw International, Inc. 11,600 193 = Paccar, Inc. 6,800 471 = Ryder Systems, Inc. 8,800 441 o= Swift Transportation Co., Inc. 8,500 161 = U.S. Freightways Corp. 5,200 186 = Werner Enterprises, Inc. 7,300 155 ----------- 1,607 UTILITIES: ELECTRIC & GAS 2.1% -------------------------------------------------------------------------- = Alliant Energy Corp. 6,000 158 = Constellation Energy Group, Inc. 9,700 394 = Edison International 17,300 528 = Oneok, Inc. 11,100 298 = Potomac Electric Power Co. 17,800 367 = Texas Genco Holdings, Inc. 5,300 248 = TXU Corp. 10,800 661 = Xcel Energy, Inc. 8,800 150 ----------- 2,804
SECURITY FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) U.S. GOVERNMENT SECURITIES 9.1% of net assets U.S. Treasury Bond = 11.25%, 02/15/15 150 240 = 9.13%, 05/15/18 50 74 U.S. Treasury Inflation-Protected Security =(1) 3.63%, 01/15/08 2,900 3,753 = 0.88%, 04/15/10 600 599 = 2.38%, 01/15/25 100 105 U.S. Treasury Note =(9) 2.00%, 11/30/04 1,500 1,500 = 1.75%, 12/31/04 500 500 =(5) 1.63%, 04/30/05 2,000 1,996 2.50%, 09/30/06 600 600 =~(8) 4.88%, 02/15/12 1,800 1,930 = 4.00%, 02/15/14 550 550 = U.S. Treasury Stripped Bond 0.00%, 11/15/16 300 173 ----------- 12,020 FOREIGN GOVERNMENT SECURITIES 4.1% of net assets Bundes Republic of Deutschland =~ Series 03 4.50%, 01/04/13 1,000 1,342 =~ Series 97 6.50%, 07/04/27 300 488 =~(3) Series 99 3.75%, 01/04/09 1,900 2,490 =~ UK Treasury Gilt 5.00%, 09/07/14 600 1,123 ----------- 5,443 CORPORATE BONDS 3.2% of net assets FIXED-RATE OBLIGATIONS 2.0% -------------------------------------------------------------------------- = AT&T Corp. 8.50%, 11/15/31 90 104 = Centerpoint Energy Series B 8.13%, 07/15/05 100 104 = DaimlerChrysler NA Holding 7.40%, 01/20/05 400 404 El Paso Corp. = 7.80%, 08/01/31 100 92 = 7.75%, 01/15/32 150 139
36 See financial notes. LAUDUS BALANCED MARKETMASTERS FUND
SECURITY FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) = Federal Republic of Brazil Series C 8.00%, 04/15/14 334 333 = Ford Motor Co. 8.90%, 01/15/32 500 561 = PP&L Capital Funding Series C 7.75%, 04/15/05 100 102 = Republic of Panama 9.38%, 01/16/23 250 272 = SBC Communications, Inc., 144A 4.21%, 06/01/21 400 404 = United Mexican States 5.88%, 01/15/14 75 77 ----------- 2,592 VARIABLE-RATE OBLIGATIONS 1.2% -------------------------------------------------------------------------- = Alcan, Inc., 144A 1.43%, 12/08/04 200 200 = Entergy Gulf States, 144A 2.01%, 12/18/04 200 201 Federal Republic of Brazil = 2.13%, 04/15/05 265 258 = Series EI 2.06%, 04/15/05 48 48 = General Motors Acceptance Corp. 3.16%, 11/19/04 400 403 = HSBC Bank USA 1.95%, 12/21/04 250 250 = PG&E Corp. 2.30%, 01/03/05 137 137 = TXU Energy Co, L.L.C. 144A 2.37%, 01/14/05 100 100 ----------- 1,597 MUNICIPAL BONDS 1.3% of net assets FIXED-RATE OBLIGATIONS 1.3% -------------------------------------------------------------------------- = Golden State, California Securitization Corp. Revenue Bond, Series 2003-A-1 6.25%, 06/01/33 250 239 =+ Massachusetts State Water Resource Authority General Revenue Bond, Series 2002J 5.00%, 08/01/32 250 256 = Tobacco Settlement Financing Corp. of Rhode Island Revenue Bond, Series 2002A 6.25%, 06/01/42 500 449 =+ Triborough, New York Bridge & Tunnel Authority Revenue Bond, Series 2002B 5.00%, 11/15/32 750 768 ----------- 1,712 AGENCY MORTGAGE-BACKED SECURITIES 5.7% of net assets COLLATERALIZED MORTGAGE OBLIGATIONS 0.2% -------------------------------------------------------------------------- = Fannie Mae Series 2003-3 Class PA 4.50%, 08/25/09 116 117 = Freddie Mac Series 2535 Class DT 5.00%, 09/15/16 161 165 ----------- 282 U.S. GOVERNMENT AGENCY MORTGAGES 5.5% -------------------------------------------------------------------------- Fannie Mae =~(7) 4.50%, 11/15/34 2,000 1,942 =~(6) 5.00%, 11/15/34 2,000 1,993 =~(2) 5.50%, 11/15/34 2,500 2,546 = ARM Pool# 606116 4.75%, 09/01/31 36 37 = Pool# 535846 6.00%, 04/01/16 48 50 = Pool# 555454 6.00%, 03/01/18 34 36 = Pool# 732153 4.50%, 07/01/33 166 162 = Pool# 733910 4.50%, 08/01/33 214 208 = Freddie Mac Pool# C90580 6.00%, 09/01/22 294 306 ----------- 7,280 NON-AGENCY MORTGAGE-BACKED SECURITIES 1.3% of net assets FIXED-RATE OBLIGATIONS 0.2% -------------------------------------------------------------------------- = Bank of America Mortgage Securities Series 2004-2 Class 5A1 6.50%, 10/25/19 215 218
See financial notes. 37 LAUDUS BALANCED MARKETMASTERS FUND PORTFOLIO HOLDINGS continued
SECURITY FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) = Residential Funding Mortgage Security I Series-S9 Class A1 6.50%, 03/25/32 101 103 ----------- 321 VARIABLE-RATE OBLIGATIONS 1.1% -------------------------------------------------------------------------- = Argent Securities, Inc. Series 2003-W3 Class AF1 1.26%, 11/25/04 19 19 Bear Stearns Adjustable Rate Mortgage Trust = Series 2002-11 Class 1A1 5.68%, 11/01/04 109 109 = Series 2002-5 Class 6A 6.05%, 11/01/04 45 45 = Series 2002-9 Class 2A 5.30%, 11/01/04 86 86 = Quest Trust, 144A Series 2004-X2 Class A1 2.01%, 11/26/04 161 161 = Structured Asset Securities Corp. Series 2002-13 Class 2A1 1.60%, 11/26/04 211 212 = Washington Mutual Series 2003-R1 Class A1 2.11%, 11/25/04 767 766 ----------- 1,398 SHORT-TERM INVESTMENTS 13.2% of net assets U.S. GOVERNMENT SECURITIES 1.2% -------------------------------------------------------------------------- = Fannie Mae 1.70%, 11/01/04 400 400 U.S. Treasury Bills = 1.58%, 12/02/04 40 40 = 1.61%, 12/02/04 80 80 = 1.63%, 12/16/04 360 359 = 1.63%, 12/16/04 750 749 = 1.67%, 12/16/04 10 10 ----------- 1,638 COMMERCIAL PAPER & OTHER CORPORATE OBLIGATIONS 12.0% -------------------------------------------------------------------------- = AMRO N.A. Finance, Inc. 1.93%, 01/24/05 400 398 ANZ (Delaware), Inc. = 1.64%, 11/18/04 1,100 1,099 = 1.85%, 12/17/04 100 100 Barclays U.S. Funding Corp. = 1.80%, 12/08/04 200 200 = 2.06%, 02/22/05 200 199 CBA (Delaware) Finance, Inc. = 1.65%, 11/19/04 800 799 = 1.85%, 12/20/04 100 100 = CDC Commercial Paper Corp., Section 4(2) / 144A 2.04%, 02/22/05 600 596 Danske Corp. = 1.65%, 11/19/04 300 300 = 1.85%, 12/21/04 300 299 = 2.04%, 02/14/05 600 596 Dexia Delaware, L.L.C. = 1.81%, 12/13/04 400 399 = 1.83%, 12/20/04 100 100 = 2.01%, 01/21/05 400 398 = 2.06%, 01/26/05 300 299 DnB NOR Bank ASA = 1.65%, 11/19/04 400 400 = 1.81%, 12/20/04 200 199 = 1.84%, 12/23/04 600 598 Du Pont (E.I.) de Nemours & Co. = 1.88%, 12/20/04 200 199 = 1.89%, 12/21/04 300 299 = Euro Investment Bank 1.79%, 12/13/04 300 299 = Foreningssparbanken AB (Swedbank) 1.79%, 12/07/04 1,000 998 General Electric Capital Corp. = 1.59%, 11/05/04 900 900 = 1.60%, 11/09/04 200 200 = General Motors Acceptance Corp. 2.50%, 04/05/05 200 198 HBOs Treasury Services PLC = 1.66%, 11/18/04 100 100 = 1.73%, 12/02/04 400 399 = 2.07%, 02/22/05 300 298 ING (U.S.) Funding, L.L.C. = 1.59%, 11/08/04 100 100 = 1.81%, 11/12/04 200 200 = 1.79%, 12/10/04 800 798 = 1.84%, 12/21/04 100 100 Nordea North America, Inc. = 1.87%, 12/21/04 600 598 = 1.91%, 01/18/05 600 597 Svenska Handelsbanken, Inc. = 1.61%, 11/10/04 100 100 = 1.74%, 12/03/04 200 200
38 See financial notes. LAUDUS BALANCED MARKETMASTERS FUND
SECURITY FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) UBS Finance (Delaware), L.L.C. = 1.63%, 11/16/04 100 100 = 1.74%, 12/03/04 1,000 998 = 1.77%, 12/07/04 100 100 Unicredit Delaware, Inc. = 1.62%, 11/10/04 200 200 = 1.99%, 01/31/05 800 796 ----------- 15,856
VALUE SECURITY AND NUMBER OF SHARES ($ x 1,000) OTHER INVESTMENTS 6.8% of net assets OTHER INVESTMENT COMPANIES 6.8% -------------------------------------------------------------------------- = Provident Institutional Funds-- TempCash 2,399,339 2,399 = Provident Institutional Funds-- TempFund 6,595,545 6,596 ----------- 8,995
NUMBER OF VALUE SECURITY DESCRIPTION CONTRACTS ($ x 1,000) OPTIONS 0.0% of net assets PUT OPTIONS 0.0% ------------------------------------------------------------------------- 3 Month Euro Euribor Futures, Strike Price 95.875, Expires 12/13/04 5 --* 3 Month Euro Euribor Futures, Strike Price 96, Expires 12/13/04 11 --* 90 Day LIBOR Futures, Strike Price 91, Expires 03/16/05 3 --* 90 Day LIBOR Futures, Strike Price 91.75, Expires 12/15/04 5 --* 90 Day Euro Dollar Futures, Strike Price 93.75, Expires 09/19/05 37 --* Euro-Bobl, Strike Price 105.5, Expires 11/22/04 24 --* U.S. Treasury Note Futures, Strike Price 108, Expires 11/26/04 44 1 ----------- 1
END OF INVESTMENTS.
SECURITY FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) SHORT SALES 6.5% of net assets U.S. GOVERNMENT SECURITIES 6.5% -------------------------------------------------------------------------- U.S. Treasury Note ~ 3.63%, 3,200 3,144 ~ 3.88%, 2,800 2,802 ~ 4.00%, 1,100 1,113 ~ 4.38%, 500 520 ~ 4.88%, 900 965 ----------- 8,544
NUMBER OF VALUE SECURITY DESCRIPTION CONTRACTS ($ x 1,000) OPTIONS WRITTEN 0.1% of net assets CALL OPTIONS 0.1% -------------------------------------------------------------------------- 3 Month LIBOR, Strike Price 4.00, Expires 10/31/05 70 9 3 Month LIBOR, Strike Price 4.00, Expires 11/02/04 20 --* 3 Month LIBOR, Strike Price 5.00, Expires 01/07/05 370 190 U.S. Treasury Note Futures, Strike Price 115, Expires 11/26/04 45 10 ----------- 209 PUT OPTIONS 0.0% -------------------------------------------------------------------------- 3 Month LIBOR, Strike Price 5.25%, Expires 11/02/04 10 --* 3 Month LIBOR, Strike Price 7.00, Expires 01/07/05 370 --* 3 Month LIBOR, Strike Price 7.00, Expires 10/31/05 70 1 U.S. Treasury Note Futures, Strike Price 109, Expires 11/26/04 27 1 ----------- 2
END OF SHORT SALES AND OPTIONS WRITTEN. See financial notes. 39 LAUDUS BALANCED MARKETMASTERS FUND In addition to the above, the fund held the following at 10/31/04. All numbers x 1,000 except number of futures contracts. SWAP AGREEMENTS
NOTIONAL UNREALIZED INTEREST RATE SWAPS AMOUNT GAINS/(LOSSES) BRITISH POUNDS Receive variable rate payments of 6 month LIBOR, Pay fixed rate payments of 5.00%, expires 06/15/08, Barclays Bank 2,800 54 Receive variable rate payments of 6 month LIBOR, Pay fixed rate payments of 5.00%, expires 06/18/34, Barclays Bank 200 (3) Receive variable rate payments of 6 month LIBOR, Pay fixed rate payments of 5.00%, expires 03/15/32, Barclays Bank 400 (2) EUROPEAN EURO Receive variable rate payments of 6 month LIBOR, Pay fixed rate payments of 5.00%, expires 12/15/14, UBS AG 2,300 (167) Receive variable rate payments of 6 month LIBOR, Pay fixed rate payments of 4.00%, expires 03/15/07, Barclays Bank 100 2 Receive variable rate payments of 6 month LIBOR, Pay fixed rate payments of 4.00%, expires 12/21/07, Goldman Sachs 600 5 Receive variable rate payments of 6 month LIBOR, Pay fixed rate payments of 4.00%, expires 12/21/07, Barclays Bank 500 5 Receive variable rate payments of 6 month LIBOR, Pay fixed rate payments of 6.00%, expires 06/18/34, JP Morgan Chase 300 10 Receive variable rate payments of 6 month LIBOR, Pay fixed rate payments of 4.00%, expires 03/15/07, JP Morgan Chase 400 4 Receive variable rate payments of 6 month Euro LIBOR, Pay fixed rate payments of 6.00%, expires 03/15/32, JP Morgan Chase 500 6 Receive variable rate payments of 6 month LIBOR, Pay fixed rate payments of 4.00%, expires 06/17/10, JP Morgan Chase 300 6
40 See financial notes. LAUDUS BALANCED MARKETMASTERS FUND All numbers x 1,000 except number of futures contracts. SWAP AGREEMENTS (CONTINUED)
NOTIONAL UNREALIZED AMOUNT GAINS/(LOSSES) Receive variable rate payments of 6 month LIBOR, Pay fixed rate payments of 4.00%, expires 06/17/10, UBS AG 400 7 U.S. DOLLARS Receive variable rate payments of 3 month LIBOR, Pay fixed rate payments of 5.00%, expires 12/15/14, Goldman Sachs 300 24 Receive variable rate payments of 3 month LIBOR, Pay fixed rate payments of 4.00%, expires 12/15/06, Barclays Bank 2,500 12 Receive variable rate payments of 3 month LIBOR, Pay fixed rate payments of 4.00%, expires 12/15/09, UBS AG 5,300 155 Receive variable rate payments of 3 month LIBOR, Pay fixed rate payments of 4.00%, expires 12/15/09, JP Morgan Chase 400 11 Receive variable rate payments of 3 month LIBOR, Pay fixed rate payments of 6.00 expires 12/15/24, UBS AG 200 (2) CREDIT DEFAULT SWAPS U.S. DOLLARS Eli Lilly & Co. Rate 0.16%, expires 12/20/08, Barclays Bank PLC 100 --* Johnson & Johnson, Inc. Rate 0.11%, expires 12/20/08, Lehman Brothers, Inc. 100 --* Eaton Corp. Rate 0.28%, expires 12/20/08, Citibank N.A. 100 --* Whirlpool Corp. Rate 0.29%, expires 12/20/08, Lehman Brothers, Inc. 100 1 Home Depot, Inc. Rate 0.12%, expires 12/20/08, Lehman Brothers, Inc. 100 --* Fedex Corp. Rate 0.29%, expires 12/20/08, Citibank N.A. 100 --* Allstate Corp. Rate 0.26%, expires 12/20/08, Morgan Stanley 100 --* Wal-mart Stores, Inc. Rate 0.14%, expires 12/20/08, Citibank N.A. 200 --* Ingersoll-Rand Co. Ltd. Rate 0.32%, expires 12/20/08, Merrill Lynch 100 --*
See financial notes. 41 LAUDUS BALANCED MARKETMASTERS FUND All numbers x 1,000 except number of futures contracts. SWAP AGREEMENTS (CONTINUED)
NOTIONAL UNREALIZED AMOUNT GAINS/(LOSSES) Emerson Electric Co. Rate 0.21%, expires 12/20/08, Morgan Stanley 100 --* Autozone, Inc. Rate 0.35%, expires 12/20/08, UBS, AG 200 4 Radioshack Corp. Rate 0.35%, expires 12/20/08, Lehman Brothers, Inc. 100 --* Masco Corp. Rate 0.30%, expires 12/20/08, Lehman Brothers, Inc. 100 --* People's Republic of China Rate 0.40%, expires 06/20/09, Lehman Brothers, Inc. 200 (1) ------------- 131
FUTURES CONTRACTS
NUMBER OF CONTRACT UNREALIZED CONTRACTS VALUE GAINS/(LOSSES) S&P 500 Index, Long expires 12/16/04 22 6,217 20 90 Day Eurodollar, Long expires 03/14/05 20 4,874 (7) 90 Day Eurodollar, Long expires 06/13/05 10 2,432 3 90 Day Eurodollar, Long expires 09/19/05 2 486 1 90 Day Eurodollar, Long expires 12/19/05 5 1,211 2 10 Year, Long U.S. Treasury Note, expires 12/20/04 127 14,422 192 10 Year, Long U.S. Treasury Note, expires 03/21/05 30 3,389 3 5 Year, Short U.S. Treasury Note, expires 12/20/04 66 7,351 (35) 5 Year, Long Euro-Bobl, expires 12/08/04 24 3,429 32 90 Day LIBOR, Long expires 12/29/04 5 1,089 7 UK Gilt, Long expires 03/16/05 1 199 3 ------------- 221
42 See financial notes. LAUDUS BALANCED MARKETMASTERS FUND All numbers x 1,000 except number of futures contracts. FORWARD FOREIGN CURRENCY CONTRACTS
AMOUNT OF AMOUNT OF CURRENCY TO CURRENCY TO CURRENCY TO CURRENCY TO UNREALIZED EXPIRATION DATE BE RECEIVED BE RECEIVED BE DELIVERED BE DELIVERED GAINS/(LOSSES) 11/23/04 Brazilian Real 27 U.S. Dollars 9 1 12/17/04 Brazilian Real 27 U.S. Dollars 9 --* 01/24/05 Brazilian Real 27 U.S. Dollars 9 --* 11/04/04 Chilean Pesos 1,870 U.S. Dollars 3 --* 11/18/04 Chilean Pesos 10,964 U.S. Dollars 17 1 12/17/04 Chilean Pesos 5,454 U.S. Dollars 9 --* 02/16/05 Chinese Renminbi 6,077 U.S. Dollars 740 1 12/09/04 European Euro 74 U.S. Dollars 93 1 11/24/04 Hong Kong Dollars 70 U.S. Dollars 9 --* 12/20/04 Hong Kong Dollars 70 U.S. Dollars 9 --* 01/26/05 Hong Kong Dollars 125 U.S. Dollars 16 --* 12/21/04 Indian Rupee 1,357 U.S. Dollars 30 --* 01/27/05 Japanese Yen 87,892 U.S. Dollars 822 11 11/24/04 South Korean Won 10,481 U.S. Dollars 9 1 12/20/04 South Korean Won 10,620 U.S. Dollars 9 --* 01/28/05 South Korean Won 18,576 U.S. Dollars 16 --* 11/29/04 Mexican Pesos 177 U.S. Dollars 15 --* 12/21/04 Mexican Pesos 101 U.S. Dollars 9 --* 11/23/04 Peruvian New Sol 35 U.S. Dollars 10 --* 12/17/04 Peruvian New Sol 63 U.S. Dollars 19 --* 11/22/04 Polish Zloty 32 U.S. Dollars 9 1 12/21/04 Polish Zloty 32 U.S. Dollars 9 1 11/19/04 Russian Ruble 257 U.S. Dollars 9 --* 12/22/04 Russian Ruble 274 U.S. Dollars 9 --* 11/24/04 Singapore Dollars 15 U.S. Dollars 9 --* 12/20/04 Singapore Dollars 15 U.S. Dollars 9 --* 01/26/05 Singapore Dollars 27 U.S. Dollars 16 --* 11/26/04 Slovakian Koruna 329 U.S. Dollars 10 1 12/22/04 Slovakian Koruna 602 U.S. Dollars 18 1 11/24/04 Taiwanese Dollars 298 U.S. Dollars 9 --* 12/20/04 Taiwanese Dollars 299 U.S. Dollars 9 --* ------------- 20
* Amounts stated as "--" are less than $1. See financial notes. 43 LAUDUS BALANCED MARKETMASTERS FUND Statement of ASSETS AND LIABILITIES As of October 31, 2004. All numbers x 1,000 except NAV. ASSETS -------------------------------------------------------------------------------- Investments, at value $141,134 a Foreign currency 139 b Receivables: Fund shares sold 141 Dividends 100 Interest 347 Due from brokers for futures 62 Unrealized gains on forward foreign currency contracts 20 Investments sold 3,878 Investments sold short 11,001 Prepaid expenses + 30 ------------ TOTAL ASSETS 156,852 LIABILITIES -------------------------------------------------------------------------------- Securities sold short, at value 8,544 c Options written, at value 211 d Swap agreements, at fair value 62 e Payables: Fund shares redeemed 102 Investments bought 13,202 Covered short sales 2,454 Interest on short sales 88 Investment adviser and administrator fees 7 Transfer agency and shareholder service fees 3 Withholding taxes on foreign dividends 1 Accrued expenses + 47 ------------ TOTAL LIABILITIES 24,721 NET ASSETS -------------------------------------------------------------------------------- TOTAL ASSETS 156,852 TOTAL LIABILITIES - 24,721 ------------ NET ASSETS $132,131 NET ASSETS BY SOURCE Capital received from investors 131,865 Net investment income not yet distributed 512 Net realized capital losses (10,614) f Net unrealized capital gains 10,368 f NET ASSET VALUE (NAV) BY SHARE CLASS SHARES SHARE CLASS NET ASSETS / OUTSTANDING = NAV Investor Shares $130,491 10,985 $11.88 Select Shares $1,640 138 $11.89
All numbers x 1,000 except number of written option contracts. a The fund paid $130,949 for these securities. Includes certain restricted but deemed liquid 144A and section 4(2) securities worth $1,662 or 1.3% of the fund's total net assets. Not counting short-term obligations and government securities, the fund's security transactions during the period were: Purchases $91,085 Sales/maturities $85,178 The fund's long-term government security transactions were: Purchases $82,975 Sales/maturities $83,236 b The fund paid $123 for this currency. c The proceeds for securities sold short is $8,460 d OPTIONS NUMBER PREMIUMS WRITTEN OF CONTRACTS RECEIVED ---------------- ------------ -------- Beginning of period 940 $182 Options written 397 100 Options closed (21) (10) Options expired (334) (53) Options exercised + -- -- ------------------------- End of period 982 $219 e The fund received $193 to enter into these swap agreements. f These derive from investments, short sales, options, foreign currency transactions, futures and swap agreements. FEDERAL TAX DATA ------------------------------------------------- PORTFOLIO COST $131,807 NET UNREALIZED GAINS AND LOSSES: Gains $11,769 Losses + (2,442) ------------ $9,327 AS OF OCTOBER 31, 2004: NET UNDISTRIBUTED EARNINGS: Ordinary income $516 Long-term capital gains $-- CAPITAL LOSSES UTILIZED $8,576 UNUSED CAPITAL LOSSES: Expires 10/31 of: Loss amount: 2009 $405 2010 + 9,116 ------------ $9,521 RECLASSIFICATIONS: Net investment not yet distributed ($46) RECLASSIFIED AS: Net realized capital gains $46 44 See financial notes. LAUDUS BALANCED MARKETMASTERS FUND Statement of OPERATIONS For November 1, 2003 through October 31, 2004. All numbers x 1,000. INVESTMENT INCOME -------------------------------------------------------------------------------- Dividends $1,298 a Interest + 940 ---------- TOTAL INVESTMENT INCOME 2,238 NET REALIZED GAINS AND LOSSES -------------------------------------------------------------------------------- Net realized gains on investments 6,766 Net realized losses on short sales (571) Net realized gains on foreign currency transactions 52 Net realized gains on option contracts 56 Net realized gains on futures contracts 1,464 Net realized gains on swap agreements + 275 ---------- NET REALIZED GAINS 8,042 NET UNREALIZED GAINS AND LOSSES -------------------------------------------------------------------------------- Net unrealized gains on investments 747 Net unrealized losses on short sales (11) Net unrealized losses on foreign currency transactions (119) Net unrealized losses on option contracts (16) Net unrealized gains on futures contracts 60 Net unrealized gains on swap agreements + 121 ---------- NET UNREALIZED GAINS 782 EXPENSES -------------------------------------------------------------------------------- Investment adviser and administrator fees 1,072 b Transfer agent and shareholder service fees: Investor shares 314 c Select shares 1 c Trustees' fees 5 d Custodian and portfolio accounting fees 174 Professional fees 44 Registration fees 20 Shareholder reports 24 Other expenses + 5 ---------- Total expenses 1,659 Expense reduction - 273 e ---------- NET EXPENSES 1,386 INCREASE IN NET ASSETS FROM OPERATIONS -------------------------------------------------------------------------------- TOTAL INVESTMENT INCOME 2,238 NET EXPENSES - 1,386 ---------- NET INVESTMENT INCOME 852 NET REALIZED GAINS 8,042 f NET UNREALIZED GAINS + 782 f ---------- INCREASE IN NET ASSETS FROM OPERATIONS $9,676
Unless stated, all numbers x 1,000. a Net of $3 foreign withholding tax. b Calculated as 0.85% of average daily net assets. These fees are paid to Charles Schwab Investment Management, Inc. (CSIM) c 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% and 0.15% of the assets of each respective share class. These fees are paid to Charles Schwab & Co., Inc. (Schwab). d For the fund's independent trustees only. e This reduction was made by the investment advisor (CSIM). It reflects a guarantee by CSIM and the transfer agent and shareholder service agent (Schwab) to limit the operating expenses of this fund through February 28, 2005 for Investor shares and February 28, 2006 for Select shares, as follows: % OF AVERAGE SHARE CLASS DAILY NET ASSETS ------------------------------------------ Investor Shares 1.10 Select Shares 0.95 This limit excludes interest, taxes and certain non-routine expenses. f These add up to a net gain on investments of $8,824. See financial notes. 45 LAUDUS BALANCED MARKETMASTERS FUND Statements of CHANGES IN NET ASSETS For the current and prior report periods. All numbers x 1,000.
OPERATIONS -------------------------------------------------------------------------------- 11/1/03-10/31/04 11/1/02-10/31/03 Net investment income $852 $1,126 Net realized gains 8,042 917 Net unrealized gains + 782 16,449 ----------------------------------- INCREASE IN NET ASSETS FROM OPERATIONS 9,676 18,492 DISTRIBUTIONS PAID -------------------------------------------------------------------------------- DIVIDENDS FROM NET INVESTMENT INCOME Investor Shares $1,360 $1,516 Select Shares + -- -- ----------------------------------- TOTAL DIVIDENDS FROM NET INVESTMENT INCOME $1,360 $1,516 a, b
TRANSACTIONS IN FUND SHARES c -------------------------------------------------------------------------------- 11/1/03-10/31/04 11/1/02-10/31/03 SHARES VALUE SHARES VALUE SHARES SOLD Investor Shares 3,519 $40,718 1,150 $11,825 Select Shares + 169 1,957 -- -- ----------------------------------------------- TOTAL SHARES SOLD 3,688 $42,675 1,150 $11,825 SHARES REINVESTED Investor Shares 112 $1,274 151 $1,431 Select Shares + -- -- -- -- ----------------------------------------------- TOTAL SHARES REINVESTED 112 $1,274 151 $1,431 SHARES REDEEMED Investor Shares (2,489) ($28,746) (1,851) ($18,430) Select Shares + (31) (361) -- -- ----------------------------------------------- TOTAL SHARES REDEEMED (2,520) ($29,107) (1,851) ($18,430) NET TRANSACTIONS IN FUND SHARES 1,280 $14,842 (550) ($5,174)
SHARES OUTSTANDING AND NET ASSETS -------------------------------------------------------------------------------- 11/1/03-10/31/04 11/1/02-10/31/03 SHARES NET ASSETS SHARES NET ASSETS Beginning of period 9,843 $108,973 10,393 $97,171 Total increase or decrease + 1,280 23,158 (550) 11,802 d ----------------------------------------------- END OF PERIOD 11,123 $132,131 9,843 $108,973 e
Unless stated, all numbers x 1,000. a UNAUDITED For corporations, 85% of the fund's dividends for this report period qualify for the dividends-received deductions. The fund designates $1,148 of the dividend distribution for the fiscal year ended 10/31/04 as qualified dividends for the purpose of the maximum rate under Section 1(h)(ii) of the Internal Revenue Code. Shareholders will be notified in January 2005 via IRS Form 1099 of the amounts for use in preparing their 2004 income tax return. b The tax-basis components of distributions are: CURRENT YEAR Ordinary income $1,360 Long-term capital gains $-- PRIOR YEAR Ordinary income $1,516 Long-term capital gains $-- c The fund started offering Select Shares on June 3, 2004. d Figures for shares represent shares sold plus shares reinvested, minus shares redeemed. Figures for net assets represent the changes in net assets from operations plus the changes in value of transactions in fund shares, minus distributions paid. e Includes distributable net investment income in the amount of $512 and $1,066 at the end of the current period and prior period, respectively. 46 See financial notes. LAUDUS SMALL-CAP MARKETMASTERS FUND(TM) FINANCIAL STATEMENTS FINANCIAL HIGHLIGHTS
11/1/03- 11/1/02- 11/1/01- 11/1/00- 11/1/99- INVESTOR SHARES 10/31/04 10/31/03 10/31/02 10/31/01 10/31/00 ------------------------------------------------------------------------------------------------------------------------------------ PER-SHARE DATA ($) ------------------------------------------------------------------------------------------------------------------------------------ Net asset value at beginning of period 11.08 7.18 8.73 12.27 11.04 --------------------------------------------------------------------- Income or loss from investment operations: Net investment income or loss (0.14) (0.09) 0.04 0.41 0.39 Net realized and unrealized gains or losses 1.24 3.99 (1.54) (2.68) 1.30 --------------------------------------------------------------------- Total income or loss from investment operations 1.10 3.90 (1.50) (2.27) 1.69 Less distributions: Dividends from net investment income -- (0.00) 1 (0.03) (0.55) (0.46) Distributions from net realized gains -- -- (0.02) (0.72) -- --------------------------------------------------------------------- Total distributions -- -- (0.05) (1.27) (0.46) --------------------------------------------------------------------- Net asset value at end of period 12.18 11.08 7.18 8.73 12.27 --------------------------------------------------------------------- Total return (%) 9.93 54.32 (17.34) (19.99) 15.17 RATIOS/SUPPLEMENTAL DATA (%) ------------------------------------------------------------------------------------------------------------------------------------ Ratios to average net assets: Net operating expenses 1.55 1.55 0.93 2,3 0.50 3 0.51 3,4 Gross operating expenses 1.77 1.80 1.31 3 0.91 3 0.92 3 Net investment income or loss (1.08) (0.98) 0.06 4.17 2.86 Portfolio turnover rate 140 94 324 172 128 Net assets, end of period ($ x 1,000,000) 129 115 81 111 162
1 Per-share amount was less than $0.01. 2 The ratio of net operating expenses would have been 0.84% if certain non-routine expenses (proxy fees) had not been included. 3 Prior to the fund's change in structure on June 3, 2002, the expenses incurred by underlying funds in which the fund invested were not included in this ratio. 4 The ratio of net operating expenses would have been 0.50% if certain non-routine expenses (proxy fees) had not been included. See financial notes. 47 LAUDUS SMALL-CAP MARKETMASTERS FUND
6/9/04 1- SELECT SHARES 10/31/04 ------------------------------------------------------------------------------------------------------------------------------------ PER-SHARE DATA ($) ------------------------------------------------------------------------------------------------------------------------------------ Net asset value at beginning of period 12.11 --------------------------------------------------------------- Income or loss from investment operations: Net investment loss (0.03) Net realized and unrealized gains 0.11 --------------------------------------------------------------- Total income from investment operations 0.08 --------------------------------------------------------------- Net asset value at end of period 12.19 --------------------------------------------------------------- Total return (%) 0.66 2 RATIOS/SUPPLEMENTAL DATA (%) ------------------------------------------------------------------------------------------------------------------------------------ Ratio to average net assets: Net operating expenses 1.37 3 Gross operating expenses 1.79 3 Net investment loss (0.91) 3 Portfolio turnover rate 140 2 Net assets, end of period ($ x 1,000,000) 0.32
1 Commencement of operations. 2 Not annualized. 3 Annualized. 48 See financial notes. LAUDUS SMALL-CAP MARKETMASTERS FUND PORTFOLIO HOLDINGS as of October 31, 2004 This section shows all the securities in the fund's portfolio by industry classification and their value, as of the report date. The fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The fund's Form N-Q will be available on the SEC'S website at http://www.sec.gov and may be reviewed and copied at the SEC'S Public Reference Room in Washington, D.C. Call 1-800-SEC-0330 for information on the operation of the Public Reference Room. The schedule of portfolio holdings filed on the fund's most recent Form N-Q will be available by visiting Schwab's web-site at www.schwab.com/schwabfunds. We use the symbol below to designate certain characteristics of the securities. With the top ten holdings, the number in the circle is the security's rank among the top ten. (1) Top ten holding o Non-income producing security
COST VALUE HOLDINGS BY CATEGORY ($x1,000) ($x1,000) -------------------------------------------------------------------------------- 98.1% COMMON STOCK 115,415 127,111 2.1% OTHER INVESTMENTS 2,744 2,744 -------------------------------------------------------------------------------- 100.2% TOTAL INVESTMENTS 118,159 129,855 (0.2%) OTHER ASSETS AND LIABILITIES, NET (316) -------------------------------------------------------------------------------- 100.0% TOTAL NET ASSETS 129,539
VALUE SECURITY AND NUMBER OF SHARES ($ x 1,000) COMMON STOCK 98.1% of net assets AIR TRANSPORTATION 0.3% -------------------------------------------------------------------------- Southwest Airlines, Inc. 23,500 371 APPAREL 2.1% -------------------------------------------------------------------------- o Aeropostale, Inc. 17,450 551 o Deckers Outdoor Corp. 11,000 416 Jones Apparel Group, Inc. 12,385 437 o Jos. A. Bank Clothiers, Inc. 35,275 1,120 OshKosh B'Gosh, Inc. 13,400 243 ----------- 2,767 BANKS 1.1% -------------------------------------------------------------------------- BankNorth Group, Inc. 11,300 398 Mellon Financial Corp. 10,200 295 North Fork Bancorp, Inc. 11,300 498 Zions Bancorp. 3,500 232 ----------- 1,423 BUSINESS MACHINES & SOFTWARE 2.9% -------------------------------------------------------------------------- o 3Com Corp. 133,360 552 o Ascential Software Corp. 57,700 813 o Computer Horizons Corp. 111,600 418 o F5 Networks, Inc. 14,700 587 o Maxtor Corp. 4,650 14 o Seachange International, Inc. 29,600 504 o Unisys Corp. 29,900 318 o Viisage Technology, Inc. 75,690 547 ----------- 3,753 BUSINESS SERVICES 17.7% -------------------------------------------------------------------------- o Agile Software Corp. 88,100 752 o(10) Akamai Technologies, Inc. 98,450 1,364 Analogic Corp. 16,620 707 o Aspen Technology, Inc. 128,800 774 o Ciber, Inc. 122,810 1,110 o Connetics Corp. 17,000 457 o Doubleclick, Inc. 112,620 716 o Eclipsys Corp. 39,640 673 o Indus International, Inc. 70,100 119 o InFocus Corp. 57,500 370 o Informatica Corp. 129,330 1,010 o InFoSpace, Inc. 12,500 656 o Internet Security Systems, Inc. 37,430 815 o Interpublic Group of Cos., Inc. 33,090 406 o Ivillage, Inc. 73,300 376 o Keane, Inc. 71,200 1,126 o Lionbridge Technologies, Inc. 25,000 117 o ManTech International Corp. Class A 49,060 1,061 o Maximus, Inc. 15,120 411 o McAfee, Inc. 25,900 627 o Navigant Consulting, Inc. 33,200 826 o Performance Food Group Co. 28,390 660
See financial notes. 49 LAUDUS SMALL-CAP MARKETMASTERS FUND PORTFOLIO HOLDINGS continued
VALUE SECURITY AND NUMBER OF SHARES ($ x 1,000) o Polycom, Inc. 39,800 822 o Priority Healthcare Corp., Class B 37,000 668 o Resources Connection, Inc. 24,250 1,018 Reynolds & Reynolds Co., Class A 12,100 298 o RSA Security, Inc. 47,000 962 o Tetra Technologies, Inc. 24,650 738 o Tibco Software, Inc. 67,940 660 o Tier Technologies, Inc. 67,100 579 o Vastera, Inc. 132,600 225 o Veritas Software Corp. 23,400 512 o Watson Wyatt & Co. Holdings 22,990 610 o Websense Inc 18,300 742 ----------- 22,967 CHEMICAL 0.3% -------------------------------------------------------------------------- o OM Group, Inc. 11,200 369 CONSTRUCTION 5.3% -------------------------------------------------------------------------- Beazer Homes USA, Inc. 8,650 950 o EMCOR Group, Inc. 7,550 299 Martin Marietta Materials, Inc. 14,350 653 Standard Pacific Corp. 13,500 758 Texas Industries, Inc. 5,150 262 The Ryland Group, Inc. 14,000 1,336 o(2) Toll Brothers, Inc. 40,200 1,863 o WCI Communities, Inc. 32,200 760 ----------- 6,881 CONSUMER DURABLES 1.0% -------------------------------------------------------------------------- Hillenbrand Industries, Inc. 9,000 448 La-Z-Boy Chair Co. 15,390 203 Leggett & Platt, Inc. 10,700 301 Natuzzi S.P.A. 38,520 396 ----------- 1,348 CONTAINERS 0.5% -------------------------------------------------------------------------- o Mobile Mini, Inc. 21,000 596 ELECTRONICS 10.8% -------------------------------------------------------------------------- o Agere Systems, Inc., Class B 341,800 393 o Alliant Techsystems, Inc. 6,400 368 o Andrew Corp. 77,620 1,085 Anixter International, Inc. 10,600 409 o Arrow Electronics, Inc. 17,400 417 o Brooks Automation, Inc. 10,400 155 C & D Technologies, Inc. 59,700 1,069 o Captaris, Inc. 48,300 222 o Celestica, Inc. 24,220 351 o Cox Radio, Inc. 6,900 110 o Cypress Semiconductor Corp. 35,700 376 o General Cable Corp. 58,850 724 National Semiconductor Corp. 19,460 325 o Novellus Systems, Inc. 19,300 500 OmniVision Technologies, Inc. 20,770 330 PerkinElmer, Inc. 19,400 398 o Powerwave Technologies, Inc. 109,400 817 o Rofin-Sinar Technologies, Inc. 22,900 686 o Sierra Wireless, Inc. 57,400 979 o Silicon Image, Inc. 12,600 173 o Skyworks Solutions, Inc. 30,500 271 o Sungard Data Systems, Inc. 11,900 315 o Tekelec 44,700 998 o Teradyne, Inc. 31,400 520 o Thermo Electron Corp. 14,100 409 o TRC Cos., Inc. 44,080 768 o Varian, Inc. 8,000 292 o Vishay Intertechnology, Inc. 37,200 481 ----------- 13,941 ENERGY: RAW MATERIALS 5.0% -------------------------------------------------------------------------- Arch Coal, Inc. 30,600 995 o Cooper Cameron Corp. 8,400 406 Devon Energy Corp. 6,100 451 ENSCO International, Inc. 6,700 205 Helmerich & Payne, Inc. 23,000 657 Joy Global, Inc. 34,300 1,159 o Offshore Logistics, Inc. 29,450 1,065 (7) Tidewater, Inc. 46,900 1,450 ----------- 6,388 FOOD & AGRICULTURE 2.4% -------------------------------------------------------------------------- American Italian Pasta Co. Class A 26,930 547 Delta & Pineland Co. 32,250 849 o Hain Celestial Group, Inc. 44,770 724
50 See financial notes. LAUDUS SMALL-CAP MARKETMASTERS FUND
VALUE SECURITY AND NUMBER OF SHARES ($ x 1,000) MGP Ingredients, Inc. 15,600 129 Sensient Technologies Corp. 32,060 696 o Texas Roadhouse, Inc. Class A 7,900 182 ----------- 3,127 GOLD 0.8% -------------------------------------------------------------------------- o Kinross Gold Corp. 70,591 525 o Meridian Gold, Inc. 33,200 561 ----------- 1,086 HEALTHCARE / DRUGS & MEDICINE 11.3% -------------------------------------------------------------------------- o Accredo Heath, Inc. 23,370 538 o Andrx Corp. 29,360 635 o Arthrocare Corp. 39,600 1,220 Beckman Coulter, Inc. 5,700 339 o Cardiodynamics International Corp. 99,500 360 o Centene Corp. 25,400 1,205 o Charles River Laboratories, Inc. 8,300 388 o Cholestech Corp. 71,425 573 o Collagenex Pharmaceuticals 29,000 174 o(1) Cytyc Corp. 85,600 2,233 o Edwards Lifesciences Corp. 11,300 386 o Enzon, Inc. 50,300 813 o Eon Labs, Inc. 6,600 163 Health Management Associates, Inc. 10,400 215 o Health Net, Inc. 21,400 519 o Human Genome Sciences, Inc. 40,870 421 o Incyte Corp. 57,520 598 o Ivax Corp. 23,437 424 o Martek Biosciences Corp. 13,250 624 Perrigo Co. 37,810 687 o(5) Pharmaceutical Product Developement, Inc. 38,680 1,634 o Synovis Life Technologies Inc. 29,400 311 o Theragenics Corp. 66,100 243 ----------- 14,703 INSURANCE 2.1% -------------------------------------------------------------------------- Arthur J. Gallagher & Co. 5,450 153 Assurant, Inc. 18,800 507 Hilb, Rogal & Hobbs Co. 9,730 309 (9) Hooper Holmes, Inc. 266,830 1,401 Old Republic International Corp. 13,400 313 ----------- 2,683 MEDIA 1.6% -------------------------------------------------------------------------- o Emmis Communications Corp. 29,390 550 o Entercom Communications Corp. 3,800 126 o Raindance Communications, Inc. 184,600 306 Readers Digest Association, Inc. 16,960 239 o Valassis Communications, Inc. 20,450 703 o Westwood One, Inc. 6,800 157 ----------- 2,081 MISCELLANEOUS FINANCE 5.0% -------------------------------------------------------------------------- o Accredited Home Lenders Holding Co. 16,500 595 o Knight Trading Group, Inc. 58,980 613 MDC Holdings, Inc. 11,653 894 o Piper Jaffray Cos., Inc. 5,200 227 o(8) Portfolio Recovery Associates, Inc. 41,900 1,413 Raymond James Financial, Inc. 25,620 669 (4) The Chicago Mercantile Exchange 9,950 1,749 o Wheeling-Pittsburgh Corporation 11,300 358 ----------- 6,518 NON-DURABLES & ENTERTAINMENT 2.1% -------------------------------------------------------------------------- o California Pizza Kitchen, Inc. 30,650 678 Darden Restaurants, Inc. 18,000 441 Leapfrog Enterprises, Inc. 45,800 559 o O' Charleys, Inc. 47,240 733 Tupperware Corp. 16,200 270 ----------- 2,681 NON-FERROUS METALS 1.6% -------------------------------------------------------------------------- o Century Aluminum Co. 10,100 234 Commercial Metals Co. 29,600 1,070 Gibraltar Industries Inc. 4,800 168 o RTI International Metals, Inc. 28,700 575 ----------- 2,047
See financial notes. 51 LAUDUS SMALL-CAP MARKETMASTERS FUND PORTFOLIO HOLDINGS continued
VALUE SECURITY AND NUMBER OF SHARES ($ x 1,000) OIL: DOMESTIC 3.2% -------------------------------------------------------------------------- Chesapeake Energy Corp. 24,300 391 o Comstock Resources, Inc. 45,400 999 o Global Industry Ltd. 154,800 1,039 Patterson Energy, Inc. 32,050 616 o Transocean, Inc. 13,750 485 o Whiting Petroleum Corp. 20,700 614 ----------- 4,144 PRODUCER GOODS & MANUFACTURING 8.1% -------------------------------------------------------------------------- Baldor Electric Co. 38,500 902 o BE Aerospace, Inc. 49,700 426 o Bucyrus International, Inc. 27,100 813 Cognex Corp. 12,780 327 o Coherent, Inc. 25,300 611 Dover Corp. 5,800 228 o Flowserve Corp. 35,600 768 o GrafTech International Ltd. 96,200 891 Grainger, Inc. 8,500 498 o GSI Lumonics, Inc. 32,750 293 o Ionics, Inc. 16,800 479 o Oceaneering International, Inc. 29,500 1,049 Pall Corp. 34,650 896 Steelcase, Inc., Class A 42,500 557 Teleflex, Inc. 16,610 727 The Manitowoc Co., Inc. 20,430 721 York International Corp. 8,700 277 ----------- 10,463 REAL PROPERTY 2.0% -------------------------------------------------------------------------- o FelCor Lodging Trust, Inc. 55,120 641 Innkeepers USA Trust 41,620 576 Post Properties, Inc. 21,790 699 Washington Real Estate Investment Trust 21,720 683 ----------- 2,599 RETAIL 5.7% -------------------------------------------------------------------------- o 99 Cents Only Stores 47,410 731 o Coldwater Creek, Inc. 30,700 707 o Gander Mountain Co. 27,750 540 o(3) Genesco, Inc. 71,030 1,818 o Guess, Inc. 26,850 448 o Guitar Center, Inc. 16,850 752 Longs Drug Stores Co. 28,120 695 Silgan Holdings, Inc. 15,250 724 Talbots, Inc. 15,200 401 The TJX Max Cos., Inc. 11,400 273 Tiffany & Co. 10,300 302 ----------- 7,391 STEEL 3.2% -------------------------------------------------------------------------- o AK Steel Holding Corp. 81,200 774 o(6) Cleveland Cliffs, Inc. 21,500 1,567 Schnitzer Steel Industries, Inc., Class A 33,000 932 Steel Dynamics, Inc. 26,200 870 ----------- 4,143 TRAVEL & RECREATION 1.2% -------------------------------------------------------------------------- Central Parking Corp. 40,990 555 Choice Hotels International, Inc. 5,700 285 o Vail Resorts, Inc. 38,380 770 ----------- 1,610 TRUCKING & FREIGHT 0.8% -------------------------------------------------------------------------- Arkansas Best Corp. 13,950 545 Overnite Corp. 15,000 486 ----------- 1,031 OTHER INVESTMENTS 2.1% of net assets OTHER INVESTMENT COMPANIES 2.1% -------------------------------------------------------------------------- Provident Institutional Funds-- TempFund 2,743,879 2,744
END OF INVESTMENTS. 52 See financial notes. LAUDUS SMALL-CAP MARKETMASTERS FUND Statement of ASSETS AND LIABILITIES As of October 31, 2004. All numbers x 1,000 except NAV. ASSETS -------------------------------------------------------------------------------- Investments, at value $129,855 a Receivables: Fund shares sold 28 Dividends 22 Investments sold 2,056 Prepaid expenses + 25 ------------ TOTAL ASSETS 131,986 LIABILITIES -------------------------------------------------------------------------------- Bank overdraft 379 Payables: Fund shares redeemed 442 Investments bought 1,573 Investment adviser and administrator fees 5 Transfer agency and shareholder service fees 3 Accrued expenses + 45 ------------ TOTAL LIABILITIES 2,447 NET ASSETS -------------------------------------------------------------------------------- TOTAL ASSETS 131,986 TOTAL LIABILITIES - 2,447 ------------ NET ASSETS $129,539 NET ASSETS BY SOURCE Capital received from investors 118,988 Net investment income not yet distributed 25 Net realized capital loss (1,170) b Net unrealized capital gains 11,696 b NET ASSET VALUE (NAV) BY SHARE CLASS SHARES SHARE CLASS NET ASSETS / OUTSTANDING = NAV Investor Shares $129,218 10,610 $12.18 Select Shares $321 26 $12.19
Unless stated, all numbers x 1,000. a The fund paid $118,159 for these securities. Not counting short-term obligations and government securities, the fund's security transactions during the period were: Purchases $178,195 Sales/maturities $172,730 b These derive from investments and futures. FEDERAL TAX DATA ------------------------------------------------------------ PORTFOLIO COST $118,497 NET UNREALIZED GAINS AND LOSSES: Gains $18,592 Losses + (7,234) ------------ $11,358 AS OF OCTOBER 31, 2004: NET UNDISTRIBUTED EARNINGS: Ordinary income $-- Long-term capital gains $-- CAPITAL LOSSES UTILIZED $21,374 UNUSED CAPITAL LOSSES: Expires 10/31 of: Loss amount: 2010 $808 RECLASSIFICATIONS: Net investment income not yet distributed $1,461 RECLASSIFIED AS: Net realized capital losses ($49) Capital received from investors ($1,412) See financial notes. 53 LAUDUS SMALL-CAP MARKETMASTERS FUND Statement of OPERATIONS For November 1, 2003 through October 31, 2004. All numbers x 1,000. INVESTMENT INCOME -------------------------------------------------------------------------------- Dividends $628 a Interest + 3 ----------- TOTAL INVESTMENT INCOME 631 NET REALIZED GAINS AND LOSSES -------------------------------------------------------------------------------- Net realized gains on investments 21,529 Net realized gains on futures contracts + 313 ----------- NET REALIZED GAINS 21,842 NET UNREALIZED GAINS AND LOSSES -------------------------------------------------------------------------------- Net unrealized losses on investments (9,660) Net unrealized losses on futures contracts + (35) ----------- NET UNREALIZED LOSSES (9,695) EXPENSES -------------------------------------------------------------------------------- Investment adviser and administrator fees 1,734 b Transfer agent and shareholder service fees: Investor shares 333 c Select shares -- c Trustees' fees 6 d Custodian and portfolio accounting fees 153 Professional fees 43 Registration fees 20 Shareholder reports 71 Other expenses + 6 ----------- Total expenses 2,366 Expense reduction - 299 e ----------- NET EXPENSES 2,067 INCREASE IN NET ASSETS FROM OPERATIONS -------------------------------------------------------------------------------- TOTAL INVESTMENT INCOME 631 NET EXPENSES - 2,067 ----------- NET INVESTMENT LOSS (1,436) NET REALIZED GAINS 21,842 f NET UNREALIZED LOSSES + (9,695) f ----------- INCREASE IN NET ASSETS FROM OPERATIONS $10,711
Unless stated, all numbers x 1,000. a Net of $3 foreign withholding tax. b Calculated as 1.30% of average daily net assets. These fees are paid to Charles Schwab Investment Management, Inc. (CSIM) c 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% and 0.15% of the assets of each respective share class. These fees are paid to Charles Schwab & Co., Inc. (Schwab). d For the fund's independent trustees only. e This reduction was made by the investment advisor (CSIM). It reflects a guarantee by CSIM and the transfer agent and shareholder service agent (Schwab) to limit the operating expenses of this fund through February 28, 2005 for Investor shares and February 28, 2006 for Select shares, as follows: % OF AVERAGE SHARE CLASS DAILY NET ASSETS -------------------------------------- Investor Shares 1.55 Select Shares 1.37 This limit excludes interest, taxes and certain non-routine expenses. f These add up to a net gain on investments of $12,147 54 See financial notes. LAUDUS SMALL-CAP MARKETMASTERS FUND Statements of CHANGES IN NET ASSETS For the current and prior report periods. All numbers x 1,000 except footnote.
OPERATIONS -------------------------------------------------------------------------------- 11/1/03-10/31/04 11/1/02-10/31/03 Net investment loss ($1,436) ($886) Net realized gains 21,842 2,970 Net unrealized gains or losses + (9,695) 38,944 ------------------------------------ INCREASE IN NET ASSETS FROM OPERATIONS 10,711 41,028 DISTRIBUTIONS PAID -------------------------------------------------------------------------------- DIVIDENDS FROM NET INVESTMENT INCOME Investor Shares $-- $3 Select Shares + -- -- ------------------------------------ TOTAL DIVIDENDS FROM NET INVESTMENT INCOME $-- $3 a
TRANSACTIONS IN FUND SHARES b -------------------------------------------------------------------------------- 11/1/03-10/31/04 11/1/02-10/31/03 SHARES VALUE SHARES VALUE SHARES SOLD Investor Shares 3,329 $40,268 1,528 $14,258 Select Shares + 28 329 -- -- ---------------------------------------------------- TOTAL SHARES SOLD 3,357 $40,597 1,528 $14,258 SHARES REINVESTED Investor Shares -- $-- 0* $3 Select Shares + -- -- -- -- ---------------------------------------------------- TOTAL SHARES REINVESTED -- $-- -- $3 SHARES REDEEMED Investor Shares (3,099) ($36,800) (2,500) ($21,725) Select Shares + (2) (16) -- -- ---------------------------------------------------- TOTAL SHARES REDEEMED (3,101) ($36,816) (2,500) ($21,725) NET TRANSACTIONS IN FUND SHARES 256 $3,781 (972) ($7,464)
SHARES OUTSTANDING AND NET ASSETS -------------------------------------------------------------------------------- 11/1/03-10/31/04 11/1/02-10/31/03 SHARES NET ASSETS SHARES NET ASSETS Beginning of period 10,380 $115,047 11,352 $81,486 Total increase or decrease + 256 14,492 (972) 33,561 c ---------------------------------------------------- END OF PERIOD 10,636 $129,539 10,380 $115,047 d
* Amount was less than 500 shares. Unless stated, all numbers x 1,000. a The tax-basis components of distributions are: CURRENT YEAR Ordinary income $-- Long-term capital gains $-- PRIOR YEAR Ordinary income $3 Long-term capital gains $-- b The fund started offering Select shares on June 9, 2004. c Figures for shares represent shares sold plus shares reinvested, minus shares redeemed. Figures for net assets represent the changes in net assets from operations plus the changes in value of transactions in fund shares, minus distributions paid. d Includes distributable net investment income in the amount of $25 and $0 at the end of the current and prior period, respectively. See financial notes. 55 LAUDUS INTERNATIONAL MARKETMASTERS FUND(TM) FINANCIAL STATEMENTS FINANCIAL HIGHLIGHTS
11/1/03- 11/1/02- 11/1/01- 11/1/00- 11/1/99- INVESTOR SHARES 10/31/04 10/31/03 10/31/02 10/31/01 10/31/00 PER-SHARE DATA ($) ------------------------------------------------------------------------------------------------------------------------------------ Net asset value at beginning of period 11.95 8.74 10.80 15.53 14.84 ------------------------------------------------------------------------------ Income or loss from investment operations: Net investment income 0.02 0.03 0.10 0.73 0.53 Net realized and unrealized gains or losses 1.65 3.18 (1.43) (3.90) 2.49 ------------------------------------------------------------------------------ Total income or loss from investment operations 1.67 3.21 (1.33) (3.17) 3.02 Less distributions: Dividends from net investment income (0.04) (0.00) 2 (0.07) (0.77) (0.49) Distributions from net realized gains -- -- (0.66) (0.79) (1.84) ------------------------------------------------------------------------------ Total distributions (0.04) -- (0.73) (1.56) (2.33) ------------------------------------------------------------------------------ Net asset value at end of period 13.58 11.95 8.74 10.80 15.53 ------------------------------------------------------------------------------ Total return (%) 13.98 36.74 (13.65) (22.41) 18.61 RATIOS/SUPPLEMENTAL DATA (%) ------------------------------------------------------------------------------------------------------------------------------------ Ratio to average net assets: Net operating expenses 1.65 1.65 0.99 1,3 0.50 3 0.51 3,4 Gross operating expenses 1.89 1.92 1.32 3 0.88 3 0.90 3 Net investment income 0.15 0.33 0.60 5.13 1.94 Portfolio turnover rate 69 99 158 51 80 Net assets, end of period ($ x 1,000,000) 552 302 206 215 278
1 The ratio of net operating expenses would have been 0.93% if certain non-routine expenses (proxy fees) had not been included. 2 The per share amount was less than $0.01. 3 Prior to the fund's change in structure on June 3, 2002, the expenses incurred by underlying funds in which the fund invested were not included in this ratio. 4 The ratio of net operating expenses would have been 0.50% if certain non-routine expenses (proxy fees) had not been included. 56 See financial notes. LAUDUS INTERNATIONAL MARKETMASTERS FUND
4/2/04 1- SELECT SHARES 10/31/04 PER-SHARE DATA ($) ------------------------------------------------------------------------------------------------------------------------------------ Net asset value at beginning of period 13.64 ------------------------------------------------------------------------------ Income or loss from investment operations: Net investment income 0.02 Net realized and unrealized losses (0.05) ------------------------------------------------------------------------------ Total loss from investment operations (0.03) ------------------------------------------------------------------------------ Net asset value at end of period 13.61 ------------------------------------------------------------------------------ Total return (%) (0.22) 2 RATIOS/SUPPLEMENTAL DATA (%) ------------------------------------------------------------------------------------------------------------------------------------ Ratio to average net assets: Net operating expenses 1.47 3 Gross operating expenses 1.86 3 Net investment income 0.37 3 Portfolio turnover rate 69 2 Net assets, end of period ($ x 1,000,000) 81
1 Commencement of operations. 2 Not annualized. 3 Annualized. See financial notes. 57 LAUDUS INTERNATIONAL MARKETMASTERS FUND PORTFOLIO HOLDINGS as of October 31, 2004 This section shows all the securities in the fund's portfolio by industry classification and their value, as of the report date. The fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The fund's Form N-Q will be available on the SEC'S website at http://www.sec.gov and may be reviewed and copied at the SEC'S Public Reference Room in Washington, D.C. Call 1-800-SEC-0330 for information on the operation of the Public Reference Room. The schedule of portfolio holdings filed on the fund's most recent Form N-Q will be available by visiting Schwab's website at www.schwab.com/schwabfunds. We use the symbol below to designate certain characteristics of the securities. With the top ten holdings, the number in the parenthesis is the security's rank among the top ten. (1) Top ten holding o Non-income producing security * American Depositary Receipt = All or a portion of this security is held as collateral for futures contracts ~ Security is valued at fair value (see Accounting Policies)
COST VALUE HOLDINGS BY CATEGORY ($x1,000) ($x1,000) -------------------------------------------------------------------------------- 96.0% FOREIGN COMMON STOCK 521,809 608,094 0.2% SHORT-TERM INVESTMENTS 1,497 1,497 3.6% OTHER INVESTMENTS 22,685 22,685 -------------------------------------------------------------------------------- 99.8% TOTAL INVESTMENTS 545,991 632,276 0.2% OTHER ASSETS AND LIABILITIES, NET 1,011 -------------------------------------------------------------------------------- 100.0% TOTAL NET ASSETS 633,287
VALUE SECURITY AND NUMBER OF SHARES ($ x 1,000) FOREIGN COMMON STOCK 96.0% of net assets AUSTRALIA 2.6% -------------------------------------------------------------------------- Australia and New Zeland Banking Group Ltd. 326,000 4,967 Billabong International Ltd. 70,500 553 o Bradken Ltd. 278,422 641 Commonwealth Bank of Australia 28,850 692 Excel Coal 322,851 1,061 John Fairfax Holdings Ltd. 958,000 3,070 Just Group 463,103 1,020 Macarthur Coal Ltd. 169,930 484 Macquarie Bank Ltd. 32,000 946 Perpetual Trustees Australia Ltd. 16,500 686 Sigma Co. Ltd. 91,700 568 Toll Holdings Ltd. 124,000 1,095 West Australian Newspapers Holdings Ltd. 84,581 540 ----------- 16,323 AUSTRIA 0.5% -------------------------------------------------------------------------- Andritz AG 17,077 1,047 Erste Bank der Oesterreichischen Sparkassen AG 52,600 2,334 ----------- 3,381 BAHAMAS 0.2% -------------------------------------------------------------------------- o Steiner Leisure Ltd. 53,045 1,294 BELGIUM 0.4% -------------------------------------------------------------------------- Interbrew SA 57,500 2,037 o Option N.V. 29,581 803 ----------- 2,840 BRAZIL 0.8% -------------------------------------------------------------------------- * Banco Bradesco SA 1,000 61 Banco Bradesco SA Preffered 4,319 261 Banco Itau SA Preffered 12,843 1,554 * Companhia de Bebidas Spon 12,700 315 * Eregli Demir Ve Celik Fabrik 191,423,519 759 * Gol Linhas Aereas Intel 14,000 289 o Natura Cosmeticos SA 28,000 569 * Petroleo Brasileiro SA 23,900 849 o* Telesp Celular Participacoes SA ADR 123,400 739 ----------- 5,396 CANADA 3.2% -------------------------------------------------------------------------- o Algoma Steel Inc. 76,418 1,284 o Alimentation Couche-Tard, Inc. 33,900 781 CHC Helicopter Corp. 30,212 1,132
58 See financial notes. LAUDUS INTERNATIONAL MARKETMASTERS FUND
VALUE SECURITY AND NUMBER OF SHARES ($ x 1,000) Corus Entertainment, Inc. 38,500 741 Encana Corp. 53,800 2,664 o Extendicare, Inc., Class A 104,378 1,434 Home Capital Group, Inc., Class B 35,560 780 Manulife Financial Corp. 65,300 3,045 o* Nortel Networks Corp. 104,800 355 Peyto Energy Trust 54,750 1,840 o Precision Drilling Corp. 13,800 853 o Research in Motion Ltd. 13,300 1,171 o Shoppers Drug Mart Corp. 23,700 720 Suncor Energy, Inc. 46,400 1,584 o Transat A.T. Inc. 116,311 2,146 ----------- 20,530 CHILE 0.3% -------------------------------------------------------------------------- o* Cencosud SA 144A 25,000 555 * LanChile SA 24,900 611 S.A.C.I. Falabella SA 268,700 600 ----------- 1,766 CZECH REPUBLIC 0.2% -------------------------------------------------------------------------- Cesky Telecom A/S 84,649 1,109 DENMARK 1.0% -------------------------------------------------------------------------- Bang Olufsen A/S Class B 24,032 1,424 o Bavarian Nordic A/S 14,544 1,320 H. Lundbeck A/S 3,900 70 Kobenhavns Lufthavne 4,014 671 Novo Nordisk A/S 20,300 1,006 o TopDanmark Development A/S 22,157 1,557 ----------- 6,048 EGYPT 0.1% -------------------------------------------------------------------------- Orascom Construction Inds 77,000 892 ESTONIA 0.1% -------------------------------------------------------------------------- Hansabank Ltd. 38,800 390 FINLAND 1.0% -------------------------------------------------------------------------- Alma Media Corporation-II 12,965 142 Metso Oyj 171,100 2,403 Nokian Renkaat Oyj 23,196 2,506 Perlos Oyj 78,786 1,186 ----------- 6,237 FRANCE 8.0% -------------------------------------------------------------------------- o Alten 35,356 765 April Group 19,208 414 o AXAlto Holding N.V. 81,855 1,926 Banque National de Paris 39,800 2,701 o Christian Dior SA 23,200 1,401 Essilor International SA 21,700 1,469 Generale de Sante 50,049 855 Hermes International 5,700 1,096 Ingenico 34,856 576 Ipsos 10,463 976 o JC Decaux SA 163,900 4,063 Klepierre 9,500 723 Lvmh Moet Hennessy Louis Vutton SA 4,800 328 M6 Metropole Television 18,400 478 o Michelin (C.G.D.E.), Class B 39,500 2,143 Mr. Bricolage SA 6,300 150 Neopost SA 78,100 5,405 o Orpea 23,100 680 o PagesJaunes SA 54,991 1,112 Pernod-Ricard 18,375 2,536 Publicis Groupe SA 187,000 5,561 Sanofi-Synthelabo SA 88,660 6,462 Spir Communication 2,973 531 SR Teleperformance 61,312 1,350 Suez SA 37,700 879 Total SA, Class B 10,700 2,219 Trader Classified Media N.V. 35,558 451 o Vivendi Universal SA 117,000 3,186 ----------- 50,436 GERMANY 7.8% -------------------------------------------------------------------------- Allianz AG 17,845 1,893 AWD Holding AG 13,472 470 Balda AG 34,850 357 (3) Bayerische Motoren-Werke AG 187,400 7,902 Bayerische Vereinsbank AG 22,900 447 Bijou Brigitte Modische Accessoires AG 3,012 349 Celesio AG 10,500 759 o Commerzbank AG 10,100 184 o Continental AG 32,300 1,759 Deutsche Boerse AG 115,400 5,747
See financial notes. 59 LAUDUS INTERNATIONAL MARKETMASTERS FUND PORTFOLIO HOLDINGS continued
VALUE SECURITY AND NUMBER OF SHARES ($ x 1,000) DIS Deutscher Industrie Service AG 21,746 704 o* Efes Breweries Intl GDR Ebidq.L 17,051 473 Funkwerk AG 14,875 640 GFK AG 34,848 1,141 Grenskeleasing AG 8,947 337 Hannover Rueckversicherung AG 96,000 3,119 Henkel KGaA 81,000 5,754 Krones AG 8,288 833 Linde AG 30,400 1,831 Merck KGAA 6,100 339 MPC Muenchmeyer Petersen Capital AG 31,446 2,200 Muenchener Rueckversicherungs- Gesellschaft AG 15,454 1,507 o Norddeutsche Affinerie AG 32,328 521 ProSiebenSat.1 Media AG Preffered 80,875 1,444 Puma AG 2,780 694 Rational AG 1,744 137 SAP AG 20,900 3,550 o SBS Broadcasting SA 51,747 1,782 Schering AG 3,200 205 o Software AG 46,015 1,340 o Techem AG 26,062 832 ----------- 49,250 GREECE 0.7% -------------------------------------------------------------------------- Coca-Cola Hellenic Bottling Co. SA 47,600 1,056 EFG Eurobanck Ergasias 32,000 873 Folli-Follie SA 20,800 635 o Fourlis SA 49,210 304 Germanos SA 13,493 358 National Bank of Greece SA 31,780 885 o OPAP SA 9,400 191 ----------- 4,302 HONG KONG 2.3% -------------------------------------------------------------------------- China Insurance International Holdings Co. Ltd. 946,900 435 China Mobile Ltd. 466,300 1,354 China Travel Intl Inv Hk 2,880,000 758 Citic Pacific Ltd. 225,800 577 o CNOOC Ltd. 4,856,900 2,496 Esprit Holdings Ltd. 171,500 917 Giordano International Ltd. 1,436,000 802 Hang Lung Group Ltd. 7,800 13 Hong Kong & China Gas Co. Ltd. 310,600 599 o Pacific Basin Shipping Ltd. 2,992,000 1,384 Sinopec Beijing Yanhua Petrochemical Co. Ltd. 5,948,000 2,159 Sung Hung Kai Properties 70,900 656 Techtronic Industries Co., Ltd. 1,248,000 2,485 ----------- 14,635 HUNGARY 0.3% -------------------------------------------------------------------------- Borsodchem Rt. 56,391 560 Otp Bank Rt. 46,600 1,175 ----------- 1,735 INDIA 0.8% -------------------------------------------------------------------------- Bharat Forge 513 -- Bharat Forge Ltd. 21,525 414 o Bharti Televentures Ltd. 247,100 857 Biocon Ltd. 55,300 627 HDFC Bank Ltd. 64,800 592 Housing Development Finance Corp., Ltd. 57,700 813 o Infosys Technologies Ltd. 35,600 1,496 o Mphasis BFL Ltd. 27,269 162 ----------- 4,961 INDONESIA 0.1% -------------------------------------------------------------------------- o PT Bank Rakyat Indonesia 3,035,000 650 IRELAND 1.7% -------------------------------------------------------------------------- Anglo Irish Bank Corp. PLC 56,300 1,067 (7) Bank of Ireland 532,000 7,275 o Grafton Group PLC - UTS 67,900 609 o Paddy Power PLC 61,503 813 o United Drug PLC 184,509 732 ----------- 10,496
60 See financial notes. LAUDUS INTERNATIONAL MARKETMASTERS FUND
VALUE SECURITY AND NUMBER OF SHARES ($ x 1,000) ISRAEL 0.1% -------------------------------------------------------------------------- o* ECI Telecom Ltd. 59,149 408 o* Orbotech Ltd. 25,000 423 ----------- 831 ITALY 3.3% -------------------------------------------------------------------------- Amplifon SPA 7,836 346 Assicurazioni Generali 21,400 633 Banca Intesabci SPA 345,500 1,411 Banco Popolare di Verona e Novara Scrl 240,900 4,259 Credito Emiliano SPA 68,800 593 o Enel SPA 259,400 2,340 Eni SPA 64,500 1,460 Hera SPA 215,600 594 Interpump Group SPA 62,570 322 Marzotto SPA 47,938 739 Mediobanca SPA 3,900 54 Merloni Elettrodomestici SPA 29,700 451 Pirelli & C. Real Estate SPA 14,700 641 Saipem SPA 130,761 1,504 San Paolo IMI SPA 135,000 1,707 Unicredito Italiano SPA 724,000 3,877 ----------- 20,931 JAPAN 15.8% -------------------------------------------------------------------------- o AEON Co. Ltd. 5,000 80 Aeon Credit Service Co. Ltd. 13,500 884 Aeon Mall Co. Ltd 11,300 721 Aica Kogyo Company Limited 98,000 1,168 All Nippon Airways Co. Ltd. 55,000 171 o Aoc Holdings Inc. 116,300 1,343 Arbeit-Times Co., Ltd. 24,209 604 Arealink Co. Ltd. 471 1,096 o Arnest One Corp. 12,100 328 Askul Corp. 8,400 520 Canon, Inc. 54,500 2,684 o Chiyoda Corp. 90,000 680 Credit Saison Co. Ltd. 63,400 2,024 o Cyber Agent Ltd-W I 86 235 Cybernet Systems Co. Ltd. 389 1,154 Daiwa Securities Group, Inc. 176,000 1,077 Diamond City Co. Ltd. 34,600 960 East Japan Railway Co. 229 1,201 en-Japan, Inc. 353 662 o EPS Co. Ltd 45 127 Exedy Corp 63,500 1,070 Fast Retailing Co. Ltd. 19,700 1,250 First Juken Co. Ltd. 3,200 61 o First Juken Co. Ltd. W/I 16,567 371 o Fuji Television Network, Inc. 232 522 Global One Real Estate Investment Co., Ltd. 41 326 Goldcrest Co. Ltd. 14,200 884 Hino Motors Ltd. 178,300 1,185 Hitachi Koki Company Ltd. 117,000 864 o Hodogaya Chemical CO Ltd. 260,000 1,285 Honda Motor Co. Ltd. 58,700 2,830 Hoya Corp. 20,900 2,141 o J-Oil Mills, Inc. 293,000 1,101 o Japan Airlines System Corp. 224,000 612 o Kennedy-Wilson Japan 348 1,357 Keyence Corp. 10,900 2,451 Komatsu Ltd. 41,600 278 Meitec Corp. 102,000 3,833 Misumi Corp. 18,600 508 Mitsubishi Tokyo Financial Group, Inc. 129 1,093 Mizuho Financial Group Inc. 312 1,202 Musashino Bank Ltd. 3,500 131 Nakanishi, Inc. 6,000 397 o Neomax Co., Ltd. 21,000 329 o Nihon Dempa Kogyo Co. Ltd. 14,000 296 Nikko Cordial Corp. 425,600 1,900 Nippon Broadcasting System, Inc. 3,750 168 Nishimatsuya Chain Co. Ltd. 48,700 1,678 Nitori Co. Ltd. 10,580 573 Nitto Denko Corp. 29,600 1,402 NIWS Co. Ltd. 855 2,166 Nomura Holdings, Inc. 79,300 971 Okinawa Cellular Telephone Co. 493 2,321 Olympus Optical Co. Ltd. 246,700 4,774 Orix Corp. 33,900 3,968 Pacific Metals CO Ltd 246,000 1,001 o Park24 Co. Ltd W/I 15,100 257 Park24 Co. Ltd. 15,100 256
See financial notes. 61 LAUDUS INTERNATIONAL MARKETMASTERS FUND PORTFOLIO HOLDINGS continued
VALUE SECURITY AND NUMBER OF SHARES ($ x 1,000) Pasona, Inc. 190 474 Phoenix Electric Co. Ltd 47,200 738 Point, Inc. 82,640 2,226 Promise Co. Ltd. 26,300 1,669 o Roland DG Corp. 16,800 831 o Ryohin Keikaku Co. Ltd. 11,700 522 Sankyo Co., Ltd. Gunma 900 36 Sawai Pharmaceutical Co. Ltd. 10,500 312 o Sega Sammy Holdings Inc. 19,524 905 o Seven-Eleven Japan Co. Ltd. 8,000 231 Sharp Corp. 140,000 1,930 Shinsei Bank Ltd. 182,000 1,183 SMC Corp. 23,100 2,469 Sumitomo Trust and Banking Co. Ltd. 445,200 2,591 Sundrug Co., Ltd. 2,000 54 Sysmex Corp. 53,000 2,066 o Take and Give Needs Co-W I 1,152 1,193 Takeda Chemical Industries Ltd. 121,000 5,834 The Bank of Yokohama Ltd. 247,300 1,476 The Fuji Fire & Marine Insurance Co. Ltd. 10,500 33 Toagosei Chemical Ltd. 177,000 485 Tokyo Broadcasting System, Inc. 35,400 566 Tokyu Corp. 195,100 882 Toto Ltd. 100,000 895 Toyo Tire & Rubber Co., Ltd. 570,000 1,702 Trend Micro Inc. 23,500 1,124 Urban Corporation 11,500 496 USS Co. Ltd. 6,730 543 o Watabe Wedding Corp. 13,700 339 Yamato Transport Co. Ltd. 21,400 288 Yodogawa Steel Works Ltd. 162,000 731 ----------- 100,355 MALAYSIA 0.0% -------------------------------------------------------------------------- ~o Airasia BHD 388,000 128 MEXICO 2.4% -------------------------------------------------------------------------- America Mobil SA de CV 799,100 1,760 o Consorcio ARA SA de CV 68,200 183 o Corporacion Geo SA , Series B 1,563,281 2,440 * Grupo Aeroportuario del Sureste SA de CV 29,035 665 *(8) Grupo Televisa SA de CV 124,300 6,837 o Urbi Desarrollos Urbanos SA de CV 192,300 717 Walmart de Mexico-Ser V 786,000 2,572 ----------- 15,174 NETHERLANDS 3.8% -------------------------------------------------------------------------- Aalberts Industries NV 26,583 987 AKZO Nobel N.V. 158,000 5,927 o ASM Lithography Holding N.V. 119,600 1,699 o ASML Holding N.V. 17,000 242 (9) Euronext N.V. 236,000 6,815 Fortis N.V. 156,520 3,972 Heineken Holding N.V. 154,000 4,312 ----------- 23,954 NORWAY 1.9% -------------------------------------------------------------------------- Aktiv Kapital ASA 70,897 1,187 Ekornes ASA 49,329 1,121 o Fred Olsen Energy ASA 101,546 1,048 Statoil ASA 146,200 2,110 Stolt Offshores S.A 339,030 1,676 o Tandberg Television ASA 328,544 2,375 Telenor ASA 158,800 1,261 o TGS Nopec Geophysical Co. ASA 58,256 1,103 ----------- 11,881 PORTUGAL 0.2% -------------------------------------------------------------------------- o Impresa Sociedade Gestora de Participacoes SA 107,978 626 o SonaeCom SGPS SA 214,564 906 ----------- 1,532 RUSSIA 0.4% -------------------------------------------------------------------------- * Lukoil Holding Co. 11,500 1,431 * OAO Gazprom SP 8,105 303 o* Sibneft - Sponsored 22,300 825 ----------- 2,559 SINGAPORE 2.0% -------------------------------------------------------------------------- o Accord Customer Care Solutions Ltd. 3,695,000 1,708
62 See financial notes. LAUDUS INTERNATIONAL MARKETMASTERS FUND
VALUE SECURITY AND NUMBER OF SHARES ($ x 1,000) Cosco Investments 3,871,520 2,441 DBS Group Holdings Ltd. 138,200 1,295 Jaya Holdings Ltd. 2,051,000 1,269 Osim International Ltd. 455,600 257 o Singapore Airlines Ltd. 74,800 481 Singapore Telecommunications Ltd. 695,407 1,011 Sunningdale Precision Industries Ltd. 1,254,000 629 United Overseas Bank Ltd. 482,000 3,907 ----------- 12,998 SOUTH AFRICA 0.6% -------------------------------------------------------------------------- Edgars Consolidated Stores Ltd. 23,900 841 Ellerine Holdings Ltd. 64,905 481 Foschini Ltd. 241,681 1,213 MTN Group Ltd. 155,100 850 Network Healthcare Holdings Ltd. 682,500 601 ----------- 3,986 SOUTH KOREA 2.0% -------------------------------------------------------------------------- Hyundai Motor Co. Ltd. 41,700 2,023 o Kookmin Bank 117,700 3,932 Samsung Electronics Co. Ltd. Preferred 5,600 2,198 SK Telecom Co. Ltd. 26,900 4,217 ----------- 12,370 SPAIN 2.0% -------------------------------------------------------------------------- Aldeasa SA 34,230 1,132 Altadis SA 38,960 1,426 Amadeus Global Travel Distribution SA Class A 49,500 405 Banco Bilbao Vizcaya Argentaria SA 97,155 1,520 Banco Santander Central Hispano SA 74,400 828 Cortefiel SA 126,270 1,646 Grupo Ferrovial SA 20,200 892 Inditex SA 33,200 841 Miquel y Costas & Miquel SA 2,223 141 Prisa-Promotora de Informaciones SA 102,900 1,939 Telefonica SA 107,753 1,774 ----------- 12,544 SWEDEN 1.7% -------------------------------------------------------------------------- Elekta Ab-B 60,269 1,601 o(6) Ericsson Telefonab LM AB, Class B 2,031,400 5,883 o*(6) Ericsson Telefonab LM SP 48,600 1,405 Hennes & Mauritz AB, Class B 4,950 144 Q-Med AB 32,146 827 Telelogic AB 307,080 652 ----------- 10,512 SWITZERLAND 8.7% -------------------------------------------------------------------------- o Actelion Ltd. 5,800 661 Clariant AG 160,405 2,163 o(5) Credit Suisse Croup 216,700 7,386 Galenica Holding AG 1,595 264 Geberit AG 730 474 Givaudan AG 7,150 4,454 Julius Baer Holding AG, Class B 3,315 924 o Leica Geosystems AG 4,704 1,129 Lonza Group AG 117,000 5,697 (1) Nestle SA 38,332 9,037 Novartis AG 133,000 6,321 o Roche Holding AG Genusschein 15,200 1,549 Saia-Burgess Electronics AG 504 281 Serono SA, Class B 4,199 2,602 Swatch Group AG 23,200 3,099 o Syngenta AG 37,700 3,584 o Temenos Group AG 56,142 397 United Bank of Switzerland AG 72,050 5,175 ----------- 55,197 TAIWAN 0.6% -------------------------------------------------------------------------- * Chunghwa Telecom Co. Ltd. 65,900 1,242 o Eva Airways Corp. 1,237,669 491 Hon Hai Precision Industry Co. Ltd. 549,550 2,024 ----------- 3,757 THAILAND 0.0% -------------------------------------------------------------------------- Advanced Info Service Public Co. Ltd. 69,000 157
See financial notes. 63 LAUDUS INTERNATIONAL MARKETMASTERS FUND PORTFOLIO HOLDINGS continued
VALUE SECURITY AND NUMBER OF SHARES ($ x 1,000) TURKEY 0.5% -------------------------------------------------------------------------- o Boyner Buyuk Magazacilik 407,063,360 508 o* Dogan Yayin Holding A/S 191,530,047 682 Eregli Demir Ve Celik Fabrikalari 20,076,534 80 Migros Turkey TAS 141,847,389 871 o Otokar Otobus Karoseri Sanayi A/S 173,219,008 763 ----------- 2,904 UNITED KINGDOM 17.9% -------------------------------------------------------------------------- Abbot Group PLC 130,640 510 o Acambis PLC 68,020 328 Aegis Group PLC 1,900,000 3,551 Allied Domecq PLC 72,316 642 o Ashtead Group PLC 1,706,580 2,119 Associated British Ports Holdings PLC 596,000 5,045 o AstraZeneca PLC 3,900 160 BG Group PLC 430,800 2,802 BP PLC 347,600 3,360 British Sky Broadcasting Group PLC 602,801 5,616 Cadbury Schweppes PLC 692,000 5,738 o Cairn Energy PLC 35,000 944 Capital Group PLC 230,400 1,485 Carnival PLC 62,709 3,311 Cattles PLC 94,900 619 o Cobham PLC 27,600 699 Compass Group PLC 383,200 1,580 o CSR PLC 221,151 1,358 (4) Diageo PLC 588,000 7,849 Domino Printing Sciences PLC 30,217 136 o Enodis PLC 1,515,000 2,408 (2) GlaxoSmithKline PLC 388,000 8,154 HSBC Holdings PLC -- (UK) 176,500 2,844 Imperial Chemical Industries PLC 203,640 782 Intertek Group 45,000 567 ITV PLC 1,587,202 3,112 Johnston Press PLC F P 69,800 704 Kesa Electricals PLC 147,360 734 Kingfisher PLC 611,963 3,389 o Lloyds TSB Group PLC 523,000 4,130 Man Group PLC 34,900 836 McCarthy & Stone PLC 40,300 428 Michael Page Group PLC 1,188,800 3,747 Morrison Wm. Supermarkets 185,416 770 Next PLC 39,300 1,203 o Orascom Telecommunications 42,700 730 Pearson PLC 81,600 894 Reckitt Benkiser PLC 82,297 2,253 Reed Elsevier PLC 575,000 5,126 RTL Group SA 9,660 640 S I G PLC 35,527 324 Savills PLC 22,457 168 Signet Group PLC 2,700,000 5,256 Smith & Nephew PLC 158,700 1,345 Standard Chartered PLC 158,900 2,834 * Stolt Comex Seaway ADR 184,547 939 (10) Tesco PLC 1,261,100 6,632 o Ultra Electronics Holdings PLC 73,431 833 o Vodafone Group PLC 1,357,000 3,469 Whatman PLC 150,160 550 ----------- 113,653
SECURITY FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) SHORT-TERM INVESTMENTS 0.2% of net assets U.S. GOVERNMENT SECURITIES 0.2% -------------------------------------------------------------------------- = U.S. Treasury Bills 1.63%, 12/16/04 1,500 1,497
VALUE SECURITY AND NUMBER OF SHARES ($ x 1,000) OTHER INVESTMENTS 3.6% of net assets OTHER INVESTMENT COMPANIES 3.6% -------------------------------------------------------------------------- = Provident Institutional Funds -- TempFund 22,684,772 22,685
END OF INVESTMENTS. 64 See financial notes. LAUDUS INTERNATIONAL MARKETMASTERS FUND In addition to the above, the fund held the following at 10/31/04. All numbers x 1,000 except number of futures contracts. FUTURES CONTRACTS
NUMBER OF CONTRACT UNREALIZED CONTRACTS VALUE GAIN/(LOSSES) S&P 500 Index expires 12/16/04 24 6,782 119
FOREIGN CURRENCY CONTRACTS
AMOUNT OF AMOUNT OF CURRENCY TO CURRENCY TO CURRENCY TO CURRENCY TO UNREALIZED EXPIRATION DATE BE RECEIVED BE RECEIVED BE DELIVERED BE DELIVERED GAINS/(LOSSES) 11/01/04 Australian Dollars 72 U.S. Dollars 54 -- * 11/01/04 Canadian Dollars 105 U.S. Dollars 86 -- * 11/01/04 Danish Krones 3,210 U.S. Dollars 551 (1) 11/01/04 European Euro 135 U.S. Dollars 172 (1) 11/01/04 Hong Kong Dollars 1,074 U.S. Dollars 138 -- * 11/01/04 Japanese Yen 9,455 U.S. Dollars 89 -- * 11/01/04 Norwegian Krona 5,958 U.S. Dollars 927 5 11/01/04 Swedish Krona 756 U.S. Dollars 107 -- * 11/01/04 Swiss Francs 39 U.S. Dollars 33 -- * 11/01/04 U.S. Dollars 180 British Pounds 98 -- * 11/01/04 U.S. Dollars 24 Danish Krone 140 -- * 11/01/04 U.S. Dollars 379 European Euro 298 -- * 11/01/04 U.S. Dollars 88 Swiss Francs 106 (1) 11/02/04 Canadian Dollars 49 U.S. Dollars 40 -- * 11/02/04 European Euro 121 U.S. Dollars 154 (1) ~ 11/02/04 South African Rand 739 U.S. Dollars 120 2 11/02/04 Swedish Krona 717 U.S. Dollars 101 -- * 11/02/04 Swiss Francs 36 U.S. Dollars 30 -- * 11/02/04 U.S. Dollars 16 Danish Krone 95 -- * 11/02/04 U.S. Dollars 58 European Euro 46 -- * 11/02/04 U.S. Dollars 387 Japanese Yen 41,007 -- * 11/02/04 U.S. Dollars 12 Swiss Francs 14 -- * 11/03/04 European Euro 18 U.S. Dollars 23 -- * ~ 11/03/04 South African Rand 1,213 U.S. Dollars 197 3 11/03/04 Swiss Francs 48 U.S. Dollars 40 -- * 11/03/04 U.S. Dollars 48 Danish Krone 278 -- * 11/03/04 U.S. Dollars 23 European Euro 18 -- * 11/03/04 U.S. Dollars 11 Swiss Francs 13 -- * 11/04/04 Japanese Yen 27,668 U.S. Dollars 261 (1)
See financial notes. 65 LAUDUS INTERNATIONAL MARKETMASTERS FUND All numbers x 1,000 except number of futures contracts. FOREIGN CURRENCY CONTRACTS (CONTINUED)
AMOUNT OF AMOUNT OF CURRENCY TO CURRENCY TO CURRENCY TO CURRENCY TO UNREALIZED EXPIRATION DATE BE RECEIVED BE RECEIVED BE DELIVERED BE DELIVERED GAINS/(LOSSES) ~ 11/04/04 South African Rand 1,140 U.S. Dollars 186 1 11/04/04 U.S. Dollars 16 Japanese Yen 1,654 -- * ~ 11/05/04 South African Rand 311 U.S. Dollars 51 1 ------------ 7
FORWARD FOREIGN CURRENCY CONTRACTS
AMOUNT OF AMOUNT OF CURRENCY TO CURRENCY TO CURRENCY TO CURRENCY TO UNREALIZED EXPIRATION DATE BE RECEIVED BE RECEIVED BE DELIVERED BE DELIVERED GAINS/(LOSSES) 07/13/05 U.S. Dollars 10,424 British Pounds 5,800 (32) 07/14/05 U.S. Dollars 10,483 British Pounds 5,800 27 ------------ (5)
* Amounts stated as "--" are less than $1. 66 See financial notes. LAUDUS INTERNATIONAL MARKETMASTERS FUND Statement of ASSETS AND LIABILITIES As of October 31, 2004. All numbers x 1,000 except NAV. ASSETS -------------------------------------------------------------------------------- Investments, at value $632,276 a Foreign currency 1,872 b Receivables: Fund shares sold 1,016 Dividends 728 Due from brokers for futures 16 Foreign tax reclaims 306 Investments sold 4,093 Unrealized appreciation on foreign currency contracts 12 Unrealized appreciation on forward foreign currency contracts 27 Prepaid expenses + 105 ------------ TOTAL ASSETS 640,451 LIABILITIES -------------------------------------------------------------------------------- Payables: Fund shares redeemed 540 Investments bought 6,363 Investment adviser and administrator fees 28 Transfer agency and shareholder service fees 11 Withholding taxes 11 Unrealized depreciation on foreign currency contracts 5 Unrealized depreciation on forward foreign contracts 32 Accrued expenses + 174 ------------ TOTAL LIABILITIES 7,164 NET ASSETS -------------------------------------------------------------------------------- TOTAL ASSETS 640,451 TOTAL LIABILITIES - 7,164 ------------ NET ASSETS $633,287 NET ASSETS BY SOURCE Capital received from investors 633,397 Distributions in excess of net investment income (221) Net realized capital losses (86,354) c Net unrealized capital gains 86,465 c NET ASSET VALUE (NAV) BY SHARE CLASS SHARES SHARE CLASS NET ASSETS / OUTSTANDING = NAV Investor Shares $551,940 40,635 $13.58 Select Shares $81,347 5,979 $13.61
Unless stated, all numbers x 1,000. a The fund paid $545,991 for these securities. Includes certain restricted but deemed liquid 144A securities worth $555 or 0.1% of the fund's total net assets. Not counting short-term obligations and government securities, the fund's security transactions during the period were: Purchases $577,938 Sales/maturities $303,634 b The fund paid $1,847 for these currencies. c These derive from investments, foreign currency transactions and futures. FEDERAL TAX DATA -------------------------------------------------------- PORTFOLIO COST $551,348 NET UNREALIZED GAINS AND LOSSES: Gains $89,549 Losses + (8,621) ------------ $80,928 AS OF OCTOBER 31, 2004: NET UNDISTRIBUTED EARNINGS: Ordinary income $1,221 Long-term capital gains $-- CAPITAL LOSSES UTILIZED $15,097 UNUSED CAPITAL LOSSES: Expires 10/31 of: Loss amount: 2009 $25,229 2010 53,351 2011 + 3,747 ------------ $82,327 RECLASSIFICATIONS: Net investment income not yet distributed ($496) RECLASSIFIED AS: Net realized capital gains $506 Capital received from investors ($10) See financial notes. 67 LAUDUS INTERNATIONAL MARKETMASTERS FUND Statement of OPERATIONS For November 1, 2003 through October 31, 2004. All numbers x 1,000. INVESTMENT INCOME -------------------------------------------------------------------------------- Dividends $8,586 a Interest + 10 ----------- TOTAL INVESTMENT INCOME 8,596 NET REALIZED GAINS AND LOSSES -------------------------------------------------------------------------------- Net realized gains on investments 13,734 Net realized losses on foreign currency transactions (1,163) Net realized gains on futures contracts + 382 ----------- NET REALIZED GAINS 12,953 NET UNREALIZED GAINS AND LOSSES -------------------------------------------------------------------------------- Net unrealized gains on investments 39,633 Net unrealized gains on foreign currency transactions 16 Net unrealized losses on futures contracts + (24) ----------- NET UNREALIZED GAINS 39,625 EXPENSES -------------------------------------------------------------------------------- Investment adviser and administrator fees 6,665 b Transfer agent and shareholder service fees: Investor Shares 1,123 c Select Shares 54 c Trustees' fees 7 d Custodian and portfolio accounting fees 896 Professional fees 51 Registration fees 77 Shareholder reports 110 Other expenses + 15 ----------- Total expenses 8,998 Expense reduction - 1,191 e ----------- NET EXPENSES 7,807 INCREASE IN NET ASSETS FROM OPERATIONS -------------------------------------------------------------------------------- TOTAL INVESTMENT INCOME 8,596 NET EXPENSES - 7,807 ----------- NET INVESTMENT INCOME 789 NET REALIZED GAINS 12,953 f NET UNREALIZED GAINS + 39,625 f ----------- INCREASE IN NET ASSETS FROM OPERATIONS $53,367
Unless stated, all numbers x 1,000. a Net of $1,049 foreign withholding tax. b Calculated as 1.40% of average daily net assets. These fees are paid to Charles Schwab Investment Management, Inc. (CSIM) c 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% and 0.15% of the assets of each respective share class. These fees are paid to Charles Schwab & Co., Inc. (Schwab). d For the fund's independent trustees only. e Includes $1,155 from the investment adviser (CSIM) and $36 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 February 28, 2005 for Investor Shares and February 28, 2006 for Select Shares, as follows: % OF AVERAGE SHARE CLASS DAILY NET ASSETS -------------------------------------------- Investor Shares 1.65 Select Shares 1.47 This limit excludes interest, taxes and certain non-routine expenses. f These add up to a net gain on investments of $52,578 68 See financial notes. LAUDUS INTERNATIONAL MARKETMASTERS FUND Statements of CHANGES IN NET ASSETS For the current and prior report periods. All numbers x 1,000.
OPERATIONS -------------------------------------------------------------------------------- 11/1/03-10/31/04 11/1/02-10/31/03 Net investment income $789 $740 Net realized gains or losses 12,953 (6,081) Net unrealized gains + 39,625 80,329 ------------------------------------- INCREASE IN NET ASSETS FROM OPERATIONS 53,367 74,988 DISTRIBUTIONS PAID -------------------------------------------------------------------------------- DIVIDENDS FROM NET INVESTMENT INCOME Investor Shares 1,007 14 Select Shares + -- -- -------------------------------------- TOTAL DIVIDENDS FROM NET INVESTMENT INCOME $1,007 $14 a, b
TRANSACTIONS IN FUND SHARES c -------------------------------------------------------------------------------- 11/1/03-10/31/04 11/1/02-10/31/03 SHARES VALUE SHARES VALUE SHARES SOLD Investor Shares 22,257 $290,173 6,539 $66,048 Select Shares + 6,216 82,103 -- -- --------------------------------------------------- TOTAL SHARES SOLD 28,473 $372,276 6,539 $66,048 SHARES REINVESTED Investor Shares 77 $938 2 $13 Select Shares + -- -- -- -- --------------------------------------------------- TOTAL SHARES REINVESTED 77 $938 2 $13 SHARES REDEEMED Investor Shares (6,975) ($91,166) (4,801) ($44,770) Select Shares + (237) (3,110) -- -- --------------------------------------------------- TOTAL SHARES REDEEMED (7,212) ($94,276) (4,801) ($44,770) d NET TRANSACTIONS IN FUND SHARES 21,338 $278,938 1,740 $21,291
SHARES OUTSTANDING AND NET ASSETS -------------------------------------------------------------------------------- 11/1/03-10/31/04 11/1/02-10/31/03 SHARES NET ASSETS SHARES NET ASSETS Beginning of period 25,276 $301,989 23,536 $205,724 Total increase + 21,338 331,298 1,740 96,265 e --------------------------------------------------- END OF PERIOD 46,614 $633,287 25,276 $301,989 f
Unless stated, all numbers x 1,000. a UNAUDITED The fund designates $1,007 of the dividend distribution for the fiscal year ended 10/31/04 as qualified dividends for the purpose of the maximum rate under Section 1(h)(ii) of the Internal Revenue Code. Shareholders will be notified in January 2005 via IRS Form 1099 of the amounts for use in preparing their 2004 income tax return. b The tax-basis components of distributions are: CURRENT YEAR Ordinary income $1,007 Long-term capital gains $-- PRIOR YEAR Ordinary income $14 Long-term capital gains $-- c The fund started offering Select Shares on April 2, 2004. d The fund charges 1.50% of early withdrawal fees on shares redeemed 180 days or less after the purchases: CURRENT PERIOD Investor Shares $129 Select Shares + 24 -------- TOTAL $153 PRIOR PERIOD Investor Shares $52 Select Shares + -- -------- TOTAL $52 Dollar amounts are net of the redemption fees. e Figures for shares represent shares sold plus shares reinvested, minus shares redeemed. Figures for net assets represent the changes in net assets from operations plus the changes in value of transactions in fund shares, minus distributions paid. f Includes distributions in excess of net investment income in the amount of $221 and distributable net investment income of $493 at the end of the current period and prior period, respectively. See financial notes. 69 LAUDUS MARKETMASTERS FUNDS 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. Prior to June 3, 2002, each fund invested in a mix of actively managed mutual funds. The transition to their multi-manager strategy began on June 3, 2002. Also, effective November 1, 2004 the Schwab MarketMasters Funds were renamed the Laudus MarketMasters Funds. 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 Schwab Total Stock Market Index Fund Schwab International Index Fund Schwab MarketTrack All Equity Portfolio Schwab MarketTrack Growth Portfolio Schwab MarketTrack Balanced Portfolio Schwab MarketTrack Conservative Portfolio Laudus U.S. MarketMasters Fund Laudus Balanced MarketMasters Fund Laudus Small-Cap MarketMasters Fund Laudus International MarketMasters Fund Schwab Core Equity Fund Schwab Dividend Equity Fund Schwab Small-Cap Equity Fund Schwab Hedged Equity Fund Communications Focus Fund Financial Services Focus Fund Health Care Focus Fund Technology Focus Fund Schwab Institutional Select S&P 500 Fund Schwab Institutional Select Large-Cap Value Index Fund Schwab Institutional Select Small-Cap Value Index Fund LAUDUS MARKETMASTERS FUNDS OFFER TWO SHARE CLASSES: Investor Shares and Select Shares. Shares of each class represent interest in the same portfolio, but each class has different expenses and investment minimums. Shares are bought and sold at net asset value (NAV), which is the price for all outstanding shares. Each share has a par value of 1/1,000 of a cent, and the trust may issue as many shares as necessary. FUND OPERATIONS Most of the funds' investments are described in the fund-by-fund sections earlier in this report. However, there are certain other fund operations and policies that may affect a fund's financials, as 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 BUY SECURITIES ON A DELAYED-DELIVERY BASIS. In these transactions, the funds agree to buy a security for a stated price, with settlement generally occurring within two weeks. If the security's value falls before settlement occurs, the funds could end up paying more for the security than its market value at the time of settlement. The funds have set aside sufficient securities as collateral for those securities bought on a delayed-delivery basis. THE FUNDS MAY INVEST IN FUTURES CONTRACTS. Futures contracts involve certain risks because they can be very 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. 70 LAUDUS MARKETMASTERS FUNDS Because futures carry inherent risks, the funds must give the broker a deposit of cash and/or securities (the "initial margin") whenever they enter into the futures contract. The amount of the deposit may vary from one contract to another, but it is generally a percentage of the contract amount. The potential for losses associated with futures contracts may exceed amounts recorded in the Statement of Assets and Liabilities. Futures are traded publicly on exchanges, and their market value changes daily. The funds record the change in market value of futures, and also the change in the amount of margin deposit required ("variation margin"). THE FUNDS MAY ALSO SELL SECURITIES SHORT (SELLING SECURITIES THEY DO NOT OWN). When they do so, the funds also place assets worth at least 100% of the value of the short securities into segregated accounts, as collateral. If the market value of the short securities subsequently falls, the funds can realize a gain by closing the position. However, if the value rises, the funds typically would have to add to their collateral or close out their short position at a loss. The potential for losses associated with short positions is much greater than the original value of the securities sold short and may exceed amounts recorded in the Statements of Assets and Liabilities. THE LAUDUS BALANCED MARKETMASTERS FUND AND LAUDUS INTERNATIONAL MARKETMASTERS FUND 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. Similar to futures, forwards are agreements directly between two parties, however forwards are not publicly traded. 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. The funds' repurchase agreements will be fully collateralized by U.S. government securities. All collateral is held by the funds' custodian (or, with tri-party agreements, the agent's bank) and is monitored daily to ensure that its market value is at least equal to the repurchase price under the agreement. THE FUNDS MAY ENTER INTO SWAP AGREEMENTS. In these transactions, a fund and a counterparty agree to swap payments that are based on two different rates. The counterparty is typically a large financial institution, and the terms of the swap are specified in advance. For example, a fund may agree that for six months it will pay the counterparty the equivalent of the interest on a given amount invested at LIBOR (the London Interbank Offered Rate). In exchange, the counterparty might agree to pay a fund the equivalent of the same amount invested in a certain bond index during this same six month period. Swap agreements carry certain risks. Because the net gains or losses stemming from a swap agreement depend on the movements of one rate relative to another, a fund could experience unanticipated losses if one or both rates failed to behave as expected. A fund also could lose money if a counterparty failed to honor the terms of a swap agreement. The Credit Swap or "Credit Default Swap" is a bilateral financial contract in which one counterparty (the Protection Buyer) pays a periodic fee, typically expressed in basis points on the notional amount, in return for a Contingent Payment by the Protection Seller following a Credit Event of a Reference Entity. 71 LAUDUS MARKETMASTERS FUNDS The definitions of a Credit Event and the settlement mechanism used to determine the Contingent Payment are flexible and determined by negotiation between the counterparties at the inception of the transaction. THE FUNDS ARE AUTHORIZED TO WRITE AND PURCHASE PUT AND CALL OPTIONS. The risk in writing a call option is that a fund gives up the opportunity for profit if the market price of the security increases. The risk in writing a put option is that the funds may incur a loss if the market price of the security decreases and the option is exercised. The risk in purchasing an option is that a fund pays a premium whether or not the option is exercised. The funds also have the additional risk of being unable to enter into a closing transaction at an acceptable price if a liquid secondary market does not exist. THE FUNDS MAY ENTER INTO "TBA" (TO BE ANNOUNCED) PURCHASE COMMITMENTS TO PURCHASE SECURITIES FOR A FIXED PRICE AT A FUTURE DATE, TYPICALLY NOT EXCEEDING 45 DAYS. TBAs may be considered securities in themselves, and involve a risk of loss if the value of the security to be purchased declines prior to settlement date. This risk is in addition to the risk of decline in a fund's other assets. THE FUNDS PAY FEES TO AFFILIATES OF THE INVESTMENT ADVISER FOR VARIOUS SERVICES. Through their trust, 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 that may limit the total expenses charged. The rates and limitations for these fees vary from fund to fund, and are described in each fund's Statement of Operations. The adviser is responsible for compensating each fund's investment managers. THE FUNDS MAY ENGAGE IN CERTAIN TRANSACTIONS INVOLVING AFFILIATES. Pursuant to an exemptive order issued by the SEC, the funds may enter into interfund borrowing and lending transactions within the SchwabFunds. All loans are for temporary or emergency purposes only. The interest rate charged on the loan is the average of the overnight repurchase agreement rate and the short-term bank loan rate. The interfund lending facility is subject to the oversight and periodic review of the Board of Trustees of the SchwabFunds. TRUSTEES MAY INCLUDE PEOPLE WHO ARE OFFICERS AND/OR DIRECTORS OF THE INVESTMENT ADVISER OR SCHWAB. Federal securities law limits the percentage of such "interested persons" who may serve on a trust's board, and the trust was in compliance with these limitations throughout the report period. The trust did not pay any of these persons for their service as trustees, but it did pay non-interested persons (independent trustees), as noted in each fund's Statement of Operations. THE FUNDS MAY BORROW MONEY FROM BANKS AND CUSTODIANS. The funds may obtain temporary bank loans through the trust to which they belong, to use for meeting shareholder redemptions or for extraordinary or emergency purposes. The SchwabFunds have custodian overdraft facilities and line of credit arrangements of $150 million and $100 million with PNC Bank, N.A. and Bank of America, N.A., respectively. The funds pay interest on the amounts they borrow at rates that are negotiated periodically.
AMOUNT WEIGHTED OUTSTANDING AVERAGE AVERAGE AT 10/31/04 BORROWING* INTEREST FUND ($ x 1,000) ($ x 1,000) RATE* (%) -------------------------------------------------------------------------------- Laudus U.S. MarketMasters Fund 632 345 1.77 -------------------------------------------------------------------------------- Laudus Small-Cap MarketMasters Fund -- 249 1.92 --------------------------------------------------------------------------------
* Based on the number of days for which the borrowing is outstanding. 72 LAUDUS MARKETMASTERS FUNDS 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 net realized 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. The net investment income and net realized capital gains and losses may differ for financial statement and tax purposes primarily due to differing treatments of losses on wash sales, foreign currency transactions and paydown gains and losses. UNDER THE FUNDS' ORGANIZATIONAL DOCUMENTS, THE OFFICERS AND TRUSTEES ARE INDEMNIFIED AGAINST CERTAIN LIABILITY ARISING OUT OF THE PERFORMANCE OF THEIR DUTIES TO THE FUNDS. In addition, in the normal course of business the funds enter into contracts with their vendors and others that provide general indemnifications. The funds' maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the funds. However, based on experience, the funds expect the risk of loss to be remote. 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: - SECURITIES TRADED ON AN EXCHANGE OR OVER-THE-COUNTER: valued at closing value for the day, or, on days when no closing value has been reported, halfway between the most recent bid and asked quotes. Securities that are primarily traded on foreign exchanges are valued at the closing values of such securities on their respective exchanges with these values then translated into U.S. dollars at the current exchange rate. - SECURITIES FOR WHICH NO MARKET QUOTATIONS ARE READILY AVAILABLE or when a significant event has occurred between the time of the security's last close and the time that a fund calculates net asset value: valued at fair value, as determined in good faith by the fund's investment adviser using guidelines adopted by the funds' Board of Trustees and the Pricing Committee. Some of the more common reasons that may necessitate that a security be valued at fair value include: the security's trading has been halted or suspended; the security has been de-listed from a national exchange; the security's primary trading market is temporarily closed at a time when under normal conditions it would be open; or the security's primary pricing source is not able or willing to provide a price. - Also, the foreign securities held by International MarketMasters Fund are fair valued if a movement in the U.S. market exceeds a specific threshold that has been established using the guideline adopted by the fund's Board of Trustees. The fund uses a third party vendor to provide the fair valuation based on certain factors and methodologies including tracking valuation correlations between the U.S. market and each non-U.S. security. - BONDS AND NOTES: valued at halfway between the most recent bid and asked quotes or, if such quotes are unavailable, at prices for securities of comparable maturity, credit quality and type. Valuations for bonds and notes are provided by an independent bond-pricing service. - 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. 73 LAUDUS MARKETMASTERS FUNDS - SWAP AGREEMENTS: each open contract is valued at fair value using guidelines adopted by the funds' Board of Trustees, using a formula that varies with the specific terms of the agreement. - OPTIONS: open contracts are valued at their last quoted sale price or in the case of swaptions (options on swaps) at fair value, that varies with the specific terms of the underlying swap agreement. - 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. IF A FUND SELLS SECURITIES SHORT, it records the proceeds received as an asset and the obligation to buy back the securities as a liability. At the time a short sale is initiated, the asset and the liability are of equal value and effectively cancel each other out. Subsequently, the fund values the liability side of the transaction according to the market price of the securities sold short, and values the asset side according to the value of the proceeds. When the fund closes out a short position (buys the security), it records the outcome as a realized gain or loss. Interest accrued or dividends paid on securities sold short are recorded as an expense on the fund's records. OPTIONS purchased are recorded as assets and written options are recorded as liabilities to the extent of premiums paid or received. Each fund will realize a gain or loss when the option transaction expires or closes. When an option is exercised, the proceeds on sales for a written call option, the purchase cost for a written put option or the cost of a security for a purchased put or call option is adjusted by the amount of the premium received or paid. SWAP premiums paid are recorded as assets and premiums received are recorded as liabilities. Each fund begins recording income on swaps based on the effective date and terms of the swap agreement. Interest is paid to or received from the counterparty periodically. Realized gains and losses are recognized on interest rate swaps at the termination or closing of the agreement. Credit Default swaps record gains or losses when a credit event occurs involving the underlying entity. 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. INTEREST INCOME is recorded as it accrues. If a fund buys a debt security at a discount (that is, for less than its face value) or a premium (more than face value), it amortizes the discount or premium from the current date up to maturity. The fund then increases (in the case of discounts) or reduces (in the case of premiums) the income it records from the security. If the security is callable (meaning that the issuer has the option to pay it off before its maturity date), then the fund amortizes the premium to the security's call date and price, rather than the maturity date and price. REALIZED GAINS AND LOSSES from security transactions are based on the identified costs of the securities involved. Gains and losses from paydowns on mortgage and asset backed securities are recorded as adjustments to interest income. 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 calculated 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 average daily net assets. 74 LAUDUS MARKETMASTERS FUNDS FOR FUNDS OFFERING MULTIPLE SHARE CLASSES, all of the realized and unrealized gains or losses and net investment income, other than class specific expenses, are allocated daily to each class in proportion to its 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 ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES OF AMERICA. 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. 75 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF: Laudus U.S. MarketMasters Fund Laudus Balanced MarketMasters Fund Laudus Small-Cap MarketMasters Fund Laudus International MarketMasters 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 Laudus U.S. MarketMasters Fund, Laudus Balanced MarketMasters Fund, Laudus Small-Cap MarketMasters Fund and Laudus International MarketMasters Fund (four of the portfolios constituting Schwab Capital Trust) (hereafter collectively referred to as the "Funds") at October 31, 2004, the results of each of their operations for the year then ended, and the changes in each of their net assets for each of the two years in the period then ended and the financial highlights for each of the periods presented, 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 audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at October 31, 2004 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. PRICEWATERHOUSECOOPERS LLP San Francisco, CA December 16, 2004 76 FUND TRUSTEES A fund's Board of Trustees is responsible for protecting the interests of that fund's shareholders. The tables below give information about the people who serve as trustees and officers for the SchwabFunds(R), including the Funds covered in this report. Trustees remain in office until they resign, retire or are removed by shareholder vote. 1 Under the Investment Company Act of 1940, any officer, director, or employee of Schwab or CSIM is considered an "interested person," meaning that he or she is considered to have a business interest in Schwab or CSIM. These individuals are listed as "interested trustees." The "independent trustees" are individuals who, under the 1940 Act, are not considered to have a business interest in Schwab or CSIM. Each of the SchwabFunds (of which there were 51 as of 10/31/04) belongs to one of these trusts: The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust or Schwab Annuity Portfolios. Currently all these trusts have the same trustees and officers. The address for all trustees and officers is 101 Montgomery Street, San Francisco, CA 94104. You can find more information about the trustees and officers in the Statement of Additional Information, which is available free by calling 1.800.435.4000. INDIVIDUALS WHO ARE INTERESTED TRUSTEES AND OFFICERS OF THE TRUST
TRUST POSITION(S); NAME AND BIRTHDATE TRUSTEE SINCE MAIN OCCUPATIONS AND OTHER DIRECTORSHIPS AND AFFILIATIONS ------------------------------------------------------------------------------------------------------------------------------------ CHARLES R. SCHWAB 2 Chair, Trustee: Chair, CEO, Director, The Charles Schwab Corp., Charles Schwab & 7/29/37 Family of Funds, 1989; Co., Inc.; Chair, Director, Charles Schwab Investment Management, Investments, 1991; Inc.; Chair, Charles Schwab Holdings (UK); CEO, Director, Charles Capital Trust, 1993; Schwab Holdings, Inc.; Chair, CEO Schwab (SIS) Holdings, Inc. I, Annuity Portfolios, 1994. Schwab International Holdings, Inc.; Director, Charles Schwab Bank, N.A., U.S. Trust Corp., United States Trust Co. of New York, Siebel Systems (software), Xsign, Inc. (electronic payment systems), TrustMark, Inc., All Kinds of Minds (education); Trustee, Stanford University. Until 5/04: Director, The Gap, Inc. (clothing retailer). Until 5/03: Co-CEO, The Charles Schwab Corp. Until 3/02: Director, Audiobase, Inc. (Internet audio solutions). Until 5/02: Director, Vodaphone AirTouch PLC (telecommunications). Until 7/01: Director, The Charles Schwab Trust Co.
1 The SchwabFunds retirement policy requires that independent trustees elected after January 1, 2000 retire at age 72 or after twenty years of service as a trustee, whichever comes first. Independent trustees elected prior to January 1, 2000 will retire on the following schedule: Messrs. Holmes and Dorward will retire on December 31, 2007, and Messrs. Stephens and Wilsey will retire on December 31, 2010. 2 In addition to his position with the investment adviser and the distributor, Mr. Schwab also owns stock of The Charles Schwab Corporation. 77 INDIVIDUALS WHO ARE OFFICERS OF THE TRUST BUT NOT TRUSTEES
NAME AND BIRTHDATE TRUST OFFICE(S) HELD MAIN OCCUPATIONS AND OTHER DIRECTORSHIPS AND AFFILIATIONS ------------------------------------------------------------------------------------------------------------------------------------ EVELYN DILSAVER President, CEO EVP, President, Charles Schwab Investment Management, Inc; 5/4/55 (all trusts). Until 7/04: SVP for Development and Distribution, Asset Management Products and Services Enterprise; Until 6/03: EVP, CFO, Administrative Officer, U.S. Trust Corp. ------------------------------------------------------------------------------------------------------------------------------------ STEPHEN B. WARD SVP, Chief Investment SVP, Chief Investment Officer, Director, Charles Schwab Investment 4/5/55 Officer (all trusts). Management, Inc.; Chief Investment Officer, The Charles Schwab Trust Co. ------------------------------------------------------------------------------------------------------------------------------------ KIMON DAIFOTIS SVP, Chief Investment Since 9/04: Chief Investment Officer, Fixed Income, Charles 7/10/59 Officer (all trusts). Schwab Investment Management, Inc.; Since 6/04: SVP, Charles Schwab Investment Management, Inc.; Until 6/04: VP, Charles Schwab Investment Management, Inc. ------------------------------------------------------------------------------------------------------------------------------------ JEFF MORTIMER SVP, Chief Investment Since 5/04: SVP, Chief Investment Officer, Equities, Charles Schwab 9/29/63 Officer (all trusts). Investment Management, Inc.; Since 6/04: VP, Chief Investment Officer, Laudus Trust; Until 5/04: VP, Charles Schwab Investment Management, Inc. ------------------------------------------------------------------------------------------------------------------------------------ RANDALL FILLMORE Chief Compliance Since 9/04: SVP, Institutional Compliance and Chief Compliance 11/11/60 Officer (all trusts). Officer, Charles Schwab Investment Management, Inc.; Until 9/04: VP, Charles Schwab & Co., Charles Schwab Investment Management, Inc.; Until 2002: VP of Internal Audit, Charles Schwab & Co.; Prior to 2000: PricewaterhouseCoopers. ------------------------------------------------------------------------------------------------------------------------------------ KOJI E. FELTON Secretary (all trusts). SVP, Chief Counsel, Assistant Corporate Secretary, Charles Schwab 3/13/61 Investment Management, Inc. Until 6/98: Branch Chief in Enforcement, U.S. Securities and Exchange Commission, San Francisco. ------------------------------------------------------------------------------------------------------------------------------------ GEORGE PEREIRA 1 Treasurer, Principal Since 11/04: SVP, CFO, Charles Schwab Investment Management, 6/9/64 Financial Officer Inc.; Until 11/04: SVP, Financial Reporting, Charles Schwab & Co., Inc.; (all trusts). Until 12/99: Chief Financial Officer, Commerzbank Capital Markets; Until 9/99: Managing Director at the New York Stock Exchange.
1 Elected to his position on the SchwabFunds Board on November 16, 2004. 78 INDIVIDUALS WHO ARE INDEPENDENT TRUSTEES
NAME AND BIRTHDATE TRUSTEE SINCE MAIN OCCUPATIONS AND OTHER DIRECTORSHIPS AND AFFILIATIONS ------------------------------------------------------------------------------------------------------------------------------------ MARIANN BYERWALTER 2000 (all trusts). Chair, JDN Corp. Advisory LLC; Trustee, Stanford University, America 8/13/60 First Cos., (venture capital/fund management), Redwood Trust, Inc. (mortgage finance), Stanford Hospitals and Clinics, SRI International (research), PMI Group, Inc. (mortgage insurance), Lucile Packard Children's Hospital, Laudus Trust, Laudus Variable Insurance Trust. 2001: Special Advisor to the President, Stanford University. Until 2002: Director, LookSmart, Ltd. (Internet infrastructure). Until 2001: VP, Business Affairs, CFO, Stanford University. ------------------------------------------------------------------------------------------------------------------------------------ DONALD F. DORWARD Family of Funds, 1989; CEO, Dorward & Associates (corporate management, marketing and 9/23/31 Investments, 1991; communications consulting). Until 1999: EVP, Managing Director, Capital Trust, 1993; Grey Advertising. Annuity Portfolios,1994. ------------------------------------------------------------------------------------------------------------------------------------ WILLIAM A. HASLER 2000 (all trusts). Co-CEO, Aphton Corp. (bio-pharmaceuticals). Trustee, Solectron Corp. 11/22/41 (manufacturing), Airlease Ltd. (aircraft leasing), Mission West Properties (commercial real estate), Stratex Corp. (network equipment); Public Governor, Laudus Trust, Laudus Variable Insurance Trust; Member, executive committee, Pacific Stock & Options Exchange. Until 2003: Trustee, Tenera, Inc. (services and software). Until 1998: Dean, Haas School of Business, University of California, Berkeley. ------------------------------------------------------------------------------------------------------------------------------------ ROBERT G. HOLMES Family of Funds, 1989; Chair, CEO, Director, Semloh Financial, Inc. (international financial 5/15/31 Investments, 1991; services and investment advice). Capital Trust, 1993; Annuity Portfolios,1994. ------------------------------------------------------------------------------------------------------------------------------------ GERALD B. SMITH 2000 (all trusts). Chair, CEO, Founder, Smith Graham & Co. (investment advisors); 9/28/50 Trustee, Rorento N.V. (investments--Netherlands), Cooper Industries (electrical products, tools and hardware); Member, audit committee, Northern Border Partners, L.P. (energy). Until 2002: Director, Pennzoil- Quaker State Co. (oil and gas). ------------------------------------------------------------------------------------------------------------------------------------ DONALD R. STEPHENS Family of Funds, 1989; Managing Partner, D.R. Stephens & Co. (investments). Until 1996: 6/28/38 Investments, 1991; Chair, CEO, North American Trust (real estate investment trust). Capital Trust, 1993; Annuity Portfolios, 1994. ------------------------------------------------------------------------------------------------------------------------------------ MICHAEL W. WILSEY Family of Funds, 1989; Chair, CEO, Wilsey Bennett, Inc. (transportation, real estate 8/18/43 Investments, 1991; and investments). Capital Trust, 1993; Annuity Portfolios, 1994.
79 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(R)). 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." An individual bond is subject to the credit risk of the issuer. Changes in interest rates can affect a bond's market value prior to call or maturity. There is no guarantee that a bond's yield to call or maturity will provide a positive return over the rate of inflation. BOND FUND A bond fund is subject to the same credit, interest rate, and inflation risks as bonds. In addition, a bond fund incurs ongoing fees and expenses. A bond fund's net asset value will fluctuate with the price of the underlying bonds and the portfolio turnover activity; return of principal is not guaranteed. 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 percentage that an investor would have earned or lost on an investment in the fund assuming dividends and distributions were reinvested. 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. 80 An investor should consider a fund's investment objectives, risks, and charges and expenses carefully before investing or sending money. This and other important information can be found in the fund's prospectus. Please call 1.800.435.4000 for a prospectus and brochure for any SchwabFund. Please read the prospectus carefully before you invest. This report must be preceded or accompanied by a current prospectus. METHODS FOR PLACING ORDERS The following information outlines how Schwab investors can place orders. If you are investing through a third-party investment provider, methods for placing orders may be different. INTERNET 1 www.schwab.com/ marketmasters SCHWAB BY PHONE(TM) 2 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) Use our automated touch-tone phone service at 1.800.272.4922. MAIL Write to Laudus MarketMasters Funds at: P.O. Box 3812 Englewood, CO 80155-3812 When selling or exchanging shares, be sure to include the signatures of at least one of the persons whose name is on the account. PROXY VOTING POLICIES, PROCEDURES AND RESULTS A description of the proxy voting policies and procedures used to determine how to vote proxies on behalf of the funds is available without charge, upon request, by visiting Schwab's web site at www.schwab.com/marketmasters, the SEC's web site at http://www.sec.gov, or by contacting SchwabFunds at 1.800.435.4000. Information regarding how a fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is available, without charge, by visiting Schwab's web site at www.schwab.com/schwabfunds or the SEC's website at http://www.sec.gov. 1 Shares of Sweep Investments(TM) may not be purchased directly over the Internet. 2 Orders placed in person or through a telephone representative may be subject to a service fee payable to Schwab. THE LAUDUS FUNDS(TM) LAUDUS MARKETMASTERS FUNDS(TM) Laudus U.S. MarketMasters Fund(TM) Laudus Balanced MarketMasters Fund(TM) Laudus Small-Cap MarketMasters Fund(TM) Laudus International MarketMasters Fund(TM) LAUDUS ROSENBERG U.S. EQUITY FUNDS Laudus Rosenberg U.S. Large Capitalization Fund Laudus Rosenberg U.S. Large Capitalization Growth Fund Laudus Rosenberg U.S. Discovery Fund Laudus Rosenberg U.S. Small Capitalization Growth Fund LAUDUS ROSENBERG EQUITY FUNDS Laudus Rosenberg International Equity Fund Laudus Rosenberg International Small Capitalization Fund Laudus Rosenberg European Fund LAUDUS ROSENBERG LONG/SHORT FUNDS Laudus Rosenberg U.S. Large/Mid Capitalization Long/Short Equity Fund Laudus Rosenberg Global Long/Short Equity Fund Laudus Rosenberg Value Long/Short Equity Fund The Laudus Funds includes the Laudus Rosenberg Funds, which are part of the Laudus Trust and distributed by Laudus Distributor, Inc.; and the Laudus MarketMasters Funds, which are part of the Schwab Capital Trust, and distributed by Charles Schwab & Co., Inc. [LAUDUS FUNDS LOGO] COMMAND PERFORMANCE(TM) FOR MORE INFORMATION ABOUT THE FUNDS: INVESTMENT ADVISER Charles Schwab Investment Management, Inc. 101 Montgomery Street, San Francisco, CA 94104 DISTRIBUTOR Charles Schwab & Co., Inc. (Schwab) FUNDS Laudus MarketMasters Funds(TM) P.O. Box 3812, Englewood, CO 80155-3812 This report is not authorized for distribution to prospective investors unless preceded or accompanied by a current prospectus. (C)2004 Charles Schwab & Co., Inc. All rights reserved. Member SIPC. Printed on recycled paper. REG13812-07 SCHWAB MARKETTRACK PORTFOLIOS(R) ANNUAL REPORT October 31, 2004 Schwab MarketTrack All Equity Portfolio(TM) Schwab MarketTrack Growth Portfolio(TM) Schwab MarketTrack Balanced Portfolio(TM) Schwab MarketTrack Conservative Portfolio(TM) [CHARLES SCHWAB LOGO] Four portfolios that combine the power of indexing with the benefits of asset allocation. IN THIS REPORT Management's Discussion ............................................... 2 The president of SchwabFunds(R) and the funds' managers take a look at the factors that shaped fund performance during the report period. Performance at a Glance ..................... 5 Schwab MarketTrack All Equity Portfolio(TM) Ticker Symbol: SWEGX The portfolio seeks high capital growth through an all-stock portfolio. Performance and Fund Facts .................. 6 Financial Statements ....................... 15 Schwab MarketTrack Growth Portfolio(TM) Ticker Symbol: SWHGX The portfolio seeks high capital growth with less volatility than an all-stock portfolio. Performance and Fund Facts .................. 8 Financial Statements ....................... 20 Schwab MarketTrack Balanced Portfolio(TM) Ticker Symbol: SWBGX The portfolio seeks both capital growth and income. Performance and Fund Facts ................. 10 Financial Statements ....................... 32 Schwab MarketTrack Conservative Portfolio(TM) Ticker Symbol: SWCGX The portfolio seeks income and more growth potential than an all-bond portfolio. Performance and Fund Facts ................. 12 Financial Statements ....................... 44 Fund Expenses ........................................................ 14 Financial Notes ...................................................... 56 Fund Trustees ........................................................ 61 Glossary ............................................................. 64 Fund investment adviser: Charles Schwab Investment Management, Inc. (CSIM) Distributor and transfer agent: Charles Schwab & Co., Inc. (Schwab). [PHOTO OF CHARLES SCHWAB] Charles Schwab Chairman FROM THE CHAIRMAN Dear Shareholder: As we get ready for 2005, I want to remind you that you might want to add one more item to your list of New Year's resolutions--to review and, if necessary, rebalance your investment portfolio. After all, staying on track is as important in investing as it is in any other part of life. No matter whether it's a good or bad investment climate, you need to make sure that you own a diversified mix of investments and that your asset allocation matches your individual goals, time frame and tolerance for risk. One efficient way to be diversified is by owning a broad-based mutual fund. Equity mutual funds also can help you to diversify the stock side of your portfolio. While our experienced portfolio managers adhere to each fund's objective, it still is important to review your portfolio to make sure the holdings in your funds don't overlap and you're not overconcentrated in one asset class. On a final note, I'm very happy to announce that Evelyn Dilsaver has been named CEO and President of SchwabFunds(R). Although new to the position, Evelyn is no stranger to SchwabFunds, having been an officer in several other capacities at Schwab. Her broad experience in product creation, coupled with a comprehensive understanding of your financial needs and her commitment to you, make her the ideal candidate for her new role. Thank you for investing with us. Sincerely, /s/ Charles Schwab MANAGEMENT'S DISCUSSION for the year ended October 31, 2004 [PHOTO OF EVELYN DILSAVER] EVELYN DILSAVER is President and CEO of Charles Schwab Investment Management, Inc. and is president of each of the funds covered in this report. She joined the firm in 1992 and has held a variety of executive positions at Schwab. Dear Shareholder: I am very excited about my new role as President and CEO of SchwabFunds(R). I believe that my experience at Schwab has prepared me well for this role, as each position has been focused on meeting the needs of our clients. I promise that I will continue on this path and that my goal is to offer you even better service and more relevant choices. One of the relevant choices is SchwabFunds' MarketTrack Portfolios. Each of the four portfolios' exposure to a broad spectrum of U.S. and international securities may make it an appropriate choice for long-term investors seeking diversification across a variety of asset classes in a single fund. Each portfolio has been designed to help shareholders implement an asset-allocation plan. So whether you want an all-equity fund or one that includes exposure to the fixed-income sector, you can gain diversification that might otherwise be impossible because of the costs associated with investing in so many individual securities. I also want to let you know that we plan to continue to provide and expand information on SchwabFunds on schwab.com. Providing this information is one of the many ways we help individual investors choose investments that are appropriate for their financial goals and time horizons. I look forward to serving you in my new role. I also want to remind you that your trust is very important to us, and I will do all I can to earn and maintain that trust. Thank you for investing in SchwabFunds. Sincerely, /s/ Evelyn Dilsaver 2 Schwab MarketTrack Portfolios [PHOTO OF JEFFREY MORTIMER] JEFFREY MORTIMER, CFA, senior vice president and chief investment officer, equities, of the investment adviser is responsible for the overall management of each of the portfolios. Prior to joining the firm in October 1997, he worked for more than nine years in asset management. [PHOTO OF TOM BROWN] TOM BROWN, an associate portfolio manager of the investment adviser, is a day-to-day manager of the equity portions of the portfolios. He joined Schwab in 1995, became a trader in 1999, and was named to his current position in 2004. THE INVESTMENT ENVIRONMENT AND THE FUNDS THE ENCOURAGING ECONOMIC NEWS THAT WAS REPORTED TOWARD THE END OF 2003 CONTINUED TO IMPROVE INTO 2004. Businesses added to their inventories, factory orders rose and production gained some strength. Retail sales continued to rise and higher commodity prices were holding. Mortgage refinancing activity, while still significant, waned as mortgage rates inched slightly upward. And finally, the last piece of the economic puzzle--job growth--began to pick up some steam. In fact, aside from a "soft patch" in early summer, the economy was clicking on all cylinders. With the economic recovery more broad-based, investors, who only a year ago feared deflation, started to worry about inflation. Their inflationary concerns were based on surging oil prices, which had hit an all-time high amid fears of supply interruptions. And while commodity prices moderated somewhat later in the report period, previous increases started to show up in broad measures of inflation. Labor costs also were beginning to rise. Nonetheless, the Federal Reserve (the Fed) continued to hold the Fed funds rate near a 45-year low until June 2004. While third-quarter GDP moved in the right direction, up to an annualized 3.7% from 3.3% in second quarter, higher commodity prices had effectively eroded many consumers' purchasing power. Geopolitical events also had wreaked havoc on oil markets and, after a brief decline in the price of oil following OPEC's decision to boost production, a confluence of supply concerns and robust global demand pushed crude to new highs. In addition to these issues, daily headlines about terrorism and the fierce run for the White House all added up to an uncomfortable sense of uncertainty, keeping many investors on the sidelines. Despite all these concerns, which escalated toward the end of the report period, the strength of the market early in the period, combined with strong second- and third-quarter valuations and earnings resulted in a positive showing for equities. Schwab MarketTrack Portfolios 3 MANAGEMENT'S DISCUSSION continued [PHOTO OF KIMON DAIFOTIS] KIMON DAIFOTIS, CFA, a senior vice president and chief investment officer, fixed income, of the investment adviser, is responsible for the overall management of the bond and cash portions of the Schwab MarketTrack Portfolios. Prior to joining the firm in 1997, he worked for more than 18 years in research and asset management. More specifically, the S&P 500(R) Index was up 9.42% for the 12-month report period, while the Russell 2000(R) Index was up 11.73%. In terms of style, value edged out growth early in the period and gained momentum, significantly outperforming growth at the end of the period. The MarketTrack Portfolios incorporate a mix of different asset classes. Accordingly, their returns over a given period will reflect a blend of the returns of those asset classes, and will depend on their relative weightings within the portfolios. By spreading their exposure over various asset classes, the MarketTrack Portfolios are designed to provide more stable returns while seeking to reduce risk over various market cycles. During this period, bonds did well, up 5.53%, as measured by the Lehman Brothers U.S. Aggregate Bond Index. But it was more the strength in the equity markets that helped to boost returns in the MarketTrack portfolios. ASSET CLASS PERFORMANCE COMPARISON % returns during the report period This graph compares the performance of various asset classes during the report period. Final performance figures for the period are in the key below. 9.42% S&P 500(R) INDEX: measures U.S. large-cap stocks 11.73% RUSSELL 2000(R) INDEX: measures U.S. small-cap stocks 18.84% MSCI-EAFE(R) INDEX: measures (in U.S. dollars) large-cap stocks in Europe, Australasia and the Far East 5.53% LEHMAN BROTHERS U.S. AGGREGATE BOND INDEX: measures the U.S. bond market 1.03% THREE-MONTH U.S. TREASURY BILLS (T-BILLS): measures short-term U.S. Treasury obligations [LINE CHART]
LEHMAN RUSSELL BROTHERS THREE-MONTH S&P 500(R) 2000(R) MSCI-EAFE(R) U.S. AGGREGATE U.S. TREASURY INDEX INDEX INDEX BOND INDEX BILLS 31-Oct-03 0.00 0.00 0.00 0.00 0.00 07-Nov-03 0.29 2.82 0.78 -0.63 0.02 14-Nov-03 0.08 0.94 1.80 0.61 0.04 21-Nov-03 -1.33 -0.38 0.15 0.86 0.06 28-Nov-03 0.88 3.55 2.22 0.24 0.08 05-Dec-03 1.24 2.14 4.70 0.95 0.09 12-Dec-03 2.48 3.80 5.04 0.97 0.11 19-Dec-03 3.90 3.68 6.46 1.50 0.13 26-Dec-03 4.59 5.21 7.84 1.53 0.15 02-Jan-04 5.85 6.40 10.98 0.81 0.13 09-Jan-04 7.16 9.14 13.86 2.16 0.15 16-Jan-04 8.89 12.04 12.31 2.46 0.17 23-Jan-04 9.07 13.13 15.10 2.33 0.19 30-Jan-04 8.12 10.24 11.77 2.07 0.20 06-Feb-04 9.26 10.89 13.33 2.35 0.22 13-Feb-04 9.63 11.12 15.41 2.80 0.24 20-Feb-04 9.49 10.13 15.13 2.64 0.25 27-Feb-04 9.62 11.23 14.35 3.18 0.27 05-Mar-04 10.80 13.90 16.17 3.85 0.28 12-Mar-04 7.38 10.77 11.07 4.12 0.30 19-Mar-04 6.36 8.49 13.10 4.07 0.32 26-Mar-04 6.20 8.91 12.52 3.88 0.34 02-Apr-04 9.47 14.78 16.39 2.72 0.36 09-Apr-04 9.27 13.73 16.44 2.62 0.37 16-Apr-04 8.83 10.99 15.04 2.03 0.39 23-Apr-04 9.42 12.39 14.61 1.51 0.41 30-Apr-04 6.27 6.54 12.39 1.25 0.43 07-May-04 5.47 4.43 10.88 -0.19 0.45 14-May-04 5.27 3.54 6.99 0.03 0.47 21-May-04 5.09 3.93 9.59 0.21 0.49 28-May-04 7.73 8.24 12.63 0.84 0.51 04-Jun-04 7.95 8.15 12.87 0.36 0.51 11-Jun-04 9.32 8.43 13.42 0.32 0.52 18-Jun-04 9.21 8.73 14.66 0.78 0.55 25-Jun-04 9.18 12.01 15.45 1.18 0.56 02-Jul-04 8.35 11.13 15.27 2.16 0.59 09-Jul-04 7.18 7.52 15.10 2.22 0.62 16-Jul-04 6.10 5.96 14.50 2.69 0.64 23-Jul-04 4.64 2.87 10.84 2.41 0.66 30-Jul-04 6.19 5.20 11.50 2.42 0.68 06-Aug-04 2.58 -0.81 10.63 3.63 0.70 13-Aug-04 2.74 -1.21 9.57 3.72 0.73 20-Aug-04 6.01 4.63 11.08 3.79 0.75 27-Aug-04 6.95 5.36 12.29 3.89 0.78 03-Sep-04 7.56 6.26 12.42 3.70 0.80 10-Sep-04 8.58 8.88 14.40 4.31 0.81 17-Sep-04 9.07 9.54 14.32 4.59 0.84 24-Sep-04 7.31 8.18 13.88 4.93 0.88 01-Oct-04 9.41 11.89 16.43 4.38 0.91 08-Oct-04 8.56 10.13 17.91 4.79 0.95 15-Oct-04 7.23 8.95 16.46 5.20 0.97 22-Oct-04 6.03 8.64 17.65 5.54 1.00 29-Oct-04 9.42 11.73 18.84 5.53 1.03 31-Oct-04 9.42 11.73 18.84 5.53 1.03
These figures assume dividends and distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged and you cannot invest in them directly. Remember that past performance is not an indication of future results. Data source: Charles Schwab & Co., Inc. 4 Schwab MarketTrack Portfolios PERFORMANCE AT A GLANCE Total return for the 12 months ended 10/31/04 THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN PERFORMANCE DATA QUOTED. TO OBTAIN PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH END, PLEASE VISIT WWW.SCHWAB.COM/SCHWABFUNDS. SCHWAB MARKETTRACK ALL EQUITY PORTFOLIO(TM) ....... 11.75% Benchmark ...................... 11.18% Performance Details ............ page 6 SCHWAB MARKETTRACK GROWTH PORTFOLIO(TM) ........... 9.94% Benchmark ...................... 9.84% Performance Details ............ page 8 SCHWAB MARKETTRACK BALANCED PORTFOLIO(TM) ......... 8.61% Benchmark ...................... 8.27% Performance Details ............ page 10 SCHWAB MARKETTRACK CONSERVATIVE PORTFOLIO(TM) ..... 7.38% Benchmark ...................... 7.09% Performance Details ............ page 12 THE SCHWAB MARKETTRACK ALL EQUITY PORTFOLIO did well over the report period due to its 100% allocation to equities, which performed better than fixed-income securities. Performance for the period was up 11.75%, slightly outperforming its benchmark. The fund's 30% allocation to international stocks, along with its 25% allocation to small-cap stocks, which led the market for much of the report period, were key to the portfolio's strong performance. THE SCHWAB MARKETTRACK GROWTH PORTFOLIO also did well. It was up 9.94%, slightly outperforming its benchmark for the report period. The portfolio's performance was helped by its exposure to international and small-cap stocks. Its allocation to fixed income--an asset class that tends to be less volatile--also added positive returns, although not as strong as equities during the period. THE SCHWAB MARKETTRACK BALANCED PORTFOLIO returned 8.61% during the period, outperforming its benchmark. The portfolio is weighted toward equities but also includes fixed-income investments to add income and reduce volatility. While equities were the stronger performers during the period, the 40% fixed-income allocation (35% bonds/5% cash) also contributed positive returns, while seeking to reduce overall risk. THE SCHWAB MARKETTRACK CONSERVATIVE PORTFOLIO did well during the period as it was up 7.38%, outperforming its benchmark. Equities performed well and contributed positively to the portfolio's return. While equities were the stronger performers, the 60% fixed-income allocation (55% bonds/5% cash) also contributed positive returns, while seeking to reduce overall risk. All portfolio and index figures on this page assume dividends and distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged, and you cannot invest in them directly. Expenses may be partially absorbed by CSIM and Schwab. Without these reductions, the portfolios' total returns would have been lower. Performance does not reflect the deduction of taxes that a shareholder would pay on portfolio distributions or on the redemption of portfolio shares. Small company stocks are subject to greater volatility than other asset categories. Foreign securities can involve risks such as political and economic instability and currency risk. Nothing in this report represents a recommendation of a security by the investment adviser. Manager views and portfolio holdings may have changed since the report date. Schwab MarketTrack Portfolios 5 SCHWAB MARKETTRACK ALL EQUITY PORTFOLIO(TM) PERFORMANCE as of 10/31/04 AVERAGE ANNUAL TOTAL RETURNS 1,2 This chart compares performance of the portfolio with a benchmark and the portfolio's Morningstar category. [BAR CHART]
Benchmark: Fund Category: ALL EQUITY MORNINGSTAR COMPOSITE LARGE-CAP PORTFOLIO INDEX BLEND 1 YEAR 11.75% 11.18% 7.89% 5 YEARS -0.36% 1.72% -1.72% SINCE INCEPTION 1.95% 3 3.25% 4 -2.62% 3
3 SINCE INCEPTION: 5/19/98 4 SINCE: 6/1/98 THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN PERFORMANCE DATA QUOTED. TO OBTAIN PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH END, PLEASE VISIT WWW.SCHWAB.COM/SCHWABFUNDS. PERFORMANCE OF A HYPOTHETICAL $10,000 INVESTMENT 2 This graph shows performance since inception of a hypothetical $10,000 investment in the portfolio, compared with a similar investment in a benchmark and an additional index. $11,331 PORTFOLIO $12,278 ALL EQUITY COMPOSITE INDEX $11,105 S&P 500(R) INDEX [LINE GRAPH]
ALL EQUITY COMPOSITE S&P 500(R) PORTFOLIO INDEX INDEX 19-May-98 $10,000 $10,000 31-May-98 $ 9,850 $10,000 $ 9,751 30-Jun-98 $10,050 $10,110 $10,147 31-Jul-98 $ 9,810 $ 9,892 $10,039 31-Aug-98 $ 8,330 $ 8,339 $ 8,590 30-Sep-98 $ 8,610 $ 8,575 $ 9,140 31-Oct-98 $ 9,280 $ 9,138 $ 9,883 30-Nov-98 $ 9,800 $ 9,649 $10,482 31-Dec-98 $10,303 $10,161 $11,086 31-Jan-99 $10,483 $10,330 $11,549 28-Feb-99 $10,041 $ 9,909 $11,190 31-Mar-99 $10,383 $10,220 $11,638 30-Apr-99 $10,896 $10,759 $12,088 31-May-99 $10,664 $10,607 $11,803 30-Jun-99 $11,197 $11,178 $12,458 31-Jul-99 $11,137 $11,109 $12,069 31-Aug-99 $11,056 $10,989 $12,009 30-Sep-99 $11,006 $10,870 $11,680 31-Oct-99 $11,539 $11,275 $12,419 30-Nov-99 $11,971 $11,824 $12,672 31-Dec-99 $12,885 $12,882 $13,418 31-Jan-00 $12,162 $12,357 $12,744 29-Feb-00 $12,498 $12,945 $12,503 31-Mar-00 $13,159 $13,488 $13,726 30-Apr-00 $12,610 $12,912 $13,313 31-May-00 $12,223 $12,562 $13,040 30-Jun-00 $12,752 $13,086 $13,362 31-Jul-00 $12,386 $12,824 $13,154 31-Aug-00 $13,098 $13,560 $13,971 30-Sep-00 $12,477 $13,043 $13,233 31-Oct-00 $12,274 $12,769 $13,177 30-Nov-00 $11,378 $11,877 $12,139 31-Dec-00 $11,736 $12,409 $12,198 31-Jan-01 $11,996 $12,687 $12,632 28-Feb-01 $10,967 $11,749 $11,480 31-Mar-01 $10,302 $11,007 $10,752 30-Apr-01 $11,081 $11,837 $11,587 31-May-01 $11,061 $11,865 $11,665 30-Jun-01 $10,925 $11,676 $11,381 31-Jul-01 $10,655 $11,415 $11,270 31-Aug-01 $10,187 $10,940 $10,564 30-Sep-01 $ 9,179 $ 9,813 $ 9,711 31-Oct-01 $ 9,418 $10,123 $ 9,896 30-Nov-01 $10,000 $10,752 $10,655 31-Dec-01 $10,205 $11,021 $10,749 31-Jan-02 $ 9,887 $10,770 $10,592 28-Feb-02 $ 9,728 $10,626 $10,388 31-Mar-02 $10,258 $11,190 $10,778 30-Apr-02 $ 9,972 $10,963 $10,125 31-May-02 $ 9,855 $10,845 $10,050 30-Jun-02 $ 9,293 $10,214 $ 9,335 31-Jul-02 $ 8,380 $ 9,206 $ 8,607 31-Aug-02 $ 8,402 $ 9,220 $ 8,663 30-Sep-02 $ 7,585 $ 8,342 $ 7,722 31-Oct-02 $ 8,062 $ 8,799 $ 8,401 30-Nov-02 $ 8,529 $ 9,290 $ 8,896 31-Dec-02 $ 8,118 $ 8,853 $ 8,374 31-Jan-03 $ 7,817 $ 8,585 $ 8,154 28-Feb-03 $ 7,645 $ 8,384 $ 8,032 31-Mar-03 $ 7,656 $ 8,381 $ 8,110 30-Apr-03 $ 8,355 $ 9,084 $ 8,778 31-May-03 $ 8,925 $ 9,689 $ 9,241 30-Jun-03 $ 9,075 $ 9,856 $ 9,359 31-Jul-03 $ 9,323 $10,134 $ 9,524 31-Aug-03 $ 9,559 $10,427 $ 9,710 30-Sep-03 $ 9,538 $10,384 $ 9,607 31-Oct-03 $10,140 $11,042 $10,150 30-Nov-03 $10,333 $11,261 $10,240 31-Dec-03 $10,875 $11,796 $10,776 31-Jan-04 $11,071 $12,047 $10,975 29-Feb-04 $11,223 $12,236 $11,127 31-Mar-04 $11,136 $12,202 $10,959 30-Apr-04 $10,854 $11,855 $10,787 31-May-04 $10,973 $11,952 $10,935 30-Jun-04 $11,255 $12,247 $11,147 31-Jul-04 $10,810 $11,728 $10,778 31-Aug-04 $10,799 $11,710 $10,821 30-Sep-04 $11,081 $12,032 $10,938 31-Oct-04 $11,331 $12,278 $11,105
All figures on this page assume dividends and distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged, and you cannot invest in them directly. 1 Portfolio expenses have been partially absorbed by CSIM and Schwab. Without these reductions, the portfolio's returns would have been lower. These returns do not reflect the deduction of taxes that a shareholder would pay on portfolio distributions or the redemption of portfolio shares. 2 The All Equity Composite Index is composed of Morningstar category averages and is calculated using the following portion allocations: 45% large-cap stocks, 25% small-cap stocks and 30% foreign stocks. Source: Morningstar, Inc. 6 Schwab MarketTrack Portfolios SCHWAB MARKETTRACK ALL EQUITY PORTFOLIO FUND FACTS as of 10/31/04 STYLE ASSESSMENT 1 [GRAPHIC]
INVESTMENT STYLE Value Blend Growth MARKET CAP Large / / /X/ / / Medium / / / / / / Small / / / / / /
STATISTICS NUMBER OF HOLDINGS 5 -------------------------------------------------------------------------------- WEIGHTED AVERAGE MARKET CAP ($ x 1,000,000) $57,763 -------------------------------------------------------------------------------- PRICE/EARNINGS RATIO (P/E) 23.8 -------------------------------------------------------------------------------- PRICE/BOOK RATIO (P/B) 2.5 -------------------------------------------------------------------------------- PORTFOLIO TURNOVER RATE 7% -------------------------------------------------------------------------------- MINIMUM INITIAL INVESTMENT 2 $ 1,000 ($500 for retirement and custodial accounts) --------------------------------------------------------------------------------
TOP HOLDINGS 3
% OF SECURITY NET ASSETS -------------------------------------------------------------------------------- (1) SCHWAB S&P 500 FUND Select Shares(R) 44.7% -------------------------------------------------------------------------------- (2) SCHWAB INTERNATIONAL INDEX FUND(R) Select Shares 30.0% -------------------------------------------------------------------------------- (3) SCHWAB SMALL-CAP INDEX FUND(R) Select Shares 25.1% -------------------------------------------------------------------------------- TOTAL 99.8%
ASSET CLASS WEIGHTINGS % of Portfolio This chart shows the portfolio's asset class composition as of the report date. [PIE CHART] 44.7% LARGE-CAP STOCKS 30.0% INTERNATIONAL STOCKS 25.0% SMALL-CAP STOCKS 0.3% SHORT-TERM INVESTMENTS Portfolio holdings may have changed since the report date. 1 Source: Morningstar, Inc. This style assessment is the result of evaluating the portfolio based on a ten-factor model for value and growth characteristics. The portfolio's market capitalization placement is determined by the geometric mean of its holdings' market capitalizations. The assessment reflects the portfolio's holdings as of 10/31/04, which may have changed since then, and is not a precise indication of risk or performance--past, present, or future. 2 Please see prospectus for further detail and eligibility requirements. 3 This list is not a recommendation of any security by the investment adviser. Schwab MarketTrack Portfolios 7 SCHWAB MARKETTRACK GROWTH PORTFOLIO(TM) PERFORMANCE as of 10/31/04 AVERAGE ANNUAL TOTAL RETURNS 1,2 This chart compares performance of the portfolio with a benchmark and the portfolio's Morningstar category. [BAR CHART]
Benchmark: Fund Category: GROWTH MORNINGSTAR COMPOSITE LARGE-CAP PORTFOLIO INDEX BLEND 1 YEAR 9.94% 9.84% 7.89% 5 YEARS 1.17% 2.75% -1.72% SINCE INCEPTION 7.46% 3 7.69% 4 4.29% 3
3 SINCE INCEPTION: 11/20/95 4 SINCE: 12/1/95 THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN PERFORMANCE DATA QUOTED. TO OBTAIN PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH END, PLEASE VISIT WWW.SCHWAB.COM/SCHWABFUNDS. PERFORMANCE OF A HYPOTHETICAL $10,000 INVESTMENT 2 This graph shows performance since inception of a hypothetical $10,000 investment in the portfolio, compared with a similar investment in a benchmark and two additional indices. $19,062 PORTFOLIO $19,357 GROWTH COMPOSITE INDEX $21,750 S&P 500(R) INDEX $18,122 LEHMAN BROTHERS U.S. AGGREGATE BOND INDEX [LINE GRAPH]
LEHMAN BROTHERS GROWTH U.S. COMPOSITE S&P 500(R) AGGREGATE PORTFOLIO INDEX INDEX BOND INDEX 20-Nov-95 $10,000 $10,000 $10,000 30-Nov-95 $10,080 $10,000 $10,104 $10,076 31-Dec-95 $10,292 $10,177 $10,299 $10,217 31-Jan-96 $10,442 $10,339 $10,649 $10,285 29-Feb-96 $10,533 $10,464 $10,748 $10,106 31-Mar-96 $10,623 $10,593 $10,852 $10,035 30-Apr-96 $10,803 $10,872 $11,011 $ 9,979 31-May-96 $10,954 $11,042 $11,294 $ 9,959 30-Jun-96 $10,934 $10,996 $11,337 $10,092 31-Jul-96 $10,523 $10,565 $10,836 $10,120 31-Aug-96 $10,733 $10,821 $11,064 $10,102 30-Sep-96 $11,184 $11,208 $11,686 $10,278 31-Oct-96 $11,324 $11,277 $12,009 $10,506 30-Nov-96 $11,896 $11,775 $12,917 $10,686 31-Dec-96 $11,784 $11,756 $12,661 $10,587 31-Jan-97 $12,008 $12,030 $13,451 $10,620 28-Feb-97 $12,028 $12,022 $13,557 $10,646 31-Mar-97 $11,692 $11,739 $13,001 $10,528 30-Apr-97 $12,038 $11,943 $13,776 $10,686 31-May-97 $12,793 $12,666 $14,614 $10,787 30-Jun-97 $13,313 $13,153 $15,268 $10,916 31-Jul-97 $14,087 $13,834 $16,482 $11,210 31-Aug-97 $13,618 $13,444 $15,559 $11,115 30-Sep-97 $14,301 $14,120 $16,410 $11,280 31-Oct-97 $13,853 $13,605 $15,862 $11,443 30-Nov-97 $14,098 $13,686 $16,597 $11,496 31-Dec-97 $14,259 $13,832 $16,882 $11,612 31-Jan-98 $14,410 $13,939 $17,070 $11,761 28-Feb-98 $15,220 $14,716 $18,300 $11,751 31-Mar-98 $15,738 $15,277 $19,237 $11,791 30-Apr-98 $15,846 $15,422 $19,432 $11,852 31-May-98 $15,576 $15,181 $19,097 $11,965 30-Jun-98 $15,868 $15,329 $19,873 $12,067 31-Jul-98 $15,555 $15,075 $19,662 $12,092 31-Aug-98 $13,729 $13,210 $16,823 $12,289 30-Sep-98 $14,194 $13,542 $17,901 $12,577 31-Oct-98 $15,080 $14,240 $19,357 $12,510 30-Nov-98 $15,760 $14,893 $20,530 $12,581 31-Dec-98 $16,422 $15,532 $21,712 $12,619 31-Jan-99 $16,718 $15,754 $22,620 $12,709 28-Feb-99 $16,103 $15,198 $21,916 $12,486 31-Mar-99 $16,576 $15,599 $22,793 $12,555 30-Apr-99 $17,224 $16,268 $23,675 $12,595 31-May-99 $16,916 $16,057 $23,116 $12,484 30-Jun-99 $17,586 $16,743 $24,399 $12,444 31-Jul-99 $17,465 $16,663 $23,638 $12,392 31-Aug-99 $17,355 $16,522 $23,520 $12,386 30-Sep-99 $17,290 $16,411 $22,875 $12,530 31-Oct-99 $17,982 $16,904 $24,323 $12,576 30-Nov-99 $18,520 $17,577 $24,817 $12,575 31-Dec-99 $19,602 $18,838 $26,279 $12,514 31-Jan-00 $18,730 $18,215 $24,960 $12,473 29-Feb-00 $19,155 $18,950 $24,487 $12,624 31-Mar-00 $20,049 $19,612 $26,882 $12,791 30-Apr-00 $19,389 $18,921 $26,073 $12,754 31-May-00 $18,931 $18,506 $25,539 $12,747 30-Jun-00 $19,635 $19,191 $26,169 $13,012 31-Jul-00 $19,233 $18,905 $25,761 $13,131 31-Aug-00 $20,206 $19,804 $27,361 $13,321 30-Sep-00 $19,456 $19,221 $25,917 $13,405 31-Oct-00 $19,255 $18,904 $25,808 $13,493 30-Nov-00 $18,148 $17,901 $23,774 $13,715 31-Dec-00 $18,660 $18,600 $23,891 $13,970 31-Jan-01 $19,052 $18,982 $24,739 $14,198 28-Feb-01 $17,758 $17,892 $22,483 $14,321 31-Mar-01 $16,938 $17,001 $21,057 $14,393 30-Apr-01 $17,955 $18,014 $22,693 $14,332 31-May-01 $18,001 $18,061 $22,845 $14,418 30-Jun-01 $17,851 $17,840 $22,290 $14,473 31-Jul-01 $17,574 $17,582 $22,072 $14,797 31-Aug-01 $16,973 $17,032 $20,690 $14,967 30-Sep-01 $15,667 $15,647 $19,018 $15,141 31-Oct-01 $16,037 $16,087 $19,382 $15,457 30-Nov-01 $16,823 $16,853 $20,868 $15,244 31-Dec-01 $17,086 $17,174 $21,052 $15,147 31-Jan-02 $16,706 $16,873 $20,744 $15,269 28-Feb-02 $16,492 $16,718 $20,344 $15,417 31-Mar-02 $17,157 $17,393 $21,109 $15,161 30-Apr-02 $16,753 $17,163 $19,830 $15,456 31-May-02 $16,623 $17,041 $19,683 $15,587 30-Jun-02 $15,863 $16,260 $18,282 $15,723 31-Jul-02 $14,652 $14,989 $16,858 $15,913 31-Aug-02 $14,747 $15,046 $16,967 $16,182 30-Sep-02 $13,619 $13,929 $15,123 $16,444 31-Oct-02 $14,307 $14,525 $16,454 $16,368 30-Nov-02 $14,984 $15,179 $17,423 $16,363 31-Dec-02 $14,440 $14,659 $16,400 $16,702 31-Jan-03 $14,030 $14,305 $15,970 $16,717 28-Feb-03 $13,825 $14,067 $15,731 $16,948 31-Mar-03 $13,849 $14,059 $15,883 $16,934 30-Apr-03 $14,863 $15,029 $17,192 $17,075 31-May-03 $15,720 $15,874 $18,098 $17,392 30-Jun-03 $15,913 $16,092 $18,330 $17,358 31-Jul-03 $16,167 $16,376 $18,652 $16,774 31-Aug-03 $16,517 $16,771 $19,016 $16,885 30-Sep-03 $16,529 $16,789 $18,815 $17,332 31-Oct-03 $17,338 $17,622 $19,879 $17,171 30-Nov-03 $17,616 $17,911 $20,054 $17,212 31-Dec-03 $18,352 $18,624 $21,105 $17,388 31-Jan-04 $18,645 $18,963 $21,494 $17,527 29-Feb-04 $18,866 $19,229 $21,792 $17,716 31-Mar-04 $18,780 $19,210 $21,463 $17,849 30-Apr-04 $18,327 $18,703 $21,126 $17,385 31-May-04 $18,486 $18,809 $21,416 $17,316 30-Jun-04 $18,878 $19,194 $21,831 $17,414 31-Jul-04 $18,303 $18,571 $21,109 $17,587 31-Aug-04 $18,352 $18,598 $21,193 $17,923 30-Sep-04 $18,731 $19,019 $21,422 $17,971 31-Oct-04 $19,062 $19,357 $21,750 $18,122
All figures on this page assume dividends and distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged, and you cannot invest in them directly. 1 Portfolio expenses have been partially absorbed by CSIM and Schwab. Without these reductions, the portfolio's returns would have been lower. These returns do not reflect the deduction of taxes that a shareholder would pay on portfolio distributions or the redemption of portfolio shares. 2 The Growth Composite Index is composed of Morningstar category averages and cash equivalents as represented by the 90-day T-bill and is calculated using the following portfolio allocations: 40% large-cap stocks, 20% small-cap stocks, 20% foreign stocks, 15% bonds and 5% cash. Source: Morningstar, Inc. 8 Schwab MarketTrack Portfolios SCHWAB MARKETTRACK GROWTH PORTFOLIO FUND FACTS as of 10/31/04 STYLE ASSESSMENT 1
INVESTMENT STYLE Value Blend Growth MARKET CAP Large / / /X/ / / Medium / / / / / / Small / / / / / /
STATISTICS NUMBER OF HOLDINGS 507 -------------------------------------------------------------------------------- WEIGHTED AVERAGE MARKET CAP ($ x 1,000,000) $59,403 -------------------------------------------------------------------------------- PRICE/EARNINGS RATIO (P/E) 23.9 -------------------------------------------------------------------------------- PRICE/BOOK RATIO (P/B) 2.6 -------------------------------------------------------------------------------- PORTFOLIO TURNOVER RATE 9% -------------------------------------------------------------------------------- MINIMUM INITIAL INVESTMENT 2 $ 1,000 ($500 for retirement and custodial accounts) --------------------------------------------------------------------------------
TOP HOLDINGS 3
% OF SECURITY NET ASSETS -------------------------------------------------------------------------------- (1) SCHWAB S&P 500 FUND Select Shares(R) 23.5% -------------------------------------------------------------------------------- (2) SCHWAB SMALL-CAP INDEX FUND(R) Select Shares 20.2% -------------------------------------------------------------------------------- (3) SCHWAB INTERNATIONAL INDEX FUND(R) Select Shares 20.1% -------------------------------------------------------------------------------- (4) SCHWAB TOTAL BOND MARKET FUND(TM) 14.8% -------------------------------------------------------------------------------- (5) SCHWAB VALUE ADVANTAGE 4.5% MONEY FUND(R) Investor Shares -------------------------------------------------------------------------------- (6) GENERAL ELECTRIC CO. 0.6% -------------------------------------------------------------------------------- (7) EXXON MOBIL CORP. 0.5% -------------------------------------------------------------------------------- (8) MICROSOFT CORP. 0.5% -------------------------------------------------------------------------------- (9) CITIGROUP, INC. 0.4% -------------------------------------------------------------------------------- (10) WAL-MART STORES, INC. 0.4% -------------------------------------------------------------------------------- TOTAL 85.5%
ASSET CLASS WEIGHTINGS % of Portfolio This chart shows the portfolio's asset class composition as of the report date. [PIE CHART] 40.0% LARGE-CAP STOCKS 20.2% SMALL-CAP STOCKS 20.1% INTERNATIONAL STOCKS 14.8% BONDS 4.9% SHORT-TERM INVESTMENTS Portfolio holdings may have changed since the report date. 1 Source: Morningstar, Inc. This style assessment is the result of evaluating the portfolio based on a ten-factor model for value and growth characteristics. The portfolio's market capitalization placement is determined by the geometric mean of its holdings' market capitalizations. The assessment reflects the portfolio's holdings as of 10/31/04, which may have changed since then, and is not a precise indication of risk or performance--past, present, or future. 2 Please see prospectus for further detail and eligibility requirements. 3 This list is not a recommendation of any security by the investment adviser. Schwab MarketTrack Portfolios 9 SCHWAB MARKETTRACK BALANCED PORTFOLIO(TM) PERFORMANCE as of 10/31/04 AVERAGE ANNUAL TOTAL RETURNS 1,2 This chart compares performance of the portfolio with a benchmark and the portfolio's Morningstar category. [BAR CHART]
Benchmark: Fund Category: BALANCED MORNINGSTAR COMPOSITE MODERATE PORTFOLIO INDEX ALLOCATION 1 YEAR 8.61% 8.27% 7.40% 5 YEARS 2.71% 3.85% 2.24% SINCE INCEPTION 7.22% 3 7.50% 4 4.29% 3
3 SINCE INCEPTION: 11/20/95 4 SINCE: 12/1/95 THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN PERFORMANCE DATA QUOTED. TO OBTAIN PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH END, PLEASE VISIT WWW.SCHWAB.COM/SCHWABFUNDS. PERFORMANCE OF A HYPOTHETICAL $10,000 INVESTMENT 2 This graph shows performance since inception of a hypothetical $10,000 investment in the portfolio, compared with a similar investment in a benchmark and two additional indices. $18,674 PORTFOLIO $19,056 BALANCED COMPOSITE INDEX $21,750 S&P 500(R) INDEX $18,122 LEHMAN BROTHERS U.S. AGGREGATE BOND INDEX [LINE GRAPH]
LEHMAN BROTHERS BALANCED U.S. COMPOSITE S&P 500(R) AGGREGATE PORTFOLIO INDEX INDEX BOND INDEX 20-Nov-95 $10,000 $10,000 $10,000 30-Nov-95 $10,080 $10,000 $10,104 $10,076 31-Dec-95 $10,270 $10,160 $10,299 $10,217 31-Jan-96 $10,390 $10,298 $10,649 $10,285 29-Feb-96 $10,410 $10,352 $10,748 $10,106 31-Mar-96 $10,460 $10,427 $10,852 $10,035 30-Apr-96 $10,581 $10,615 $11,011 $ 9,979 31-May-96 $10,691 $10,745 $11,294 $ 9,959 30-Jun-96 $10,711 $10,737 $11,337 $10,092 31-Jul-96 $10,410 $10,422 $10,836 $10,120 31-Aug-96 $10,551 $10,617 $11,064 $10,102 30-Sep-96 $10,912 $10,957 $11,686 $10,278 31-Oct-96 $11,082 $11,072 $12,009 $10,506 30-Nov-96 $11,534 $11,493 $12,917 $10,686 31-Dec-96 $11,415 $11,449 $12,661 $10,587 31-Jan-97 $11,589 $11,679 $13,451 $10,620 28-Feb-97 $11,589 $11,675 $13,557 $10,646 31-Mar-97 $11,334 $11,419 $13,001 $10,528 30-Apr-97 $11,620 $11,621 $13,776 $10,686 31-May-97 $12,183 $12,176 $14,614 $10,787 30-Jun-97 $12,593 $12,560 $15,268 $10,916 31-Jul-97 $13,217 $13,154 $16,482 $11,210 31-Aug-97 $12,849 $12,862 $15,559 $11,115 30-Sep-97 $13,391 $13,389 $16,410 $11,280 31-Oct-97 $13,125 $13,081 $15,862 $11,443 30-Nov-97 $13,309 $13,168 $16,597 $11,496 31-Dec-97 $13,443 $13,306 $16,882 $11,612 31-Jan-98 $13,582 $13,414 $17,070 $11,761 28-Feb-98 $14,149 $13,975 $18,300 $11,751 31-Mar-98 $14,523 $14,386 $19,237 $11,791 30-Apr-98 $14,608 $14,501 $19,432 $11,852 31-May-98 $14,448 $14,351 $19,097 $11,965 30-Jun-98 $14,672 $14,502 $19,873 $12,067 31-Jul-98 $14,469 $14,310 $19,662 $12,092 31-Aug-98 $13,262 $13,014 $16,823 $12,289 30-Sep-98 $13,668 $13,373 $17,901 $12,577 31-Oct-98 $14,309 $13,863 $19,357 $12,510 30-Nov-98 $14,800 $14,365 $20,530 $12,581 31-Dec-98 $15,281 $14,859 $21,712 $12,619 31-Jan-99 $15,523 $15,054 $22,620 $12,709 28-Feb-99 $15,028 $14,584 $21,916 $12,486 31-Mar-99 $15,369 $14,900 $22,793 $12,555 30-Apr-99 $15,820 $15,391 $23,675 $12,595 31-May-99 $15,567 $15,215 $23,116 $12,484 30-Jun-99 $16,018 $15,689 $24,399 $12,444 31-Jul-99 $15,930 $15,590 $23,638 $12,392 31-Aug-99 $15,842 $15,472 $23,520 $12,386 30-Sep-99 $15,853 $15,415 $22,875 $12,530 31-Oct-99 $16,337 $15,777 $24,323 $12,576 30-Nov-99 $16,711 $16,226 $24,817 $12,575 31-Dec-99 $17,420 $17,055 $26,279 $12,514 31-Jan-00 $16,823 $16,628 $24,960 $12,473 29-Feb-00 $17,150 $17,140 $24,487 $12,624 31-Mar-00 $17,815 $17,684 $26,882 $12,791 30-Apr-00 $17,353 $17,214 $26,073 $12,754 31-May-00 $17,037 $16,926 $25,539 $12,747 30-Jun-00 $17,601 $17,466 $26,169 $13,012 31-Jul-00 $17,364 $17,322 $25,761 $13,131 31-Aug-00 $18,085 $18,031 $27,361 $13,321 30-Sep-00 $17,612 $17,674 $25,917 $13,405 31-Oct-00 $17,499 $17,486 $25,808 $13,493 30-Nov-00 $16,812 $16,827 $23,774 $13,715 31-Dec-00 $17,241 $17,394 $23,891 $13,970 31-Jan-01 $17,569 $17,747 $24,739 $14,198 28-Feb-01 $16,713 $17,017 $22,483 $14,321 31-Mar-01 $16,162 $16,405 $21,057 $14,393 30-Apr-01 $16,877 $17,125 $22,693 $14,332 31-May-01 $16,936 $17,205 $22,845 $14,418 30-Jun-01 $16,842 $17,066 $22,290 $14,473 31-Jul-01 $16,748 $16,979 $22,072 $14,797 31-Aug-01 $16,350 $16,604 $20,690 $14,967 30-Sep-01 $15,447 $15,631 $19,018 $15,141 31-Oct-01 $15,798 $16,029 $19,382 $15,457 30-Nov-01 $16,314 $16,577 $20,868 $15,244 31-Dec-01 $16,483 $16,788 $21,052 $15,147 31-Jan-02 $16,239 $16,608 $20,744 $15,269 28-Feb-02 $16,105 $16,508 $20,344 $15,417 31-Mar-02 $16,519 $16,940 $21,109 $15,161 30-Apr-02 $16,288 $16,804 $19,830 $15,456 31-May-02 $16,227 $16,735 $19,683 $15,587 30-Jun-02 $15,691 $16,149 $18,282 $15,723 31-Jul-02 $14,838 $15,234 $16,858 $15,913 31-Aug-02 $14,972 $15,344 $16,967 $16,182 30-Sep-02 $14,156 $14,541 $15,123 $16,444 31-Oct-02 $14,680 $14,999 $16,454 $16,368 30-Nov-02 $15,204 $15,525 $17,423 $16,363 31-Dec-02 $14,860 $15,189 $16,400 $16,702 31-Jan-03 $14,548 $14,931 $15,970 $16,717 28-Feb-03 $14,436 $14,799 $15,731 $16,948 31-Mar-03 $14,473 $14,808 $15,883 $16,934 30-Apr-03 $15,284 $15,604 $17,192 $17,075 31-May-03 $16,008 $16,335 $18,098 $17,392 30-Jun-03 $16,145 $16,494 $18,330 $17,358 31-Jul-03 $16,207 $16,582 $18,652 $16,774 31-Aug-03 $16,494 $16,904 $19,016 $16,885 30-Sep-03 $16,619 $17,001 $18,815 $17,332 31-Oct-03 $17,193 $17,601 $19,879 $17,171 30-Nov-03 $17,393 $17,824 $20,054 $17,212 31-Dec-03 $17,986 $18,380 $21,105 $17,388 31-Jan-04 $18,215 $18,665 $21,494 $17,527 29-Feb-04 $18,419 $18,897 $21,792 $17,716 31-Mar-04 $18,393 $18,905 $21,463 $17,849 30-Apr-04 $17,960 $18,426 $21,126 $17,385 31-May-04 $18,062 $18,490 $21,416 $17,316 30-Jun-04 $18,381 $18,793 $21,831 $17,414 31-Jul-04 $17,986 $18,371 $21,109 $17,587 31-Aug-04 $18,113 $18,463 $21,193 $17,923 30-Sep-04 $18,393 $18,782 $21,422 $17,971 31-Oct-04 $18,674 $19,056 $21,750 $18,122
All figures on this page assume dividends and distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged, and you cannot invest in them directly. 1 Portfolio expenses have been partially absorbed by CSIM and Schwab. Without these reductions, the portfolio's returns would have been lower. These returns do not reflect the deduction of taxes that a shareholder would pay on portfolio distributions or the redemption of portfolio shares. 2 The Balanced Composite Index is composed of Morningstar category averages and cash equivalents as represented by the 90-day T-bill and is calculated using the following portfolio allocations: 30% large-cap stocks, 15% small-caps stocks, 15% foreign stocks, 35% bonds and 5% cash. Source: Morningstar, Inc. 10 Schwab MarketTrack Portfolios SCHWAB MARKETTRACK BALANCED PORTFOLIO FUND FACTS as of 10/31/04 TOP HOLDINGS 1
% OF SECURITY NET ASSETS -------------------------------------------------------------------------------- (1) SCHWAB TOTAL BOND MARKET FUND(TM) 34.7% -------------------------------------------------------------------------------- (2) SCHWAB S&P 500 FUND Select Shares(R) 17.3% -------------------------------------------------------------------------------- (3) SCHWAB INTERNATIONAL INDEX FUND(R) Select Shares 15.3% -------------------------------------------------------------------------------- (4) SCHWAB SMALL-CAP INDEX FUND(R) Select Shares 15.1% -------------------------------------------------------------------------------- (5) SCHWAB VALUE ADVANTAGE 4.5% MONEY FUND(R) Investor Shares -------------------------------------------------------------------------------- (6) GENERAL ELECTRIC CO. 0.4% -------------------------------------------------------------------------------- (7) EXXON MOBIL CORP. 0.4% -------------------------------------------------------------------------------- (8) MICROSOFT CORP. 0.4% -------------------------------------------------------------------------------- (9) CITIGROUP, INC. 0.3% -------------------------------------------------------------------------------- (10) WAL-MART STORES, INC. 0.3% -------------------------------------------------------------------------------- TOTAL 88.7%
STATISTICS NUMBER OF HOLDINGS 507 -------------------------------------------------------------------------------- PORTFOLIO TURNOVER RATE 11% -------------------------------------------------------------------------------- MINIMUM INITIAL INVESTMENT 2 $1,000 ($500 for retirement and custodial accounts)
ASSET CLASS WEIGHTINGS % of Portfolio This chart shows the portfolio's asset class composition as of the report date. [PIE CHART] 34.7% BONDS 29.9% LARGE-CAP STOCKS 15.3% INTERNATIONAL STOCKS 15.1% SMALL-CAP STOCKS 5.0% SHORT-TERM INVESTMENTS Portfolio holdings may have changed since the report date. 1 This list is not a recommendation of any security by the investment adviser. 2 Please see prospectus for further detail and eligibility requirements. Schwab MarketTrack Portfolios 11 SCHWAB MARKETTRACK CONSERVATIVE PORTFOLIO(TM) PERFORMANCE as of 10/31/04 AVERAGE ANNUAL TOTAL RETURNS 1,2 This chart compares performance of the portfolio with a benchmark and the portfolio's Morningstar category. [BAR CHART]
Benchmark: Fund Category: CONSERVATIVE MORNINGSTAR COMPOSITE CONSERVATIVE PORTFOLIO INDEX ALLOCATION 1 YEAR 7.38% 7.09% 6.03% 5 YEARS 4.13% 4.85% 3.74% SINCE INCEPTION 6.83% 3 7.05% 4 5.08% 3
3 SINCE INCEPTION: 11/20/95 4 SINCE: 12/1/95 THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN PERFORMANCE DATA QUOTED. TO OBTAIN PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH END, PLEASE VISIT WWW.SCHWAB.COM/SCHWABFUNDS. PERFORMANCE OF A HYPOTHETICAL $10,000 INVESTMENT 2 This graph shows performance since inception of a hypothetical $10,000 investment in the portfolio, compared with a similar investment in a benchmark and two additional indices. $18,079 PORTFOLIO $18,363 CONSERVATIVE COMPOSITE INDEX $21,750 S&P 500(R) INDEX $18,122 LEHMAN BROTHERS U.S. AGGREGATE BOND INDEX [LINE GRAPH]
LEHMAN BROTHERS CONSERVATIVE U.S. COMPOSITE S&P 500(R) AGGREGATE PORTFOLIO INDEX INDEX BOND INDEX 20-Nov-95 $10,000 $10,000 $10,000 30-Nov-95 $10,080 $10,000 $10,104 $10,076 31-Dec-95 $10,237 $10,151 $10,299 $10,217 31-Jan-96 $10,337 $10,263 $10,649 $10,285 29-Feb-96 $10,297 $10,240 $10,748 $10,106 31-Mar-96 $10,287 $10,267 $10,852 $10,035 30-Apr-96 $10,337 $10,371 $11,011 $ 9,979 31-May-96 $10,378 $10,450 $11,294 $ 9,959 30-Jun-96 $10,439 $10,484 $11,337 $10,092 31-Jul-96 $10,256 $10,287 $10,836 $10,120 31-Aug-96 $10,337 $10,413 $11,064 $10,102 30-Sep-96 $10,643 $10,693 $11,686 $10,278 31-Oct-96 $10,818 $10,840 $12,009 $10,506 30-Nov-96 $11,179 $11,177 $12,917 $10,686 31-Dec-96 $11,070 $11,118 $12,661 $10,587 31-Jan-97 $11,174 $11,278 $13,451 $10,620 28-Feb-97 $11,184 $11,287 $13,557 $10,646 31-Mar-97 $10,965 $11,082 $13,001 $10,528 30-Apr-97 $11,206 $11,260 $13,776 $10,686 31-May-97 $11,604 $11,653 $14,614 $10,787 30-Jun-97 $11,896 $11,942 $15,268 $10,916 31-Jul-97 $12,413 $12,424 $16,482 $11,210 31-Aug-97 $12,160 $12,203 $15,559 $11,115 30-Sep-97 $12,540 $12,594 $16,410 $11,280 31-Oct-97 $12,455 $12,449 $15,862 $11,443 30-Nov-97 $12,603 $12,519 $16,597 $11,496 31-Dec-97 $12,698 $12,644 $16,882 $11,612 31-Jan-98 $12,829 $12,764 $17,070 $11,761 28-Feb-98 $13,189 $13,116 $18,300 $11,751 31-Mar-98 $13,418 $13,389 $19,237 $11,791 30-Apr-98 $13,484 $13,480 $19,432 $11,852 31-May-98 $13,431 $13,427 $19,097 $11,965 30-Jun-98 $13,595 $13,554 $19,873 $12,067 31-Jul-98 $13,484 $13,442 $19,662 $12,092 31-Aug-98 $12,774 $12,674 $16,823 $12,289 30-Sep-98 $13,139 $12,997 $17,901 $12,577 31-Oct-98 $13,530 $13,281 $19,357 $12,510 30-Nov-98 $13,843 $13,630 $20,530 $12,581 31-Dec-98 $14,166 $13,961 $21,712 $12,619 31-Jan-99 $14,348 $14,113 $22,620 $12,709 28-Feb-99 $13,950 $13,733 $21,916 $12,486 31-Mar-99 $14,200 $13,964 $22,793 $12,555 30-Apr-99 $14,475 $14,287 $23,675 $12,595 31-May-99 $14,269 $14,130 $23,116 $12,484 30-Jun-99 $14,521 $14,407 $24,399 $12,444 31-Jul-99 $14,452 $14,332 $23,638 $12,392 31-Aug-99 $14,395 $14,252 $23,520 $12,386 30-Sep-99 $14,464 $14,262 $22,875 $12,530 31-Oct-99 $14,766 $14,492 $24,323 $12,576 30-Nov-99 $14,986 $14,774 $24,817 $12,575 31-Dec-99 $15,398 $15,261 $26,279 $12,514 31-Jan-00 $15,022 $14,988 $24,960 $12,473 29-Feb-00 $15,269 $15,346 $24,487 $12,624 31-Mar-00 $15,738 $15,731 $26,882 $12,791 30-Apr-00 $15,442 $15,423 $26,073 $12,754 31-May-00 $15,229 $15,238 $25,539 $12,747 30-Jun-00 $15,667 $15,663 $26,169 $13,012 31-Jul-00 $15,584 $15,616 $25,761 $13,131 31-Aug-00 $16,085 $16,109 $27,361 $13,321 30-Sep-00 $15,835 $15,930 $25,917 $13,405 31-Oct-00 $15,787 $15,831 $25,808 $13,493 30-Nov-00 $15,462 $15,507 $23,774 $13,715 31-Dec-00 $15,815 $15,952 $23,891 $13,970 31-Jan-01 $16,087 $16,256 $24,739 $14,198 28-Feb-01 $15,594 $15,859 $22,483 $14,321 31-Mar-01 $15,297 $15,501 $21,057 $14,393 30-Apr-01 $15,732 $15,929 $22,693 $14,332 31-May-01 $15,807 $16,011 $22,845 $14,418 30-Jun-01 $15,770 $15,940 $22,290 $14,473 31-Jul-01 $15,820 $16,000 $22,072 $14,797 31-Aug-01 $15,632 $15,818 $20,690 $14,967 30-Sep-01 $15,107 $15,237 $19,018 $15,141 31-Oct-01 $15,410 $15,587 $19,382 $15,457 30-Nov-01 $15,675 $15,881 $20,868 $15,244 31-Dec-01 $15,759 $15,982 $21,052 $15,147 31-Jan-02 $15,643 $15,899 $20,744 $15,269 28-Feb-02 $15,592 $15,875 $20,344 $15,417 31-Mar-02 $15,759 $16,072 $21,109 $15,161 30-Apr-02 $15,682 $16,071 $19,830 $15,456 31-May-02 $15,695 $16,067 $19,683 $15,587 30-Jun-02 $15,384 $15,706 $18,282 $15,723 31-Jul-02 $14,875 $15,141 $16,858 $15,913 31-Aug-02 $15,045 $15,295 $16,967 $16,182 30-Sep-02 $14,575 $14,825 $15,123 $16,444 31-Oct-02 $14,903 $15,108 $16,454 $16,368 30-Nov-02 $15,243 $15,478 $17,423 $16,363 31-Dec-02 $15,125 $15,355 $16,400 $16,702 31-Jan-03 $14,926 $15,190 $15,970 $16,717 28-Feb-03 $14,913 $15,168 $15,731 $16,948 31-Mar-03 $14,939 $15,174 $15,883 $16,934 30-Apr-03 $15,539 $15,770 $17,192 $17,075 31-May-03 $16,113 $16,360 $18,098 $17,392 30-Jun-03 $16,193 $16,461 $18,330 $17,358 31-Jul-03 $16,059 $16,348 $18,652 $16,774 31-Aug-03 $16,286 $16,591 $19,016 $16,885 30-Sep-03 $16,501 $16,794 $18,815 $17,332 31-Oct-03 $16,837 $17,147 $19,879 $17,171 30-Nov-03 $16,971 $17,308 $20,054 $17,212 31-Dec-03 $17,402 $17,723 $21,105 $17,388 31-Jan-04 $17,593 $17,949 $21,494 $17,527 29-Feb-04 $17,785 $18,150 $21,792 $17,716 31-Mar-04 $17,802 $18,196 $21,463 $17,849 30-Apr-04 $17,390 $17,749 $21,126 $17,385 31-May-04 $17,431 $17,760 $21,416 $17,316 30-Jun-04 $17,674 $17,980 $21,831 $17,414 31-Jul-04 $17,467 $17,761 $21,109 $17,587 31-Aug-04 $17,660 $17,918 $21,193 $17,923 30-Sep-04 $17,858 $18,142 $21,422 $17,971 31-Oct-04 $18,079 $18,363 $21,750 $18,122
All figures on this page assume dividends and distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged, and you cannot invest in them directly. 1 Portfolio expenses have been partially absorbed by CSIM and Schwab. Without these reductions, the portfolio's returns would have been lower. These returns do not reflect the deduction of taxes that a shareholder would pay on portfolio distributions or the redemption of portfolio shares. 2 The Conservative Composite Index is composed of Morningstar category averages and cash equivalents as represented by the 90-day T-bill and is calculated using the following portfolio allocations: 20% large-cap stocks, 10% small-cap stocks, 10% foreign stocks, 55% bonds and 5% cash. Source: Morningstar, Inc. 12 Schwab MarketTrack Portfolios SCHWAB MARKETTRACK CONSERVATIVE PORTFOLIO FUND FACTS as of 10/31/04 TOP HOLDINGS 1
% OF SECURITY NET ASSETS -------------------------------------------------------------------------------- (1) SCHWAB TOTAL BOND MARKET FUND(TM) 54.9% -------------------------------------------------------------------------------- (2) SCHWAB S&P 500 FUND Select Shares(R) 14.6% -------------------------------------------------------------------------------- (3) SCHWAB INTERNATIONAL INDEX FUND(R) Select Shares 10.2% -------------------------------------------------------------------------------- (4) SCHWAB SMALL-CAP INDEX FUND(R) Select Shares 10.1% -------------------------------------------------------------------------------- (5) SCHWAB VALUE ADVANTAGE 4.1% MONEY FUND(R) Investor Shares -------------------------------------------------------------------------------- (6) GENERAL ELECTRIC CO. 0.2% -------------------------------------------------------------------------------- (7) EXXON MOBIL CORP. 0.2% -------------------------------------------------------------------------------- (8) MICROSOFT CORP. 0.2% -------------------------------------------------------------------------------- (9) WAL-MART STORES, INC. 0.1% -------------------------------------------------------------------------------- (10) CITIGROUP, INC. 0.1% -------------------------------------------------------------------------------- TOTAL 94.7%
STATISTICS NUMBER OF HOLDINGS 507 -------------------------------------------------------------------------------- PORTFOLIO TURNOVER RATE 10% -------------------------------------------------------------------------------- MINIMUM INITIAL INVESTMENT 2 $1,000 ($500 for retirement and custodial accounts)
ASSET CLASS WEIGHTINGS % of Portfolio This chart shows the portfolio's asset class composition as of the report date. [PIE CHART] 54.9% BONDS 20.1% LARGE-CAP STOCKS 10.2% INTERNATIONAL STOCKS 10.1% SMALL-CAP STOCKS 4.7% SHORT-TERM INVESTMENTS Portfolio holdings may have changed since the report date. 1 This list is not a recommendation of any security by the investment adviser. 2 Please see prospectus for further detail and eligibility requirements. Schwab MarketTrack Portfolios 13 FUND EXPENSES EXAMPLES FOR A $1,000 INVESTMENT As a fund shareholder, you incur two types of costs: transaction costs, such as redemption fees; and, ongoing costs, such as management fees, transfer agent and shareholder services fees, and other fund expenses. The expense examples below are intended to help you understand your ongoing cost (in dollars) of investing in a fund and to compare this cost with the ongoing cost of investing in other mutual funds. These examples are based on an investment of $1,000 invested for six-months beginning May 1, 2004 and held through October 31, 2004. ACTUAL RETURN lines in the table below provide information about actual account values and actual expenses. You may use this information, together with the amount you invested, to estimate the expenses that you paid over the period. To do so, simply divide your account value by $1,000 (for example, an $8,600 account value / $1,000 = 8.6), then multiply the result by the number given for your fund under the heading entitled "Expenses Paid During Period." HYPOTHETICAL RETURN lines in the table below provide information about hypothetical account values and hypothetical expenses based on a fund's actual expense ratio and an assumed return of 5% per year before expenses. Because the return used is not an actual return, it may not be used to estimate the actual ending account value or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only, and do not reflect any transactional costs, such as redemption fees. If these transactional costs were included, your costs would have been higher.
ENDING BEGINNING ACCOUNT VALUE EXPENSES EXPENSE RATIO 1 ACCOUNT VALUE (Net of Expenses) PAID DURING PERIOD 2 (Annualized) at 5/1/04 at 10/31/04 5/1/04-10/31/04 ---------------------------------------------------------------------------------------------------------------------------------- SCHWAB MARKETTRACK ALL EQUITY PORTFOLIO(TM) Actual Return 0.50% $1,000 $1,044.00 $2.57 Hypothetical 5% Return 0.50% $1,000 $1,022.62 $2.54 ---------------------------------------------------------------------------------------------------------------------------------- SCHWAB MARKETTRACK GROWTH PORTFOLIO(TM) Actual Return 0.50% $1,000 $1,040.10 $2.56 Hypothetical 5% Return 0.50% $1,000 $1,022.62 $2.54 ---------------------------------------------------------------------------------------------------------------------------------- SCHWAB MARKETTRACK BALANCED PORTFOLIO(TM) Actual Return 0.50% $1,000 $1,039.70 $2.56 Hypothetical 5% Return 0.50% $1,000 $1,022.62 $2.54 ---------------------------------------------------------------------------------------------------------------------------------- SCHWAB MARKETTRACK CONSERVATIVE PORTFOLIO(TM) Actual Return 0.50% $1,000 $1,039.60 $2.56 Hypothetical 5% Return 0.50% $1,000 $1,022.62 $2.54
1 Based on the most recent six-month expense ratio; may differ from the expense ratio provided in Financial Highlights. 2 Expenses for each fund are equal to that fund's annualized expense ratio, multiplied by the average account value over the period, multiplied by 184 days of the period, and divided by 366 days of the fiscal year. 14 Schwab MarketTrack Portfolios SCHWAB MARKETTRACK ALL EQUITY PORTFOLIO(TM) FINANCIAL STATEMENTS FINANCIAL HIGHLIGHTS
11/1/03- 11/1/02- 11/1/01- 11/1/00- 11/1/99- 10/31/04 10/31/03 10/31/02 10/31/01 10/31/00 ------------------------------------------------------------------------------------------------------------------------------------ PER-SHARE DATA ($) ------------------------------------------------------------------------------------------------------------------------------------ Net asset value at beginning of period 9.43 7.60 9.06 12.06 11.48 --------------------------------------------------------------------------- Income or loss from investment operations: Net investment income 0.08 0.09 0.05 0.22 0.04 Net realized and unrealized gains or losses 1.02 1.85 (1.32) (2.99) 0.69 --------------------------------------------------------------------------- Total income or loss from investment operations 1.10 1.94 (1.27) (2.77) 0.73 Less distributions: Dividends from net investment income (0.09) (0.09) (0.05) (0.22) (0.05) Distributions from net realized gains -- (0.02) (0.14) (0.01) (0.10) --------------------------------------------------------------------------- Total distributions (0.09) (0.11) (0.19) (0.23) (0.15) --------------------------------------------------------------------------- Net asset value at end of period 10.44 9.43 7.60 9.06 12.06 --------------------------------------------------------------------------- Total return (%) 11.75 25.77 (14.40) (23.27) 6.37 RATIOS/SUPPLEMENTAL DATA (%) ------------------------------------------------------------------------------------------------------------------------------------ Ratios to average net assets: Net operating expenses 1 0.50 0.50 0.50 0.50 0.57 2 Gross operating expenses 1 0.76 0.76 0.77 0.77 0.84 Net investment income 0.83 1.10 0.58 1.93 0.05 Portfolio turnover rate 7 10 15 5 3 Net assets, end of period ($ x 1,000,000) 450 427 353 405 441
1 The expenses incurred by underlying funds in which the portfolio invests are not included in this ratio. The income received by the portfolio from underlying funds is reduced by those expenses. 2 The ratio of net operating expenses would have been 0.56% if certain non-routine expenses (proxy fees) had not been included. See financial notes. 15 SCHWAB MARKETTRACK ALL EQUITY PORTFOLIO PORTFOLIO HOLDINGS as of October 31, 2004 This section shows all the securities in the fund's portfolio and their value, as of the report date. The fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The fund's Form N-Q is available on the SEC's website at http://www.sec.gov and may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Call 1-800-SEC-0330 for information on the operation of the Public Reference Room. The schedule of portfolio holdings filed on the fund's most recent Form N-Q is available by visiting Schwab's website at www.schwab.com/schwabfunds. We use the symbols below to designate certain characteristics of the securities. With the top ten holdings, the number in the circle is the security's rank among the top ten. (1) Top Holding = All or a portion of this security is held as collateral for open futures contracts / Issuer is affiliated with the fund's adviser
COST VALUE HOLDINGS BY CATEGORY ($x1,000) ($x1,000) -------------------------------------------------------------------------------- 99.8% OTHER INVESTMENT COMPANIES 449,555 449,229 0.3% SHORT-TERM INVESTMENT 1,305 1,305 0.0% U.S. TREASURY OBLIGATION 110 110 -------------------------------------------------------------------------------- 100.1% TOTAL INVESTMENTS 450,970 450,644 (0.1)% OTHER ASSETS AND LIABILITIES, NET (446) -------------------------------------------------------------------------------- 100.0% TOTAL NET ASSETS 450,198
VALUE SECURITY AND NUMBER OF SHARES ($ x 1,000) OTHER INVESTMENT COMPANIES 99.8% of net assets /(2) Schwab International Index Fund, Select Shares 9,114,006 135,160 /=(1) Schwab S&P 500 Fund, Select Shares 11,381,715 201,229 /(3) Schwab Small-Cap Index Fund, Select Shares 5,653,311 112,840 ----------- 449,229
SECURITY FACE AMOUNT RATE, MATURITY DATE ($ x 1,000) SHORT-TERM INVESTMENT 0.3% of net assets HSBC Bank, USA Grand Cayman Time Deposit 1.29%, 11/01/04 1,305 1,305 U.S. TREASURY OBLIGATION 0.0% of net assets = U.S. Treasury Bill 1.65%, 12/16/04 110 110
END OF INVESTMENTS. In addition to the above, the fund held the following at 10/31/04. All numbers x 1,000 except number of contracts. FUTURES CONTRACTS
NUMBER OF CONTRACT UNREALIZED CONTRACTS VALUE GAINS S&P 500 Index, Long expires 12/17/04 6 1,695 6
16 See financial notes. SCHWAB MARKETTRACK ALL EQUITY PORTFOLIO Statement of ASSETS AND LIABILITIES As of October 31, 2004. All numbers x 1,000 except NAV. ASSETS -------------------------------------------------------------------------------- Investments, at value $450,644 a Receivables: Fund shares sold 92 Due from brokers for futures 4 Prepaid expenses + 13 ------------ TOTAL ASSETS 450,753 LIABILITIES -------------------------------------------------------------------------------- Payables: Fund shares redeemed 454 Investment adviser and administrator fees 7 Transfer agent and shareholder service fees 9 Trustees' fees 1 Accrued expenses + 84 ------------ TOTAL LIABILITIES 555 NET ASSETS -------------------------------------------------------------------------------- TOTAL ASSETS 450,753 TOTAL LIABILITIES - 555 ------------ NET ASSETS $450,198 NET ASSETS BY SOURCE Capital received from investors 490,458 Distributions in excess of net investment income (1,897) Net realized capital losses (38,043) b Net unrealized capital losses (320) b NET ASSET VALUE (NAV) SHARES NET ASSETS / OUTSTANDING = NAV $450,198 43,139 $10.44
Unless stated, all numbers x 1,000. a The fund paid $450,970 for these securities. Not counting short-term obligations and government securities, the fund's security transactions during the period were: Purchases $33,282 Sales/maturities $55,212 Percent of fund shares of other Schwab funds owned at the end of the report period: SCHWAB EQUITY INDEX FUNDS S&P 500 Fund 2.4% Small-Cap Index Fund 6.9% International Index Fund 10.9% b These derive from investments and futures. FEDERAL TAX DATA ------------------------------------------------------- PORTFOLIO COST $457,101 NET UNREALIZED GAINS AND LOSSES: Gains $23,316 Losses + (29,773) ------------- ($6,457) AS OF DECEMBER 31, 2003: NET UNDISTRIBUTED EARNINGS: Ordinary income $-- Long-term capital gains $-- UNUSED CAPITAL LOSSES: Expires 12/31 of: Loss amount: 2010 $11,058 2011 + 13,010 ------------- $24,068 RECLASSIFICATIONS: Net investment income not yet distributed $1 Reclassified as: Capital received from investors ($1) See financial notes. 17 SCHWAB MARKETTRACK ALL EQUITY PORTFOLIO Statement of OPERATIONS For November 1, 2003 through October 31, 2004. All numbers x 1,000. INVESTMENT INCOME -------------------------------------------------------------------------------- Dividends $6,042 Interest + 10 ----------- TOTAL INVESTMENT INCOME 6,052 NET REALIZED GAINS AND LOSSES -------------------------------------------------------------------------------- Net realized losses on investments (5,487) Net realized gains on futures contracts + 171 ----------- NET REALIZED LOSSES (5,316) NET UNREALIZED GAINS AND LOSSES -------------------------------------------------------------------------------- Net unrealized gains on investments 50,813 Net unrealized losses on futures contracts + (47) ----------- NET UNREALIZED GAINS 50,766 EXPENSES -------------------------------------------------------------------------------- Investment adviser and administrator fees 1,999 a Transfer agent and shareholder service fees 1,136 b Trustees' fees 8 c Custodian fees 41 Portfolio accounting fees 61 Professional fees 34 Registration fees 27 Shareholder reports 124 Other expenses + 7 ----------- Total expenses 3,437 Expense reduction - 1,165 d ----------- NET EXPENSES 2,272 INCREASE IN NET ASSETS FROM OPERATIONS -------------------------------------------------------------------------------- TOTAL INVESTMENT INCOME 6,052 NET EXPENSES - 2,272 ----------- NET INVESTMENT INCOME 3,780 NET REALIZED LOSSES (5,316) e NET UNREALIZED GAINS + 50,766 e ----------- INCREASE IN NET ASSETS FROM OPERATIONS $49,230
Unless stated, all numbers x 1,000. a Calculated as a percentage of average daily net assets: 0.44% of the first $500 million and 0.39% of assets beyond that. These fees are paid to Charles Schwab Investment Management, Inc. (CSIM). b 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. These fees are paid to Charles Schwab & Co., Inc. (Schwab). c For the fund's independent trustees only. d This reduction was made by the investment adviser (CSIM). It reflects a guarantee by CSIM and the transfer agent and shareholder service agent (Schwab) to limit the operating expenses of this fund through February 28, 2005, to 0.50% of average daily net assets. This limit excludes interest, taxes and certain non-routine expenses. e These add up to a net gain on investments of $45,450. 18 See financial notes. SCHWAB MARKETTRACK ALL EQUITY PORTFOLIO Statements of CHANGES IN NET ASSETS For the current and prior report periods. All numbers x 1,000
OPERATIONS -------------------------------------------------------------------------------- 11/1/03-10/31/04 11/1/02-10/31/03 Net investment income $3,780 $4,133 Net realized losses (5,316) (10,097) Net unrealized gains + 50,766 94,425 ---------------------------------------- INCREASE IN NET ASSETS FROM OPERATIONS 49,230 88,461 DISTRIBUTIONS PAID -------------------------------------------------------------------------------- Dividends from net investment income 4,156 3,978 Distributions from net realized gains + -- 837 ---------------------------------------- TOTAL DISTRIBUTIONS PAID $4,156 $4,815 a,b
TRANSACTIONS IN FUND SHARES -------------------------------------------------------------------------------- 11/1/03-10/31/04 11/1/02-10/31/03 SHARES VALUE SHARES VALUE Shares sold 6,823 $68,910 7,189 $58,084 Shares reinvested 409 4,002 618 4,696 Shares redeemed + (9,423) (95,049) (8,992) (72,607) --------------------------------------------------- NET TRANSACTIONS IN FUND SHARES (2,191) ($22,137) (1,185) ($9,827)
SHARES OUTSTANDING AND NET ASSETS -------------------------------------------------------------------------------- 11/1/03-10/31/04 11/1/02-10/31/03 SHARES NET ASSETS SHARES NET ASSETS Beginning of period 45,330 $427,261 46,515 $353,442 Total increase or decrease + (2,191) 22,937 (1,185) 73,819 c --------------------------------------------------- END OF PERIOD 43,139 $450,198 45,330 $427,261 d
Unless stated, all numbers x 1,000. a UNAUDITED For corporations, 100% of the fund's dividends for the report period qualify for the dividends-received deduction. The fund designates $4,117 of the dividend distribution for the fiscal year ended 10/31/04 as qualified dividends for the purpose of the maximum rate under Section 1(h)(ii) of the Internal Revenue Code. Shareholders will be notified in January 2005 via IRS Form 1099 of the amounts for use in preparing their 2004 income tax return. b The tax-basis components of distributions paid are: CURRENT PERIOD Ordinary income $4,156 Long-term capital gains $-- PRIOR PERIOD Ordinary income $3,978 Long-term capital gains $837 c Figures for shares represent shares sold plus shares reinvested, minus shares redeemed. Figures for net assets represent the changes in net assets from operations plus the changes in value of transactions in fund shares, minus distributions paid. d Includes distributions in excess of net investment income in the amount of $1,897 and $1,522 at the end of the current period and the prior period, respectively. See financial notes. 19 SCHWAB MARKETTRACK GROWTH PORTFOLIO(TM) FINANCIAL STATEMENTS FINANCIAL HIGHLIGHTS
11/1/03- 11/1/02- 11/1/01- 11/1/00- 11/1/99- 10/31/04 10/31/03 10/31/02 10/31/01 10/31/00 ------------------------------------------------------------------------------------------------------------------------------------ PER-SHARE DATA ($) ------------------------------------------------------------------------------------------------------------------------------------ Net asset value at beginning of period 14.36 12.05 13.88 17.22 16.37 --------------------------------------------------------------------------- Income or loss from investment operations: Net investment income 0.21 0.18 0.19 0.41 0.22 Net realized and unrealized gains or losses 1.21 2.33 (1.62) (3.22) 0.94 --------------------------------------------------------------------------- Total income or loss from investment operations 1.42 2.51 (1.43) (2.81) 1.16 Less distributions: Dividends from net investment income (0.21) (0.20) (0.24) (0.44) (0.18) Distributions from net realized gains -- -- (0.16) (0.09) (0.13) --------------------------------------------------------------------------- Total distributions (0.21) (0.20) (0.40) (0.53) (0.31) --------------------------------------------------------------------------- Net asset value at end of period 15.57 14.36 12.05 13.88 17.22 --------------------------------------------------------------------------- Total return (%) 9.94 21.18 (10.78) (16.71) 7.08 RATIOS/SUPPLEMENTAL DATA (%) ------------------------------------------------------------------------------------------------------------------------------------ Ratios to average net assets: Net operating expenses 1 0.50 0.50 0.50 0.50 0.57 2 Gross operating expenses 1 0.73 0.74 0.75 0.74 0.82 Net investment income 1.35 1.48 1.35 2.58 1.32 Portfolio turnover rate 9 9 21 10 12 Net assets, end of period ($ x 1,000,000) 614 578 510 511 566
1 The expenses incurred by underlying funds in which the portfolio invests are not included in this ratio. The income received by the portfolio from underlying funds is reduced by those expenses. 2 The ratio of net operating expenses would have been 0.56% if certain non-routine expenses (proxy fees) had not been included. 20 See financial notes. SCHWAB MARKETTRACK GROWTH PORTFOLIO PORTFOLIO HOLDINGS as of October 31, 2004 This section shows all the securities in the fund's portfolio by industry classification and their value, as of the report date. The fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The fund's Form N-Q is available on the SEC's website at http://www.sec.gov and may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Call 1-800-SEC-0330 for information on the operation of the Public Reference Room. The schedule of portfolio holdings filed on the fund's most recent Form N-Q is available by visiting Schwab's website at www.schwab.com/schwabfunds. We use the symbols below to designate certain characteristics of the securities. With the top ten holdings, the number in the circle is the security's rank among the top ten. (1) Top Ten Holding o Non-income producing security / Issuer is affiliated with the fund's adviser
COST VALUE HOLDINGS BY CATEGORY ($x1,000) ($x1,000) -------------------------------------------------------------------------------- 83.1% OTHER INVESTMENT COMPANIES 460,675 509,619 16.5% COMMON STOCK 69,232 101,454 0.4% SHORT-TERM INVESTMENT 2,653 2,653 -------------------------------------------------------------------------------- 100.0% TOTAL INVESTMENTS 532,560 613,726 0.0% OTHER ASSETS AND LIABILITIES, NET 102 -------------------------------------------------------------------------------- 100.0% TOTAL NET ASSETS 613,828
VALUE SECURITY AND NUMBER OF SHARES ($ x 1,000) COMMON STOCK 16.5% of net assets AEROSPACE / DEFENSE 0.3% -------------------------------------------------------------------------- The Boeing Co. 8,078 402 Crane Co. 300 9 General Dynamics Corp. 2,000 204 Goodrich Corp. 1,100 34 Lockheed Martin Corp. 4,300 237 Northrop Grumman Corp. 3,592 186 Raytheon Co. 3,900 142 Rockwell Automation, Inc. 1,900 79 Rockwell Collins, Inc. 1,900 68 Textron, Inc. 1,500 102 United Technologies Corp. 5,000 464 ----------- 1,927 AIR TRANSPORTATION 0.2% -------------------------------------------------------------------------- o Delta Air Lines, Inc. 1,300 7 FedEx Corp. 2,920 266 Sabre Holdings Corp., Class A 1,283 28 Southwest Airlines Co. 7,480 118 United Parcel Service, Inc., Class B 10,818 856 ----------- 1,275 ALCOHOLIC BEVERAGES 0.1% -------------------------------------------------------------------------- Adolph Coors Co., Class B 400 27 Anheuser-Busch Cos., Inc. 7,800 389 Brown-Forman Corp., Class B 1,204 54 ----------- 470 APPAREL 0.1% -------------------------------------------------------------------------- o Coach, Inc. 1,800 84 Jones Apparel Group, Inc. 1,200 42 Liz Claiborne, Inc. 1,200 49 Nike, Inc., Class B 2,500 203 Reebok International Ltd. 500 19 VF Corp. 1,200 65 ----------- 462 AUTOMOTIVE PRODUCTS / MOTOR VEHICLES 0.2% -------------------------------------------------------------------------- Cooper Tire & Rubber Co. 700 14 Cummins, Inc. 400 28 Dana Corp. 1,578 23 Danaher Corp. 2,800 154 Delphi Corp. 5,743 48 Eaton Corp. 1,400 90 Ford Motor Co. 18,103 236 General Motors Corp. 5,425 209 Genuine Parts Co. 1,800 72 o Goodyear Tire & Rubber Co. 1,600 16 Harley-Davidson, Inc. 3,000 173 o Navistar International Corp. 700 24 Visteon Corp. 1,558 11 ----------- 1,098
See financial notes. 21 SCHWAB MARKETTRACK GROWTH PORTFOLIO PORTFOLIO HOLDINGS continued
VALUE SECURITY AND NUMBER OF SHARES ($ x 1,000) BANKS 1.3% -------------------------------------------------------------------------- AmSouth Bancorp. 3,300 87 Bank of America Corp. 39,124 1,752 The Bank of New York Co., Inc. 7,300 237 BB&T Corp. 5,300 218 Comerica, Inc. 1,700 105 Fifth Third Bancorp 5,369 264 First Horizon National Corp. 1,200 52 Huntington Bancshares, Inc. 2,262 54 JPMorgan Chase & Co. 34,315 1,325 KeyCorp, Inc. 4,400 148 M&T Bank Corp. 1,198 123 Marshall & Ilsley Corp. 2,056 86 Mellon Financial Corp. 4,100 119 National City Corp. 6,100 238 North Fork Bancorp., Inc. 3,000 132 Northern Trust Corp. 2,200 94 PNC Financial Services Group, Inc. 2,800 146 Regions Financial Corp. 4,542 159 SouthTrust Corp. 3,400 148 State Street Corp. 3,300 149 SunTrust Banks, Inc. 3,500 246 Synovus Financial Corp. 2,750 75 U.S. Bancorp 18,662 534 Wachovia Corp. 12,884 634 Wells Fargo & Co. 16,415 980 Zions Bancorp. 900 60 ----------- 8,165 BUSINESS MACHINES & SOFTWARE 1.5% -------------------------------------------------------------------------- Adobe Systems, Inc. 2,400 134 o Apple Computer, Inc. 3,200 168 Autodesk, Inc. 1,200 63 o BMC Software, Inc. 2,400 45 o Cisco Systems, Inc. 66,300 1,274 o Compuware Corp. 3,600 21 o Comverse Technology, Inc. 1,400 29 o Dell, Inc. 24,600 863 o EMC Corp. 23,186 298 o Gateway, Inc. 3,100 18 Hewlett-Packard Co. 29,903 55 International Business Machines Corp. 16,200 1,454 o Lexmark International, Inc., Class A 1,300 108 (8) Microsoft Corp. 104,200 2,917 o NCR Corp. 1,000 56 o Network Appliance, Inc. 3,400 83 o Novell, Inc. 3,200 23 o Oracle Corp. 50,648 641 Pitney Bowes, Inc. 2,300 101 o Siebel Systems, Inc. 4,300 41 o Sun Microsystems, Inc. 30,800 140 o Unisys Corp. 3,100 33 o Xerox Corp. 7,800 115 ----------- 9,183 BUSINESS SERVICES 0.7% -------------------------------------------------------------------------- o Affiliated Computer Services, Inc., Class A 671 37 o Allied Waste Industries, Inc. 3,100 25 o Apollo Group, Inc., Class A 1,700 112 Automatic Data Processing, Inc. 5,700 247 Cendant Corp. 9,532 196 Cintas Corp. 1,638 71 o Citrix Systems, Inc. 1,800 43 Computer Associates International, Inc. 5,625 156 o Computer Sciences Corp. 1,680 83 o Convergys Corp. 1,354 18 Deluxe Corp. 700 27 o eBay, Inc. 6,268 612 Electronic Data Systems Corp. 4,600 98 Equifax, Inc. 1,200 31 First Data Corp. 8,688 359 o Fiserv, Inc. 1,800 64 H&R Block, Inc. 1,700 81 IMS Health, Inc. 2,300 49 o Interpublic Group of Cos., Inc. 3,700 45 o Intuit, Inc. 1,972 90 o Mercury Interactive Corp. 800 35 o Monster Worldwide, Inc. 954 27 Omnicom Group, Inc. 1,800 142 o Parametric Technology Corp. 2,700 14 Paychex, Inc. 3,600 118 o PeopleSoft, Inc. 3,600 75 Robert Half International, Inc. 1,700 45 o SunGard Data Systems, Inc. 2,725 72
22 See financial notes. SCHWAB MARKETTRACK GROWTH PORTFOLIO
VALUE SECURITY AND NUMBER OF SHARES ($ x 1,000) o Symantec Corp. 2,800 159 Tyco International Ltd. 19,303 601 o Veritas Software Corp. 4,200 92 Waste Management, Inc. 5,517 157 o Yahoo! Inc. 12,600 456 ----------- 4,437 CHEMICALS 0.3% -------------------------------------------------------------------------- Air Products & Chemicals, Inc. 2,300 122 Dow Chemical Co. 8,994 404 E.I. du Pont de Nemours & Co. 9,592 411 Eastman Chemical Co. 800 38 Ecolab, Inc. 2,800 95 Great Lakes Chemical Corp. 600 15 o Hercules, Inc. 900 13 Monsanto Co. 2,493 107 PPG Industries, Inc. 1,500 96 Praxair, Inc. 3,200 135 Rohm & Haas Co. 2,205 94 Sigma-Aldrich Corp. 600 33 ----------- 1,563 CONSTRUCTION 0.1% -------------------------------------------------------------------------- Centex Corp. 1,200 62 Fluor Corp. 800 37 KB Home 400 33 Masco Corp. 4,500 154 Pulte Homes, Inc. 1,400 77 The Sherwin-Williams Co. 1,200 51 The Stanley Works 600 27 Vulcan Materials Co. 800 40 ----------- 481 CONSUMER DURABLES 0.0% -------------------------------------------------------------------------- Black & Decker Corp. 900 72 Leggett & Platt, Inc. 2,000 56 Maytag Corp. 900 16 Newell Rubbermaid, Inc. 2,745 59 Whirlpool Corp. 800 47 ----------- 250 CONTAINERS 0.0% -------------------------------------------------------------------------- Ball Corp. 800 32 Bemis Co. 1,000 26 o Pactiv Corp. 1,500 36 o Sealed Air Corp. 882 44 ----------- 138 ELECTRONICS 0.8% -------------------------------------------------------------------------- o ADC Telecommunications, Inc. 6,000 13 o Advanced Micro Devices, Inc. 2,840 48 o Agilent Technologies, Inc. 4,437 111 o Altera Corp. 3,680 84 American Power Conversion Corp. 1,725 33 Analog Devices, Inc. 3,400 137 o Andrew Corp. 1,550 22 o Applied Materials, Inc. 16,200 261 o Applied Micro Circuits Corp. 2,862 10 o Broadcom Corp., Class A 2,900 78 o CIENA Corp. 3,200 8 Intel Corp. 62,800 1,398 ITT Industries, Inc. 900 73 o Jabil Circuit, Inc. 1,998 49 o JDS Uniphase Corp. 12,589 40 o KLA-Tencor Corp. 1,800 82 Linear Technology Corp. 3,000 114 o LSI Logic Corp. 3,000 14 o Lucent Technologies, Inc. 40,092 142 Maxim Integrated Products, Inc. 3,100 136 o Micron Technology, Inc. 5,400 66 Molex, Inc. 1,875 55 Motorola, Inc. 22,631 391 o National Semiconductor Corp. 3,400 57 o Novellus Systems, Inc. 1,325 34 o Nvidia Corp. 1,400 20 PerkinElmer, Inc. 1,000 21 o PMC--Sierra, Inc. 1,600 16 o Power-One, Inc. 400 3 o QLogic Corp. 869 28 Qualcomm, Inc. 15,200 635 o Sanmina--SCI Corp. 5,000 40 Scientific-Atlanta, Inc. 1,600 44 o Solectron Corp. 7,900 41 Symbol Technologies, Inc. 1,908 28 Tektronix, Inc. 900 27 o Tellabs, Inc. 4,000 32 o Teradyne, Inc. 1,700 28
See financial notes. 23 SCHWAB MARKETTRACK GROWTH PORTFOLIO PORTFOLIO HOLDINGS continued
VALUE SECURITY AND NUMBER OF SHARES ($ x 1,000) Texas Instruments, Inc. 16,800 411 o Thermo Electron Corp. 1,300 38 o Thomas & Betts Corp. 281 8 o Waters Corp. 1,300 54 Xilinx, Inc. 3,200 98 ----------- 5,028 ENERGY: RAW MATERIALS 0.3% -------------------------------------------------------------------------- Anadarko Petroleum Corp. 2,418 163 Apache Corp. 3,308 168 Baker Hughes, Inc. 2,960 127 o BJ Services Co. 1,500 77 Burlington Resources, Inc. 3,810 158 Devon Energy Corp. 2,300 170 EOG Resources, Inc. 1,128 75 Halliburton Co. 4,158 154 o Noble Corp. 1,300 59 Occidental Petroleum Corp. 3,600 201 o Rowan Cos., Inc. 600 15 Schlumberger Ltd. 5,700 359 Valero Energy Corp. 2,400 103 ----------- 1,829 FOOD & AGRICULTURE 0.6% -------------------------------------------------------------------------- Archer-Daniels-Midland Co. 6,532 126 Campbell Soup Co. 4,200 113 The Coca-Cola Co. 23,500 955 Coca-Cola Enterprises, Inc. 4,000 84 ConAgra Foods, Inc. 4,900 129 General Mills, Inc. 3,576 158 H.J. Heinz Co. 3,400 124 Hershey Foods Corp. 2,400 122 Kellogg Co. 3,900 168 McCormick & Co., Inc. 1,400 50 The Pepsi Bottling Group, Inc. 2,832 79 PepsiCo, Inc. 16,460 816 Sara Lee Corp. 7,600 177 Supervalu, Inc. 1,400 41 Sysco Corp. 6,200 200 Wm. Wrigley Jr. Co. 2,200 144 ----------- 3,486 GOLD 0.0% -------------------------------------------------------------------------- Newmont Mining Corp. 4,201 200 HEALTHCARE / DRUGS & MEDICINE 2.0% -------------------------------------------------------------------------- Abbott Laboratories 15,300 652 Allergan, Inc. 1,300 93 AmerisourceBergen Corp. 1,000 55 o Amgen, Inc. 12,488 709 o Anthem, Inc. 1,351 109 Applied Biosystems Group -- Applera Corp. 2,000 38 Bausch & Lomb, Inc. 600 37 Baxter International, Inc. 5,600 172 Becton Dickinson & Co. 2,600 136 o Biogen Idec, Inc. 3,125 182 Biomet, Inc. 2,475 116 o Boston Scientific Corp. 8,148 288 Bristol-Myers Squibb Co. 19,000 445 C.R. Bard, Inc. 800 45 Cardinal Health, Inc. 4,100 192 o Caremark Rx, Inc. 3,570 107 o Chiron Corp. 1,800 58 Eli Lilly & Co. 10,900 599 o Express Scripts, Inc. 800 51 o Forest Laboratories, Inc. 3,400 152 o Genzyme Corp. 2,100 110 o Gilead Sciences, Inc. 3,800 132 Guidant Corp. 3,000 200 HCA, Inc. 5,000 184 Health Management Associates, Inc., Class A 2,400 50 o Hospira, Inc. 1,530 49 o Humana, Inc. 1,400 27 Johnson & Johnson 28,554 1,667 o King Pharmaceuticals, Inc. 2,133 23 Manor Care, Inc. 1,100 36 McKesson Corp. 2,654 71 o Medco Health Solutions, Inc. 2,641 90 o Medimmune, Inc. 2,400 68 Medtronic, Inc. 11,800 603 Merck & Co., Inc. 21,600 676 Mylan Laboratories, Inc. 2,600 45 Pfizer, Inc. 73,476 2,127 Quest Diagnostics 1,101 96 Schering-Plough Corp. 14,100 255 o St. Jude Medical, Inc. 1,750 134
24 See financial notes. SCHWAB MARKETTRACK GROWTH PORTFOLIO
VALUE SECURITY AND NUMBER OF SHARES ($ x 1,000) Stryker Corp. 3,784 163 o Tenet Healthcare Corp. 4,650 50 UnitedHealth Group, Inc. 6,300 456 o Watson Pharmaceuticals, Inc. 1,000 28 o WellPoint Health Networks, Inc. 1,400 137 Wyeth 13,100 519 o Zimmer Holdings, Inc. 2,300 178 ----------- 12,410 HOUSEHOLD PRODUCTS 0.4% -------------------------------------------------------------------------- Alberto-Culver Co., Class B 900 40 Avon Products, Inc. 4,800 190 Clorox Co. 2,200 120 Colgate-Palmolive Co. 5,300 237 The Gillette Co. 9,700 402 International Flavors & Fragrances, Inc. 1,100 43 Procter & Gamble Co. 25,000 1,280 ----------- 2,312 INSURANCE 0.8% -------------------------------------------------------------------------- ACE Ltd. 2,500 95 Aetna, Inc. 1,424 135 AFLAC, Inc. 5,200 187 The Allstate Corp. 7,000 337 AMBAC Financial Group, Inc. 1,015 79 American International Group, Inc. 25,251 1,533 AON Corp. 2,625 54 Chubb Corp. 1,700 123 CIGNA Corp. 1,400 89 Cincinnati Financial Corp. 1,890 79 Hartford Financial Services Group, Inc. 2,700 158 Jefferson-Pilot Corp. 1,412 68 Lincoln National Corp. 1,900 83 Loews Corp. 1,900 114 Marsh & McLennan Cos., Inc. 5,200 144 MBIA, Inc. 1,350 78 Metlife, Inc. 7,310 280 MGIC Investment Corp. 900 58 Principal Financial Group, Inc. 3,065 116 The Progressive Corp. 2,100 196 Prudential Financial, Inc. 5,200 242 Safeco Corp. 1,100 51 The St. Paul Travelors Cos., Inc. 6,453 219 Torchmark Corp. 1,100 59 UnumProvident Corp. 2,349 32 XL Capital Ltd., Class A 1,300 94 ----------- 4,703 MEDIA 0.6% -------------------------------------------------------------------------- Clear Channel Communications, Inc. 6,017 201 o Comcast Corp., Class A 21,843 644 Dow Jones & Co., Inc. 800 35 Gannett Co., Inc. 2,700 224 Knight-Ridder, Inc. 900 62 The McGraw-Hill Cos., Inc. 1,900 164 Meredith Corp. 500 24 New York Times Co., Class A 1,400 56 R.R. Donnelley & Sons Co. 2,100 66 o Time Warner, Inc. 44,150 735 Tribune Co. 3,100 134 o Univision Communications, Inc., Class A 3,104 96 Viacom, Inc., Class B 16,981 620 The Walt Disney Co. 19,619 495 ----------- 3,556 MISCELLANEOUS 0.1% -------------------------------------------------------------------------- 3M Co. 7,600 589 MISCELLANEOUS FINANCE 1.3% -------------------------------------------------------------------------- American Express Co. 12,400 658 The Bear Stearns Cos., Inc. 882 84 Capital One Financial Corp. 2,100 155 / The Charles Schwab Corp. 13,042 119 CIT Group, Inc. 2,000 81 (9) Citigroup, Inc. 49,792 2,209 Countrywide Financial Corp. 5,298 169 o E*TRADE Financial Corp. 3,500 45 Fannie Mae 9,400 659 Federated Investors, Inc., Class B 1,100 32 Franklin Resources, Inc. 2,500 151 Freddie Mac 6,600 440 Golden West Financial Corp. 1,400 164 Goldman Sachs Group, Inc. 4,579 450
See financial notes. 25 SCHWAB MARKETTRACK GROWTH PORTFOLIO PORTFOLIO HOLDINGS continued
VALUE SECURITY AND NUMBER OF SHARES ($ x 1,000) Janus Capital Group, Inc. 2,200 33 Lehman Brothers Holdings, Inc. 2,600 214 MBNA Corp. 12,550 322 Merrill Lynch & Co., Inc. 9,400 507 Moody's Corp. 1,500 117 Morgan Stanley 10,600 542 o Providian Financial Corp. 2,900 45 SLM Corp. 4,500 204 Sovereign Bancorp, Inc. 2,700 58 T. Rowe Price Group, Inc. 1,200 67 Washington Mutual, Inc. 8,682 336 ----------- 7,861 NON-DURABLES & ENTERTAINMENT 0.2% -------------------------------------------------------------------------- Darden Restaurants, Inc. 1,800 44 o Electronic Arts, Inc. 2,866 129 Fortune Brands, Inc. 1,400 102 Hasbro, Inc. 1,650 29 International Game Technology 3,400 112 Mattel, Inc. 4,150 73 McDonald's Corp. 12,400 362 o Starbucks Corp. 3,560 188 Wendy's International, Inc. 1,000 33 Yum! Brands, Inc. 3,120 136 ----------- 1,208 NON-FERROUS METALS 0.1% -------------------------------------------------------------------------- Alcoa, Inc. 8,472 275 Engelhard Corp. 1,300 37 Freeport-McMoran Copper & Gold, Inc., Class B 1,700 62 Phelps Dodge Corp. 810 71 ----------- 445 OIL: DOMESTIC 0.2% -------------------------------------------------------------------------- Amerada Hess Corp. 1,000 81 Ashland, Inc. 800 46 ConocoPhillips 6,546 552 Kerr-McGee Corp. 1,269 75 Marathon Oil Corp. 3,100 118 o Nabors Industries Ltd. 1,400 69 Sunoco, Inc. 900 67 o Transocean, Inc. 2,945 104 Unocal Corp. 2,400 100 ----------- 1,212 OIL: INTERNATIONAL 0.7% -------------------------------------------------------------------------- ChevronTexaco Corp. 20,654 1,096 (7) Exxon Mobil Corp. 63,158 3,108 ----------- 4,204 OPTICAL & PHOTO 0.0% -------------------------------------------------------------------------- o Corning, Inc. 12,300 141 Eastman Kodak Co. 3,100 94 ----------- 235 PAPER & FOREST PRODUCTS 0.1% -------------------------------------------------------------------------- o Boise Cascade Corp. 700 21 Georgia-Pacific Corp. 2,228 77 International Paper Co. 4,846 187 Kimberly-Clark Corp. 4,960 296 Louisiana-Pacific Corp. 600 15 MeadWestvaco Corp. 1,970 62 Temple-Inland, Inc. 600 35 Weyerhaeuser Co. 2,300 144 ----------- 837 PRODUCER GOODS & MANUFACTURING 0.9% -------------------------------------------------------------------------- o American Standard Cos., Inc. 2,100 77 Avery Dennison Corp. 1,200 73 Caterpillar, Inc. 3,300 266 Cooper Industries Ltd., Class A 900 57 Deere & Co. 2,300 137 Dover Corp. 2,000 79 Emerson Electric Co. 4,000 256 o Fisher Scientific International, Inc. 1,115 64 (6) General Electric Co. 101,500 3,463 Honeywell International, Inc. 8,437 284 Illinois Tool Works, Inc. 3,000 277 Ingersoll-Rand Co., Class A 1,650 113 Johnson Controls, Inc. 1,800 103 o Millipore Corp. 400 18 Pall Corp. 1,000 26 Parker Hannifin Corp. 1,150 81 Snap-On, Inc. 600 18 W.W. Grainger, Inc. 900 53 ----------- 5,445 RAILROAD & SHIPPING 0.1% -------------------------------------------------------------------------- Burlington Northern Santa Fe Corp. 3,800 159 CSX Corp. 2,200 80
26 See financial notes. SCHWAB MARKETTRACK GROWTH PORTFOLIO
VALUE SECURITY AND NUMBER OF SHARES ($ x 1,000) Norfolk Southern Corp. 3,600 122 Union Pacific Corp. 2,500 158 ----------- 519 REAL PROPERTY 0.1% -------------------------------------------------------------------------- Apartment Investment & Management Co., Class A 900 33 Equity Office Properties Trust 3,900 109 Equity Residential 2,600 87 Plum Creek Timber Co., Inc. 1,700 62 ProLogis 1,700 66 Simon Property Group, Inc. 1,700 99 ----------- 456 RETAIL 1.1% -------------------------------------------------------------------------- Albertson's, Inc. 3,538 81 o Autonation, Inc. 3,000 52 o AutoZone, Inc. 800 65 o Bed, Bath & Beyond, Inc. 2,800 114 Best Buy Co., Inc. 3,150 187 o Big Lots, Inc. 1,100 14 Circuit City Stores, Inc. 2,000 33 Costco Wholesale Corp. 4,400 211 CVS Corp. 3,900 169 Dillards, Inc., Class A 500 10 Dollar General Corp. 3,303 64 Family Dollar Stores, Inc. 1,700 50 Federated Department Stores, Inc. 1,700 86 The Gap, Inc. 8,300 166 Home Depot, Inc. 21,700 891 J.C. Penney Co., Inc. Holding Co. 2,500 86 o Kohl's Corp. 3,200 162 o Kroger Co. 7,200 109 Limitedbrands 4,994 124 Lowe's Cos., Inc. 7,600 428 The May Department Stores Co. 2,800 73 Nordstrom, Inc. 1,300 56 o Office Depot, Inc. 3,300 53 RadioShack Corp. 1,900 57 o Safeway, Inc. 4,200 77 Sears, Roebuck & Co. 2,100 74 Staples, Inc. 4,750 141 Target Corp. 8,800 440 Tiffany & Co. 1,400 41 TJX Cos., Inc. 5,200 125 o Toys `R' Us, Inc. 2,600 47 (10) Wal-Mart Stores, Inc. 40,900 2,205 Walgreen Co. 9,900 355 Winn-Dixie Stores, Inc. 1,500 5 ----------- 6,851 STEEL 0.0% -------------------------------------------------------------------------- Allegheny Technologies, Inc. 735 12 Nucor Corp. 1,800 76 United States Steel Corp. 900 33 Worthington Industries, Inc. 900 18 ----------- 139 TELEPHONE 0.5% -------------------------------------------------------------------------- Alltel Corp. 3,100 170 AT&T Corp. 7,358 126 o Avaya, Inc. 4,132 59 BellSouth Corp. 17,800 475 CenturyTel, Inc. 1,350 43 o Citizens Communications Co. 2,576 35 o Nextel Communications, Inc., Class A 10,600 281 o Qwest Communications International, Inc. 15,773 54 SBC Communications, Inc. 32,336 817 Sprint Corp. (FON Group) 13,000 272 Verizon Communications, Inc. 26,758 1,046 ----------- 3,378 TOBACCO 0.2% -------------------------------------------------------------------------- Altria Group, Inc. 19,800 960 Reynolds American, Inc. 1,442 99 UST, Inc. 1,600 66 ----------- 1,125 TRAVEL & RECREATION 0.1% -------------------------------------------------------------------------- Brunswick Corp. 900 42 Carnival Corp. 6,100 308 Harrah's Entertainment, Inc. 1,200 70 Hilton Hotels Corp. 3,600 72 Marriott International, Inc., Class A 2,200 120 Starwood Hotels & Resorts Worldwide, Inc. 1,900 91 ----------- 703
See financial notes. 27 SCHWAB MARKETTRACK GROWTH PORTFOLIO PORTFOLIO HOLDINGS continued
VALUE SECURITY AND NUMBER OF SHARES ($ x 1,000) TRUCKING & FREIGHT 0.0% -------------------------------------------------------------------------- Paccar, Inc. 1,575 109 Ryder Systems, Inc. 400 20 ----------- 129 UTILITIES: ELECTRIC & GAS 0.5% -------------------------------------------------------------------------- o The AES Corp. 6,000 65 o Allegheny Energy, Inc. 1,070 20 Ameren Corp. 1,800 86 American Electric Power Co., Inc. 3,860 127 o Calpine Corp. 2,700 7 Centerpoint Energy, Inc. 2,949 31 Cinergy Corp. 1,600 63 o CMS Energy Corp. 1,000 9 Consolidated Edison, Inc. 2,100 91 Constellation Energy Group, Inc. 1,700 69 Dominion Resources, Inc. 3,078 198 DTE Energy Co. 1,400 60 Duke Energy Corp. 8,852 217 o Dynegy, Inc., Class A 3,100 15 Edison International 3,200 98 El Paso Corp. 5,006 45 Entergy Corp. 2,400 157 Exelon Corp. 6,224 247 FirstEnergy Corp. 3,195 132 FPL Group, Inc. 1,900 131 KeySpan Corp. 1,300 52 Kinder Morgan, Inc. 1,107 71 Nicor, Inc. 500 19 NiSource, Inc. 2,646 57 Peoples Energy Corp. 200 9 o PG&E Corp. 4,000 128 Pinnacle West Capital Corp. 800 34 PPL Corp. 1,800 94 Progress Energy, Inc. 2,475 102 Public Service Enterprise Group, Inc. 2,300 98 Sempra Energy 2,103 70 The Southern Co. 7,200 227 TECO Energy, Inc. 1,300 18 TXU Corp. 2,767 169 Williams Cos., Inc. 5,000 63 Xcel Energy, Inc. 3,850 66 ----------- 3,145 OTHER INVESTMENT COMPANIES 83.1% of net assets /(3) Schwab International Index Fund, Select Shares 8,331,435 123,555 /(1) Schwab S&P 500 Fund, Select Shares 8,151,944 144,127 /(2) Schwab Small-Cap Index Fund, Select Shares 6,200,618 123,764 /(4) Schwab Total Bond Market Fund 8,901,276 90,793 /(5) Schwab Value Advantage Money Fund, Investor Shares 27,380,154 27,380 ----------- 509,619
SECURITY FACE AMOUNT RATE, MATURITY DATE ($ x 1,000) SHORT-TERM INVESTMENT 0.4% of net assets HSBC Bank, USA Grand Cayman Time Deposit 1.29%, 11/01/04 2,653 2,653
END OF INVESTMENTS. 28 See financial notes. SCHWAB MARKETTRACK GROWTH PORTFOLIO Statement of ASSETS AND LIABILITIES As of October 31, 2004. All numbers x 1,000 except NAV. ASSETS -------------------------------------------------------------------------------- Investments, at value $613,726 a Receivables: Fund shares sold 463 Interest 1 Dividends 399 Prepaid expenses + 14 ------------ TOTAL ASSETS 614,603 LIABILITIES -------------------------------------------------------------------------------- Payables: Fund shares redeemed 347 Investments bought 323 Investment adviser and administrator fees 10 Transfer agent and shareholder service fees 13 Trustees' fees 1 Accrued expenses + 81 ------------ TOTAL LIABILITIES 775 NET ASSETS -------------------------------------------------------------------------------- TOTAL ASSETS 614,603 TOTAL LIABILITIES - 775 ------------ NET ASSETS $613,828 NET ASSETS BY SOURCE Capital received from investors 555,835 Net investment income not yet distributed 1,494 Net realized capital losses (24,667) Net unrealized capital gains 81,166 NET ASSET VALUE (NAV) SHARES NET ASSETS / OUTSTANDING = NAV $613,828 39,421 $15.57
Unless stated, all numbers x 1,000. a The fund paid $532,560 for these securities. Not counting short-term obligations and government securities, the fund's security transactions during the period were: Purchases $50,952 Sales/maturities $64,598 The fund's total security transactions with other SchwabFunds(R) during the period were $93. Percent of fund shares of other Schwab funds owned at the end of the report period: SCHWAB EQUITY INDEX FUNDS S&P 500 Fund 1.7% Small-Cap Index Fund 7.6% International Index Fund 10.0% SCHWAB BOND FUNDS Total Bond Market Fund 8.6% SCHWAB MONEY FUNDS Value Advantage Money Fund 0.1% FEDERAL TAX DATA ------------------------------------------------------- PORTFOLIO COST $537,346 NET UNREALIZED GAINS AND LOSSES: Gains $96,660 Losses + (20,280) ------------ $76,380 AS OF OCTOBER 31, 2004: NET UNDISTRIBUTED EARNINGS: Ordinary income $1,494 Long-term capital gains $-- UNUSED CAPITAL LOSSES: Expires 10/31 of: Loss amount 2010 $1,799 2011 16,068 2012 + 2,014 ------------ $19,881 See financial notes. 29 SCHWAB MARKETTRACK GROWTH PORTFOLIO Statement of OPERATIONS For November 1, 2003 through October 31, 2004. All numbers x 1,000. INVESTMENT INCOME -------------------------------------------------------------------------------- Dividends $11,305 Interest + 6 ----------- TOTAL INVESTMENT INCOME 11,311 NET REALIZED GAINS AND LOSSES -------------------------------------------------------------------------------- Net realized losses on investments (2,288) Net realized gains received from underlying funds + 1,577 ----------- NET REALIZED LOSSES (711) NET UNREALIZED GAINS AND LOSSES -------------------------------------------------------------------------------- Net unrealized gains on investments 48,907 EXPENSES -------------------------------------------------------------------------------- Investment adviser and administrator fees 2,642 a Transfer agent and shareholder service fees 1,533 b Trustees' fees 9 c Custodian fees 46 Portfolio accounting fees 83 Professional fees 34 Registration fees 22 Shareholder reports 97 Other expenses + 11 ----------- Total expenses 4,477 Expense reduction - 1,411 d ----------- NET EXPENSES 3,066 INCREASE IN NET ASSETS FROM OPERATIONS -------------------------------------------------------------------------------- TOTAL INVESTMENT INCOME 11,311 NET EXPENSES - 3,066 ----------- NET INVESTMENT INCOME 8,245 NET REALIZED LOSSES (711) e NET UNREALIZED GAINS + 48,907 e ----------- INCREASE IN NET ASSETS FROM OPERATIONS $56,441
Unless stated, all numbers x 1,000. a Calculated as a percentage of average daily net assets: 0.44% of the first $500 million and 0.39% of assets beyond that. These fees are paid to Charles Schwab Investment Management, Inc. (CSIM). b 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. These fees are paid to Charles Schwab & Co., Inc. (Schwab). c For the fund's independent trustees only. d This reduction was made by the investment adviser (CSIM). It reflects a guarantee by CSIM and the transfer agent and shareholder service agent (Schwab) to limit the operating expenses of this fund through February 28, 2005, to 0.50% of average daily net assets. This limit excludes interest, taxes and certain non-routine expenses. e These add up to a net gain on investments of $48,196. 30 See financial notes. SCHWAB MARKETTRACK GROWTH PORTFOLIO Statements of CHANGES IN NET ASSETS For the current and prior report periods. All numbers x 1,000
OPERATIONS -------------------------------------------------------------------------------- 11/1/03-10/31/04 11/1/02-10/31/03 Net investment income $8,245 $7,781 Net realized losses (711) (13,734) Net unrealized gains + 48,907 107,668 ---------------------------------------- INCREASE IN NET ASSETS FROM OPERATIONS 56,441 101,715 DISTRIBUTIONS PAID -------------------------------------------------------------------------------- Dividends from net investment income $8,251 $8,524 a,b
TRANSACTIONS IN FUND SHARES -------------------------------------------------------------------------------- 11/1/03-10/31/04 11/1/02-10/31/03 SHARES VALUE SHARES VALUE Shares sold 6,342 $95,944 5,664 $72,375 Shares reinvested 547 8,044 694 8,339 Shares redeemed + (7,686) (116,063) (8,438) (105,988) --------------------------------------------------- NET TRANSACTIONS IN FUND SHARES (797) ($12,075) (2,080) ($25,274)
SHARES OUTSTANDING AND NET ASSETS -------------------------------------------------------------------------------- 11/1/03-10/31/04 11/1/02-10/31/03 SHARES NET ASSETS SHARES NET ASSETS Beginning of period 40,218 $577,713 42,298 $509,796 Total increase or decrease + (797) 36,115 (2,080) 67,917 c --------------------------------------------------- END OF PERIOD 39,421 $613,828 40,218 $577,713 d
Unless stated, all numbers x 1,000. a UNAUDITED For corporations, 54% of the fund's dividends for the report period qualify for the dividends-received deduction. The fund designates $6,411 of the dividend distribution for the fiscal year ended 10/31/04 as qualified dividends for the purpose of the maximum rate under Section 1(h)(ii) of the Internal Revenue Code. Shareholders will be notified in January 2005 via IRS Form 1099 of the amounts for use in preparing their 2004 income tax return. b The tax-basis components of distributions are: CURRENT PERIOD Ordinary income $8,251 Long-term capital gains $-- PRIOR PERIOD Ordinary income $8,524 Long-term capital gains $-- c Figures for shares represent shares sold plus shares reinvested, minus shares redeemed. Figures for net assets represent the changes in net assets from operations plus the changes in value of transactions in fund shares, minus distributions paid. d Includes distributable net investment income in the amount of $1,494 and $1,500 at the end of the current period and prior period, respectively. See financial notes. 31 SCHWAB MARKETTRACK BALANCED PORTFOLIO(TM) FINANCIAL STATEMENTS FINANCIAL HIGHLIGHTS
11/1/03- 11/1/02- 11/1/01- 11/1/00- 11/1/99- 10/31/04 10/31/03 10/31/02 10/31/01 10/31/00 ----------------------------------------------------------------------------------------------------------------------------- PER-SHARE DATA ($) ----------------------------------------------------------------------------------------------------------------------------- Net asset value at beginning of period 13.78 12.05 13.47 15.53 14.85 ------------------------------------------------------------------------- Income or loss from investment operations: Net investment income 0.29 0.25 0.32 0.45 0.36 Net realized and unrealized gains or losses 0.88 1.77 (1.22) (1.92) 0.69 ------------------------------------------------------------------------- Total income or loss from investment operations 1.17 2.02 (0.90) (1.47) 1.05 Less distributions: Dividends from net investment income (0.29) (0.29) (0.40) (0.49) (0.28) Distributions from net realized gains -- -- (0.12) (0.10) (0.09) ------------------------------------------------------------------------- Total distributions (0.29) (0.29) (0.52) (0.59) (0.37) ------------------------------------------------------------------------- Net asset value at end of period 14.66 13.78 12.05 13.47 15.53 ------------------------------------------------------------------------- Total return (%) 8.61 17.12 (7.08) (9.72) 7.11 RATIOS/SUPPLEMENTAL DATA (%) ----------------------------------------------------------------------------------------------------------------------------- Ratios to average net assets: Net operating expenses 1 0.50 0.50 0.50 0.50 0.57 2 Gross operating expenses 1 0.74 0.74 0.74 0.74 0.82 Net investment income 2.03 1.98 2.35 3.31 2.46 Portfolio turnover rate 11 17 31 21 18 Net assets, end of period ($ x 1,000,000) 541 516 462 497 510
1 The expenses incurred by underlying funds in which the portfolio invests are not included in this ratio. The income received by the portfolio from underlying funds is reduced by those expenses. 2 The ratio of net operating expenses would have been 0.56% if certain non-routine expenses (proxy fees) had not been included. 32 See financial notes. SCHWAB MARKETTRACK BALANCED PORTFOLIO PORTFOLIO HOLDINGS as of October 31, 2004 This section shows all the securities in the fund's portfolio by industry classification and their value, as of the report date. The fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The fund's Form N-Q is available on the SEC's website at http://www.sec.gov and may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Call 1-800-SEC-0330 for information on the operation of the Public Reference Room. The schedule of portfolio holdings filed on the fund's most recent Form N-Q is available by visiting Schwab's website at www.schwab.com/schwabfunds. We use the symbols below to designate certain characteristics of the securities. With the top ten holdings, the number in the circle is the security's rank among the top ten. (1) Top Ten Holding o Non-income producing security / Issuer is affiliated with the fund's adviser
COST VALUE HOLDINGS BY CATEGORY ($x1,000) ($x1,000) -------------------------------------------------------------------------------- 86.9% OTHER INVESTMENT COMPANIES 427,200 470,527 12.6% COMMON STOCK 46,967 68,085 0.5% SHORT-TERM INVESTMENT 2,590 2,590 -------------------------------------------------------------------------------- 100.0% TOTAL INVESTMENTS 476,757 541,202 0.0% OTHER ASSETS AND LIABILITIES, NET (12) -------------------------------------------------------------------------------- 100.0% TOTAL NET ASSETS 541,190
VALUE SECURITY AND NUMBER OF SHARES ($ x 1,000) COMMON STOCK 12.6% of net assets AEROSPACE / DEFENSE 0.2% -------------------------------------------------------------------------- The Boeing Co. 5,484 273 Crane Co. 200 5 General Dynamics Corp. 1,300 133 Goodrich Corp. 700 22 Lockheed Martin Corp. 2,900 160 Northrop Grumman Corp. 2,256 117 Raytheon Co. 2,600 95 Rockwell Automation, Inc. 1,200 50 Rockwell Collins, Inc. 1,200 42 Textron, Inc. 1,000 68 United Technologies Corp. 3,300 306 ----------- 1,271 AIR TRANSPORTATION 0.2% -------------------------------------------------------------------------- o Delta Air Lines, Inc. 900 5 FedEx Corp. 1,960 178 Sabre Holdings Corp., Class A 922 20 Southwest Airlines Co. 5,137 81 United Parcel Service, Inc., Class B 7,385 585 ----------- 869 ALCOHOLIC BEVERAGES 0.1% -------------------------------------------------------------------------- Adolph Coors Co., Class B 200 13 Anheuser-Busch Cos., Inc. 5,200 260 Brown-Forman Corp., Class B 804 36 ----------- 309 APPAREL 0.1% -------------------------------------------------------------------------- o Coach, Inc. 1,200 56 Jones Apparel Group, Inc. 800 28 Liz Claiborne, Inc. 800 33 Nike, Inc., Class B 1,700 138 Reebok International Ltd. 300 11 VF Corp. 800 43 ----------- 309 AUTOMOTIVE PRODUCTS / MOTOR VEHICLES 0.1% -------------------------------------------------------------------------- Cooper Tire & Rubber Co. 400 8 Cummins, Inc. 300 21 Dana Corp. 1,085 16 Danaher Corp. 2,000 110 Delphi Corp. 3,884 33 Eaton Corp. 1,000 64 Ford Motor Co. 12,185 159 General Motors Corp. 3,650 141 Genuine Parts Co. 1,150 46 o Goodyear Tire & Rubber Co. 1,000 10 Harley-Davidson, Inc. 2,000 115 o Navistar International Corp. 400 14 Visteon Corp. 1,047 7 ----------- 744
See financial notes. 33 SCHWAB MARKETTRACK BALANCED PORTFOLIO PORTFOLIO HOLDINGS continued
VALUE SECURITY AND NUMBER OF SHARES ($ x 1,000) BANKS 1.0% -------------------------------------------------------------------------- AmSouth Bancorp. 2,600 69 Bank of America Corp. 26,286 1,177 The Bank of New York Co., Inc. 4,900 159 BB&T Corp. 3,600 148 Comerica, Inc. 1,100 68 Fifth Third Bancorp 3,658 180 First Horizon National Corp. 800 35 Huntington Bancshares, Inc. 1,597 38 JPMorgan Chase & Co. 22,713 877 KeyCorp, Inc. 2,600 87 M&T Bank Corp. 800 82 Marshall & Ilsley Corp. 1,344 56 Mellon Financial Corp. 2,800 81 National City Corp. 4,100 160 North Fork Bancorp., Inc. 2,000 88 Northern Trust Corp. 1,400 60 PNC Financial Services Group, Inc. 1,900 99 Regions Financial Corp. 3,078 108 SouthTrust Corp. 2,200 96 State Street Corp. 2,200 99 SunTrust Banks, Inc. 2,300 162 Synovus Financial Corp. 1,900 52 U.S. Bancorp 12,554 359 Wachovia Corp. 8,536 420 Wells Fargo & Co. 10,835 647 Zions Bancorp. 600 40 ----------- 5,447 BUSINESS MACHINES & SOFTWARE 1.1% -------------------------------------------------------------------------- Adobe Systems, Inc. 1,600 90 o Apple Computer, Inc. 2,200 116 Autodesk, Inc. 800 42 o BMC Software, Inc. 1,600 30 o Cisco Systems, Inc. 44,500 855 o Compuware Corp. 2,400 14 o Comverse Technology, Inc. 1,000 21 o Dell, Inc. 16,500 579 o EMC Corp. 15,562 200 o Gateway, Inc. 2,100 12 Hewlett-Packard Co. 19,724 368 International Business Machines Corp. 10,800 969 o Lexmark International, Inc., Class A 800 66 (8) Microsoft Corp. 69,800 1,954 o NCR Corp. 600 34 o Network Appliance, Inc. 2,000 49 o Novell, Inc. 2,200 16 o Oracle Corp. 34,000 430 Pitney Bowes, Inc. 1,600 70 o Siebel Systems, Inc. 3,000 29 o Sun Microsystems, Inc. 20,800 94 o Unisys Corp. 2,100 22 o Xerox Corp. 5,200 77 ----------- 6,137 BUSINESS SERVICES 0.6% -------------------------------------------------------------------------- o Affiliated Computer Services, Inc., Class A 465 25 o Allied Waste Industries, Inc. 2,100 17 o Apollo Group, Inc., Class A 1,100 73 Automatic Data Processing, Inc. 3,900 169 Cendant Corp. 6,415 132 Cintas Corp. 1,102 48 o Citrix Systems, Inc. 1,200 29 Computer Associates International, Inc. 3,825 106 o Computer Sciences Corp. 1,090 54 o Convergys Corp. 869 11 Deluxe Corp. 500 19 o eBay, Inc. 4,208 411 Electronic Data Systems Corp. 3,100 66 Equifax, Inc. 900 23 First Data Corp. 5,704 235 o Fiserv, Inc. 1,200 43 H&R Block, Inc. 1,200 57 IMS Health, Inc. 1,500 32 o Interpublic Group of Cos., Inc. 2,500 31 o Intuit, Inc. 1,327 60 o Mercury Interactive Corp. 500 22 o Monster Worldwide, Inc. 666 19 Omnicom Group, Inc. 1,200 95 o Parametric Technology Corp. 1,800 9 Paychex, Inc. 2,475 81 o PeopleSoft, Inc. 2,400 50 Robert Half International, Inc. 1,200 32 o SunGard Data Systems, Inc. 1,832 48
34 See financial notes. SCHWAB MARKETTRACK BALANCED PORTFOLIO
VALUE SECURITY AND NUMBER OF SHARES ($ x 1,000) o Symantec Corp. 1,998 114 Tyco International Ltd. 12,949 403 o Veritas Software Corp. 2,600 57 Waste Management, Inc. 3,712 106 o Yahoo! Inc. 8,400 304 ----------- 2,981 CHEMICALS 0.2% -------------------------------------------------------------------------- Air Products & Chemicals, Inc. 1,500 80 Dow Chemical Co. 6,049 272 E.I. du Pont de Nemours & Co. 6,484 278 Eastman Chemical Co. 600 28 Ecolab, Inc. 2,000 68 Great Lakes Chemical Corp. 400 10 o Hercules, Inc. 700 10 Monsanto Co. 1,727 74 PPG Industries, Inc. 1,200 77 Praxair, Inc. 2,000 84 Rohm & Haas Co. 1,421 60 Sigma-Aldrich Corp. 500 28 ----------- 1,069 CONSTRUCTION 0.1% -------------------------------------------------------------------------- Centex Corp. 800 41 Fluor Corp. 500 23 KB Home 300 25 Masco Corp. 3,000 103 Pulte Homes, Inc. 800 44 The Sherwin-Williams Co. 1,100 47 The Stanley Works 600 27 Vulcan Materials Co. 700 35 ----------- 345 CONSUMER DURABLES 0.0% -------------------------------------------------------------------------- Black & Decker Corp. 600 48 Leggett & Platt, Inc. 1,300 37 Maytag Corp. 600 11 Newell Rubbermaid, Inc. 1,872 40 Whirlpool Corp. 500 29 ----------- 165 CONTAINERS 0.0% -------------------------------------------------------------------------- Ball Corp. 800 32 Bemis Co. 600 16 o Pactiv Corp. 1,000 23 o Sealed Air Corp. 621 31 ----------- 102 ELECTRONICS 0.6% -------------------------------------------------------------------------- o ADC Telecommunications, Inc. 5,000 11 o Advanced Micro Devices, Inc. 2,040 34 o Agilent Technologies, Inc. 2,917 73 o Altera Corp. 2,546 58 American Power Conversion Corp. 1,175 23 Analog Devices, Inc. 2,300 93 o Andrew Corp. 1,025 14 o Applied Materials, Inc. 10,900 175 o Applied Micro Circuits Corp. 1,928 7 o Broadcom Corp., Class A 2,000 54 o CIENA Corp. 2,100 5 Intel Corp. 42,100 937 ITT Industries, Inc. 600 49 o Jabil Circuit, Inc. 1,341 33 o JDS Uniphase Corp. 8,464 27 o KLA-Tencor Corp. 1,200 55 Linear Technology Corp. 2,000 76 o LSI Logic Corp. 2,000 9 o Lucent Technologies, Inc. 26,905 96 Maxim Integrated Products, Inc. 2,100 92 o Micron Technology, Inc. 3,600 44 Molex, Inc. 1,250 37 Motorola, Inc. 14,770 255 o National Semiconductor Corp. 2,200 37 o Novellus Systems, Inc. 900 23 o Nvidia Corp. 900 13 PerkinElmer, Inc. 600 12 o PMC--Sierra, Inc. 1,100 11 o Power-One, Inc. 240 2 o QLogic Corp. 585 19 Qualcomm, Inc. 10,200 426 o Sanmina--SCI Corp. 3,400 27 Scientific-Atlanta, Inc. 1,000 27 o Solectron Corp. 5,300 28 Symbol Technologies, Inc. 1,284 19 Tektronix, Inc. 500 15 o Tellabs, Inc. 2,700 22 o Teradyne, Inc. 1,100 18 Texas Instruments, Inc. 11,300 276 o Thermo Electron Corp. 900 26 o Thomas & Betts Corp. 231 7 o Waters Corp. 900 37 Xilinx, Inc. 2,100 64 ----------- 3,366
See financial notes. 35 SCHWAB MARKETTRACK BALANCED PORTFOLIO PORTFOLIO HOLDINGS continued
VALUE SECURITY AND NUMBER OF SHARES ($ x 1,000) ENERGY: RAW MATERIALS 0.2% -------------------------------------------------------------------------- Anadarko Petroleum Corp. 1,510 102 Apache Corp. 2,048 104 Baker Hughes, Inc. 2,250 96 o BJ Services Co. 1,000 51 Burlington Resources, Inc. 2,820 117 Devon Energy Corp. 1,500 111 EOG Resources, Inc. 759 51 Halliburton Co. 2,974 110 o Noble Corp. 900 41 Occidental Petroleum Corp. 2,400 134 o Rowan Cos., Inc. 600 15 Schlumberger Ltd. 3,900 245 Valero Energy Corp. 1,600 69 ----------- 1,246 FOOD & AGRICULTURE 0.4% -------------------------------------------------------------------------- Archer-Daniels-Midland Co. 4,446 86 Campbell Soup Co. 2,800 75 The Coca-Cola Co. 15,800 642 Coca-Cola Enterprises, Inc. 2,700 56 ConAgra Foods, Inc. 3,300 87 General Mills, Inc. 2,392 106 H.J. Heinz Co. 2,300 84 Hershey Foods Corp. 1,600 81 Kellogg Co. 2,700 116 McCormick & Co., Inc. 900 32 The Pepsi Bottling Group, Inc. 1,826 51 PepsiCo, Inc. 11,070 549 Sara Lee Corp. 5,100 119 Supervalu, Inc. 900 27 Sysco Corp. 4,400 142 Wm. Wrigley Jr. Co. 1,600 105 ----------- 2,358 GOLD 0.0% -------------------------------------------------------------------------- Newmont Mining Corp. 2,754 131 HEALTHCARE / DRUGS & MEDICINE 1.5% -------------------------------------------------------------------------- Abbott Laboratories 10,200 435 Allergan, Inc. 900 64 AmerisourceBergen Corp. 700 39 o Amgen, Inc. 8,340 474 o Anthem, Inc. 926 74 Applied Biosystems Group -- Applera Corp. 1,400 27 Bausch & Lomb, Inc. 400 24 Baxter International, Inc. 3,800 117 Becton Dickinson & Co. 1,800 95 o Biogen Idec, Inc. 2,150 125 Biomet, Inc. 1,575 74 o Boston Scientific Corp. 5,248 185 Bristol-Myers Squibb Co. 12,800 300 C.R. Bard, Inc. 600 34 Cardinal Health, Inc. 2,775 130 o Caremark Rx, Inc. 2,408 72 o Chiron Corp. 1,200 39 Eli Lilly & Co. 7,400 406 o Express Scripts, Inc. 500 32 o Forest Laboratories, Inc. 2,400 107 o Genzyme Corp. 1,400 73 o Gilead Sciences, Inc. 2,400 83 Guidant Corp. 2,000 133 HCA, Inc. 3,400 125 Health Management Associates, Inc., Class A 1,600 33 o Hospira, Inc. 1,020 33 o Humana, Inc. 800 15 Johnson & Johnson 19,272 1,125 o King Pharmaceuticals, Inc. 1,388 15 Manor Care, Inc. 500 16 McKesson Corp. 1,773 47 o Medco Health Solutions, Inc. 1,784 61 o Medimmune, Inc. 1,400 40 Medtronic, Inc. 7,800 399 Merck & Co., Inc. 14,500 454 Mylan Laboratories, Inc. 1,700 29 Pfizer, Inc. 49,386 1,430 Quest Diagnostics 735 64 Schering-Plough Corp. 9,500 172 o St. Jude Medical, Inc. 1,060 81 Stryker Corp. 2,546 110 o Tenet Healthcare Corp. 3,150 34 UnitedHealth Group, Inc. 4,200 304 o Watson Pharmaceuticals, Inc. 600 17
36 See financial notes. SCHWAB MARKETTRACK BALANCED PORTFOLIO
VALUE SECURITY AND NUMBER OF SHARES ($ x 1,000) o WellPoint Health Networks, Inc. 1,000 98 Wyeth 8,800 349 o Zimmer Holdings, Inc. 1,500 116 ----------- 8,309 HOUSEHOLD PRODUCTS 0.3% -------------------------------------------------------------------------- Alberto-Culver Co., Class B 600 27 Avon Products, Inc. 3,000 119 Clorox Co. 1,300 71 Colgate-Palmolive Co. 3,600 160 The Gillette Co. 6,700 278 International Flavors & Fragrances, Inc. 800 31 Procter & Gamble Co. 16,800 860 ----------- 1,546 INSURANCE 0.6% -------------------------------------------------------------------------- ACE Ltd. 1,700 65 Aetna, Inc. 1,034 98 AFLAC, Inc. 3,300 118 The Allstate Corp. 4,700 226 AMBAC Financial Group, Inc. 684 53 American International Group, Inc. 16,942 1,028 AON Corp. 2,025 41 Chubb Corp. 1,200 87 CIGNA Corp. 1,000 63 Cincinnati Financial Corp. 1,260 53 Hartford Financial Services Group, Inc. 1,800 105 Jefferson-Pilot Corp. 1,050 51 Lincoln National Corp. 1,300 57 Loews Corp. 1,200 72 Marsh & McLennan Cos., Inc. 3,600 100 MBIA, Inc. 1,050 61 Metlife, Inc. 4,986 191 MGIC Investment Corp. 700 45 Principal Financial Group, Inc. 2,329 88 The Progressive Corp. 1,500 140 Prudential Financial, Inc. 3,500 163 Safeco Corp. 800 37 The St. Paul Travelors Cos., Inc. 4,241 144 Torchmark Corp. 800 43 UnumProvident Corp. 1,657 23 XL Capital Ltd., Class A 800 58 ----------- 3,210 MEDIA 0.4% -------------------------------------------------------------------------- Clear Channel Communications, Inc. 4,080 136 o Comcast Corp., Class A 14,661 432 Dow Jones & Co., Inc. 600 27 Gannett Co., Inc. 1,700 141 Knight-Ridder, Inc. 600 41 The McGraw-Hill Cos., Inc. 1,200 104 Meredith Corp. 300 15 New York Times Co., Class A 1,100 44 R.R. Donnelley & Sons Co. 1,400 44 o Time Warner, Inc. 29,650 493 Tribune Co. 2,100 91 o Univision Communications, Inc., Class A 2,048 63 Viacom, Inc., Class B 11,418 417 The Walt Disney Co. 13,217 333 ----------- 2,381 MISCELLANEOUS 0.1% -------------------------------------------------------------------------- 3M Co. 5,000 388 MISCELLANEOUS FINANCE 1.0% -------------------------------------------------------------------------- American Express Co. 8,300 440 The Bear Stearns Cos., Inc. 602 57 Capital One Financial Corp. 1,500 111 / The Charles Schwab Corp. 8,783 80 CIT Group, Inc. 1,300 52 (9) Citigroup, Inc. 33,476 1,485 Countrywide Financial Corp. 3,498 112 o E*TRADE Financial Corp. 2,400 31 Fannie Mae 6,300 442 Federated Investors, Inc., Class B 700 20 Franklin Resources, Inc. 1,700 103 Freddie Mac 4,500 300 Golden West Financial Corp. 1,000 117 Goldman Sachs Group, Inc. 3,079 303 Janus Capital Group, Inc. 1,400 21 Lehman Brothers Holdings, Inc. 1,800 148 MBNA Corp. 8,268 212 Merrill Lynch & Co., Inc. 6,300 340 Moody's Corp. 1,000 78 Morgan Stanley 7,010 358
See financial notes. 37 SCHWAB MARKETTRACK BALANCED PORTFOLIO PORTFOLIO HOLDINGS continued
VALUE SECURITY AND NUMBER OF SHARES ($ x 1,000) o Providian Financial Corp. 1,900 30 SLM Corp. 3,000 136 Sovereign Bancorp, Inc. 1,800 39 T. Rowe Price Group, Inc. 800 45 Washington Mutual, Inc. 5,874 227 ----------- 5,287 NON-DURABLES & ENTERTAINMENT 0.2% -------------------------------------------------------------------------- Darden Restaurants, Inc. 1,350 33 o Electronic Arts, Inc. 1,792 80 Fortune Brands, Inc. 1,000 73 Hasbro, Inc. 1,275 23 International Game Technology 2,100 69 Mattel, Inc. 2,825 49 McDonald's Corp. 8,100 236 o Starbucks Corp. 2,440 129 Wendy's International, Inc. 800 27 Yum! Brands, Inc. 2,060 90 ----------- 809 NON-FERROUS METALS 0.1% -------------------------------------------------------------------------- Alcoa, Inc. 5,648 183 Engelhard Corp. 800 23 Freeport-McMoran Copper & Gold, Inc., Class B 1,100 40 Phelps Dodge Corp. 540 47 ----------- 293 OIL: DOMESTIC 0.1% -------------------------------------------------------------------------- Amerada Hess Corp. 600 48 Ashland, Inc. 500 29 ConocoPhillips 4,324 364 Kerr-McGee Corp. 771 46 Marathon Oil Corp. 2,100 80 o Nabors Industries Ltd. 1,000 49 Sunoco, Inc. 600 45 o Transocean, Inc. 2,016 71 Unocal Corp. 1,600 67 ----------- 799 OIL: INTERNATIONAL 0.5% -------------------------------------------------------------------------- ChevronTexaco Corp. 13,790 732 (7) Exxon Mobil Corp. 42,420 2,088 ----------- 2,820 OPTICAL & PHOTO 0.0% -------------------------------------------------------------------------- o Corning, Inc. 8,300 95 Eastman Kodak Co. 2,000 61 ----------- 156 PAPER & FOREST PRODUCTS 0.1% -------------------------------------------------------------------------- o Boise Cascade Corp. 600 18 Georgia-Pacific Corp. 1,496 52 International Paper Co. 3,166 122 Kimberly-Clark Corp. 3,380 202 Louisiana-Pacific Corp. 700 17 MeadWestvaco Corp. 1,279 40 Temple-Inland, Inc. 400 23 Weyerhaeuser Co. 1,400 88 ----------- 562 PRODUCER GOODS & MANUFACTURING 0.7% -------------------------------------------------------------------------- o American Standard Cos., Inc. 1,500 55 Avery Dennison Corp. 700 43 Caterpillar, Inc. 2,300 185 Cooper Industries Ltd., Class A 600 38 Deere & Co. 1,500 90 Dover Corp. 1,400 55 Emerson Electric Co. 2,800 179 o Fisher Scientific International, Inc. 720 41 (6) General Electric Co. 68,100 2,324 Honeywell International, Inc. 5,700 192 Illinois Tool Works, Inc. 2,000 185 Ingersoll-Rand Co., Class A 1,100 75 Johnson Controls, Inc. 1,200 69 o Millipore Corp. 200 9 Pall Corp. 800 21 Parker Hannifin Corp. 700 49 Snap-On, Inc. 350 10 W.W. Grainger, Inc. 600 35 ----------- 3,655 RAILROAD & SHIPPING 0.1% -------------------------------------------------------------------------- Burlington Northern Santa Fe Corp. 2,500 104 CSX Corp. 1,500 55 Norfolk Southern Corp. 2,500 85 Union Pacific Corp. 1,700 107 ----------- 351
38 See financial notes. SCHWAB MARKETTRACK BALANCED PORTFOLIO
VALUE SECURITY AND NUMBER OF SHARES ($ x 1,000) REAL PROPERTY 0.1% -------------------------------------------------------------------------- Apartment Investment & Management Co., Class A 600 22 Equity Office Properties Trust 2,600 73 Equity Residential 1,700 57 Plum Creek Timber Co., Inc. 1,200 43 ProLogis 1,200 47 Simon Property Group, Inc. 1,100 64 ----------- 306 RETAIL 0.9% -------------------------------------------------------------------------- Albertson's, Inc. 2,671 61 o Autonation, Inc. 2,000 34 o AutoZone, Inc. 500 41 o Bed, Bath & Beyond, Inc. 1,800 73 Best Buy Co., Inc. 2,100 124 o Big Lots, Inc. 700 9 Circuit City Stores, Inc. 1,400 23 Costco Wholesale Corp. 3,000 144 CVS Corp. 2,600 113 Dillards, Inc., Class A 700 14 Dollar General Corp. 2,202 42 Family Dollar Stores, Inc. 1,100 33 Federated Department Stores, Inc. 1,100 56 The Gap, Inc. 5,662 113 Home Depot, Inc. 14,600 600 J.C. Penney Co., Inc. Holding Co. 1,700 59 o Kohl's Corp. 2,200 112 o Kroger Co. 5,300 80 Limitedbrands 3,388 84 Lowe's Cos., Inc. 5,000 281 The May Department Stores Co. 2,100 55 Nordstrom, Inc. 900 39 o Office Depot, Inc. 2,500 40 RadioShack Corp. 1,300 39 o Safeway, Inc. 2,800 51 Sears, Roebuck & Co. 1,600 56 Staples, Inc. 3,050 91 Target Corp. 5,800 290 Tiffany & Co. 950 28 TJX Cos., Inc. 3,600 86 o Toys `R' Us, Inc. 1,200 22 (10) Wal-Mart Stores, Inc. 27,400 1,477 Walgreen Co. 6,600 237 Winn-Dixie Stores, Inc. 1,200 4 ----------- 4,611 STEEL 0.0% -------------------------------------------------------------------------- Allegheny Technologies, Inc. 492 8 Nucor Corp. 1,200 51 United States Steel Corp. 700 26 Worthington Industries, Inc. 300 6 ----------- 91 TELEPHONE 0.4% -------------------------------------------------------------------------- Alltel Corp. 2,100 115 AT&T Corp. 4,941 85 o Avaya, Inc. 2,775 40 BellSouth Corp. 11,900 317 CenturyTel, Inc. 900 29 o Citizens Communications Co. 1,732 23 o Nextel Communications, Inc., Class A 7,200 191 o Qwest Communications International, Inc. 10,622 36 SBC Communications, Inc. 21,788 550 Sprint Corp. (FON Group) 8,750 183 Verizon Communications, Inc. 17,836 698 ----------- 2,267 TOBACCO 0.1% -------------------------------------------------------------------------- Altria Group, Inc. 13,200 640 Reynolds American, Inc. 914 63 UST, Inc. 1,100 45 ----------- 748 TRAVEL & RECREATION 0.1% -------------------------------------------------------------------------- Brunswick Corp. 600 28 Carnival Corp. 4,100 207 Harrah's Entertainment, Inc. 700 41 Hilton Hotels Corp. 2,500 50 Marriott International, Inc., Class A 1,500 82 Starwood Hotels & Resorts Worldwide, Inc. 1,200 57 ----------- 465
See financial notes. 39 SCHWAB MARKETTRACK BALANCED PORTFOLIO PORTFOLIO HOLDINGS continued
VALUE SECURITY AND NUMBER OF SHARES ($ x 1,000) TRUCKING & FREIGHT 0.0% -------------------------------------------------------------------------- Paccar, Inc. 1,050 73 Ryder Systems, Inc. 400 20 ----------- 93 UTILITIES: ELECTRIC & GAS 0.4% -------------------------------------------------------------------------- o The AES Corp. 3,200 35 o Allegheny Energy, Inc. 720 13 Ameren Corp. 1,200 58 American Electric Power Co., Inc. 2,580 85 o Calpine Corp. 1,800 4 Centerpoint Energy, Inc. 1,924 20 Cinergy Corp. 1,000 39 o CMS Energy Corp. 700 7 Consolidated Edison, Inc. 1,500 65 Constellation Energy Group, Inc. 1,000 41 Dominion Resources, Inc. 2,167 139 DTE Energy Co. 1,000 43 Duke Energy Corp. 5,952 146 o Dynegy, Inc., Class A 2,100 10 Edison International 2,200 67 El Paso Corp. 3,222 29 Entergy Corp. 1,500 98 Exelon Corp. 4,324 171 FirstEnergy Corp. 2,030 84 FPL Group, Inc. 1,300 90 KeySpan Corp. 900 36 Kinder Morgan, Inc. 745 48 Nicor, Inc. 300 11 NiSource, Inc. 1,651 35 Peoples Energy Corp. 200 9 o PG&E Corp. 2,700 86 Pinnacle West Capital Corp. 600 26 PPL Corp. 1,000 52 Progress Energy, Inc. 1,593 66 Public Service Enterprise Group, Inc. 1,500 64 Sempra Energy 1,360 46 The Southern Co. 4,500 142 TECO Energy, Inc. 900 13 TXU Corp. 2,122 130 Williams Cos., Inc. 3,000 37 Xcel Energy, Inc. 2,585 44 ----------- 2,089 OTHER INVESTMENT COMPANIES 86.9% of net assets /(3) Schwab International Index Fund, Select Shares 5,576,815 82,704 /(2) Schwab S&P 500 Fund, Select Shares 5,309,473 93,872 /(4) Schwab Small-Cap Index Fund, Select Shares 4,091,089 81,658 /(1) Schwab Total Bond Market Fund 18,437,321 188,061 /(5) Schwab Value Advantage Money Fund, Investor Shares 24,231,862 24,232 ----------- 470,527
SECURITY FACE AMOUNT RATE, MATURITY DATE ($ x 1,000) SHORT-TERM INVESTMENT 0.5% of net assets HSBC Bank, USA Grand Cayman Time Deposit 1.29%, 11/01/04 2,590 2,590
END OF INVESTMENTS. 40 See financial notes. SCHWAB MARKETTRACK BALANCED PORTFOLIO Statement of ASSETS AND LIABILITIES As of October 31, 2004. All numbers x 1,000 except NAV. ASSETS -------------------------------------------------------------------------------- Investments, at value $541,202 a Receivables: Fund shares sold 162 Interest 1 Dividends 118 Prepaid expenses + 14 ------------ TOTAL ASSETS 541,497 LIABILITIES -------------------------------------------------------------------------------- Payables: Fund shares redeemed 170 Investments bought 52 Investment adviser and administrator fees 9 Transfer agent and shareholder service fees 11 Trustee fees 1 Accrued expenses + 64 ------------ TOTAL LIABILITIES 307 NET ASSETS -------------------------------------------------------------------------------- TOTAL ASSETS 541,497 TOTAL LIABILITIES - 307 ------------ NET ASSETS $541,190 NET ASSETS BY SOURCE Capital received from investors 491,296 Net investment income not yet distributed 3,853 Net realized capital losses (18,404) Net unrealized capital gains 64,445 NET ASSET VALUE (NAV) SHARES NET ASSETS / OUTSTANDING = NAV $541,190 36,910 $14.66
Unless stated, all numbers x 1,000. a The fund paid $476,757 for these securities. Not counting short-term obligations and government securities, the fund's security transactions during the period were: Purchases $55,917 Sales/maturities $63,899 The fund's total security transactions with other SchwabFunds(R) during the period were $100. Percent of fund shares of other Schwab funds owned at the end of the report period: SCHWAB EQUITY INDEX FUNDS S&P 500 Fund 1.1% Small-Cap Index Fund 5.0% International Index Fund 6.7% SCHWAB BOND FUNDS Total Bond Market Fund 17.8% SCHWAB MONEY FUNDS Value Advantage Money Fund 0.1% FEDERAL TAX DATA ------------------------------------------------------- PORTFOLIO COST $483,848 NET UNREALIZED GAINS AND LOSSES: Gains $69,043 Losses + (11,689) ------------ $57,354 AS OF OCTOBER 31, 2004: NET UNDISTRIBUTED EARNINGS: Ordinary income $3,853 Long-term capital gains $-- CAPITAL LOSSES UTILIZED $680 UNUSED CAPITAL LOSSES: Expires 10/31 of: Loss amount 2011 $11,313 See financial notes. 41 SCHWAB MARKETTRACK BALANCED PORTFOLIO Statement of OPERATIONS For November 1, 2003 through October 31, 2004. All numbers x 1,000. INVESTMENT INCOME ------------------------------------------------------------------------------- Dividends $13,437 Interest + 8 ---------- TOTAL INVESTMENT INCOME 13,445 NET REALIZED GAINS AND LOSSES ------------------------------------------------------------------------------- Net realized gains on investments 203 Net realized gains received from underlying funds + 3,264 ---------- NET REALIZED GAINS 3,467 NET UNREALIZED GAINS AND LOSSES ------------------------------------------------------------------------------- Net unrealized gains on investments 29,584 EXPENSES ------------------------------------------------------------------------------- Investment adviser and administrator fees 2,325 a Transfer agent and shareholder service fees 1,330 b Trustees' fees 8 c Custodian fees 42 Portfolio accounting fees 72 Professional fees 35 Registration fees 33 Shareholder reports 58 Other expenses + 11 ---------- Total expenses 3,914 Expense reduction - 1,254 d ---------- NET EXPENSES 2,660 INCREASE IN NET ASSETS FROM OPERATIONS ------------------------------------------------------------------------------- TOTAL INVESTMENT INCOME 13,445 NET EXPENSES - 2,660 ---------- NET INVESTMENT INCOME 10,785 NET REALIZED GAINS 3,467 e NET UNREALIZED GAINS + 29,584 e ---------- INCREASE IN NET ASSETS FROM OPERATIONS $43,836
Unless stated, all numbers x 1,000. a Calculated as a percentage of average daily net assets: 0.44% of the first $500 million and 0.39% of assets beyond that. These fees are paid to Charles Schwab Investment Management, Inc. (CSIM). b 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. These fees are paid to Charles Schwab & Co., Inc. (Schwab). c For the fund's independent trustees only. d This reduction was made by the investment adviser (CSIM). It reflects a guarantee by CSIM and the transfer agent and shareholder service agent (Schwab) to limit the operating expenses of this fund through February 28, 2005, to 0.50% of average daily net assets. This limit excludes interest, taxes and certain non-routine expenses. e These add up to a net gain on investments of $33,051. 42 See financial notes. SCHWAB MARKETTRACK BALANCED PORTFOLIO Statements of CHANGES IN NET ASSETS For the current and prior report periods. All numbers x 1,000
OPERATIONS -------------------------------------------------------------------------------- 11/1/03-10/31/04 11/1/02-10/31/03 Net investment income $10,785 $9,483 Net realized gains or losses 3,467 (9,182) Net unrealized gains + 29,584 75,317 ---------------------------------------- INCREASE IN NET ASSETS FROM OPERATIONS 43,836 75,618 DISTRIBUTIONS PAID -------------------------------------------------------------------------------- Dividends from net investment income $10,771 $11,180 a,b
TRANSACTIONS IN FUND SHARES -------------------------------------------------------------------------------- 11/1/03-10/31/04 11/1/02-10/31/03 SHARES VALUE SHARES VALUE Shares sold 7,160 $101,953 6,802 $85,681 Shares reinvested 746 10,391 904 10,796 Shares redeemed + (8,474) (120,586) (8,594) (107,008) -------------------------------------------------- NET TRANSACTIONS IN FUND SHARES (568) ($8,242) (888) ($10,531)
SHARES OUTSTANDING AND NET ASSETS -------------------------------------------------------------------------------- 11/1/03-10/31/04 11/1/02-10/31/03 SHARES NET ASSETS SHARES NET ASSETS Beginning of period 37,478 $516,367 38,366 $462,460 Total increase or decrease + (568) 24,823 (888) 53,907 c --------------------------------------------------- END OF PERIOD 36,910 $541,190 37,478 $516,367 d
Unless stated, all numbers x 1,000. a UNAUDITED For corporations, 28% of the fund's dividends for the report period qualify for the dividends-received deduction. The fund designates $3,502 of the dividend distribution for the fiscal year ended 10/31/04 as qualified dividends for the purpose of the maximum rate under Section 1(h)(ii) of the Internal Revenue Code. Shareholders will be notified in January 2005 via IRS Form 1099 of the amounts for use in preparing their 2004 income tax return. b The tax-basis components of distributions paid are: CURRENT PERIOD Ordinary income $10,771 Long-term capital gains $-- PRIOR PERIOD Ordinary income $11,180 Long-term capital gains $-- c Figures for shares represent shares sold plus shares reinvested, minus shares redeemed. Figures for net assets represent the changes in net assets from operations plus the changes in value of transactions in fund shares, minus distributions paid. d Includes distributable net investment income in the amount of $3,853 and $3,839 at the end of the current period and prior period, respectively. See financial notes. 43 SCHWAB MARKETTRACK CONSERVATIVE PORTFOLIO(TM) FINANCIAL STATEMENTS FINANCIAL HIGHLIGHTS
11/1/03- 11/1/02- 11/1/01- 11/1/00- 11/1/99- 10/31/04 10/31/03 10/31/02 10/31/01 10/31/00 ----------------------------------------------------------------------------------------------------------------------------- PER-SHARE DATA ($) ----------------------------------------------------------------------------------------------------------------------------- Net asset value at beginning of period 12.53 11.37 12.22 13.12 12.73 ------------------------------------------------------------------------- Income or loss from investment operations: Net investment income 0.34 0.29 0.40 0.49 0.47 Net realized and unrealized gains or losses 0.57 1.16 (0.78) (0.80) 0.41 ------------------------------------------------------------------------- Total income or loss from investment operations 0.91 1.45 (0.38) (0.31) 0.88 Less distributions: Dividends from net investment income (0.35) (0.29) (0.41) (0.50) (0.46) Distributions from net realized gains -- -- (0.06) (0.09) (0.03) ------------------------------------------------------------------------- Total distributions (0.35) (0.29) (0.47) (0.59) (0.49) ------------------------------------------------------------------------- Net asset value at end of period 13.09 12.53 11.37 12.22 13.12 ------------------------------------------------------------------------- Total return (%) 7.38 12.98 (3.29) (2.39) 6.92 RATIOS/SUPPLEMENTAL DATA (%) ----------------------------------------------------------------------------------------------------------------------------- Ratios to average net assets: Net operating expenses 1 0.50 0.50 0.50 0.50 0.57 2 Gross operating expenses 1 0.75 0.75 0.76 0.77 0.84 Net investment income 2.70 2.44 3.17 3.85 3.58 Portfolio turnover rate 10 17 32 15 16 Net assets, end of period ($ x 1,000,000) 290 289 263 211 194
1 The expenses incurred by underlying funds in which the portfolio invests are not included in this ratio. The income received by the portfolio from underlying funds is reduced by those expenses. 2 The ratio of net operating expenses would have been 0.56% if certain non-routine expenses (proxy fees) had not been included. 44 See financial notes. SCHWAB MARKETTRACK CONSERVATIVE PORTFOLIO PORTFOLIO HOLDINGS as of October 31, 2004 This section shows all the securities in the fund's portfolio by industry classification and their value, as of the report date. The fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The fund's Form N-Q is available on the SEC's website at http://www.sec.gov and may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Call 1-800-SEC-0330 for information on the operation of the Public Reference Room. The schedule of portfolio holdings filed on the fund's most recent Form N-Q is available by visiting Schwab's website at www.schwab.com/schwabfunds. We use the symbols below to designate certain characteristics of the securities. With the top ten holdings, the number in the circle is the security's rank among the top ten. (1) Top Ten Holding o Non-income producing security / Issuer is affiliated with the fund's adviser
COST VALUE HOLDINGS BY CATEGORY ($x1,000) ($x1,000) -------------------------------------------------------------------------------- 93.8% OTHER INVESTMENT COMPANIES 249,080 272,247 5.5% COMMON STOCK 12,219 15,990 0.7% SHORT-TERM INVESTMENT 1,973 1,973 -------------------------------------------------------------------------------- 100.0% TOTAL INVESTMENTS 263,272 290,210 0.0% OTHER ASSETS AND LIABILITIES, NET (52) -------------------------------------------------------------------------------- 100.0% TOTAL NET ASSETS 290,158
VALUE SECURITY AND NUMBER OF SHARES ($ x 1,000) COMMON STOCK 5.5% of net assets AEROSPACE / DEFENSE 0.1% -------------------------------------------------------------------------- The Boeing Co. 1,246 61 Crane Co. 150 4 General Dynamics Corp. 300 31 Goodrich Corp. 200 6 Lockheed Martin Corp. 700 38 Northrop Grumman Corp. 514 27 Raytheon Co. 600 22 Rockwell Automation, Inc. 300 12 Rockwell Collins, Inc. 300 11 Textron, Inc. 200 14 United Technologies Corp. 800 74 ----------- 300 AIR TRANSPORTATION 0.1% -------------------------------------------------------------------------- o Delta Air Lines, Inc. 200 1 FedEx Corp. 460 42 Sabre Holdings Corp., Class A 244 5 Southwest Airlines Co. 1,218 19 United Parcel Service, Inc., Class B 1,712 136 ----------- 203 ALCOHOLIC BEVERAGES 0.0% -------------------------------------------------------------------------- Adolph Coors Co., Class B 50 3 Anheuser-Busch Cos., Inc. 1,200 60 Brown-Forman Corp., Class B 150 7 ----------- 70 APPAREL 0.0% -------------------------------------------------------------------------- o Coach, Inc. 300 14 Jones Apparel Group, Inc. 200 7 Liz Claiborne, Inc. 200 8 Nike, Inc., Class B 400 32 Reebok International Ltd. 100 4 VF Corp. 200 11 ----------- 76 AUTOMOTIVE PRODUCTS / MOTOR VEHICLES 0.1% -------------------------------------------------------------------------- Cooper Tire & Rubber Co. 100 2 Cummins, Inc. 100 7 Dana Corp. 292 4 Danaher Corp. 500 28 Delphi Corp. 868 7 Eaton Corp. 200 13 Ford Motor Co. 2,921 38 General Motors Corp. 825 32 Genuine Parts Co. 250 10 o Goodyear Tire & Rubber Co. 300 3 Harley-Davidson, Inc. 500 29 o Navistar International Corp. 100 3 Visteon Corp. 248 2 ----------- 178
See financial notes. 45 SCHWAB MARKETTRACK CONSERVATIVE PORTFOLIO PORTFOLIO HOLDINGS continued
VALUE SECURITY AND NUMBER OF SHARES ($ x 1,000) BANKS 0.4% -------------------------------------------------------------------------- AmSouth Bancorp. 600 16 Bank of America Corp. 6,162 276 The Bank of New York Co., Inc. 1,200 39 BB&T Corp. 850 35 Comerica, Inc. 300 18 Fifth Third Bancorp 867 43 First Horizon National Corp. 200 9 Huntington Bancshares, Inc. 423 10 JPMorgan Chase & Co. 5,352 207 KeyCorp, Inc. 700 23 M&T Bank Corp. 199 20 Marshall & Ilsley Corp. 322 13 Mellon Financial Corp. 700 20 National City Corp. 950 37 North Fork Bancorp., Inc. 500 22 Northern Trust Corp. 300 13 PNC Financial Services Group, Inc. 400 21 Regions Financial Corp. 670 23 SouthTrust Corp. 500 22 State Street Corp. 500 23 SunTrust Banks, Inc. 500 35 Synovus Financial Corp. 400 11 U.S. Bancorp 2,922 84 Wachovia Corp. 2,000 98 Wells Fargo & Co. 2,560 153 Zions Bancorp. 100 7 ----------- 1,278 BUSINESS MACHINES & SOFTWARE 0.5% -------------------------------------------------------------------------- Adobe Systems, Inc. 400 22 o Apple Computer, Inc. 600 31 Autodesk, Inc. 200 11 o BMC Software, Inc. 400 8 o Cisco Systems, Inc. 10,450 201 o Compuware Corp. 600 3 o Comverse Technology, Inc. 300 6 o Dell, Inc. 3,850 135 o EMC Corp. 3,650 47 o Gateway, Inc. 500 3 Hewlett-Packard Co. 4,703 88 International Business Machines Corp. 2,500 224 o Lexmark International, Inc., Class A 200 17 (8) Microsoft Corp. 16,400 459 o NCR Corp. 200 11 o Network Appliance, Inc. 500 12 o Novell, Inc. 500 4 o Oracle Corp. 7,900 100 Pitney Bowes, Inc. 400 17 o Siebel Systems, Inc. 600 6 o Sun Microsystems, Inc. 5,000 23 o Unisys Corp. 500 5 o Xerox Corp. 1,200 18 ----------- 1,451 BUSINESS SERVICES 0.3% -------------------------------------------------------------------------- o Affiliated Computer Services, Inc., Class A 203 11 o Allied Waste Industries, Inc. 500 4 o Apollo Group, Inc., Class A 250 17 Automatic Data Processing, Inc. 900 39 Cendant Corp. 1,459 30 Cintas Corp. 260 11 o Citrix Systems, Inc. 300 7 Computer Associates International, Inc. 850 24 o Computer Sciences Corp. 258 13 o Convergys Corp. 174 2 Deluxe Corp. 100 4 o eBay, Inc. 1,004 98 Electronic Data Systems Corp. 700 15 Equifax, Inc. 200 5 First Data Corp. 1,392 57 o Fiserv, Inc. 300 11 H&R Block, Inc. 300 14 IMS Health, Inc. 350 7 o Interpublic Group of Cos., Inc. 600 7 o Intuit, Inc. 313 14 o Mercury Interactive Corp. 100 4 o Monster Worldwide, Inc. 191 5 Omnicom Group, Inc. 300 24 o Parametric Technology Corp. 500 3 Paychex, Inc. 525 17 o PeopleSoft, Inc. 600 13 Robert Half International, Inc. 300 8 o SunGard Data Systems, Inc. 433 12 o Symantec Corp. 502 29
46 See financial notes. SCHWAB MARKETTRACK CONSERVATIVE PORTFOLIO
VALUE SECURITY AND NUMBER OF SHARES ($ x 1,000) Tyco International Ltd. 3,013 94 o Veritas Software Corp. 600 13 Waste Management, Inc. 907 26 o Yahoo! Inc. 2,000 72 ----------- 710 CHEMICALS 0.1% -------------------------------------------------------------------------- Air Products & Chemicals, Inc. 300 16 Dow Chemical Co. 1,372 62 E.I. du Pont de Nemours & Co. 1,525 65 Eastman Chemical Co. 100 5 Ecolab, Inc. 400 13 Great Lakes Chemical Corp. 100 2 o Hercules, Inc. 200 3 Monsanto Co. 332 14 PPG Industries, Inc. 250 16 Praxair, Inc. 500 21 Rohm & Haas Co. 373 16 Sigma-Aldrich Corp. 100 6 ----------- 239 CONSTRUCTION 0.0% -------------------------------------------------------------------------- Centex Corp. 200 10 Fluor Corp. 100 5 KB Home 100 8 Masco Corp. 700 24 Pulte Homes, Inc. 200 11 The Sherwin-Williams Co. 200 9 The Stanley Works 100 4 Vulcan Materials Co. 200 10 ----------- 81 CONSUMER DURABLES 0.0% -------------------------------------------------------------------------- Black & Decker Corp. 100 8 Leggett & Platt, Inc. 300 8 Maytag Corp. 100 2 Newell Rubbermaid, Inc. 436 9 Whirlpool Corp. 100 6 ----------- 33 CONTAINERS 0.0% -------------------------------------------------------------------------- Ball Corp. 200 8 Bemis Co. 200 5 o Pactiv Corp. 300 7 o Sealed Air Corp. 153 8 ----------- 28 ELECTRONICS 0.3% -------------------------------------------------------------------------- o ADC Telecommunications, Inc. 1,000 2 o Advanced Micro Devices, Inc. 560 10 o Agilent Technologies, Inc. 710 18 o Altera Corp. 510 12 American Power Conversion Corp. 225 4 Analog Devices, Inc. 600 24 o Andrew Corp. 100 1 o Applied Materials, Inc. 2,600 42 o Applied Micro Circuits Corp. 455 2 o Broadcom Corp., Class A 492 13 o CIENA Corp. 500 1 Intel Corp. 9,800 218 ITT Industries, Inc. 150 12 o Jabil Circuit, Inc. 322 8 o JDS Uniphase Corp. 2,010 6 o KLA-Tencor Corp. 300 14 Linear Technology Corp. 500 19 o LSI Logic Corp. 500 2 o Lucent Technologies, Inc. 7,019 25 Maxim Integrated Products, Inc. 500 22 o Micron Technology, Inc. 900 11 Molex, Inc. 250 7 Motorola, Inc. 3,666 63 o National Semiconductor Corp. 600 10 o Novellus Systems, Inc. 250 7 o Nvidia Corp. 200 3 PerkinElmer, Inc. 200 4 o PMC--Sierra, Inc. 300 3 o Power-One, Inc. 57 -- o QLogic Corp. 138 5 Qualcomm, Inc. 2,400 100 o Sanmina--SCI Corp. 800 6 Scientific-Atlanta, Inc. 200 6 o Solectron Corp. 1,000 5 Symbol Technologies, Inc. 303 5 Tektronix, Inc. 200 6 o Tellabs, Inc. 600 5 o Teradyne, Inc. 300 5 Texas Instruments, Inc. 2,700 66 o Thermo Electron Corp. 200 6 o Thomas & Betts Corp. 100 3
See financial notes. 47 SCHWAB MARKETTRACK CONSERVATIVE PORTFOLIO PORTFOLIO HOLDINGS continued
VALUE SECURITY AND NUMBER OF SHARES ($ x 1,000) o Waters Corp. 200 8 Xilinx, Inc. 500 15 ----------- 804 ENERGY: RAW MATERIALS 0.1% -------------------------------------------------------------------------- Anadarko Petroleum Corp. 367 25 Apache Corp. 462 23 Baker Hughes, Inc. 470 20 o BJ Services Co. 200 10 Burlington Resources, Inc. 600 25 Devon Energy Corp. 350 26 EOG Resources, Inc. 180 12 Halliburton Co. 714 26 o Noble Corp. 200 9 Occidental Petroleum Corp. 600 34 o Rowan Cos., Inc. 100 3 Schlumberger Ltd. 900 57 Valero Energy Corp. 400 17 ----------- 287 FOOD & AGRICULTURE 0.2% -------------------------------------------------------------------------- Archer-Daniels-Midland Co. 1,014 20 Campbell Soup Co. 700 19 The Coca-Cola Co. 3,700 150 Coca-Cola Enterprises, Inc. 700 15 ConAgra Foods, Inc. 800 21 General Mills, Inc. 582 26 H.J. Heinz Co. 600 22 Hershey Foods Corp. 400 20 Kellogg Co. 600 26 McCormick & Co., Inc. 200 7 The Pepsi Bottling Group, Inc. 350 10 PepsiCo, Inc. 2,560 127 Sara Lee Corp. 1,200 28 Supervalu, Inc. 200 6 Sysco Corp. 1,000 32 Wm. Wrigley Jr. Co. 300 19 ----------- 548 GOLD 0.0% -------------------------------------------------------------------------- Newmont Mining Corp. 643 31 HEALTHCARE / DRUGS & MEDICINE 0.7% -------------------------------------------------------------------------- Abbott Laboratories 2,400 102 Allergan, Inc. 200 14 AmerisourceBergen Corp. 200 11 o Amgen, Inc. 1,952 111 o Anthem, Inc. 200 16 Applied Biosystems Group -- Applera Corp. 300 6 Bausch & Lomb, Inc. 100 6 Baxter International, Inc. 900 28 Becton Dickinson & Co. 400 21 o Biogen Idec, Inc. 480 28 Biomet, Inc. 450 21 o Boston Scientific Corp. 1,268 45 Bristol-Myers Squibb Co. 3,000 70 C.R. Bard, Inc. 200 11 Cardinal Health, Inc. 650 30 o Caremark Rx, Inc. 581 18 o Chiron Corp. 300 10 Eli Lilly & Co. 1,725 95 o Express Scripts, Inc. 100 6 o Forest Laboratories, Inc. 550 25 o Genzyme Corp. 325 17 o Gilead Sciences, Inc. 650 23 Guidant Corp. 500 33 HCA, Inc. 800 29 Health Management Associates, Inc., Class A 400 8 o Hospira, Inc. 240 8 o Humana, Inc. 200 4 Johnson & Johnson 4,492 262 o King Pharmaceuticals, Inc. 366 4 Manor Care, Inc. 100 3 McKesson Corp. 422 11 o Medco Health Solutions, Inc. 422 14 o Medimmune, Inc. 400 11 Medtronic, Inc. 1,800 92 Merck & Co., Inc. 3,400 107 Mylan Laboratories, Inc. 400 7 Pfizer, Inc. 11,557 335 Quest Diagnostics 139 12 Schering-Plough Corp. 2,300 42 o St. Jude Medical, Inc. 250 19 Stryker Corp. 602 26 o Tenet Healthcare Corp. 750 8 UnitedHealth Group, Inc. 1,000 72
48 See financial notes. SCHWAB MARKETTRACK CONSERVATIVE PORTFOLIO
VALUE SECURITY AND NUMBER OF SHARES ($ x 1,000) o Watson Pharmaceuticals, Inc. 200 6 o WellPoint Health Networks, Inc. 250 25 Wyeth 2,000 79 o Zimmer Holdings, Inc. 350 27 ----------- 1,958 HOUSEHOLD PRODUCTS 0.1% -------------------------------------------------------------------------- Alberto-Culver Co., Class B 150 7 Avon Products, Inc. 700 28 Clorox Co. 300 16 Colgate-Palmolive Co. 800 36 The Gillette Co. 1,500 62 International Flavors & Fragrances, Inc. 200 8 Procter & Gamble Co. 3,900 199 ----------- 356 INSURANCE 0.3% -------------------------------------------------------------------------- ACE Ltd. 400 15 Aetna, Inc. 222 21 AFLAC, Inc. 800 29 The Allstate Corp. 1,100 53 AMBAC Financial Group, Inc. 162 13 American International Group, Inc. 3,979 241 AON Corp. 475 10 Chubb Corp. 300 22 CIGNA Corp. 200 13 Cincinnati Financial Corp. 315 13 Hartford Financial Services Group, Inc. 425 25 Jefferson-Pilot Corp. 225 11 Lincoln National Corp. 300 13 Loews Corp. 300 18 Marsh & McLennan Cos., Inc. 800 22 MBIA, Inc. 200 11 Metlife, Inc. 1,178 45 MGIC Investment Corp. 150 10 Principal Financial Group, Inc. 550 21 The Progressive Corp. 350 33 Prudential Financial, Inc. 800 37 Safeco Corp. 200 9 The St. Paul Travelors Cos., Inc. 1,006 34 Torchmark Corp. 200 11 UnumProvident Corp. 346 5 XL Capital Ltd., Class A 200 14 ----------- 749 MEDIA 0.2% -------------------------------------------------------------------------- Clear Channel Communications, Inc. 967 32 o Comcast Corp., Class A 3,463 102 Dow Jones & Co., Inc. 100 4 Gannett Co., Inc. 400 33 Knight-Ridder, Inc. 100 7 The McGraw-Hill Cos., Inc. 300 26 Meredith Corp. 100 5 New York Times Co., Class A 200 8 R.R. Donnelley & Sons Co. 300 9 o Time Warner, Inc. 6,850 114 Tribune Co. 500 22 o Univision Communications, Inc., Class A 519 16 Viacom, Inc., Class B 2,660 97 The Walt Disney Co. 3,077 78 ----------- 553 MISCELLANEOUS 0.0% -------------------------------------------------------------------------- 3M Co. 1,200 93 MISCELLANEOUS FINANCE 0.4% -------------------------------------------------------------------------- American Express Co. 2,000 106 The Bear Stearns Cos., Inc. 145 14 Capital One Financial Corp. 350 26 / The Charles Schwab Corp. 2,125 19 CIT Group, Inc. 300 12 (10) Citigroup, Inc. 7,782 345 Countrywide Financial Corp. 798 26 o E*TRADE Financial Corp. 600 8 Fannie Mae 1,475 103 Federated Investors, Inc., Class B 200 6 Franklin Resources, Inc. 400 24 Freddie Mac 1,000 67 Golden West Financial Corp. 250 29 Goldman Sachs Group, Inc. 728 72 Janus Capital Group, Inc. 400 6 Lehman Brothers Holdings, Inc. 400 33 MBNA Corp. 1,957 50 Merrill Lynch & Co., Inc. 1,500 81 Moody's Corp. 200 16 Morgan Stanley 1,630 83 o Providian Financial Corp. 400 6
See financial notes. 49 SCHWAB MARKETTRACK CONSERVATIVE PORTFOLIO PORTFOLIO HOLDINGS continued
VALUE SECURITY AND NUMBER OF SHARES ($ x 1,000) SLM Corp. 650 29 Sovereign Bancorp, Inc. 400 9 T. Rowe Price Group, Inc. 200 11 Washington Mutual, Inc. 1,331 52 ----------- 1,233 NON-DURABLES & ENTERTAINMENT 0.1% -------------------------------------------------------------------------- Darden Restaurants, Inc. 300 7 o Electronic Arts, Inc. 424 19 Fortune Brands, Inc. 200 15 Hasbro, Inc. 325 6 International Game Technology 556 18 Mattel, Inc. 650 11 McDonald's Corp. 2,000 58 o Starbucks Corp. 560 30 Wendy's International, Inc. 200 7 Yum! Brands, Inc. 480 21 ----------- 192 NON-FERROUS METALS 0.0% -------------------------------------------------------------------------- Alcoa, Inc. 1,312 42 Engelhard Corp. 200 6 Freeport-McMoran Copper & Gold, Inc., Class B 300 11 Phelps Dodge Corp. 135 12 ----------- 71 OIL: DOMESTIC 0.1% -------------------------------------------------------------------------- Amerada Hess Corp. 100 8 Ashland, Inc. 100 6 ConocoPhillips 1,027 86 Kerr-McGee Corp. 186 11 Marathon Oil Corp. 500 19 o Nabors Industries Ltd. 200 10 Sunoco, Inc. 100 7 o Transocean, Inc. 474 17 Unocal Corp. 400 17 ----------- 181 OIL: INTERNATIONAL 0.2% -------------------------------------------------------------------------- ChevronTexaco Corp. 3,286 174 (7) Exxon Mobil Corp. 9,918 488 ----------- 662 OPTICAL & PHOTO 0.0% -------------------------------------------------------------------------- o Corning, Inc. 1,900 22 Eastman Kodak Co. 500 15 ----------- 37 PAPER & FOREST PRODUCTS 0.0% -------------------------------------------------------------------------- o Boise Cascade Corp. 100 3 Georgia-Pacific Corp. 379 13 International Paper Co. 739 29 Kimberly-Clark Corp. 756 45 Louisiana-Pacific Corp. 100 2 MeadWestvaco Corp. 294 9 Temple-Inland, Inc. 100 6 Weyerhaeuser Co. 350 22 ----------- 129 PRODUCER GOODS & MANUFACTURING 0.3% -------------------------------------------------------------------------- o American Standard Cos., Inc. 300 11 Avery Dennison Corp. 200 12 Caterpillar, Inc. 550 44 Cooper Industries Ltd., Class A 150 10 Deere & Co. 400 24 Dover Corp. 300 12 Emerson Electric Co. 650 42 o Fisher Scientific International, Inc. 163 9 (6) General Electric Co. 15,950 544 Honeywell International, Inc. 1,275 43 Illinois Tool Works, Inc. 450 41 Ingersoll-Rand Co., Class A 250 17 Johnson Controls, Inc. 300 17 o Millipore Corp. 100 5 Pall Corp. 200 5 Parker Hannifin Corp. 150 11 Snap-On, Inc. 100 3 W.W. Grainger, Inc. 100 6 ----------- 856 RAILROAD & SHIPPING 0.0% -------------------------------------------------------------------------- Burlington Northern Santa Fe Corp. 600 25 CSX Corp. 300 11 Norfolk Southern Corp. 600 21 Union Pacific Corp. 400 25 ----------- 82
50 See financial notes. SCHWAB MARKETTRACK CONSERVATIVE PORTFOLIO
VALUE SECURITY AND NUMBER OF SHARES ($ x 1,000) REAL PROPERTY 0.0% -------------------------------------------------------------------------- Apartment Investment & Management Co., Class A 100 4 Equity Office Properties Trust 600 17 Equity Residential 400 13 Plum Creek Timber Co., Inc. 300 11 ProLogis 300 12 Simon Property Group, Inc. 300 17 ----------- 74 RETAIL 0.4% -------------------------------------------------------------------------- Albertson's, Inc. 652 15 o Autonation, Inc. 500 9 o AutoZone, Inc. 150 12 o Bed, Bath & Beyond, Inc. 400 16 Best Buy Co., Inc. 450 27 o Big Lots, Inc. 200 2 Circuit City Stores, Inc. 300 5 Costco Wholesale Corp. 700 34 CVS Corp. 600 26 Dillards, Inc., Class A 200 4 Dollar General Corp. 515 10 Family Dollar Stores, Inc. 300 9 Federated Department Stores, Inc. 300 15 The Gap, Inc. 1,362 27 Home Depot, Inc. 3,450 142 J.C. Penney Co., Inc. Holding Co. 400 14 o Kohl's Corp. 500 25 o Kroger Co. 1,200 18 Limitedbrands 818 20 Lowe's Cos., Inc. 1,200 68 The May Department Stores Co. 500 13 Nordstrom, Inc. 200 9 o Office Depot, Inc. 600 10 RadioShack Corp. 300 9 o Safeway, Inc. 650 12 Sears, Roebuck & Co. 300 11 Staples, Inc. 750 22 Target Corp. 1,400 70 Tiffany & Co. 250 7 TJX Cos., Inc. 800 19 o Toys `R' Us, Inc. 300 5 (9) Wal-Mart Stores, Inc. 6,450 348 Walgreen Co. 1,600 57 Winn-Dixie Stores, Inc. 300 1 ----------- 1,091 STEEL 0.0% -------------------------------------------------------------------------- Allegheny Technologies, Inc. 146 3 Nucor Corp. 200 8 United States Steel Corp. 100 4 Worthington Industries, Inc. 100 2 ----------- 17 TELEPHONE 0.2% -------------------------------------------------------------------------- Alltel Corp. 500 27 AT&T Corp. 1,181 20 o Avaya, Inc. 618 9 BellSouth Corp. 2,750 73 CenturyTel, Inc. 250 8 o Citizens Communications Co. 410 6 o Nextel Communications, Inc., Class A 1,700 45 o Qwest Communications International, Inc. 2,524 9 SBC Communications, Inc. 5,025 127 Sprint Corp. (FON Group) 2,000 42 Verizon Communications, Inc. 4,188 164 ----------- 530 TOBACCO 0.1% -------------------------------------------------------------------------- Altria Group, Inc. 3,100 150 Reynolds American, Inc. 237 16 UST, Inc. 300 13 ----------- 179 TRAVEL & RECREATION 0.0% -------------------------------------------------------------------------- Brunswick Corp. 100 5 Carnival Corp. 1,000 50 Harrah's Entertainment, Inc. 200 12 Hilton Hotels Corp. 600 12 Marriott International, Inc., Class A 400 22 Starwood Hotels & Resorts Worldwide, Inc. 300 14 ----------- 115
See financial notes. 51 SCHWAB MARKETTRACK CONSERVATIVE PORTFOLIO PORTFOLIO HOLDINGS continued
VALUE SECURITY AND NUMBER OF SHARES ($ x 1,000) TRUCKING & FREIGHT 0.0% -------------------------------------------------------------------------- Paccar, Inc. 300 21 Ryder Systems, Inc. 100 5 ----------- 26 UTILITIES: ELECTRIC & GAS 0.2% -------------------------------------------------------------------------- o The AES Corp. 800 9 o Allegheny Energy, Inc. 170 3 Ameren Corp. 300 14 American Electric Power Co., Inc. 580 19 o Calpine Corp. 400 1 Centerpoint Energy, Inc. 474 5 Cinergy Corp. 300 12 o CMS Energy Corp. 200 2 Consolidated Edison, Inc. 300 13 Constellation Energy Group, Inc. 200 8 Dominion Resources, Inc. 515 33 DTE Energy Co. 200 9 Duke Energy Corp. 1,408 34 o Dynegy, Inc., Class A 500 2 Edison International 500 15 El Paso Corp. 769 7 Entergy Corp. 350 23 Exelon Corp. 1,024 41 FirstEnergy Corp. 533 22 FPL Group, Inc. 300 21 KeySpan Corp. 200 8 Kinder Morgan, Inc. 176 11 Nicor, Inc. 100 4 NiSource, Inc. 376 8 Peoples Energy Corp. 100 4 o PG&E Corp. 600 19 Pinnacle West Capital Corp. 100 4 PPL Corp. 300 16 Progress Energy, Inc. 354 15 Public Service Enterprise Group, Inc. 400 17 Sempra Energy 297 10 The Southern Co. 1,100 35 TECO Energy, Inc. 200 3 TXU Corp. 400 24 Williams Cos., Inc. 700 9 Xcel Energy, Inc. 510 9 ----------- 489 OTHER INVESTMENT COMPANIES 93.8% of net assets /(3) Schwab International Index Fund, Select Shares 1,990,703 29,522 /(2) Schwab S&P 500 Fund, Select Shares 2,403,370 42,492 /(4) Schwab Small-Cap Index Fund, Select Shares 1,461,305 29,168 /(1) Schwab Total Bond Market Fund 15,615,522 159,278 /(5) Schwab Value Advantage Money Fund, Investor Shares 11,787,465 11,787 ----------- 272,247
SECURITY FACE AMOUNT RATE, MATURITY DATE ($ x 1,000) SHORT-TERM INVESTMENT 0.7% of net assets HSBC Bank, USA Grand Cayman Time Deposit 1.29%, 11/01/04 1,973 1,973
END OF INVESTMENTS. 52 See financial notes. SCHWAB MARKETTRACK CONSERVATIVE PORTFOLIO Statement of ASSETS AND LIABILITIES As of October 31, 2004. All numbers x 1,000 except NAV. ASSETS -------------------------------------------------------------------------------- Investments, at value $290,210 a Receivables: Fund shares sold 103 Dividends 41 Prepaid expenses + 12 ------------ TOTAL ASSETS 290,366 LIABILITIES -------------------------------------------------------------------------------- Payables: Fund shares redeemed 143 Investments bought 12 Investment adviser and administrator fees 5 Transfer agent and shareholder service fees 6 Trustees' fees 1 Accrued expenses + 41 ------------ TOTAL LIABILITIES 208 NET ASSETS -------------------------------------------------------------------------------- TOTAL ASSETS 290,366 TOTAL LIABILITIES - 208 ------------ NET ASSETS $290,158 NET ASSETS BY SOURCE Capital received from investors 266,074 Net investment income not yet distributed 372 Net realized capital losses (3,226) Net unrealized capital gains 26,938 NET ASSET VALUE (NAV) SHARES NET ASSETS / OUTSTANDING = NAV $290,158 22,169 $13.09
Unless stated, all numbers x 1,000. a The fund paid $263,272 for these securities. Not counting short-term obligations and government securities, the fund's security transactions during the period were: Purchases $28,152 Sales/maturities $37,100 The fund's total security transactions with other SchwabFunds(R) during the period were $30. Percent of fund shares of other Schwab funds owned at the end of the report period: SCHWAB EQUITY INDEX FUNDS S&P 500 Fund 0.5% Small-Cap Index Fund 1.8% International Index Fund 2.4% SCHWAB BOND FUNDS Total Bond Market Fund 15.1% SCHWAB MONEY FUNDS Value Advantage Money Fund Less than 0.1% FEDERAL TAX DATA ------------------------------------------------------ PORTFOLIO COST $264,443 NET UNREALIZED GAINS AND LOSSES: Gains $27,952 Losses + (2,185) ---------- $25,767 AS OF OCTOBER 31, 2004: NET UNDISTRIBUTED EARNINGS: Ordinary income $372 Long-term capital gains $-- CAPITAL LOSSES UTILIZED $2,752 UNUSED CAPITAL LOSSES: Expires 10/31 of: Loss amount 2011 $2,055 See financial notes. 53 SCHWAB MARKETTRACK CONSERVATIVE PORTFOLIO Statement of OPERATIONS For November 1, 2003 through October 31, 2004. All numbers x 1,000. INVESTMENT INCOME ------------------------------------------------------------------------------- Dividends $9,377 Interest + 8 ---------- TOTAL INVESTMENT INCOME 9,385 NET REALIZED GAINS AND LOSSES ------------------------------------------------------------------------------- Net realized gains on investments 404 Net realized gains received from underlying funds + 2,869 ---------- NET REALIZED GAINS 3,273 NET UNREALIZED GAINS AND LOSSES ------------------------------------------------------------------------------- Net unrealized gains on investments 9,568 EXPENSES ------------------------------------------------------------------------------- Investment adviser and administrator fees 1,293 a Transfer agent and shareholder service fees 734 b Trustees' fees 6 c Custodian fees 30 Portfolio accounting fees 40 Professional fees 34 Registration fees 21 Shareholder reports 23 Other expenses + 8 ---------- Total expenses 2,189 Expense reduction - 720 d ---------- NET EXPENSES 1,469 INCREASE IN NET ASSETS FROM OPERATIONS ------------------------------------------------------------------------------- TOTAL INVESTMENT INCOME 9,385 NET EXPENSES - 1,469 NET INVESTMENT INCOME 7,916 NET REALIZED GAINS 3,273 e NET UNREALIZED GAINS + 9,568 e ---------- INCREASE IN NET ASSETS FROM OPERATIONS $20,757
Unless stated, all numbers x 1,000. a Calculated as a percentage of average daily net assets: 0.44% of the first $500 million and 0.39% of assets beyond that. These fees are paid to Charles Schwab Investment Management, Inc. (CSIM). b 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. These fees are paid to Charles Schwab & Co., Inc. (Schwab). c For the fund's independent trustees only. d This reduction was made by the investment adviser (CSIM). It reflects a guarantee by CSIM and the transfer agent and shareholder service agent (Schwab) to limit the operating expenses of this fund through February 28, 2005, to 0.50% of average daily net assets. This limit excludes interest, taxes and certain non-routine expenses. e These add up to a net gain on investments of $12,841. 54 See financial notes. SCHWAB MARKETTRACK CONSERVATIVE PORTFOLIO Statements of CHANGES IN NET ASSETS For the current and prior report periods. All numbers x 1,000
OPERATIONS -------------------------------------------------------------------------------- 11/1/03-10/31/04 11/1/02-10/31/03 Net investment income $7,916 $6,662 Net realized gains or losses 3,273 (2,662) Net unrealized gains + 9,568 29,372 ------------------------------------------- INCREASE IN NET ASSETS FROM OPERATIONS 20,757 33,372 DISTRIBUTIONS PAID -------------------------------------------------------------------------------- Dividends from net investment income $8,047 $6,687 a,b
TRANSACTIONS IN FUND SHARES -------------------------------------------------------------------------------- 11/1/03-10/31/04 11/1/02-10/31/03 SHARES VALUE SHARES VALUE Shares sold 3,721 $47,654 4,632 $54,499 Shares reinvested 602 7,647 548 6,370 Shares redeemed + (5,185) (66,455) (5,315) (62,339) --------------------------------------------------- NET TRANSACTIONS IN FUND SHARES (862) ($11,154) (135) ($1,470)
SHARES OUTSTANDING AND NET ASSETS -------------------------------------------------------------------------------- 11/1/03-10/31/04 11/1/02-10/31/03 SHARES NET ASSETS SHARES NET ASSETS Beginning of period 23,031 $288,602 23,166 $263,387 Total increase or decrease + (862) 1,556 (135) 25,215 c --------------------------------------------------- END OF PERIOD 22,169 $290,158 23,031 $288,602 d
Unless stated, all numbers x 1,000. a UNAUDITED For corporations, 13% of the fund's dividends for the report period qualify for the dividends-received deduction. The fund designates $1,510 of the dividend distribution for the fiscal year ended 10/31/04 as qualified dividends for the purpose of the maximum rate under Section 1(h)(ii) of the Internal Revenue Code. Shareholders will be notified in January 2005 via IRS Form 1099 of the amounts for use in preparing their 2004 income tax return. b The tax-basis components of distributions are: CURRENT PERIOD Ordinary income $8,047 Long-term capital gains $ -- PRIOR PERIOD Ordinary income $6,687 Long-term capital gains $ -- c Figures for shares represent shares sold plus shares reinvested, minus shares redeemed. Figures for net assets represent the changes in net assets from operations plus the changes in value of transactions in fund shares, minus distributions paid. d Includes distributable net investment income in the amount of $372 and $503 at the end of the current period and prior period, respectively. See financial notes. 55 SCHWAB MARKETTRACK PORTFOLIOS 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. Shares are bought and sold at net asset value (NAV), which is the price for all outstanding shares. Each share has a par value of 1/1,000 of a cent, and the trust may issue as many shares as necessary. FUND OPERATIONS Most of the funds' investments are described in the fund-by-fund sections earlier in this report. However, there are certain other fund operations and policies that may affect a fund's financials, as 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, except for the Conservative Portfolio, which makes income distributions quarterly. THE FUNDS MAY INVEST IN FUTURES CONTRACTS. Futures contracts involve certain risks because they can be very 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 a 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. The potential for losses associated with futures contracts may exceed amounts recorded in the Statement of Assets and Liabilities. 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. A fund records the change in market value of futures, and also the change in the amount of margin deposit required ("variation margin"). 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, 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 Schwab Total Stock Market Index Fund Schwab International Index Fund Schwab MarketTrack All Equity Portfolio Schwab MarketTrack Growth Portfolio Schwab MarketTrack Balanced Portfolio Schwab MarketTrack Conservative Portfolio Laudus U.S. MarketMasters Fund Laudus Balanced MarketMasters Fund Laudus Small-Cap MarketMasters Fund Laudus International MarketMasters Fund Schwab Core Equity Fund Schwab Dividend Equity Fund Schwab Small-Cap Equity Fund Schwab Hedged Equity Fund Communications Focus Fund Financial Services Focus Fund Health Care Focus Fund Technology Focus Fund Schwab Institutional Select S&P 500 Fund Schwab Institutional Select Large-Cap Value Index Fund Schwab Institutional Select Small-Cap Value Index Fund 56 SCHWAB MARKETTRACK PORTFOLIOS price and other conditions are all specified when the agreement is created. The funds' repurchase agreements will be fully collateralized by U.S. government securities. All collateral is held by the funds' custodian (or, with tri-party agreements, the agent's bank) and is monitored daily to ensure that its market value is at least equal to the repurchase price under the agreement. THE FUNDS PAY FEES TO AFFILIATES OF THE INVESTMENT ADVISER FOR VARIOUS SERVICES. Through their trust, 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 that may limit the total expenses charged. The rates and limitations for these fees vary from fund to fund, and are described in each fund's Statement of Operations. THE FUNDS MAY ENGAGE IN CERTAIN TRANSACTIONS INVOLVING RELATED PARTIES. For instance, a fund may own shares of The Charles Schwab Corporation if that company is included in its index. Pursuant to an exemptive order issued by the SEC, the funds may invest in other related funds. The percentages of fund shares of other related funds owned are shown in each fund's Statement of Assets and Liabilities. 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. Pursuant to an exemptive order issued by the SEC, the funds may enter into interfund borrowing and lending transactions within the SchwabFunds(R). All loans are for temporary or emergency purposes only. The interest rate charged on the loan is the average of the overnight repurchase agreement rate and the short-term bank loan rate. The interfund lending facility is subject to the oversight and periodic review of the Board of Trustees of the SchwabFunds(R). TRUSTEES MAY INCLUDE PEOPLE WHO ARE OFFICERS AND/OR DIRECTORS OF THE INVESTMENT ADVISER OR SCHWAB. Federal securities law limits the percentage of such "interested persons" who may serve on a trust's board, and the trust was in compliance with these limitations throughout the report period. The trust did not pay any of these persons for their service as trustees, but it did pay non-interested persons (independent trustees), as noted in each fund's Statement of Operations. THE FUNDS MAY BORROW MONEY FROM BANKS AND CUSTODIANS. 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 SchwabFunds have custodian overdraft facilities and line of credit arrangements of $150 million and $100 million with PNC Bank, N.A. and Bank of America, N.A., respectively. The funds pay interest on the amounts they borrow at rates that are negotiated periodically.
AMOUNT WEIGHTED OUTSTANDING AVERAGE AVERAGE AT 10/31/04 BORROWING* INTEREST FUND ($ x 1,000) ($ x 1,000) RATE* (%) -------------------------------------------------------------------------------- MARKETTRACK GROWTH PORTFOLIO -- 142 2.18 -------------------------------------------------------------------------------- MARKETTRACK BALANCED PORTFOLIO -- 465 2.11 -------------------------------------------------------------------------------- MARKETTRACK CONSERVATIVE PORTFOLIO -- 98 1.55 --------------------------------------------------------------------------------
* Based on the number of days for which the borrowing is outstanding. THE FUNDS INTEND TO MEET FEDERAL INCOME AND EXCISE TAX REQUIREMENTS FOR REGULATED INVESTMENT COMPANIES. 57 SCHWAB MARKETTRACK PORTFOLIOS Accordingly, the funds distribute substantially all of their net investment income and net realized 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. The net investment income and net realized capital gains and losses may differ for financial statement and tax purposes primarily due to differing treatments of losses on wash sales. UNDER THE FUNDS' ORGANIZATIONAL DOCUMENTS, ITS OFFICERS AND TRUSTEES ARE INDEMNIFIED AGAINST CERTAIN LIABILITY ARISING OUT OF THE PERFORMANCE OF THEIR DUTIES TO THE FUNDS. In addition, in the normal course of business the funds enter into contracts with their vendors and others that provide general indemnifications. The funds' maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the funds. However, based on experience, the funds expect the risk of loss to be remote. 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: - SECURITIES TRADED ON AN EXCHANGE OR OVER-THE-COUNTER: valued at the closing value for the day, or, on days when no closing value has been reported, halfway between the most recent bid and asked quotes. Securities that are primarily traded on foreign exchanges are valued at the closing values of such securities on their respective exchanges with these values then translated into U.S. dollars at the current exchange rate. - SECURITIES FOR WHICH NO MARKET QUOTATIONS ARE READILY AVAILABLE or when a significant event has occurred between the time of the security's last close and the time that a fund calculates net asset value: 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 and the Pricing Committee. Some of the more common reasons that may necessitate that a security be valued at fair value include: the security's trading has been halted or suspended; the security has been de-listed from a national exchange; the security's primary trading market is temporarily closed at a time when under normal conditions it would be open; or the security's primary pricing source is not able or willing to provide a price. - 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. - UNDERLYING FUNDS: Valued at their respective net asset values as determined by those funds, in accordance with the 1940 Act for a given day. - 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 DISCOUNT is recorded as it accrues. REALIZED GAINS AND LOSSES from security transactions are based on the identified costs of the securities involved. 58 SCHWAB MARKETTRACK PORTFOLIOS 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 calculated 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 average daily 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 ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES OF AMERICA. 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. 59 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF: Schwab MarketTrack All Equity Portfolio(TM) Schwab MarketTrack Growth Portfolio(TM) Schwab MarketTrack Balanced Portfolio(TM) Schwab MarketTrack Conservative Portfolio(TM) 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 Schwab MarketTrack All Equity Portfolio, Schwab MarketTrack Growth Portfolio, Schwab MarketTrack Balanced Portfolio and Schwab MarketTrack Conservative Portfolio (four of the portfolios constituting Schwab Capital Trust) (hereafter collectively referred to as the "Funds") at October 31, 2004, the results of each of their operations for the year then ended, and the changes in their net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, 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 audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at October 31, 2004 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. PRICEWATERHOUSECOOPERS LLP San Francisco, CA December 16, 2004 60 FUND TRUSTEES A fund's Board of Trustees is responsible for protecting the interests of that fund's shareholders. The tables below give information about the people who serve as trustees and officers for the SchwabFunds(R), including the funds covered in this report. Trustees remain in office until they resign, retire or are removed by shareholder vote. 1 Under the Investment Company Act of 1940, any officer, director, or employee of Schwab or CSIM is considered an "interested person," meaning that he or she is considered to have a business interest in Schwab or CSIM. These individuals are listed as "interested trustees." The "independent trustees" are individuals who, under the 1940 Act, are not considered to have a business interest in Schwab or CSIM. Each of the SchwabFunds (of which there were 51 as of 10/31/04) belongs to one of these trusts: The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust or Schwab Annuity Portfolios. Currently all these trusts have the same trustees and officers. The address for all trustees and officers is 101 Montgomery Street, San Francisco, CA 94104. You can find more information about the trustees and officers in the Statement of Additional Information, which is available free by calling 1-800-435-4000. INDIVIDUALS WHO ARE INTERESTED TRUSTEES AND OFFICERS OF THE TRUST
TRUST POSITION(S); NAME AND BIRTHDATE TRUSTEE SINCE MAIN OCCUPATIONS AND OTHER DIRECTORSHIPS AND AFFILIATIONS ------------------------------------------------------------------------------------------------------------------------------------ CHARLES R. SCHWAB 2 Chair, Trustee: Chair, CEO, Director, The Charles Schwab Corp., Charles Schwab & 7/29/37 Family of Funds, 1989; Co., Inc.; Chair, Director, Charles Schwab Investment Management, Investments, 1991; Inc.; Chair, Charles Schwab Holdings (UK); CEO, Director, Charles Capital Trust, 1993; Schwab Holdings, Inc.; Chair, CEO Schwab (SIS) Holdings, Inc. I, Annuity Portfolios, 1994. Schwab International Holdings, Inc.; Director, Charles Schwab Bank, N.A., U.S. Trust Corp., United States Trust Co. of New York, Siebel Systems (software), Xsign, Inc. (electronic payment systems), TrustMark, Inc., All Kinds of Minds (education); Trustee, Stanford University. Until 5/04: Director, The Gap, Inc. (clothing retailer). Until 5/03: Co-CEO, The Charles Schwab Corp. Until 3/02: Director, Audiobase, Inc. (Internet audio solutions). Until 5/02: Director, Vodaphone AirTouch PLC (telecommunications). Until 7/01: Director, The Charles Schwab Trust Co.
1 The SchwabFunds retirement policy requires that independent trustees elected after January 1, 2000 retire at age 72 or after twenty years of service as a trustee, whichever comes first. Independent trustees elected prior to January 1, 2000 will retire on the following schedule: Messrs. Holmes and Dorward will retire on December 31, 2007, and Messrs. Stephens and Wilsey will retire on December 31, 2010. 2 In addition to his position with the investment adviser and the distributor, Mr. Schwab also owns stock of The Charles Schwab Corporation. 61 INDIVIDUALS WHO ARE OFFICERS OF THE TRUST BUT NOT TRUSTEES
NAME AND BIRTHDATE TRUST OFFICE(S) HELD MAIN OCCUPATIONS AND OTHER DIRECTORSHIPS AND AFFILIATIONS ------------------------------------------------------------------------------------------------------------------------------------ EVELYN DILSAVER President, CEO EVP, President, Charles Schwab Investment Management, Inc; 5/4/55 (all trusts). Until 7/04: SVP for Development and Distribution, Asset Management Products and Services Enterprise; Until 6/03: EVP, CFO, Administrative Officer, U.S. Trust Corp. ------------------------------------------------------------------------------------------------------------------------------------ STEPHEN B. WARD SVP, Chief Investment SVP, Chief Investment Officer, Director, Charles Schwab Investment 4/5/55 Officer (all trusts). Management, Inc.; Chief Investment Officer, The Charles Schwab Trust Co. ------------------------------------------------------------------------------------------------------------------------------------ KIMON DAIFOTIS SVP, Chief Investment Since 9/04: Chief Investment Officer, Fixed Income, Charles 7/10/59 Officer (all trusts). Schwab Investment Management, Inc.; Since 6/04: SVP, Charles Schwab Investment Management, Inc.; Until 6/04: VP, Charles Schwab Investment Management, Inc. ------------------------------------------------------------------------------------------------------------------------------------ JEFF MORTIMER SVP, Chief Investment Since 5/04: SVP, Chief Investment Officer, Equities, Charles Schwab 9/29/63 Officer (all trusts). Investment Management, Inc.; Since 6/04: VP, Chief Investment Officer, Laudus Trust; Until 5/04: VP, Charles Schwab Investment Management, Inc. ------------------------------------------------------------------------------------------------------------------------------------ RANDALL FILLMORE Chief Compliance Since 9/04: SVP, Institutional Compliance and Chief Compliance 11/11/60 Officer (all trusts). Officer, Charles Schwab Investment Management, Inc.; Until 9/04: VP, Charles Schwab & Co., Charles Schwab Investment Management, Inc.; Until 2002: VP of Internal Audit, Charles Schwab & Co.; Prior to 2000: PricewaterhouseCoopers. ------------------------------------------------------------------------------------------------------------------------------------ KOJI E. FELTON Secretary (all trusts). SVP, Chief Counsel, Assistant Corporate Secretary, Charles Schwab 3/13/61 Investment Management, Inc. Until 6/98: Branch Chief in Enforcement, U.S. Securities and Exchange Commission, San Francisco. ------------------------------------------------------------------------------------------------------------------------------------ GEORGE PEREIRA 1 Treasurer, Principal Since 11/04: SVP, CFO, Charles Schwab Investment Management, 6/9/64 Financial Officer Inc.; Until 11/04: SVP, Financial Reporting, Charles Schwab & Co., Inc.; (all trusts). Until 12/99: Chief Financial Officer, Commerzbank Capital Markets; Until 9/99: Managing Director at the New York Stock Exchange.
1 Elected to his position on the SchwabFunds Board on November 16, 2004. 62 INDIVIDUALS WHO ARE INDEPENDENT TRUSTEES
NAME AND BIRTHDATE TRUSTEE SINCE MAIN OCCUPATIONS AND OTHER DIRECTORSHIPS AND AFFILIATIONS ------------------------------------------------------------------------------------------------------------------------------------ MARIANN BYERWALTER 2000 (all trusts). Chair, JDN Corp. Advisory LLC; Trustee, Stanford University, America 8/13/60 First Cos., (venture capital/fund management), Redwood Trust, Inc. (mortgage finance), Stanford Hospitals and Clinics, SRI International (research), PMI Group, Inc. (mortgage insurance), Lucile Packard Children's Hospital, Laudus Trust, Laudus Variable Insurance Trust. 2001: Special Advisor to the President, Stanford University. Until 2002: Director, LookSmart, Ltd. (Internet infrastructure). Until 2001: VP, Business Affairs, CFO, Stanford University. ------------------------------------------------------------------------------------------------------------------------------------ DONALD F. DORWARD Family of Funds, 1989; CEO, Dorward & Associates (corporate management, marketing and 9/23/31 Investments, 1991; communications consulting). Until 1999: EVP, Managing Director, Capital Trust, 1993; Grey Advertising. Annuity Portfolios,1994. ------------------------------------------------------------------------------------------------------------------------------------ WILLIAM A. HASLER 2000 (all trusts). Co-CEO, Aphton Corp. (bio-pharmaceuticals). Trustee, Solectron Corp. 11/22/41 (manufacturing), Airlease Ltd. (aircraft leasing), Mission West Properties (commercial real estate), Stratex Corp. (network equipment); Public Governor, Laudus Trust, Laudus Variable Insurance Trust; Member, executive committee, Pacific Stock & Options Exchange. Until 2003: Trustee, Tenera, Inc. (services and software). Until 1998: Dean, Haas School of Business, University of California, Berkeley. ------------------------------------------------------------------------------------------------------------------------------------ ROBERT G. HOLMES Family of Funds, 1989; Chair, CEO, Director, Semloh Financial, Inc. (international financial 5/15/31 Investments, 1991; services and investment advice). Capital Trust, 1993; Annuity Portfolios,1994. ------------------------------------------------------------------------------------------------------------------------------------ GERALD B. SMITH 2000 (all trusts). Chair, CEO, Founder, Smith Graham & Co. (investment advisors); 9/28/50 Trustee, Rorento N.V. (investments--Netherlands), Cooper Industries (electrical products, tools and hardware); Member, audit committee, Northern Border Partners, L.P. (energy). Until 2002: Director, Pennzoil- Quaker State Co. (oil and gas). ------------------------------------------------------------------------------------------------------------------------------------ DONALD R. STEPHENS Family of Funds, 1989; Managing Partner, D.R. Stephens & Co. (investments). Until 1996: 6/28/38 Investments, 1991; Chair, CEO, North American Trust (real estate investment trust). Capital Trust, 1993; Annuity Portfolios, 1994. ------------------------------------------------------------------------------------------------------------------------------------ MICHAEL W. WILSEY Family of Funds, 1989; Chair, CEO, Wilsey Bennett, Inc. (transportation, real estate 8/18/43 Investments, 1991; and investments). Capital Trust, 1993; Annuity Portfolios, 1994.
63 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(R)). 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." An individual bond is subject to the credit risk of the issuer. Changes in interest rates can affect a bond's market value prior to call or maturity. There is no guarantee that a bond's yield to call or maturity will provide a positive return over the rate of inflation. BOND FUND A bond fund is subject to the same credit, interest rate, and inflation risks as bonds. In addition, a bond fund incurs ongoing fees and expenses. A bond fund's net asset value will fluctuate with the price of the underlying bonds and the portfolio turnover activity; return of principal is not guaranteed. 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 percentage that an investor would have earned or lost on an investment in the fund assuming dividends and distributions were reinvested. 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. 64 SchwabFunds(R) offers you a complete family of mutual funds, each one based on a clearly defined investment approach and using disciplined management strategies. The list at right shows all currently available SchwabFunds. Whether you're an experienced investor or just starting out, SchwabFunds can help you achieve your financial goals. An investor should consider a fund's investment objectives, risks, and charges and expenses carefully before investing or sending money. This and other important information can be found in the fund's prospectus. Please call 1-800-435-4000 for a prospectus and brochure for any SchwabFund. Please read the prospectus carefully before you invest. This report must be preceded or accompanied by a current prospectus. METHODS FOR PLACING ORDERS The following information outlines how Schwab investors can place orders. If you are investing through a third-party investment provider, methods for placing orders may be different. INTERNET 1 www.schwab.com SCHWAB BY PHONE(TM) 2 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) Use our automated touch-tone phone service at 1-800-272-4922. MAIL Write to SchwabFunds at: P.O. Box 3812 Englewood, CO 80155-3812 When selling or exchanging shares, be sure to include the signatures of at least one of the persons whose name is on the account. PROXY VOTING POLICIES, PROCEDURES AND RESULTS A description of the proxy voting policies and procedures used to determine how to vote proxies on behalf of the funds is available without charge, upon request, by visiting Schwab's web site at www.schwab.com/schwabfunds, the SEC's web site at http://www.sec.gov, or by contacting SchwabFunds at 1-800-435-4000. Information regarding how a fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is available, without charge, by visiting Schwab's web site at www.schwab.com/schwabfunds or the SEC's website at http://www.sec.gov. 1 Shares of Sweep Investments(TM) may not be purchased directly over the Internet. 2 Orders placed in person or through a telephone representative may be subject to a service fee payable to Schwab. THE SCHWABFUNDS FAMILY(R) STOCK FUNDS Schwab S&P 500 Fund Schwab 1000 Fund(R) Schwab Small-Cap Index Fund(R) Schwab Total Stock Market Index Fund(R) Schwab International Index Fund(R) Schwab Core Equity Fund(TM) Schwab Dividend Equity Fund(TM) Schwab Small-Cap Equity Fund(TM) Schwab Hedged Equity Fund(TM) Schwab Focus Funds Communications Focus Fund Financial Services Focus Fund Health Care Focus Fund Technology Focus Fund Schwab(R) Institutional Select(R) Funds Schwab(R) Institutional Select(R) S&P 500 Fund Schwab(R) Institutional Select(R) Large-Cap Value Index Fund Schwab(R) Institutional Select(R) Small-Cap Value Index Fund ASSET ALLOCATION FUNDS Schwab MarketTrack Portfolios(R) Schwab MarketTrack All Equity Portfolio(TM) Schwab MarketTrack Growth Portfolio(TM) Schwab MarketTrack Balanced Portfolio(TM) Schwab MarketTrack Conservative Portfolio(TM) BOND FUNDS Schwab YieldPlus Fund(R) Schwab Short-Term Bond Market Fund(TM) Schwab Total Bond Market Fund(TM) Schwab GNMA Fund(TM) Schwab Short/Intermediate Tax-Free Bond Fund(TM) Schwab Long-Term Tax-Free Bond Fund(TM) Schwab California Short/Intermediate Tax-Free Bond Fund(TM) Schwab California Long-Term Tax-Free Bond Fund(TM) SCHWAB MONEY FUNDS Schwab offers an array of money market funds that seek high current income consistent with safety and liquidity. 3 Choose from taxable or tax-advantaged alternatives. Many can be linked to your Schwab account to "sweep" cash balances automatically, subject to availability, when you're between investments. Or, for your larger cash reserves, choose one of our Value Advantage Investments(R). 3 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. [CHARLES SCHWAB LOGO] INVESTMENT ADVISER Charles Schwab Investment Management, Inc. 101 Montgomery Street, San Francisco, CA 94104 DISTRIBUTOR Charles Schwab & Co., Inc. (Schwab) FUNDS SchwabFunds(R) P.O. Box 3812, Englewood, CO 80155-3812 This report is not authorized for distribution to prospective investors unless preceded or accompanied by a current prospectus. (C)2004 Charles Schwab & Co., Inc. All rights reserved. Member SIPC Printed on recycled paper. REG13813-07 SCHWAB(R) INSTITUTIONAL SELECT(R) FUNDS ANNUAL REPORT October 31, 2004 Schwab(R) Institutional Select(R) S&P 500 Fund Schwab(R) Institutional Select(R) Large-Cap Value Index Fund Schwab(R) Institutional Select(R) Small-Cap Value Index Fund [CHARLES SCHWAB LOGO] Three funds designed to capture the performance of specific segments of the U.S. stock market. IN THIS REPORT Management's Discussion .............................................. 2 The president of SchwabFunds(R) and the funds' managers take a look at the factors that shaped fund performance during the report period. Performance at a Glance ............. 5 Schwab(R) Institutional Select(R) S&P 500 Fund Ticker Symbol: ISLCX The fund seeks high total return by tracking the performance of the S&P 500(R) Index. 1 Performance and Fund Facts .......... 6 Financial Statements ................ 13 Schwab(R) Institutional Select(R) Large-Cap Value Index Fund Ticker Symbol: ISLVX The fund seeks high total return by tracking the performance of the S&P 500/Barra Value Index. 1 Performance and Fund Facts .......... 8 Financial Statements ................ 26 Schwab(R) Institutional Select(R) Small-Cap Value Index Fund Ticker Symbol: ISSVX The fund seeks high total return by tracking the performance of the S&P SmallCap 600/Barra Value Index. 1 Performance and Fund Facts .......... 10 Financial Statements ................ 37 Fund Expenses ........................................................ 12 Financial Notes ...................................................... 48 Fund Trustees ........................................................ 53 Glossary ............................................................. 56 Fund investment adviser: Charles Schwab Investment Management, Inc. (CSIM) Distributor and transfer agent: Charles Schwab & Co., Inc. (Schwab). 1 Standard & Poor's(R), S&P(R), S&P 500(R), Standard & Poor's 500(R), 500(R), S&P 500/Barra Value Index and S&P SmallCap 600/Barra Value Index are trademarks of The McGraw-Hill Companies, Inc. and have been licensed for use by the fund. The fund is not sponsored, endorsed, sold or promoted by Standard & Poor's, and Standard & Poor's makes no representation regarding the advisability of investing in the fund. [PHOTO OF CHARLES SCHWAB] Charles Schwab Chairman FROM THE CHAIRMAN Dear Shareholder: As we get ready for 2005, I want to remind you that you might want to add one more item to your list of New Year's resolutions--to review and, if necessary, rebalance your investment portfolio. After all, staying on track is as important in investing as it is in any other part of life. No matter whether it's a good or bad investment climate, you need to make sure that you own a diversified mix of investments and that your asset allocation matches your individual goals, time frame and tolerance for risk. One efficient way to be diversified is by owning a broad-based mutual fund. Equity mutual funds also can help you to diversify the stock side of your portfolio. While our experienced portfolio managers adhere to each fund's objective, it still is important to review your portfolio to make sure the holdings in your funds don't overlap and you're not overconcentrated in one asset class. On a final note, I'm very happy to announce that Evelyn Dilsaver has been named CEO and President of SchwabFunds(R). Although new to the position, Evelyn is no stranger to SchwabFunds, having been an officer in several other capacities at Schwab. Her broad experience in product creation, coupled with a comprehensive understanding of your financial needs and her commitment to you, make her the ideal candidate for her new role. Thank you for investing with us. Sincerely, /s/ Charles Schwab MANAGEMENT'S DISCUSSION for the year ended October 31, 2004 [PHOTO OF EVELYN DILSAVER] EVELYN DILSAVER is President and CEO of Charles Schwab Investment Management, Inc. and is president of each of the funds covered in this report. She joined the firm in 1992 and has held a variety of executive positions at Schwab. Dear Shareholder: I am very excited about my new role as President and CEO of SchwabFunds(R). I believe that my experience at Schwab has prepared me well for this role, as each position has been focused on meeting the needs of our clients. I promise that I will continue on this path and that my goal is to offer you even better service and more relevant choices. When we discuss SchwabFunds with our clients, for example, we often hear that you want to know that you're getting excellent value. In fact, on October 1, 2004, we significantly reduced the minimum investment needed in our Schwab(R) Institutional Select(R) S&P 500 Fund and we lowered its operating expense ratio (OER) from 0.15% down to 0.10% 1. I also want to let you know that we plan to continue to provide and expand information on SchwabFunds on schwab.com. Providing this information is one of the many ways we help individual investors choose investments that are appropriate for their financial goals and time horizons. I look forward to serving you in my new role. I also want to remind you that your trust is very important to us, and I will do all I can to earn and maintain that trust. Thank you for investing in SchwabFunds. Sincerely, /s/ Evelyn Dilsaver 1 Schwab and the investment adviser have agreed to limit the fund's OER to 0.10% (excluding interest, taxes and certain non-routine expenses) through 12/31/05. 2 Schwab Institutional Select Funds The strength of the market early in the period, combined with strong second- and third-quarter valuations and earnings resulted in a positive showing for equities, as measured by the S&P 500(R) Index. THE INVESTMENT ENVIRONMENT AND THE FUNDS THE ENCOURAGING ECONOMIC NEWS THAT WAS REPORTED TOWARD THE END OF 2003 CONTINUED TO IMPROVE INTO 2004. Businesses added to their inventories, factory orders rose and production gained some strength. Retail sales continued to rise and higher commodity prices were holding. Mortgage refinancing activity, while still significant, waned as mortgage rates inched slightly upward. And finally, the last piece of the economic puzzle--job growth--began to pick up some steam. In fact, aside from a "soft patch" in early summer, the economy was clicking on all cylinders. With the economic recovery more broad-based, investors, who only a year ago feared deflation, started to worry about inflation. Their inflationary concerns were based on surging oil prices, which had hit an all-time high amid fears of supply interruptions. And while commodity prices moderated somewhat later in the report period, previous increases started to show up in broad measures of inflation. Labor costs also were beginning to rise. Nonetheless, the Federal Reserve (the Fed) continued to hold the Fed funds rate near a 45-year low until June 2004. While third-quarter GDP moved in the right direction, up to an annualized 3.7% from 3.3% in second quarter, higher commodity prices had effectively eroded many consumers' purchasing power. Geopolitical ASSET CLASS PERFORMANCE COMPARISON % returns during the report period This graph compares the performance of various asset classes during the report period. Final performance figures for the period are in the key below. 9.42% S&P 500(R) INDEX: measures U.S. large-cap stocks 11.73% RUSSELL 2000(R) INDEX: measures U.S. small-cap stocks 18.84% MSCI-EAFE(R) INDEX: measures (in U.S. dollars) large-cap stocks in Europe, Australasia and the Far East 5.53% LEHMAN BROTHERS U.S. AGGREGATE BOND INDEX: measures the U.S. bond market [LINE GRAPH]
RUSSELL LEHMAN BROTHERS S&P 500(R) 2000(R) MSCI-EAFE(R) U.S. AGGREGATE DATE INDEX INDEX INDEX BOND INDEX 31-Oct-03 0.00 0.00 0.00 0.00 7-Nov-03 0.29 2.82 0.78 -0.63 14-Nov-03 0.08 0.94 1.80 0.61 21-Nov-03 -1.33 -0.38 0.15 0.86 28-Nov-03 0.88 3.55 2.22 0.24 5-Dec-03 1.24 2.14 4.70 0.95 12-Dec-03 2.48 3.80 5.04 0.97 19-Dec-03 3.90 3.68 6.46 1.50 26-Dec-03 4.59 5.21 7.84 1.53 2-Jan-04 5.85 6.40 10.98 0.81 9-Jan-04 7.16 9.14 13.86 2.16 16-Jan-04 8.89 12.04 12.31 2.46 23-Jan-04 9.07 13.13 15.10 2.33 30-Jan-04 8.12 10.24 11.77 2.07 6-Feb-04 9.26 10.89 13.33 2.35 13-Feb-04 9.63 11.12 15.41 2.80 20-Feb-04 9.49 10.13 15.13 2.64 27-Feb-04 9.62 11.23 14.35 3.18 5-Mar-04 10.80 13.90 16.17 3.85 12-Mar-04 7.38 10.77 11.07 4.12 19-Mar-04 6.36 8.49 13.10 4.07 26-Mar-04 6.20 8.91 12.52 3.88 2-Apr-04 9.47 14.78 16.39 2.72 9-Apr-04 9.27 13.73 16.44 2.62 16-Apr-04 8.83 10.99 15.04 2.03 23-Apr-04 9.42 12.39 14.61 1.51 30-Apr-04 6.27 6.54 12.39 1.25 7-May-04 5.47 4.43 10.88 -0.19 14-May-04 5.27 3.54 6.99 0.03 21-May-04 5.09 3.93 9.59 0.21 28-May-04 7.73 8.24 12.63 0.84 4-Jun-04 7.95 8.15 12.87 0.36 11-Jun-04 9.32 8.43 13.42 0.32 18-Jun-04 9.21 8.73 14.66 0.78 25-Jun-04 9.18 12.01 15.45 1.18 2-Jul-04 8.35 11.13 15.27 2.16 9-Jul-04 7.18 7.52 15.10 2.22 16-Jul-04 6.10 5.96 14.50 2.69 23-Jul-04 4.64 2.87 10.84 2.41 30-Jul-04 6.19 5.20 11.50 2.42 6-Aug-04 2.58 -0.81 10.63 3.63 13-Aug-04 2.74 -1.21 9.57 3.72 20-Aug-04 6.01 4.63 11.08 3.79 27-Aug-04 6.95 5.36 12.29 3.89 3-Sep-04 7.56 6.26 12.42 3.70 10-Sep-04 8.58 8.88 14.40 4.31 17-Sep-04 9.07 9.54 14.32 4.59 24-Sep-04 7.31 8.18 13.88 4.93 1-Oct-04 9.41 11.89 16.43 4.38 8-Oct-04 8.56 10.13 17.91 4.79 15-Oct-04 7.23 8.95 16.46 5.20 22-Oct-04 6.03 8.64 17.65 5.54 29-Oct-04 9.42 11.73 18.84 5.53 31-Oct-04 9.42 11.73 18.84 5.53
These figures assume dividends and distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged and you cannot invest in them directly. Remember that past performance is not an indication of future results. Data source: Charles Schwab & Co., Inc. Schwab Institutional Select Funds 3 MANAGEMENT'S DISCUSSION continued [PHOTO OF JEFFREY MORTIMER] JEFFREY MORTIMER, CFA, senior vice president and chief investment officer, equities, of the investment adviser is responsible for the overall management of each of the funds. Prior to joining the firm in October 1997, he worked for more than nine years in asset management. [PHOTO OF LARRY MANO] LARRY MANO, a director and a portfolio manager, is responsible for the day-to-day management of the funds. Prior to joining the firm in 1998, he worked for 20 years in equity management. events also had wreaked havoc on oil markets and, after a brief decline in the price of oil following OPEC's decision to boost production, a confluence of supply concerns and robust global demand pushed crude to new highs. In addition to these issues, daily headlines about terrorism and the fierce run for the White House all added up to an uncomfortable sense of uncertainty, keeping many investors on the sidelines. Despite all these concerns, which escalated toward the end of the report period, the strength of the market early in the period, combined with strong second- and third-quarter valuations and earnings resulted in a positive showing for equities. More specifically, the S&P 500(R) Index was up 9.42% for the 12-month report period, while the Russell 2000(R) Index was up 11.73%. In terms of style, value edged out growth early in the period and gained momentum, significantly outperforming growth at the end of the period. In terms of performance, the top sector, as measured by the S&P 500(R) Index was Energy, up 44.50%, due to the rising price of a barrel of oil. Coming in second was the Utilities sector, which was up 24.10%. The worst performer was Information Technology, which was down 0.88%. THE SCHWAB INSTITUTIONAL SELECT S&P 500 FUND ended the 12-month report period up 9.36%, closely tracking its benchmark, the S&P 500(R) Index, which was up 9.42%. Interestingly, most of this appreciation occurred during the beginning of the report period. Since then--starting in February 2004--the market traded in a relatively narrow trading range. During the report period, the price of crude oil increased substantially, making energy-related stocks, which were up 44.49%, the top performers in the fund. Exxon Mobil Corp. and ChevronTexaco Corp. were the biggest contributors to returns. On the flip side, the Information Technology sector continued to have problems and was down 0.88%, the only sector to have a net negative return. Hurting returns the most was technology giant Intel Corp., which was down 32.30% over the 12-month report period. 4 Schwab Institutional Select Funds PERFORMANCE AT A GLANCE Total return for the 12 months ended 10/31/04 THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN PERFORMANCE DATA QUOTED. TO OBTAIN PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH END, PLEASE VISIT WWW.SCHWAB.COM/SCHWABFUNDS. SCHWAB INSTITUTIONAL SELECT(R) S&P 500 FUND .................... 9.36% Benchmark ....................... 9.42% Performance Details ............. page 6 SCHWAB INSTITUTIONAL SELECT(R) LARGE-CAP VALUE INDEX FUND ...... 14.12% Benchmark ....................... 14.46% Performance Details ............. page 8 SCHWAB INSTITUTIONAL SELECT(R) SMALL-CAP VALUE INDEX FUND ...... 18.76% Benchmark ....................... 18.76% Performance Details ............. page 10 THE SCHWAB INSTITUTIONAL SELECT LARGE-CAP VALUE INDEX FUND was up 14.12% for the period, closely tracking its benchmark, the S&P 500/Barra Value Index, which was up 14.46%. The fund benefited from the market favoring large-cap value over large-cap growth stocks. All sectors posted positive returns for the period, led by Energy, Utilities and Industrials. Within these sectors, the best performers were Exxon Mobil Corp., TXU Corp. (Utilities) and Tyco International (Industrials). THE SCHWAB INSTITUTIONAL SELECT SMALL-CAP VALUE INDEX FUND was up 18.76% for the report period, the best performer of the three Institutional Select funds. The fund benefited from the market having favored both small-cap and value stocks. The strongest sectors were Energy, Materials and Industrials. Stocks that led the way were Tom Brown, Inc. (Energy), Massey Energy Corp. (Materials) and Timken Co. (Industrials). The weakest sector was Telecommunication Services, with General Communications, which was down 7.10%, being the worst performer. All fund and index figures on this page assume dividends and distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged, and you cannot invest in them directly. Expenses may be partially absorbed by CSIM and Schwab. Without these reductions, the funds' total returns would have been lower. Performance does not reflect the deduction of taxes that a shareholder would pay on fund distributions or on the redemption of fund shares. Small company stocks are subject to greater volatility than other asset categories. Nothing in this report represents a recommendation of a security by the investment adviser. Manager views and portfolio holdings may have changed since the report date. Schwab Institutional Select Funds 5 SCHWAB INSTITUTIONAL SELECT(R) S&P 500 FUND PERFORMANCE as of 10/31/04 PRE- AND POST-TAX AVERAGE ANNUAL TOTAL RETURNS 1, 2 This bar chart compares pre-tax performance of the fund with its benchmark and Morningstar category. The table below the chart shows two types of after-tax returns. [BAR CHART]
Fund Category: Benchmark: MORNINGSTAR S&P 500(R) LARGE-CAP FUND INDEX BLEND ---- ----- ----- 1 YEAR 9.36% 9.42% 7.89% 5 YEARS -2.32% -2.21% -1.72% SINCE INCEPTION: 2/1/99 -0.80% -0.68% -0.38%
1 YEAR 5 YEARS SINCE INCEPTION Fund Category: Fund Category: Fund Category: MORNINGSTAR MORNINGSTAR MORNINGSTAR LARGE-CAP LARGE-CAP LARGE-CAP TOTAL RETURNS AFTER TAX FUND BLEND FUND BLEND FUND BLEND ---------------------------------------------------------------------------------------------------------------- PRE-LIQUIDATION (still own shares) 9.13% 5.88% -2.74% -2.76% -1.17% n/a ---------------------------------------------------------------------------------------------------------------- POST-LIQUIDATION (shares were sold) 6.36% 4.04% -2.20% -1.93% -0.89% n/a ----------------------------------------------------------------------------------------------------------------
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN PERFORMANCE DATA QUOTED. TO OBTAIN PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH END, PLEASE VISIT WWW.SCHWAB.COM/SCHWABFUNDS. PERFORMANCE OF A HYPOTHETICAL $10,000 INVESTMENT 2 This graph shows performance since inception of a hypothetical $10,000 investment in the fund compared with a similar investment in its benchmark. [LINE GRAPH] $9,549 FUND $9,615 S&P 500(R) INDEX
S&P 500(R) DATE FUND INDEX ---- ---- ----- 01-Feb-99 $10,000 $10,000 28-Feb-99 $9,680 $9,689 31-Mar-99 $10,070 $10,077 30-Apr-99 $10,460 $10,467 31-May-99 $10,200 $10,220 30-Jun-99 $10,770 $10,787 31-Jul-99 $10,440 $10,450 31-Aug-99 $10,380 $10,398 30-Sep-99 $10,100 $10,113 31-Oct-99 $10,740 $10,753 30-Nov-99 $10,950 $10,972 31-Dec-99 $11,602 $11,618 31-Jan-00 $11,016 $11,035 29-Feb-00 $10,804 $10,826 31-Mar-00 $11,864 $11,885 30-Apr-00 $11,501 $11,527 31-May-00 $11,259 $11,291 30-Jun-00 $11,541 $11,569 31-Jul-00 $11,360 $11,389 31-Aug-00 $12,066 $12,096 30-Sep-00 $11,420 $11,458 31-Oct-00 $11,370 $11,410 30-Nov-00 $10,481 $10,510 31-Dec-00 $10,534 $10,562 31-Jan-01 $10,901 $10,937 28-Feb-01 $9,911 $9,939 31-Mar-01 $9,278 $9,309 30-Apr-01 $10,003 $10,033 31-May-01 $10,064 $10,100 30-Jun-01 $9,819 $9,854 31-Jul-01 $9,717 $9,758 31-Aug-01 $9,115 $9,147 30-Sep-01 $8,380 $8,408 31-Oct-01 $8,533 $8,569 30-Nov-01 $9,187 $9,226 31-Dec-01 $9,264 $9,307 31-Jan-02 $9,130 $9,171 28-Feb-02 $8,954 $8,994 31-Mar-02 $9,295 $9,332 30-Apr-02 $8,726 $8,767 31-May-02 $8,664 $8,702 30-Jun-02 $8,044 $8,082 31-Jul-02 $7,424 $7,453 31-Aug-02 $7,465 $7,501 30-Sep-02 $6,659 $6,686 31-Oct-02 $7,238 $7,274 30-Nov-02 $7,672 $7,702 31-Dec-02 $7,217 $7,250 31-Jan-03 $7,028 $7,060 28-Feb-03 $6,922 $6,954 31-Mar-03 $6,986 $7,022 30-Apr-03 $7,564 $7,601 31-May-03 $7,953 $8,001 30-Jun-03 $8,059 $8,104 31-Jul-03 $8,195 $8,246 31-Aug-03 $8,353 $8,407 30-Sep-03 $8,269 $8,318 31-Oct-03 $8,732 $8,789 30-Nov-03 $8,806 $8,866 31-Dec-03 $9,272 $9,331 31-Jan-04 $9,432 $9,502 29-Feb-04 $9,570 $9,634 31-Mar-04 $9,421 $9,489 30-Apr-04 $9,272 $9,340 31-May-04 $9,400 $9,468 30-Jun-04 $9,581 $9,651 31-Jul-04 $9,261 $9,332 31-Aug-04 $9,304 $9,369 30-Sep-04 $9,400 $9,471 31-Oct-04 $9,549 $9,615
All figures on this page assume dividends and distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged, and you cannot invest in them directly. 1 The pre-tax total return and the graph do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. After-tax returns are calculated using the highest historical individual federal marginal income tax rates in effect as of 10/31/04 and do not reflect the impact of state and local taxes or the alternative minimum tax. Actual returns depend on an investor's situation and may differ from those shown. After-tax returns may not be relevant to investors who hold their fund shares through tax-deferred arrangements. Pre-liquidation after-tax returns reflect the tax effects of purchases and sales of securities within the fund portfolios and assume investors continue to hold fund shares at the end of the measurement periods. Post-liquidation figures assume investors sold fund shares at the end of the measurement periods and reflect both the effects of taxable distributions and any taxable gains or losses realized upon the sale of shares. Source for category information: Morningstar, Inc. 2 Fund expenses have been partially absorbed by CSIM and Schwab. Without these reductions, the fund's returns would have been lower. 6 Schwab Institutional Select Funds SCHWAB INSTITUTIONAL SELECT S&P 500 FUND FUND FACTS as of 10/31/04 STYLE ASSESSMENT 1 [GRAPHIC]
INVESTMENT STYLE MARKET CAP Value Blend Growth Large / / /X/ / / Medium / / / / / / Small / / / / / /
STATISTICS NUMBER OF HOLDINGS 503 -------------------------------------------------------------------------------- WEIGHTED AVERAGE MARKET CAP ($ x 1,000,000) $89,712 -------------------------------------------------------------------------------- PRICE/EARNINGS RATIO (P/E) 20.1 -------------------------------------------------------------------------------- PRICE/BOOK RATIO (P/B) 3.1 -------------------------------------------------------------------------------- PORTFOLIO TURNOVER RATE 3% -------------------------------------------------------------------------------- MINIMUM INITIAL INVESTMENT 2 Investment Manager Per Client Account, and $2,500 Aggregate Client Accounts $50,000 Other Investors $50,000 --------------------------------------------------------------------------------
TOP HOLDINGS 3
% OF SECURITY NET ASSETS -------------------------------------------------------------------------------- (1) GENERAL ELECTRIC CO. 3.4% -------------------------------------------------------------------------------- (2) EXXON MOBIL CORP. 3.0% -------------------------------------------------------------------------------- (3) MICROSOFT CORP. 2.8% -------------------------------------------------------------------------------- (4) CITIGROUP, INC. 2.1% -------------------------------------------------------------------------------- (5) WAL-MART STORES, INC. 2.1% -------------------------------------------------------------------------------- (6) PFIZER, INC. 2.0% -------------------------------------------------------------------------------- (7) BANK OF AMERICA CORP. 1.7% -------------------------------------------------------------------------------- (8) JOHNSON & JOHNSON 1.6% -------------------------------------------------------------------------------- (9) AMERICAN INTERNATIONAL GROUP, INC. 1.5% -------------------------------------------------------------------------------- (10) INTERNATIONAL BUSINESS MACHINES CORP. 1.4% -------------------------------------------------------------------------------- TOTAL 21.6%
SECTOR WEIGHTINGS % of Portfolio This chart shows the fund's sector composition as of the report date. A sector is a portion of the overall stock market that is made up of industries whose business components share similar characteristics. [PIE CHART] 28.9% CONSUMER NON-DURABLES 20.1% FINANCE 18.3% TECHNOLOGY 7.1% ENERGY 6.9% MATERIALS 5.8% UTILITIES 4.9% CAPITAL GOODS 1.7% TRANSPORTATION 1.5% CONSUMER DURABLES 4.8% OTHER Portfolio holdings may have changed since the report date. 1 Source: Morningstar, Inc. This style assessment is the result of evaluating the fund based on a ten-factor model for value and growth characteristics. The fund's market capitalization placement is determined by the geometric mean of its holdings' market capitalizations. The assessment reflects the fund's portfolio as of 10/31/04, which may have changed since then, and is not a precise indication of risk or performance--past, present, or future. 2 Please see prospectus for further detail and eligibility requirements. 3 This list is not a recommendation of any security by the investment adviser. Schwab Institutional Select Funds 7 SCHWAB INSTITUTIONAL SELECT(R) LARGE-CAP VALUE INDEX FUND PERFORMANCE as of 10/31/04 PRE- AND POST-TAX AVERAGE ANNUAL TOTAL RETURNS 1, 2 This bar chart compares pre-tax performance of the fund with its benchmark and Morningstar category. The table below the chart shows two types of after-tax returns. [BAR CHART]
Benchmark: Fund Category: S&P 500/BARRA MORNINGSTAR FUND VALUE INDEX LARGE-CAP VALUE 1 YEAR 14.12% 14.46% 12.14% 5 YEARS 1.32% 1.49% 2.64% SINCE INCEPTION: 2/1/99 2.31% 2.51% 2.96%
1 YEAR 5 YEARS SINCE INCEPTION Fund Category: Fund Category: Fund Category: MORNINGSTAR MORNINGSTAR MORNINGSTAR LARGE-CAP LARGE-CAP LARGE-CAP TOTAL RETURNS AFTER TAX FUND VALUE FUND VALUE FUND VALUE ----------------------------------------------------------------------------------------------------------- PRE-LIQUIDATION (still own shares) 13.83% 9.76% 0.26% 1.26% 1.38% n/a ----------------------------------------------------------------------------------------------------------- POST-LIQUIDATION (shares were sold) 9.50% 6.68% 0.50% 1.51% 1.43% n/a -----------------------------------------------------------------------------------------------------------
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN PERFORMANCE DATA QUOTED. TO OBTAIN PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH END, PLEASE VISIT WWW.SCHWAB.COM/SCHWABFUNDS. PERFORMANCE OF A HYPOTHETICAL $10,000 INVESTMENT 2 This graph shows performance since inception of a hypothetical $10,000 investment in the fund, compared with a similar investment in its benchmark. [LINE GRAPH] $11,407 FUND $11,533 S&P 500/BARRA VALUE INDEX
S&P 500/BARRA DATE FUND VALUE INDEX ---- ---- ----------- 1-Feb-99 $10,000 $10,000 28-Feb-99 $9,780 $9,785 31-Mar-99 $10,080 $10,081 30-Apr-99 $10,930 $10,950 31-May-99 $10,730 $10,756 30-Jun-99 $11,140 $11,169 31-Jul-99 $10,790 $10,826 31-Aug-99 $10,520 $10,553 30-Sep-99 $10,110 $10,140 31-Oct-99 $10,680 $10,712 30-Nov-99 $10,620 $10,649 31-Dec-99 $11,008 $11,049 31-Jan-00 $10,650 $10,698 29-Feb-00 $9,996 $10,030 31-Mar-00 $11,039 $11,076 30-Apr-00 $10,957 $11,001 31-May-00 $10,988 $11,036 30-Jun-00 $10,548 $10,600 31-Jul-00 $10,763 $10,812 31-Aug-00 $11,489 $11,537 30-Sep-00 $11,478 $11,535 31-Oct-00 $11,693 $11,751 30-Nov-00 $11,090 $11,149 31-Dec-00 $11,662 $11,723 31-Jan-01 $12,154 $12,218 28-Feb-01 $11,342 $11,408 31-Mar-01 $10,894 $10,957 30-Apr-01 $11,630 $11,700 31-May-01 $11,748 $11,823 30-Jun-01 $11,363 $11,440 31-Jul-01 $11,171 $11,242 31-Aug-01 $10,520 $10,592 30-Sep-01 $9,526 $9,586 31-Oct-01 $9,526 $9,586 30-Nov-01 $10,114 $10,195 31-Dec-01 $10,275 $10,350 31-Jan-02 $9,994 $10,066 28-Feb-02 $9,904 $9,976 31-Mar-02 $10,410 $10,487 30-Apr-02 $9,893 $9,962 31-May-02 $9,938 $10,002 30-Jun-02 $9,319 $9,370 31-Jul-02 $8,328 $8,358 31-Aug-02 $8,373 $8,414 30-Sep-02 $7,428 $7,453 31-Oct-02 $8,036 $8,072 30-Nov-02 $8,598 $8,639 31-Dec-02 $8,149 $8,190 31-Jan-03 $7,930 $7,966 28-Feb-03 $7,711 $7,749 31-Mar-03 $7,711 $7,739 30-Apr-03 $8,461 $8,504 31-May-03 $9,073 $9,130 30-Jun-03 $9,131 $9,197 31-Jul-03 $9,338 $9,401 31-Aug-03 $9,535 $9,604 30-Sep-03 $9,361 $9,430 31-Oct-03 $9,996 $10,075 30-Nov-03 $10,077 $10,166 31-Dec-03 $10,703 $10,794 31-Jan-04 $10,891 $10,985 29-Feb-04 $11,126 $11,234 31-Mar-04 $11,055 $11,156 30-Apr-04 $10,785 $10,881 31-May-04 $10,903 $11,006 30-Jun-04 $11,137 $11,245 31-Jul-04 $10,914 $11,032 31-Aug-04 $11,032 $11,151 30-Sep-04 $11,243 $11,362 31-Oct-04 $11,407 $11,533
All figures on this page assume dividends and distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged, and you cannot invest in them directly. 1 The pre-tax total return and the graph do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. After-tax returns are calculated using the highest historical individual federal marginal income tax rates in effect as of 10/31/04 and do not reflect the impact of state and local taxes or the alternative minimum tax. Actual returns depend on an investor's situation and may differ from those shown. After-tax returns may not be relevant to investors who hold their fund shares through tax-deferred arrangements. Pre-liquidation after-tax returns reflect the tax effects of purchases and sales of securities within the fund portfolios and assume investors continue to hold fund shares at the end of the measurement periods. Post-liquidation figures assume investors sold fund shares at the end of the measurement periods and reflect both the effects of taxable distributions and any taxable gains or losses realized upon the sale of shares. Source for category information: Morningstar, Inc. 2 Fund expenses have been partially absorbed by CSIM and Schwab. Without these reductions, the fund's returns would have been lower. 8 Schwab Institutional Select Funds SCHWAB INSTITUTIONAL SELECT LARGE-CAP VALUE INDEX FUND FUND FACTS as of 10/31/04 STYLE ASSESSMENT 1 [GRAPHIC]
INVESTMENT STYLE Value Blend Growth MARKET CAP Large /X/ / / / / Medium / / / / / / Small / / / / / /
STATISTICS NUMBER OF HOLDINGS 334 -------------------------------------------------------------------------------- WEIGHTED AVERAGE MARKET CAP ($ x 1,000,000) $68,431 -------------------------------------------------------------------------------- PRICE/EARNINGS RATIO (P/E) 17.6 -------------------------------------------------------------------------------- PRICE/BOOK RATIO (P/B) 2.2 -------------------------------------------------------------------------------- PORTFOLIO TURNOVER RATE 11% -------------------------------------------------------------------------------- MINIMUM INITIAL INVESTMENT 2 Investment Manager Per Client Account, and $2,500 Aggregate Client Accounts $100,000 3 Other Investors $3,000,000 --------------------------------------------------------------------------------
TOP HOLDINGS 4
% OF SECURITY NET ASSETS -------------------------------------------------------------------------------- (1) EXXON MOBIL CORP. 5.8% -------------------------------------------------------------------------------- (2) CITIGROUP, INC. 4.1% -------------------------------------------------------------------------------- (3) BANK OF AMERICA CORP. 3.3% -------------------------------------------------------------------------------- (4) AMERICAN INTERNATIONAL GROUP, INC. 2.9% -------------------------------------------------------------------------------- (5) JPMORGAN CHASE & CO. 2.5% -------------------------------------------------------------------------------- (6) CHEVRONTEXACO CORP. 2.0% -------------------------------------------------------------------------------- (7) VERIZON COMMUNICATIONS, INC. 2.0% -------------------------------------------------------------------------------- (8) WELLS FARGO & CO. 1.8% -------------------------------------------------------------------------------- (9) SBC COMMUNICATIONS, INC. 1.5% -------------------------------------------------------------------------------- (10) TIME WARNER, INC. 1.4% -------------------------------------------------------------------------------- TOTAL 27.3%
SECTOR WEIGHTINGS % of Portfolio This chart shows the fund's sector composition as of the report date. A sector is a portion of the overall stock market that is made up of industries whose business components share similar characteristics. [PIE CHART] 35.5% FINANCE 15.4% CONSUMER NON-DURABLES 12.9% ENERGY 11.3% UTILITIES 8.9% TECHNOLOGY 7.8% MATERIALS 2.2% CAPITAL GOODS 1.8% TRANSPORTATION 1.5% CONSUMER DURABLES 2.7% OTHER Portfolio holdings may have changed since the report date. 1 Source: Morningstar, Inc. This style assessment is the result of evaluating the fund based on a ten-factor model for value and growth characteristics. The fund's market capitalization placement is determined by the geometric mean of its holdings' market capitalizations. The assessment reflects the fund's portfolio as of 10/31/04, which may have changed since then, and is not a precise indication of risk or performance--past, present, or future. 2 Please see prospectus for further detail and eligibility requirements. 3 Waived until further notice. 4 This list is not a recommendation of any security by the investment adviser. Schwab Institutional Select Funds 9 SCHWAB INSTITUTIONAL SELECT(R) SMALL-CAP VALUE INDEX FUND PERFORMANCE as of 10/31/04 PRE- AND POST-TAX AVERAGE ANNUAL TOTAL RETURNS 1, 2 This bar chart compares pre-tax performance of the fund with its benchmark and Morningstar category. The table below the chart shows two types of after-tax returns. [BAR CHART]
Fund Benchmark: Category: S&P SMALLCAP MORNINGSTAR 600/BARRA VALUE SMALL-CAP FUND INDEX VALUE 1 YEAR 18.76% 18.76% 16.59% 5 YEARS 13.76% 13.78% 14.93% SINCE INCEPTION: 2/1/99 11.65% 11.74% 12.58%
1 YEAR 5 YEARS SINCE INCEPTION Fund Fund Fund Category: Category: Category: MORNINGSTAR MORNINGSTAR MORNINGSTAR SMALL-CAP SMALL-CAP SMALL-CAP TOTAL RETURNS AFTER TAX FUND VALUE FUND VALUE FUND VALUE ------------------------------------------------------------------------------------------------------- PRE-LIQUIDATION (still own shares) 18.61% 14.16% 11.91% 13.60% 10.07% n/a ------------------------------------------------------------------------------------------------------- POST-LIQUIDATION (shares were sold) 12.36% 9.99% 10.79% 12.28% 9.14% n/a -------------------------------------------------------------------------------------------------------
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN PERFORMANCE DATA QUOTED. TO OBTAIN PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH END, PLEASE VISIT WWW.SCHWAB.COM/SCHWABFUNDS. PERFORMANCE OF A HYPOTHETICAL $10,000 INVESTMENT 2 This graph shows performance since inception of a hypothetical $10,000 investment in the fund compared with a similar investment in its benchmark. [LINE GRAPH] $18,855 FUND $18,940 S&P SMALLCAP 600/BARRA VALUE INDEX
S&P SMALL CAP 600/BARRA DATE FUND VALUE INDEX 1-Feb-99 $10,000 $10,000 28-Feb-99 $9,170 $9,186 31-Mar-99 $9,130 $9,150 30-Apr-99 $9,920 $9,947 31-May-99 $10,310 $10,345 30-Jun-99 $10,930 $10,973 31-Jul-99 $10,760 $10,802 31-Aug-99 $10,310 $10,349 30-Sep-99 $10,120 $10,159 31-Oct-99 $9,890 $9,924 30-Nov-99 $10,120 $10,147 31-Dec-99 $10,411 $10,425 31-Jan-00 $9,886 $9,891 29-Feb-00 $10,338 $10,338 31-Mar-00 $10,716 $10,720 30-Apr-00 $10,801 $10,795 31-May-00 $10,611 $10,619 30-Jun-00 $10,916 $10,923 31-Jul-00 $11,127 $11,139 31-Aug-00 $11,789 $11,789 30-Sep-00 $11,747 $11,765 31-Oct-00 $11,810 $11,823 30-Nov-00 $11,021 $11,042 31-Dec-00 $12,583 $12,601 31-Jan-01 $13,572 $13,599 28-Feb-01 $12,993 $13,025 31-Mar-01 $12,458 $12,484 30-Apr-01 $13,208 $13,236 31-May-01 $13,549 $13,573 30-Jun-01 $14,084 $14,092 31-Jul-01 $13,936 $13,959 31-Aug-01 $13,709 $13,735 30-Sep-01 $11,754 $11,769 31-Oct-01 $12,299 $12,307 30-Nov-01 $13,265 $13,292 31-Dec-01 $14,218 $14,251 31-Jan-02 $14,469 $14,518 28-Feb-02 $14,406 $14,455 31-Mar-02 $15,658 $15,712 30-Apr-02 $16,296 $16,354 31-May-02 $15,683 $15,734 30-Jun-02 $15,019 $15,031 31-Jul-02 $12,604 $12,587 31-Aug-02 $12,579 $12,571 30-Sep-02 $11,665 $11,645 31-Oct-02 $11,890 $11,879 30-Nov-02 $12,504 $12,521 31-Dec-02 $12,182 $12,189 31-Jan-03 $11,676 $11,686 28-Feb-03 $11,259 $11,253 31-Mar-03 $11,221 $11,218 30-Apr-03 $12,220 $12,234 31-May-03 $13,333 $13,374 30-Jun-03 $13,726 $13,771 31-Jul-03 $14,383 $14,445 31-Aug-03 $15,079 $15,139 30-Sep-03 $14,573 $14,643 31-Oct-03 $15,876 $15,947 30-Nov-03 $16,521 $16,606 31-Dec-03 $16,992 $17,071 31-Jan-04 $17,401 $17,479 29-Feb-04 $17,809 $17,893 31-Mar-04 $18,115 $18,206 30-Apr-04 $17,439 $17,536 31-May-04 $17,668 $17,756 30-Jun-04 $18,625 $18,729 31-Jul-04 $17,745 $17,839 31-Aug-04 $17,809 $17,896 30-Sep-04 $18,689 $18,778 31-Oct-04 $18,855 $18,940
All figures on this page assume dividends and distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged, and you cannot invest in them directly. 1 The pre-tax total return and the graph do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. After-tax returns are calculated using the highest historical individual federal marginal income tax rates in effect as of 10/31/04 and do not reflect the impact of state and local taxes or the alternative minimum tax. Actual returns depend on an investor's situation and may differ from those shown. After-tax returns may not be relevant to investors who hold their fund shares through tax-deferred arrangements. Pre-liquidation after-tax returns reflect the tax effects of purchases and sales of securities within the fund portfolios and assume investors continue to hold fund shares at the end of the measurement periods. Post-liquidation figures assume investors sold fund shares at the end of the measurement periods and reflect both the effects of taxable distributions and any taxable gains or losses realized upon the sale of shares. Source for category information: Morningstar, Inc. 2 Fund expenses have been partially absorbed by CSIM and Schwab. Without these reductions, the fund's returns would have been lower. 10 Schwab Institutional Select Funds SCHWAB INSTITUTIONAL SELECT SMALL-CAP VALUE INDEX FUND FUND FACTS as of 10/31/04 STYLE ASSESSMENT 1 [GRAPHIC]
INVESTMENT STYLE Value Blend Growth MARKET CAP Large / / / / / / Medium / / / / / / Small /X/ / / / /
STATISTICS NUMBER OF HOLDINGS 354 -------------------------------------------------------------------------------- WEIGHTED AVERAGE MARKET CAP ($ x 1,000,000) $966 -------------------------------------------------------------------------------- PRICE/EARNINGS RATIO (P/E) 21.9 -------------------------------------------------------------------------------- PRICE/BOOK RATIO (P/B) 1.7 -------------------------------------------------------------------------------- PORTFOLIO TURNOVER RATE 40% -------------------------------------------------------------------------------- MINIMUM INITIAL INVESTMENT 2 Investment Manager Per Client Account, and $2,500 Aggregate Client Accounts $100,000 3 Other Investors $3,000,000 --------------------------------------------------------------------------------
TOP HOLDINGS 4
% OF SECURITY NET ASSETS -------------------------------------------------------------------------------- (1) MDC HOLDINGS, INC. 1.0% -------------------------------------------------------------------------------- (2) YELLOW ROADWAY CORP. 0.9% -------------------------------------------------------------------------------- (3) TIMKEN CO. 0.9% -------------------------------------------------------------------------------- (4) SOUTH FINANCIAL GROUP, INC. 0.9% -------------------------------------------------------------------------------- (5) UGI CORP. 0.8% -------------------------------------------------------------------------------- (6) ENERGEN CORP. 0.8% -------------------------------------------------------------------------------- (7) STANDARD-PACIFIC CORP. 0.7% -------------------------------------------------------------------------------- (8) SHURGARD STORAGE CENTERS, INC. Class A 0.7% -------------------------------------------------------------------------------- (9) HUGHES SUPPLY, INC. 0.7% -------------------------------------------------------------------------------- (10) CORN PRODUCTS INTERNATIONAL, INC. 0.7% -------------------------------------------------------------------------------- TOTAL 8.1%
SECTOR WEIGHTINGS % of Portfolio This chart shows the fund's sector composition as of the report date. A sector is a portion of the overall stock market that is made up of industries whose business components share similar characteristics. [PIE CHART] 21.1% FINANCE 20.1% MATERIALS 16.3% CONSUMER NON-DURABLES 10.7% TECHNOLOGY 8.9% CAPITAL GOODS 8.2% UTILITIES 4.1% ENERGY 4.0% TRANSPORTATION 3.5% CONSUMER DURABLES 3.1% OTHER Portfolio holdings may have changed since the report date. 1 Source: Morningstar, Inc. This style assessment is the result of evaluating the fund based on a ten-factor model for value and growth characteristics. The fund's market capitalization placement is determined by the geometric mean of its holdings' market capitalizations. The assessment reflects the fund's portfolio as of 10/31/04, which may have changed since then, and is not a precise indication of risk or performance--past, present, or future. 2 Please see prospectus for further detail and eligibility requirements. 3 Waived until further notice. 4 This list is not a recommendation of any security by the investment adviser. Schwab Institutional Select Funds 11 FUND EXPENSES EXAMPLES FOR A $1,000 INVESTMENT As a fund shareholder, you incur two types of costs: transaction costs, such as redemption fees; and, ongoing costs, such as management fees, transfer agent and shareholder services fees, and other fund expenses. The expense examples below are intended to help you understand your ongoing cost (in dollars) of investing in a fund and to compare this cost with the ongoing cost of investing in other mutual funds. These examples are based on an investment of $1,000 invested for six-months beginning May 1, 2004 and held through October 31, 2004. ACTUAL RETURN lines in the table below provide information about actual account values and actual expenses. You may use this information, together with the amount you invested, to estimate the expenses that you paid over the period. To do so, simply divide your account value by $1,000 (for example, an $8,600 account value / $1,000 = 8.6), then multiply the result by the number given for your fund under the heading entitled "Expenses Paid During Period." HYPOTHETICAL RETURN lines in the table below provide information about hypothetical account values and hypothetical expenses based on a fund's actual expense ratio and an assumed return of 5% per year before expenses. Because the return used is not an actual return, it may not be used to estimate the actual ending account value or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only, and do not reflect any transactional costs, such as redemption fees. If these transactional costs were included, your costs would have been higher.
ENDING BEGINNING ACCOUNT VALUE EXPENSES EXPENSE RATIO 1 ACCOUNT VALUE (NET OF EXPENSES) PAID DURING PERIOD 2 (ANNUALIZED) AT 5/1/04 AT 10/31/04 5/1/04-10/31/04 --------------------------------------------------------------------------------------------------------------- SCHWAB INSTITUTIONAL SELECT(R) S&P 500 FUND Actual Return 0.14% $1,000 $1,029.90 $0.71 Hypothetical 5% Return 0.14% $1,000 $1,024.43 $0.71 --------------------------------------------------------------------------------------------------------------- SCHWAB INSTITUTIONAL SELECT(R) LARGE-CAP VALUE INDEX FUND Actual Return 0.25% $1,000 $1,057.70 $1.29 Hypothetical 5% Return 0.25% $1,000 $1,023.88 $1.27 --------------------------------------------------------------------------------------------------------------- SCHWAB INSTITUTIONAL SELECT(R) SMALL-CAP VALUE INDEX FUND Actual Return 0.32% $1,000 $1,081.20 $1.67 Hypothetical 5% Return 0.32% $1,000 $1,023.53 $1.63
1 Based on the most recent six-month expense ratio; may differ from the expense ratio provided in Financial Highlights. 2 Expenses for each fund are equal to that fund's annualized expense ratio, multiplied by the average account value over the period, multiplied by 184 days of the period, and divided by 366 days of the fiscal year. 12 Schwab Institutional Select Funds SCHWAB INSTITUTIONAL SELECT(R) S&P 500 FUND FINANCIAL STATEMENTS FINANCIAL HIGHLIGHTS
11/1/03- 11/1/02- 11/1/01- 11/1/00- 11/1/99- 10/31/04 10/31/03 10/31/02 10/31/01 10/31/00 ---------------------------------------------------------------------------------------------------------------------------- PER-SHARE DATA ($) ---------------------------------------------------------------------------------------------------------------------------- Net asset value at beginning of period 8.30 7.00 8.36 11.26 10.74 ---------------------------------------------------------------------- Income or loss from investment operations: Net investment income 0.13 0.12 0.12 0.12 0.11 Net realized and unrealized gains or losses 0.64 1.30 (1.37) (2.91) 0.52 ---------------------------------------------------------------------- Total income or loss from investment operations 0.77 1.42 (1.25) (2.79) 0.63 Less distributions: Dividends from net investment income (0.12) (0.12) (0.11) (0.11) (0.09) Distributions from net realized gains -- -- -- -- (0.02) ---------------------------------------------------------------------- Total distributions (0.12) (0.12) (0.11) (0.11) (0.11) ---------------------------------------------------------------------- Net asset value at end of period 8.95 8.30 7.00 8.36 11.26 ---------------------------------------------------------------------- Total return (%) 9.36 20.65 (15.18) (24.95) 5.86 RATIOS/SUPPLEMENTAL DATA (%) ---------------------------------------------------------------------------------------------------------------------------- Ratios to average net assets: Net operating expenses 0.15 0.15 0.15 0.15 0.16 1 Gross operating expenses 0.35 0.36 0.37 0.37 0.38 Net investment income 1.56 1.65 1.38 1.14 1.06 Portfolio turnover rate 3 4 12 13 6 Net assets, end of period ($ x 1,000,000) 348 272 203 261 382
1 The ratio of net operating expenses would have been 0.15% if certain non-routine expenses (proxy fees) had not been included. See financial notes. 13 SCHWAB INSTITUTIONAL SELECT S&P 500 FUND PORTFOLIO HOLDINGS as of October 31, 2004 This section shows all the securities in the fund's portfolio by industry classification and their value, as of the report date. The fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The fund's Form N-Q is available on the SEC's website at http://www.sec.gov and may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Call 1-800-SEC-0330 for information on the operation of the Public Reference Room. The schedule of portfolio holdings filed on the fund's most recent Form N-Q is available by visiting Schwab's website at www.schwab.com/schwabfunds. We use the symbols below to designate certain characteristics of the securities. With the top ten holdings, the number in the circle is the security's rank among the top ten. (1) Top ten holding o Non-income producing security = All or a portion of this security is held as collateral for open futures contracts / Issuer is related to the fund's adviser @ This security or a portion of this security is on loan
COST VALUE HOLDINGS BY CATEGORY ($x1,000) ($x1,000) -------------------------------------------------------------------------------- 97.8% COMMON STOCK 346,761 340,369 4.7% SHORT-TERM INVESTMENTS 16,210 16,210 0.2% U.S. TREASURY OBLIGATIONS 863 863 -------------------------------------------------------------------------------- 102.7% TOTAL INVESTMENTS 363,834 357,442 5.3% COLLATERAL INVESTED FOR SECURITIES ON LOAN 18,387 18,387 (8.0)% OTHER ASSETS AND LIABILITIES, NET (27,964) -------------------------------------------------------------------------------- 100.0% TOTAL NET ASSETS 347,865
VALUE SECURITY AND NUMBER OF SHARES ($ x 1,000) COMMON STOCK 97.8% of net assets AEROSPACE / DEFENSE 1.8% -------------------------------------------------------------------------- The Boeing Co. 27,200 1,357 Crane Co. 1,700 47 General Dynamics Corp. 6,400 653 Goodrich Corp. 3,800 117 Lockheed Martin Corp. 14,400 793 Northrop Grumman Corp. 11,628 602 Raytheon Co. 14,600 533 Rockwell Automation, Inc. 5,800 242 Rockwell Collins, Inc. 5,600 199 Textron, Inc. 4,500 307 United Technologies Corp. 16,600 1,541 ----------- 6,391 AIR TRANSPORTATION 1.2% -------------------------------------------------------------------------- @o Delta Air Lines, Inc. 3,200 17 FedEx Corp. 9,800 893 Sabre Holdings Corp., Class A 4,118 89 Southwest Airlines Co. 25,650 405 United Parcel Service, Inc., Class B 36,424 2,884 ----------- 4,288 ALCOHOLIC BEVERAGES 0.4% -------------------------------------------------------------------------- Adolph Coors Co., Class B 1,200 80 Anheuser-Busch Cos., Inc. 26,000 1,299 Brown-Forman Corp., Class B 3,908 175 ----------- 1,554 APPAREL 0.4% -------------------------------------------------------------------------- o Coach, Inc. 6,100 284 Jones Apparel Group, Inc. 4,100 145 Liz Claiborne, Inc. 3,500 143 Nike, Inc., Class B 8,600 699 Reebok International Ltd. 2,000 74 VF Corp. 3,600 194 ----------- 1,539 AUTOMOTIVE PRODUCTS / MOTOR VEHICLES 1.0% -------------------------------------------------------------------------- Cooper Tire & Rubber Co. 2,100 41 Cummins, Inc. 1,400 98 Dana Corp. 4,900 73 @ Danaher Corp. 10,000 551 @ Delphi Corp. 17,649 148 Eaton Corp. 4,800 307
14 See financial notes. SCHWAB INSTITUTIONAL SELECT S&P 500 FUND
VALUE SECURITY AND NUMBER OF SHARES ($ x 1,000) Ford Motor Co. 59,211 772 General Motors Corp. 18,275 705 Genuine Parts Co. 5,500 219 @o Goodyear Tire & Rubber Co. 5,300 53 Harley-Davidson, Inc. 9,600 553 @o Navistar International Corp. 2,100 73 Visteon Corp. 3,669 26 ----------- 3,619 BANKS 7.8% -------------------------------------------------------------------------- AmSouth Bancorp. 11,200 296 @(7) Bank of America Corp. 131,664 5,897 The Bank of New York Co., Inc. 25,250 820 BB&T Corp. 18,000 740 Comerica, Inc. 5,600 344 Fifth Third Bancorp 18,469 909 First Horizon National Corp. 4,000 173 Huntington Bancshares, Inc. 7,283 174 JPMorgan Chase & Co. 115,228 4,448 KeyCorp, Inc. 13,200 443 M&T Bank Corp. 3,799 391 Marshall & Ilsley Corp. 7,228 303 Mellon Financial Corp. 13,800 399 National City Corp. 21,500 838 North Fork Bancorp., Inc. 10,100 445 Northern Trust Corp. 7,000 298 PNC Financial Services Group, Inc. 9,200 481 Regions Financial Corp. 14,998 526 SouthTrust Corp. 10,800 471 State Street Corp. 10,900 491 SunTrust Banks, Inc. 11,600 816 Synovus Financial Corp. 10,100 275 U.S. Bancorp 60,807 1,740 Wachovia Corp. 42,400 2,087 Wells Fargo & Co. 54,713 3,267 Zions Bancorp. 2,900 192 ----------- 27,264 BUSINESS MACHINES & SOFTWARE 8.8% -------------------------------------------------------------------------- @ Adobe Systems, Inc. 7,800 437 o Apple Computer, Inc. 12,600 662 Autodesk, Inc. 3,600 190 o BMC Software, Inc. 7,100 134 o Cisco Systems, Inc. 218,750 4,202 o Compuware Corp. 11,300 65 o Comverse Technology, Inc. 6,400 132 o Dell, Inc. 80,800 2,833 o EMC Corp. 77,824 1,002 o Gateway, Inc. 12,100 71 Hewlett-Packard Co. 97,701 1,823 (10) International Business Machines Corp. 54,200 4,864 o Lexmark International, Inc., Class A 4,200 349 =(3) Microsoft Corp. 351,750 9,846 o NCR Corp. 3,000 169 o Network Appliance, Inc. 11,600 284 o Novell, Inc. 12,200 88 o Oracle Corp. 167,300 2,118 Pitney Bowes, Inc. 7,500 328 o Siebel Systems, Inc. 15,900 151 o Sun Microsystems, Inc. 107,600 487 o Unisys Corp. 10,600 113 @o Xerox Corp. 27,200 402 ----------- 30,750 BUSINESS SERVICES 4.4% -------------------------------------------------------------------------- o Affiliated Computer Services, Inc., Class A 4,014 219 @o Allied Waste Industries, Inc. 10,000 82 o Apollo Group, Inc., Class A 6,300 416 Automatic Data Processing, Inc. 18,900 820 Cendant Corp. 34,170 704 @ Cintas Corp. 5,620 242 o Citrix Systems, Inc. 5,500 133 Computer Associates International, Inc. 19,000 527 @o Computer Sciences Corp. 6,000 298 o Convergys Corp. 4,625 60 Deluxe Corp. 1,600 61 o eBay, Inc. 21,382 2,087 Electronic Data Systems Corp. 16,600 353 Equifax, Inc. 4,500 118 First Data Corp. 27,781 1,147 o Fiserv, Inc. 6,150 219
See financial notes. 15 SCHWAB INSTITUTIONAL SELECT S&P 500 FUND PORTFOLIO HOLDINGS continued
VALUE SECURITY AND NUMBER OF SHARES ($ x 1,000) H&R Block, Inc. 5,200 247 IMS Health, Inc. 7,400 157 o Interpublic Group of Cos., Inc. 13,300 163 o Intuit, Inc. 6,283 285 @o Mercury Interactive Corp. 3,000 130 o Monster Worldwide, Inc. 3,861 108 Omnicom Group, Inc. 6,100 481 o Parametric Technology Corp. 8,100 42 Paychex, Inc. 12,325 404 o PeopleSoft, Inc. 11,600 241 Robert Half International, Inc. 5,650 150 o SunGard Data Systems, Inc. 9,113 241 o Symantec Corp. 10,200 581 @ Tyco International Ltd. 65,076 2,027 o Veritas Software Corp. 14,050 307 Waste Management, Inc. 18,800 535 o Yahoo! Inc. 44,100 1,596 ----------- 15,181 CHEMICALS 1.5% -------------------------------------------------------------------------- Air Products & Chemicals, Inc. 7,400 393 Dow Chemical Co. 30,460 1,369 E.I. du Pont de Nemours & Co. 32,282 1,384 Eastman Chemical Co. 2,400 114 Ecolab, Inc. 8,400 284 Great Lakes Chemical Corp. 1,400 36 o Hercules, Inc. 3,300 47 Monsanto Co. 8,717 373 PPG Industries, Inc. 5,600 357 Praxair, Inc. 10,600 447 Rohm & Haas Co. 7,263 308 Sigma-Aldrich Corp. 2,300 128 ----------- 5,240 CONSTRUCTION 0.5% -------------------------------------------------------------------------- Centex Corp. 4,000 208 Fluor Corp. 2,700 125 KB Home 1,500 123 Masco Corp. 14,100 483 Pulte Homes, Inc. 4,000 220 The Sherwin-Williams Co. 4,700 201 The Stanley Works 2,600 116 Vulcan Materials Co. 3,300 164 ----------- 1,640 CONSUMER DURABLES 0.2% -------------------------------------------------------------------------- Black & Decker Corp. 2,600 209 Leggett & Platt, Inc. 6,100 171 @ Maytag Corp. 2,350 41 Newell Rubbermaid, Inc. 8,667 187 Whirlpool Corp. 2,200 129 ----------- 737 CONTAINERS 0.1% -------------------------------------------------------------------------- Ball Corp. 3,600 143 Bemis Co. 3,200 85 o Pactiv Corp. 4,900 116 o Sealed Air Corp. 2,600 129 ----------- 473 ELECTRONICS 4.9% -------------------------------------------------------------------------- o ADC Telecommunications, Inc. 26,200 58 @o Advanced Micro Devices, Inc. 11,200 188 @o Agilent Technologies, Inc. 15,784 396 o Altera Corp. 11,720 266 American Power Conversion Corp. 6,550 126 Analog Devices, Inc. 12,300 495 @o Andrew Corp. 5,300 74 o Applied Materials, Inc. 54,950 885 o Applied Micro Circuits Corp. 9,121 33 @o Broadcom Corp., Class A 10,500 284 o CIENA Corp. 17,000 42 Intel Corp. 207,600 4,621 ITT Industries, Inc. 3,000 244 o Jabil Circuit, Inc. 6,364 155 o JDS Uniphase Corp. 45,228 143 @o KLA-Tencor Corp. 6,400 291 Linear Technology Corp. 10,000 379 o LSI Logic Corp. 12,500 57 o Lucent Technologies, Inc. 139,445 495 Maxim Integrated Products, Inc. 10,600 466 @o Micron Technology, Inc. 19,200 234 Molex, Inc. 6,000 177 Motorola, Inc. 76,426 1,319 o National Semiconductor Corp. 11,300 189 o Novellus Systems, Inc. 4,450 115 o Nvidia Corp. 5,300 77
16 See financial notes. SCHWAB INSTITUTIONAL SELECT S&P 500 FUND
VALUE SECURITY AND NUMBER OF SHARES ($ x 1,000) PerkinElmer, Inc. 4,100 84 o PMC--Sierra, Inc. 5,800 60 o Power-One, Inc. 2,300 16 o QLogic Corp. 2,813 92 Qualcomm, Inc. 52,700 2,203 o Sanmina--SCI Corp. 16,400 131 Scientific-Atlanta, Inc. 4,900 134 o Solectron Corp. 30,200 158 Symbol Technologies, Inc. 7,536 111 Tektronix, Inc. 2,900 88 o Tellabs, Inc. 13,500 108 o Teradyne, Inc. 6,100 101 Texas Instruments, Inc. 56,000 1,369 o Thermo Electron Corp. 5,300 154 o Waters Corp. 3,900 161 Xilinx, Inc. 11,300 346 ----------- 17,125 ENERGY: RAW MATERIALS 1.8% -------------------------------------------------------------------------- Anadarko Petroleum Corp. 8,121 548 @ Apache Corp. 10,564 536 Baker Hughes, Inc. 10,800 462 o BJ Services Co. 5,100 260 Burlington Resources, Inc. 12,800 531 Devon Energy Corp. 7,900 584 EOG Resources, Inc. 3,722 248 Halliburton Co. 14,300 530 o Noble Corp. 4,300 196 Occidental Petroleum Corp. 12,700 709 o Rowan Cos., Inc. 3,200 82 Schlumberger Ltd. 19,200 1,208 Valero Energy Corp. 8,300 357 ----------- 6,251 FOOD & AGRICULTURE 3.4% -------------------------------------------------------------------------- Archer-Daniels-Midland Co. 21,148 410 Campbell Soup Co. 13,300 357 The Coca-Cola Co. 78,500 3,192 Coca-Cola Enterprises, Inc. 15,200 318 ConAgra Foods, Inc. 17,100 451 General Mills, Inc. 12,300 544 H.J. Heinz Co. 11,400 414 Hershey Foods Corp. 8,000 406 Kellogg Co. 13,400 576 McCormick & Co., Inc. 4,399 156 The Pepsi Bottling Group, Inc. 8,080 227 PepsiCo, Inc. 54,880 2,721 Sara Lee Corp. 25,700 598 Supervalu, Inc. 4,300 127 Sysco Corp. 20,700 668 Wm. Wrigley Jr. Co. 7,300 477 ----------- 11,642 GOLD 0.2% -------------------------------------------------------------------------- Newmont Mining Corp. 14,400 684 HEALTHCARE / DRUGS & MEDICINE 12.0% -------------------------------------------------------------------------- Abbott Laboratories 50,500 2,153 @ Allergan, Inc. 4,200 301 AmerisourceBergen Corp. 3,600 198 o Amgen, Inc. 41,000 2,329 @o Anthem, Inc. 4,428 356 Applied Biosystems Group-- Applera Corp. 6,600 126 Bausch & Lomb, Inc. 1,600 98 Baxter International, Inc. 19,900 612 Becton Dickinson & Co. 8,200 430 o Biogen Idec, Inc. 11,030 641 Biomet, Inc. 8,300 387 @o Boston Scientific Corp. 27,300 964 Bristol-Myers Squibb Co. 63,000 1,476 C.R. Bard, Inc. 3,400 193 Cardinal Health, Inc. 14,000 654 o Caremark Rx, Inc. 15,126 453 o Chiron Corp. 5,900 191 Eli Lilly & Co. 36,600 2,010 @o Express Scripts, Inc. 2,400 154 o Forest Laboratories, Inc. 12,000 535 o Genzyme Corp. 7,400 388 o Gilead Sciences, Inc. 14,000 485 Guidant Corp. 10,200 680 HCA, Inc. 15,700 577 Health Management Associates, Inc., Class A 7,700 159 o Hospira, Inc. 4,900 156
See financial notes. 17 SCHWAB INSTITUTIONAL SELECT S&P 500 FUND PORTFOLIO HOLDINGS continued
VALUE SECURITY AND NUMBER OF SHARES ($ x 1,000) o Humana, Inc. 4,900 94 (8) Johnson & Johnson 96,068 5,608 @o King Pharmaceuticals, Inc. 7,633 83 Manor Care, Inc. 2,900 95 McKesson Corp. 9,300 248 @o Medco Health Solutions, Inc. 8,889 301 o Medimmune, Inc. 7,900 225 Medtronic, Inc. 39,200 2,004 Merck & Co., Inc. 71,800 2,248 @ Mylan Laboratories, Inc. 8,500 146 =(6) Pfizer, Inc. 244,247 7,071 Quest Diagnostics 3,337 292 Schering-Plough Corp. 47,700 864 o St. Jude Medical, Inc. 5,800 444 Stryker Corp. 13,040 562 o Tenet Healthcare Corp. 14,700 158 UnitedHealth Group, Inc. 21,600 1,564 o Watson Pharmaceuticals, Inc. 3,300 92 o WellPoint Health Networks, Inc. 5,100 498 Wyeth 43,200 1,713 o Zimmer Holdings, Inc. 8,000 621 ----------- 41,637 HOUSEHOLD PRODUCTS 2.2% -------------------------------------------------------------------------- Alberto-Culver Co., Class B 2,950 132 Avon Products, Inc. 15,300 605 Clorox Co. 6,900 377 Colgate-Palmolive Co. 17,200 768 The Gillette Co. 32,500 1,348 International Flavors & Fragrances, Inc. 2,900 113 Procter & Gamble Co. 82,300 4,212 ----------- 7,555 INSURANCE 4.5% -------------------------------------------------------------------------- ACE Ltd. 9,200 350 Aetna, Inc. 5,000 475 AFLAC, Inc. 16,500 592 The Allstate Corp. 22,500 1,082 AMBAC Financial Group, Inc. 3,533 276 (9) American International Group, Inc. 84,300 5,118 AON Corp. 10,000 204 Chubb Corp. 6,200 447 CIGNA Corp. 4,400 279 Cincinnati Financial Corp. 5,535 231 Hartford Financial Services Group, Inc. 9,500 556 Jefferson-Pilot Corp. 4,300 208 Lincoln National Corp. 5,600 245 Loews Corp. 5,900 353 Marsh & McLennan Cos., Inc. 16,900 468 MBIA, Inc. 4,700 272 Metlife, Inc. 24,357 934 MGIC Investment Corp. 3,100 199 Principal Financial Group, Inc. 10,184 385 The Progressive Corp. 6,500 608 Prudential Financial, Inc. 16,800 781 Safeco Corp. 4,200 194 The St. Paul Travelers Cos., Inc. 21,711 737 Torchmark Corp. 3,500 189 UnumProvident Corp. 9,660 132 XL Capital Ltd., Class A 4,500 326 ----------- 15,641 MEDIA 3.4% -------------------------------------------------------------------------- Clear Channel Communications, Inc. 19,095 638 o Comcast Corp., Class A 72,338 2,134 Dow Jones & Co., Inc. 2,600 115 Gannett Co., Inc. 8,700 722 Knight-Ridder, Inc. 2,400 164 @ The McGraw-Hill Cos., Inc. 6,200 535 Meredith Corp. 1,600 78 New York Times Co., Class A 4,700 188 R.R. Donnelley & Sons Co. 6,950 218 o Time Warner, Inc. 148,000 2,463 Tribune Co. 10,300 445 @o Univision Communications, Inc., Class A 10,494 325 Viacom, Inc., Class B 56,145 2,049 The Walt Disney Co. 66,500 1,677 ----------- 11,751 MISCELLANEOUS 0.6% -------------------------------------------------------------------------- 3M Co. 25,400 1,970
18 See financial notes. SCHWAB INSTITUTIONAL SELECT S&P 500 FUND
VALUE SECURITY AND NUMBER OF SHARES ($ x 1,000) MISCELLANEOUS FINANCE 7.6% -------------------------------------------------------------------------- American Express Co. 41,100 2,181 The Bear Stearns Cos., Inc. 3,446 326 @ Capital One Financial Corp. 7,900 583 / The Charles Schwab Corp. 44,238 405 CIT Group, Inc. 6,900 279 =(4) Citigroup, Inc. 167,650 7,439 Countrywide Financial Corp. 18,298 584 o E*TRADE Financial Corp. 11,800 152 Fannie Mae 31,400 2,203 Federated Investors, Inc., Class B 3,600 104 Franklin Resources, Inc. 8,100 491 Freddie Mac 22,300 1,485 Golden West Financial Corp. 4,900 573 Goldman Sachs Group, Inc. 15,754 1,550 Janus Capital Group, Inc. 7,750 118 Lehman Brothers Holdings, Inc. 8,800 723 MBNA Corp. 41,350 1,060 Merrill Lynch & Co., Inc. 30,400 1,640 Moody's Corp. 4,700 366 Morgan Stanley 35,600 1,819 o Providian Financial Corp. 9,500 148 SLM Corp. 14,200 643 Sovereign Bancorp, Inc. 11,200 242 T. Rowe Price Group, Inc. 4,000 223 Washington Mutual, Inc. 28,300 1,095 ------------ 26,432 NON-DURABLES & ENTERTAINMENT 1.2% -------------------------------------------------------------------------- Darden Restaurants, Inc. 5,200 127 o Electronic Arts, Inc. 9,850 443 Fortune Brands, Inc. 4,600 335 Hasbro, Inc. 5,800 103 International Game Technology 11,150 368 Mattel, Inc. 13,400 235 McDonald's Corp. 40,700 1,186 o Starbucks Corp. 12,940 684 Wendy's International, Inc. 3,700 124 Yum! Brands, Inc. 9,400 409 ----------- 4,014 NON-FERROUS METALS 0.4% -------------------------------------------------------------------------- Alcoa, Inc. 28,204 917 Engelhard Corp. 4,000 113 Freeport-McMoran Copper & Gold, Inc., Class B 5,800 210 Phelps Dodge Corp. 2,960 259 ----------- 1,499 OIL: DOMESTIC 1.2% -------------------------------------------------------------------------- Amerada Hess Corp. 3,000 242 Ashland, Inc. 2,300 133 ConocoPhillips 22,349 1,884 Kerr-McGee Corp. 4,973 295 Marathon Oil Corp. 11,200 427 o Nabors Industries Ltd. 4,700 231 Sunoco, Inc. 2,400 178 o Transocean, Inc. 10,420 367 Unocal Corp. 8,600 359 ----------- 4,116 OIL: INTERNATIONAL 4.0% -------------------------------------------------------------------------- ChevronTexaco Corp. 68,992 3,661 =(2) Exxon Mobil Corp. 210,520 10,362 ----------- 14,023 OPTICAL & PHOTO 0.2% -------------------------------------------------------------------------- o Corning, Inc. 45,100 516 Eastman Kodak Co. 9,300 282 ----------- 798 PAPER & FOREST PRODUCTS 0.8% -------------------------------------------------------------------------- o Boise Cascade Corp. 2,800 83 Georgia-Pacific Corp. 8,386 290 International Paper Co. 15,739 606 Kimberly-Clark Corp. 16,000 955 Louisiana-Pacific Corp. 3,300 81 MeadWestvaco Corp. 6,422 202 Temple-Inland, Inc. 1,800 106 Weyerhaeuser Co. 7,800 489 ----------- 2,812
See financial notes. 19 SCHWAB INSTITUTIONAL SELECT S&P 500 FUND PORTFOLIO HOLDINGS continued
VALUE SECURITY AND NUMBER OF SHARES ($ x 1,000) PRODUCER GOODS & MANUFACTURING 5.3% -------------------------------------------------------------------------- o American Standard Cos., Inc. 7,000 256 Avery Dennison Corp. 3,500 213 Caterpillar, Inc. 11,100 894 Cooper Industries Ltd., Class A 3,000 192 Deere & Co. 8,100 484 Dover Corp. 6,600 259 Emerson Electric Co. 13,600 871 o Fisher Scientific International, Inc. 3,775 217 =(1) General Electric Co. 341,600 11,655 Honeywell International, Inc. 27,812 937 Illinois Tool Works, Inc. 9,800 904 Ingersoll-Rand Co., Class A 5,700 390 Johnson Controls, Inc. 6,200 356 o Millipore Corp. 1,600 74 Pall Corp. 4,000 103 Parker Hannifin Corp. 3,800 268 Snap-On, Inc. 1,700 50 W.W. Grainger, Inc. 2,900 170 ----------- 18,293 RAILROAD & SHIPPING 0.5% -------------------------------------------------------------------------- Burlington Northern Santa Fe Corp. 12,100 506 CSX Corp. 6,800 248 Norfolk Southern Corp. 12,800 435 Union Pacific Corp. 8,400 529 ----------- 1,718 REAL PROPERTY 0.5% -------------------------------------------------------------------------- Apartment Investment & Management Co., Class A 2,900 106 Equity Office Properties Trust 13,050 367 Equity Residential 9,100 304 Plum Creek Timber Co., Inc. 5,800 210 ProLogis 5,800 226 Simon Property Group, Inc. 7,200 420 ----------- 1,633 RETAIL 6.6% -------------------------------------------------------------------------- Albertson's, Inc. 11,983 273 @o Autonation, Inc. 8,700 150 @o AutoZone, Inc. 2,800 229 o Bed, Bath & Beyond, Inc. 9,800 400 @ Best Buy Co., Inc. 10,600 628 o Big Lots, Inc. 3,400 42 Circuit City Stores, Inc. 6,000 97 Costco Wholesale Corp. 15,000 719 CVS Corp. 13,000 565 Dillards, Inc., Class A 2,500 51 Dollar General Corp. 10,650 205 Family Dollar Stores, Inc. 5,300 157 Federated Department Stores, Inc. 5,700 288 The Gap, Inc. 29,300 585 Home Depot, Inc. 71,100 2,921 J.C. Penney Co., Inc. Holding Co. 9,400 325 o Kohl's Corp. 11,100 563 o Kroger Co. 24,000 363 @ Limitedbrands 15,300 379 Lowe's Cos., Inc. 25,300 1,424 @ The May Department Stores Co. 9,200 240 Nordstrom, Inc. 4,400 190 o Office Depot, Inc. 9,900 160 RadioShack Corp. 5,200 156 o Safeway, Inc. 14,100 257 Sears, Roebuck & Co. 6,900 241 Staples, Inc. 16,100 479 Target Corp. 29,300 1,466 Tiffany & Co. 4,650 136 TJX Cos., Inc. 15,900 381 o Toys `R' Us, Inc. 6,800 122 =(5) Wal-Mart Stores, Inc. 137,250 7,401 Walgreen Co. 33,200 1,192 @ Winn-Dixie Stores, Inc. 3,800 13 ----------- 22,798 STEEL 0.1% -------------------------------------------------------------------------- Allegheny Technologies, Inc. 2,850 48 Nucor Corp. 5,200 219 United States Steel Corp. 3,700 136 Worthington Industries, Inc. 2,500 50 ----------- 453
20 See financial notes. SCHWAB INSTITUTIONAL SELECT S&P 500 FUND
VALUE SECURITY AND NUMBER OF SHARES ($ x 1,000) TELEPHONE 3.3% -------------------------------------------------------------------------- Alltel Corp. 10,000 549 AT&T Corp. 25,797 441 o Avaya, Inc. 14,295 206 BellSouth Corp. 59,250 1,580 CenturyTel, Inc. 4,300 138 o Citizens Communications Co. 10,486 141 o Nextel Communications, Inc., Class A 36,100 956 o Qwest Communications International, Inc. 57,021 195 SBC Communications, Inc. 107,230 2,709 Sprint Corp. (FON Group) 47,050 986 Verizon Communications, Inc. 89,628 3,504 ----------- 11,405 TOBACCO 1.1% -------------------------------------------------------------------------- Altria Group, Inc. 66,400 3,218 @ Reynolds American, Inc. 4,870 335 UST, Inc. 5,200 214 ----------- 3,767 TRAVEL & RECREATION 0.7% -------------------------------------------------------------------------- Brunswick Corp. 3,100 145 Carnival Corp. 20,500 1,036 Harrah's Entertainment, Inc. 3,700 217 Hilton Hotels Corp. 12,500 249 Marriott International, Inc., Class A 7,500 409 Starwood Hotels & Resorts Worldwide, Inc. 6,600 315 ----------- 2,371 TRUCKING & FREIGHT 0.1% -------------------------------------------------------------------------- Paccar, Inc. 5,675 394 Ryder Systems, Inc. 2,100 105 ----------- 499 UTILITIES: ELECTRIC & GAS 3.1% -------------------------------------------------------------------------- o The AES Corp. 20,300 221 o Allegheny Energy, Inc. 4,401 81 Ameren Corp. 6,300 302 American Electric Power Co., Inc. 12,880 424 @o Calpine Corp. 16,800 42 Centerpoint Energy, Inc. 9,700 102 Cinergy Corp. 5,900 233 o CMS Energy Corp. 6,000 56 Consolidated Edison, Inc. 7,900 343 Constellation Energy Group, Inc. 5,700 232 Dominion Resources, Inc. 10,691 688 DTE Energy Co. 5,500 235 Duke Energy Corp. 30,400 746 @o Dynegy, Inc., Class A 12,300 61 Edison International 10,600 323 El Paso Corp. 20,126 180 Entergy Corp. 7,400 484 Exelon Corp. 21,400 848 FirstEnergy Corp. 10,688 442 FPL Group, Inc. 5,900 406 @ KeySpan Corp. 5,000 200 Kinder Morgan, Inc. 3,905 251 @ Nicor, Inc. 1,400 53 NiSource, Inc. 8,327 179 Peoples Energy Corp. 1,200 51 o PG&E Corp. 13,000 416 Pinnacle West Capital Corp. 2,800 119 PPL Corp. 6,000 312 Progress Energy, Inc. 8,026 331 @ Public Service Enterprise Group, Inc. 7,700 328 @ Sempra Energy 7,585 254 The Southern Co. 23,900 755 TECO Energy, Inc. 6,000 84 TXU Corp. 9,650 591 @ Williams Cos., Inc. 17,400 218 Xcel Energy, Inc. 12,560 215 ----------- 10,806 SHORT-TERM INVESTMENTS 4.7% of net assets BlackRock Liquidity Fund, Temp Cash Institutional Shares #21 2,390,802 2,391 Provident Institutional TempFund 13,818,502 13,819 ----------- 16,210
See financial notes. 21 SCHWAB INSTITUTIONAL SELECT S&P 500 FUND
SECURITY FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) U.S. TREASURY OBLIGATIONS 0.2% of net assets = U.S. Treasury Bills 1.54%-1.69%, 12/16/04 865 863
END OF INVESTMENTS. COLLATERAL INVESTED FOR SECURITIES ON LOAN 5.3% of net assets COMMERCIAL PAPER & OTHER CORPORATE OBLIGATIONS 1.7% -------------------------------------------------------------------------- Canadian Imperial Bank of Commerce/New York 1.72%, 05/25/05 716 716 Foreningssparbanken AB 1.83%, 11/15/04 458 458 Fortis Bank NY 1.78%, 06/06/05 1,121 1,121 Societe Generale NY 1.95%, 11/01/04 1,042 1,042 1.83%, 11/15/04 1,922 1,922 Westdeutsche Landesbank AG 1.50%, 01/10/05 654 654 ----------- 5,913 SHORT-TERM INVESTMENTS 3.6% -------------------------------------------------------------------------- Citibank, Time Deposit 1.76%, 11/01/04 393 393 SECURITY AND NUMBER OF SHARES Institutional Money Market Trust 12,081,358 12,081 ----------- 12,474
END OF COLLATERAL INVESTED FOR SECURITIES ON LOAN. In addition to the above, the fund held the following at 10/31/04. All numbers x 1,000 except number of contracts. FUTURES CONTRACTS
NUMBER OF CONTRACT UNREALIZED CONTRACTS VALUE GAINS S&P 500 Index, Long expires 12/17/04 35 9,890 213
22 See financial notes. SCHWAB INSTITUTIONAL SELECT S&P 500 FUND Statement of ASSETS AND LIABILITIES As of October 31, 2004. All numbers x 1,000 except NAV.
ASSETS -------------------------------------------------------------------------------- Investments, at value (including $17,816 of securities on loan) $357,442 a Collateral invested for securities on loan 18,387 Receivables: Fund shares sold 786 Interest 14 Dividends 418 Due from brokers for futures 33 Income from securities lending 2 Prepaid expenses + 23 ------------ TOTAL ASSETS 377,105 LIABILITIES -------------------------------------------------------------------------------- Collateral invested for securities on loan 18,387 Payables: Fund shares redeemed 437 Investments bought 10,352 Trustees' fees 1 Accrued expenses + 63 ------------ TOTAL LIABILITIES 29,240 NET ASSETS -------------------------------------------------------------------------------- Total assets 377,105 Total liabilities - 29,240 ------------ NET ASSETS $347,865 NET ASSETS BY SOURCE Capital received from investors 401,593 Net investment income not yet distributed 3,943 Net realized capital losses (51,492) b Net unrealized capital losses (6,179) b NET ASSET VALUE (NAV) SHARES NET ASSETS / OUTSTANDING = NAV $347,865 38,886 $8.95
Unless stated, all numbers x 1,000. a The fund paid $363,834 for these securities. Not counting short-term obligations and government securities, the fund's security transactions during the period were: Purchases $56,287 Sales/maturities $7,940 The fund's total security transactions with other SchwabFunds(R) during the period were $845. b These derive from investments and futures. FEDERAL TAX DATA --------------------------------------------------- PORTFOLIO COST $367,819 NET UNREALIZED GAINS AND LOSSES: Gains $56,177 Losses + (66,554) ------------ ($10,377) AS OF OCTOBER 31, 2004: NET UNDISTRIBUTED EARNINGS: Ordinary income $3,943 Long-term capital gains $-- CAPITAL LOSSES UTILIZED $313 UNUSED CAPITAL LOSSES: Expires 10/31 of: Loss amount 2008 $152 2009 17,888 2010 27,645 2011 + 1,609 ------------ $47,294 See financial notes. 23 SCHWAB INSTITUTIONAL SELECT S&P 500 FUND Statement of OPERATIONS For November 1, 2003 through October 31, 2004. All numbers x 1,000. INVESTMENT INCOME -------------------------------------------------------------------------------- Dividends $5,147 Interest 42 Securities on loan + 27 ----------- TOTAL INVESTMENT INCOME 5,216 NET REALIZED GAINS AND LOSSES -------------------------------------------------------------------------------- Net realized losses on investments (287) Net realized gains on futures contracts + 241 ----------- NET REALIZED LOSSES (46) NET UNREALIZED GAINS AND LOSSES -------------------------------------------------------------------------------- Net unrealized gains on investments 21,182 Net unrealized gains on futures contracts + 204 ----------- NET UNREALIZED GAINS 21,386 EXPENSES -------------------------------------------------------------------------------- Investment adviser and administrator fees 551 a Transfer agent and shareholder service fees 306 b Trustees' fees 7 c Custodian fees 47 Portfolio accounting fees 41 Professional fees 30 Registration fees 31 Shareholder reports 48 Other expenses + 19 ----------- Total expenses 1,080 Expense reduction - 635 d ----------- NET EXPENSES 445 INCREASE IN NET ASSETS FROM OPERATIONS -------------------------------------------------------------------------------- TOTAL INVESTMENT INCOME 5,216 NET EXPENSES - 445 ----------- NET INVESTMENT INCOME 4,771 NET REALIZED LOSSES (46) e NET UNREALIZED GAINS + 21,386 e ----------- INCREASE IN NET ASSETS FROM OPERATIONS $26,111
Unless stated, all numbers x 1,000. a Calculated as a percentage of average daily net assets: 0.18% of the first $1 billion and 0.15% of assets beyond that. These fees are paid to Charles Schwab Investment Management, Inc. (CSIM). b Calculated as a percentage of average daily net assets: for transfer agent services, 0.05% of the fund's assets; for shareholder services, 0.05% of the fund's assets. These fees are paid to Charles Schwab & Co., Inc. (Schwab). c For the fund's independent trustees only. d Includes $554 from the investment adviser (CSIM) and $81 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 December 31, 2005, to 0.10% of average daily net assets. Prior to October 1, 2004, this limit was 0.15%. This limit excludes interest, taxes and certain non-routine expenses. e These add up to a net gain on investments of $21,340. 24 See financial notes. SCHWAB INSTITUTIONAL SELECT S&P 500 FUND Statements of CHANGES IN NET ASSETS For the current and prior report periods. All numbers x 1,000.
OPERATIONS -------------------------------------------------------------------------------- 11/1/03-10/31/04 11/1/02-10/31/03 Net investment income $4,771 $3,778 Net realized losses (46) (1,536) Net unrealized gains + 21,386 42,910 -------------------------------------- INCREASE IN NET ASSETS FROM OPERATIONS 26,111 45,152 DISTRIBUTIONS PAID -------------------------------------------------------------------------------- Dividends from net investment income $3,944 $3,544 a, b
TRANSACTIONS IN FUND SHARES -------------------------------------------------------------------------------- 11/1/03-10/31/04 11/1/02-10/31/03 SHARES VALUE SHARES VALUE Shares sold 13,048 $114,347 13,049 $95,187 Shares reinvested 371 3,113 407 2,823 Shares redeemed + (7,241) (63,271) (9,685) (70,755) c ---------------------------------------------- NET TRANSACTIONS IN FUND SHARES 6,178 $54,189 3,771 $27,255
SHARES OUTSTANDING AND NET ASSETS -------------------------------------------------------------------------------- 11/1/03-10/31/04 11/1/02-10/31/03 SHARES NET ASSETS SHARES NET ASSETS Beginning of period 32,708 $271,509 28,937 $202,646 Total increase + 6,178 76,356 3,771 68,863 c -------------------------------------------------------------------------------- END OF PERIOD 38,886 $347,865 32,708 $271,509 d
Unless stated, all numbers x 1,000. a UNAUDITED For corporations, 100% of the fund's dividends for the report period qualify for the dividends-received deduction. The fund designates $3,915 of the dividend distribution for the fiscal year ended 10/31/04 as qualified dividends for the purpose of the maximum rate under Section 1(h) (ii) of the Internal Revenue Code. Shareholders will be notified in January 2005 via IRS Form 1099 of the amounts for use in preparing their 2004 income tax return. b The tax-basis components of distributions paid are: CURRENT PERIOD Ordinary income $3,944 Long-term capital gains $-- PRIOR PERIOD Ordinary income $3,544 Long-term capital gains $-- c The fund charges 0.75% of early withdrawal fees on shares redeemed 180 days or less after the purchase. CURRENT PERIOD $15 PRIOR PERIOD $21 Dollar amounts are net of the redemption proceeds. d Figures for shares represent shares sold plus shares reinvested, minus shares redeemed. Figures for net assets represent the changes in net assets from operations plus the changes in value of transactions in fund shares, minus distributions paid. e Includes distributable net investment income in the amount of $3,943 and $3,116 at the end of the current period and prior period, respectively. See financial notes. 25 SCHWAB INSTITUTIONAL SELECT(R) LARGE-CAP VALUE INDEX FUND FINANCIAL STATEMENTS FINANCIAL HIGHLIGHTS
11/1/03- 11/1/02- 11/1/01- 11/1/00- 11/1/99- 10/31/04 10/31/03 10/31/02 10/31/01 10/31/00 ------------------------------------------------------------------------------------------------------------------------------------ PER-SHARE DATA ($) ------------------------------------------------------------------------------------------------------------------------------------ Net asset value at beginning of period 8.66 7.14 8.92 11.44 10.68 ------------------------------------------------------------------------------ Income or loss from investment operations: Net investment income 0.16 0.15 0.18 0.14 0.15 Net realized and unrealized gains or losses 1.05 1.55 (1.49) (2.19) 0.84 ------------------------------------------------------------------------------ Total income or loss from investment operations 1.21 1.70 (1.31) (2.05) 0.99 Less distributions: Dividends from net investment income (0.15) (0.18) (0.15) (0.15) (0.11) Distributions from net realized gains -- -- (0.32) (0.32) (0.12) ------------------------------------------------------------------------------ Total distributions (0.15) (0.18) (0.47) (0.47) (0.23) ------------------------------------------------------------------------------ Net asset value at end of period 9.72 8.66 7.14 8.92 11.44 ------------------------------------------------------------------------------ Total return (%) 14.12 24.40 (15.65) (18.53) 9.48 RATIOS/SUPPLEMENTAL DATA (%) ------------------------------------------------------------------------------------------------------------------------------------ Ratios to average net assets: Net operating expenses 0.25 0.25 0.26 1 0.25 0.26 2 Gross operating expenses 0.44 0.45 0.48 0.45 0.51 Net investment income 1.80 1.94 1.72 1.47 1.64 Portfolio turnover rate 11 24 26 47 27 Net assets, end of period ($ x 1,000,000) 108 79 70 128 129
1 The ratio of net operating expenses would have been 0.25% if interest expense had not been included. 2 The ratio of net operating expenses would have been 0.25% if certain non-routine expenses (proxy fees) had not been included. 26 See financial notes. SCHWAB INSTITUTIONAL SELECT LARGE-CAP VALUE INDEX FUND PORTFOLIO HOLDINGS as of October 31, 2004 This section shows all the securities in the fund's portfolio by industry classification and their value, as of the report date. The fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The fund's Form N-Q is available on the SEC's website at http://www.sec.gov and may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Call 1-800-SEC-0330 for information on the operation of the Public Reference Room. The schedule of portfolio holdings filed on the fund's most recent Form N-Q is available by visiting Schwab's website at www.schwab.com/schwabfunds. We use the symbols below to designate certain characteristics of the securities. With the top ten holdings, the number in the circle is the security's rank among the top ten. (1) Top ten holding o Non-income producing security = All or a portion of this security is held as collateral for open futures contracts / Issuer is related to the fund's adviser @ This security or a portion of this security is on loan
COST VALUE HOLDINGS BY CATEGORY ($x1,000) ($x1,000) -------------------------------------------------------------------------------- 97.1% COMMON STOCK 94,603 104,596 2.5% SHORT-TERM INVESTMENT 2,696 2,696 0.2% U.S. TREASURY OBLIGATION 200 200 -------------------------------------------------------------------------------- 99.8% TOTAL INVESTMENTS 97,499 107,492 6.6% COLLATERAL INVESTED FOR SECURITIES ON LOAN 7,145 7,145 (6.4)% OTHER ASSETS AND LIABILITIES, NET (6,912) -------------------------------------------------------------------------------- 100.0% TOTAL NET ASSETS 107,725
VALUE SECURITY AND NUMBER OF SHARES ($ x 1,000) COMMON STOCK 97.1% of net assets AEROSPACE / DEFENSE 1.8% -------------------------------------------------------------------------- @ Crane Co. 1,200 34 General Dynamics Corp. 3,900 397 Goodrich Corp. 2,500 77 Lockheed Martin Corp. 8,800 485 Northrop Grumman Corp. 6,848 354 Raytheon Co. 8,400 306 Rockwell Automation, Inc. 3,600 150 Textron, Inc. 2,700 184 ----------- 1,987 AIR TRANSPORTATION 0.8% -------------------------------------------------------------------------- FedEx Corp. 5,700 519 Sabre Holdings Corp., Class A 2,700 58 Southwest Airlines Co. 15,400 243 ----------- 820 ALCOHOLIC BEVERAGES 0.0% -------------------------------------------------------------------------- Adolph Coors Co., Class B 700 47 APPAREL 0.3% -------------------------------------------------------------------------- Jones Apparel Group, Inc. 2,300 81 Liz Claiborne, Inc. 2,000 82 Reebok International Ltd. 1,100 41 VF Corp. 2,200 118 ----------- 322 AUTOMOTIVE PRODUCTS / MOTOR VEHICLES 1.3% -------------------------------------------------------------------------- Cooper Tire & Rubber Co. 1,300 25 Cummins, Inc. 800 56 Dana Corp. 2,700 40 Eaton Corp. 3,000 192 @ Ford Motor Co. 35,109 458 @ General Motors Corp. 10,975 423 Genuine Parts Co. 3,400 136 @o Goodyear Tire & Rubber Co. 3,600 36 @ Visteon Corp. 2,585 18 ----------- 1,384 BANKS 14.9% -------------------------------------------------------------------------- @ AmSouth Bancorp. 6,900 182 (3) Bank of America Corp. 79,080 3,542 The Bank of New York Co., Inc. 15,100 490 @ BB&T Corp. 10,800 444 Comerica, Inc. 3,300 203 Fifth Third Bancorp 11,100 546 First Horizon National Corp. 2,500 108
See financial notes. 27 SCHWAB INSTITUTIONAL SELECT LARGE-CAP VALUE INDEX FUND PORTFOLIO HOLDINGS continued
VALUE SECURITY AND NUMBER OF SHARES ($ x 1,000) Huntington Bancshares, Inc. 4,241 102 (5) JPMorgan Chase & Co. 69,174 2,670 KeyCorp, Inc. 7,900 265 M&T Bank Corp. 2,200 227 Marshall & Ilsley Corp. 4,366 183 Mellon Financial Corp. 8,100 234 National City Corp. 12,900 503 Northern Trust Corp. 4,300 183 PNC Financial Services Group, Inc. 5,600 293 Regions Financial Corp. 8,994 315 SouthTrust Corp. 6,400 279 State Street Corp. 6,500 293 SunTrust Banks, Inc. 7,000 493 Synovus Financial Corp. 6,000 163 U.S. Bancorp 36,378 1,041 Wachovia Corp. 25,500 1,255 (8) Wells Fargo & Co. 32,800 1,959 Zions Bancorp. 1,700 112 ----------- 16,085 BUSINESS MACHINES & SOFTWARE 3.0% -------------------------------------------------------------------------- o Apple Computer, Inc. 7,600 399 o BMC Software, Inc. 4,000 76 o Compuware Corp. 7,100 41 o Comverse Technology, Inc. 3,600 74 o EMC Corp. 46,800 602 o Gateway, Inc. 6,900 40 Hewlett-Packard Co. 58,698 1,095 o NCR Corp. 1,800 102 o Novell, Inc. 7,500 54 o Siebel Systems, Inc. 10,600 101 o Sun Microsystems, Inc. 64,100 290 o Unisys Corp. 6,100 65 @o Xerox Corp. 16,300 241 ----------- 3,180 BUSINESS SERVICES 3.3% -------------------------------------------------------------------------- @o Affiliated Computer Services, Inc., Class A 2,788 152 @o Allied Waste Industries, Inc. 5,600 46 Cendant Corp. 20,500 422 Computer Associates International, Inc. 11,400 316 @o Computer Sciences Corp. 3,500 174 o Convergys Corp. 3,000 39 Electronic Data Systems Corp. 10,000 213 o Fiserv, Inc. 3,700 131 o Interpublic Group of Cos., Inc. 8,200 100 o PeopleSoft, Inc. 6,500 135 o SunGard Data Systems, Inc. 5,700 151 Tyco International Ltd. 39,001 1,215 o Veritas Software Corp. 8,400 184 Waste Management, Inc. 11,300 322 ----------- 3,600 CHEMICALS 0.9% -------------------------------------------------------------------------- Air Products & Chemicals, Inc. 4,600 245 Eastman Chemical Co. 1,600 76 Great Lakes Chemical Corp. 900 23 Monsanto Co. 5,000 214 PPG Industries, Inc. 3,200 204 Rohm & Haas Co. 4,305 182 ----------- 944 CONSTRUCTION 0.8% -------------------------------------------------------------------------- Centex Corp. 2,600 135 Fluor Corp. 1,300 60 KB Home 1,000 82 Masco Corp. 8,400 288 Pulte Homes, Inc. 2,500 137 The Stanley Works 1,500 67 Vulcan Materials Co. 2,200 110 ----------- 879 CONSUMER DURABLES 0.3% -------------------------------------------------------------------------- Leggett & Platt, Inc. 3,800 107 Newell Rubbermaid, Inc. 5,100 110 Whirlpool Corp. 1,500 88 ----------- 305 CONTAINERS 0.1% -------------------------------------------------------------------------- Bemis Co. 2,000 53 ELECTRONICS 2.2% -------------------------------------------------------------------------- o ADC Telecommunications, Inc. 19,600 43 @o Advanced Micro Devices, Inc. 6,500 109 American Power Conversion Corp. 3,900 75
28 See financial notes. SCHWAB INSTITUTIONAL SELECT LARGE-CAP VALUE INDEX FUND
VALUE SECURITY AND NUMBER OF SHARES ($ x 1,000) @o Andrew Corp. 3,000 42 o Applied Micro Circuits Corp. 5,200 19 o CIENA Corp. 11,100 28 ITT Industries, Inc. 1,800 146 o Jabil Circuit, Inc. 4,009 98 o JDS Uniphase Corp. 27,500 87 o LSI Logic Corp. 7,700 35 @o Micron Technology, Inc. 11,900 145 Molex, Inc. 3,800 112 Motorola, Inc. 45,785 790 o Novellus Systems, Inc. 3,000 78 o Nvidia Corp. 3,200 46 PerkinElmer, Inc. 2,600 54 o Power-One, Inc. 1,300 9 o QLogic Corp. 1,600 52 o Sanmina--SCI Corp. 10,300 82 Scientific-Atlanta, Inc. 2,800 77 Tektronix, Inc. 2,000 61 o Tellabs, Inc. 7,900 63 o Thermo Electron Corp. 3,100 90 ----------- 2,341 ENERGY: RAW MATERIALS 2.4% -------------------------------------------------------------------------- Anadarko Petroleum Corp. 4,838 326 Apache Corp. 6,470 328 Baker Hughes, Inc. 6,500 278 Burlington Resources, Inc. 7,700 320 Devon Energy Corp. 4,600 340 EOG Resources, Inc. 2,100 140 o Noble Corp. 2,900 132 Occidental Petroleum Corp. 7,800 436 @o Rowan Cos., Inc. 2,100 54 Valero Energy Corp. 4,800 206 ----------- 2,560 FOOD & AGRICULTURE 1.0% -------------------------------------------------------------------------- Archer-Daniels-Midland Co. 12,705 246 Coca-Cola Enterprises, Inc. 9,100 190 ConAgra Foods, Inc. 10,400 274 General Mills, Inc. 7,200 319 Supervalu, Inc. 2,600 77 ----------- 1,106 GOLD 0.4% -------------------------------------------------------------------------- @ Newmont Mining Corp. 8,600 409 HEALTHCARE / DRUGS & MEDICINE 3.5% -------------------------------------------------------------------------- AmerisourceBergen Corp. 2,200 121 @o Anthem, Inc. 2,629 211 Applied Biosystems Group-- Applera Corp. 4,100 78 Bausch & Lomb, Inc. 1,100 67 o Biogen Idec, Inc. 6,600 384 @o Caremark Rx, Inc. 9,043 271 o Chiron Corp. 3,600 117 o Genzyme Corp. 4,400 231 @ HCA, Inc. 9,400 345 Health Management Associates, Inc., Class A 4,700 97 o Hospira, Inc. 3,200 102 o Humana, Inc. 3,400 65 @o King Pharmaceuticals, Inc. 4,300 47 Manor Care, Inc. 1,800 59 McKesson Corp. 5,700 152 @o Medco Health Solutions, Inc. 5,400 183 o Medimmune, Inc. 5,100 145 @ Quest Diagnostics 1,914 168 Schering-Plough Corp. 28,600 518 o Tenet Healthcare Corp. 8,600 92 o Watson Pharmaceuticals, Inc. 2,000 56 o WellPoint Health Networks, Inc. 3,000 293 ----------- 3,802 HOUSEHOLD PRODUCTS 0.1% -------------------------------------------------------------------------- Alberto-Culver Co., Class B 1,800 81 INSURANCE 8.5% -------------------------------------------------------------------------- ACE Ltd. 5,700 217 Aetna, Inc. 2,900 275 AFLAC, Inc. 9,900 355 The Allstate Corp. 13,500 649 AMBAC Financial Group, Inc. 2,000 156 =(4) American International Group, Inc. 50,648 3,075 @ AON Corp. 6,250 128 Chubb Corp. 3,900 281
See financial notes. 29 SCHWAB INSTITUTIONAL SELECT LARGE-CAP VALUE INDEX FUND PORTFOLIO HOLDINGS continued
VALUE SECURITY AND NUMBER OF SHARES ($ x 1,000) @ CIGNA Corp. 2,500 159 Cincinnati Financial Corp. 3,140 131 Hartford Financial Services Group, Inc. 5,600 327 Jefferson-Pilot Corp. 2,600 125 Lincoln National Corp. 3,600 158 Loews Corp. 3,500 210 MBIA, Inc. 2,950 171 Metlife, Inc. 14,578 559 MGIC Investment Corp. 1,800 116 Principal Financial Group, Inc. 6,000 227 The Progressive Corp. 4,050 379 Prudential Financial, Inc. 10,100 469 Safeco Corp. 2,500 116 The St. Paul Travelers Cos., Inc. 12,840 436 Torchmark Corp. 2,100 113 UnumProvident Corp. 5,849 80 XL Capital Ltd., Class A 2,700 196 ----------- 9,108 MEDIA 5.9% -------------------------------------------------------------------------- Clear Channel Communications, Inc. 11,639 389 o Comcast Corp., Class A 43,283 1,277 Gannett Co., Inc. 5,100 423 R.R. Donnelley & Sons Co. 4,300 135 o(10) Time Warner, Inc. 88,900 1,479 Tribune Co. 6,080 263 @o Univision Communications, Inc., Class A 6,300 195 Viacom, Inc., Class B 33,701 1,230 The Walt Disney Co. 39,900 1,006 ----------- 6,397 MISCELLANEOUS FINANCE 11.4% -------------------------------------------------------------------------- The Bear Stearns Cos., Inc. 2,101 199 @ Capital One Financial Corp. 4,800 354 / The Charles Schwab Corp. 26,400 242 =(2) Citigroup, Inc. 100,673 4,467 Countrywide Financial Corp. 10,998 351 o E*TRADE Financial Corp. 7,700 99 Franklin Resources, Inc. 4,700 285 Freddie Mac 13,400 892 Golden West Financial Corp. 2,800 327 Goldman Sachs Group, Inc. 9,500 935 Janus Capital Group, Inc. 4,400 67 Lehman Brothers Holdings, Inc. 5,400 444 MBNA Corp. 24,800 636 Merrill Lynch & Co., Inc. 18,300 987 Morgan Stanley 21,400 1,093 o Providian Financial Corp. 5,400 84 Sovereign Bancorp, Inc. 6,800 147 Washington Mutual, Inc. 16,950 656 ----------- 12,265 NON-DURABLES & ENTERTAINMENT 1.0% -------------------------------------------------------------------------- Darden Restaurants, Inc. 2,900 71 Hasbro, Inc. 3,950 70 Mattel, Inc. 8,100 142 McDonald's Corp. 24,400 711 Wendy's International, Inc. 2,100 70 ----------- 1,064 NON-FERROUS METALS 0.7% -------------------------------------------------------------------------- Alcoa, Inc. 16,532 537 Engelhard Corp. 2,300 65 Phelps Dodge Corp. 1,920 168 ----------- 770 OIL: DOMESTIC 2.3% -------------------------------------------------------------------------- Amerada Hess Corp. 1,700 137 Ashland, Inc. 1,400 81 ConocoPhillips 13,352 1,126 Kerr-McGee Corp. 2,800 166 Marathon Oil Corp. 6,800 259 o Nabors Industries Ltd. 2,850 140 Sunoco, Inc. 1,500 112 o Transocean, Inc. 6,248 220 Unocal Corp. 5,300 221 ----------- 2,462 OIL: INTERNATIONAL 7.8% -------------------------------------------------------------------------- (6) ChevronTexaco Corp. 41,424 2,198 =(1) Exxon Mobil Corp. 126,350 6,219 ----------- 8,417
30 See financial notes. SCHWAB INSTITUTIONAL SELECT LARGE-CAP VALUE INDEX FUND
VALUE SECURITY AND NUMBER OF SHARES ($ x 1,000) OPTICAL & PHOTO 0.4% -------------------------------------------------------------------------- o Corning, Inc. 27,100 310 @ Eastman Kodak Co. 5,500 167 ----------- 477 PAPER & FOREST PRODUCTS 1.0% -------------------------------------------------------------------------- o Boise Cascade Corp. 1,600 47 @ Georgia-Pacific Corp. 5,210 180 International Paper Co. 9,515 367 Louisiana-Pacific Corp. 2,300 56 MeadWestvaco Corp. 3,746 118 Temple-Inland, Inc. 1,100 65 Weyerhaeuser Co. 4,500 282 ----------- 1,115 PRODUCER GOODS & MANUFACTURING 2.4% -------------------------------------------------------------------------- Cooper Industries Ltd., Class A 1,900 122 Deere & Co. 5,000 299 Dover Corp. 4,200 165 o Fisher Scientific International, Inc. 2,200 126 Honeywell International, Inc. 16,687 562 Illinois Tool Works, Inc. 5,800 535 Ingersoll-Rand Co., Class A 3,400 233 Johnson Controls, Inc. 3,800 218 Pall Corp. 2,200 57 Parker Hannifin Corp. 2,200 155 Snap-On, Inc. 1,000 29 W.W. Grainger, Inc. 1,700 100 ----------- 2,601 RAILROAD & SHIPPING 1.0% -------------------------------------------------------------------------- Burlington Northern Santa Fe Corp. 7,000 293 CSX Corp. 4,400 161 Norfolk Southern Corp. 7,700 261 Union Pacific Corp. 5,100 321 ----------- 1,036 REAL PROPERTY 0.7% -------------------------------------------------------------------------- @ Apartment Investment & Management Co., Class A 2,000 73 Equity Office Properties Trust 7,900 222 Equity Residential 5,300 177 Plum Creek Timber Co., Inc. 3,600 131 ProLogis 3,400 132 ----------- 735 RETAIL 3.4% -------------------------------------------------------------------------- Albertson's, Inc. 7,138 163 @o Autonation, Inc. 4,900 84 o Big Lots, Inc. 1,800 22 Circuit City Stores, Inc. 4,100 67 Costco Wholesale Corp. 9,000 431 CVS Corp. 7,800 339 Dillards, Inc., Class A 1,600 33 Federated Department Stores, Inc. 3,500 177 J.C. Penney Co., Inc. Holding Co. 5,800 201 o Kroger Co. 14,500 219 @ Limitedbrands 9,000 223 @ The May Department Stores Co. 5,700 149 Nordstrom, Inc. 2,600 112 o Office Depot, Inc. 5,800 94 o Safeway, Inc. 8,700 159 @ Sears, Roebuck & Co. 4,300 151 Target Corp. 17,600 880 Tiffany & Co. 2,700 79 o Toys `R' Us, Inc. 4,400 79 @ Winn-Dixie Stores, Inc. 2,100 7 ----------- 3,669 STEEL 0.2% -------------------------------------------------------------------------- @ Nucor Corp. 3,200 135 @ United States Steel Corp. 2,200 81 Worthington Industries, Inc. 1,800 36 ----------- 252 TELEPHONE 5.6% -------------------------------------------------------------------------- Alltel Corp. 5,800 319 AT&T Corp. 15,352 263 BellSouth Corp. 35,400 944 CenturyTel, Inc. 2,900 93 o Citizens Communications Co. 6,948 93 (9) SBC Communications, Inc. 64,300 1,624
See financial notes. 31 SCHWAB INSTITUTIONAL SELECT LARGE-CAP VALUE INDEX FUND PORTFOLIO HOLDINGS continued
VALUE SECURITY AND NUMBER OF SHARES ($ x 1,000) Sprint Corp. (FON Group) 28,200 591 (7) Verizon Communications, Inc. 53,800 2,103 ----------- 6,030 TOBACCO 0.2% -------------------------------------------------------------------------- @ Reynolds American, Inc. 2,800 193 TRAVEL & RECREATION 1.3% -------------------------------------------------------------------------- Brunswick Corp. 2,200 103 @ Carnival Corp. 12,300 622 @ Harrah's Entertainment, Inc. 2,300 135 Hilton Hotels Corp. 7,400 147 Marriott International, Inc., Class A 4,300 234 Starwood Hotels & Resorts Worldwide, Inc. 3,900 186 ----------- 1,427 TRUCKING & FREIGHT 0.3% -------------------------------------------------------------------------- Paccar, Inc. 3,425 238 Ryder Systems, Inc. 1,300 65 ----------- 303 UTILITIES: ELECTRIC & GAS 5.9% -------------------------------------------------------------------------- o Allegheny Energy, Inc. 2,900 53 Ameren Corp. 3,900 187 American Electric Power Co., Inc. 7,640 252 @o Calpine Corp. 8,400 21 Centerpoint Energy, Inc. 6,600 69 @ Cinergy Corp. 3,700 146 @o CMS Energy Corp. 3,100 29 Consolidated Edison, Inc. 4,700 204 Constellation Energy Group, Inc. 3,300 134 Dominion Resources, Inc. 6,448 415 DTE Energy Co. 3,500 150 @ Duke Energy Corp. 18,200 446 @o Dynegy, Inc., Class A 7,500 37 Edison International 6,100 186 @ El Paso Corp. 11,873 106 Entergy Corp. 4,300 281 Exelon Corp. 12,800 507 FirstEnergy Corp. 6,422 265 FPL Group, Inc. 3,600 248 @ KeySpan Corp. 3,000 120 Kinder Morgan, Inc. 2,545 164 @ Nicor, Inc. 800 30 NiSource, Inc. 5,115 110 Peoples Energy Corp. 700 30 o PG&E Corp. 7,700 247 Pinnacle West Capital Corp. 1,700 73 PPL Corp. 3,500 182 Progress Energy, Inc. 4,606 190 @ Public Service Enterprise Group, Inc. 4,700 200 Sempra Energy 4,400 148 @ The Southern Co. 14,400 455 TECO Energy, Inc. 3,600 50 TXU Corp. 6,100 373 @ Williams Cos., Inc. 10,200 128 @ Xcel Energy, Inc. 7,810 134 ----------- 6,370 SHORT-TERM INVESTMENT 2.5% of net assets Provident Institutional TempFund 2,696,245 2,696 SECURITY FACE AMOUNT RATE, MATURITY DATE ($ x 1,000) U.S. TREASURY OBLIGATION 0.2% of net assets = U.S. Treasury Bill 1.63%, 12/16/04 200 200
END OF INVESTMENTS. 32 See financial notes. SCHWAB INSTITUTIONAL SELECT LARGE-CAP VALUE INDEX FUND
SECURITY FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) COLLATERAL INVESTED FOR SECURITIES ON LOAN 6.6% of net assets COMMERCIAL PAPER & OTHER CORPORATE OBLIGATIONS 2.5% -------------------------------------------------------------------------- Canadian Imperial Bank of Commerce/New York 1.92%, 11/29/04 190 190 1.72%, 05/25/05 296 296 Foreningssparbanken AB 1.83%, 11/15/04 841 841 Fortis Bank NY 1.78%, 06/06/05 211 211 Societe Generale NY 1.95%, 11/01/04 864 863 1.83%, 11/15/04 355 355 ----------- 2,756 SHORT-TERM INVESTMENTS 4.1% -------------------------------------------------------------------------- Citibank, Time Deposit 1.76%, 11/01/04 167 167 SECURITY AND NUMBER OF SHARES Institutional Money Market Trust 4,221,520 4,222 ----------- 4,389
END OF COLLATERAL INVESTED FOR SECURITIES ON LOAN. In addition to the above, the fund held the following at 10/31/04. All numbers x 1,000 except number of contracts. FUTURES CONTRACTS
NUMBER OF CONTRACT UNREALIZED CONTRACTS VALUE GAINS S&P 500 Index, Long expires 12/17/04 13 3,673 13
See financial notes. 33 SCHWAB INSTITUTIONAL SELECT LARGE-CAP VALUE INDEX FUND Statement of ASSETS AND LIABILITIES As of October 31, 2004. All numbers x 1,000 except NAV. ASSETS -------------------------------------------------------------------------------- Investments, at value (including $6,903 of securities on loan) $107,492 a Collateral invested for securities on loan 7,145 Receivables: Fund shares sold 105 Interest 3 Dividends 194 Due from broker for futures 8 Income from securities on loan 1 Prepaid expenses + 15 ------------ TOTAL ASSETS 114,963 LIABILITIES -------------------------------------------------------------------------------- Collateral invested for securities on loan 7,145 Payables: Fund shares redeemed 53 Transfer agent and shareholder service fees 1 Accrued expenses + 39 ------------ TOTAL LIABILITIES 7,238 NET ASSETS -------------------------------------------------------------------------------- TOTAL ASSETS 114,963 TOTAL LIABILITIES - 7,238 ------------ NET ASSETS $107,725 NET ASSETS BY SOURCE Capital received from investors 129,050 Net investment income not yet distributed 1,427 Net realized capital losses (32,758) b Net unrealized capital gains 10,006 b NET ASSET VALUE (NAV) SHARES NET ASSETS / OUTSTANDING = NAV $107,725 11,089 $9.72
Unless stated, all numbers x 1,000. a The fund paid $97,499 for these securities. Not counting short-term obligations and government securities, the fund's security transactions during the period were: Purchases $27,180 Sales/maturities $10,493 The fund's total security transactions with other SchwabFunds(R) during the period were $4,131. b These derive from investments and futures. FEDERAL TAX DATA -------------------------------------------------- PORTFOLIO COST $99,165 NET UNREALIZED GAINS AND LOSSES: Gains $20,246 Losses + (11,919) ------------ $8,327 AS OF OCTOBER 31, 2004: NET UNDISTRIBUTED EARNINGS: Ordinary income $1,427 Long-term capital gains $-- CAPITAL LOSSES UTILIZED $1,252 UNUSED CAPITAL LOSSES: Expires 10/31 of: Loss amount 2010 $24,705 2011 + 6,374 ------------ $31,079 34 See financial notes. SCHWAB INSTITUTIONAL SELECT LARGE-CAP VALUE INDEX FUND Statement of OPERATIONS For November 1, 2003 through October 31, 2004. All numbers x 1,000. INVESTMENT INCOME -------------------------------------------------------------------------------- Dividends $1,883 Interest 21 Securities on loan + 18 ----------- TOTAL INVESTMENT INCOME 1,922 NET REALIZED GAINS AND LOSSES -------------------------------------------------------------------------------- Net realized gains on investments 1,362 Net realized gains on futures contracts + 123 ----------- NET REALIZED GAINS 1,485 NET UNREALIZED GAINS AND LOSSES -------------------------------------------------------------------------------- Net unrealized gains on investments 8,597 Net unrealized losses on futures contracts + (22) ----------- NET UNREALIZED GAINS 8,575 EXPENSES -------------------------------------------------------------------------------- Investment adviser and administrator fees 188 a Transfer agent and shareholder service fees 94 b Trustees' fees 5 c Custodian fees 20 Portfolio accounting fees 13 Professional fees 29 Registration fees 20 Shareholder reports 30 Other expenses + 16 ----------- Total expenses 415 Expense reduction - 180 d ----------- NET EXPENSES 235 INCREASE IN NET ASSETS FROM OPERATIONS -------------------------------------------------------------------------------- TOTAL INVESTMENT INCOME 1,922 NET EXPENSES - 235 ----------- NET INVESTMENT INCOME 1,687 NET REALIZED GAINS 1,485 e NET UNREALIZED GAINS + 8,575 e ----------- INCREASE IN NET ASSETS FROM OPERATIONS $11,747
Unless stated, all numbers x 1,000. a Calculated as a percentage of average daily net assets: 0.20% of the first $1 billion and 0.18% of assets beyond that. These fees are paid to Charles Schwab Investment Management, Inc. (CSIM). b Calculated as a percentage of average daily net assets: for transfer agent services, 0.05% of the fund's assets; for shareholder services, 0.05% of the fund's assets. These fees are paid to Charles Schwab & Co., Inc. (Schwab). c For the fund's independent trustees only. d Includes $171 from the investment adviser (CSIM) and $9 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 December 31, 2005, to 0.25% of average daily net assets. This limit excludes interest, taxes and certain non-routine expenses. e These add up to a net gain on investments of $10,060. See financial notes. 35 SCHWAB INSTITUTIONAL SELECT LARGE-CAP VALUE INDEX FUND Statements of CHANGES IN NET ASSETS For the current and prior report periods. All numbers x 1,000.
OPERATIONS -------------------------------------------------------------------------------- 11/1/03-10/31/04 11/1/02-10/31/03 Net investment income $1,687 $1,358 Net realized gains or losses 1,485 (6,127) Net unrealized gains + 8,575 20,469 ------------------------------------ INCREASE IN NET ASSETS FROM OPERATIONS 11,747 15,700 DISTRIBUTIONS PAID -------------------------------------------------------------------------------- Dividends from net investment income $1,357 $1,700 a, b
TRANSACTIONS IN FUND SHARES -------------------------------------------------------------------------------- 11/1/03-10/31/04 11/1/02-10/31/03 SHARES VALUE SHARES VALUE Shares sold 4,232 $39,448 3,034 $23,065 Shares reinvested 132 1,154 200 1,408 Shares redeemed + (2,432) (22,547) (3,938) (29,626) c ---------------------------------------------------- NET TRANSACTIONS IN FUND SHARES 1,932 $18,055 (704) ($5,153)
SHARES OUTSTANDING AND NET ASSETS -------------------------------------------------------------------------------- 11/1/03-10/31/04 11/1/02-10/31/03 SHARES NET ASSETS SHARES NET ASSETS Beginning of period 9,157 $79,280 9,861 $70,433 Total increase or decrease + 1,932 28,445 (704) 8,847 d ---------------------------------------------------- END OF PERIOD 11,089 $107,725 9,157 $79,280 e
Unless stated, all numbers x 1,000. a UNAUDITED For corporations, 100% of the fund's dividends for the report period qualify for the dividends-received deduction. The fund designates $1,337 of the dividend distribution for the fiscal year ended 10/31/04 as qualified dividends for the purpose of the maximum rate under Section 1(h) (ii) of the Internal Revenue Code. Shareholders will be notified in January 2005 via IRS Form 1099 of the amounts for use in preparing their 2004 income tax return. b The tax-basis components of distributions paid are: CURRENT PERIOD Ordinary income $1,357 Long-term capital gains $-- PRIOR PERIOD Ordinary income $1,700 Long-term capital gains $-- c The fund charges 0.75% of early withdrawal fees on shares redeemed 180 days or less after the purchase. CURRENT PERIOD $11 PRIOR PERIOD $12 Dollar amounts are net of the redemption proceeds. d Figures for shares represent shares sold plus shares reinvested, minus shares redeemed. Figures for net assets represent the changes in net assets from operations plus the changes in value of transactions in fund shares, minus distributions paid. e Includes distributable net investment income in the amount of $1,427 and $1,097 at the end of the current period and prior period, respectively. 36 See financial notes. SCHWAB INSTITUTIONAL SELECT(R) SMALL-CAP VALUE INDEX FUND FINANCIAL STATEMENTS FINANCIAL HIGHLIGHTS
11/1/03- 11/1/02- 11/1/01- 11/1/00- 11/1/99- 10/31/04 10/31/03 10/31/02 10/31/01 10/31/00 ------------------------------------------------------------------------------------------------------------------------------------ PER-SHARE DATA ($) ------------------------------------------------------------------------------------------------------------------------------------ Net asset value at beginning of period 12.55 9.50 10.82 11.23 9.89 ------------------------------------------------------------------------------ Income or loss from investment operations: Net investment income 0.16 0.11 0.10 0.09 0.09 Net realized and unrealized gains or losses 2.18 3.04 (0.32) 0.32 1.74 ------------------------------------------------------------------------------ Total income or loss from investment operations 2.34 3.15 (0.22) 0.41 1.83 Less distributions: Dividends from net investment income (0.11) (0.10) (0.10) (0.08) (0.09) Distributions from net realized gains -- -- (1.00) (0.74) (0.40) ------------------------------------------------------------------------------ Total distributions (0.11) (0.10) (1.10) (0.82) (0.49) ------------------------------------------------------------------------------ Net asset value at end of period 14.78 12.55 9.50 10.82 11.23 ------------------------------------------------------------------------------ Total return (%) 18.76 33.52 (3.32) 4.14 19.42 RATIOS/SUPPLEMENTAL DATA (%) ------------------------------------------------------------------------------------------------------------------------------------ Ratios to average net assets: Net operating expenses 0.32 0.32 0.33 1 0.32 0.28 2 Gross operating expenses 0.58 0.63 0.61 0.61 0.66 Net investment income 1.15 0.95 0.81 0.87 0.94 Portfolio turnover rate 40 36 56 69 71 Net assets, end of period ($ x 1,000,000) 42 36 37 47 39
1 The ratio of net operating expenses would have been 0.32% if interest expense had not been included. 2 The ratio of net operating expenses would have been 0.27% if certain non-routine expenses (proxy fees) had not been included. See financial notes. 37 SCHWAB INSTITUTIONAL SELECT SMALL-CAP VALUE INDEX FUND PORTFOLIO HOLDINGS as of October 31, 2004 This section shows all the securities in the fund's portfolio by industry classification and their value, as of the report date. The fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The fund's Form N-Q is available on the SEC's website at http://www.sec.gov and may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Call 1-800-SEC-0330 for information on the operation of the Public Reference Room. The schedule of portfolio holdings filed on the fund's most recent Form N-Q is available by visiting Schwab's website at www.schwab.com/schwabfunds. We use the symbols below to designate certain characteristics of the securities. With the top ten holdings, the number in the circle is the security's rank among the top ten. (1) Top ten holding o Non-income producing security = All or a portion of this security is held as collateral for open futures contracts @ This security or a portion of this security is on loan
COST VALUE HOLDINGS BY CATEGORY ($x1,000) ($x1,000) -------------------------------------------------------------------------------- 96.7% COMMON STOCK 31,872 40,691 2.8% SHORT-TERM INVESTMENT 1,173 1,173 0.3% U.S. TREASURY OBLIGATIONS 110 110 -------------------------------------------------------------------------------- 99.8% TOTAL INVESTMENTS 33,155 41,974 5.4% COLLATERAL INVESTED FOR SECURITIES ON LOAN 2,263 2,263 (5.2)% OTHER ASSETS AND LIABILITIES, NET (2,193) -------------------------------------------------------------------------------- 100.0% TOTAL NET ASSETS 42,044
VALUE SECURITY AND NUMBER OF SHARES ($ x 1,000) COMMON STOCK 96.7% of net assets AEROSPACE / DEFENSE 1.2% -------------------------------------------------------------------------- o DRS Technologies, Inc. 4,600 167 EDO Corp. 3,600 101 o Esterline Technologies Corp. 3,700 117 GenCorp, Inc. 7,200 100 Kaman Corp., Class A 3,800 42 ----------- 527 AIR TRANSPORTATION 0.7% -------------------------------------------------------------------------- =o AAR Corp. 6,000 70 o FLYi, Inc. 6,200 9 o Frontier Airlines, Inc. 5,000 42 o Mesa Air Group, Inc. 5,500 32 SkyWest, Inc. 9,500 162 ----------- 315 APPAREL 1.3% -------------------------------------------------------------------------- =o Ashworth, Inc. 2,400 20 Brown Shoe Co., Inc. 3,200 87 Haggar Corp. 700 12 Kellwood Co. 4,600 145 Phillips-Van Heusen Corp. 5,500 125 Russell Corp. 5,800 100 Stride Rite Corp. 6,100 63 ----------- 552 AUTOMOTIVE PRODUCTS / MOTOR VEHICLES 1.1% -------------------------------------------------------------------------- A.O. Smith Corp., Class B 5,000 133 Coachmen Industries, Inc. 2,300 33 o Group 1 Automotive, Inc. 3,800 108 Myers Industries, Inc. 6,050 64 Standard Motor Products, Inc. 3,400 52 o TBC Corp. 3,800 84 ----------- 474 BANKS 8.6% -------------------------------------------------------------------------- Anchor Bancorp Wisconsin, Inc. 3,600 93 BankAtlantic Bancorp, Inc., Class A 10,200 178 Boston Private Financial Holdings, Inc. 4,500 110 = Brookline Bancorp, Inc. 9,600 149 Chittenden Corp. 7,750 219 Community Bank System, Inc. 5,000 138 First Republic Bank 2,900 140 o FirstFed Financial Corp. 3,000 154 Irwin Financial Corp. 4,900 122
38 See financial notes.
VALUE SECURITY AND NUMBER OF SHARES ($ x 1,000) MAF Bancorp., Inc. 5,500 236 Provident Bankshares Corp. 5,505 191 Republic Bancorp, Inc. 11,000 184 Riggs National Corp. 5,200 110 (4) The South Financial Group, Inc. 12,200 366 Sterling Bancshares, Inc. Texas 7,800 111 o Sterling Financial Corp. Washington 4,000 150 Susquehanna Bancshares, Inc. 8,200 204 Umpqua Holdings Corp. 7,300 182 United Bankshares, Inc. 7,500 275 = Whitney Holding Corp. 6,850 299 ----------- 3,611 BUSINESS MACHINES & SOFTWARE 1.5% -------------------------------------------------------------------------- =o Adaptec, Inc. 18,700 146 Analogic Corp. 2,500 106 Black Box Corp. 3,000 118 o Brooktrout, Inc. 2,500 23 o Digi International, Inc. 4,100 56 @ Landamerica Financial Group, Inc. 3,300 162 o Roxio, Inc. 3,900 24 ----------- 635 BUSINESS SERVICES 8.4% -------------------------------------------------------------------------- o 4Kids Entertainment, Inc. 2,500 46 ABM Industries, Inc. 8,200 170 Angelica Corp. 1,600 38 Bowne & Co., Inc. 5,800 72 o CACI International, Inc., Class A 5,000 305 CDI Corp. 3,100 51 Chemed Corp. 2,000 121 o Ciber, Inc. 10,700 97 o Cross Country Healthcare, Inc. 5,700 85 o Digital Insight Corp. 6,100 95 o eFunds Corp. 8,300 163 o EPIQ Systems, Inc. 3,000 45 G&K Services, Inc., Class A 3,600 141 o Gentiva Health Services, Inc. 4,100 70 o Insurance Auto Auctions, Inc. 1,900 36 o Internet Security Systems 8,000 174 o JDA Software Group, Inc. 4,900 55 o Mantech International Corp., Class A 5,500 119 o MAXIMUS, Inc. 4,000 109 Nautilus Group, Inc. 5,500 108 o NCO Group, Inc. 5,500 147 o NYFIX, Inc. 4,800 23 o On Assignment, Inc. 4,200 21 o Paxar Corp. 6,900 152 o PC-Tel, Inc. 3,500 27 o Pegasus Solutions, Inc. 3,900 41 o Phoenix Technologies Ltd. 3,800 23 o PRG-Schultz International, Inc. 10,300 53 o QRS Corp. 3,000 21 o Radiant Systems, Inc. 4,500 23 o SourceCorp 2,600 44 o Spherion Corp. 10,100 73 o SPSS, Inc. 3,000 41 The Standard Register Co. 4,800 51 o URS Corp. 7,300 201 o Verity, Inc. 6,500 84 Viad Corp. 3,700 80 o Volt Information Sciences, Inc. 2,800 81 o Waste Connections, Inc. 8,050 254 ----------- 3,540 CHEMICALS 2.0% -------------------------------------------------------------------------- @ A. Schulman, Inc. 5,200 103 = Arch Chemicals, Inc. 4,200 119 H.B. Fuller Co. 4,800 129 =o OM Group, Inc. 5,200 172 Penford Corp. 1,600 25 o PolyOne Corp. 15,500 117 Quaker Chemical Corp. 1,300 30 Tredegar Corp. 6,500 109 Wellman, Inc. 4,500 33 ----------- 837 CONSTRUCTION 2.9% -------------------------------------------------------------------------- Apogee Enterprises, Inc. 4,400 56 Building Material Holding Corp. 2,300 67 o EMCOR Group, Inc. 2,500 99
See financial notes. 39 SCHWAB INSTITUTIONAL SELECT SMALL-CAP VALUE INDEX FUND PORTFOLIO HOLDINGS continued
VALUE SECURITY AND NUMBER OF SHARES ($ x 1,000) o Insituform Technologies, Inc., Class A 4,500 89 @(1) MDC Holdings, Inc. 5,692 437 (7) Standard-Pacific Corp. 5,600 314 Texas Industries, Inc. 3,500 178 ----------- 1,240 CONSUMER DURABLES 1.2% -------------------------------------------------------------------------- o Applica, Inc. 3,800 15 Bassett Furniture Industries, Inc. 2,200 41 Haverty Furniture Cos., Inc. 3,900 66 o Interface, Inc., Class A 7,800 68 La-Z-Boy, Inc. 8,500 112 National Presto Industries, Inc. 1,400 56 Skyline Corp. 1,500 60 Thomas Industries, Inc. 3,100 105 ----------- 523 CONTAINERS 0.2% -------------------------------------------------------------------------- o Mobile Mini, Inc. 2,500 71 ELECTRONICS 7.4% -------------------------------------------------------------------------- o Actel Corp. 4,500 68 Agilysys, Inc. 5,700 98 o Alliance Semiconductor Corp. 5,300 18 Anixter International, Inc. 6,200 240 o Audiovox Corp., Class A 3,400 49 Belden CDT, Inc. 8,225 183 =o Bell Microproducts, Inc. 3,700 33 =o Benchmark Electronics, Inc. 7,250 246 C&D Technologies, Inc. 4,700 84 o C-COR.net Corp. 8,000 60 o Captaris, Inc. 5,000 23 o Checkpoint Systems, Inc. 6,500 111 o Coherent, Inc. 5,400 130 Cohu, Inc. 3,200 50 CTS Corp. 6,200 82 Cubic Corp. 4,500 99 o Dupont Photomasks, Inc. 3,400 89 o Electro Scientific Industries, Inc. 4,600 78 o ESS Technology, Inc. 6,500 43 o Exar Corp. 7,000 105 o Gerber Scientific, Inc. 4,000 31 @o Hutchinson Technology, Inc. 4,400 148 Methode Electronics, Class A 5,900 79 Park Electrochemical Corp. 3,600 76 o Pericom Semiconductor Corp. 4,300 39 o Pinnacle Systems, Inc. 11,200 52 o Planar Systems, Inc. 1,800 18 o Radisys Corp. 3,200 43 o Rudolph Technologies, Inc. 3,000 45 o SCM Microsystems, Inc. 2,700 10 =o Skyworks Solutions, Inc. 26,900 239 o Standard Microsystems Corp. 3,100 68 o Supertex, Inc. 2,300 49 o Symmetricom, Inc. 7,600 65 o Technitrol, Inc. 7,000 114 o THQ, Inc. 6,900 130 =o Three-Five Systems, Inc. 2,200 5 o Tollgrade Communications, Inc. 2,200 21 ----------- 3,121 ENERGY: RAW MATERIALS 2.7% -------------------------------------------------------------------------- o Atwood Oceanics, Inc. 2,700 129 o Cimarex Energy Co. 7,000 251 o Dril-Quip, Inc. 3,200 72 o Kirby Corp. 4,300 180 o Offshore Logistics, Inc. 4,000 145 o Seacor Holdings, Inc. 2,900 138 o Swift Energy Co. 4,700 114 o W-H Energy Services, Inc. 4,700 96 ----------- 1,125 FOOD & AGRICULTURE 2.8% -------------------------------------------------------------------------- @ American Italian Pasta Co., Class A 3,000 61 =(10) Corn Products International, Inc. 6,200 305 Flowers Foods, Inc. 7,900 200 o Hain Celestial Group, Inc. 5,900 96 o J & J Snack Foods Corp. 1,400 62 = Nash Finch Co. 2,400 74 o Performance Food Group Co. 8,100 189 o Ralcorp Holdings, Inc. 4,800 176 ----------- 1,163
40 See financial notes. SCHWAB INSTITUTIONAL SELECT SMALL-CAP VALUE INDEX FUND
VALUE SECURITY AND NUMBER OF SHARES ($ x 1,000) HEALTHCARE / DRUGS & MEDICINE 4.9% -------------------------------------------------------------------------- Alpharma, Inc., Class A 8,900 151 @o AMERIGROUP Corp. 4,400 264 =o Arqule, Inc. 3,700 17 = Cambrex Corp. 4,400 98 o Conmed Corp. 5,300 149 @o CryoLife, Inc. 3,900 27 =o Curative Health Services, Inc. 1,400 8 Datascope Corp. 2,600 84 Invacare Corp. 5,300 245 @o OCA, Inc. 8,100 33 o Osteotech, Inc. 3,000 14 = Owens & Minor, Inc. 6,800 178 o Parexel International Corp. 4,500 87 o Province Healthcare Co. 8,500 182 o RehabCare Group, Inc. 2,600 60 o Savient Pharmaceuticals, Inc. 8,400 17 o Sola International, Inc. 5,700 109 o Sunrise Senior Living, Inc. 3,600 137 o Theragenics Corp. 3,600 13 o Viasys Healthcare, Inc. 5,400 92 Vital Signs, Inc. 2,200 76 ----------- 2,041 INSURANCE 3.8% -------------------------------------------------------------------------- Delphi Financial Group, Inc., Class A 5,167 211 Hooper Holmes, Inc. 11,500 60 o Philadelphia Consolidated Holding Co. 3,800 220 Presidential Life Corp. 5,400 86 o ProAssurance Corp. 5,000 178 RLI Corp. 4,100 156 = SCPIE Holdings, Inc. 900 8 Selective Insurance Group, Inc. 4,700 184 Stewart Information Services Corp. 3,100 132 o UICI 8,000 237 @ Zenith National Insurance Corp. 3,500 144 ----------- 1,616 MEDIA 0.9% -------------------------------------------------------------------------- =o Advanced Marketing Services, Inc. 3,600 38 o Consolidated Graphics, Inc. 2,200 94 o Information Holdings, Inc. 3,900 107 @ Movie Gallery, Inc. 5,500 89 o Network Equipment Technologies, Inc. 3,900 33 ----------- 361 MISCELLANEOUS FINANCE 4.3% -------------------------------------------------------------------------- @o Bankunited Financial Corp., Class A 5,100 152 Cash America International, Inc. 4,700 119 = Commercial Federal Corp. 6,800 189 = Downey Financial Corp. 4,800 265 o Financial Federal Corp. 2,900 108 = Flagstar Bancorp., Inc. 10,500 219 o Investment Technology Group, Inc. 7,000 108 o Meritage Corp. 2,300 204 o Piper Jaffray Cos. 3,500 153 SWS Group, Inc. 2,997 58 Waypoint Financial Corp. 5,740 158 o World Acceptance Corp. 3,100 72 ----------- 1,805 NON-DURABLES & ENTERTAINMENT 2.2% -------------------------------------------------------------------------- Action Performance Cos., Inc. 2,900 27 o Department 56, Inc. 2,600 39 o Enesco Group, Inc. 1,900 12 IHOP Corp. 3,600 138 o Jack in the Box, Inc. 6,500 217 =o Jakks Pacific, Inc. 4,200 66 Landry's Restaurants, Inc. 4,600 125 Lone Star Steakhouse & Saloon, Inc. 4,059 98 o O'Charleys, Inc. 3,000 46 Russ Berrie & Co., Inc. 3,100 65 o Ryan's Restaurant Group, Inc. 6,800 95 ----------- 928
See financial notes. 41 SCHWAB INSTITUTIONAL SELECT SMALL-CAP VALUE INDEX FUND PORTFOLIO HOLDINGS continued
VALUE SECURITY AND NUMBER OF SHARES ($ x 1,000) NON-FERROUS METALS 1.8% -------------------------------------------------------------------------- =o A.M. Castle & Co. 2,700 31 o Brush Engineered Materials, Inc. 3,100 48 Commercial Metals Co. 4,900 177 o Commonwealth Industries, Inc. 2,600 24 o Imco Recycling, Inc. 2,500 29 Mueller Industries, Inc. 6,100 163 Reliance Steel & Aluminum Co. 5,500 189 o RTI International Metals, Inc. 3,900 78 o Wolverine Tube, Inc. 2,100 21 ----------- 760 OIL: DOMESTIC 1.2% -------------------------------------------------------------------------- o Remington Oil & Gas Corp. 4,900 125 o Spinnaker Exploration Co. 5,900 188 o Stone Energy Corp. 4,300 177 ----------- 490 OPTICAL & PHOTO 0.2% -------------------------------------------------------------------------- o Meade Instruments Corp. 1,700 6 o Photronics, Inc. 5,700 100 ----------- 106 PAPER & FOREST PRODUCTS 1.5% -------------------------------------------------------------------------- o Buckeye Technologies, Inc. 6,300 66 o Caraustar Industries, Inc. 5,100 76 Chesapeake Corp. 3,300 76 o Lydall, Inc. 2,000 19 Pope & Talbot, Inc. 2,700 41 Rock-Tennessee Co., Class A 6,300 98 Universal Forest Products, Inc. 2,900 106 Wausau-Mosinee Paper Corp. 9,000 141 ----------- 623 PRODUCER GOODS & MANUFACTURING 9.4% -------------------------------------------------------------------------- o Aeroflex, Inc. 12,500 139 = Albany International Corp. Class A 5,500 165 Applied Industrial Technologies, Inc. 3,500 130 = Aptargroup, Inc. 6,300 296 o Astec Industries, Inc. 3,500 51 Barnes Group, Inc. 3,700 96 Curtiss-Wright Corp. 3,800 212 Fedders Corp. 4,000 14 o Gardner Denver, Inc. 3,600 108 (9) Hughes Supply, Inc. 10,800 307 o Ionics, Inc. 4,100 117 JLG Industries, Inc. 7,000 117 Lawson Products, Inc. 1,700 74 Lennox International, Inc. 10,112 146 Libbey, Inc. 2,300 42 o Lone Star Technologies, Inc. 4,800 127 =o Magnetek, Inc. 4,100 25 =o Material Sciences Corp. 2,500 32 o Moog, Inc., Class A 4,500 169 o Oceaneering International, Inc. 4,000 142 Regal Beloit Corp. 4,200 98 Robbins & Myers, Inc. 2,700 56 o The Shaw Group, Inc. 10,300 126 Standex International Corp. 2,200 58 Stewart & Stevenson Services, Inc. 5,200 88 (3) The Timken Co. 15,600 374 o Triumph Group, Inc. 2,600 89 o Ultratech Stepper, Inc. 4,000 68 Valmont Industries, Inc. 4,300 94 Watsco, Inc. 4,400 125 Watts Water Technologies, Inc., Class A 5,600 145 Woodward Governor Co. 1,800 109 ----------- 3,939 RAILROAD & SHIPPING 0.4% -------------------------------------------------------------------------- o Kansas City Southern Railway 10,600 180 REAL PROPERTY 4.3% -------------------------------------------------------------------------- Capital Automotive Real Estate Investment Trust 6,500 210 = Colonial Properties Trust 4,700 183 Commercial Net Lease Realty 8,900 171 Entertainment Properties Trust 4,000 159 Gables Residential Trust 5,000 182 Glenborough Realty Trust, Inc. 5,800 122 = Kilroy Realty Corp. 4,800 191 @ Lexington Corp. Properties Trust 8,300 186
42 See financial notes. SCHWAB INSTITUTIONAL SELECT SMALL-CAP VALUE INDEX FUND
VALUE SECURITY AND NUMBER OF SHARES ($ x 1,000) =(8) Shurgard Storage Centers, Inc., Class A 7,900 314 Sovran Self Storage, Inc. 2,500 98 ----------- 1,816 RETAIL 5.9% -------------------------------------------------------------------------- Burlington Coat Factory Warehouse Corp. 7,300 161 Casey's General Stores, Inc. 8,700 155 The Cato Corp., Class A 3,500 80 o The Dress Barn, Inc. 5,000 80 Goody's Family Clothing, Inc. 5,300 47 o Great Atlantic & Pacific Tea Co. 6,300 41 o The Gymboree Corp. 5,100 62 Hancock Fabrics, Inc. 2,300 24 o Insight Enterprises, Inc. 8,300 154 =o Jo-Ann Stores, Inc. 3,610 89 o Linens `N Things, Inc. 7,500 181 Longs Drug Stores Corp. 6,500 160 o The Men's Wearhouse, Inc. 6,300 196 Pep Boys-Manny, Moe & Jack 10,000 142 @o School Specialty, Inc. 3,800 155 o ShopKo Stores, Inc. 5,300 91 o Too, Inc. 6,000 132 o United Stationers, Inc. 5,800 258 o Zale Corp. 9,000 257 ----------- 2,465 STEEL 2.1% -------------------------------------------------------------------------- Carpenter Technology Corp. 4,000 190 @o Cleveland-Cliffs, Inc. 2,100 153 Quanex Corp. 2,700 137 Ryerson Tull, Inc. 3,900 64 Steel Dynamics, Inc. 8,500 282 Steel Technologies, Inc. 1,900 45 ----------- 871 TELEPHONE 0.3% -------------------------------------------------------------------------- o Boston Communications Group 3,300 30 o General Communication, Inc., Class A 9,100 83 ----------- 113 TOBACCO 0.3% -------------------------------------------------------------------------- DIMON, Inc. 7,400 43 Schweitzer-Mauduit International, Inc. 2,300 73 ----------- 116 TRAVEL & RECREATION 1.3% -------------------------------------------------------------------------- o Aztar Corp. 5,800 179 Central Parking Corp. 6,100 83 o K2, Inc. 5,800 94 The Marcus Corp. 5,400 115 o Pinnacle Entertainment, Inc. 6,000 88 ----------- 559 TRUCKING & FREIGHT 1.7% -------------------------------------------------------------------------- = Arkansas Best Corp. 4,100 160 USF Corp. 4,600 165 o(2) Yellow Roadway Corp. 8,287 398 ----------- 723 UTILITIES: ELECTRIC & GAS 8.2% -------------------------------------------------------------------------- Allete, Inc. 5,300 180 American States Water Co. 2,800 69 Atmos Energy Corp. 10,600 274 = Avista Corp. 8,100 144 Cascade Natural Gas Corp. 1,600 32 Central Vermont Public Service Corp. 2,200 48 CH Energy Group, Inc. 2,500 112 Cleco Corp. 8,200 149 o El Paso Electric Co. 8,200 137 =(6) Energen Corp. 6,300 339 = Green Mountain Power Corp. 900 23 The Laclede Group, Inc. 3,500 106 New Jersey Resources Corp. 4,900 201 Northwest Natural Gas Co. 4,400 140 NUI Corp. 2,300 31 Piedmont Natural Gas Co. 6,200 282 o Southern Union Co. 13,575 298 Southwest Gas Corp. 5,600 137 (5) UGI Corp. 8,800 340 UIL Holdings Corp. 2,700 137 @ Unisource Energy Corp. 6,100 150 o Veritas DGC, Inc. 5,500 116 ----------- 3,445
See financial notes. 43 SCHWAB INSTITUTIONAL SELECT SMALL-CAP VALUE INDEX FUND PORTFOLIO HOLDINGS continued
VALUE SECURITY AND NUMBER OF SHARES ($ x 1,000) SHORT-TERM INVESTMENT 2.8% of net assets Provident Institutional TempFund 1,173,087 1,173 SECURITY FACE AMOUNT RATE, MATURITY DATE ($ x 1,000) U.S. TREASURY OBLIGATIONS 0.3% of net assets = U.S. Treasury Bills 1.54%-1.63%, 12/16/04 110 110
END OF INVESTMENTS.
SECURITY FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) COLLATERAL INVESTED FOR SECURITIES ON LOAN 5.4% of net assets COMMERCIAL PAPER & OTHER CORPORATE OBLIGATIONS 0.6% ----------------------------------------------------------------------------- Foreningssparbanken AB 1.83%, 11/15/04 259 259 SHORT-TERM INVESTMENTS 4.8% ----------------------------------------------------------------------------- Citibank, Time Deposit 1.76%, 11/01/04 39 39 SECURITY AND NUMBER OF SHARES Institutional Money Market Trust 1,964,875 1,965 -------- 2,004
END OF COLLATERAL INVESTED FOR SECURITIES ON LOAN. In addition to the above, the fund held the following at 10/31/04. All numbers x 1,000 except number of contracts. FUTURES CONTRACTS
NUMBER OF CONTRACT UNREALIZED CONTRACTS VALUE GAINS Russell 2000 Index, Long expires 12/17/04 4 1,169 19
44 See financial notes. SCHWAB INSTITUTIONAL SELECT SMALL-CAP VALUE INDEX FUND Statement of ASSETS AND LIABILITIES As of October 31, 2004. All numbers x 1,000 except NAV. ASSETS ------------------------------------------------------------------------------- Investments, at value (Including $2,160 of securities on loan) $41,974 a Collateral invested for securities on loan 2,263 Receivables: Fund shares sold 24 Interest 1 Dividends 34 Investments sold 50 Prepaid expenses + 11 ---------- TOTAL ASSETS 44,357 LIABILITIES ------------------------------------------------------------------------------- Collateral invested for securities on loan 2,263 Payables: Fund shares redeemed 23 Due to brokers for futures 1 Accrued expenses + 26 ---------- TOTAL LIABILITIES 2,313 NET ASSETS ------------------------------------------------------------------------------- TOTAL ASSETS 44,357 TOTAL LIABILITIES - 2,313 ---------- NET ASSETS $42,044 NET ASSETS BY SOURCE Capital received from investors 29,516 Net investment income not yet distributed 398 Net realized capital gains 3,292 b Net unrealized capital gains 8,838 b NET ASSET VALUE (NAV) SHARES NET ASSETS / OUTSTANDING = NAV $42,044 2,844 $14.78
Unless stated, all numbers x 1,000. a The fund paid $33,155 for these securities. Not counting short-term obligations and government securities, the fund's security transactions during the period were: Purchases $15,483 Sales/maturities $16,484 The fund's total security transactions with other Schwab Funds during the period were $3,714. b These derive from investments and futures. FEDERAL TAX DATA ----------------------------------- PORTFOLIO COST $33,513 NET UNREALIZED GAINS AND LOSSES: Gains $10,645 Losses + (2,184) --------- $8,461 AS OF OCTOBER 31, 2004: NET UNDISTRIBUTED EARNINGS: Ordinary income $1,034 Long-term capital gains $3,033 CAPITAL LOSSES UTILIZED $826 See financial notes. 45 SCHWAB INSTITUTIONAL SELECT SMALL-CAP VALUE INDEX FUND Statement of OPERATIONS For November 1, 2003 through October 31, 2004. All numbers x 1,000. INVESTMENT INCOME ------------------------------------------------------------------------------- Dividends $555 Interest 5 Lending of securities + 7 --------- TOTAL INVESTMENT INCOME 567 NET REALIZED GAINS AND LOSSES ------------------------------------------------------------------------------- Net realized gains on investments 4,657 Net realized gains on futures contracts + 16 --------- NET REALIZED GAINS 4,673 NET UNREALIZED GAINS AND LOSSES ------------------------------------------------------------------------------- Net unrealized gains on investments 1,446 Net unrealized gains on futures contracts + 9 --------- NET UNREALIZED GAINS 1,455 EXPENSES ------------------------------------------------------------------------------- Investment adviser and administrator fees 97 a Transfer agent and shareholder service fees 39 b Trustees' fees 5 c Custodian fees 13 Portfolio accounting fees 5 Professional fees 28 Registration fees 15 Shareholder reports 9 Other expenses + 15 --------- Total expenses 226 Expense reduction - 102 d --------- NET EXPENSES 124 INCREASE IN NET ASSETS FROM OPERATIONS ------------------------------------------------------------------------------- TOTAL INVESTMENT INCOME 567 NET EXPENSES - 124 --------- NET INVESTMENT INCOME 443 NET REALIZED GAINS 4,673 e NET UNREALIZED GAINS + 1,455 e --------- INCREASE IN NET ASSETS FROM OPERATIONS $6,571
Unless stated, all numbers x 1,000. a Calculated as a percentage of average daily net assets: 0.25% of the first $1 billion and 0.23% of assets beyond that. These fees are paid to Charles Schwab Investment Management, Inc. (CSIM). b Calculated as a percentage of average daily net assets: for transfer agent services, 0.05% of the fund's assets; for shareholder services, 0.05% of the fund's assets. These fees are paid to Charles Schwab & Co., Inc. (Schwab). c For the fund's independent trustees only. d Includes $92 from the investment adviser (CSIM) and $10 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 December 31, 2005, to 0.32% of average daily net assets. This limit excludes interest, taxes and certain non-routine expenses. e These add up to a net gain on investments of $6,128. 46 See financial notes. SCHWAB INSTITUTIONAL SELECT SMALL-CAP VALUE INDEX FUND Statements of CHANGES IN NET ASSETS For the current and prior report periods. All numbers x 1,000.
OPERATIONS -------------------------------------------------------------------------------- 11/1/03-10/31/04 11/1/02-10/31/03 Net investment income $443 $341 Net realized gains 4,673 833 Net unrealized gains + 1,455 9,158 ------------------------------------- INCREASE IN NET ASSETS FROM OPERATIONS 6,571 10,332 DISTRIBUTIONS PAID -------------------------------------------------------------------------------- Dividends from net investment income $313 $401 a, b
TRANSACTIONS IN FUND SHARES -------------------------------------------------------------------------------- 11/1/03-10/31/04 11/1/02-10/31/03 SHARES VALUE SHARES VALUE Shares sold 637 $8,882 727 $7,355 Shares reinvested 18 238 34 331 Shares redeemed + (667) (9,167) (1,794) (18,743) c --------------------------------------------- NET TRANSACTIONS IN FUND SHARES (12) ($47) (1,033) ($11,057)
SHARES OUTSTANDING AND NET ASSETS -------------------------------------------------------------------------------- 11/1/03-10/31/04 11/1/02-10/31/03 SHARES NET ASSETS SHARES NET ASSETS Beginning of period 2,856 $35,833 3,889 $36,959 Total increase or decrease + (12) 6,211 (1,033) (1,126) d ---------------------------------------------- END OF PERIOD 2,844 $42,044 2,856 $35,833 e
Unless stated, all numbers x 1,000. a UNAUDITED For corporations, 99% of the fund's dividends for the report period qualify for the dividends-received deduction. The fund designates $283 of the dividend distribution for the fiscal year ended 10/31/04 as qualified dividends for the purpose of the maximum rate under Section 1(h) (ii) of the Internal Revenue Code. Shareholders will be notified in January 2005 via IRS Form 1099 of the amounts for use in preparing their 2004 income tax return. b The tax-basis components of distributions paid are: CURRENT PERIOD Ordinary income $313 Long-term capital gains $-- PRIOR PERIOD Ordinary income $401 Long-term capital gains $-- c The fund charges 0.75% of early withdrawal fees on shares redeemed 180 days or less after the purchase. CURRENT PERIOD $2 PRIOR PERIOD $3 Dollar amounts are net of the redemption proceeds. d Figures for shares represent shares sold plus shares reinvested, minus shares redeemed. Figures for net assets represent the changes in net assets from operations plus the changes in value of transactions in fund shares, minus distributions paid. e Includes distributable net investment income in the amount of $398 and $268 at the end of the current period and prior period, respectively. See financial notes. 47 SCHWAB INSTITUTIONAL SELECT FUNDS 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. Shares are bought and sold at net asset value (NAV), which is the price for all outstanding shares. Each share has a par value of 1/1,000 of a cent, and the trust may issue as many shares as necessary. FUND OPERATIONS Most of the funds' investments are described in the fund-by-fund sections earlier in this report. However, there are certain other fund operations and policies that may affect a fund's financials, as 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. Futures contracts involve certain risks because they can be very 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 a 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. The potential for losses associated with futures contracts may exceed amounts recorded in the Statement of Assets and Liabilities. 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. A fund records the change in market value of futures, and also the change in the amount of margin deposit required ("variation margin"). 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 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 Schwab Total Stock Market Index Fund Schwab International Index Fund Schwab MarketTrack All Equity Portfolio Schwab MarketTrack Growth Portfolio Schwab MarketTrack Balanced Portfolio Schwab MarketTrack Conservative Portfolio Laudus U.S. MarketMasters Fund Laudus Balanced MarketMasters Fund Laudus Small-Cap MarketMasters Fund Laudus International MarketMasters Fund Schwab Core Equity Fund Schwab Dividend Equity Fund Schwab Small-Cap Equity Fund Schwab Hedged Equity Fund Communications Focus Fund Financial Services Focus Fund Health Care Focus Fund Technology Focus Fund SCHWAB INSTITUTIONAL SELECT S&P 500 FUND SCHWAB INSTITUTIONAL SELECT LARGE-CAP VALUE INDEX FUND SCHWAB INSTITUTIONAL SELECT SMALL-CAP VALUE INDEX FUND 48 SCHWAB INSTITUTIONAL SELECT FUNDS date, price and other conditions are all specified when the agreement is created. The funds' repurchase agreements will be fully collateralized by U.S. government securities. All collateral is held by the funds' custodian (or, with tri-party agreements, the agent's bank) and is monitored daily to ensure that its market value is at least equal to the repurchase price under the agreement. 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. All of the cash collateral received is reinvested in high quality, short-term investments. 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 PAY FEES TO AFFILIATES OF THE INVESTMENT ADVISER FOR VARIOUS SERVICES. Through their trust, 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 that may limit the total expenses charged. The rates and limitations for these fees vary from fund to fund, and are described in each fund's Statement of Operations. THE FUNDS MAY ENGAGE IN CERTAIN TRANSACTIONS INVOLVING RELATED PARTIES. For instance, a fund may own shares of The Charles Schwab Corporation 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. Pursuant to an exemptive order issued by the SEC, the funds may enter into interfund borrowing and lending transactions within the SchwabFunds(R). All loans are for temporary or emergency purposes only. The interest rate charged on the loan is the average of the overnight repurchase agreement rate and the short-term bank loan rate. The interfund lending facility is subject to the oversight and periodic review of the Board of Trustees of the SchwabFunds(R). TRUSTEES MAY INCLUDE PEOPLE WHO ARE OFFICERS AND/OR DIRECTORS OF THE INVESTMENT ADVISER 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 trust did not pay any of these persons for their service as trustees, but they did pay the non-interested persons (independent trustees), as noted in each fund's Statement of Operations. THE FUNDS MAY BORROW MONEY FROM BANKS AND CUSTODIANS. The funds may obtain temporary bank loans through the trust to which they belong, to use for meeting shareholder redemptions or for extraordinary or emergency purposes. The SchwabFunds have custodian overdraft facilities and line of credit arrangements of $150 million and $100 million with PNC Bank, N.A. and Bank of America, N.A., respectively. The funds pay interest on the amounts they borrow at rates that are negotiated periodically.
AMOUNT WEIGHTED OUTSTANDING AVERAGE AVERAGE AT 10/31/04 BORROWING* INTEREST FUND ($ x 1,000) ($ x 1,000) RATE* (%) ---------------------------------------------------------------------------------- SCHWAB INSTITUTIONAL SELECT S&P 500 FUND -- 95 1.38 ---------------------------------------------------------------------------------- SCHWAB INSTITUTIONAL SELECT SMALL-CAP VALUE INDEX FUND -- 56 1.38 ----------------------------------------------------------------------------------
* Based on the number of days for which the borrowing is outstanding. 49 SCHWAB INSTITUTIONAL SELECT FUNDS 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 net realized 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. The net investment income and net realized capital gains and losses may differ for financial statement and tax purposes primarily due to differing treatments of losses on wash sales. UNDER THE FUNDS' ORGANIZATIONAL DOCUMENTS, ITS OFFICERS AND TRUSTEES ARE INDEMNIFIED AGAINST CERTAIN LIABILITY ARISING OUT OF THE PERFORMANCE OF THEIR DUTIES TO THE FUNDS. In addition, in the normal course of business the funds enter into contracts with their vendors and others that provide general indemnifications. The funds' maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the funds. However, based on experience, the funds expect the risk of loss to be remote. 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: - SECURITIES TRADED ON AN EXCHANGE OR OVER-THE-COUNTER: valued at the closing value for the day, or, on days when no closing value has been reported, halfway between the most recent bid and asked quotes. Securities that are primarily traded on foreign exchanges are valued at the closing values of such securities on their respective exchanges with these values then translated into U.S. dollars at the current exchange rate. - SECURITIES FOR WHICH NO MARKET QUOTATIONS ARE READILY AVAILABLE or when a significant event has occurred between the time of the security's last close and the time that a fund calculates net asset value: 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 and the Pricing Committee. Some of the more common reasons that may necessitate that a security be valued at fair value include: the security's trading has been halted or suspended; the security has been de-listed from a national exchange; the security's primary trading market is temporarily closed at a time when under normal conditions it would be open; or the security's primary pricing source is not able or willing to provide a price. - 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 DISCOUNT is recorded as it accrues. REALIZED GAINS AND LOSSES from security transactions are based on the identified costs of the securities involved. 50 SCHWAB INSTITUTIONAL SELECT FUNDS 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 calculated 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 average daily 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 ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES OF AMERICA. 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. 51 REPORT OF REGISTERED INDEPENDENT PUBLIC ACCOUNTING FIRM TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF: Schwab Institutional Select S&P 500 Fund Schwab Institutional Select Large-Cap Value Index Fund Schwab Institutional Select Small-Cap Value Index 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 Schwab Institutional Select S&P 500 Fund, Schwab Institutional Select Large-Cap Value Index Fund and Schwab Institutional Select Small-Cap Value Index Fund (three of the portfolios constituting Schwab Capital Trust) (hereafter collectively referred to as the "Funds") at October 31, 2004, the results of each of their operations for the year then ended, and the changes in their net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, 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 audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at October 31, 2004 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. PRICEWATERHOUSECOOPERS LLP San Francisco, CA December 16, 2004 52 FUND TRUSTEES A fund's Board of Trustees is responsible for protecting the interests of that fund's shareholders. The tables below give information about the people who serve as trustees and officers for the SchwabFunds(R), including the funds covered in this report. Trustees remain in office until they resign, retire or are removed by shareholder vote. 1 Under the Investment Company Act of 1940, any officer, director, or employee of Schwab or CSIM is considered an "interested person," meaning that he or she is considered to have a business interest in Schwab or CSIM. These individuals are listed as "interested trustees." The "independent trustees" are individuals who, under the 1940 Act, are not considered to have a business interest in Schwab or CSIM. Each of the SchwabFunds (of which there were 51 as of 10/31/04) belongs to one of these trusts: The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust or Schwab Annuity Portfolios. Currently all these trusts have the same trustees and officers. The address for all trustees and officers is 101 Montgomery Street, San Francisco, CA 94104. You can find more information about the trustees and officers in the Statement of Additional Information, which is available free by calling 1-800-435-4000. INDIVIDUALS WHO ARE INTERESTED TRUSTEES AND OFFICERS OF THE TRUST
TRUST POSITION(S); NAME AND BIRTHDATE TRUSTEE SINCE MAIN OCCUPATIONS AND OTHER DIRECTORSHIPS AND AFFILIATIONS ------------------------------------------------------------------------------------------------------------------------------------ CHARLES R. SCHWAB 2 Chair, Trustee: Chair, CEO, Director, The Charles Schwab Corp., Charles Schwab & 7/29/37 Family of Funds, 1989; Co., Inc.; Chair, Director, Charles Schwab Investment Management, Investments, 1991; Inc.; Chair, Charles Schwab Holdings (UK); CEO, Director, Charles Capital Trust, 1993; Schwab Holdings, Inc.; Chair, CEO Schwab (SIS) Holdings, Inc. I, Annuity Portfolios, 1994. Schwab International Holdings, Inc.; Director, Charles Schwab Bank, N.A., U.S. Trust Corp., United States Trust Co. of New York, Siebel Systems (software), Xsign, Inc. (electronic payment systems), TrustMark, Inc., All Kinds of Minds (education); Trustee, Stanford University. Until 5/04: Director, The Gap, Inc. (clothing retailer). Until 5/03: Co-CEO, The Charles Schwab Corp. Until 3/02: Director, Audiobase, Inc. (Internet audio solutions). Until 5/02: Director, Vodaphone AirTouch PLC (telecommunications). Until 7/01: Director, The Charles Schwab Trust Co.
1 The SchwabFunds retirement policy requires that independent trustees elected after January 1, 2000 retire at age 72 or after twenty years of service as a trustee, whichever comes first. Independent trustees elected prior to January 1, 2000 will retire on the following schedule: Messrs. Holmes and Dorward will retire on December 31, 2007, and Messrs. Stephens and Wilsey will retire on December 31, 2010. 2 In addition to his position with the investment adviser and the distributor, Mr. Schwab also owns stock of The Charles Schwab Corporation. 53 INDIVIDUALS WHO ARE OFFICERS OF THE TRUST BUT NOT TRUSTEES
NAME AND BIRTHDATE TRUST OFFICE(S) HELD MAIN OCCUPATIONS AND OTHER DIRECTORSHIPS AND AFFILIATIONS ----------------------------------------------------------------------------------------------------------------------------------- EVELYN DILSAVER President, CEO EVP, President, Charles Schwab Investment Management, Inc; 5/4/55 (all trusts). Until 7/04: SVP for Development and Distribution, Asset Management Products and Services Enterprise; Until 6/03: EVP, CFO, Administrative Officer, U.S. Trust Corp. ----------------------------------------------------------------------------------------------------------------------------------- STEPHEN B. WARD SVP, Chief Investment SVP, Chief Investment Officer, Director, Charles Schwab Investment 4/5/55 Officer (all trusts). Management, Inc.; Chief Investment Officer, The Charles Schwab Trust Co. ----------------------------------------------------------------------------------------------------------------------------------- KIMON DAIFOTIS SVP, Chief Investment Since 9/04: Chief Investment Officer, Fixed Income, Charles 7/10/59 Officer (all trusts). Schwab Investment Management, Inc.; Since 6/04: SVP, Charles Schwab Investment Management, Inc.; Until 6/04: VP, Charles Schwab Investment Management, Inc. ----------------------------------------------------------------------------------------------------------------------------------- JEFF MORTIMER SVP, Chief Investment Since 5/04: SVP, Chief Investment Officer, Equities, Charles Schwab 9/29/63 Officer (all trusts). Investment Management, Inc.; Since 6/04: VP, Chief Investment Officer, Laudus Trust; Until 5/04: VP, Charles Schwab Investment Management, Inc. ----------------------------------------------------------------------------------------------------------------------------------- RANDALL FILLMORE Chief Compliance Since 9/04: SVP, Institutional Compliance and Chief Compliance 11/11/60 Officer (all trusts). Officer, Charles Schwab Investment Management, Inc.; Until 9/04: VP, Charles Schwab & Co., Charles Schwab Investment Management, Inc.; Until 2002: VP of Internal Audit, Charles Schwab & Co.; Prior to 2000: PricewaterhouseCoopers. ----------------------------------------------------------------------------------------------------------------------------------- KOJI E. FELTON Secretary (all trusts). SVP, Chief Counsel, Assistant Corporate Secretary, Charles Schwab 3/13/61 Investment Management, Inc. Until 6/98: Branch Chief in Enforcement, U.S. Securities and Exchange Commission, San Francisco. ----------------------------------------------------------------------------------------------------------------------------------- GEORGE PEREIRA 1 Treasurer, Principal Since 11/04: SVP, CFO, Charles Schwab Investment Management, 6/9/64 Financial Officer Inc.; Until 11/04: SVP, Financial Reporting, Charles Schwab & Co., Inc.; (all trusts). Until 12/99: Chief Financial Officer, Commerzbank Capital Markets; Until 9/99: Managing Director at the New York Stock Exchange.
1 Elected to his position on the SchwabFunds Board on November 16, 2004. 54 INDIVIDUALS WHO ARE INDEPENDENT TRUSTEES
NAME AND BIRTHDATE TRUSTEE SINCE MAIN OCCUPATIONS AND OTHER DIRECTORSHIPS AND AFFILIATIONS ------------------------------------------------------------------------------------------------------------------------------------ MARIANN BYERWALTER 2000 (all trusts). Chair, JDN Corp. Advisory LLC; Trustee, Stanford University, America 8/13/60 First Cos., (venture capital/fund management), Redwood Trust, Inc. (mortgage finance), Stanford Hospitals and Clinics, SRI International (research), PMI Group, Inc. (mortgage insurance), Lucile Packard Children's Hospital, Laudus Trust, Laudus Variable Insurance Trust. 2001: Special Advisor to the President, Stanford University. Until 2002: Director, LookSmart, Ltd. (Internet infrastructure). Until 2001: VP, Business Affairs, CFO, Stanford University. ------------------------------------------------------------------------------------------------------------------------------------ DONALD F. DORWARD Family of Funds, 1989; CEO, Dorward & Associates (corporate management, marketing and 9/23/31 Investments, 1991; communications consulting). Until 1999: EVP, Managing Director, Capital Trust, 1993; Grey Advertising. Annuity Portfolios,1994. ------------------------------------------------------------------------------------------------------------------------------------ WILLIAM A. HASLER 2000 (all trusts). Co-CEO, Aphton Corp. (bio-pharmaceuticals). Trustee, Solectron Corp. 11/22/41 (manufacturing), Airlease Ltd. (aircraft leasing), Mission West Properties (commercial real estate), Stratex Corp. (network equipment); Public Governor, Laudus Trust, Laudus Variable Insurance Trust; Member, executive committee, Pacific Stock & Options Exchange. Until 2003: Trustee, Tenera, Inc. (services and software). Until 1998: Dean, Haas School of Business, University of California, Berkeley. ------------------------------------------------------------------------------------------------------------------------------------ ROBERT G. HOLMES Family of Funds, 1989; Chair, CEO, Director, Semloh Financial, Inc. (international financial 5/15/31 Investments, 1991; services and investment advice). Capital Trust, 1993; Annuity Portfolios,1994. ------------------------------------------------------------------------------------------------------------------------------------ GERALD B. SMITH 2000 (all trusts). Chair, CEO, Founder, Smith Graham & Co. (investment advisors); 9/28/50 Trustee, Rorento N.V. (investments--Netherlands), Cooper Industries (electrical products, tools and hardware); Member, audit committee, Northern Border Partners, L.P. (energy). Until 2002: Director, Pennzoil- Quaker State Co. (oil and gas). ------------------------------------------------------------------------------------------------------------------------------------ DONALD R. STEPHENS Family of Funds, 1989; Managing Partner, D.R. Stephens & Co. (investments). Until 1996: 6/28/38 Investments, 1991; Chair, CEO, North American Trust (real estate investment trust). Capital Trust, 1993; Annuity Portfolios, 1994. ------------------------------------------------------------------------------------------------------------------------------------ MICHAEL W. WILSEY Family of Funds, 1989; Chair, CEO, Wilsey Bennett, Inc. (transportation, real estate 8/18/43 Investments, 1991; and investments). Capital Trust, 1993; Annuity Portfolios, 1994.
55 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(R)). 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." An individual bond is subject to the credit risk of the issuer. Changes in interest rates can affect a bond's market value prior to call or maturity. There is no guarantee that a bond's yield to call or maturity will provide a positive return over the rate of inflation. BOND FUND A bond fund is subject to the same credit, interest rate, and inflation risks as bonds. In addition, a bond fund incurs ongoing fees and expenses. A bond fund's net asset value will fluctuate with the price of the underlying bonds and the portfolio turnover activity; return of principal is not guaranteed. 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 percentage that an investor would have earned or lost on an investment in the fund assuming dividends and distributions were reinvested. 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. 56 SchwabFunds(R) offers you a complete family of mutual funds, each one based on a clearly defined investment approach and using disciplined management strategies. The list at right shows all currently available SchwabFunds. Whether you're an experienced investor or just starting out, SchwabFunds can help you achieve your financial goals. An investor should consider a fund's investment objectives, risks, and charges and expenses carefully before investing or sending money. This and other important information can be found in the fund's prospectus. Please call 1-800-435-4000 for a prospectus and brochure for any SchwabFund. Please read the prospectus carefully before you invest. This report must be preceded or accompanied by a current prospectus. METHODS FOR PLACING ORDERS The following information outlines how Schwab investors can place orders. If you are investing through a third-party investment provider, methods for placing orders may be different. INTERNET 1 www.schwab.com SCHWAB BY PHONE(TM) 2 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) Use our automated touch-tone phone service at 1-800-272-4922. MAIL Write to SchwabFunds at: P.O. Box 3812 Englewood, CO 80155-3812 When selling or exchanging shares, be sure to include the signatures of at least one of the persons whose name is on the account. PROXY VOTING POLICIES, PROCEDURES AND RESULTS A description of the proxy voting policies and procedures used to determine how to vote proxies on behalf of the funds is available without charge, upon request, by visiting Schwab's web site at www.schwab.com/schwabfunds, the SEC's web site at http://www.sec.gov, or by contacting SchwabFunds at 1-800-435-4000. Information regarding how a fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is available, without charge, by visiting Schwab's web site at www.schwab.com/schwabfunds or the SEC's website at http://www.sec.gov. 1 Shares of Sweep Investments(TM) may not be purchased directly over the Internet. 2 Orders placed in person or through a telephone representative may be subject to a service fee payable to Schwab. THE SCHWABFUNDS FAMILY(R) STOCK FUNDS Schwab S&P 500 Fund Schwab 1000 Fund(R) Schwab Small-Cap Index Fund(R) Schwab Total Stock Market Index Fund(R) Schwab International Index Fund(R) Schwab Core Equity Fund(TM) Schwab Dividend Equity Fund(TM) Schwab Small-Cap Equity Fund(TM) Schwab Hedged Equity Fund(TM) Schwab Focus Funds Communications Focus Fund Financial Services Focus Fund Health Care Focus Fund Technology Focus Fund Schwab(R) Institutional Select(R) Funds Schwab(R) Institutional Select(R) S&P 500 Fund Schwab(R) Institutional Select(R) Large-Cap Value Index Fund Schwab(R) Institutional Select(R) Small-Cap Value Index Fund ASSET ALLOCATION FUNDS Schwab MarketTrack Portfolios(R) Schwab MarketTrack All Equity Portfolio(TM) Schwab MarketTrack Growth Portfolio(TM) Schwab MarketTrack Balanced Portfolio(TM) Schwab MarketTrack Conservative Portfolio(TM) BOND FUNDS Schwab YieldPlus Fund(R) Schwab Short-Term Bond Market Fund(TM) Schwab Total Bond Market Fund(TM) Schwab GNMA Fund(TM) Schwab Short/Intermediate Tax-Free Bond Fund(TM) Schwab Long-Term Tax-Free Bond Fund(TM) Schwab California Short/Intermediate Tax-Free Bond Fund(TM) Schwab California Long-Term Tax-Free Bond Fund(TM) SCHWAB MONEY FUNDS Schwab offers an array of money market funds that seek high current income consistent with safety and liquidity. 3 Choose from taxable or tax-advantaged alternatives. Many can be linked to your Schwab account to "sweep" cash balances automatically, subject to availability, when you're between investments. Or, for your larger cash reserves, choose one of our Value Advantage Investments(R). 3 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. [CHARLES SCHWAB LOGO] INVESTMENT ADVISER Charles Schwab Investment Management, Inc. 101 Montgomery Street, San Francisco, CA 94104 DISTRIBUTOR Charles Schwab & Co., Inc. (Schwab) FUNDS SchwabFunds(R) P.O. Box 3812, Englewood, CO 80155-3812 This report is not authorized for distribution to prospective investors unless preceded or accompanied by a current prospectus. (C)2004 Charles Schwab & Co., Inc. All rights reserved. Member SIPC Printed on recycled paper. REG14310-05 FUNDS USING SCHWAB EQUITY RATINGS(R) ANNUAL REPORT October 31, 2004 Schwab Core Equity Fund(TM) Schwab Dividend Equity Fund(TM) Schwab Small-Cap Equity Fund(TM) Schwab Hedged Equity Fund(TM) Communications Focus Fund Financial Services Focus Fund Health Care Focus Fund Technology Focus Fund [CHARLES SCHWAB LOGO] The power of Schwab Equity Ratings(R). The convenience and diversification of mutual funds. IN THIS REPORT Management's Discussion ............................................... 2 The president of SchwabFunds(R) and the funds' managers take a look at the factors that shaped fund performance during the report period. Performance at a Glance ................... 6 Schwab Core Equity Fund(TM) Ticker Symbol: SWANX The fund seeks long-term capital growth. Performance and Fund Facts ................ 8 Financial Statements ...................... 28 Schwab Dividend Equity Fund(TM) Investor Shares: SWDIX Select Shares(R): SWDSX The fund seeks current income and capital appreciation. Performance and Fund Facts ................ 10 Financial Statements ...................... 36 Schwab Small-Cap Equity Fund(TM) Investor Shares: SWSIX Select Shares: SWSCX The fund seeks long-term capital growth. Performance and Fund Facts ................ 13 Financial Statements ...................... 44 Schwab Hedged Equity Fund(TM) Ticker Symbol: SWHEX The fund's principal investment objective is long-term capital appreciation over market cycles with lower volatility than the broad equity market. Performance and Fund Facts ................ 16 Financial Statements ...................... 53 Communications Focus Fund Ticker Symbol: SWCFX The fund's goal is to seek long-term capital growth. Performance and Fund Facts ................ 18 Financial Statements ...................... 65 Financial Services Focus Fund Ticker Symbol: SWFFX The fund's goal is to seek long-term capital growth. Performance and Fund Facts ................ 20 Financial Statements ...................... 71 Health Care Focus Fund Ticker Symbol: SWHFX The fund's goal is to seek long-term capital growth. Performance and Fund Facts ................ 22 Financial Statements ...................... 77 Technology Focus Fund Ticker Symbol: SWTFX The fund's goal is to seek long-term capital growth. Performance and Fund Facts ................ 24 Financial Statements ...................... 83 Fund Expenses ......................................................... 26 Financial Notes ....................................................... 89 Fund Trustees ......................................................... 95 Glossary .............................................................. 98 Fund investment adviser: Charles Schwab Investment Management, Inc. (CSIM) Distributor and transfer agent: Charles Schwab & Co., Inc. (Schwab). [PHOTO OF CHARLES SCHWAB] Charles Schwab Chairman FROM THE CHAIRMAN Dear Shareholder: As we get ready for 2005, I want to remind you that you might want to add one more item to your list of New Year's resolutions--to review and, if necessary, rebalance your investment portfolio. After all, staying on track is as important in investing as it is in any other part of life. No matter whether it's a good or bad investment climate, you need to make sure that you own a diversified mix of investments and that your asset allocation matches your individual goals, time frame and tolerance for risk. One efficient way to be diversified is by owning a broad-based mutual fund. Equity mutual funds also can help you to diversify the stock side of your portfolio. While our experienced portfolio managers adhere to each fund's objective, it still is important to review your portfolio to make sure the holdings in your funds don't overlap and you're not overconcentrated in one asset class. On a final note, I'm very happy to announce that Evelyn Dilsaver has been named CEO and President of SchwabFunds(R). Although new to the position, Evelyn is no stranger to SchwabFunds, having been an officer in several other capacities at Schwab. Her broad experience in product creation, coupled with a comprehensive understanding of your financial needs and her commitment to you, make her the ideal candidate for her new role. Thank you for investing with us. Sincerely, /s/ Charles Schwab MANAGEMENT'S DISCUSSION for the year ended October 31, 2004 [PHOTO OF EVELYN DILSAVER] EVELYN DILSAVER is President and CEO of Charles Schwab Investment Management, Inc. and is president of each of the funds covered in this report. She joined the firm in 1992 and has held a variety of executive positions at Schwab. Dear Shareholder: I am very excited about my new role as President and CEO of SchwabFunds(R). I believe that my experience at Schwab has prepared me well for this role, as each position has been focused on meeting the needs of our clients. While SchwabFunds equity funds turned in solid results during the report period, I am particularly pleased with the performance of the funds that use Schwab Equity Ratings(R) as part of their investment strategies. We are excited about these products and the value they offer to our shareholders. Sharing this excitement and our commitment to our shareholders is portfolio manager Vivienne Hsu, who joined SchwabFunds on August 30, 2004. Vivienne is responsible for the day-to-day co-management of the equity funds using Schwab Equity Ratings(R). She holds both an MBA and a Chartered Financial Analyst(R) designation, and has more than 11 years experience in investment management. Her understanding of each fund's objective mirrors the rest of the SchwabFunds portfolio group, meaning this change should be seamless to you. I look forward to serving you in my new role. I also want to remind you that your trust is very important to us, and I will do all I can to earn and maintain that trust. Thank you for investing in SchwabFunds. Sincerely, /s/ Evelyn Dilsaver 2 Funds Using Schwab Equity Ratings The strength of the market early in the period, combined with strong second- and third-quarter valuations and earnings resulted in a positive showing for equities, as measured by the S&P 500(R) Index. THE INVESTMENT ENVIRONMENT AND THE FUNDS THE ENCOURAGING ECONOMIC NEWS THAT WAS REPORTED TOWARD THE END OF 2003 CONTINUED TO IMPROVE INTO 2004. Businesses added to their inventories, factory orders rose and production gained some strength. Retail sales continued to rise and higher commodity prices were holding. Mortgage refinancing activity, while still significant, waned as mortgage rates inched slightly upward. And finally, the last piece of the economic puzzle--job growth--began to pick up some steam. In fact, aside from a "soft patch" in early summer, the economy was clicking on all cylinders. With the economic recovery more broad-based, investors, who only a year ago feared deflation, started to worry about inflation. Their inflationary concerns were based on surging oil prices, which had hit an all-time high amid fears of supply interruptions. And while commodity prices moderated somewhat later in the report period, previous increases started to show up in broad measures of inflation. Labor costs also were beginning to rise. Nonetheless, the Federal Reserve (the Fed) continued to hold the Fed funds rate near a 45-year low until June 2004. While third-quarter GDP moved in the right direction, up to an annualized 3.7% from 3.3% in second quarter, higher commodity prices had effectively eroded many consumers' purchasing power. Geopolitical ASSET CLASS PERFORMANCE COMPARISON % returns during the report period This graph compares the performance of various asset classes during the report period. Final performance figures for the period are in the key below. 9.42% S&P 500(R) INDEX: measures U.S. large-cap stocks 11.73% RUSSELL 2000(R) INDEX: measures U.S. small-cap stocks 18.84% MSCI-EAFE(R) INDEX: measures (in U.S. dollars) large-cap stocks in Europe, Australasia and the Far East 5.53% LEHMAN BROTHERS U.S. AGGREGATE BOND INDEX: measures the U.S. bond market [LINE GRAPH]
LEHMAN RUSSELL BROTHERS S&P 500(R) 2000(R) MSCI-EAFE(R) U.S. AGGREGATE INDEX INDEX INDEX BOND INDEX 31-Oct-03 0.00 0.00 0.00 0.00 07-Nov-03 0.29 2.82 0.78 -0.63 14-Nov-03 0.08 0.94 1.80 0.61 21-Nov-03 -1.33 -0.38 0.15 0.86 28-Nov-03 0.88 3.55 2.22 0.24 05-Dec-03 1.24 2.14 4.70 0.95 12-Dec-03 2.48 3.80 5.04 0.97 19-Dec-03 3.90 3.68 6.46 1.50 26-Dec-03 4.59 5.21 7.84 1.53 02-Jan-04 5.85 6.40 10.98 0.81 09-Jan-04 7.16 9.14 13.86 2.16 16-Jan-04 8.89 12.04 12.31 2.46 23-Jan-04 9.07 13.13 15.10 2.33 30-Jan-04 8.12 10.24 11.77 2.07 06-Feb-04 9.26 10.89 13.33 2.35 13-Feb-04 9.63 11.12 15.41 2.80 20-Feb-04 9.49 10.13 15.13 2.64 27-Feb-04 9.62 11.23 14.35 3.18 05-Mar-04 10.80 13.90 16.17 3.85 12-Mar-04 7.38 10.77 11.07 4.12 19-Mar-04 6.36 8.49 13.10 4.07 26-Mar-04 6.20 8.91 12.52 3.88 02-Apr-04 9.47 14.78 16.39 2.72 09-Apr-04 9.27 13.73 16.44 2.62 16-Apr-04 8.83 10.99 15.04 2.03 23-Apr-04 9.42 12.39 14.61 1.51 30-Apr-04 6.27 6.54 12.39 1.25 07-May-04 5.47 4.43 10.88 -0.19 14-May-04 5.27 3.54 6.99 0.03 21-May-04 5.09 3.93 9.59 0.21 28-May-04 7.73 8.24 12.63 0.84 04-Jun-04 7.95 8.15 12.87 0.36 11-Jun-04 9.32 8.43 13.42 0.32 18-Jun-04 9.21 8.73 14.66 0.78 25-Jun-04 9.18 12.01 15.45 1.18 02-Jul-04 8.35 11.13 15.27 2.16 09-Jul-04 7.18 7.52 15.10 2.22 16-Jul-04 6.10 5.96 14.50 2.69 23-Jul-04 4.64 2.87 10.84 2.41 30-Jul-04 6.19 5.20 11.50 2.42 06-Aug-04 2.58 -0.81 10.63 3.63 13-Aug-04 2.74 -1.21 9.57 3.72 20-Aug-04 6.01 4.63 11.08 3.79 27-Aug-04 6.95 5.36 12.29 3.89 03-Sep-04 7.56 6.26 12.42 3.70 10-Sep-04 8.58 8.88 14.40 4.31 17-Sep-04 9.07 9.54 14.32 4.59 24-Sep-04 7.31 8.18 13.88 4.93 01-Oct-04 9.41 11.89 16.43 4.38 08-Oct-04 8.56 10.13 17.91 4.79 15-Oct-04 7.23 8.95 16.46 5.20 22-Oct-04 6.03 8.64 17.65 5.54 29-Oct-04 9.42 11.73 18.84 5.53 31-Oct-04 9.42 11.73 18.84 5.53
These figures assume dividends and distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged and you cannot invest in them directly. Remember that past performance is not an indication of future results. Data source: Charles Schwab & Co., Inc. Funds Using Schwab Equity Ratings 3 MANAGEMENT'S DISCUSSION continued [PHOTO OF JEFFREY MORTIMER, VIVIENNE HSU AND LARRY MANO] JEFFREY MORTIMER, CFA, at right, senior vice president and chief investment officer, equities, of the investment adviser is responsible for the overall management of each of the funds. Prior to joining the firm in October 1997, he worked for more than nine years in asset management. VIVIENNE HSU, CFA, at left, vice president and senior equities portfolio manager of the investment adviser, is responsible for the day-to-day co-management of each of the funds. Prior to joining the firm in August 2004, she worked for more than 11 years in asset management and quantitative analysis. LARRY MANO, in center, a director and a portfolio manager, is responsible for the day-to-day co-management of each of the funds. Prior to joining the firm in 1998, he worked for 20 years in equity management. events also had wreaked havoc on oil markets and, after a brief decline in the price of oil following OPEC's decision to boost production, a confluence of supply concerns and robust global demand pushed crude to new highs. In addition to these issues, daily headlines about terrorism and the fierce run for the White House all added up to an uncomfortable sense of uncertainty, keeping many investors on the sidelines. Despite all these concerns, which escalated toward the end of the report period, the strength of the market early in the period, combined with strong second- and third-quarter valuations and earnings resulted in a positive showing for equities. More specifically, the S&P 500(R) Index was up 9.42% for the 12-month report period, while the Russell 2000(R) Index was up 11.73%. In terms of style, value edged out growth early in the period and gained momentum, significantly outperforming growth at the end of the period. For most of the 12-month report period, Schwab Equity Ratings(R), which are designed to identify companies expected to outperform or underperform the equities market, performed as expected, with the A- and B-rated stocks outperforming the D- and F-rated ones. There was a period of time, however, at the very beginning of the period and then, again, toward the middle, when extremely high-risk stocks with poor fundamentals led the market. Many of these lower-rated companies had received D or F ratings. Despite these small setbacks, all eight funds powered by Schwab Equity Ratings(R) had positive returns, with half of them enjoying double-digit returns over the 12 months. THE SCHWAB CORE EQUITY FUND outperformed its benchmark, up 9.57% vs. the S&P 500(R) Index, which was up 9.42%. The fund's value tilt in a market that favored value helped performance. The sectors that had the largest positive impact relative to the benchmark were Health Care and Schwab Equity Ratings(R) are produced by the Schwab Center for Investment Research(R). 4 Funds Using Schwab Equity Ratings [PHOTO OF KIM DAIFOTIS] KIM DAIFOTIS, CFA, a senior vice president and chief investment officer, fixed income, of the investment adviser, is responsible for overall management of preferred stocks and convertible securities for the Dividend Equity Fund. He joined the firm in 1997, and has worked in fixed-income asset management and research since 1982. Consumer Staples. Stocks that performed well in these sectors included UnitedHealth Group, Inc. and Kellogg Co. Conversely, sectors that underperformed relative to the benchmark were Industrials and Information Technology, with General Electric Co. and Intel Corp. negatively affecting the fund's performance over the report period. THE SCHWAB DIVIDEND EQUITY FUND was up 17.00%, well above its benchmark, the S&P 500(R) Index, which returned 9.42% over the report period. The fund's natural value tilt was helped, in part, by the market favoring value across all market-cap segments. While all sectors had positive returns, good stock selection in Consumer Staples, Consumer Discretionary, Financials and Utilities boosted the fund's returns. Underweighting Information Technology also proved positive for the fund. THE SCHWAB SMALL-CAP EQUITY FUND had an excellent year and outperformed its benchmark, the S&P SmallCap 600 Index, by 4.96% for the 12-month report period. The fund benefited from small-cap equities outperforming large-cap. The best performing sectors were Consumer Discretionary and Health Care. Strong stocks within these sectors included: Deckers Outdoor Corp., a designer of specialty footwear; and Mine Safety Appliances Co., a health-care equipment manufacturer. The weaker sectors, relative to the benchmark, were Materials and Telecommunications, with Time Warner Telecom Inc.'s performance hurting returns. THE SCHWAB HEDGED EQUITY FUND outperformed its benchmark, the S&P 500(R) Index, by 3.42% for the 12-month period. The fund, which uses Schwab Equity Ratings(R), generally selects its long positions from stocks that are rated A or B and selects its short positions from stocks that are rated D or F. The fund, which had a value tilt, benefited from the market favoring value during the report period. Small-cap stocks led the way for much of the fiscal year, helping on the long side, but hurting on the short side. Nonetheless, good stock selection in both the long and short side of the fund more than offset the negative impact. Importantly, in addition to outperforming its benchmark, the fund did it with less volatility during the report period than its benchmark. Schwab Equity Ratings(R) are produced by the Schwab Center for Investment Research(R). Small company stocks are subject to greater volatility than other asset categories. The Hedged Equity Fund's long positions can decline in value at the same time the value of its shorted stocks increases, thereby increasing the potential for loss. The potential loss associated with short positions is much greater than the original value of the securities sold. The use of borrowing and short sales may cause the fund to have higher expenses than those of equity funds that do not use such techniques. Funds Using Schwab Equity Ratings 5 MANAGEMENT'S DISCUSSION continued PERFORMANCE AT A GLANCE Total return for the 12 months ended 10/31/04 THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN PERFORMANCE DATA QUOTED. TO OBTAIN PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH END, PLEASE VISIT WWW.SCHWAB.COM/SCHWABFUNDS. SCHWAB CORE EQUITY FUND(TM) ........... 9.57% Benchmark ............................. 9.42% Fund Category 1 ....................... 7.89% Performance Details ................... page 8 SCHWAB DIVIDEND EQUITY FUND(TM) Investor Shares ....................... 17.00% Select Shares(R) ...................... 17.07% Benchmark ............................. 9.42% Fund Category 1 ....................... 12.14% Performance Details ................... pages 10-11 SCHWAB SMALL-CAP EQUITY FUND(TM) Investor Shares ....................... 21.74% Select Shares ......................... 22.00% Benchmark ............................. 16.78% Fund Category 1 ....................... 13.51% Performance Details ................... pages 13-14 SCHWAB HEDGED EQUITY FUND(TM) ......... 12.84% Benchmark ............................. 9.42% Fund Category 1 ....................... 7.40% Performance Details ................... page 16 More specifically, underweights in the Pharmaceutical and Semiconductor sectors helped the fund, although being underweight in the torrid Energy sector detracted somewhat from performance. Some stocks that did well on the long side included: Peabody Energy Corp. (Materials), Landstar Systems Inc (Transportation) Cytyc Corp. (Health Care) and Verisign, Inc. (Software and Services). THE COMMUNICATIONS FOCUS FUND returned 9.14% for the year, yet underperformed its benchmark, the S&P 1500 SuperComposite Telecommunication Services Sector Index, which was up 20.68% for the 12-month period ending October 31, 2004. The benchmark was highly concentrated in several large stocks, which performed well. The fund, powered by Schwab Equity Ratings(R) methodology was much more diversified and included media industry stocks, which ultimately benefited the fund, although not enough to match the benchmark's strong showing. Within the Telecommunications sector, another industry that did well was wireless telecommunications. The best performers within this industry were Arch Wireless and Sprint PCS. Conversely, the worst performing industry was Diversified Telecommunications Services, with Primus Telecommunications and Time Warner Telecom Inc. negatively impacting returns. THE FINANCIAL SERVICES FOCUS FUND was up 12.39% for the year, outperforming the S&P 1500 SuperComposite Financial Services Index by 3.35%. For the 12-month period ending October 31, 2004, banks led the Financial Services sector, while diversified financials and insurance trailed. The market values of many insurance companies declined in September when the Marsh & McLennan debacle hit the news and New York Attorney General Eliot Spitzer initiated reviews of the industry's business practices. The fund's outperformance was primarily due to Schwab Equity Ratings'(R) rigorous stock evaluation in the insurance and diversified financials industry groups. The fund benefited from positions in First Bancorp, Inc., Countrywide Financial Corp., Fidelity National Financial, Inc. and Franklin Resources, Inc. Also, low Schwab Equity Ratings(R) led management to either hold a small position or completely avoid the underperforming Fifth Third Bancorp, Inc., Citigroup and Marsh & McLennan. All fund and index figures on this page assume dividends and distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged, and you cannot invest in them directly. Expenses may be partially absorbed by CSIM and Schwab. Without these reductions, the funds' total returns would have been lower. Performance does not reflect the deduction of taxes that a shareholder would pay on fund distributions or on the redemption of fund shares. Schwab Equity Ratings(R) are produced by the Schwab Center for Investment Research(R). 1 Source for category information: Morningstar, Inc. 6 Funds Using Schwab Equity Ratings PERFORMANCE AT A GLANCE Total return for the 12 months ended 10/31/04 THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN PERFORMANCE DATA QUOTED. TO OBTAIN PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH END, PLEASE VISIT WWW.SCHWAB.COM/SCHWABFUNDS. COMMUNICATIONS FOCUS FUND ................................ 9.14% Benchmark ................................. 20.68% Fund Category 1 ........................... 18.37% Performance Details ....................... page 18 FINANCIAL SERVICES FOCUS FUND ................................ 12.39% Benchmark ................................. 9.04% Fund Category 1 ........................... 10.48% Performance Details ....................... page 20 HEALTH CARE FOCUS FUND .................... 27.88% Benchmark ................................. 2.65% Fund Category 1 ........................... 6.16% Performance Details ....................... page 22 TECHNOLOGY FOCUS FUND ..................... 2.31% Benchmark ................................. -1.63% Fund Category 1 ........................... -3.41% Performance Details ....................... page 24 THE HEALTH CARE FOCUS FUND was the best performing of the four Focus funds, topping its benchmark, the S&P 1500 SuperComposite Health Care Sector Index, by an impressive 25.23%, returning 27.88% for the 12-month period. The index is comprised of two industry groups: Health Care Equipment, and Pharmaceuticals and Biotechnology. Overweighting Health Care Equipment and underweighting Pharmaceuticals and Biotechnology accounted for about one-third of the fund's outperformance. The other two-thirds can be attributed to strong stock selection within each group. We looked beyond the benchmark to find winners such as Ventiv Health, Inc., Nutraceutical International, Stewart Enterprises, Inc. and Third Wave Technologies. Avoiding names such as Cardinal Health, Pfizer Inc., Amgen, Wyeth and Bristol Myers Squibb Co. helped the fund avoid the downdraft in drug makers which was set off by Merck & Co.'s withdrawal of the arthritis drug Vioxx on September 30th. THE TECHNOLOGY FOCUS FUND returned 2.31% and topped the S&P 1500 SuperComposite Technology Sector Index by 3.94%. The primary reason for this outperformance was the underweighting of the Semiconductor sector and the overweighting of Software and Services. We took a below-market weight position in Intel Corp., which turned out to benefit the fund. SS&C Technologies Inc., Epicor Software and Akamai Technologies were all stocks management selected outside the benchmark that proved beneficial. Top-performing hardware stocks included Plantronics, Inc. and Digi International, Inc. The year's top winner, Autodesk, Inc., helped offset losses in Synopsys, Inc. and Sybase, Inc. On the negative side, the fund missed stellar returns posted by Yahoo and Apple Computer, Inc., and a positive showing posted by Microsoft Corp. All fund and index figures on this page assume dividends and distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged, and you cannot invest in them directly. Expenses may be partially absorbed by CSIM and Schwab. Without these reductions, the funds' total returns would have been lower. Performance does not reflect the deduction of taxes that a shareholder would pay on fund distributions or on the redemption of fund shares. Since each of the Focus Funds focuses its investments on companies involved in a specific sector, these funds may involve a greater degree of risk than an investment in other mutual funds with greater diversification. Schwab Equity Ratings(R) are produced by the Schwab Center for Investment Research(R). Nothing in this report represents a recommendation of a security by the investment adviser. Manager views and portfolio holdings may have changed since the report date. 1 Source for category information: Morningstar, Inc. Funds Using Schwab Equity Ratings 7 SCHWAB CORE EQUITY FUND(TM) PERFORMANCE as of 10/31/04 AVERAGE ANNUAL TOTAL RETURNS 1, 2 This chart compares performance of the fund with its benchmark and Morningstar category. [BAR CHART]
Fund Category: Benchmark: MORNINGSTAR S&P 500(R) LARGE-CAP FUND INDEX BLEND 1 YEAR 9.57% 9.42% 7.89% 5 YEARS -2.48% -2.21% -1.72% SINCE INCEPTION: 7/1/96 8.47% 8.12% 6.72%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN PERFORMANCE DATA QUOTED. TO OBTAIN PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH END, PLEASE VISIT WWW.SCHWAB.COM/SCHWABFUNDS. PERFORMANCE OF A HYPOTHETICAL $10,000 INVESTMENT 1 This graph shows performance since inception of a hypothetical $10,000 investment in the fund, compared with a similar investment in its benchmark. $19,705 FUND $19,185 S&P 500(R) INDEX [LINE GRAPH]
S&P 500(R) FUND INDEX 01-Jul-96 $10,000 $10,000 31-Jul-96 $ 9,690 $ 9,558 31-Aug-96 $ 9,880 $ 9,760 30-Sep-96 $10,620 $10,308 31-Oct-96 $11,010 $10,593 30-Nov-96 $11,640 $11,393 31-Dec-96 $11,368 $11,168 31-Jan-97 $11,959 $11,865 28-Feb-97 $11,908 $11,958 31-Mar-97 $11,287 $11,468 30-Apr-97 $12,081 $12,152 31-May-97 $12,722 $12,890 30-Jun-97 $13,272 $13,468 31-Jul-97 $14,462 $14,539 31-Aug-97 $13,821 $13,724 30-Sep-97 $14,646 $14,475 31-Oct-97 $13,964 $13,992 30-Nov-97 $14,676 $14,640 31-Dec-97 $14,963 $14,891 31-Jan-98 $15,054 $15,057 28-Feb-98 $16,155 $16,142 31-Mar-98 $16,801 $16,969 30-Apr-98 $16,949 $17,140 31-May-98 $16,620 $16,845 30-Jun-98 $17,448 $17,529 31-Jul-98 $17,198 $17,343 31-Aug-98 $14,555 $14,839 30-Sep-98 $15,565 $15,790 31-Oct-98 $16,529 $17,074 30-Nov-98 $17,561 $18,109 31-Dec-98 $19,158 $19,152 31-Jan-99 $20,138 $19,952 28-Feb-99 $19,134 $19,332 31-Mar-99 $19,961 $20,105 30-Apr-99 $20,882 $20,883 31-May-99 $20,493 $20,390 30-Jun-99 $21,910 $21,522 31-Jul-99 $21,189 $20,850 31-Aug-99 $21,154 $20,746 30-Sep-99 $20,658 $20,177 31-Oct-99 $22,347 $21,455 30-Nov-99 $22,808 $21,891 31-Dec-99 $24,474 $23,180 31-Jan-00 $23,416 $22,017 29-Feb-00 $24,296 $21,600 31-Mar-00 $26,222 $23,712 30-Apr-00 $25,087 $22,998 31-May-00 $24,232 $22,527 30-Jun-00 $24,844 $23,083 31-Jul-00 $24,309 $22,723 31-Aug-00 $25,839 $24,135 30-Sep-00 $24,117 $22,860 31-Oct-00 $23,633 $22,764 30-Nov-00 $22,000 $20,971 31-Dec-00 $22,589 $21,073 31-Jan-01 $22,575 $21,821 28-Feb-01 $20,549 $19,831 31-Mar-01 $19,250 $18,574 30-Apr-01 $20,507 $20,017 31-May-01 $20,577 $20,151 30-Jun-01 $20,228 $19,662 31-Jul-01 $19,711 $19,469 31-Aug-01 $18,342 $18,250 30-Sep-01 $17,071 $16,776 31-Oct-01 $17,504 $17,096 30-Nov-01 $18,495 $18,407 31-Dec-01 $18,547 $18,569 31-Jan-02 $18,280 $18,298 28-Feb-02 $17,887 $17,945 31-Mar-02 $18,660 $18,620 30-Apr-02 $17,816 $17,491 31-May-02 $17,788 $17,362 30-Jun-02 $16,692 $16,126 31-Jul-02 $15,611 $14,870 31-Aug-02 $15,737 $14,966 30-Sep-02 $14,290 $13,339 31-Oct-02 $15,301 $14,513 30-Nov-02 $15,667 $15,368 31-Dec-02 $14,971 $14,466 31-Jan-03 $14,546 $14,087 28-Feb-03 $14,221 $13,876 31-Mar-03 $14,504 $14,010 30-Apr-03 $15,509 $15,165 31-May-03 $16,343 $15,964 30-Jun-03 $16,556 $16,168 31-Jul-03 $16,881 $16,453 31-Aug-03 $17,164 $16,774 30-Sep-03 $17,051 $16,596 31-Oct-03 $17,985 $17,535 30-Nov-03 $18,296 $17,689 31-Dec-03 $19,192 $18,616 31-Jan-04 $19,391 $18,959 29-Feb-04 $19,605 $19,222 31-Mar-04 $19,548 $18,932 30-Apr-04 $19,220 $18,635 31-May-04 $19,420 $18,890 30-Jun-04 $19,876 $19,257 31-Jul-04 $19,149 $18,619 31-Aug-04 $19,192 $18,694 30-Sep-04 $19,505 $18,896 31-Oct-04 $19,705 $19,185
All figures on this page assume dividends and distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged, and you cannot invest in them directly. 1 Fund expenses have been partially absorbed by CSIM and Schwab. Without these reductions, the fund's returns would have been lower. These returns do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. 2 Source for category information: Morningstar, Inc. 8 Funds Using Schwab Equity Ratings SCHWAB CORE EQUITY FUND FUND FACTS as of 10/31/04 STYLE ASSESSMENT 1 [GRAPHIC]
INVESTMENT STYLE Value Blend Growth MARKET CAP Large / / /X/ / / Medium / / / / / / Small / / / / / /
STATISTICS NUMBER OF HOLDINGS 106 -------------------------------------------------------------------------------- WEIGHTED AVERAGE MARKET CAP ($ x 1,000,000) $53,077 -------------------------------------------------------------------------------- PRICE/EARNINGS RATIO (P/E) 21.0 -------------------------------------------------------------------------------- PRICE/BOOK RATIO (P/B) 3.1 -------------------------------------------------------------------------------- PORTFOLIO TURNOVER RATE 86% -------------------------------------------------------------------------------- MINIMUM INITIAL INVESTMENT 2 $2,500 ($1,000 for retirement and custodial accounts) --------------------------------------------------------------------------------
TOP HOLDINGS 3
% OF SECURITY NET ASSETS -------------------------------------------------------------------------------- (1) UST, INC. 5.1% -------------------------------------------------------------------------------- (2) THE BOEING CO. 4.9% -------------------------------------------------------------------------------- (3) EXXON MOBIL CORP. 4.2% -------------------------------------------------------------------------------- (4) TIME WARNER, INC. 3.4% -------------------------------------------------------------------------------- (5) WEYERHAEUSER CO. 3.3% -------------------------------------------------------------------------------- (6) UNITEDHEALTH GROUP, INC. 3.0% -------------------------------------------------------------------------------- (7) METLIFE, INC. 2.7% -------------------------------------------------------------------------------- (8) VERIZON COMMUNICATIONS, INC. 2.6% -------------------------------------------------------------------------------- (9) THE PROGRESSIVE CORP. 2.6% -------------------------------------------------------------------------------- (10) EMERSON ELECTRIC CO. 2.4% -------------------------------------------------------------------------------- TOTAL 34.2%
SECTOR WEIGHTINGS % of Portfolio This chart shows the fund's sector composition as of the report date. A sector is a portion of the overall stock market that is made up of industries whose business components share similar characteristics. [PIE CHART] 26.2% CONSUMER NON-DURABLES 18.5% TECHNOLOGY 14.9% FINANCE 11.5% UTILITIES 7.8% MATERIALS & SERVICES 7.5% ENERGY 4.9% CAPITAL GOODS 4.2% TRANSPORTATION 3.5% CONSUMER DURABLES 1.0% OTHER Portfolio holdings may have changed since the report date. 1 Source: Morningstar, Inc. This style assessment is the result of evaluating the fund based on a ten-factor model for value and growth characteristics. The fund's market capitalization placement is determined by the geometric mean of its holdings' market capitalizations. The assessment reflects the fund's portfolio as of 10/31/04, which may have changed since then, and is not a precise indication of risk or performance--past, present, or future. 2 Please see prospectus for further detail and eligibility requirements. 3 This list is not a recommendation of any security by the investment adviser. Funds Using Schwab Equity Ratings 9 SCHWAB DIVIDEND EQUITY FUND(TM) INVESTOR SHARES PERFORMANCE as of 10/31/04 TOTAL RETURNS 1, 2 This chart compares performance of the fund's Investor Shares with a benchmark and the fund's Morningstar category. [BAR CHART]
Fund Category: Fund: Benchmark: MORNINGSTAR INVESTOR S&P 500(R) LARGE-CAP SHARES INDEX VALUE 1 YEAR 17.00% 9.42% 12.14% SINCE INCEPTION: 9/2/03 20.20% 12.16% 13.74%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN PERFORMANCE DATA QUOTED. TO OBTAIN PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH END, PLEASE VISIT WWW.SCHWAB.COM/SCHWABFUNDS. PERFORMANCE OF A HYPOTHETICAL $10,000 INVESTMENT 1 This graph shows performance since inception of a hypothetical $10,000 investment in the fund's Investor Shares, compared with a similar investment in a benchmark. $12,402 INVESTOR SHARES $11,437 S&P 500(R) INDEX [LINE GRAPH]
INVESTOR S&P 500(R) SHARES INDEX 02-Sep-03 $10,000 $10,000 30-Sep-03 $ 9,900 $ 9,894 31-Oct-03 $10,600 $10,454 30-Nov-03 $10,850 $10,546 31-Dec-03 $11,417 $11,099 31-Jan-04 $11,559 $11,303 29-Feb-04 $11,851 $11,460 31-Mar-04 $11,860 $11,287 30-Apr-04 $11,667 $11,110 31-May-04 $11,820 $11,262 30-Jun-04 $12,025 $11,480 31-Jul-04 $11,902 $11,100 31-Aug-04 $12,220 $11,145 30-Sep-04 $12,299 $11,265 31-Oct-04 $12,402 $11,437
All figures on this page assume dividends and distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged, and you cannot invest in them directly. 1 Fund expenses have been partially absorbed by CSIM and Schwab. Without these reductions, the fund's returns would have been lower. These returns do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. 2 Source for category information: Morningstar, Inc. 10 Funds Using Schwab Equity Ratings SCHWAB DIVIDEND EQUITY FUND SELECT SHARES(R) PERFORMANCE as of 10/31/04 TOTAL RETURNS 1, 2 This chart compares performance of the fund's Select Shares with a benchmark and the fund's Morningstar category. [BAR CHART]
Fund Category: Fund: Benchmark: MORNINGSTAR SELECT S&P 500(R) LARGE-CAP SHARES INDEX VALUE 1 YEAR 17.07% 9.42% 12.14% SINCE INCEPTION: 9/2/03 20.26% 12.16% 13.74%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN PERFORMANCE DATA QUOTED. TO OBTAIN PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH END, PLEASE VISIT WWW.SCHWAB.COM/SCHWABFUNDS. PERFORMANCE OF A HYPOTHETICAL $50,000 INVESTMENT 1 This graph shows performance since inception of a hypothetical $50,000 investment (the minimum investment for this share class) in the fund's Select Shares, compared with a similar investment in a benchmark. $62,045 SELECT SHARES $57,187 S&P 500(R) INDEX [LINE GRAPH]
SELECT S&P 500(R) SHARES INDEX 02-Sep-03 $50,000 $50,000 30-Sep-03 $49,500 $49,470 31-Oct-03 $53,000 $52,270 30-Nov-03 $54,250 $52,730 31-Dec-03 $57,085 $55,493 31-Jan-04 $57,795 $56,514 29-Feb-04 $59,255 $57,300 31-Mar-04 $59,300 $56,434 30-Apr-04 $58,335 $55,548 31-May-04 $59,100 $56,309 30-Jun-04 $60,140 $57,402 31-Jul-04 $59,525 $55,502 31-Aug-04 $61,165 $55,724 30-Sep-04 $61,530 $56,326 31-Oct-04 $62,045 $57,187
All figures on this page assume dividends and distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged, and you cannot invest in them directly. 1 Fund expenses have been partially absorbed by CSIM and Schwab. Without these reductions, the fund's returns would have been lower. These returns do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. 2 Source for category information: Morningstar, Inc. Funds Using Schwab Equity Ratings 11 SCHWAB DIVIDEND EQUITY FUND FUND FACTS as of 10/31/04 STYLE ASSESSMENT 1 [GRAPHIC]
INVESTMENT STYLE Value Blend Growth MARKET CAP Large /X/ / / / / Medium / / / / / / Small / / / / / /
STATISTICS NUMBER OF HOLDINGS 105 -------------------------------------------------------------------------------- WEIGHTED AVERAGE MARKET CAP ($ x 1,000,000) $33,217 -------------------------------------------------------------------------------- PRICE/EARNINGS RATIO (P/E) 20.1 -------------------------------------------------------------------------------- PRICE/BOOK RATIO (P/B) 2.5 -------------------------------------------------------------------------------- PORTFOLIO TURNOVER RATE 39% -------------------------------------------------------------------------------- SEC YIELD 2 Investor Shares 2.21% Select Shares 2.36% -------------------------------------------------------------------------------- SEC YIELD-NO WAIVER 3 Investor Shares 2.09% Select Shares 2.24% -------------------------------------------------------------------------------- MINIMUM INITIAL INVESTMENT 4 Investor Shares ($1,000 for retirement and custodial accounts) $2,500 Select Shares $50,000 --------------------------------------------------------------------------------
TOP HOLDINGS 5
% OF SECURITY NET ASSETS -------------------------------------------------------------------------------- (1) JPMORGAN CHASE & CO. 1.7% -------------------------------------------------------------------------------- (2) EDISON INTERNATIONAL 1.3% -------------------------------------------------------------------------------- (3) REYNOLDS AMERICAN, INC. 1.3% -------------------------------------------------------------------------------- (4) EXELON CORP. 1.2% -------------------------------------------------------------------------------- (5) DUKE ENERGY CORP. 1.2% -------------------------------------------------------------------------------- (6) PPG INDUSTRIES, INC. 1.2% -------------------------------------------------------------------------------- (7) EMERSON ELECTRIC CO. 1.2% -------------------------------------------------------------------------------- (8) KERR-MCGEE CORP. 1.2% -------------------------------------------------------------------------------- (9) CHEVRONTEXACO CORP. 1.2% -------------------------------------------------------------------------------- (10) KEYCORP, INC. 1.2% -------------------------------------------------------------------------------- TOTAL 12.7%
SECTOR WEIGHTINGS % of Portfolio This chart shows the fund's sector composition as of the report date. A sector is a portion of the overall stock market that is made up of industries whose business components share similar characteristics. [PIE CHART] 25.5% FINANCE 24.5% UTILITIES 20.3% CONSUMER NON-DURABLES 13.3% MATERIALS 4.8% ENERGY 4.6% TECHNOLOGY 3.7% CAPITAL GOODS 1.8% CONSUMER DURABLES 0.6% TRANSPORTATION 0.9% OTHER THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN PERFORMANCE DATA QUOTED. TO OBTAIN PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH END, PLEASE VISIT WWW.SCHWAB.COM/SCHWABFUNDS. Fund holdings may have changed since the report date. 1 Source: Morningstar, Inc. This style assessment is the result of evaluating the fund based on a ten-factor model for value and growth characteristics. The fund's market capitalization placement is determined by the geometric mean of its holdings' market capitalizations. The assessment reflects the fund's portfolio as of 10/31/04, which may have changed since then, and is not a precise indication of risk or performance--past, present, or future. 2 Fund expenses have been partially absorbed by CSIM and Schwab. The yield does not reflect the deduction of taxes that a shareholder would pay on fund distributions or on the redemption of fund shares. 3 Yield if fund expenses had not been partially absorbed by CSIM and Schwab. 4 Please see prospectus for further detail and eligibility requirements. 5 This list is not a recommendation of any security by the investment adviser. 12 Funds Using Schwab Equity Ratings SCHWAB SMALL-CAP EQUITY FUND(TM) INVESTOR SHARES PERFORMANCE as of 10/31/04 TOTAL RETURNS 1, 2 This chart compares performance of the fund's Investor Shares with its benchmark and Morningstar category. [BAR CHART]
Benchmark: Fund Category: Fund: S&P MORNINGSTAR INVESTOR SMALLCAP SMALL-CAP SHARES 600 INDEX BLEND 1 YEAR 21.74% 16.78% 13.51% SINCE INCEPTION: 7/1/03 31.13% 25.71% 23.44%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN PERFORMANCE DATA QUOTED. TO OBTAIN PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH END, PLEASE VISIT WWW.SCHWAB.COM/SCHWABFUNDS. PERFORMANCE OF A HYPOTHETICAL $10,000 INVESTMENT 1 This graph shows performance since inception of a hypothetical $10,000 investment in the fund's Investor Shares, compared with a similar investment in its benchmark. $14,377 INVESTOR SHARES $13,587 S&P SMALLCAP 600 INDEX [LINE GRAPH]
S&P INVESTOR SMALL-CAP SHARES 600 INDEX 01-Jul-03 $10,000 $10,000 31-Jul-03 $10,590 $10,520 31-Aug-03 $10,920 $11,032 30-Sep-03 $10,800 $10,708 31-Oct-03 $11,810 $11,636 30-Nov-03 $12,370 $12,076 31-Dec-03 $12,749 $12,290 31-Jan-04 $13,238 $12,644 29-Feb-04 $13,523 $12,887 31-Mar-04 $13,706 $13,054 30-Apr-04 $13,238 $12,621 31-May-04 $13,289 $12,814 30-Jun-04 $14,194 $13,524 31-Jul-04 $13,472 $12,783 31-Aug-04 $13,279 $12,670 30-Sep-04 $13,981 $13,338 31-Oct-04 $14,377 $13,587
All figures on this page assume dividends and distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged, and you cannot invest in them directly. 1 Fund expenses have been partially absorbed by CSIM and Schwab. Without these reductions, the fund's returns would have been lower. These returns do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. 2 Source for category information: Morningstar, Inc. Funds Using Schwab Equity Ratings 13 SCHWAB SMALL-CAP EQUITY FUND SELECT SHARES(R) PERFORMANCE as of 10/31/04 TOTAL RETURNS 1, 2 This chart compares performance of the fund's Select Shares with its benchmark and Morningstar category. [BAR CHART]
Benchmark: Fund Category: Fund: S&P MORNINGSTAR SELECT SMALLCAP SMALL-CAP SHARES 600 INDEX BLEND 1 YEAR 22.00% 16.78% 13.51% SINCE INCEPTION: 7/1/03 31.34% 25.71% 23.44%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN PERFORMANCE DATA QUOTED. TO OBTAIN PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH END, PLEASE VISIT WWW.SCHWAB.COM/SCHWABFUNDS. PERFORMANCE OF A HYPOTHETICAL $50,000 INVESTMENT 1 This graph shows performance since inception of a hypothetical $50,000 investment (the minimum investment for this share class) in the fund's Select Shares, compared with a similar investment in its benchmark. $72,040 SELECT SHARES $67,937 S&P SMALLCAP 600 INDEX [LINE GRAPH]
S&P SELECT SMALL-CAP SHARES 600 INDEX 01-Jul-03 $50,000 $50,000 31-Jul-03 $52,950 $52,600 31-Aug-03 $54,600 $55,162 30-Sep-03 $54,000 $53,540 31-Oct-03 $59,050 $58,182 30-Nov-03 $61,900 $60,381 31-Dec-03 $63,800 $61,450 31-Jan-04 $66,240 $63,220 29-Feb-04 $67,665 $64,433 31-Mar-04 $68,580 $65,271 30-Apr-04 $66,240 $63,104 31-May-04 $66,545 $64,069 30-Jun-04 $71,075 $67,619 31-Jul-04 $67,460 $63,913 31-Aug-04 $66,495 $63,351 30-Sep-04 $70,055 $66,690 31-Oct-04 $72,040 $67,937
All figures on this page assume dividends and distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged, and you cannot invest in them directly. 1 Fund expenses have been partially absorbed by CSIM and Schwab. Without these reductions, the fund's returns would have been lower. These returns do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. 2 Source for category information: Morningstar, Inc. 14 Funds Using Schwab Equity Ratings SCHWAB SMALL-CAP EQUITY FUND FUND FACTS as of 10/31/04 STYLE ASSESSMENT 1 [GRAPHIC]
INVESTMENT STYLE Value Blend Growth MARKET CAP Large / / / / / / Medium / / / / / / Small / / /X/ / /
STATISTICS NUMBER OF HOLDINGS 165 -------------------------------------------------------------------------------- WEIGHTED AVERAGE MARKET CAP ($ x 1,000,000) $1,147 -------------------------------------------------------------------------------- PRICE/EARNINGS RATIO (P/E) 25.2 -------------------------------------------------------------------------------- PRICE/BOOK RATIO (P/B) 2.1 -------------------------------------------------------------------------------- PORTFOLIO TURNOVER RATE 118% -------------------------------------------------------------------------------- MINIMUM INITIAL INVESTMENT 2 Investor Shares ($1,000 for retirement and custodial accounts) $2,500 Select Shares $50,000
TOP HOLDINGS 3
% OF SECURITY NET ASSETS -------------------------------------------------------------------------------- (1) ESCO TECHNOLOGIES, INC. 2.9% -------------------------------------------------------------------------------- (2) POTLATCH CORP. 2.3% -------------------------------------------------------------------------------- (3) MEDICIS PHARMACEUTICAL CORP. Class A 2.2% -------------------------------------------------------------------------------- (4) AMERIGROUP CORP. 2.0% -------------------------------------------------------------------------------- (5) POLARIS INDUSTRIES, INC. 1.9% -------------------------------------------------------------------------------- (6) MATTHEWS INTERNATIONAL CORP. Class A 1.7% -------------------------------------------------------------------------------- (7) COMMONWEALTH TELEPHONE ENTERPRISES, INC. 1.7% -------------------------------------------------------------------------------- (8) ODYSSEY RE HOLDINGS CORP. 1.6% -------------------------------------------------------------------------------- (9) CLECO CORP. 1.6% -------------------------------------------------------------------------------- (10) HARMAN INTERNATIONAL INDUSTRIES, INC. 1.6% -------------------------------------------------------------------------------- TOTAL 19.5%
SECTOR WEIGHTINGS % of Portfolio This chart shows the fund's sector composition as of the report date. A sector is a portion of the overall stock market that is made up of industries whose business components share similar characteristics. [PIE CHART] 20.9% MATERIALS & SERVICES 16.7% CONSUMER NON-DURABLES 16.5% TECHNOLOGY 15.4% FINANCE 7.6% CAPITAL GOODS 5.9% CONSUMER DURABLES 4.9% TRANSPORTATION 4.7% UTILITIES 4.5% ENERGY 2.9% OTHER Portfolio holdings may have changed since the report date. 1 Source: Morningstar, Inc. This style assessment is the result of evaluating the fund based on a ten-factor model for value and growth characteristics. The fund's market capitalization placement is determined by the geometric mean of its holdings' market capitalizations. The assessment reflects the fund's portfolio as of 10/31/04, which may have changed since then, and is not a precise indication of risk or performance--past, present, or future. 2 Please see prospectus for further detail and eligibility requirements. 3 This list is not a recommendation of any security by the investment adviser. Funds Using Schwab Equity Ratings 15 SCHWAB HEDGED EQUITY FUND(TM) PERFORMANCE as of 10/31/04 AVERAGE ANNUAL TOTAL RETURNS 1, 2 This chart compares performance of the fund with a benchmark and the fund's Morningstar category. [BAR CHART]
Fund Category: Benchmark: MORNINGSTAR S&P 500(R) MODERATE FUND INDEX ALLOCATION 1 YEAR 12.84% 9.42% 7.40% SINCE INCEPTION: 9/3/02 12.88% 12.11% 0.51%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN PERFORMANCE DATA QUOTED. TO OBTAIN PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH END, PLEASE VISIT WWW.SCHWAB.COM/SCHWABFUNDS. PERFORMANCE OF A HYPOTHETICAL $25,000 INVESTMENT 1 This graph shows performance since inception of a hypothetical $25,000 investment in the fund (the minimum investment for this fund), compared with a similar investment in a benchmark. $32,525 FUND $32,047 S&P 500(R) INDEX [LINE GRAPH]
S&P 500(R) FUND INDEX 03-Sep-02 $25,000 $25,000 30-Sep-02 $23,850 $22,283 31-Oct-02 $24,600 $24,243 30-Nov-02 $24,700 $25,671 31-Dec-02 $24,375 $24,164 31-Jan-03 $24,050 $23,531 28-Feb-03 $23,850 $23,178 31-Mar-03 $24,275 $23,403 30-Apr-03 $25,225 $25,332 31-May-03 $26,125 $26,667 30-Jun-03 $26,425 $27,008 31-Jul-03 $26,750 $27,483 31-Aug-03 $27,100 $28,019 30-Sep-03 $26,975 $27,722 31-Oct-03 $28,825 $29,291 30-Nov-03 $29,400 $29,549 31-Dec-03 $29,950 $31,097 31-Jan-04 $30,550 $31,670 29-Feb-04 $31,075 $32,110 31-Mar-04 $31,325 $31,625 30-Apr-04 $30,550 $31,128 31-May-04 $31,000 $31,555 30-Jun-04 $32,025 $32,167 31-Jul-04 $31,125 $31,102 31-Aug-04 $30,850 $31,227 30-Sep-04 $31,875 $31,564 31-Oct-04 $32,525 $32,047
All figures on this page assume dividends and distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged, and you cannot invest in them directly. 1 Fund expenses have been partially absorbed by CSIM and Schwab. Without these reductions, the fund's returns would have been lower. These returns do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. 2 Source for category information: Morningstar, Inc. 16 Funds Using Schwab Equity Ratings SCHWAB HEDGED EQUITY FUND FUND FACTS as of 10/31/04 TOP LONG HOLDINGS 1
% OF SECURITY NET ASSETS -------------------------------------------------------------------------------- (1) APPLE COMPUTER, INC. 0.7% -------------------------------------------------------------------------------- (2) EDISON INTERNATIONAL 0.7% -------------------------------------------------------------------------------- (3) MACROVISION CORP. 0.7% -------------------------------------------------------------------------------- (4) HARMAN INTERNATIONAL IND., INC. 0.7% -------------------------------------------------------------------------------- (5) AUTODESK, INC. 0.7% -------------------------------------------------------------------------------- TOTAL 3.5%
TOP SHORT POSITIONS 1
% OF SECURITY NET ASSETS -------------------------------------------------------------------------------- (1) ENGINEERED SUPPORT SYSTEMS, INC. 0.6% -------------------------------------------------------------------------------- (2) POTOMAC ELECTRIC POWER CO. 0.6% -------------------------------------------------------------------------------- (3) DST SYSTEMS, INC. 0.6% -------------------------------------------------------------------------------- (4) FOOT LOCKER, INC. 0.6% -------------------------------------------------------------------------------- (5) OMNICARE, INC. 0.6% -------------------------------------------------------------------------------- TOTAL 3.0%
STATISTICS NUMBER OF HOLDINGS Long Holdings 265 Short Positions 167 -------------------------------------------------------------------------------- WEIGHTED AVERAGE MARKET CAP ($ x 1,000,000) Long Holdings $13,101 Short Positions $10,768 -------------------------------------------------------------------------------- PRICE/EARNINGS RATIO (P/E) Long Holdings 22.1 Short Positions 20.9 -------------------------------------------------------------------------------- PRICE/BOOK RATIO (P/B) Long Holdings 2.7 Short Positions 2.1 -------------------------------------------------------------------------------- PORTFOLIO TURNOVER RATE 2 Long Holdings 99% Short Positions n/a -------------------------------------------------------------------------------- MINIMUM INITIAL INVESTMENT 3 $25,000
Portfolio holdings may have changed since the report date. 1 This list is not a recommendation of any security by the investment adviser. 2 Short positions have been excluded from the calculation of portfolio turnover because at the time of entering into the short positions, the fund did not intend to hold the positions for more than one year. 3 Please see prospectus for further detail and eligibility requirements. Funds Using Schwab Equity Ratings 17 COMMUNICATIONS FOCUS FUND Performance as of 10/31/04 AVERAGE ANNUAL TOTAL RETURNS 1, 2 This chart compares performance of the fund with a benchmark and the fund's Morningstar category. [BAR CHART]
Benchmark: S&P 1500 SUPERCOMPOSITE Fund Category: TELECOMMUNICATIONS MORNINGSTAR FUND SECTOR INDEX COMMUNICATIONS 1 YEAR 9.14 20.68 18.37 3 YEARS -1.86 -6.43 -0.13 SINCE INCEPTION: 7/3/00 -19.35 -14.71 -20.53
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN PERFORMANCE DATA QUOTED. TO OBTAIN PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH END, PLEASE VISIT WWW.SCHWAB.COM/SCHWABFUNDS. PERFORMANCE OF A HYPOTHETICAL $10,000 INVESTMENT 1 This graph shows performance since inception of a hypothetical $10,000 investment in the fund, compared with a similar investment in a benchmark and an additional index. $3,933 FUND $5,013 S&P 1500 SUPERCOMPOSITE TELECOMMUNICATIONS SECTOR INDEX $8,311 S&P 500(R) INDEX [LINE GRAPH]
S&P 1500 SUPERCOMPOSITE TELECOMMUNICATIONS S&P 500(R) FUND SECTOR INDEX INDEX 03-Jul-00 $10,000 $10,000 $10,000 31-Jul-00 $9,490 $9,223 $9,844 31-Aug-00 $9,720 $9,026 $10,455 30-Sep-00 $8,510 $8,933 $9,903 31-Oct-00 $8,130 $9,157 $9,862 30-Nov-00 $6,740 $7,842 $9,085 31-Dec-00 $6,402 $7,236 $9,129 31-Jan-01 $7,382 $8,303 $9,453 28-Feb-01 $5,972 $7,549 $8,591 31-Mar-01 $5,462 $7,170 $8,046 30-Apr-01 $5,972 $7,492 $8,672 31-May-01 $5,682 $7,377 $8,730 30-Jun-01 $5,232 $7,073 $8,518 31-Jul-01 $5,142 $7,384 $8,434 31-Aug-01 $4,581 $6,693 $7,906 30-Sep-01 $4,281 $7,055 $7,267 31-Oct-01 $4,161 $6,120 $7,406 30-Nov-01 $4,471 $6,231 $7,974 31-Dec-01 $4,511 $6,336 $8,044 31-Jan-02 $4,181 $5,844 $7,927 28-Feb-02 $3,931 $5,470 $7,774 31-Mar-02 $3,961 $5,359 $8,066 30-Apr-02 $3,461 $4,539 $7,577 31-May-02 $3,481 $4,686 $7,521 30-Jun-02 $2,941 $4,096 $6,986 31-Jul-02 $2,651 $3,588 $6,442 31-Aug-02 $2,681 $3,528 $6,484 30-Sep-02 $2,361 $3,031 $5,779 31-Oct-02 $2,841 $4,016 $6,287 30-Nov-02 $3,211 $4,500 $6,658 31-Dec-02 $2,877 $4,160 $6,267 31-Jan-03 $2,857 $3,894 $6,103 28-Feb-03 $2,746 $3,572 $6,011 31-Mar-03 $2,726 $3,564 $6,069 30-Apr-03 $3,029 $3,917 $6,570 31-May-03 $3,261 $4,180 $6,916 30-Jun-03 $3,331 $4,339 $7,004 31-Jul-03 $3,362 $4,106 $7,128 31-Aug-03 $3,362 $4,110 $7,267 30-Sep-03 $3,352 $3,941 $7,190 31-Oct-03 $3,604 $4,154 $7,596 30-Nov-03 $3,554 $4,103 $7,663 31-Dec-03 $3,690 $4,462 $8,065 31-Jan-04 $3,883 $4,660 $8,213 29-Feb-04 $3,883 $4,757 $8,327 31-Mar-04 $3,873 $4,687 $8,202 30-Apr-04 $3,710 $4,688 $8,073 31-May-04 $3,680 $4,503 $8,183 30-Jun-04 $3,731 $4,644 $8,342 31-Jul-04 $3,741 $4,823 $8,066 31-Aug-04 $3,690 $4,877 $8,098 30-Sep-04 $3,781 $4,944 $8,186 31-Oct-04 $3,933 $5,013 $8,311
All figures on this page assume dividends and distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged, and you cannot invest in them directly. 1 Fund expenses have been partially absorbed by CSIM and Schwab. Without these reductions, the fund's returns would have been lower. These returns do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. 2 Source for category information: Morningstar, Inc. 18 Funds Using Schwab Equity Ratings COMMUNICATIONS FOCUS FUND FUND FACTS as of 10/31/04 TOP HOLDINGS 1
% OF SECURITY NET ASSETS -------------------------------------------------------------------------------- (1) AT&T CORP. 5.6% -------------------------------------------------------------------------------- (2) COMMONWEALTH TELEPHONE ENTERPRISES, INC. 5.5% -------------------------------------------------------------------------------- (3) ALLTEL CORP. 5.5% -------------------------------------------------------------------------------- (4) VERIZON COMMUNICATIONS, INC. 5.4% -------------------------------------------------------------------------------- (5) CITIZENS COMMUNICATIONS CO. 5.4% -------------------------------------------------------------------------------- (6) NEXTEL COMMUNICATIONS, INC. Class A 5.2% -------------------------------------------------------------------------------- (7) BELLSOUTH CORP. 5.1% -------------------------------------------------------------------------------- (8) SBC COMMUNICATIONS, INC. 5.1% -------------------------------------------------------------------------------- (9) CENTURYTEL, INC. 4.8% -------------------------------------------------------------------------------- (10) WESTERN WIRELESS CORP. Class A 4.8% -------------------------------------------------------------------------------- TOTAL 52.4%
STATISTICS NUMBER OF HOLDINGS 28 -------------------------------------------------------------------------------- WEIGHTED AVERAGE MARKET CAP ($ x 1,000,000) $18,163 -------------------------------------------------------------------------------- PRICE/EARNINGS RATIO (P/E) n/a -------------------------------------------------------------------------------- PRICE/BOOK RATIO (P/B) 2.1 -------------------------------------------------------------------------------- PORTFOLIO TURNOVER RATE 80% -------------------------------------------------------------------------------- MINIMUM INITIAL INVESTMENT 2 $5,000
INDUSTRY WEIGHTINGS % of Portfolio This chart shows the fund's industry composition as of the report date. [PIE CHART] 77.0% TELEPHONE 10.0% MEDIA 4.8% ELECTRONICS 4.0% BUSINESS MACHINES & SOFTWARE 2.5% CONSUMER DURABLES 1.7% OTHER Portfolio holdings may have changed since the report date. 1 This list is not a recommendation of any security by the investment adviser. 2 Please see prospectus for further detail and eligibility requirements. Funds Using Schwab Equity Ratings 19 FINANCIAL SERVICES FOCUS FUND PERFORMANCE as of 10/31/04 AVERAGE ANNUAL TOTAL RETURNS 1, 2 This chart compares performance of the fund with a benchmark and the fund's Morningstar category. [BAR CHART]
Benchmark: S&P 1500 Fund Category: SUPERCOMPOSITE MORNINGSTAR FINANCIALS FINANCIAL FUND SECTOR INDEX SERVICES 1 YEAR 12.39 9.04 10.48 3 YEARS 11.82 9.04 10.95 SINCE INCEPTION: 7/3/00 8.38 7.80 7.15
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN PERFORMANCE DATA QUOTED. TO OBTAIN PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH END, PLEASE VISIT WWW.SCHWAB.COM/SCHWABFUNDS. PERFORMANCE OF A HYPOTHETICAL $10,000 INVESTMENT 1 This graph shows performance since inception of a hypothetical $10,000 investment in the fund, compared with a similar investment in a benchmark and an additional index. $14,179 FUND $13,854 S&P 1500 SUPERCOMPOSITE FINANCIALS SECTOR INDEX $8,311 S&P 500(R) INDEX [LINE GRAPH]
S&P 1500 SUPERCOMPOSITE FINANCIALS S&P 500(R) FUND SECTOR INDEX INDEX 03-Jul-00 $10,000 $10,000 $10,000 31-Jul-00 $10,770 $11,015 $9,844 31-Aug-00 $11,830 $12,059 $10,455 30-Sep-00 $12,050 $12,376 $9,903 31-Oct-00 $11,860 $12,328 $9,862 30-Nov-00 $11,200 $11,627 $9,085 31-Dec-00 $12,136 $12,761 $9,129 31-Jan-01 $11,928 $12,692 $9,453 28-Feb-01 $11,501 $11,898 $8,591 31-Mar-01 $11,023 $11,528 $8,046 30-Apr-01 $11,637 $11,970 $8,672 31-May-01 $12,032 $12,447 $8,730 30-Jun-01 $12,094 $12,479 $8,518 31-Jul-01 $11,761 $12,325 $8,434 31-Aug-01 $11,096 $11,582 $7,906 30-Sep-01 $10,368 $10,916 $7,267 31-Oct-01 $10,139 $10,685 $7,406 30-Nov-01 $10,805 $11,442 $7,974 31-Dec-01 $11,172 $11,736 $8,044 31-Jan-02 $10,919 $11,577 $7,927 28-Feb-02 $10,982 $11,457 $7,774 31-Mar-02 $11,499 $12,195 $8,066 30-Apr-02 $11,351 $11,936 $7,577 31-May-02 $11,362 $11,913 $7,521 30-Jun-02 $10,866 $11,347 $6,986 31-Jul-02 $10,433 $10,471 $6,442 31-Aug-02 $10,549 $10,689 $6,484 30-Sep-02 $9,378 $9,455 $5,779 31-Oct-02 $9,959 $10,256 $6,287 30-Nov-02 $10,212 $10,664 $6,658 31-Dec-02 $9,786 $10,125 $6,267 31-Jan-03 $9,593 $9,951 $6,103 28-Feb-03 $9,379 $9,649 $6,011 31-Mar-03 $9,464 $9,613 $6,069 30-Apr-03 $10,558 $10,747 $6,570 31-May-03 $11,051 $11,332 $6,916 30-Jun-03 $11,136 $11,367 $7,004 31-Jul-03 $11,458 $11,893 $7,128 31-Aug-03 $11,447 $11,800 $7,267 30-Sep-03 $11,597 $11,878 $7,190 31-Oct-03 $12,615 $12,706 $7,596 30-Nov-03 $13,001 $12,720 $7,663 31-Dec-03 $13,260 $13,311 $8,065 31-Jan-04 $13,844 $13,729 $8,213 29-Feb-04 $14,146 $14,111 $8,327 31-Mar-04 $14,071 $13,990 $8,202 30-Apr-04 $13,206 $13,308 $8,073 31-May-04 $13,379 $13,579 $8,183 30-Jun-04 $13,573 $13,657 $8,342 31-Jul-04 $13,379 $13,379 $8,066 31-Aug-04 $13,822 $13,844 $8,098 30-Sep-04 $14,049 $13,755 $8,186 31-Oct-04 $14,179 $13,854 $8,311
All figures on this page assume dividends and distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged, and you cannot invest in them directly. 1 Fund expenses have been partially absorbed by CSIM and Schwab. Without these reductions, the fund's returns would have been lower. These returns do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. 2 Source for category information: Morningstar, Inc. 20 Funds Using Schwab Equity Ratings FINANCIAL SERVICES FOCUS FUND FUND FACTS as of 10/31/04 TOP HOLDINGS 1
% OF SECURITY NET ASSETS -------------------------------------------------------------------------------- (1) MELLON FINANCIAL CORP. 5.0% -------------------------------------------------------------------------------- (2) NORTHERN TRUST CORP. 4.9% -------------------------------------------------------------------------------- (3) UNIONBANCAL CORP. 4.9% -------------------------------------------------------------------------------- (4) KEYCORP, INC. 4.3% -------------------------------------------------------------------------------- (5) COMERICA, INC. 4.1% -------------------------------------------------------------------------------- (6) BANK OF HAWAII CORP. 3.7% -------------------------------------------------------------------------------- (7) COUNTRYWIDE FINANCIAL CORP. 2.8% -------------------------------------------------------------------------------- (8) CAPITAL ONE FINANCIAL CORP. 2.6% -------------------------------------------------------------------------------- (9) METLIFE, INC. 2.5% -------------------------------------------------------------------------------- (10) CITY NATIONAL CORP. 2.5% -------------------------------------------------------------------------------- TOTAL 37.3%
STATISTICS NUMBER OF HOLDINGS 62 -------------------------------------------------------------------------------- WEIGHTED AVERAGE MARKET CAP ($ x 1,000,000) $14,490 -------------------------------------------------------------------------------- PRICE/EARNINGS RATIO (P/E) 15.4 -------------------------------------------------------------------------------- PRICE/BOOK RATIO (P/B) 1.7 -------------------------------------------------------------------------------- PORTFOLIO TURNOVER RATE 85% -------------------------------------------------------------------------------- MINIMUM INITIAL INVESTMENT 2 $5,000
INDUSTRY WEIGHTINGS % of Portfolio This chart shows the fund's industry composition as of the report date. [PIE CHART] 47.0% BANKS 26.7% MISCELLANEOUS FINANCE 23.3% INSURANCE 1.9% REAL PROPERTY 1.1% ELECTRONICS Portfolio holdings may have changed since the report date. 1 This list is not a recommendation of any security by the investment adviser. 2 Please see prospectus for further detail and eligibility requirements. Funds Using Schwab Equity Ratings 21 HEALTH CARE FOCUS FUND Performance as of 10/31/04 AVERAGE ANNUAL TOTAL RETURNS 1, 2 This chart compares performance of the fund with a benchmark and the fund's Morningstar category. [BAR CHART]
Benchmark: S&P 1500 SUPERCOMPOSITE Fund Category: HEALTH CARE MORNINGSTAR FUND SECTOR INDEX HEALTH CARE 1 YEAR 27.88% 2.65% 6.16% 3 YEARS 6.38% -2.33% -0.97% SINCE INCEPTION: 7/3/00 2.25% -2.29% -5.93%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN PERFORMANCE DATA QUOTED. TO OBTAIN PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH END, PLEASE VISIT WWW.SCHWAB.COM/SCHWABFUNDS. PERFORMANCE OF A HYPOTHETICAL $10,000 INVESTMENT 1 This graph shows performance since inception of a hypothetical $10,000 investment in the fund, compared with a similar investment in a benchmark and an additional index. $11,014 FUND $9,043 S&P 1500 SUPERCOMPOSITE HEALTH CARE SECTOR INDEX $8,311 S&P 500(R) INDEX [LINE GRAPH]
S&P 1500 SUPERCOMPOSITE HEALTH CARE S&P 500(R) FUND SECTOR INDEX INDEX 03-Jul-00 $10,000 $10,000 $10,000 31-Jul-00 $9,450 $9,489 $9,844 31-Aug-00 $9,820 $9,669 $10,455 30-Sep-00 $10,160 $10,146 $9,903 31-Oct-00 $10,270 $10,451 $9,862 30-Nov-00 $10,460 $10,793 $9,085 31-Dec-00 $10,905 $11,158 $9,129 31-Jan-01 $9,848 $10,230 $9,453 28-Feb-01 $9,797 $10,234 $8,591 31-Mar-01 $8,892 $9,447 $8,046 30-Apr-01 $9,268 $9,792 $8,672 31-May-01 $9,492 $9,949 $8,730 30-Jun-01 $9,278 $9,605 $8,518 31-Jul-01 $9,594 $10,019 $8,434 31-Aug-01 $9,258 $9,700 $7,906 30-Sep-01 $9,228 $9,729 $7,267 31-Oct-01 $9,146 $9,706 $7,406 30-Nov-01 $9,624 $10,180 $7,974 31-Dec-01 $9,335 $9,918 $8,044 31-Jan-02 $9,111 $9,786 $7,927 28-Feb-02 $8,989 $9,799 $7,774 31-Mar-02 $9,101 $9,868 $8,066 30-Apr-02 $8,582 $9,318 $7,577 31-May-02 $8,389 $9,122 $7,521 30-Jun-02 $7,657 $8,292 $6,986 31-Jul-02 $7,291 $8,088 $6,442 31-Aug-02 $7,433 $8,181 $6,484 30-Sep-02 $6,986 $7,701 $5,779 31-Oct-02 $7,240 $8,127 $6,287 30-Nov-02 $7,342 $8,313 $6,658 31-Dec-02 $7,060 $8,037 $6,267 31-Jan-03 $7,009 $8,013 $6,103 28-Feb-03 $6,825 $7,855 $6,011 31-Mar-03 $7,080 $8,138 $6,069 30-Apr-03 $7,377 $8,423 $6,570 31-May-03 $7,560 $8,651 $6,916 30-Jun-03 $8,030 $9,018 $7,004 31-Jul-03 $8,245 $8,966 $7,128 31-Aug-03 $8,173 $8,675 $7,267 30-Sep-03 $8,276 $8,705 $7,190 31-Oct-03 $8,613 $8,810 $7,596 30-Nov-03 $9,287 $8,978 $7,663 31-Dec-03 $9,655 $9,455 $8,065 31-Jan-04 $10,288 $9,736 $8,213 29-Feb-04 $10,513 $9,822 $8,327 31-Mar-04 $10,871 $9,483 $8,202 30-Apr-04 $10,820 $9,744 $8,073 31-May-04 $10,861 $9,740 $8,183 30-Jun-04 $11,085 $9,748 $8,342 31-Jul-04 $10,452 $9,200 $8,066 31-Aug-04 $10,585 $9,353 $8,098 30-Sep-04 $10,983 $9,226 $8,186 31-Oct-04 $11,014 $9,043 $8,311
All figures on this page assume dividends and distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged, and you cannot invest in them directly. 1 Fund expenses have been partially absorbed by CSIM and Schwab. Without these reductions, the fund's returns would have been lower. These returns do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. 2 Source for category information: Morningstar, Inc. 22 Funds Using Schwab Equity Ratings HEALTH CARE FOCUS FUND FUND FACTS as of 10/31/04 TOP HOLDINGS 1
% OF SECURITY NET ASSETS -------------------------------------------------------------------------------- (1) WYETH 3.6% -------------------------------------------------------------------------------- (2) HUMANA, INC. 3.4% -------------------------------------------------------------------------------- (3) PERKINELMER, INC. 3.3% -------------------------------------------------------------------------------- (4) AMERIGROUP CORP. 3.3% -------------------------------------------------------------------------------- (5) UNITEDHEALTH GROUP, INC. 3.3% -------------------------------------------------------------------------------- (6) PACIFICARE HEALTH SYSTEMS, INC. 3.2% -------------------------------------------------------------------------------- (7) LABORATORY CORP. OF AMERICA HOLDINGS 3.1% -------------------------------------------------------------------------------- (8) WELLCHOICE, INC. 3.1% -------------------------------------------------------------------------------- (9) BECTON DICKINSON & CO. 3.0% -------------------------------------------------------------------------------- (10) JOHNSON & JOHNSON 3.0% -------------------------------------------------------------------------------- TOTAL 32.3%
STATISTICS NUMBER OF HOLDINGS 47 -------------------------------------------------------------------------------- WEIGHTED AVERAGE MARKET CAP ($ x 1,000,000) $23,641 -------------------------------------------------------------------------------- PRICE/EARNINGS RATIO (P/E) 18.8 -------------------------------------------------------------------------------- PRICE/BOOK RATIO (P/B) 2.8 -------------------------------------------------------------------------------- PORTFOLIO TURNOVER RATE 105% -------------------------------------------------------------------------------- MINIMUM INITIAL INVESTMENT 2 $5,000
INDUSTRY WEIGHTINGS % of Portfolio This chart shows the fund's industry composition as of the report date. [PIE CHART] 76.3% HEALTHCARE / DRUGS & MEDICINE 9.0% BUSINESS SERVICES 8.9% INSURANCE 3.3% ELECTRONICS 2.5% PRODUCER GOODS & MANUFACTURING Portfolio holdings may have changed since the report date. 1 This list is not a recommendation of any security by the investment adviser. 2 Please see prospectus for further detail and eligibility requirements. Funds Using Schwab Equity Ratings 23 TECHNOLOGY FOCUS FUND PERFORMANCE as of 10/31/04 AVERAGE ANNUAL TOTAL RETURNS 1,2 This chart compares performance of the fund with a benchmark and the fund's Morningstar category. [BAR CHART]
Benchmark: S&P 1500 SUPERCOMPOSITE Fund Category: TECHNOLOGY MORNINGSTAR FUND SECTOR INDEX TECHNOLOGY 1 YEAR 2.31% -1.63% -3.41% 3 YEARS 4.61% 0.13% -1.10% SINCE INCEPTION: 7/3/00 -17.15% -19.66% -24.81%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN PERFORMANCE DATA QUOTED. TO OBTAIN PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH END, PLEASE VISIT WWW.SCHWAB.COM/SCHWABFUNDS. PERFORMANCE OF A HYPOTHETICAL $10,000 INVESTMENT 1 This graph shows performance since inception of a hypothetical $10,000 investment in the fund, compared with a similar investment in a benchmark and an additional index. $4,420 FUND $3,868 S&P 1500 SUPERCOMPOSITE TECHNOLOGY SECTOR INDEX $8,311 S&P 500(R) INDEX [LINE GRAPH]
S&P 1500 SUPERCOMPOSITE TECHNOLOGY S&P 500(R) FUND SECTOR INDEX INDEX 03-Jul-00 $10,000 $10,000 $10,000 31-Jul-00 $9,480 $9,481 $9,844 31-Aug-00 $10,910 $10,594 $10,455 30-Sep-00 $9,220 $8,695 $9,903 31-Oct-00 $8,520 $8,189 $9,862 30-Nov-00 $6,500 $6,477 $9,085 31-Dec-00 $5,940 $5,835 $9,129 31-Jan-01 $6,950 $6,872 $9,453 28-Feb-01 $5,110 $4,993 $8,591 31-Mar-01 $4,420 $4,361 $8,046 30-Apr-01 $5,320 $5,110 $8,672 31-May-01 $5,240 $4,867 $8,730 30-Jun-01 $5,290 $4,925 $8,518 31-Jul-01 $4,850 $4,649 $8,434 31-Aug-01 $4,210 $4,094 $7,906 30-Sep-01 $3,270 $3,279 $7,267 31-Oct-01 $3,860 $3,852 $7,406 30-Nov-01 $4,480 $4,490 $7,974 31-Dec-01 $4,500 $4,425 $8,044 31-Jan-02 $4,560 $4,485 $7,927 28-Feb-02 $4,040 $3,870 $7,774 31-Mar-02 $4,320 $4,140 $8,066 30-Apr-02 $3,840 $3,650 $7,577 31-May-02 $3,670 $3,505 $7,521 30-Jun-02 $3,290 $3,075 $6,986 31-Jul-02 $2,950 $2,781 $6,442 31-Aug-02 $2,880 $2,741 $6,484 30-Sep-02 $2,450 $2,266 $5,779 31-Oct-02 $2,900 $2,754 $6,287 30-Nov-02 $3,310 $3,228 $6,658 31-Dec-02 $2,890 $2,765 $6,267 31-Jan-03 $2,840 $2,719 $6,103 28-Feb-03 $2,860 $2,778 $6,011 31-Mar-03 $2,810 $2,738 $6,069 30-Apr-03 $3,110 $2,989 $6,570 31-May-03 $3,400 $3,255 $6,916 30-Jun-03 $3,430 $3,257 $7,004 31-Jul-03 $3,720 $3,442 $7,128 31-Aug-03 $3,980 $3,657 $7,267 30-Sep-03 $3,890 $3,618 $7,190 31-Oct-03 $4,320 $3,931 $7,596 30-Nov-03 $4,610 $4,001 $7,663 31-Dec-03 $4,590 $4,089 $8,065 31-Jan-04 $5,140 $4,238 $8,213 29-Feb-04 $5,060 $4,100 $8,327 31-Mar-04 $4,860 $3,998 $8,202 30-Apr-04 $4,440 $3,794 $8,073 31-May-04 $4,630 $3,991 $8,183 30-Jun-04 $4,750 $4,095 $8,342 31-Jul-04 $4,300 $3,766 $8,066 31-Aug-04 $4,100 $3,569 $8,098 30-Sep-04 $4,290 $3,679 $8,186 31-Oct-04 $4,420 $3,868 $8,311
All figures on this page assume dividends and distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged, and you cannot invest in them directly. 1 Fund expenses have been partially absorbed by CSIM and Schwab. Without these reductions, the fund's returns would have been lower. These returns do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. 2 Source for category information: Morningstar, Inc. 24 Funds Using Schwab Equity Ratings TECHNOLOGY FOCUS FUND FUND FACTS as of 10/31/04 TOP HOLDINGS 1
% OF SECURITY NET ASSETS -------------------------------------------------------------------------------- (1) INTERNATIONAL BUSINESS MACHINES CORP. 5.0% -------------------------------------------------------------------------------- (2) ORACLE CORP. 4.6% -------------------------------------------------------------------------------- (3) CERTEGY, INC. 4.6% -------------------------------------------------------------------------------- (4) MOTOROLA, INC. 4.5% -------------------------------------------------------------------------------- (5) QUALCOMM, INC. 3.1% -------------------------------------------------------------------------------- (6) AUTOMATIC DATA PROCESSING, INC. 3.0% -------------------------------------------------------------------------------- (7) CISCO SYSTEMS, INC. 2.9% -------------------------------------------------------------------------------- (8) DIGI INTERNATIONAL, INC. 2.7% -------------------------------------------------------------------------------- (9) XEROX CORP. 2.7% -------------------------------------------------------------------------------- (10) NCR CORP. 2.7% -------------------------------------------------------------------------------- TOTAL 35.8%
STATISTICS NUMBER OF HOLDINGS 52 -------------------------------------------------------------------------------- WEIGHTED AVERAGE MARKET CAP ($ x 1,000,000) $30,408 -------------------------------------------------------------------------------- PRICE/EARNINGS RATIO (P/E) 30.1 -------------------------------------------------------------------------------- PRICE/BOOK RATIO (P/B) 3.3 -------------------------------------------------------------------------------- PORTFOLIO TURNOVER RATE 109% -------------------------------------------------------------------------------- MINIMUM INITIAL INVESTMENT 2 $5,000
INDUSTRY WEIGHTINGS % of Portfolio This chart shows the fund's industry composition as of the report date. [PIE CHART] 31.3% BUSINESS MACHINES & SOFTWARE 29.9% BUSINESS SERVICES 29.5% ELECTRONICS 4.7% OPTICAL & PHOTO 2.2% TELEPHONE 1.9% AIR TRANSPORTATION 0.5% PRODUCER GOODS & MANUFACTURING Portfolio holdings may have changed since the report date. 1 This list is not a recommendation of any security by the investment adviser. 2 Please see prospectus for further detail and eligibility requirements. Funds Using Schwab Equity Ratings 25 FUND EXPENSES EXAMPLES FOR A $1,000 INVESTMENT As a fund shareholder, you incur two types of costs: transaction costs, such as redemption fees; and, ongoing costs, such as management fees, transfer agent and shareholder services fees, and other fund expenses. The expense examples below are intended to help you understand your ongoing cost (in dollars) of investing in a fund and to compare this cost with the ongoing cost of investing in other mutual funds. These examples are based on an investment of $1,000 invested for six-months beginning May 1, 2004 and held through October 31, 2004. ACTUAL RETURN lines in the table below provide information about actual account values and actual expenses. You may use this information, together with the amount you invested, to estimate the expenses that you paid over the period. To do so, simply divide your account value by $1,000 (for example, an $8,600 account value / $1,000 = 8.6), then multiply the result by the number given for your fund or share class under the heading entitled "Expenses Paid During Period." HYPOTHETICAL RETURN lines in the table below provide information about hypothetical account values and hypothetical expenses based on a fund's or share class' actual expense ratio and an assumed return of 5% per year before expenses. Because the return used is not an actual return, it may not be used to estimate the actual ending account value or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only, and do not reflect any transactional costs, such as redemption fees. If these transactional costs were included, your costs would have been higher.
ENDING BEGINNING ACCOUNT VALUE EXPENSES EXPENSE RATIO 1 ACCOUNT VALUE (Net of Expenses) PAID DURING PERIOD 2 (Annualized) at 5/1/04 at 10/31/04 5/1/04-10/31/04 --------------------------------------------------------------------------------------------------------------------------------- SCHWAB CORE EQUITY FUND(TM) Actual Return 0.75% $1,000 $1,025.20 $3.82 Hypothetical 5% Return 0.75% $1,000 $1,021.37 $3.81 --------------------------------------------------------------------------------------------------------------------------------- SCHWAB DIVIDEND EQUITY FUND(TM) Investor Shares Actual Return 1.08% $1,000 $1,063.00 $5.60 Hypothetical 5% Return 1.08% $1,000 $1,019.71 $5.48 Select Shares(R) Actual Return 0.94% $1,000 $1,063.60 $4.88 Hypothetical 5% Return 0.94% $1,000 $1,020.41 $4.77 --------------------------------------------------------------------------------------------------------------------------------- SCHWAB SMALL-CAP EQUITY FUND(TM) Investor Shares Actual Return 1.30% $1,000 $1,086.10 $6.82 Hypothetical 5% Return 1.30% $1,000 $1,018.60 $6.60 Select Shares Actual Return 1.12% $1,000 $1,087.60 $5.88 Hypothetical 5% Return 1.12% $1,000 $1,019.51 $5.69
1 Based on the most recent six-month expense ratio; may differ from the expense ratio provided in Financial Highlights. 2 Expenses for each fund or share class are equal to that fund's or share class' annualized expense ratio, multiplied by the average account value over the period, multiplied by 184 days of the period, and divided by 366 days of the fiscal year. 26 Funds Using Schwab Equity Ratings FUND EXPENSES continued
ENDING BEGINNING ACCOUNT VALUE EXPENSES EXPENSE RATIO 1 ACCOUNT VALUE (Net of Expenses) PAID DURING PERIOD 2 (Annualized) at 5/1/04 at 10/31/04 5/1/04-10/31/04 ------------------------------------------------------------------------------------------------------------------------------------ SCHWAB HEDGED EQUITY FUND(TM) Actual Return 2.46% $1,000 $1,064.70 $12.77 Hypothetical 5% Return 2.46% $1,000 $1,012.77 $12.45 ------------------------------------------------------------------------------------------------------------------------------------ COMMUNICATIONS FOCUS FUND Actual Return 1.10% $1,000 $1,060.10 $5.70 Hypothetical 5% Return 1.10% $1,000 $1,019.61 $5.58 ------------------------------------------------------------------------------------------------------------------------------------ FINANCIAL SERVICES FOCUS FUND Actual Return 1.01% $1,000 $1,073.60 $5.26 Hypothetical 5% Return 1.01% $1,000 $1,020.06 $5.13 ------------------------------------------------------------------------------------------------------------------------------------ HEALTH CARE FOCUS FUND Actual Return 1.02% $1,000 $1,017.90 $5.17 Hypothetical 5% Return 1.02% $1,000 $1,020.01 $5.18 ------------------------------------------------------------------------------------------------------------------------------------ TECHNOLOGY FOCUS FUND Actual Return 0.99% $1,000 $995.50 $4.97 Hypothetical 5% Return 0.99% $1,000 $1,020.16 $5.03
1 Based on the most recent six-month expense ratio; may differ from the expense ratio provided in Financial Highlights. 2 Expenses for each fund or share class are equal to that fund's or share class' annualized expense ratio, multiplied by the average account value over the period, multiplied by 184 days of the period, and divided by 366 days of the fiscal year. Funds Using Schwab Equity Ratings 27 SCHWAB CORE EQUITY FUND(TM) FINANCIAL STATEMENTS FINANCIAL HIGHLIGHTS
11/1/03- 11/1/02- 11/1/01- 11/1/00- 11/1/99- 10/31/04 10/31/03 10/31/02 10/31/01 10/31/00 ------------------------------------------------------------------------------------------------------------------------------------ PER-SHARE DATA ($) 1 ------------------------------------------------------------------------------------------------------------------------------------ Net asset value at beginning of period 12.71 10.89 12.53 18.53 18.91 --------------------------------------------------------------------------- Income or loss from investment operations: Net investment income 0.12 0.10 0.08 0.08 0.05 Net realized and unrealized gains or losses 1.09 1.79 (1.64) (4.57) 1.08 --------------------------------------------------------------------------- Total income or loss from investment operations 1.21 1.89 (1.56) (4.49) 1.13 Less distributions: Dividends from net investment income (0.11) (0.07) (0.08) (0.07) (0.04) Distributions from net realized gains -- -- -- (1.44) (1.47) --------------------------------------------------------------------------- Total distributions (0.11) (0.07) (0.08) (1.51) (1.51) --------------------------------------------------------------------------- Net asset value at end of period 13.81 12.71 10.89 12.53 18.53 --------------------------------------------------------------------------- Total return (%) 9.57 17.54 (12.58) (25.93) 5.75 RATIOS/SUPPLEMENTAL DATA (%) 1 ------------------------------------------------------------------------------------------------------------------------------------ Ratios to average net assets: Net operating expenses 0.75 0.75 0.75 0.75 0.76 2 Gross operating expenses 0.88 0.88 0.91 0.88 0.87 Net investment income 0.89 0.94 0.63 0.55 0.29 Portfolio turnover rate 86 73 114 106 96 Net assets, end of period ($ x 1,000,000) 263 237 179 210 342
1 Prior to June 1, 2002, the fund's day-to-day investment management was handled by a subadviser, Symphony Asset Management LLC. 2 The ratio of net operating expenses would have been 0.75% if certain non-routine expenses (proxy fees) had not been included. 28 See financial notes. SCHWAB CORE EQUITY FUND PORTFOLIO HOLDINGS as of October 31, 2004 This section shows all the securities in the fund's portfolio by industry classification and their value, as of the report date. The fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The fund's Form N-Q is available on the SEC's website at http://www.sec.gov and may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Call 1-800-SEC-0330 for information on the operation of the Public Reference Room. The schedule of portfolio holdings filed on the fund's most recent Form N-Q is available by visiting Schwab's website at www.schwab.com/schwabfunds. We use the symbols below to designate certain characteristics of the securities. With the top ten holdings, the number in the circle is the security's rank among the top ten. (1) Top ten holding o Non-income producing security = All or a portion of this security is held as collateral for open futures contracts @ This security or a portion of this security is on loan
COST VALUE HOLDINGS BY CATEGORY ($x1,000) ($x1,000) -------------------------------------------------------------------------------- 99.0% COMMON STOCK 230,455 260,170 0.9% SHORT-TERM INVESTMENT 2,419 2,419 0.0% U.S. TREASURY OBLIGATIONS 115 115 -------------------------------------------------------------------------------- 99.9% TOTAL INVESTMENTS 232,989 262,704 5.9% COLLATERAL INVESTED FOR SECURITIES ON LOAN 15,380 15,380 (5.8)% OTHER ASSETS AND LIABILITIES, NET (15,301) -------------------------------------------------------------------------------- 100.0% TOTAL NET ASSETS 262,783
VALUE SECURITY AND NUMBER OF SHARES ($ x 1,000) COMMON STOCK 99.0% of net assets AEROSPACE / DEFENSE 9.0% -------------------------------------------------------------------------- (2) The Boeing Co. 260,000 12,975 Goodrich Corp. 25,500 786 Lockheed Martin Corp. 20,000 1,102 Raytheon Co. 80,000 2,918 Rockwell Automation, Inc. 34,000 1,418 United Technologies Corp. 47,200 4,381 ----------- 23,580 AIR TRANSPORTATION 2.0% -------------------------------------------------------------------------- o AMR Corp. 4,500 35 = FedEx Corp. 26,000 2,369 = Sabre Holdings Corp., Class A 28,000 602 United Parcel Service, Inc., Class B 28,200 2,233 ----------- 5,239 APPAREL 0.5% -------------------------------------------------------------------------- Nike, Inc., Class B 16,000 1,301 AUTOMOTIVE PRODUCTS / MOTOR VEHICLES 1.2% -------------------------------------------------------------------------- = Eaton Corp. 24,400 1,560 @ Ford Motor Co. 120,300 1,568 ----------- 3,128 BANKS 3.2% -------------------------------------------------------------------------- JPMorgan Chase & Co. 78,960 3,048 Northern Trust Corp. 17,500 744 UnionBanCal Corp. 77,600 4,714 ----------- 8,506 BUSINESS MACHINES & SOFTWARE 5.1% -------------------------------------------------------------------------- Autodesk, Inc. 2,000 106 International Business Machines Corp. 38,600 3,464 = Microsoft Corp. 209,800 5,872 o Oracle Corp. 213,500 2,703 =o Xerox Corp. 89,900 1,328 ----------- 13,473 BUSINESS SERVICES 3.0% -------------------------------------------------------------------------- Automatic Data Processing, Inc. 14,000 607 o Checkfree Corp. 16,000 496 o Citrix Systems, Inc. 26,500 639 @ Computer Associates International, Inc. 56,100 1,555 o Dun & Bradstreet Corp. 2,900 164 IMS Health, Inc. 81,200 1,720 o Intuit, Inc. 35,000 1,588
See financial notes. 29 SCHWAB CORE EQUITY FUND PORTFOLIO HOLDINGS continued
VALUE SECURITY AND NUMBER OF SHARES ($ x 1,000) =o Polycom, Inc. 10,000 207 =o Synopsys, Inc. 41,500 674 o VeriSign, Inc. 10,000 268 ----------- 7,918 CHEMICALS 2.2% -------------------------------------------------------------------------- = Dow Chemical Co. 110,500 4,966 PPG Industries, Inc. 12,000 765 ----------- 5,731 CONSUMER DURABLES 2.9% -------------------------------------------------------------------------- @ Black & Decker Corp. 24,900 1,999 o Gemstar-- TV Guide International, Inc. 990,000 5,692 ----------- 7,691 ELECTRONICS 2.7% -------------------------------------------------------------------------- @o Applied Materials, Inc. 60,500 974 Linear Technology Corp. 12,500 474 Motorola, Inc. 266,900 4,607 Qualcomm, Inc. 8,000 334 Scientific-Atlanta, Inc. 25,300 693 ----------- 7,082 ENERGY: RAW MATERIALS 1.4% -------------------------------------------------------------------------- Burlington Resources, Inc. 88,000 3,652 FOOD & AGRICULTURE 1.7% -------------------------------------------------------------------------- H.J. Heinz Co. 45,200 1,643 Kellogg Co. 67,800 2,915 ----------- 4,558 HEALTHCARE / DRUGS & MEDICINE 11.7% -------------------------------------------------------------------------- Applied Biosystems Group - Applera Corp. 5,500 105 = Bausch & Lomb, Inc. 41,000 2,499 Becton Dickinson & Co. 107,300 5,633 Bristol-Myers Squibb Co. 146,800 3,440 o Coventry Health Care, Inc. 70,950 2,902 = Johnson & Johnson 30,900 1,804 o Laboratory Corp. of America Holdings 15,000 687 Merck & Co., Inc. 55,500 1,738 @o Pacificare Health Systems, Inc. 57,000 2,030 Pfizer, Inc. 51,000 1,476 @(6) UnitedHealth Group, Inc. 108,414 7,849 Valeant Pharmaceuticals International 2,000 48 Wyeth 12,500 496 ----------- 30,707 HOUSEHOLD PRODUCTS 1.1% -------------------------------------------------------------------------- The Gillette Co. 70,000 2,903 INSURANCE 11.0% -------------------------------------------------------------------------- = Aetna, Inc. 25,000 2,375 = AFLAC, Inc. 91,900 3,297 The Allstate Corp. 84,000 4,040 Arthur J. Gallagher & Co. 85,000 2,389 Chubb Corp. 9,000 649 o CNA Financial Corp. 15,500 371 Fidelity National Financial, Inc. 17,722 669 =(7) Metlife, Inc. 183,000 7,018 @(9) The Progressive Corp. 72,200 6,754 Prudential Financial, Inc. 28,500 1,324 ----------- 28,886 MEDIA 4.0% -------------------------------------------------------------------------- The McGraw-Hill Cos., Inc. 19,100 1,647 =o(4) Time Warner, Inc. 538,250 8,957 ----------- 10,604 MISCELLANEOUS 1.1% -------------------------------------------------------------------------- = 3M Co. 36,400 2,823 MISCELLANEOUS FINANCE 1.2% -------------------------------------------------------------------------- @= American Express Co. 39,600 2,101 o AmeriCredit Corp. 50,000 970 ----------- 3,071 NON-DURABLES & ENTERTAINMENT 1.3% -------------------------------------------------------------------------- McDonald's Corp. 94,500 2,755 Yum! Brands, Inc. 14,000 609 ----------- 3,364
30 See financial notes. SCHWAB CORE EQUITY FUND
VALUE SECURITY AND NUMBER OF SHARES ($ x 1,000) OIL: INTERNATIONAL 6.0% ------------------------------------------------------------------------- ChevronTexaco Corp. 92,000 4,881 (3) Exxon Mobil Corp. 222,200 10,937 ----------- 15,818 OPTICAL & PHOTO 0.4% ------------------------------------------------------------------------- o Ingram Micro, Inc., Class A 57,200 987 PAPER & FOREST PRODUCTS 3.3% ------------------------------------------------------------------------- (5) Weyerhaeuser Co. 140,000 8,770 PRODUCER GOODS & MANUFACTURING 3.7% ------------------------------------------------------------------------- Cooper Industries Ltd., Class A 9,000 575 @=(10) Emerson Electric Co. 97,000 6,213 o FMC Corp. 14,000 614 Parker Hannifin Corp. 18,000 1,271 W.W. Grainger, Inc. 16,000 938 ----------- 9,611 RETAIL 0.4% ------------------------------------------------------------------------- @ Claire's Stores, Inc. 7,400 193 o Petco Animal Supplies, Inc. 2,000 72 =o Rite Aid Corp. 103,000 383 Staples, Inc. 6,400 190 o Toys `R' Us, Inc. 8,000 144 ----------- 982 TELEPHONE 8.4% ------------------------------------------------------------------------- Alltel Corp. 3,500 192 AT&T Corp. 3,020 52 o Avaya, Inc. 395,100 5,689 BellSouth Corp. 126,500 3,374 = CenturyTel, Inc. 94,000 3,017 SBC Communications, Inc. 112,200 2,834 (8) Verizon Communications, Inc. 177,400 6,936 ----------- 22,094 TOBACCO 5.1% ------------------------------------------------------------------------- (1) UST, Inc. 325,000 13,377 TRAVEL & RECREATION 0.2% ------------------------------------------------------------------------- o Caesars Entertainment, Inc. 37,000 662 TRUCKING & FREIGHT 2.2% ------------------------------------------------------------------------- CNF, Inc. 113,500 4,969 o Landstar Systems, Inc. 2,600 176 Paccar, Inc. 9,000 624 ----------- 5,769 UTILITIES: ELECTRIC & GAS 3.0% ------------------------------------------------------------------------- o The AES Corp. 556,900 6,070 @ Duke Energy Corp. 9,000 221 = TXU Corp. 26,000 1,592 ----------- 7,883 SHORT-TERM INVESTMENT 0.9% of net assets Provident Institutional TempFund 2,419,401 2,419
SECURITY FACE AMOUNT RATE, MATURITY DATE ($ x 1,000) U.S. TREASURY OBLIGATIONS 0.0% of net assets = U.S. Treasury Bills 1.60%-1.65%, 12/16/04 115 115
END OF INVESTMENTS. See financial notes. 31 SCHWAB CORE EQUITY FUND PORTFOLIO HOLDINGS continued
SECURITY FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) COLLATERAL INVESTED FOR SECURITIES ON LOAN 5.9% of net assets COMMERCIAL PAPER & OTHER CORPORATE OBLIGATIONS 2.5% -------------------------------------------------------------------------- Canadian Imperial Bank of Commerce/New York 1.72%, 05/25/05 396 396 Foreningssparbanken AB 1.83%, 11/15/04 5,772 5,771 Societe Generale NY 1.95%, 11/01/04 369 369 ----------- 6,536 SHORT-TERM INVESTMENTS 3.4% -------------------------------------------------------------------------- Citibank, Time Deposit 1.76%, 11/01/04 378 378
SECURITY AND NUMBER OF SHARES
Institutional Money Market Trust 8,465,972 8,466 ----------- 8,844
END OF COLLATERAL INVESTED FOR SECURITIES ON LOAN. In addition to the above, the fund held the following at 10/31/04. All numbers x 1,000 except number of contracts. FUTURES CONTRACTS
NUMBER OF CONTRACT UNREALIZED CONTRACTS VALUE GAINS S&P 500 Index, Long expires 12/17/04 7 1,978 26
32 See financial notes. SCHWAB CORE EQUITY FUND Statement of ASSETS AND LIABILITIES As of October 31, 2004. All numbers x 1,000 except NAV. ASSETS -------------------------------------------------------------------------------- Investments, at value (including $14,806 of securities on loan) $262,704 a Collateral invested for securities on loan 15,380 Receivables: Fund shares sold 101 Interest 2 Dividends 291 Investments sold 12,670 Due from brokers for futures 5 Income from securities on loan 1 Prepaid expenses + 11 ----------- TOTAL ASSETS 291,165 LIABILITIES -------------------------------------------------------------------------------- Collateral invested for securities on loan 15,380 Payables: Fund shares redeemed 291 Investments bought 12,636 Investment adviser and administrator fees 9 Transfer agent and shareholder service fees 5 Trustees' fees 1 Accrued expenses + 60 ----------- TOTAL LIABILITIES 28,382 NET ASSETS -------------------------------------------------------------------------------- TOTAL ASSETS 291,165 TOTAL LIABILITIES - 28,382 ----------- NET ASSETS $262,783 NET ASSETS BY SOURCE Capital received from investors 249,757 Net investment income not yet distributed 1,867 Net realized capital losses (18,582) b Net unrealized capital gains 29,741 b NET ASSET VALUE (NAV) SHARES NET ASSETS / OUTSTANDING = NAV $262,783 19,023 $13.81
Unless stated, all numbers x 1,000. a The fund paid $232,989 for these securities. Not counting short-term obligations and government securities, the fund's security transactions during the period were: Purchases $222,788 Sales/maturities $220,144 The fund's total security transactions with other SchwabFunds(R) during the period were $221. b These derive from investments and futures. FEDERAL TAX DATA ------------------------------------------------------- PORTFOLIO COST $233,119 NET UNREALIZED GAINS AND LOSSES: Gains $34,873 Losses + (5,288) ------------ $29,585 AS OF OCTOBER 31, 2004: NET UNDISTRIBUTED EARNINGS: Ordinary income $1,867 Long-term capital gains $-- CAPITAL LOSSES UTILIZED $28,106 UNUSED CAPITAL LOSSES: Expires 10/31 of: Loss amount 2010 $7,255 2011 + 11,171 ----------- $18,426 See financial notes. 33 SCHWAB CORE EQUITY FUND Statement of OPERATIONS For November 1, 2003 through October 31, 2004. All numbers x 1,000. INVESTMENT INCOME -------------------------------------------------------------------------------- Dividends $4,192 Interest 12 Securities on loan + 28 ----------- TOTAL INVESTMENT INCOME 4,232 NET REALIZED GAINS AND LOSSES -------------------------------------------------------------------------------- Net realized gains on investments 27,853 Net realized gains on futures contracts + 137 ----------- NET REALIZED GAINS 27,990 NET UNREALIZED GAINS AND LOSSES -------------------------------------------------------------------------------- Net unrealized losses on investments (7,412) Net unrealized losses on futures contracts + (2) ----------- NET UNREALIZED LOSSES (7,414) EXPENSES -------------------------------------------------------------------------------- Investment adviser and administrator fees 1,393 a Transfer agent and shareholder service fees 645 b Trustees' fees 6 c Custodian fees 29 Portfolio accounting fees 35 Professional fees 30 Registration fees 29 Shareholder reports 86 Other expenses + 5 ----------- Total expenses 2,258 Expense reduction - 324 d ----------- NET EXPENSES 1,934 INCREASE IN NET ASSETS FROM OPERATIONS -------------------------------------------------------------------------------- TOTAL INVESTMENT INCOME 4,232 NET EXPENSES - 1,934 ----------- NET INVESTMENT INCOME 2,298 NET REALIZED GAINS 27,990 e NET UNREALIZED LOSSES + (7,414) e ----------- INCREASE IN NET ASSETS FROM OPERATIONS $22,874
Unless stated, all numbers x 1,000. a Calculated as a percentage of average daily net assets: 0.54% of the first $500 million and 0.49% of assets beyond that. These fees are paid to Charles Schwab Investment Management, Inc. (CSIM). b 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. These fees are paid to Charles Schwab & Co., Inc. (Schwab). c For the fund's independent trustees only. d This reduction was made by the investment adviser (CSIM). It reflects a guarantee by CSIM and the transfer agent and shareholder service agent (Schwab) to limit the operating expenses of this fund through February 28, 2005, to 0.75% of average daily net assets. This limit excludes interest, taxes and certain non-routine expenses. e These add up to a net gain on investments of $20,576. 34 See financial notes. SCHWAB CORE EQUITY FUND Statements of CHANGES IN NET ASSETS For the current and prior report periods. All numbers x 1,000.
OPERATIONS -------------------------------------------------------------------------------- 11/1/03-10/31/04 11/1/02-10/31/03 Net investment income $2,298 $1,895 Net realized gains or losses 27,990 (10,956) Net unrealized gains or losses + (7,414) 43,747 ---------------------------------------- INCREASE IN NET ASSETS FROM OPERATIONS 22,874 34,686 DISTRIBUTIONS PAID -------------------------------------------------------------------------------- Dividends from net investment income $2,074 $1,261 a,b
TRANSACTIONS IN FUND SHARES -------------------------------------------------------------------------------- 11/1/03-10/31/04 11/1/02-10/31/03 SHARES VALUE SHARES VALUE Shares sold 4,444 $59,997 5,806 $65,590 Shares reinvested 144 1,891 109 1,152 Shares redeemed + (4,213) (56,963) (3,746) (42,567) --------------------------------------------------- NET TRANSACTIONS IN FUND SHARES 375 $4,925 2,169 $24,175
SHARES OUTSTANDING AND NET ASSETS -------------------------------------------------------------------------------- 11/1/03-10/31/04 11/1/02-10/31/03 SHARES NET ASSETS SHARES NET ASSETS Beginning of period 18,648 $237,058 16,479 $179,458 Total increase + 375 25,725 2,169 57,600 c --------------------------------------------------- END OF PERIOD 19,023 $262,783 18,648 $237,058 d
Unless stated, all numbers x 1,000. a UNAUDITED For corporations, 100% of the fund's dividends for the report period qualify for the dividends-received deduction. The fund designates $2,074 of the dividend distribution for the fiscal year ended 10/31/04 as qualified dividends for the purpose of the maximum rate under Section 1(h)(ii) of the Internal Revenue Code. Shareholders will be notified in January 2005 via IRS Form 1099 of the amounts for the use in preparing their 2004 income tax return. b The tax-basis components of distributions paid are: CURRENT PERIOD Ordinary income $2,074 Long-term capital gains $-- PRIOR PERIOD Ordinary income $1,261 Long-term capital gains $-- c Figures for shares represent shares sold plus shares reinvested, minus shares redeemed. Figures for net assets represent the changes in net assets from operations plus the changes in value from transactions in fund shares, minus distributions paid. d Includes distributable net investment income in the amount of $1,867 and $1,643 at the end of the current period and prior period, respectively. See financial notes. 35 SCHWAB DIVIDEND EQUITY FUND(TM) FINANCIAL STATEMENTS FINANCIAL HIGHLIGHTS
11/1/03- 9/2/03 1- INVESTOR SHARES 10/31/04 10/31/03 ----------------------------------------------------------------------------------------------------------------- PER-SHARE DATA ($) ----------------------------------------------------------------------------------------------------------------- Net asset value at beginning of period 10.60 10.00 ------------------------------------------------------------- Income from investment operations: Net investment income 0.29 0.05 Net realized and unrealized gains 1.49 0.55 ------------------------------------------------------------- Total income from investment operations 1.78 0.60 Less distributions: Dividends from net investment income (0.32) -- ------------------------------------------------------------- Net asset value at end of period 12.06 10.60 ------------------------------------------------------------- Total return (%) 17.00 6.00 2 RATIOS/SUPPLEMENTAL DATA (%) ----------------------------------------------------------------------------------------------------------------- Ratios to average net assets: Net operating expenses 0.65 -- Gross operating expenses 1.19 1.34 3 Net investment income 2.71 3.41 3 Portfolio turnover rate 39 2 2 Net assets, end of period ($ x 1,000,000) 267 94
1 Commencement of operations. 2 Not annualized. 3 Annualized. 36 See financial notes. SCHWAB DIVIDEND EQUITY FUND
11/1/03- 9/2/03 1- SELECT SHARES 10/31/04 10/31/03 -------------------------------------------------------------------------------------------------------- PER-SHARE DATA ($) -------------------------------------------------------------------------------------------------------- Net asset value at beginning of period 10.60 10.00 ---------------------------------------------------- Income from investment operations: Net investment income 0.31 0.05 Net realized and unrealized gains 1.48 0.55 ---------------------------------------------------- Total income from investment operations 1.79 0.60 Less distributions: Dividends from net investment income (0.33) -- ---------------------------------------------------- Net asset value at end of period 12.06 10.60 ---------------------------------------------------- Total return (%) 17.07 6.00 2 RATIOS/SUPPLEMENTAL DATA (%) -------------------------------------------------------------------------------------------------------- Ratios to average net assets: Net operating expenses 0.54 -- Gross operating expenses 1.04 1.19 3 Net investment income 2.83 3.41 3 Portfolio turnover rate 39 2 2 Net assets, end of period ($ x 1,000,000) 252 111
1 Commencement of operations. 2 Not annualized. 3 Annualized. See financial notes. 37 SCHWAB DIVIDEND EQUITY FUND PORTFOLIO HOLDINGS as of October 31, 2004 This section shows all the securities in the fund's portfolio by industry classification and their value, as of the report date. The fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The fund's Form N-Q is available on the SEC's website at http://www.sec.gov and may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Call 1-800-SEC-0330 for information on the operation of the Public Reference Room. The schedule of portfolio holdings filed on the fund's most recent Form N-Q is available by visiting Schwab's website at www.schwab.com/schwabfunds. We use the symbols below to designate certain characteristics of the securities. With the top ten holdings, the number in the circle is the security's rank among the top ten. (1) Top ten holding o Non-income producing security
COST VALUE HOLDINGS BY CATEGORY ($ x 1,000) ($ x 1,000) -------------------------------------------------------------------------------- 98.5% COMMON STOCK 470,131 511,658 0.9% SHORT-TERM INVESTMENT 4,493 4,493 -------------------------------------------------------------------------------- 99.4% TOTAL INVESTMENTS 474,624 516,151 0.6% OTHER ASSETS AND LIABILITIES, NET 3,095 -------------------------------------------------------------------------------- 100.0% TOTAL NET ASSETS 519,246
VALUE SECURITY AND NUMBER OF SHARES ($ x 1,000) COMMON STOCK 98.5% of net assets AEROSPACE / DEFENSE 2.4% -------------------------------------------------------------------------- Goodrich Corp. 80,000 2,466 Raytheon Co. 115,000 4,195 Rockwell Automation, Inc. 138,600 5,778 ----------- 12,439 APPAREL 1.0% -------------------------------------------------------------------------- VF Corp. 99,900 5,378 AUTOMOTIVE PRODUCTS / MOTOR VEHICLES 1.8% -------------------------------------------------------------------------- Ford Motor Co. 370,200 4,823 Genuine Parts Co. 111,000 4,428 ----------- 9,251 BANKS 18.0% -------------------------------------------------------------------------- AmSouth Bancorp. 197,900 5,223 Bank of America Corp. 135,400 6,065 Comerica, Inc. 99,500 6,120 First Horizon National Corp. 116,000 5,021 Hudson United Bancorp 52,000 2,070 Huntington Bancshares, Inc. 153,000 3,664 (1) JPMorgan Chase & Co. 228,584 8,823 (10) KeyCorp, Inc. 187,500 6,298 National City Corp. 156,400 6,095 North Fork Bancorp., Inc. 99,567 4,391 Peoples Bank-Bridgeport 135,000 5,061 PNC Financial Services Group, Inc. 114,400 5,983 Regions Financial Corp. 141,855 4,976 SunTrust Banks, Inc. 9,487 668 U.S. Bancorp 209,300 5,988 UnionBanCal Corp. 79,000 4,799 Wachovia Corp. 125,700 6,186 Wells Fargo & Co. 99,200 5,924 ----------- 93,355 BUSINESS MACHINES & SOFTWARE 1.1% -------------------------------------------------------------------------- Pitney Bowes, Inc. 130,700 5,718 BUSINESS SERVICES 2.6% -------------------------------------------------------------------------- Automatic Data Processing, Inc. 100,000 4,339 Deluxe Corp. 76,000 2,895 Electronic Data Systems Corp. 240,000 5,105 The ServiceMaster Co. 103,000 1,322 ----------- 13,661 CHEMICALS 6.6% -------------------------------------------------------------------------- Dow Chemical Co. 137,300 6,170 E.I. du Pont de Nemours & Co. 142,400 6,105 Eastman Chemical Co. 117,000 5,554 Lubrizol Corp. 111,900 3,886
38 See financial notes. SCHWAB DIVIDEND EQUITY FUND
VALUE SECURITY AND NUMBER OF SHARES ($ x 1,000) (6) PPG Industries, Inc. 100,500 6,407 Rohm & Haas Co. 139,000 5,892 ----------- 34,014 CONSTRUCTION 0.2% -------------------------------------------------------------------------- The Stanley Works 28,000 1,247 CONTAINERS 0.2% -------------------------------------------------------------------------- Sonoco Products Co. 45,000 1,199 ELECTRONICS 1.6% -------------------------------------------------------------------------- AVX Corp. 65,000 780 Motorola, Inc. 190,000 3,280 PerkinElmer, Inc. 200,500 4,118 ----------- 8,178 FOOD & AGRICULTURE 4.3% -------------------------------------------------------------------------- General Mills, Inc. 131,000 5,797 H.J. Heinz Co. 151,500 5,507 Kellogg Co. 144,900 6,231 Sara Lee Corp. 205,000 4,772 ----------- 22,307 HEALTHCARE / DRUGS & MEDICINE 3.5% -------------------------------------------------------------------------- Abbott Laboratories 85,000 3,624 Bristol-Myers Squibb Co. 251,200 5,886 Merck & Co., Inc. 131,700 4,123 Wyeth 117,000 4,639 ----------- 18,272 HOUSEHOLD PRODUCTS 3.4% -------------------------------------------------------------------------- Clorox Co. 111,500 6,088 The Gillette Co. 143,000 5,932 Procter & Gamble Co. 113,200 5,793 ----------- 17,813 INSURANCE 6.4% -------------------------------------------------------------------------- The Allstate Corp. 127,200 6,117 Arthur J. Gallagher & Co. 73,000 2,051 Cincinnati Financial Corp. 104,745 4,373 Jefferson-Pilot Corp. 90,000 4,346 Lincoln National Corp. 131,200 5,747 Marsh & McLennan Cos., Inc. 130,200 3,601 Mercury General Corp. 82,100 4,223 Unitrin, Inc. 60,500 2,612 ----------- 33,070 MISCELLANEOUS 1.1% -------------------------------------------------------------------------- 3M Co. 70,200 5,445 MISCELLANEOUS FINANCE 1.0% -------------------------------------------------------------------------- Fannie Mae 77,000 5,402 NON-DURABLES & ENTERTAINMENT 1.0% -------------------------------------------------------------------------- Fortune Brands, Inc. 73,500 5,352 OIL: DOMESTIC 2.4% -------------------------------------------------------------------------- (8) Kerr-McGee Corp. 108,100 6,402 Marathon Oil Corp. 153,900 5,865 ----------- 12,267 OIL: INTERNATIONAL 2.4% -------------------------------------------------------------------------- (9) ChevronTexaco Corp. 120,600 6,399 Exxon Mobil Corp. 124,800 6,143 ----------- 12,542 PAPER & FOREST PRODUCTS 3.7% -------------------------------------------------------------------------- International Paper Co. 115,000 4,429 Kimberly-Clark Corp. 65,000 3,878 MeadWestvaco Corp. 156,000 4,919 Weyerhaeuser Co. 96,000 6,013 ----------- 19,239 PRODUCER GOODS & MANUFACTURING 4.0% -------------------------------------------------------------------------- Briggs & Stratton Corp. 60,300 4,330 (7) Emerson Electric Co. 100,000 6,405 Harsco Corp. 87,200 4,225 Hubbell, Inc., Class B 78,800 3,603 Lennox International, Inc. 149,000 2,154 ----------- 20,717 RAILROAD & SHIPPING 0.6% -------------------------------------------------------------------------- GATX Corp. 120,000 3,274 RETAIL 1.2% -------------------------------------------------------------------------- Limitedbrands 253,300 6,277
See financial notes. 39 SCHWAB DIVIDEND EQUITY FUND PORTFOLIO HOLDINGS continued
VALUE SECURITY AND NUMBER OF SHARES ($ x 1,000) TELEPHONE 8.1% -------------------------------------------------------------------------- Alltel Corp. 108,800 5,976 AT&T Corp. 367,100 6,281 BellSouth Corp. 219,600 5,857 o Citizens Communications Co. 455,000 6,097 SBC Communications, Inc. 226,500 5,721 Sprint Corp. (FON Group) 295,800 6,197 Verizon Communications, Inc. 150,300 5,877 ----------- 42,006 TOBACCO 3.6% -------------------------------------------------------------------------- Altria Group, Inc. 120,300 5,830 (3) Reynolds American, Inc. 95,000 6,542 UST, Inc. 150,500 6,194 ----------- 18,566 UTILITIES: ELECTRIC & GAS 16.3% -------------------------------------------------------------------------- American Electric Power Co., Inc. 182,000 5,993 Centerpoint Energy, Inc. 397,500 4,178 Cinergy Corp. 132,500 5,236 Constellation Energy Group, Inc. 134,700 5,471 DPL, Inc. 243,000 5,249 (5) Duke Energy Corp. 262,814 6,447 Duquesne Light Holdings, Inc. 85,000 1,459 (2) Edison International 228,000 6,954 Energy East Corp. 168,800 4,254 (4) Exelon Corp. 163,400 6,474 FirstEnergy Corp. 147,100 6,080 National Fuel Gas Co. 139,300 3,903 OGE Energy Corp. 149,200 3,785 Pinnacle West Capital Corp. 108,000 4,603 The Southern Co. 185,000 5,844 UGI Corp. 109,800 4,242 Xcel Energy, Inc. 263,000 4,497 ----------- 84,669
SECURITY FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) SHORT-TERM INVESTMENT 0.9% of net assets HSBC Bank, USA Grand Cayman Time Deposit 1.29%, 11/01/04 4,493 4,493
END OF INVESTMENTS. 40 See financial notes. SCHWAB DIVIDEND EQUITY FUND Statement of ASSETS AND LIABILITIES As of October 31, 2004. All numbers x 1,000 except NAV. ASSETS -------------------------------------------------------------------------------- Investments, at value $516,151 a Receivables: Fund shares sold 2,202 Dividends 1,226 Prepaid expenses + 23 ----------- TOTAL ASSETS 519,602 LIABILITIES -------------------------------------------------------------------------------- Payables: Fund shares redeemed 205 Investment adviser and administrator fees 32 Transfer agent and shareholder service fees 8 Trustees' fees 1 Accrued expenses + 110 ----------- TOTAL LIABILITIES 356 NET ASSETS -------------------------------------------------------------------------------- TOTAL ASSETS 519,602 TOTAL LIABILITIES - 356 ----------- NET ASSETS $519,246 NET ASSETS BY SOURCE Capital received from investors 467,427 Net investment income not yet distributed 1,068 Net realized capital gains 9,224 Net unrealized capital gains 41,527 NET ASSET VALUE (NAV) BY SHARE CLASS SHARES SHARE CLASS NET ASSETS / OUTSTANDING = NAV Investor Shares $267,462 22,186 $12.06 Select Shares $251,784 20,882 $12.06
Unless stated, all numbers x 1,000. a The fund paid $474,624 for these securities. Not counting short-term obligations and government securities, the fund's security transactions during the period were: Purchases $414,821 Sales/maturities $148,671 The fund's total security transactions with other SchwabFunds(R) during the period were $526. FEDERAL TAX DATA --------------------------------------------------------- PORTFOLIO COST $474,624 NET UNREALIZED GAINS AND LOSSES: Gains $50,639 Losses + (9,112) ------------ $41,527 AS OF OCTOBER 31, 2004: NET UNDISTRIBUTED EARNINGS: Ordinary income $9,585 Long-term capital gains $707 CAPITAL LOSSES UTILIZED $268 RECLASSIFICATIONS: Capital received from investors $31 Net investment income not yet distributed $3 Reclassified as: Net realized capital gains ($34) See financial notes. 41 SCHWAB DIVIDEND EQUITY FUND Statement of OPERATIONS For November 1, 2003 through October 31, 2004. All numbers x 1,000. INVESTMENT INCOME -------------------------------------------------------------------------------- Dividends $12,866 Interest + 37 ---------- TOTAL INVESTMENT INCOME 12,903 NET REALIZED GAINS AND LOSSES -------------------------------------------------------------------------------- Net realized gains on investments 9,619 NET UNREALIZED GAINS AND LOSSES -------------------------------------------------------------------------------- Net unrealized gains on investments 31,897 EXPENSES -------------------------------------------------------------------------------- Investment adviser and administrator fees 3,264 a Transfer agent and shareholder service fees: Investor Shares 473 b Select Shares 195 b Trustees' fees 8 c Custodian fees 74 Portfolio accounting fees 67 Professional fees 34 Registration fees 96 Shareholder reports 76 Other expenses + 6 ---------- Total expenses 4,293 Expense reduction - 2,020 d ---------- NET EXPENSES 2,273 INCREASE IN NET ASSETS FROM OPERATIONS -------------------------------------------------------------------------------- TOTAL INVESTMENT INCOME 12,903 NET EXPENSES - 2,273 ---------- NET INVESTMENT INCOME 10,630 NET REALIZED GAINS 9,619 e NET UNREALIZED GAINS + 31,897 e ---------- INCREASE IN NET ASSETS FROM OPERATIONS $52,146
Unless stated, all numbers x 1,000. a Calculated as 0.85% of average daily net assets. These fees are paid to Charles Schwab Investment Management, Inc. (CSIM). b 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% and 0.05% of the assets of each respective share class. These fees are paid to Charles Schwab & Co., Inc. (Schwab). c For the fund's independent trustees only. d Includes $1,526 from the investment adviser (CSIM) and $359 from the transfer agent and shareholder service agent (Schwab). In addition, the total expenses reimbursed by the investment adviser was $135. These reductions reflect a guarantee by CSIM and Schwab to limit the annual operating expenses of this fund through February 28, 2005 as follows: % OF AVERAGE SHARE CLASS DAILY NET ASSETS -------------------------------------- Investor Shares 1.10 Select Shares 0.95 Prior to May 4, 2004, these limits were 0.00% for both Investor Shares and Select Shares. This limit excludes interest, taxes and certain non-routine expenses. e These add up to a net gain on investments of $41,516. 42 See financial notes. SCHWAB DIVIDEND EQUITY FUND Statements of CHANGES IN NET ASSETS For the current and prior report periods. All numbers x 1,000.
OPERATIONS -------------------------------------------------------------------------------- 11/1/03-10/31/04 9/2/03*-10/31/03 Net investment income $10,630 $931 Net realized gains or losses 9,619 (361) Net unrealized gains + 31,897 9,630 ------------------------------------- INCREASE IN NET ASSETS FROM OPERATIONS 52,146 10,200 DISTRIBUTIONS PAID -------------------------------------------------------------------------------- DIVIDENDS FROM NET INVESTMENT INCOME Investor Shares 5,107 -- Select Shares + 5,389 -- ------------------------------------- TOTAL DIVIDENDS FROM NET INVESTMENT INCOME $10,496 $-- a,b
TRANSACTIONS IN FUND SHARES -------------------------------------------------------------------------------- 11/1/03-10/31/04 9/2/03-10/31/03 SHARES VALUE SHARES VALUE SHARES SOLD Investor Shares 16,485 $189,992 9,018 $90,936 Select Shares + 13,314 153,084 10,753 108,229 ------------------------------------------------- TOTAL SHARES SOLD 29,799 $343,076 19,771 $199,165 SHARES REINVESTED Investor Shares 331 $3,809 -- $-- Select Shares + 307 3,531 -- -- ------------------------------------------------- TOTAL SHARES REINVESTED 638 $7,340 -- $-- SHARES REDEEMED Investor Shares (3,492) ($40,556) (156) ($1,596) Select Shares + (3,202) (37,066) (290) (2,967) ------------------------------------------------- TOTAL SHARES REDEEMED (6,694) ($77,622) (446) ($4,563) NET TRANSACTIONS IN FUND SHARES 23,743 $272,794 19,325 $194,602
SHARES OUTSTANDING AND NET ASSETS ------------------------------------------------------------------------------- 11/1/03-10/31/04 9/2/03-10/31/03 SHARES NET ASSETS SHARES NET ASSETS Beginning of period 19,325 $204,802 -- $-- Total increase + 23,743 314,444 19,325 204,802 c ------------------------------------------------- END OF PERIOD 43,068 $519,246 19,325 $204,802 d
* Commencement of operations. Unless stated, all numbers x 1,000. a UNAUDITED For corporations, 61% of the fund's dividends for the report period qualify for the dividends-received deduction. The fund designates $7,294 of the dividend distribution for the fiscal year ended 10/31/04 as qualified dividends for the purpose of the maximum rate under Section 1(h)(ii) of the Internal Revenue Code. Shareholders will be notified in January 2005 via IRS Form 1099 of the amounts for the use in preparing their 2004 income tax return. b The tax-basis components of distributions paid are: CURRENT PERIOD Ordinary income $10,496 Long-term capital gains $-- PRIOR PERIOD Ordinary income $-- Long-term capital gains $-- c Figures for shares represent shares sold plus shares reinvested, minus shares redeemed. Figures for net assets represent the changes in net assets from operations plus the changes in value of transactions in fund shares, minus distributions paid. d Includes distributable net investment income in the amount of $1,068 and $931 at the end of the current period and prior period, respectively. See financial notes. 43 SCHWAB SMALL-CAP EQUITY FUND(TM) FINANCIAL STATEMENTS FINANCIAL HIGHLIGHTS
11/1/03- 7/1/03 1- INVESTOR SHARES 10/31/04 10/31/03 ----------------------------------------------------------------------------------------------------------------- PER-SHARE DATA ($) ----------------------------------------------------------------------------------------------------------------- Net asset value at beginning of period 11.81 10.00 -------------------------------------------------------- Income or loss from investment operations: Net investment loss (0.04) (0.02) Net realized and unrealized gains 2.58 1.83 -------------------------------------------------------- Total income from investment operations 2.54 1.81 Less distributions: Distributions from net realized gains (0.22) -- -------------------------------------------------------- Net asset value at end of period 14.13 11.81 -------------------------------------------------------- Total return (%) 21.74 18.10 2 RATIOS/SUPPLEMENTAL DATA (%) ----------------------------------------------------------------------------------------------------------------- Ratios to average net assets: Net operating expenses 1.30 1.30 3 Gross operating expenses 1.61 1.73 3 Net investment loss (0.35) (0.54) 3 Portfolio turnover rate 118 39 2 Net assets, end of period ($ x 1,000,000) 37 26
1 Commencement of operations. 2 Not annualized. 3 Annualized. 44 See financial notes. SCHWAB SMALL-CAP EQUITY FUND
11/1/03- 7/1/03 1- SELECT SHARES 10/31/04 10/31/03 ----------------------------------------------------------------------------------------------------------------- PER-SHARE DATA ($) ----------------------------------------------------------------------------------------------------------------- Net asset value at beginning of period 11.81 10.00 -------------------------------------------------------- Income or loss from investment operations: Net investment loss (0.02) (0.01) Net realized and unrealized gains 2.59 1.82 -------------------------------------------------------- Total income from investment operations 2.57 1.81 Less distributions: Distributions from net realized gains (0.22) -- -------------------------------------------------------- Net asset value at end of period 14.16 11.81 -------------------------------------------------------- Total return (%) 22.00 18.10 2 RATIOS/SUPPLEMENTAL DATA (%) ----------------------------------------------------------------------------------------------------------------- Ratios to average net assets: Net operating expenses 1.12 1.12 3 Gross operating expenses 1.46 1.58 3 Net investment loss (0.16) (0.36) 3 Portfolio turnover rate 118 39 2 Net assets, end of period ($ x 1,000,000) 18 14
1 Commencement of operations. 2 Not annualized. 3 Annualized. See financial notes. 45 SCHWAB SMALL-CAP EQUITY FUND PORTFOLIO HOLDINGS as of October 31, 2004 This section shows all the securities in the fund's portfolio by industry classification and their value, as of the report date. The fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The fund's Form N-Q is available on the SEC's website at http://www.sec.gov and may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Call 1-800-SEC-0330 for information on the operation of the Public Reference Room. The schedule of portfolio holdings filed on the fund's most recent Form N-Q is available by visiting Schwab's website at www.schwab.com/schwabfunds. We use the symbols below to designate certain characteristics of the securities. With the top ten holdings, the number in the circle is the security's rank among the top ten. (1) Top ten holding o Non-income producing security = All or a portion of this security is held as collateral for open futures contracts
COST VALUE HOLDINGS BY CATEGORY ($x1,000) ($x1,000) -------------------------------------------------------------------------------- 96.9% COMMON STOCK 46,768 53,406 2.7% SHORT-TERM INVESTMENTS 1,505 1,505 0.2% U.S. TREASURY OBLIGATION 90 90 -------------------------------------------------------------------------------- 99.8% TOTAL INVESTMENTS 48,363 55,001 0.2% OTHER ASSETS AND LIABILITIES, NET 118 -------------------------------------------------------------------------------- 100.0% TOTAL NET ASSETS 55,119
VALUE SECURITY AND NUMBER OF SHARES ($ x 1,000) COMMON STOCK 96.9% of net assets AEROSPACE / DEFENSE 2.9% -------------------------------------------------------------------------- =o(1) ESCO Technologies, Inc. 22,700 1,584 AIR TRANSPORTATION 1.9% -------------------------------------------------------------------------- o Alaska Air Group, Inc. 28,600 754 o EGL, Inc. 6,200 198 o ExpressJet Holdings, Inc. 6,400 71 ----------- 1,023 ALCOHOLIC BEVERAGES 1.3% -------------------------------------------------------------------------- o Boston Beer Co., Inc., Class A 27,500 695 APPAREL 1.8% -------------------------------------------------------------------------- Cutter & Buck, Inc. 23,800 289 o Guess?, Inc. 8,100 135 o Hartmarx Corp. 22,000 184 o Wilsons The Leather Expert 70,700 410 ----------- 1,018 AUTOMOTIVE PRODUCTS / MOTOR VEHICLES 3.1% -------------------------------------------------------------------------- Monaco Coach Corp. 10,300 183 (5) Polaris Industries, Inc. 17,300 1,027 Titan International, Inc. 10,000 99 o United Defense Industries, Inc. 6,900 277 Winnebago Industries, Inc. 4,000 126 ----------- 1,712 BANKS 4.6% -------------------------------------------------------------------------- BancFirst Corp. 6,800 442 o Central Coast Bancorp 5,700 127 Columbia Banking Systems, Inc. 8,400 206 FFLC Bancorp, Inc. 1,900 57 First Bancorp Puerto Rico 600 33 First Charter Corp. 7,600 194 First Merchants Corp. 14,500 361 Great Southern Bancorp, Inc. 6,500 217 Hancock Holding Co. 11,500 364 Mid-State Bancshares 8,500 228 WesBanco, Inc. 6,200 188 WSFS Financial Corp. 2,600 141 ----------- 2,558 BUSINESS MACHINES & SOFTWARE 0.8% -------------------------------------------------------------------------- o Digi International, Inc. 18,200 249 Landamerica Financial Group, Inc. 3,000 147 o PTEK Holdings, Inc. 4,600 46 ----------- 442
46 See financial notes. SCHWAB SMALL-CAP EQUITY FUND
VALUE SECURITY AND NUMBER OF SHARES ($ x 1,000) BUSINESS SERVICES 10.1% -------------------------------------------------------------------------- o Administaff, Inc. 14,500 166 o Ansoft Corp. 4,500 72 o Ansys, Inc. 14,400 398 o Earthlink, Inc. 22,500 232 o FileNet Corp. 17,100 476 G&K Services, Inc., Class A 5,000 197 o Heidrick & Struggles International, Inc. 7,600 218 o Hewitt Associates, Inc., Class A 4,000 112 o Hyperion Solutions Corp. 6,000 241 o Identix, Inc. 16,500 120 = John H. Harland Co. 12,800 413 o Korn/Ferry International 13,500 235 o Kronos, Inc. 3,900 191 o Michael Baker Corp. 6,700 115 o NCO Group, Inc. 20,800 556 o Parametric Technology Corp. 43,900 228 o PDI, Inc. 7,700 220 o Phoenix Technologies Ltd. 11,300 69 o Progress Software Corp. 27,700 550 SS&C Technologies, Inc. 6,500 154 =o Transaction Systems Architects, Inc., Class A 19,100 313 o United Online, Inc. 31,000 291 o Universal Electronics, Inc. 800 14 ----------- 5,581 CHEMICALS 1.8% -------------------------------------------------------------------------- Georgia Gulf Corp. 10,500 476 =o NewMarket Corp 24,200 542 ----------- 1,018 CONSTRUCTION 1.1% -------------------------------------------------------------------------- o Cavco Industries, Inc. 5,100 203 o NVR, Inc. 400 251 o WESCO International, Inc. 7,000 175 ----------- 629 CONSUMER DURABLES 0.2% -------------------------------------------------------------------------- Kimball International, Inc., Class B 7,100 96 CONTAINERS 0.5% -------------------------------------------------------------------------- o Crown Holdings, Inc. 25,000 284 ELECTRONICS 12.7% -------------------------------------------------------------------------- Acxiom Corp. 16,700 417 o Agere Systems, Inc., Class B 254,400 293 Agilysys, Inc. 38,200 653 o American Physicians Capital, Inc. 25,600 816 =o Aspect Communications Corp. 33,900 322 =o Avid Technology, Inc. 11,600 615 o Coherent, Inc. 6,000 145 =(10) Harman International Industries, Inc. 7,200 865 o Hollywood Entertainment Corp. 85,400 830 o LeCroy Corp. 15,200 256 o Neoware Systems, Inc. 32,500 261 o Siliconix, Inc. 11,900 493 o Supertex, Inc. 11,700 251 o Technitrol, Inc. 11,400 186 o Thomas & Betts Corp. 9,100 258 o Western Wireless Corp., Class A 11,000 320 ----------- 6,981 ENERGY: RAW MATERIALS 1.4% -------------------------------------------------------------------------- =o Hydril Co. 18,000 792 FOOD & AGRICULTURE 2.2% -------------------------------------------------------------------------- o 7-Eleven, Inc. 20,300 428 Coca-Cola Bottling Co. Consolidated 1,300 69 Corn Products International, Inc. 7,000 344 o Darling International, Inc. 74,100 290 o Lesco, Inc. 8,000 101 ----------- 1,232 HEALTHCARE / DRUGS & MEDICINE 9.1% -------------------------------------------------------------------------- o Amedisys, Inc. 8,300 251 o America Service Group, Inc. 9,300 333 o(4) AMERIGROUP Corp. 18,400 1,104 =o Haemonetics Corp. 25,900 851 o Kensey Nash Corp. 3,700 106 (3) Medicis Pharmaceutical Corp., Class A 30,200 1,228 o Res-Care, Inc. 21,500 261 o Sierra Health Services, Inc. 12,200 582
See financial notes. 47 SCHWAB SMALL-CAP EQUITY FUND PORTFOLIO HOLDINGS continued
VALUE SECURITY AND NUMBER OF SHARES ($ x 1,000) o Techne Corp. 6,200 223 o Visx, Inc. 5,200 87 ----------- 5,026 HOUSEHOLD PRODUCTS 0.7% -------------------------------------------------------------------------- Balchem Corp. 6,900 216 = Church & Dwight Co., Inc. 5,550 151 ----------- 367 INSURANCE 6.2% -------------------------------------------------------------------------- 21st Century Insurance Group 7,700 102 = Delphi Financial Group, Inc., Class A 9,150 374 FBL Financial Group, Inc., Class A 3,000 78 Horace Mann Educators Corp. 24,000 408 (8) Odyssey Re Holdings Corp. 40,700 890 o Ohio Casualty Corp. 38,600 806 o Philadelphia Consolidated Holding Co. 5,300 307 Safety Insurance Group, Inc. 3,000 67 o WellChoice, Inc. 2,800 117 Zenith National Insurance Corp. 6,700 275 ----------- 3,424 MEDIA 0.4% -------------------------------------------------------------------------- o Consolidated Graphics, Inc. 5,300 226 MISCELLANEOUS FINANCE 3.7% -------------------------------------------------------------------------- Advanta Corp., Class B 8,500 207 C&F Financial Corp. 600 23 o CompuCredit Corp. 20,000 381 Fidelity Bankshares, Inc. 4,000 156 First Financial Holdings, Inc. 9,300 283 o Instinet Group, Inc. 80,000 384 Northrim BanCorp, Inc. 4,000 91 o Portfolio Recovery Associates, Inc. 7,600 256 Santander BanCorp 8,500 237 ----------- 2,018 NON-DURABLES & ENTERTAINMENT 1.7% -------------------------------------------------------------------------- o American Greetings Corp., Class A 11,000 291 Dover Motorsports, Inc. 3,500 17 o Luby's, Inc. 13,000 85 o Stewart Enterprises, Inc., Class A 33,500 239 o Trans World Entertainment Corp. 27,000 280 ----------- 912 NON-FERROUS METALS 0.4% -------------------------------------------------------------------------- o RTI International Metals, Inc. 12,000 240 OIL: DOMESTIC 2.5% -------------------------------------------------------------------------- o CAL Dive International, Inc. 5,800 205 o Meridian Resource Corp. 41,000 330 =o Tesoro Petroleum Corp. 28,500 863 ----------- 1,398 OPTICAL & PHOTO 0.7% -------------------------------------------------------------------------- o Photronics, Inc. 21,000 369 PAPER & FOREST PRODUCTS 2.5% -------------------------------------------------------------------------- o Buckeye Technologies, Inc. 8,300 88 (2) Potlatch Corp. 27,000 1,271 ----------- 1,359 PRODUCER GOODS & MANUFACTURING 7.6% -------------------------------------------------------------------------- Fedders Corp. 34,300 123 = Graco, Inc. 23,400 805 o Hexcel Corp. 19,900 308 =(6) Matthews International Corp., Class A 28,700 962 Middleby Corp. 4,500 221 Sauer-Danfoss, Inc. 8,000 145 Steelcase, Inc., Class A 9,400 123 o Strattec Security Corp. 3,400 214 Tennant Co. 8,600 351 o Tenneco Automotive, Inc. 29,200 372 = The Timken Co. 24,000 576 ----------- 4,200 RAILROAD & SHIPPING 0.8% -------------------------------------------------------------------------- Overseas Shipholding Group 7,500 427 REAL PROPERTY 0.8% -------------------------------------------------------------------------- o American Retirement Corp. 40,000 324 o Jones Lang LaSalle, Inc. 3,900 125 ----------- 449
48 See financial notes. SCHWAB SMALL-CAP EQUITY FUND
VALUE SECURITY AND NUMBER OF SHARES ($ x 1,000) RETAIL 2.8% -------------------------------------------------------------------------- Aaron Rents, Inc. 6,300 137 o Books-A-Million, Inc. 33,500 275 The Cato Corp., Class A 15,200 349 o Charming Shoppes, Inc. 22,500 172 DEB Shops, Inc. 1,400 34 =o The Men's Wearhouse, Inc. 7,200 224 Ruddick Corp. 18,200 366 ----------- 1,557 STEEL 0.6% -------------------------------------------------------------------------- Carpenter Technology Corp. 6,500 308 TELEPHONE 2.8% -------------------------------------------------------------------------- o Alaska Communications Systems Group, Inc. 34,500 243 o(7) Commonwealth Telephone Enterprises, Inc. 20,900 954 CT Communications, Inc. 2,300 29 North Pittsburgh Systems, Inc. 9,700 200 o Ulticom, Inc. 5,900 101 ----------- 1,527 TOBACCO 0.4% -------------------------------------------------------------------------- o M&F Worldwide Corp. 9,700 130 Vector Group Ltd. 4,200 65 ----------- 195 TRAVEL & RECREATION 1.9% -------------------------------------------------------------------------- Ameristar Casinos, Inc. 15,000 521 o Argosy Gaming Co. 8,800 348 o Shuffle Master, Inc. 4,500 190 ----------- 1,059 TRUCKING & FREIGHT 2.3% -------------------------------------------------------------------------- o Forward Air Corp. 9,900 407 = Heartland Express, Inc. 39,250 803 USF Corp. 1,500 54 ----------- 1,264 UTILITIES: ELECTRIC & GAS 2.6% -------------------------------------------------------------------------- (9) Cleco Corp. 48,500 883 UIL Holdings Corp. 5,700 289 o Veritas DGC, Inc. 12,500 264 ----------- 1,436
SECURITY FACE AMOUNT RATE, MATURITY DATE ($ x 1,000) SHORT-TERM INVESTMENTS 2.7% of net assets Brown Brothers Harriman, Grand Cayman Time Deposit 1.29%, 11/01/04 5 5 HSBC Bank, USA Grand Cayman Time Deposit 1.29%, 11/01/04 1,500 1,500 ----------- 1,505 U.S. TREASURY OBLIGATION 0.2% of net assets = U.S. Treasury Bill 1.63%, 12/16/04 90 90
END OF INVESTMENTS. In addition to the above, the fund held the following at 10/31/04. All numbers x 1,000 except number of contracts. FUTURES CONTRACTS NUMBER OF CONTRACT UNREALIZED CONTRACTS VALUE GAINS Russell 2000 Index, Long expires 12/17/04 6 1,754 44
See financial notes. 49 SCHWAB SMALL-CAP EQUITY FUND Statement of ASSETS AND LIABILITIES As of October 31, 2004. All numbers x 1,000 except NAV.
ASSETS -------------------------------------------------------------------------------- Investments, at value $55,001 a Receivables: Fund shares sold 113 Dividends 22 Investments sold 156 Prepaid expenses + 11 ----------- TOTAL ASSETS 55,303 LIABILITIES -------------------------------------------------------------------------------- Payables: Fund shares redeemed 39 Investments bought 88 Due to brokers for futures 2 Investment adviser and administrator fees 4 Transfer agent and shareholder service fees 1 Accrued expenses + 50 ---------- TOTAL LIABILITIES 184 NET ASSETS -------------------------------------------------------------------------------- TOTAL ASSETS 55,303 TOTAL LIABILITIES - 184 ---------- NET ASSETS $55,119 NET ASSETS BY SOURCE Capital received from investors 41,426 Net realized capital gains 7,011 b Net unrealized capital gains 6,682 b NET ASSET VALUE (NAV) BY SHARE CLASS SHARES SHARE CLASS NET ASSETS / OUTSTANDING = NAV Investor Shares $36,653 2,594 $14.13 Select Shares $18,466 1,304 $14.16
Unless stated, all numbers x 1,000. a The fund paid $48,363 for these securities. Not counting short-term obligations and government securities, the fund's security transactions during the period were: Purchases $62,623 Sales/maturities $57,389 The fund's total security transactions with other SchwabFunds(R) during the period were $221. b These derive from investments and futures. FEDERAL TAX DATA ------------------------------------------------------- PORTFOLIO COST $48,363 NET UNREALIZED GAINS AND LOSSES: Gains $7,615 Losses + (977) ----------- $6,638 AS OF OCTOBER 31, 2004: NET UNDISTRIBUTED EARNINGS: Ordinary income $4,863 Long-term capital gains $2,192 RECLASSIFICATIONS: Net investment income not yet distributed $143 Reclassified as: Net realized capital gains ($143) 50 See financial notes. SCHWAB SMALL-CAP EQUITY FUND Statement of OPERATIONS For November 1, 2003 through October 31, 2004. All numbers x 1,000. INVESTMENT INCOME -------------------------------------------------------------------------------- Dividends $467 Interest + 9 ----------- TOTAL INVESTMENT INCOME 476 NET REALIZED GAINS AND LOSSES -------------------------------------------------------------------------------- Net realized gains on investments 7,051 Net realized gains on futures contracts + 132 ----------- NET REALIZED GAINS 7,183 NET UNREALIZED GAINS AND LOSSES -------------------------------------------------------------------------------- Net unrealized gains on investments 2,239 Net unrealized gains on futures contracts + 14 ----------- NET UNREALIZED GAINS 2,253 EXPENSES -------------------------------------------------------------------------------- Investment adviser and administrator fees 524 a Transfer agent and shareholder service fees: Investor Shares 83 b Select Shares 17 b Trustees' fees 5 c Custodian fees 35 Portfolio accounting fees 22 Professional fees 33 Registration fees 25 Shareholder reports 29 Other expenses + 4 ----------- Total expenses 777 Expense reduction - 158 d ----------- NET EXPENSES 619 INCREASE IN NET ASSETS FROM OPERATIONS -------------------------------------------------------------------------------- TOTAL INVESTMENT INCOME 476 NET EXPENSES - 619 ----------- NET INVESTMENT LOSS (143) NET REALIZED GAINS 7,183 e NET UNREALIZED GAINS + 2,253 e ----------- INCREASE IN NET ASSETS FROM OPERATIONS $9,293
Unless stated, all numbers x 1,000. a Calculated as 1.05% of average daily net assets. These fees are paid to Charles Schwab Investment Management, Inc. (CSIM). b 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% and 0.05% of the assets of each respective share class. These fees are paid to Charles Schwab & Co., Inc. (Schwab). c For the fund's independent trustees only. d Includes $153 from the investment adviser (CSIM) and $5 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 February 28, 2005, as follows: % OF AVERAGE SHARE CLASS DAILY NET ASSETS ------------------------------------------------------- Investor Shares 1.30 Select Shares 1.12 This limit excludes interest, taxes and certain non-routine expenses. e These add up to a net gain on investments of $9,436. See financial notes. 51 SCHWAB SMALL-CAP EQUITY FUND Statements of CHANGES IN NET ASSETS For the current and prior report periods. All numbers x 1,000.
OPERATIONS -------------------------------------------------------------------------------- 11/1/03-10/31/04 7/1/03*-10/31/03 Net investment loss ($143) ($50) Net realized gains 7,183 786 Net unrealized gains + 2,253 4,429 ------------------------------------- INCREASE IN NET ASSETS FROM OPERATIONS 9,293 5,165 DISTRIBUTIONS PAID -------------------------------------------------------------------------------- DISTRIBUTIONS FROM NET REALIZED GAINS Investor Shares 499 -- Select Shares + 266 -- ------------------------------------- TOTAL DISTRIBUTIONS FROM NET REALIZED GAINS $765 $-- a,b
TRANSACTIONS IN FUND SHARES -------------------------------------------------------------------------------- 11/1/03-10/31/04 7/1/03-10/31/03 SHARES VALUE SHARES VALUE SHARES SOLD Investor Shares 1,153 $15,053 2,272 $23,526 Select Shares + 301 3,944 1,245 12,704 -------------------------------------------------- TOTAL SHARES SOLD 1,454 $18,997 3,517 $36,230 SHARES REINVESTED Investor Shares 37 $453 -- $-- Select Shares + 17 204 -- -- -------------------------------------------------- TOTAL SHARES REINVESTED 54 $657 -- $-- SHARES REDEEMED Investor Shares (763) ($10,029) (105) ($1,137) Select Shares + (221) (2,885) (38) (407) -------------------------------------------------- TOTAL SHARES REDEEMED (984) ($12,914) (143) ($1,544) NET TRANSACTIONS IN FUND SHARES 524 $6,740 3,374 $34,686
SHARES OUTSTANDING AND NET ASSETS -------------------------------------------------------------------------------- 11/1/03-10/31/04 7/1/03-10/31/03 SHARES NET ASSETS SHARES NET ASSETS Beginning of period 3,374 $39,851 -- $-- Total increase + 524 15,268 3,374 39,851 c -------------------------------------------------- END OF PERIOD 3,898 $55,119 3,374 $39,851 d
* Commencement of operations. Unless stated, all numbers x 1,000. a UNAUDITED The fund designates $73 of the dividend distribution for the fiscal year ended 10/31/04 as qualified dividends for the purpose of the maximum rate under Section 1(h)(ii) of the Internal Revenue Code. Shareholders will be notified in January 2005 via IRS Form 1099 of the amounts for the use in preparing their 2004 income tax return. b The tax-basis components of distributions paid are: CURRENT PERIOD Ordinary income $642 Long-term capital gains $123 PRIOR PERIOD Ordinary income $-- Long-term capital gains $-- c Figures for shares represent shares sold plus shares reinvested, minus shares redeemed. Figures for net assets represent the changes in net assets from operations plus the changes in value of transactions in fund shares, minus distributions paid. d There was no distributable net investment income at the end of the current and prior period. 52 See financial notes. SCHWAB HEDGED EQUITY FUND(TM) FINANCIAL STATEMENTS FINANCIAL HIGHLIGHTS
11/1/03- 11/1/02- 9/3/02 1- 10/31/04 10/31/03 10/31/02 ----------------------------------------------------------------------------------------------------------------- PER-SHARE DATA ($) ----------------------------------------------------------------------------------------------------------------- Net asset value at beginning of period 11.53 9.84 10.00 --------------------------------------------------------- Income or loss from investment operations: Net investment loss (0.09) (0.09) (0.01) Net realized and unrealized gains or losses 1.57 1.78 (0.15) --------------------------------------------------------- Total income or losses from investment operations 1.48 1.69 (0.16) --------------------------------------------------------- Net asset value at end of period 13.01 11.53 9.84 --------------------------------------------------------- Total return (%) 12.84 17.17 (1.60) 2 RATIOS/SUPPLEMENTAL DATA (%) ----------------------------------------------------------------------------------------------------------------- Ratios to average net assets: Net operating expenses (including dividend expense on short sales) 2.43 2.37 2.39 3 Net operating expenses (excluding dividend expense on short sales) 2.10 4 2.00 2.00 3 Gross operating expenses 2.71 2.77 3.33 3 Net investment loss (0.86) (0.90) (0.79) 3 Portfolio turnover rate 99 114 68 2 Net assets, end of period ($ x 1,000,000) 68 44 32
1 Commencement of operations. 2 Not annualized. 3 Annualized. 4 The ratio of net operating expenses would have been 2.00% if interest expense had not been included. See financial notes. 53 SCHWAB HEDGED EQUITY FUND PORTFOLIO HOLDINGS as of October 31, 2004 This section shows all the securities in the fund's portfolio by industry classification and their value, as of the report date. The fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The fund's Form N-Q is available on the SEC's website at http://www.sec.gov and may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Call 1-800-SEC-0330 for information on the operation of the Public Reference Room. The schedule of portfolio holdings filed on the fund's most recent Form N-Q is available by visiting Schwab's website at www.schwab.com/schwabfunds. We use the symbols below to designate certain characteristics of the security. With the top ten holdings, the number in the circle is the security's rank among the top ten. (1) Top five long holdings/top five short positions o Non-income producing security @ All or a portion of this security is held as collateral for short sales
COST/PROCEEDS VALUE HOLDINGS BY CATEGORY ($x1,000) ($x1,000) --------------------------------------------------------------------------------- 98.1% COMMON STOCK 57,745 66,965 7.7% SHORT-TERM INVESTMENTS 5,247 5,247 --------------------------------------------------------------------------------- 105.8% TOTAL INVESTMENTS 62,992 72,212 (27.8)% SHORT SALES (18,860) (18,951) 22.0% OTHER ASSETS AND LIABILITIES, NET 15,030 --------------------------------------------------------------------------------- 100.0% TOTAL NET ASSETS 68,291
VALUE SECURITY AND NUMBER OF SHARES ($ x 1,000) COMMON STOCK 98.1% of net assets AEROSPACE / DEFENSE 4.2% -------------------------------------------------------------------------- General Dynamics Corp. 2,900 296 Goodrich Corp. 12,800 395 @ Lockheed Martin Corp. 7,800 430 Raytheon Co. 5,200 190 @ Rockwell Collins, Inc. 9,500 337 @ Rockwell International Corp. 9,600 400 Textron, Inc. 900 61 @ The Boeing Co. 8,000 399 @ United Technologies Corp. 3,500 325 ----------- 2,833 AIR TRANSPORTATION 1.0% -------------------------------------------------------------------------- o AMR Corp. 22,000 170 @ Fedex Corp. 1,900 173 Sabre Group Holdings, Inc. 16,000 344 ----------- 687 APPAREL 0.8% -------------------------------------------------------------------------- Nike, Inc., Class B 2,500 203 @ VF Corp. 6,900 372 ----------- 575 AUTOMOBILE PRODUCTS / MOTOR VEHICLES 3.0% -------------------------------------------------------------------------- o Advance Auto Parts, Inc. 7,100 278 Cummins Engine, Inc. 5,400 378 @ Eaton Corp. 5,600 358 Ford Motor Co. 22,000 287 o Goodyear Tire & Rubber Co. 22,000 222 @ Polars Industries Partners LP 7,200 427 Winnebago Industries, Inc. 3,300 104 ----------- 2,054 BANKS 4.4% -------------------------------------------------------------------------- Associated Bancorp. 10,300 357 Bank of Hawaii Corp. 4,800 229 Colonial Bancgroup, Inc. 200 4 Comerica, Inc. 6,600 406 @ Doral Financial Corp. 9,750 409 Huntington Bancshares, Inc. 100 2 Marshall & Ilsley Corp. 8,100 340 National City Corp. 8,300 324 PNC Financial Services Group 4,700 246 @ UnionBanCal Corp. 6,600 401 Zions Bancorp. 4,649 308 ----------- 3,026 BUSINESS MACHINES & SOFTWARE 6.2% -------------------------------------------------------------------------- @ 3M Co. 3,500 272 @ Adobe Systems, Inc. 2,200 123
54 See financial notes. SCHWAB HEDGED EQUITY FUND
VALUE SECURITY AND NUMBER OF SHARES ($ x 1,000) o@(1) Apple Computer, Inc. 9,600 504 @(1) Autodesk, Inc. 8,789 464 o@ BMC Software, Inc. 22,000 416 o@ Cisco Systems, Inc. 11,300 217 o Comverse Technology, Inc. 14,300 295 Icon Office Solutions, Inc. 2,800 29 o Juniper Networks, Inc. 4,100 109 o Lexmark International, Inc., Class A 3,700 308 o@ NCR Corp. 7,900 445 o PalmOne, Inc. 5,200 151 o@ Storage Technology Corp. 14,500 392 o Sybase, Inc. 12,600 199 o Xerox Corp. 22,000 325 ----------- 4,249 BUSINESS SERVICES 11.6% -------------------------------------------------------------------------- o@ Apollo Group Inc., Class A 5,465 361 Automatic Data Processing, Inc. 4,600 199 Catalina Marketing Corp. 4,000 102 @ Cendant Corp. 16,400 338 Certegy, Inc. 6,900 244 o@ CheckFree Corp. 13,800 428 o@ Citrix Systems, Inc. 14,816 357 o CSG Systems International, Inc. 17,100 287 o Digital River, Inc. 12,000 400 o Earthlink, Inc. 22,000 227 o Education Management Corp. 6,660 179 o Filenet Corp. 7,787 217 o@ Hyperion Solutions Corp. 10,217 410 @ IMS Health, Inc. 15,900 337 o@ InFoSpace, Inc. 8,755 460 o Intuit, Inc. 2,200 100 o Kronos, Inc. 6,499 319 o@(3) Macrovision Corp. 17,410 471 o McAfee, Inc. 15,100 365 o Pixar 300 24 o@ Polycom, Inc. 20,957 433 Reynolds & Reynolds Co., Class A 500 12 Robert Half International, Inc. 11,400 302 o RSA Security, Inc. 900 18 o Sapient Corp. 1,600 13 The Brink's Co. 9,700 311 o Tibco Software, Inc. 4,500 44 o United Defense Industries, Inc. 7,900 317 o@ United Online, Inc. 21,944 206 o VeriSign, Inc. 17,093 459 ----------- 7,940 CHEMICAL 2.2% -------------------------------------------------------------------------- Cabot Corp. 9,900 337 Georgia Gulf Corp. 3,500 159 MacDermid, Inc. 3,300 104 @ Monsanto Co. 700 30 @ PPG Industries, Inc. 5,100 325 @ Rohm & Haas Co. 4,700 199 @ Sigma Aldrich Corp. 6,516 363 ----------- 1,517 CONSTRUCTION 1.7% -------------------------------------------------------------------------- @ KB Home 2,200 181 @ Masco Corp. 11,300 387 The Stanley Works 400 18 Vulcan Materials Co. 7,000 348 o Wesco International, Inc. 8,100 203 ----------- 1,137 CONSUMER DURABLES 1.3% -------------------------------------------------------------------------- @ Black & Decker Corp. 5,300 426 o@ Penn National Gaming, Inc. 9,364 389 Toro Co. 1,500 102 ----------- 917 CONTAINERS 0.4% -------------------------------------------------------------------------- o Crown Cork & Seal Co., Inc. 22,000 250 ELECTRONICS 7.2% -------------------------------------------------------------------------- o Aspect Telecomunications Corp. 1,200 11 o Avid Technology, Inc. 8,023 425 AVX Corp. 6,000 72 o Cree Resh, Inc. 300 10 o Dionex Corp. 3,691 207 o Getty Images, Inc. 4,800 284 @(4) Harman International Industries, Inc. 3,900 469 ITT Industries, Inc. 300 24
See financial notes. 55 SCHWAB HEDGED EQUITY FUND PORTFOLIO HOLDINGS continued
VALUE SECURITY AND NUMBER OF SHARES ($ x 1,000) o@ LAM Research Corp. 2,910 76 Linear Technology Corp. 10,900 413 o LSI Logic Corp. 15,500 71 @ Motorola, Inc. 22,000 380 PerkinElmer, Inc. 22,000 452 @ Qualcomm, Inc. 10,200 427 @ Scientific Atlanta, Inc. 14,200 389 o Siliconix, Inc. 993 41 o Synopsys, Inc. 22,000 357 o Tellabs, Inc. 3,300 26 o Thermo Electron Corp. 100 3 Thomas & Betts Corp. 8,800 249 o Western Wireless Corp. Class A 12,670 369 o Zebra Technology Corp., Class A 3,000 159 ----------- 4,914 ENERGY: RAW MATERIALS 2.3% -------------------------------------------------------------------------- Burlington Resources, Inc. 9,200 382 Devon Energy Corp. 1,300 96 o FMC Technologies, Inc. 12,700 384 @ Occidental Petroleum Corp. 4,600 257 @ Peabody Energy Corp. 6,900 440 ----------- 1,559 FOOD & AGRICULTURE 1.5% -------------------------------------------------------------------------- o 7-Eleven, Inc. 7,400 156 Corn Products International, Inc. 8,800 433 H.J. Heinz Co. 2,800 102 @ Kellogg Co. 8,000 344 ----------- 1,035 HEALTHCARE / DRUGS & MEDICINE 7.1% -------------------------------------------------------------------------- o Amerigroup Corp. 1,000 60 Applied Biosystems Group 20,900 399 @ Bausch & Lomb, Inc. 6,200 378 @ Becton Dickinson & Co. 8,400 441 o Cephalon, Inc. 8,406 401 o@ Conventry Healthcare, Inc. 8,750 358 o@ DaVita, Inc. 10,350 307 Gendex Corp. 155 8 o Humana, Inc. 2,200 42 Johnson & Johnson, Inc. 7,300 426 Medicis Pharmaceutical Corp., Class A 10,300 419 Merck & Co., Inc. 1,000 31 o@ Pacificare Health Systems, Inc. 1,900 68 Select Medical Corp. 3,500 60 o Sierra Health Services, Inc. 8,900 425 @ United Healthcare Corp. 4,800 347 @ Valeant Pharmaceuticals International 18,300 439 o@ VISX, Inc. 16,300 272 ----------- 4,881 HOUSEHOLD PRODUCTS 0.4% -------------------------------------------------------------------------- Estee Lauder Cos., Inc., Class A 5,800 249 Gillette Co. 1,500 62 ----------- 311 INSURANCE 8.0% -------------------------------------------------------------------------- Aetna, Inc. 300 28 @ AFLAC, Inc. 7,300 262 Alfa Corp. 1,700 24 @ Allstate Corp. 5,700 274 AMBAC, Inc. 4,200 328 Arthur J. Gallagher & Co. 14,200 399 Cigna Corp. 600 38 o CNA Financial Corp. 8,500 203 Delphi Financial Group Inc., Class A 4,150 170 @ Fidelity National Financial, Inc. 8,705 328 First American Financial Corp. 12,500 390 Lincoln National Corp. 6,400 280 Metlife, Inc. 8,400 322 Nationwide Financial Services, Inc. 6,300 218 Odyssey Re Holdings Corp. 4,000 87 o Ohio Casualty Corp. 3,501 73 Prudential Financial, Inc. 8,500 395 Reinsurance Group of America, Inc. 3,500 151 Safeco Corp. 6,891 319 StanCorp. Financial Group, Inc. 3,300 249 @ The Progressive Corp. 3,600 337 Transatlantic Holdings, Inc. 925 54 o UICI 200 6 Unitrin, Inc. 2,300 99
56 See financial notes. SCHWAB HEDGED EQUITY FUND
VALUE SECURITY AND NUMBER OF SHARES ($ x 1,000) @ W.R. Berkley Corp. 8,250 353 o Wellchoice, Inc. 2,100 88 ----------- 5,475 MEDIA 1.7% -------------------------------------------------------------------------- John Wiley & Sons, Inc. 1,600 52 McClatchy Co., Class A 1,000 70 @ McGraw Hill Cos., Inc. 5,100 440 Readers Digest Association, Inc. 16,500 232 o Time Warner, Inc. 22,000 366 ----------- 1,160 MISCELLANEOUS FINANCE 2.7% -------------------------------------------------------------------------- o@ Americredit Co. 19,700 382 o Bok Financial Corp. 800 36 @ Capital One Financial Corp. 5,500 406 o Compucredit Corp. 3,212 61 @ Countrywide Credit Industries, Inc. 12,500 399 @ Franklin Resources, Inc. 5,300 321 MBNA Corp. 3,500 90 R & G Financial Corp., Class B 3,000 113 Santander Bancorp 330 9 The Goldman Sachs Group, Inc. 100 10 ----------- 1,827 NON-DURABLES & ENTERTAINMENT 2.7% -------------------------------------------------------------------------- o@ American Greetings Corp., Class A 16,200 429 Hasbro, Inc. 17,300 306 o Jack In The Box, Inc. 8,400 280 McDonalds Corp. 14,000 408 o Starbucks Corp. 100 5 @ Yum! Brands, Inc. 9,800 426 ----------- 1,854 NON-FERROUS METALS 0.5% -------------------------------------------------------------------------- o@ Phelps Dodge Corp. 3,800 333 OIL: DOMESTIC 1.7% -------------------------------------------------------------------------- o@ Cal Dive International, Inc. 12,241 433 ChevronTexaco Corp. 200 11 Sunoco, Inc. 3,000 223 o@ Tesoro Petroleum Corp. 13,900 421 o Todco, Class A 2,200 37 o Universal Compression Holdings, Inc. 200 7 ----------- 1,132 OIL: INTERNATIONAL 0.6% -------------------------------------------------------------------------- o@ Exxon Mobil Corp. 8,600 423 OPTICAL & PHOTO 0.9% -------------------------------------------------------------------------- o Corning, Inc. 22,000 252 o Ingram Micro, Inc., Class A 22,000 379 ----------- 631 PAPER & FOREST PRODUCTS 2.0% -------------------------------------------------------------------------- Louisiana-Pacific Corp. 7,900 194 Meadwestavco Corp. 12,500 394 Potlatch Corp. 4,000 188 Temple-Inland, Inc. 5,900 349 Weyerhaeuser Co. 3,700 232 ----------- 1,357 PRODUCER GOODS & MANUFACTURING 2.7% -------------------------------------------------------------------------- Emerson Electric Co. 2,100 135 o@ FMC Corp. 8,100 355 @ Graco, Inc. 7,950 273 Grainger, Inc. 200 12 HNI Corp. 1,300 53 Hubbell, Inc. 4,200 192 o KOS Pharmaceuticals, Inc. 200 7 Mathews International Corp., Class A 3,159 106 Parker Hannifin Corp. 200 14 Steelcase, Inc., Class A 8,100 106 o@ Terex Corp. 10,300 391 Timken Co. 7,200 173 ----------- 1,817 RAILROAD & SHIPPING 0.7% -------------------------------------------------------------------------- @ Overseas Shipholding Group, Inc. 8,100 461
See financial notes. 57 SCHWAB HEDGED EQUITY FUND PORTFOLIO HOLDINGS continued
VALUE SECURITY AND NUMBER OF SHARES ($ x 1,000) RETAIL 5.5% -------------------------------------------------------------------------- Aaron Rents, Inc. 8,750 190 Abercrombie & Fitch Co., Class A 11,400 447 o@ Barnes & Noble, Inc. 8,700 289 Circuit City Stores, Inc. 22,000 357 Claire's Stores, Inc. 16,000 416 Costco Cos., Inc. 6,400 307 Michael's Stores, Inc. 2,400 70 o Petco Animal Supplies, Inc. 10,526 377 o Rite Aid Corp. 20,000 74 Ruddick Corp. 5,000 101 o Staples, Inc. 12,957 385 The Gap, Inc. 17,300 346 o Toys `R' Us, Inc. 22,000 396 ----------- 3,755 STEEL 1.2% -------------------------------------------------------------------------- Carpenter Technology Corp. 8,800 418 United States Steel Corp. 10,900 400 ----------- 818 TELEPHONE 2.9% -------------------------------------------------------------------------- Alltel Corp. 3,600 198 o American Tower Corp. 7,800 134 AT&T Corp. 2,300 39 o Avaya, Inc. 22,000 317 BellSouth Corp. 9,400 250 @ Century Telephone Enterprises, Inc. 12,900 414 o Citizens Communications Co. 22,000 295 SBC Communications, Inc. 1,100 28 Verizon Communications, Inc. 7,400 289 ----------- 1,964 TOBACCO 0.3% -------------------------------------------------------------------------- UST, Inc. 4,900 202 TRAVEL & RECREATION 0.8% -------------------------------------------------------------------------- o Argosy Gaming Co. 8,400 332 Choice Hotels International, Inc. 3,800 190 ----------- 522 TRUCKING & FREIGHT 2.9% -------------------------------------------------------------------------- CNF, Inc. 9,500 416 Heartland Express, Inc. 10,645 218 J.B. Hunt Transport Services, Inc. 10,300 421 o Landstar System, Inc. 6,738 458 Paccar, Inc. 6,413 444 ----------- 1,957 UTILITIES: ELECTRIC & GAS 5.0% -------------------------------------------------------------------------- o AES Corp. 22,000 240 American Electric Power Co., Inc. 9,900 326 Constellation Energy Group, Inc. 8,700 353 Duke Energy Corp. 16,300 400 @(2) Edison International 15,600 476 @ Exelon Corp. 900 36 FirstEnergy Corp. 4,000 165 Kinder Morgan, Inc. 1,400 90 National Fuel Gas Co. 8,600 241 Questar Corp. 5,300 254 @ TXU Corp. 7,100 435 Xcel Energy, Inc. 22,000 376 ----------- 3,392 SHORT-TERM INVESTMENTS 7.7% of net assets OTHER INVESTMENT COMPANIES 7.7% -------------------------------------------------------------------------- Provident Institutional Funds-- TempCash 935,792 936 Provident Institutional Funds-- TempFund 4,310,801 4,311 ----------- 5,247 END OF INVESTMENTS. SHORT SALES 27.8% of net assets AEROSPACE / DEFENSE 0.6% -------------------------------------------------------------------------- (1) Engineered Support Systems, Inc. 8,695 418
58 See financial notes. SCHWAB HEDGED EQUITY FUND
VALUE SECURITY AND NUMBER OF SHARES ($ x 1,000) AIR TRANSPORTATION 0.3% -------------------------------------------------------------------------- Jetblue Airways Corp. 7,788 172 Southwest Airlines, Inc. 3,100 49 ----------- 221 AUTOMOBILE PRODUCTS / MOTOR VEHICLES 0.6% -------------------------------------------------------------------------- American Axle & Manufacturing Holdings, Inc. 800 23 General Motors Corp. 1,300 50 O'Reilly Automotive, Inc. 3,662 158 Sonic Automotive, Inc. 1,400 28 Superior Industries International, Inc. 4,600 126 ----------- 385 AUTOMOTIVE PRODUCTS 0.1% -------------------------------------------------------------------------- Arvin Meritor, Inc. 2,000 37 BANKS 0.4% -------------------------------------------------------------------------- Capitol Federal Financial 1,393 47 Fifth Third Bancorp 3,700 182 First Bancorp., Inc. 493 13 FNB Corp. 2,500 51 Hudson United Bancorp. 300 12 ----------- 305 BUSINESS MACHINES & SOFTWARE 0.2% -------------------------------------------------------------------------- Diebold, Inc. 1,800 86 Novell, Inc. 10,309 75 Sandisk Corp. 300 6 ----------- 167 BUSINESS SERVICES 3.0% -------------------------------------------------------------------------- Bearingpoint, Inc. 18,700 163 Corinthian Colleges, Inc. 15,800 227 (3) DST Systems, Inc. 8,500 381 GTech Holdings Corp. 6,600 156 Mercury Interactive Corp. 2,700 117 National Instruments Corp. 6,967 192 Omnicom Group, Inc. 1,800 142 PeopleSoft, Inc. 1,100 23 Red Hat, Inc. 10,200 131 Take Two Interactive Software, Inc. 2,700 89 Weight Watchers International, Inc. 7,000 251 Wynn Resorts Ltd. 3,500 204 ----------- 2,076 CHEMICAL 0.0% -------------------------------------------------------------------------- Crompton Corp. 1,100 10 CONSTRUCTION 0.6% -------------------------------------------------------------------------- Fluor Corp. 3,800 176 Hovnanian Enterprises, Inc. 300 11 Meritage Corp. 200 18 Pulte Corp. 3,700 203 ----------- 408 CONSUMER DURABLES 0.1% -------------------------------------------------------------------------- Mohawk Industries, Inc. 1,100 94 ELECTRONICS 1.6% -------------------------------------------------------------------------- American Power Conversion Corp. 9,937 192 Amis Holdings, Inc. 317 5 Amkor Technology, Inc. 1,000 5 Andrew Corp. 19,404 271 Arrow Electronics, Inc. 3,900 93 Broadcom Corp., Class A 300 8 Cox Radio, Inc. 1,000 16 Intersil Holding Corp. 6,500 106 Silicon Laboratories, Inc. 3,618 108 Xilinx, Inc. 9,900 304 ----------- 1,108 ENERGY: RAW MATERIALS 0.7% -------------------------------------------------------------------------- Arch Coal, Inc. 6,200 202 Tidewater, Inc. 8,900 275 ----------- 477 FOOD & AGRICULTURE 1.0% -------------------------------------------------------------------------- Coca-Cola Enterprises, Inc. 8,900 186 Dean Foods Co. 500 15 Ralcorp Holdings, Inc. 2,400 88 Sensient Technologies Corp. 8,400 183
See financial notes. 59 SCHWAB HEDGED EQUITY FUND PORTFOLIO HOLDINGS continued
VALUE SECURITY AND NUMBER OF SHARES ($ x 1,000) Smithfield Foods, Inc. 700 17 Sysco Corp. 5,400 174 ----------- 663 GOLD 0.3% -------------------------------------------------------------------------- Newmont Mining Corp. 3,600 171 HEALTHCARE / DRUGS & MEDICINE 3.3% -------------------------------------------------------------------------- Accredo Heath, Inc. 1,400 32 Atherogenics, Inc. 4,000 120 Beckman Coulter, Inc. 100 6 Chiron Corp. 200 7 Cymer, Inc. 100 3 Eli Lilly & Co. 3,300 181 Forest Laboratories, Inc. 1,300 58 Genzyme Corp. 2,700 142 HCA, Inc. 2,000 73 Health Management Associates, Inc. 4,900 101 Healthcare Compare Corp. 2,465 39 Henry Schein, Inc. 2,100 133 Human Genome Sciences, Inc. 6,300 65 Ivax Corp. 11,625 210 Martek Biosciences Corp. 3,384 159 Medicines Company 1,300 35 NBTY, Inc. 3,000 83 Neurocrine Biosciences, Inc. 3,913 182 (5) Omnicare, Inc. 12,300 339 Par Pharmaceutical Cos., Inc. 200 8 Pediatrix Medical Group, Inc. 1,600 90 Pharmaceutical Product Developement, Inc. 2,085 88 Quest Diagnostic, Inc. 900 79 Tenet Healthcare Corp. 300 3 ----------- 2,236 INSURANCE 0.7% -------------------------------------------------------------------------- Fremont General Corp. 9,200 198 Jefferson-Pilot Corp. 1,500 72 MBIA, Inc. 2,300 133 The Commerce Group, Inc. 400 20 The Phoenix Cos., Inc. 1,700 18 UnumProvident Corp. 2,200 30 ----------- 471 MEDIA 0.5% -------------------------------------------------------------------------- Citadel Broadcasting Corp. 4,300 63 Clear Channel Communications, Inc. 500 17 CNET Networks, Inc. 7,500 61 Gaylord Entertainment Co., Class A 100 3 Knight-Ridder, Inc. 2,500 171 ----------- 315 MISCELLANEOUS FINANCE 1.9% -------------------------------------------------------------------------- A.G. Edwards, Inc. 100 4 CapitalSource, Inc. 5,900 132 Downey Financial Corp. 200 11 Federated Investors, Inc. 10,500 304 First Marblehead Corp. (The) 4,900 263 Lehman Brothers Holdings, Inc. 900 74 MAF Bancorp, Inc. 4,136 177 Morgan Stanley 1,800 92 Queens County Bancorp, Inc. 11,000 202 Waddell & Reed Financial, Inc. 100 2 Webster Financial Corp. 400 19 ----------- 1,280 NON-DURABLES & ENTERTAINMENT 1.3% -------------------------------------------------------------------------- Electronic Arts, Inc. 2,100 94 Krispy Kreme Doughnuts, Inc. 3,500 37 Leapfrog Enterprises, Inc. 2,100 26 Mattel, Inc. 6,100 107 Outback Steakhouse, Inc. 3,000 119 Panera Bread Co., Class A 600 21 The Cheesecake Factory, Inc. 5,100 221 Tupperware Corp. 9,300 155 Wendy's International, Inc. 2,400 80 ----------- 860 NON-FERROUS METALS 0.4% -------------------------------------------------------------------------- Alcoa, Inc. 2,600 85 Freeport-McMoRan Copper & Gold, Inc., Class B 4,500 163 ----------- 248 OIL: DOMESTIC 1.1% -------------------------------------------------------------------------- Chesapeake Energy Corp. 7,900 127 Patina Oil & Gas Corp 3,400 97
60 See financial notes. SCHWAB HEDGED EQUITY FUND
VALUE SECURITY AND NUMBER OF SHARES ($ x 1,000) Patterson Energy, Inc. 1,100 21 Quicksilver Resources, Inc. 100 3 St. Mary Land & Exploration Co. 1,200 47 Stone Energy Corp. 4,000 165 XTO Energy Inc. 9,000 300 ----------- 760 OIL: INTERNATIONAL 0.2% -------------------------------------------------------------------------- Global SantaFe Corp. 4,900 145 OPTICAL & PHOTO 0.1% -------------------------------------------------------------------------- Lexar Media, Inc. 12,500 85 PRODUCER GOODS & MANUFACTURING 2.1% -------------------------------------------------------------------------- Avery Dennison Corp. 2,500 152 Caterpillar, Inc. 2,100 169 Curtiss-Wright Corp. 1,400 78 General Electric Co. 7,200 246 GrafTech International Ltd. 18,000 167 Herman Miller, Inc. 100 2 Johnson Controls, Inc. 900 52 Pall Corp. 6,500 168 Teleflex, Inc. 3,700 162 Trinity Industries, Inc. 1,000 31 York International Corp. 6,100 194 ----------- 1,421 RETAIL 3.1% -------------------------------------------------------------------------- Autozone, Inc. 1,200 98 Carmax, Inc. 5,600 148 CVS Corp. 2,700 117 Dollar Tree Stores, Inc. 300 9 Family Dollar Stores, Inc. 5,900 174 (4) Foot Locker, Inc. 14,800 361 Kroger Co. 100 2 May Department Stores Co. 6,700 175 Petsmart, Inc. 7,505 240 Pier 1 Imports, Inc. 100 2 Ross Stores, Inc. 3,622 95 Safeway, Inc. 12,600 230 Target Corp. 1,100 55 The TJX Max Cos., Inc. 3,600 86 Tiffany & Co. 5,700 167 Tractor Supply Co. 1,300 47 Walgreen Co. 400 14 Whole Foods Market, Inc. 1,000 81 ----------- 2,101 STEEL 0.0% -------------------------------------------------------------------------- Worthington Industries, Inc. 400 8 TELEPHONE 0.5% -------------------------------------------------------------------------- Sprint Corp. 400 8 UTStarcom, Inc. 18,250 313 ----------- 321 TOBACCO 0.3% -------------------------------------------------------------------------- Universal Corp. 4,200 192 TRAVEL & RECREATION 0.4% -------------------------------------------------------------------------- Callaway Golf Co. 4,600 48 Carnival Corp. 2,400 121 Dick's Sporting Goods, Inc. 2,100 76 Station Casinos, Inc. 500 25 ----------- 270 TRUCKING & FREIGHT 0.2% -------------------------------------------------------------------------- C.H. Robinson Worldwide, Inc. 3,052 165 UTILITIES: ELECTRIC & GAS 2.2% -------------------------------------------------------------------------- Aqua America, Inc. 4,900 107 Consolidated Edison, Inc. 1,500 65 Entergy Corp. 900 59 Equitable Resources, Inc. 6,000 332 Indiana Energy, Inc. 4,100 106 NiSource, Inc. 12,600 270 (2) Pepco Holdings, Inc. 18,800 388 Piedmont Natural Gas Co., Inc. 400 18 Puget Energy, Inc. 6,000 140 Southern Union Co. 2,200 48 ----------- 1,533
END OF SHORT SALE POSITIONS. See financial notes. 61 SCHWAB HEDGED EQUITY FUND Statement of ASSETS AND LIABILITIES As of October 31, 2004. All numbers x 1,000 except NAV. ASSETS -------------------------------------------------------------------------------- Investments, at value $72,212 a Deposits with broker for short sales 14,722 Receivables: Fund shares sold 373 Interest 17 Dividends 36 Prepaid expenses + 12 ----------- TOTAL ASSETS 87,372 LIABILITIES -------------------------------------------------------------------------------- Securities sold short, at value 18,951 b Payables: Fund shares redeemed 58 Dividends on short sales 13 Investment adviser and administrator fees 15 Transfer agent and shareholder service fees 2 Accrued expenses + 42 ----------- TOTAL LIABILITIES 19,081 NET ASSETS -------------------------------------------------------------------------------- TOTAL ASSETS 87,372 TOTAL LIABILITIES - 19,081 ----------- NET ASSETS $68,291 NET ASSETS BY SOURCE Capital received from investors 55,599 Net realized capital gains 3,563 c Net unrealized capital gains 9,129 c NET ASSET VALUE (NAV) SHARES NET ASSETS / OUTSTANDING = NAV $68,291 5,251 $13.01
Unless stated, all numbers x 1,000. a The fund paid $62,992 for these securities. Not counting short-term obligations and government securities, the fund's security transactions during the period were: Purchases $66,141 Sales/maturities $53,201 b The proceeds for securities sold short is $18,860 c These derive from investments and short sales. FEDERAL TAX DATA ------------------------------------------------------- PORTFOLIO COST $63,218 NET UNREALIZED GAINS AND LOSSES: Gains $10,216 Losses + (1,222) ----------- $8,994 AS OF OCTOBER 31, 2004: NET UNDISTRIBUTED EARNINGS: Ordinary income $-- Long-term capital gains $3,789 CAPITAL LOSSES UTILIZED $260 RECLASSIFICATIONS: Net investment income not yet distributed $455 Reclassified as: Net realized capital gains ($238) Capital received from investors ($217) 62 See financial notes. SCHWAB HEDGED EQUITY FUND Statement of OPERATIONS For November 1, 2003 through October 31, 2004. All numbers x 1,000. INVESTMENT INCOME -------------------------------------------------------------------------------- Dividends $732 a Interest + 95 ----------- TOTAL INVESTMENT INCOME 827 NET REALIZED GAINS AND LOSSES -------------------------------------------------------------------------------- Net realized gains on investments 6,542 Net realized losses on short sales (2,356) ----------- NET REALIZED GAINS 4,186 NET UNREALIZED GAINS AND LOSSES -------------------------------------------------------------------------------- Net unrealized gains on investments 1,981 Net unrealized gains on short sales + 616 ----------- NET UNREALIZED GAINS 2,597 EXPENSES -------------------------------------------------------------------------------- Investment adviser and administrator fees 922 b Transfer agent and shareholder service fees 132 c Trustees' fees 5 d Custodian and portfolio accounting fees 65 Professional fees 43 Registration fees 18 Shareholder reports 9 Interest expense 53 Other expenses + 4 ----------- Total expenses before short sales 1,251 Dividends on short sales 175 Expense reduction + (144)e ----------- NET EXPENSES 1,282 INCREASE IN NET ASSETS FROM OPERATIONS -------------------------------------------------------------------------------- TOTAL INVESTMENT INCOME 827 NET EXPENSES - 1,282 ----------- NET INVESTMENT LOSS (455) NET REALIZED GAINS 4,186 f NET UNREALIZED GAINS + 2,597 f ----------- INCREASE IN NET ASSETS FROM OPERATIONS $6,328
Unless stated, all numbers x 1,000. a An additional $1 was withheld for foreign taxes. b Calculated as 1.75% of average daily net assets. These fees are paid to Charles Schwab Investment Management, Inc. (CSIM). c 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. These fees are paid to Charles Schwab & Co., Inc. (Schwab). d For the fund's independent trustees only. e This reduction was made by the investment adviser (CSIM). It reflects a guarantee by CSIM and the transfer agent and shareholder service agent (Schwab) to limit the operating expenses of this fund through February 28, 2005, to 2.00% of average daily net assets. This limit excludes interest, taxes, certain non-routine expenses and expenses for dividends and interest paid on securities sold short. f These add up to a net gain on investments of $6,783. See financial notes. 63 SCHWAB HEDGED EQUITY FUND Statement of CHANGES IN NET ASSETS For the current and prior report periods. All numbers x 1,000.
OPERATIONS -------------------------------------------------------------------------------- 11/1/03-10/31/04 11/1/02-10/31/03 Net investment loss ($455) ($338) Net realized gains or losses 4,186 (235) Net unrealized gains + 2,597 6,703 --------------------------------------------- INCREASE IN NET ASSETS FROM OPERATIONS $6,328 $6,130
TRANSACTIONS IN FUND SHARES -------------------------------------------------------------------------------- 11/1/03-10/31/04 11/1/02-10/31/03 SHARES VALUE SHARES VALUE Shares sold 2,509 $31,194 1,672 $17,074 Shares redeemed + (1,073) (13,199) (1,153) (11,663) a ------------------------------------------------- NET TRANSACTIONS IN FUND SHARES 1,436 $17,995 519 $5,411
SHARES OUTSTANDING AND NET ASSETS -------------------------------------------------------------------------------- 11/1/03-10/31/04 11/1/02-10/31/03 SHARES NET ASSETS SHARES NET ASSETS Beginning of period 3,815 $43,968 3,296 $32,427 Total increase + 1,436 24,323 519 11,541 b ------------------------------------------------- END OF PERIOD 5,251 $68,291 3,815 $43,968 c
Unless stated, all numbers x 1,000. a The fund charges 1.50% of early withdrawal fees on shares redeemed 180 days or less after the purchase: CURRENT PERIOD $41 PRIOR PERIOD $42 Dollar amounts are net of the redemption proceeds. b Figures for shares represent shares sold plus shares reinvested, minus shares redeemed. Figures for net assets represent the changes in net assets from operations plus the changes in value of transactions in fund shares, minus distributions paid. c There was no distributable net investment income at the end of the current and prior period. 64 See financial notes. COMMUNICATIONS FOCUS FUND FINANCIAL STATEMENTS FINANCIAL HIGHLIGHTS
11/1/03- 11/1/02- 11/1/01- 11/1/00- 7/3/00 1- 10/31/04 10/31/03 10/31/02 10/31/01 10/31/00 --------------------------------------------------------------------------------------------------------------------------------- PER-SHARE DATA ($) --------------------------------------------------------------------------------------------------------------------------------- Net asset value at beginning of period 3.57 2.84 4.16 8.13 10.00 ------------------------------------------------------------------------- Income or loss from investment operations: Net investment income or loss 0.05 0.02 0.03 (0.00) 2 0.00 2 Net realized and unrealized gains or losses 0.27 0.74 (1.35) (3.97) (1.87) ------------------------------------------------------------------------- Total income or loss from investment operations 0.32 0.76 (1.32) (3.97) (1.87) Less distributions: Dividends from net investment income (0.01) (0.03) -- (0.00) 2 -- ------------------------------------------------------------------------- Net asset value at end of period 3.88 3.57 2.84 4.16 8.13 ------------------------------------------------------------------------- Total return (%) 9.14 26.87 (31.73) (48.82) (18.70) 3 RATIOS/SUPPLEMENTAL DATA (%) --------------------------------------------------------------------------------------------------------------------------------- Ratios to average net assets: Net operating expenses 1.11 4 1.04 5 0.89 0.90 6 0.89 7 Gross operating expenses 1.68 1.77 1.68 1.30 1.71 7 Net investment income or loss 1.37 0.45 0.69 (0.02) 0.07 7 Portfolio turnover rate 80 179 94 154 45 3 Net assets, end of period ($ x 1,000,000) 10 11 9 16 32
1 Commencement of operations. 2 Per-share amount was less than $0.01. 3 Not annualized. 4 The ratio of net operating expenses would have been 1.10% if interest expense had not been included. 5 The ratio of net operating expenses would have been 1.03% if interest expense had not been included. 6 The ratio of net operating expenses would have been 0.89% if interest expense had not been included. 7 Annualized. See financial notes. 65 COMMUNICATIONS FOCUS FUND PORTFOLIO HOLDINGS as of October 31, 2004 This section shows all the securities in the fund's portfolio by industry classification and their value, as of the report date. The fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The fund's Form N-Q is available on the SEC's website at http://www.sec.gov and may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Call 1-800-SEC-0330 for information on the operation of the Public Reference Room. The schedule of portfolio holdings filed on the fund's most recent Form N-Q is available by visiting Schwab's website at www.schwab.com/schwabfunds. We use the symbols below to designate certain characteristics of the securities. With the top ten holdings, the number in the circle is the security's rank among the top ten. (1) Top ten holding o Non-income producing security @ This security or a portion of this security is on loan
COST VALUE HOLDINGS BY CATEGORY ($x1,000) ($x1,000) -------------------------------------------------------------------------------- 98.3% COMMON STOCK 9,347 10,197 1.7% SHORT-TERM INVESTMENT 178 178 -------------------------------------------------------------------------------- 100.0% TOTAL INVESTMENTS 9,525 10,375 9.6% COLLATERAL INVESTED FOR SECURITIES ON LOAN 994 994 (9.6)% OTHER ASSETS AND LIABILITIES, NET (999) -------------------------------------------------------------------------------- 100.0% TOTAL NET ASSETS 10,370
VALUE SECURITY AND NUMBER OF SHARES ($ x 1,000) COMMON STOCK 98.3% of net assets BUSINESS MACHINES & SOFTWARE 4.0% -------------------------------------------------------------------------- @o PTEK Holdings, Inc. 42,000 418 CONSUMER DURABLES 2.5% -------------------------------------------------------------------------- o Gemstar--TV Guide International, Inc. 45,000 259 ELECTRONICS 4.8% -------------------------------------------------------------------------- o(10) Western Wireless Corp., Class A 17,000 496 MEDIA 10.0% -------------------------------------------------------------------------- o American Tower Corp., Class A 15,500 265 John Wiley & Sons, Class A 6,000 195 McClatchy Co., Class A 3,000 209 The McGraw-Hill Cos., Inc. 4,300 371 ------------ 1,040 TELEPHONE 77.0% -------------------------------------------------------------------------- @o Alamosa Holdings, Inc. 25,000 251 (3) Alltel Corp. 10,300 566 (1) AT&T Corp. 33,900 580 (7) BellSouth Corp. 19,837 529 (9) CenturyTel, Inc. 15,600 501 o(5) Citizens Communications Co. 41,500 556 o(2) Commonwealth Telephone Enterprises, Inc. 12,600 575 CT Communications, Inc. 23,900 299 D&E Communications, Inc. 18,000 223 Hickory Tech Corp. 31,900 364 o(6) Nextel Communications, Inc., Class A 20,300 538 North Pittsburgh Systems, Inc. 19,300 398 o Qwest Communications International, Inc. 121,000 414 (8) SBC Communications, Inc. 20,804 525 Telephone & Data Systems, Inc. 4,500 337 @o Time Warner Telecom, Inc., Class A 50,000 256 o U.S. Cellular Corp. 2,000 83 o Ubiquitel, Inc. 46,000 261 @o US LEC Corp., Class A 50,895 170 (4) Verizon Communications, Inc. 14,282 558 ------------ 7,984
66 See financial notes. COMMUNICATIONS FOCUS FUND
SECURITY FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) SHORT-TERM INVESTMENT 1.7% of net assets HSBC Bank, USA Grand Cayman Time Deposit 1.29%, 11/01/04 178 178 END OF INVESTMENTS. SECURITY AND NUMBER OF SHARES COLLATERAL INVESTED FOR SECURITIES ON LOAN 9.6% of net assets OTHER INVESTMENT COMPANIES 9.6% ------------------------------------------------------------------------- Securities Lending Investment Fund 993,975 994 END OF COLLATERAL INVESTED FOR SECURITIES ON LOAN.
See financial notes. 67 COMMUNICATIONS FOCUS FUND Statement of ASSETS AND LIABILITIES As of October 31, 2004. All numbers x 1,000 except NAV. ASSETS -------------------------------------------------------------------------------- Investments, at value (including $929 of securities on loan) $10,375 a Collateral invested for securities on loan 994 Receivables: Fund shares sold 1 Dividends 26 Prepaid expenses + 6 ------------ TOTAL ASSETS 11,402 LIABILITIES -------------------------------------------------------------------------------- Collateral invested for securities on loan 994 Payables: Fund shares redeemed 9 Trustees' fees 1 Accrued expenses + 28 ------------ TOTAL LIABILITIES 1,032 NET ASSETS -------------------------------------------------------------------------------- TOTAL ASSETS 11,402 TOTAL LIABILITIES - 1,032 ------------ NET ASSETS $10,370 NET ASSETS BY SOURCE Capital received from investors 35,483 Net investment income not yet distributed 145 Net realized capital losses (26,108) Net unrealized capital gains 850 NET ASSET VALUE (NAV) SHARES NET ASSETS / OUTSTANDING = NAV $10,370 2,672 $3.88
Unless stated, all numbers x 1,000. a The fund paid $9,525 for these securities. Not counting short-term obligations and government securities, the fund's security transactions during the period were: Purchases $8,602 Sales/maturities $10,243 The fund's total security transactions with other SchwabFunds(R) during the period were $39. FEDERAL TAX DATA ------------------------------------------------------- PORTFOLIO COST $9,738 NET UNREALIZED GAINS AND LOSSES: Gains $1,242 Losses + (605) ------------ $637 AS OF OCTOBER 31, 2004: NET UNDISTRIBUTED EARNINGS: Ordinary income $145 Long-term capital gains $-- CAPITAL LOSSES UTILIZED $402 UNUSED CAPITAL LOSSES: Expires 10/31 of: Loss amount 2008 $824 2009 13,397 2010 8,364 2011 + 3,310 ------------ $25,895 68 See financial notes. COMMUNICATIONS FOCUS FUND Statement of OPERATIONS For November 1, 2003 through October 31, 2004. All numbers x 1,000. INVESTMENT INCOME -------------------------------------------------------------------------------- Dividends $264 Securities on loan + 1 -------- TOTAL INVESTMENT INCOME 265 NET REALIZED GAINS AND LOSSES -------------------------------------------------------------------------------- Net realized gains on investments 522 NET UNREALIZED GAINS AND LOSSES -------------------------------------------------------------------------------- Net unrealized gains on investments 232 EXPENSES -------------------------------------------------------------------------------- Investment adviser and administrator fees 58 a Transfer agent and shareholder service fees 27 b Trustees' fees 4 c Custodian fees 32 Portfolio accounting fees 1 Professional fees 31 Registration fees 14 Shareholder reports 9 Other expenses + 4 -------- Total expenses 180 Expense reduction - 61 d -------- NET EXPENSES 119 INCREASE IN NET ASSETS FROM OPERATIONS -------------------------------------------------------------------------------- TOTAL INVESTMENT INCOME 265 NET EXPENSES - 119 -------- NET INVESTMENT INCOME 146 NET REALIZED GAINS 522 e NET UNREALIZED GAINS + 232 e -------- INCREASE IN NET ASSETS FROM OPERATIONS $900
Unless stated, all numbers x 1,000. a Calculated as 0.54% of average daily net assets. These fees are paid to Charles Schwab Investment Management, Inc. (CSIM). b 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. These fees are paid to Charles Schwab & Co., Inc. (Schwab). c For the fund's independent trustees only. d Includes $54 from the investment adviser (CSIM) and $7 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 February 28, 2005, to 1.10% of average daily net assets. This limit excludes interest, taxes and certain non-routine expenses. e These add up to a net gain on investments of $754. See financial notes. 69 COMMUNICATIONS FOCUS FUND Statements of CHANGES IN NET ASSETS For the current and prior report periods. All numbers x 1,000.
OPERATIONS --------------------------------------------------------------------------------- 11/1/03-10/31/04 11/1/02-10/31/03 Net investment income $146 $44 Net realized gains or losses 522 (2,109) Net unrealized gains + 232 4,443 ------------------------------------------ INCREASE IN NET ASSETS FROM OPERATIONS 900 2,378 DISTRIBUTIONS PAID --------------------------------------------------------------------------------- Dividends from net investment income $44 $87 a,b
TRANSACTIONS IN FUND SHARES --------------------------------------------------------------------------------- 11/1/03-10/31/04 11/1/02-10/31/03 SHARES VALUE SHARES VALUE Shares sold 392 $1,470 825 $2,570 Shares reinvested 11 39 27 78 Shares redeemed + (834) (3,077) (1,019) (3,138) c ------------------------------------------------- NET TRANSACTIONS IN FUND SHARES (431) ($1,568) (167) ($490)
SHARES OUTSTANDING AND NET ASSETS --------------------------------------------------------------------------------- 11/1/03-10/31/04 11/1/02-10/31/03 SHARES NET ASSETS SHARES NET ASSETS Beginning of period 3,103 $11,082 3,270 $9,281 Total increase or decrease + (431) (712) (167) 1,801 d ------------------------------------------------- END OF PERIOD 2,672 $10,370 3,103 $11,082 e
Unless stated, all numbers x 1,000. a UNAUDITED For corporations, 100% of the fund's dividends for the report period qualify for the dividends-received deduction. The fund designates $44 of the dividend distribution for the fiscal year ended 10/31/04 as qualified dividends for the purpose of the maximum rate under Section 1(h)(ii) of the Internal Revenue Code. Shareholders will be notified in January 2005 via IRS Form 1099 of the amounts for the use in preparing their 2004 income tax return. b The tax-basis components of distributions paid are: CURRENT PERIOD Ordinary income $44 Long-term capital gains $-- PRIOR PERIOD Ordinary income $87 Long-term capital gains $-- c The fund charges 0.75% of early withdrawal fees on shares redeemed 180 days or less after the purchase: CURRENT PERIOD $2 PRIOR PERIOD $6 Dollar amounts are net of the redemption proceeds. d Figures for shares represent shares sold plus shares reinvested, minus shares redeemed. Figures for net assets represent the changes in net assets from operations plus the changes in value of transactions in fund shares, minus distributions paid. e Includes distributable net investment income in the amount of $145 and $43 at the end of the current period and prior period, respectively. 70 See financial notes. FINANCIAL SERVICES FOCUS FUND FINANCIAL STATEMENTS FINANCIAL HIGHLIGHTS
11/1/03- 11/1/02- 11/1/01- 11/1/00- 7/3/00 1- 10/31/04 10/31/03 10/31/02 10/31/01 10/31/00 PER-SHARE DATA ($) ------------------------------------------------------------------------------------------------------------------------------------ Net asset value at beginning of period 11.77 9.44 9.75 11.86 10.00 ---------------------------------------------------------------------- Income or loss from investment operations: Net investment income 0.08 0.11 0.12 0.09 0.04 Net realized and unrealized gains or losses 1.37 2.37 (0.28) (1.76) 1.82 ---------------------------------------------------------------------- Total income or loss from investment operations 1.45 2.48 (0.16) (1.67) 1.86 Less distributions: Dividends from net investment income (0.10) (0.15) (0.09) (0.06) -- Distributions from net realized gains -- -- (0.06) (0.38) -- ---------------------------------------------------------------------- Total distributions (0.10) (0.15) (0.15) (0.44) -- ---------------------------------------------------------------------- Net asset value at end of period 13.12 11.77 9.44 9.75 11.86 ---------------------------------------------------------------------- Total return (%) 12.39 26.68 (1.78) (14.51) 18.60 2 RATIOS/SUPPLEMENTAL DATA (%) ------------------------------------------------------------------------------------------------------------------------------------ Ratios to average net assets: Net operating expenses 1.05 1.04 3 0.89 0.89 0.89 4 Gross operating expenses 1.25 1.49 1.32 1.23 1.99 4 Net investment income 0.62 1.05 1.20 0.75 1.04 4 Portfolio turnover rate 85 181 131 151 40 2 Net assets, end of period ($ x 1,000,000) 20 18 17 21 24
1 Commencement of operations. 2 Not annualized. 3 The ratio of net operating expenses would have been 1.03% if interest expense had not been included. 4 Annualized. See financial notes. 71 FINANCIAL SERVICES FOCUS FUND PORTFOLIO HOLDINGS as of October 31, 2004 This section shows all the securities in the fund's portfolio by industry classification and their value, as of the report date. The fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The fund's Form N-Q is available on the SEC's website at http://www.sec.gov and may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Call 1-800-SEC-0330 for information on the operation of the Public Reference Room. The schedule of portfolio holdings filed on the fund's most recent Form N-Q is available by visiting Schwab's website at www.schwab.com/schwabfunds. We use the symbols below to designate certain characteristics of the securities. With the top ten holdings, the number in the circle is the security's rank among the top ten. (1) Top ten holding o Non-income producing security
COST VALUE HOLDINGS BY CATEGORY ($x1,000) ($x1,000) -------------------------------------------------------------------------------- 99.8% COMMON STOCK 17,483 19,519 -------------------------------------------------------------------------------- 99.8% TOTAL INVESTMENTS 17,483 19,519 0.6% COLLATERAL INVESTED FOR SECURITIES ON LOAN 116 116 (0.4)% OTHER ASSETS AND LIABILITIES, NET (75) -------------------------------------------------------------------------------- 100.0% TOTAL NET ASSETS 19,560
VALUE SECURITY AND NUMBER OF SHARES ($ x 1,000) COMMON STOCK 99.8% of net assets BANKS 46.9% -------------------------------------------------------------------------- Associated Banc-Corp. 11,500 399 BancFirst Corp. 2,500 163 Bank of America Corp. 6,260 280 (6) Bank of Hawaii Corp. 15,000 716 (10) City National Corp. 7,100 489 Columbia Banking Systems, Inc. 9,000 220 (5) Comerica, Inc. 13,100 806 Doral Financial Corp. 3,800 160 First Charter Corp. 5,000 128 First Merchants Corp. 4,000 99 Hancock Holding Co. 4,800 152 Hibernia Corp., Class A 2,500 72 Huntington Bancshares, Inc. 13,300 319 (4) KeyCorp, Inc. 25,100 843 Marshall & Ilsley Corp. 7,000 294 (1) Mellon Financial Corp. 34,000 983 National City Corp. 9,200 359 (2) Northern Trust Corp. 22,500 957 Popular, Inc. 12,500 321 (3) UnionBanCal Corp. 15,700 954 Wachovia Corp. 6,500 320 WesBanco, Inc. 3,000 91 WSFS Financial Corp. 1,000 53 ----------- 9,178 ELECTRONICS 1.1% -------------------------------------------------------------------------- o American Physicians Capital, Inc. 6,500 207 INSURANCE 23.2% -------------------------------------------------------------------------- AFLAC, Inc. 9,600 344 AMBAC Financial Group, Inc. 3,100 242 American International Group, Inc. 1,000 61 AON Corp. 3,000 61 Arthur J. Gallagher & Co. 10,100 284 Chubb Corp. 4,400 317 o CNA Financial Corp. 7,300 175 Delphi Financial Group, Inc., Class A 3,900 159 Fidelity National Financial, Inc. 6,900 260 First American Corp. 11,600 362 Horace Mann Educators Corp. 5,000 85 (9) Metlife, Inc. 13,000 499 Nationwide Financial Services, Inc., Class A 9,900 343 Prudential Financial, Inc. 6,300 293
72 See financial notes. FINANCIAL SERVICES FOCUS FUND
VALUE SECURITY AND NUMBER OF SHARES ($ x 1,000) Reinsurance Group of America, Inc. 8,500 366 Safeco Corp. 7,000 324 W.R. Berkley Corp. 8,500 363 ----------- 4,538 MISCELLANEOUS FINANCE 26.7% -------------------------------------------------------------------------- 1st Source Corp. 2,000 54 Advanta Corp., Class B 12,000 292 o AmeriCredit Corp. 14,500 281 o Berkshire Hathaway, Inc., Class A 5 421 Berkshire Hills Bancorp, Inc. 700 26 Capital Corp. of the West 4,858 224 (8) Capital One Financial Corp. 6,800 502 o CompuCredit Corp. 16,000 305 (7) Countrywide Financial Corp. 17,198 549 o E*TRADE Financial Corp. 25,800 333 Franklin Resources, Inc. 5,800 352 Goldman Sachs Group, Inc. 4,000 394 o Instinet Group, Inc. 50,000 240 MBNA Corp. 13,390 343 Nuveen Investments, Inc., Class A 7,100 224 o Providian Financial Corp. 15,300 238 Raymond James Financial, Inc. 15,700 410 Santander BanCorp 1,000 28 ----------- 5,216 REAL PROPERTY 1.9% -------------------------------------------------------------------------- The St. Joe Co. 2,600 132 o Trammell Crow Co. 13,000 201 o United Capital Corp. 2,100 47 ----------- 380
END OF INVESTMENTS.
VALUE SECURITY AND NUMBER OF SHARES ($ x 1,000) COLLATERAL INVESTED FOR SECURITIES ON LOAN 0.6% of net assets OTHER INVESTMENT COMPANIES 0.6% -------------------------------------------------------------------------- Securities Lending Investment Fund 115,500 116
END OF COLLATERAL INVESTED FOR SECURITIES ON LOAN. See financial notes. 73 FINANCIAL SERVICES FOCUS FUND Statement of ASSETS AND LIABILITIES As of October 31, 2004. All numbers x 1,000 except NAV. ASSETS ------------------------------------------------------------------------------- Investments, at value $19,519 a Collateral invested for securities on loan 116 Receivables: Fund shares sold 11 Dividends 13 Investments sold 1,297 Prepaid expenses + 6 ---------- TOTAL ASSETS 20,962 LIABILITIES ------------------------------------------------------------------------------- Bank overdraft 93 Payables: Due to brokers 116 Fund shares redeemed 4 Investments bought 1,162 Investment adviser and administrator fees 1 Trustees' fees 1 Accrued expenses + 25 ---------- TOTAL LIABILITIES 1,402 NET ASSETS ------------------------------------------------------------------------------- TOTAL ASSETS 20,962 TOTAL LIABILITIES - 1,402 ---------- NET ASSETS $19,560 NET ASSETS BY SOURCE Capital received from investors 16,042 Net investment income not yet distributed 87 Net realized capital gains 1,395 Net unrealized capital gains 2,036 NET ASSET VALUE (NAV) SHARES NET ASSETS / OUTSTANDING = NAV $19,560 1,491 $13.12
Unless stated, all numbers x 1,000. a The fund paid $17,483 for these securities. Not counting short-term obligations and government securities, the fund's security transactions during the period were: Purchases $16,897 Sales/maturities $17,912 The fund's total security transactions with other SchwabFunds(R) during the period were $49. FEDERAL TAX DATA ------------------------------------------------------- PORTFOLIO COST $17,490 NET UNREALIZED GAINS AND LOSSES: Gains $2,330 Losses + (301) ----------- $2,029 AS OF OCTOBER 31, 2004: NET UNDISTRIBUTED EARNINGS: Ordinary income $87 Long-term capital gains $1,402 CAPITAL LOSSES UTILIZED $911 RECLASSIFICATIONS: Net investment income not yet distributed $3 Reclassified as: Net realized capital gains ($3) 74 See financial notes. FINANCIAL SERVICES FOCUS FUND Statement of OPERATIONS For November 1, 2003 through October 31, 2004. All numbers x 1,000. INVESTMENT INCOME -------------------------------------------------------------------------------- Dividends $331 Securities on loan + 1 ---------- TOTAL INVESTMENT INCOME 332 NET REALIZED GAINS AND LOSSES -------------------------------------------------------------------------------- Net realized gains on investments 2,314 NET UNREALIZED GAINS AND LOSSES -------------------------------------------------------------------------------- Net unrealized losses on investments (253) EXPENSES -------------------------------------------------------------------------------- Investment adviser and administrator fees 107 a Transfer agent and shareholder service fees 50 b Trustees' fees 4 c Custodian fees 30 Portfolio accounting fees 3 Professional fees 31 Registration fees 16 Shareholder reports 4 Other expenses + 3 ---------- Total expenses 248 Expense reduction - 39 d ---------- NET EXPENSES 209 INCREASE IN NET ASSETS FROM OPERATIONS -------------------------------------------------------------------------------- TOTAL INVESTMENT INCOME 332 NET EXPENSES - 209 ---------- NET INVESTMENT INCOME 123 NET REALIZED GAINS 2,314 e NET UNREALIZED LOSSES + (253) e ---------- INCREASE IN NET ASSETS FROM OPERATIONS $2,184
Unless stated, all numbers x 1,000. a Calculated as 0.54% of average daily net assets. These fees are paid to Charles Schwab Investment Management, Inc. (CSIM). b 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. These fees are paid to Charles Schwab & Co., Inc. (Schwab). c For the fund's independent trustees only. d This reduction was made by the investment adviser (CSIM). It reflects a guarantee by CSIM and the transfer agent and shareholder service agent (Schwab) to limit the operating expenses of this fund through February 28, 2005, to 1.10% of average daily net assets. This limit excludes interest, taxes and certain non-routine expenses. e These add up to a net gain on investments of $2,061. See financial notes. 75 FINANCIAL SERVICES FOCUS FUND Statements of CHANGES IN NET ASSETS For the current and prior report periods. All numbers x 1,000.
OPERATIONS -------------------------------------------------------------------------------- 11/1/03-10/31/04 11/1/02-10/31/03 Net investment income $123 $176 Net realized gains 2,314 326 Net unrealized gains or losses + (253) 3,471 ---------------------------------------- INCREASE IN NET ASSETS FROM OPERATIONS 2,184 3,973 DISTRIBUTIONS PAID -------------------------------------------------------------------------------- DIVIDENDS FROM NET INVESTMENT INCOME $158 $260 a, b
TRANSACTIONS IN FUND SHARES -------------------------------------------------------------------------------- 11/1/03-10/31/04 11/1/02-10/31/03 SHARES VALUE SHARES VALUE Shares sold 369 $4,651 231 $2,407 Shares reinvested 12 142 25 236 Shares redeemed + (457) (5,709) (509) (5,079) c ----------------------------------------------- NET TRANSACTIONS IN FUND SHARES (76) ($916) (253) ($2,436)
SHARES OUTSTANDING AND NET ASSETS -------------------------------------------------------------------------------- 11/1/03-10/31/04 11/1/02-10/31/03 SHARES NET ASSETS SHARES NET ASSETS Beginning of period 1,567 $18,450 1,820 $17,173 Total increase or decrease + (76) 1,110 (253) 1,277 d ----------------------------------------------- END OF PERIOD 1,491 $19,560 1,567 $18,450 e
Unless stated, all numbers x 1,000. a UNAUDITED For corporations, 100% of the fund's dividends for the report period qualify for the dividends-received deduction. The fund designates $158 of the dividend distribution for the fiscal year ended 10/31/04 as qualified dividends for the purpose of the maximum rate under Section 1(h)(ii) of the Internal Revenue Code. Shareholders will be notified in January 2005 via IRS Form 1099 of the amounts for the use in preparing their 2004 income tax return. b The tax-basis components of distributions paid are: CURRENT PERIOD Ordinary income $158 Long-term capital gains $-- PRIOR PERIOD Ordinary income $260 Long-term capital gains $-- c The fund charges 0.75% of early withdrawal fees on shares redeemed 180 days or less after the purchase: CURRENT PERIOD $5 PRIOR PERIOD $4 Dollar amounts are net of the redemption proceeds. d Figures for shares represent shares sold plus shares reinvested, minus shares redeemed. Figures for net assets represent the changes in net assets from operations plus the changes in value of transactions in fund shares, minus distributions paid. e Includes distributable net investment income in the amount of $87 and $119 at the end of the current period and prior period, respectively. 76 See financial notes. HEALTH CARE FOCUS FUND FINANCIAL STATEMENTS FINANCIAL HIGHLIGHTS
11/1/03- 11/1/02- 11/1/01- 11/1/00- 7/3/00 1- 10/31/04 10/31/03 10/31/02 10/31/01 10/31/00 PER-SHARE DATA ($) ---------------------------------------------------------------------------------------------------------------------------- Net asset value at beginning of period 8.43 7.12 9.00 10.27 10.00 -------------------------------------------------------------------- Income or loss from investment operations: Net investment income or loss (0.06) 0.01 0.03 0.00 2 (0.00) 2 Net realized and unrealized gains or losses 2.41 1.33 (1.90) (1.10) 0.27 -------------------------------------------------------------------- Total income or loss from investment operations 2.35 1.34 (1.87) (1.10) 0.27 Less distributions: Dividends from net investment income -- (0.03) (0.01) (0.00) 2 -- Distributions from net realized gains -- -- -- (0.17) -- -------------------------------------------------------------------- Total distributions -- (0.03) (0.01) (0.17) -- -------------------------------------------------------------------- Net asset value at end of period 10.78 8.43 7.12 9.00 10.27 -------------------------------------------------------------------- Total return (%) 27.88 18.96 (20.84) (10.94) 2.70 3 RATIOS/SUPPLEMENTAL DATA (%) ---------------------------------------------------------------------------------------------------------------------------- Ratios to average net assets: Net operating expenses 1.04 1.04 0.89 0.89 0.89 4 Gross operating expenses 1.07 1.34 1.18 1.17 2.04 4 Net investment income or loss (0.73) 0.13 0.25 0.06 (0.02) 4 Portfolio turnover rate 105 200 99 92 41 3 Net assets, end of period ($ x 1,000,000) 54 25 21 32 28
1 Commencement of operations. 2 Per share amount was less than $0.01. 3 Not annualized. 4 Annualized. See financial notes. 77 HEALTH CARE FOCUS FUND PORTFOLIO HOLDINGS as of October 31, 2004 This section shows all the securities in the fund's portfolio by industry classification and their value, as of the report date. The fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The fund's Form N-Q is available on the SEC's website at http://www.sec.gov and may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Call 1-800-SEC-0330 for information on the operation of the Public Reference Room. The schedule of portfolio holdings filed on the fund's most recent Form N-Q is available by visiting Schwab's website at www.schwab.com/schwabfunds. We use the symbols below to designate certain characteristics of the securities. With the top ten holdings, the number in the circle is the security's rank among the top ten. (1) Top ten holding o Non-income producing security @ This security or a portion of this security is on loan
COST VALUE HOLDINGS BY CATEGORY ($x1,000) ($x1,000) -------------------------------------------------------------------------------- 99.9% COMMON STOCK 47,574 53,880 0.0% SHORT-TERM INVESTMENT 3 3 0.0% RIGHTS -- -- -------------------------------------------------------------------------------- 99.9% TOTAL INVESTMENTS 47,577 53,883 2.0% COLLATERAL INVESTED FOR SECURITIES ON LOAN 1,055 1,055 (1.9)% OTHER ASSETS AND LIABILITIES, NET (1,006) -------------------------------------------------------------------------------- 100.0% TOTAL NET ASSETS 53,932
VALUE SECURITY AND NUMBER OF SHARES ($ x 1,000) COMMON STOCK 99.9% of net assets BUSINESS SERVICES 9.0% -------------------------------------------------------------------------- o Gentiva Health Services, Inc. 76,000 1,290 IMS Health, Inc. 65,100 1,379 o PDI, Inc. 34,192 978 o Trizetto Group, Inc. 24,800 169 o Ventiv Health, Inc. 60,000 1,038 ----------- 4,854 ELECTRONICS 3.3% -------------------------------------------------------------------------- (3) PerkinElmer, Inc. 87,600 1,799 HEALTHCARE / DRUGS & MEDICINE 76.2% -------------------------------------------------------------------------- o Alliance Imaging, Inc. 31,900 237 o(4) AMERIGROUP Corp. 29,800 1,788 Applied Biosystems Group -- Applera Corp. 75,400 1,439 Bausch & Lomb, Inc. 23,800 1,451 (9) Becton Dickinson & Co. 31,300 1,643 C.R. Bard, Inc. 21,800 1,238 o Cephalon, Inc. 32,400 1,544 @o Community Health Systems, Inc. 46,900 1,258 o Coventry Health Care, Inc. 31,400 1,284 o DaVita, Inc. 54,050 1,601 o Express Scripts, Inc. 24,500 1,568 o First Horizon Pharmaceutical Corp. 48,400 1,190 o Genesis HealthCare Corp. 11,000 337 o Haemonetics Corp. 48,000 1,577 o(2) Humana, Inc. 94,900 1,817 (10) Johnson & Johnson 28,000 1,635 o Kensey Nash Corp. 45,000 1,287 o(7) Laboratory Corp. of America Holdings 37,000 1,695 Manor Care, Inc. 39,600 1,296 Medicis Pharmaceutical Corp., Class A 35,600 1,448 Merck & Co., Inc. 32,200 1,008 o Millennium Pharmaceuticals, Inc. 43,800 569 o Molecular Devices Corp. 14,500 290 o(6) Pacificare Health Systems, Inc. 48,500 1,728 o Pozen, Inc. 10,000 88 Select Medical Corp. 62,600 1,076 o Sierra Health Services, Inc. 27,400 1,308 o Techne Corp. 20,000 720
78 See financial notes. HEALTH CARE FOCUS FUND
VALUE SECURITY AND NUMBER OF SHARES ($ x 1,000) o Third Wave Technologies, Inc. 119,600 919 (5) UnitedHealth Group, Inc. 24,300 1,759 Valeant Pharmaceuticals International 40,600 974 o Visx, Inc. 70,000 1,168 Vital Signs, Inc. 6,800 235 (1) Wyeth 49,000 1,943 ----------- 41,118 INSURANCE 8.9% -------------------------------------------------------------------------- Aetna, Inc. 17,200 1,634 CIGNA Corp. 23,200 1,472 o(8) WellChoice, Inc. 40,000 1,670 ----------- 4,776 PRODUCER GOODS & MANUFACTURING 2.5% -------------------------------------------------------------------------- o Kos Pharmaceuticals, Inc. 15,000 536 Matthews International Corp., Class A 23,800 797 ----------- 1,333 RIGHTS 0.0% of net assets HEALTHCARE / DRUGS & MEDICINE 0.0% -------------------------------------------------------------------------- OSI Pharmaceuticals, Inc. expires 01/18/05 458 --
SECURITY FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) SHORT-TERM INVESTMENT 0.0% of net assets Brown Brothers Harriman, Grand Cayman Time Deposit 1.29%, 11/01/04 3 3
END OF INVESTMENTS. SECURITY AND NUMBER OF SHARES COLLATERAL INVESTED FOR SECURITIES ON LOAN 2.0% of net assets OTHER INVESTMENT COMPANIES 2.0% -------------------------------------------------------------------------- Securities Lending Investment Fund 1,055,450 1,055
END OF COLLATERAL INVESTED FOR SECURITIES ON LOAN. See financial notes. 79 HEALTH CARE FOCUS FUND Statement of ASSETS AND LIABILITIES As of October 31, 2004. All numbers x 1,000 except NAV. ASSETS -------------------------------------------------------------------------------- Investments, at value (including $1,034 of securities on loan) $53,883 a Collateral invested for securities on loan 1,055 Receivables: Fund shares sold 81 Dividends 11 Investments sold 2 Prepaid expenses + 8 ---------- TOTAL ASSETS 55,040 LIABILITIES -------------------------------------------------------------------------------- Collateral invested for securities on loan 1,055 Payables: Fund shares redeemed 16 Investment adviser and administrator fees 3 Transfer agent and shareholder service fees 1 Accrued expenses + 33 ---------- TOTAL LIABILITIES 1,108 NET ASSETS -------------------------------------------------------------------------------- TOTAL ASSETS 55,040 TOTAL LIABILITIES - 1,108 ----------- NET ASSETS $53,932 NET ASSETS BY SOURCE Capital received from investors 52,337 Net realized capital losses (4,711) Net unrealized capital gains 6,306 NET ASSET VALUE (NAV) SHARES NET ASSETS / OUTSTANDING = NAV $53,932 5,005 $10.78
Unless stated, all numbers x 1,000. a The fund paid $47,577 for these securities. Not counting short-term obligations and government securities, the fund's security transactions during the period were: Purchases $64,485 Sales/maturities $43,469 FEDERAL TAX DATA --------------------------------------------------------- PORTFOLIO COST $47,760 NET UNREALIZED GAINS AND LOSSES: Gains $8,074 Losses + (1,951) ------------ $6,123 AS OF OCTOBER 31, 2004: NET UNDISTRIBUTED EARNINGS: Ordinary income $-- Long-term capital gains $-- CAPITAL LOSSES UTILIZED $4,567 UNUSED CAPITAL LOSSES: Expires 10/31 of: Loss amount 2010 $890 2011 + 3,638 ----------- $4,528 RECLASSIFICATIONS: Net investment income not yet distributed $303 Reclassified as: Capital received from investors ($303) 80 See financial notes. HEALTH CARE FOCUS FUND Statement of OPERATIONS For November 1, 2003 through October 31, 2004. All numbers x 1,000. INVESTMENT INCOME -------------------------------------------------------------------------------- Dividends $127 Interest 2 Securities on loan + 1 ---------- TOTAL INVESTMENT INCOME 130 NET REALIZED GAINS AND LOSSES -------------------------------------------------------------------------------- Net realized gains on investments 4,394 NET UNREALIZED GAINS AND LOSSES -------------------------------------------------------------------------------- Net unrealized gains on investments 3,441 EXPENSES -------------------------------------------------------------------------------- Investment adviser and administrator fees 224 a Transfer agent and shareholder service fees 104 b Trustees' fees 5 c Custodian fees 35 Portfolio accounting fees 6 Professional fees 32 Registration fees 20 Shareholder reports 13 Other expenses + 3 ---------- Total expenses 442 Expense reduction - 9 d ---------- NET EXPENSES 433 INCREASE IN NET ASSETS FROM OPERATIONS -------------------------------------------------------------------------------- TOTAL INVESTMENT INCOME 130 NET EXPENSES - 433 ---------- NET INVESTMENT LOSS (303) NET REALIZED GAINS 4,394 e NET UNREALIZED GAINS + 3,441 e ---------- INCREASE IN NET ASSETS FROM OPERATIONS $7,532
Unless stated, all numbers x 1,000. a Calculated as 0.54% of average daily net assets. These fees are paid to Charles Schwab Investment Management, Inc. (CSIM). b 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. These fees are paid to Charles Schwab & Co., Inc. (Schwab). c For the fund's independent trustees only. d This reduction was made by the investment adviser (CSIM). It reflects a guarantee by CSIM and the transfer agent and shareholder service agent (Schwab) to limit the operating expenses of this fund through February 28, 2005, to 1.10% of average daily net assets. This limit excludes interest, taxes and certain non-routine expenses. e These add up to a net gain on investments of $7,835. See financial notes. 81 HEALTH CARE FOCUS FUND Statements of CHANGES IN NET ASSETS For the current and prior report periods. All numbers x 1,000.
OPERATIONS -------------------------------------------------------------------------------- 11/1/03-10/31/04 11/1/02-10/31/03 Net investment income or loss ($303) $29 Net realized gains or losses 4,394 (2,899) Net unrealized gains + 3,441 6,783 ---------------------------------------- INCREASE IN NET ASSETS FROM OPERATIONS 7,532 3,913 DISTRIBUTIONS PAID -------------------------------------------------------------------------------- Dividends from net investment income $-- $99 a
TRANSACTIONS IN FUND SHARES -------------------------------------------------------------------------------- 11/1/03-10/31/04 11/1/02-10/31/03 SHARES VALUE SHARES VALUE Shares sold 3,244 $33,738 612 $4,654 Shares reinvested -- -- 13 90 Shares redeemed + (1,206) (12,342) (672) (5,019) b ------------------------------------------------ NET TRANSACTIONS IN FUND SHARES 2,038 $21,396 (47) ($275)
SHARES OUTSTANDING AND NET ASSETS -------------------------------------------------------------------------------- 11/1/03-10/31/04 11/1/02-10/31/03 SHARES NET ASSETS SHARES NET ASSETS Beginning of period 2,967 $25,004 3,014 $21,465 Total increase or decrease + 2,038 28,928 (47) 3,539 c -------------------------------------------------- END OF PERIOD 5,005 $53,932 2,967 $25,004 d
Unless stated, all numbers x 1,000. a The tax-basis components of distributions paid are: CURRENT PERIOD Ordinary income $-- Long-term capital gains $-- PRIOR PERIOD Ordinary income $99 Long-term capital gains $-- b The fund charges 0.75% of early withdrawal fees on shares redeemed 180 days or less after the purchase: CURRENT PERIOD $41 PRIOR PERIOD $5 Dollar amounts are net of the redemption proceeds. c Figures for shares represent shares sold plus shares reinvested, minus shares redeemed. Figures for net assets represent the changes in net assets from operations plus the changes in value of transactions in fund shares, minus distributions paid. d There was no distributable net investment income at the end of the current and prior period. 82 See financial notes. TECHNOLOGY FOCUS FUND FINANCIAL STATEMENTS FINANCIAL HIGHLIGHTS
11/1/03- 11/1/02- 11/1/01- 11/1/00- 7/3/00 1- 10/31/04 10/31/03 10/31/02 10/31/01 10/31/00 ------------------------------------------------------------------------------------------------------------------------- PER-SHARE DATA ($) ------------------------------------------------------------------------------------------------------------------------- Net asset value at beginning of period 4.32 2.90 3.86 8.52 10.00 ------------------------------------------------------------------- Income or loss from investment operations: Net investment loss (0.04) (0.02) (0.02) (0.03) (0.02) Net realized and unrealized gains or losses 0.14 1.44 (0.94) (4.63) (1.46) ------------------------------------------------------------------- Total income or loss from investment operations 0.10 1.42 (0.96) (4.66) (1.48) ------------------------------------------------------------------- Net asset value at end of period 4.42 4.32 2.90 3.86 8.52 ------------------------------------------------------------------- Total return (%) 2.31 48.97 (24.87) (54.69) (14.80) 2 RATIOS/SUPPLEMENTAL DATA (%) ------------------------------------------------------------------------------------------------------------------------- Ratios to average net assets: Net operating expenses 1.02 3 1.04 0.89 0.89 0.89 4 Gross operating expenses 1.02 1.25 1.15 1.16 1.52 4 Net investment loss (0.78) (0.65) (0.57) (0.65) (0.63) 4 Portfolio turnover rate 109 165 117 120 37 2 Net assets, end of period ($ x 1,000,000) 49 43 26 39 48
1 Commencement of operations. 2 Not annualized. 3 The ratio of net operating expenses would have been 1.01% if interest expense had not been included. 4 Annualized. See financial notes. 83 TECHNOLOGY FOCUS FUND PORTFOLIO HOLDINGS as of October 31, 2004 This section shows all the securities in the fund's portfolio by industry classification and their value, as of the report date. The fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The fund's Form N-Q is available on the SEC's website at http://www.sec.gov and may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Call 1-800-SEC-0330 for information on the operation of the Public Reference Room. The schedule of portfolio holdings filed on the fund's most recent Form N-Q is available by visiting Schwab's website at www.schwab.com/schwabfunds. We use the symbols below to designate certain characteristics of the securities. With the top ten holdings, the number in the circle is the security's rank among the top ten. (1) Top ten holding o Non-income producing security
COST VALUE HOLDINGS BY CATEGORY ($x1,000) ($x1,000) -------------------------------------------------------------------------------- 100.1% COMMON STOCK 44,835 49,144 -------------------------------------------------------------------------------- 100.1% TOTAL INVESTMENTS 44,835 49,144 (0.1)% OTHER ASSETS AND LIABILITIES, NET (29) -------------------------------------------------------------------------------- 100.0% TOTAL NET ASSETS 49,115
VALUE SECURITY AND NUMBER OF SHARES ($ x 1,000) COMMON STOCK 100.1% of net assets AIR TRANSPORTATION 1.9% -------------------------------------------------------------------------- Sabre Holdings Corp., Class A 43,900 944 BUSINESS MACHINES & SOFTWARE 31.3% -------------------------------------------------------------------------- Adobe Systems, Inc. 22,200 1,243 o Apple Computer, Inc. 6,900 362 Autodesk, Inc. 20,800 1,097 o(7) Cisco Systems, Inc. 73,460 1,411 o(8) Digi International, Inc. 96,200 1,317 (1) International Business Machines Corp. 27,600 2,477 o Lexmark International, Inc., Class A 12,000 997 Microsoft Corp. 12,700 356 o(10) NCR Corp. 23,100 1,302 o(2) Oracle Corp. 180,148 2,281 o Storage Technology Corp. 17,000 459 o Sun Microsystems, Inc. 167,700 760 o(9) Xerox Corp. 88,300 1,304 ----------- 15,366 BUSINESS SERVICES 29.9% -------------------------------------------------------------------------- o Ansys, Inc. 20,000 552 (6) Automatic Data Processing, Inc. 33,700 1,462 (3) Certegy, Inc. 64,200 2,270 o Checkfree Corp. 33,100 1,026 o Citrix Systems, Inc. 39,800 960 o Earthlink, Inc. 106,800 1,103 o Hewitt Associates, Inc., Class A 21,000 589 o Intuit, Inc. 14,600 662 o Parametric Technology Corp. 95,900 498 o Pec Solutions, Inc. 8,000 112 o Polycom, Inc. 52,800 1,090 o Progress Software Corp. 52,800 1,049 SS&C Technologies, Inc. 52,000 1,229 o Synopsys, Inc. 33,000 536 o Transaction Systems Architects, Inc., Class A 38,700 635 o United Online, Inc. 95,700 899 ----------- 14,672 ELECTRONICS 29.6% -------------------------------------------------------------------------- Agilysys, Inc. 59,100 1,010 o Applied Materials, Inc. 79,500 1,280 o Aspect Communications Corp. 51,200 487 o Avid Technology, Inc. 11,700 620 Intel Corp. 37,260 829 o Lam Research Corp. 16,400 427
84 See financial notes. TECHNOLOGY FOCUS FUND
VALUE SECURITY AND NUMBER OF SHARES ($ x 1,000) Linear Technology Corp. 26,200 992 o Littelfuse, Inc. 10,276 335 o LSI Logic Corp. 173,900 791 o Microtune, Inc. 200,500 884 (4) Motorola, Inc. 129,000 2,227 MTS Systems Corp. 29,000 748 o Neoware Systems, Inc. 34,700 279 o Plantronics, Inc. 11,400 496 (5) Qualcomm, Inc. 36,400 1,522 Scientific-Atlanta, Inc. 32,800 898 o Siliconix, Inc. 9,816 407 o Supertex, Inc. 13,000 279 ----------- 14,511 OPTICAL & PHOTO 4.7% -------------------------------------------------------------------------- o Ingram Micro, Inc., Class A 63,700 1,099 o Photronics, Inc. 68,700 1,206 ----------- 2,305 PRODUCER GOODS & MANUFACTURING 0.5% -------------------------------------------------------------------------- o Tyler Technologies, Inc. 28,000 244 TELEPHONE 2.2% -------------------------------------------------------------------------- o Avaya, Inc. 76,500 1,102
END OF INVESTMENTS. See financial notes. 85 TECHNOLOGY FOCUS FUND Statement of ASSETS AND LIABILITIES As of October 31, 2004. All numbers x 1,000 except NAV. ASSETS -------------------------------------------------------------------------------- Investments, at value $49,144 a Receivables: Fund shares sold 6 Dividends 4 Investments sold 461 Prepaid expenses + 7 ----------- TOTAL ASSETS 49,622 LIABILITIES -------------------------------------------------------------------------------- Bank overdraft 313 Payables: Fund shares redeemed 77 Investments bought 79 Investment adviser and administrator fees 2 Transfer agent and shareholder service fees 1 Trustees' fees 1 Accrued expenses + 34 ----------- TOTAL LIABILITIES 507 NET ASSETS -------------------------------------------------------------------------------- TOTAL ASSETS 49,622 TOTAL LIABILITIES - 507 ----------- NET ASSETS $49,115 NET ASSETS BY SOURCE Capital received from investors 86,037 Net realized capital losses (41,231) Net unrealized capital gains 4,309 NET ASSET VALUE (NAV) SHARES NET ASSETS / OUTSTANDING = NAV $49,115 11,101 $4.42
Unless stated, all numbers x 1,000. a The fund paid $44,835 for these securities. Not counting short-term obligations and government securities, the fund's security transactions during the period were: Purchases $61,732 Sales/maturities $55,799 FEDERAL TAX DATA --------------------------------------------------------- PORTFOLIO COST $44,945 NET UNREALIZED GAINS AND LOSSES: Gains $6,435 Losses + (2,236) ------------ $4,199 AS OF OCTOBER 31, 2004: NET UNDISTRIBUTED EARNINGS: Ordinary income $-- Long-term capital gains $-- CAPITAL LOSSES UTILIZED $2,579 UNUSED CAPITAL LOSSES: Expires 10/31 of: Loss amount 2009 $16,276 2010 18,148 2011 + 6,697 ------------ $41,121 RECLASSIFICATIONS: Net investment income not yet distributed $405 Reclassified as: Capital received from investors ($405) 86 See financial notes. TECHNOLOGY FOCUS FUND Statement of OPERATIONS For November 1, 2003 through October 31, 2004. All numbers x 1,000. INVESTMENT INCOME -------------------------------------------------------------------------------- Dividends $117 Interest 1 Securities on loan + 1 ---------- TOTAL INVESTMENT INCOME 119 NET REALIZED GAINS AND LOSSES -------------------------------------------------------------------------------- Net realized gains on investments 2,569 NET UNREALIZED GAINS AND LOSSES -------------------------------------------------------------------------------- Net unrealized losses on investments (2,375) EXPENSES -------------------------------------------------------------------------------- Investment adviser and administrator fees 279 a Transfer agent and shareholder service fees 129 b Trustees' fees 5 c Custodian fees 31 Portfolio accounting fees 7 Professional fees 35 Registration fees 18 Shareholder reports 17 Interest expense 1 Other expenses + 3 ---------- Total expenses 525 Expense reduction - 1 d ---------- NET EXPENSES 524 DECREASE IN NET ASSETS FROM OPERATIONS -------------------------------------------------------------------------------- TOTAL INVESTMENT INCOME 119 NET EXPENSES - 524 ---------- NET INVESTMENT LOSS (405) NET REALIZED GAINS 2,569 e NET UNREALIZED LOSSES + (2,375) e ---------- DECREASE IN NET ASSETS FROM OPERATIONS ($211)
Unless stated, all numbers x 1,000. a Calculated as 0.54% of average daily net assets. These fees are paid to Charles Schwab Investment Management, Inc. (CSIM). b 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. These fees are paid to Charles Schwab & Co., Inc. (Schwab). c For the fund's independent trustees only. d This reduction was made by the investment adviser (CSIM). It reflects a guarantee by CSIM and the transfer agent and shareholder service agent (Schwab) to limit the operating expenses of this fund through February 28, 2005, to 1.10% of average daily net assets. This limit excludes interest, taxes and certain non-routine expenses. e These add up to a net gain on investments of $194. See financial notes. 87 TECHNOLOGY FOCUS FUND Statements of CHANGES IN NET ASSETS For the current and prior report periods. All numbers x 1,000.
OPERATIONS -------------------------------------------------------------------------------- 11/1/03-10/31/04 11/1/02-10/31/03 Net investment loss ($405) ($200) Net realized gains or losses 2,569 (3,310) Net unrealized gains or losses + (2,375) 16,615 ---------------------------------------- INCREASE OR DECREASE IN NET ASSETS FROM OPERATIONS ($211) $13,105
TRANSACTIONS IN FUND SHARES -------------------------------------------------------------------------------- 11/1/03-10/31/04 11/1/02-10/31/03 SHARES VALUE SHARES VALUE Shares sold 4,936 $23,679 3,313 $11,831 Shares redeemed + (3,798) (17,389) (2,226) (7,601) a -------------------------------------------------- NET TRANSACTIONS IN FUND SHARES 1,138 $6,290 1,087 $4,230
SHARES OUTSTANDING AND NET ASSETS -------------------------------------------------------------------------------- 11/1/03-10/31/04 11/1/02-10/31/03 SHARES NET ASSETS SHARES NET ASSETS Beginning of period 9,963 $43,036 8,876 $25,701 Total increase + 1,138 6,079 1,087 17,335 b -------------------------------------------------- END OF PERIOD 11,101 $49,115 9,963 $43,036 c
Unless stated, all numbers x 1,000. a The fund charges 0.75% of early withdrawal fees on shares redeemed 180 days or less after the purchase: CURRENT PERIOD $44 PRIOR PERIOD $17 Dollar amounts are net of the redemption proceeds. b Figures for shares represent shares sold plus shares reinvested, minus shares redeemed. Figures for net assets represent the changes in net assets from operations plus the changes in value of transactions in fund shares, minus distributions paid. c There was no distributable net investment income at the end of the current and prior period. 88 See financial notes. FUNDS USING SCHWAB EQUITY RATINGS 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. BOTH SCHWAB DIVIDEND EQUITY FUND AND SCHWAB SMALL-CAP EQUITY FUND OFFER TWO SHARE CLASSES: Investor Shares and Select Shares. Shares of each class represent interest in the same portfolio, but each class has different expenses and investment minimums. Schwab Core Equity Fund, Schwab Hedged Equity Fund, Communications Focus Fund, Financial Services Focus Fund, Health Care Focus Fund and Technology Focus Fund each offer one share class. Shares are bought and sold at net asset value (NAV), which is the price for all outstanding shares. Each share has a par value of 1/1,000 of a cent, and the trust may issue as many shares as necessary. FUND OPERATIONS Most of the funds' investments are described in the fund-by-fund sections earlier in this report. However, there are certain other fund operations and policies that may affect a fund's financials, as 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. Futures contracts involve certain risks because they can be very 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 a 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. The potential for losses associated with futures contracts may exceed amounts recorded in the Statement of Assets and Liabilities. 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. 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 Schwab Total Stock Market Index Fund Schwab International Index Fund Schwab MarketTrack All Equity Portfolio Schwab MarketTrack Growth Portfolio Schwab MarketTrack Balanced Portfolio Schwab MarketTrack Conservative Portfolio Laudus U.S. MarketMasters Fund Laudus Balanced MarketMasters Fund Laudus Small-Cap MarketMasters Fund Laudus International MarketMasters Fund Schwab Core Equity Fund Schwab Dividend Equity Fund Schwab Small-Cap Equity Fund Schwab Hedged Equity Fund Communications Focus Fund Financial Services Focus Fund Health Care Focus Fund Technology Focus Fund Schwab Institutional Select S&P 500 Fund Schwab Institutional Select Large-Cap Value Index Fund Schwab Institutional Select Small-Cap Value Index Fund 89 FUNDS USING SCHWAB EQUITY RATINGS Futures are traded publicly on exchanges, and their market value changes daily. A fund records the change in market value of futures, and also the change in the amount of margin deposit required ("variation margin"). 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. The funds' repurchase agreements will be fully collateralized by U.S. government securities. All collateral is held by the funds' custodian (or, with tri-party agreements, the agent's bank) and is monitored daily to ensure that its market value is at least equal to the repurchase price under the agreement. THE SCHWAB HEDGED EQUITY FUND MAY SELL SECURITIES SHORT (SELL SECURITIES IT DOES NOT OWN). When it does so, the fund also places assets worth at least 100% of the value of the short securities into a segregated account, as collateral. If the market value of the short securities subsequently falls, the fund can realize a gain by closing the position. However, if the value rises, the fund typically would have to add to its collateral or close out its short position at a loss. The potential for losses associated with short positions is much greater than the original value of the securities sold short and may exceed amounts recorded in the Statements of Assets and Liabilities. THE FUNDS 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 with futures, forwards involve certain risks that are not fully reflected in the fund's financials. If counter-parties 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 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. All of the cash collateral received is reinvested in high quality, short-term investments. 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 PAY FEES TO AFFILIATES OF THE INVESTMENT ADVISER FOR VARIOUS SERVICES. Through their trust, 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 that may limit the total expenses charged. The rates and limitations for these fees vary from fund to fund, and are described in each fund's Statement of Operations. THE FUNDS MAY ENGAGE IN CERTAIN TRANSACTIONS INVOLVING RELATED PARTIES. The funds may make direct transactions with certain other Schwab funds 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. Pursuant to an exemptive order issued by the SEC, the funds may enter into interfund borrowing and lending transactions within the SchwabFunds(R). All 90 FUNDS USING SCHWAB EQUITY RATINGS loans are for temporary or emergency purposes only. The interest rate charged on the loan is the average of the overnight repurchase agreement rate and the short-term bank loan rate. The interfund lending facility is subject to the oversight and periodic review of the Board of Trustees of the SchwabFunds(R). TRUSTEES MAY INCLUDE PEOPLE WHO ARE OFFICERS AND/OR DIRECTORS OF THE INVESTMENT ADVISER OR SCHWAB. Federal securities law limits the percentage of such "interested persons" who may serve on a trust's board, and the trust was in compliance with these limitations throughout the report period. The trust did not pay any of these persons for their service as trustees, but it did pay non-interested persons (independent trustees), as noted in each fund's Statement of Operations. THE FUNDS MAY BORROW MONEY FROM BANKS AND CUSTODIANS. 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 SchwabFunds have custodian overdraft facilities and line of credit arrangements of $150 million and $100 million with PNC Bank, N.A. and Bank of America, N.A., respectively. The funds pay interest on the amounts they borrow at rates that are negotiated periodically.
AMOUNT WEIGHTED OUTSTANDING AVERAGE AVERAGE AT 10/31/04 BORROWING* INTEREST FUND ($ x 1,000) ($ x 1,000) RATE* (%) -------------------------------------------------------------------------------- SCHWAB CORE EQUITY FUND -- 1,077 1.37 -------------------------------------------------------------------------------- SCHWAB SMALL-CAP EQUITY FUND -- 328 1.48 -------------------------------------------------------------------------------- SCHWAB HEDGED EQUITY FUND -- 84 1.38 -------------------------------------------------------------------------------- COMMUNICATIONS FOCUS FUND -- 40 1.56 -------------------------------------------------------------------------------- FINANCIAL SERVICES FOCUS FUND 93 68 1.81 -------------------------------------------------------------------------------- HEALTH CARE FOCUS FUND -- 56 1.53 -------------------------------------------------------------------------------- TECHNOLOGY FOCUS FUND 313 125 1.70 --------------------------------------------------------------------------------
* Based on the number of days for which the borrowing is outstanding. 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 net realized 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. The net investment income and net realized capital gains and losses may differ for financial statement and tax purposes primarily due to differing treatments for net operating losses and losses on wash sales. UNDER THE FUNDS' ORGANIZATIONAL DOCUMENTS, ITS OFFICERS AND TRUSTEES ARE INDEMNIFIED AGAINST CERTAIN LIABILITY ARISING OUT OF THE PERFORMANCE OF THEIR DUTIES TO THE FUNDS. In addition, in the normal course of business the funds enter into contracts with their vendors and others that provide general indemnifications. The funds' maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the funds. However, based on experience, the funds expect the risk of loss to be remote. SUBSEQUENT EVENT. On November 16, 2004, the Board of Trustees approved the closing and liquidation of the Schwab Communications Focus Fund. The fund will liquidate all of its outstanding shares on or shortly after January 14, 2005. 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: 91 FUNDS USING SCHWAB EQUITY RATINGS - SECURITIES TRADED ON AN EXCHANGE OR OVER-THE-COUNTER: valued at the closing value for the day, or, on days when no closing value has been reported, halfway between the most recent bid and asked quotes. Securities that are primarily traded on foreign exchanges are valued at the closing values of such securities on their respective exchanges with these values then translated into U.S. dollars at the current exchange rate. - SECURITIES FOR WHICH NO MARKET QUOTATIONS ARE READILY AVAILABLE or when a significant event has occurred between the time of the security's last close and the time that a fund calculates net asset value: 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 and the Pricing Committee. Some of the more common reasons that may necessitate that a security be valued at fair value include: the security's trading has been halted or suspended; the security has been de-listed from a national exchange; the security's primary trading market is temporarily closed at a time when under normal conditions it would be open; or the security's primary pricing source is not able or willing to provide a price. - 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. SCHWAB HEDGED EQUITY FUND SELLS SECURITIES SHORT, it records the proceeds received as an asset and the obligation to buy back the securities as a liability. At the time a short sale is initiated, the asset and the liability are of equal value and effectively cancel each other out. Subsequently, the fund values the liability side of the transaction according to the market price of the securities sold short, and values the asset side according to the value of the proceeds. When the fund closes out a short position (buys the security), it records the outcome as a realized gain or loss. Interest accrued on securities sold short is recorded as an expense on the fund's records. 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 DISCOUNT 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 calculated 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 average daily net assets. FOR FUNDS OFFERING MULTIPLE SHARE CLASSES, all of the realized and unrealized gains or losses and net investment income, other than class specific expenses, are allocated daily to each class in proportion to its average daily net assets. 92 FUNDS USING SCHWAB EQUITY RATINGS 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 ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES OF AMERICA. 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. 93 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF: Schwab Core Equity Fund(TM) Schwab Dividend Equity Fund(TM) Schwab Small-Cap Equity Fund(TM) Schwab Hedged Equity Fund(TM) 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 Schwab Core Equity Fund, Schwab Dividend Equity Fund, Schwab Small-Cap Equity Fund, Schwab Hedged Equity Fund, Communications Focus Fund, Financial Services Focus Fund, Health Care Focus Fund and Technology Focus Fund (eight of the portfolios constituting Schwab Capital Trust) (hereafter collectively referred to as the "Funds") at October 31, 2004, the results of each of their operations for the year then ended, and the changes in each of their net assets and the financial highlights for each of the periods presented, 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 audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at October 31, 2004 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. As described in the footnotes to the financial statements, the Board of Trustees has approved the closing and liquidation of Communications Focus Fund effective January 14, 2005. PRICEWATERHOUSECOOPERS LLP San Francisco, CA December 16, 2004 94 FUND TRUSTEES A fund's Board of Trustees is responsible for protecting the interests of that fund's shareholders. The tables below give information about the people who serve as trustees and officers for the SchwabFunds(R), including the funds covered in this report. Trustees remain in office until they resign, retire or are removed by shareholder vote. 1 Under the Investment Company Act of 1940, any officer, director, or employee of Schwab or CSIM is considered an "interested person," meaning that he or she is considered to have a business interest in Schwab or CSIM. These individuals are listed as "interested trustees." The "independent trustees" are individuals who, under the 1940 Act, are not considered to have a business interest in Schwab or CSIM. Each of the SchwabFunds (of which there were 51 as of 10/31/04) belongs to one of these trusts: The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust or Schwab Annuity Portfolios. Currently all these trusts have the same trustees and officers. The address for all trustees and officers is 101 Montgomery Street, San Francisco, CA 94104. You can find more information about the trustees and officers in the Statement of Additional Information, which is available free by calling 1-800-435-4000. INDIVIDUALS WHO ARE INTERESTED TRUSTEES AND OFFICERS OF THE TRUST
TRUST POSITION(S); NAME AND BIRTHDATE TRUSTEE SINCE MAIN OCCUPATIONS AND OTHER DIRECTORSHIPS AND AFFILIATIONS ----------------------------------------------------------------------------------------------------------------------------------- CHARLES R. SCHWAB 2 Chair, Trustee: Chair, CEO, Director, The Charles Schwab Corp., Charles Schwab & 7/29/37 Family of Funds, 1989; Co., Inc.; Chair, Director, Charles Schwab Investment Management, Investments, 1991; Inc.; Chair, Charles Schwab Holdings (UK); CEO, Director, Charles Capital Trust, 1993; Schwab Holdings, Inc.; Chair, CEO Schwab (SIS) Holdings, Inc. I, Annuity Portfolios, 1994. Schwab International Holdings, Inc.; Director, Charles Schwab Bank, N.A., U.S. Trust Corp., United States Trust Co. of New York, Siebel Systems (software), Xsign, Inc. (electronic payment systems), TrustMark, Inc., All Kinds of Minds (education); Trustee, Stanford University. Until 5/04: Director, The Gap, Inc. (clothing retailer). Until 5/03: Co-CEO, The Charles Schwab Corp. Until 3/02: Director, Audiobase, Inc. (Internet audio solutions). Until 5/02: Director, Vodaphone AirTouch PLC (telecommunications). Until 7/01: Director, The Charles Schwab Trust Co.
1 The SchwabFunds retirement policy requires that independent trustees elected after January 1, 2000 retire at age 72 or after twenty years of service as a trustee, whichever comes first. Independent trustees elected prior to January 1, 2000 will retire on the following schedule: Messrs. Holmes and Dorward will retire on December 31, 2007, and Messrs. Stephens and Wilsey will retire on December 31, 2010. 2 In addition to his position with the investment adviser and the distributor, Mr. Schwab also owns stock of The Charles Schwab Corporation. 95 INDIVIDUALS WHO ARE OFFICERS OF THE TRUST BUT NOT TRUSTEES
NAME AND BIRTHDATE TRUST OFFICE(S) HELD MAIN OCCUPATIONS AND OTHER DIRECTORSHIPS AND AFFILIATIONS ----------------------------------------------------------------------------------------------------------------------------------- EVELYN DILSAVER President, CEO EVP, President, Charles Schwab Investment Management, Inc; 5/4/55 (all trusts). Until 7/04: SVP for Development and Distribution, Asset Management Products and Services Enterprise; Until 6/03: EVP, CFO, Administrative Officer, U.S. Trust Corp. ----------------------------------------------------------------------------------------------------------------------------------- STEPHEN B. WARD SVP, Chief Investment SVP, Chief Investment Officer, Director, Charles Schwab Investment 4/5/55 Officer (all trusts). Management, Inc.; Chief Investment Officer, The Charles Schwab Trust Co. ----------------------------------------------------------------------------------------------------------------------------------- KIMON DAIFOTIS SVP, Chief Investment Since 9/04: Chief Investment Officer, Fixed Income, Charles 7/10/59 Officer (all trusts). Schwab Investment Management, Inc.; Since 6/04: SVP, Charles Schwab Investment Management, Inc.; Until 6/04: VP, Charles Schwab Investment Management, Inc. ----------------------------------------------------------------------------------------------------------------------------------- JEFF MORTIMER SVP, Chief Investment Since 5/04: SVP, Chief Investment Officer, Equities, Charles Schwab 9/29/63 Officer (all trusts). Investment Management, Inc.; Since 6/04: VP, Chief Investment Officer, Laudus Trust; Until 5/04: VP, Charles Schwab Investment Management, Inc. ----------------------------------------------------------------------------------------------------------------------------------- RANDALL FILLMORE Chief Compliance Since 9/04: SVP, Institutional Compliance and Chief Compliance 11/11/60 Officer (all trusts). Officer, Charles Schwab Investment Management, Inc.; Until 9/04: VP, Charles Schwab & Co., Charles Schwab Investment Management, Inc.; Until 2002: VP of Internal Audit, Charles Schwab & Co.; Prior to 2000: PricewaterhouseCoopers. ----------------------------------------------------------------------------------------------------------------------------------- KOJI E. FELTON Secretary (all trusts). SVP, Chief Counsel, Assistant Corporate Secretary, Charles Schwab 3/13/61 Investment Management, Inc. Until 6/98: Branch Chief in Enforcement, U.S. Securities and Exchange Commission, San Francisco. ----------------------------------------------------------------------------------------------------------------------------------- GEORGE PEREIRA 1 Treasurer, Principal Since 11/04: SVP, CFO, Charles Schwab Investment Management, 6/9/64 Financial Officer Inc.; Until 11/04: SVP, Financial Reporting, Charles Schwab & Co., Inc.; (all trusts). Until 12/99: Chief Financial Officer, Commerzbank Capital Markets; Until 9/99: Managing Director at the New York Stock Exchange.
1 Elected to his position on the SchwabFunds Board on November 16, 2004. 96 INDIVIDUALS WHO ARE INDEPENDENT TRUSTEES
NAME AND BIRTHDATE TRUSTEE SINCE MAIN OCCUPATIONS AND OTHER DIRECTORSHIPS AND AFFILIATIONS ----------------------------------------------------------------------------------------------------------------------------------- MARIANN BYERWALTER 2000 (all trusts). Chair, JDN Corp. Advisory LLC; Trustee, Stanford University, America 8/13/60 First Cos., (venture capital/fund management), Redwood Trust, Inc. (mortgage finance), Stanford Hospitals and Clinics, SRI International (research), PMI Group, Inc. (mortgage insurance), Lucile Packard Children's Hospital, Laudus Trust, Laudus Variable Insurance Trust. 2001: Special Advisor to the President, Stanford University. Until 2002: Director, LookSmart, Ltd. (Internet infrastructure). Until 2001: VP, Business Affairs, CFO, Stanford University. ----------------------------------------------------------------------------------------------------------------------------------- DONALD F. DORWARD Family of Funds, 1989; CEO, Dorward & Associates (corporate management, marketing and 9/23/31 Investments, 1991; communications consulting). Until 1999: EVP, Managing Director, Capital Trust, 1993; Grey Advertising. Annuity Portfolios,1994. ----------------------------------------------------------------------------------------------------------------------------------- WILLIAM A. HASLER 2000 (all trusts). Co-CEO, Aphton Corp. (bio-pharmaceuticals). Trustee, Solectron Corp. 11/22/41 (manufacturing), Airlease Ltd. (aircraft leasing), Mission West Properties (commercial real estate), Stratex Corp. (network equipment); Public Governor, Laudus Trust, Laudus Variable Insurance Trust; Member, executive committee, Pacific Stock & Options Exchange. Until 2003: Trustee, Tenera, Inc. (services and software). Until 1998: Dean, Haas School of Business, University of California, Berkeley. ----------------------------------------------------------------------------------------------------------------------------------- ROBERT G. HOLMES Family of Funds, 1989; Chair, CEO, Director, Semloh Financial, Inc. (international financial 5/15/31 Investments, 1991; services and investment advice). Capital Trust, 1993; Annuity Portfolios,1994. ----------------------------------------------------------------------------------------------------------------------------------- GERALD B. SMITH 2000 (all trusts). Chair, CEO, Founder, Smith Graham & Co. (investment advisors); 9/28/50 Trustee, Rorento N.V. (investments -- Netherlands), Cooper Industries (electrical products, tools and hardware); Member, audit committee, Northern Border Partners, L.P. (energy). Until 2002: Director, Pennzoil- Quaker State Co. (oil and gas). ----------------------------------------------------------------------------------------------------------------------------------- DONALD R. STEPHENS Family of Funds, 1989; Managing Partner, D.R. Stephens & Co. (investments). Until 1996: 6/28/38 Investments, 1991; Chair, CEO, North American Trust (real estate investment trust). Capital Trust, 1993; Annuity Portfolios, 1994. ----------------------------------------------------------------------------------------------------------------------------------- MICHAEL W. WILSEY Family of Funds, 1989; Chair, CEO, Wilsey Bennett, Inc. (transportation, real estate 8/18/43 Investments, 1991; and investments). Capital Trust, 1993; Annuity Portfolios, 1994.
97 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(R)). 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." An individual bond is subject to the credit risk of the issuer. Changes in interest rates can affect a bond's market value prior to call or maturity. There is no guarantee that a bond's yield to call or maturity will provide a positive return over the rate of inflation. BOND FUND A bond fund is subject to the same credit, interest rate, and inflation risks as bonds. In addition, a bond fund incurs ongoing fees and expenses. A bond fund's net asset value will fluctuate with the price of the underlying bonds and the portfolio turnover activity; return of principal is not guaranteed. 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 percentage that an investor would have earned or lost on an investment in the fund assuming dividends and distributions were reinvested. 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. 98 NOTES NOTES SchwabFunds(R) offers you a complete family of mutual funds, each one based on a clearly defined investment approach and using disciplined management strategies. The list at right shows all currently available SchwabFunds. Whether you're an experienced investor or just starting out, SchwabFunds can help you achieve your financial goals. An investor should consider a fund's investment objectives, risks, and charges and expenses carefully before investing or sending money. This and other important information can be found in the fund's prospectus. Please call 1-800-435-4000 for a prospectus and brochure for any SchwabFund. Please read the prospectus carefully before you invest. This report must be preceded or accompanied by a current prospectus. METHODS FOR PLACING ORDERS The following information outlines how Schwab investors can place orders. If you are investing through a third-party investment provider, methods for placing orders may be different. INTERNET 1 www.schwab.com SCHWAB BY PHONE(TM) 2 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) Use our automated touch-tone phone service at 1-800-272-4922. MAIL Write to SchwabFunds at: P.O. Box 3812 Englewood, CO 80155-3812 When selling or exchanging shares, be sure to include the signatures of at least one of the persons whose name is on the account. PROXY VOTING POLICIES, PROCEDURES AND RESULTS A description of the proxy voting policies and procedures used to determine how to vote proxies on behalf of the funds is available without charge, upon request, by visiting Schwab's web site at www.schwab.com/schwabfunds, the SEC's web site at http://www.sec.gov, or by contacting SchwabFunds at 1-800-435-4000. Information regarding how a fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is available, without charge, by visiting Schwab's web site at www.schwab.com/schwabfunds or the SEC's website at http://www.sec.gov. 1 Shares of Sweep Investments(TM) may not be purchased directly over the Internet. 2 Orders placed in person or through a telephone representative may be subject to a service fee payable to Schwab. THE SCHWABFUNDS FAMILY(R) STOCK FUNDS Schwab S&P 500 Fund Schwab 1000 Fund(R) Schwab Small-Cap Index Fund(R) Schwab Total Stock Market Index Fund(R) Schwab International Index Fund(R) Schwab Core Equity Fund(TM) Schwab Dividend Equity Fund(TM) Schwab Small-Cap Equity Fund(TM) Schwab Hedged Equity Fund(TM) Schwab Focus Funds Communications Focus Fund Financial Services Focus Fund Health Care Focus Fund Technology Focus Fund Schwab(R) Institutional Select(R) Funds Schwab(R) Institutional Select(R) S&P 500 Fund Schwab(R) Institutional Select(R) Large-Cap Value Index Fund Schwab(R) Institutional Select(R) Small-Cap Value Index Fund ASSET ALLOCATION FUNDS Schwab MarketTrack Portfolios(R) Schwab MarketTrack All Equity Portfolio(TM) Schwab MarketTrack Growth Portfolio(TM) Schwab MarketTrack Balanced Portfolio(TM) Schwab MarketTrack Conservative Portfolio(TM) BOND FUNDS Schwab YieldPlus Fund(R) Schwab Short-Term Bond Market Fund(TM) Schwab Total Bond Market Fund(TM) Schwab GNMA Fund(TM) Schwab Short/Intermediate Tax-Free Bond Fund(TM) Schwab Long-Term Tax-Free Bond Fund(TM) Schwab California Short/Intermediate Tax-Free Bond Fund(TM) Schwab California Long-Term Tax-Free Bond Fund(TM) SCHWAB MONEY FUNDS Schwab offers an array of money market funds that seek high current income consistent with safety and liquidity. 3 Choose from taxable or tax-advantaged alternatives. Many can be linked to your Schwab account to "sweep" cash balances automatically, subject to availability, when you're between investments. Or, for your larger cash reserves, choose one of our Value Advantage Investments(R). 3 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. [CHARLES SCHWAB LOGO] INVESTMENT ADVISER Charles Schwab Investment Management, Inc. 101 Montgomery Street, San Francisco, CA 94104 DISTRIBUTOR Charles Schwab & Co., Inc. (Schwab) FUNDS SchwabFunds(R) P.O. Box 3812, Englewood, CO 80155-3812 This report is not authorized for distribution to prospective investors unless preceded or accompanied by a current prospectus. (C)2004 Charles Schwab & Co., Inc. All rights reserved. Member SIPC Printed on recycled paper. REG26298-01 ITEM 2: CODE OF ETHICS. (a) Registrant has adopted a code of ethics that applies to its principal executive officer, principal financial officer, and any other persons who perform a similar function, regardless of whether these individuals are employed by Registrant or a third party. (c) During the period covered by the report, no amendments were made to the provisions of this code of ethics. (d) During the period covered by the report, Registrant did not grant any waivers, including implicit waivers, from the provisions of this code of ethics. (f)(1) Registrant has filed this code of ethics as an exhibit pursuant to Item 11(a)(1) of Form N-CSR. ITEM 3: AUDIT COMMITTEE FINANCIAL EXPERT. Registrant's Board of Trustees has determined that William Hasler, Mariann Byerwalter and Donald Stephens, currently serving on its audit committee, are "audit committee financial experts," as such term is defined in Item 3 of Form N-CSR. Each of these members of Registrant's audit committee is "independent" under the standards set forth in Item 3 of Form N-CSR. The designation of each of Messrs. Hasler and Stephens and Ms. Byerwalter as an "audit committee financial expert" pursuant to Item 3 of Form N-CSR does not (i) impose upon such individual any duties, obligations, or liability that are greater than the duties, obligations and liability imposed upon such individual as a member of Registrant's audit committee or Board of Trustees in the absence of such designation; and (ii) affect the duties, obligations or liability of any other member of Registrant's audit committee or Board of Trustees. ITEM 4: PRINCIPAL ACCOUNTANT FEES AND SERVICES. (a) Below are the aggregate fees billed for each of the last two fiscal years for professional services rendered by the principal accountant for the audit of Registrant's annual financial statements or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements. Audit Fees ---------- 2004: $603,872 2003: $555,576 (b) Below are the aggregate fees billed in each of the last two fiscal years for assurance and related services by the principal accountant that are reasonably related to the performance of the audit of Registrant's financial statements and are not reported under paragraph (a) above. Audit-Related Fees ------------------ For services rendered to Registrant: ----------------------------------- 2004: $45,038 2003: $43,134 Nature of these services: tax provision review. ------------------------ In each of the last two fiscal years there were no "Audit-Related Fees" required to be approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X. (c) Below are the aggregate fees billed in each of the last two fiscal years for professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning. Tax Fees -------- For services rendered to Registrant: ------------------------------------ 2004: $66,633 2003: $59,686 Nature of these services: preparation and review of tax returns. ------------------------ In each of the last two fiscal years there were no "Tax Fees" required to be approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X. (d) Below are the aggregate fees billed in each of the last two fiscal years for products and services provided by the principal accountant, other than the services reported in paragraphs (a) through (c) above. All Other Fees -------------- For services rendered to Registrant: ------------------------------------ 2004: $10,792 2003: $10,869 Nature of these services: review of the methodology of allocation of ------------------------ Charles Schwab & Co., Inc. ("Schwab") expenses for purposes of Section 15(c) of the Investment Company Act of 1940. In each of the last two fiscal years there were no "All Other Fees" required to be approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X. (E)(1) Registrant's audit committee does not have pre-approval policies and procedures as described in paragraph (c)(7) of Rule 2-01 of Regulation S-X. (2) There were no services described in each of paragraphs (b) through (d) above (including services required to be approved by Registrant's audit committee pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X) that were approved by Registrant's audit committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X. (F) Not applicable. (G) Below are the aggregate non-audit fees billed in each of the last two fiscal years by Registrant's principal accountant for services rendered to Registrant, to Registrant's investment adviser, and to any entity controlling, controlled by, or under common control with Registrant's investment adviser that provides ongoing services to Registrant. 2004: $285,955 2003: $439,733 Although not required to be included in the amounts disclosed under this paragraph (g) or any other paragraph of this Item 4, below are the aggregate fees billed in each of the last two fiscal years by Registrant's principal accountant for tax compliance services rendered to U.S. Trust, an entity under common control with Registrant's investment adviser that DOES NOT provide services to Registrant. 2004: $4,402,056 2003: $4,141,356 (H) During the past fiscal year, all non-audit services provided by Registrant's principal accountant to either Registrant's investment adviser or to any entity controlling, controlled by, or under common control with Registrant's investment adviser that provides ongoing services to Registrant were pre-approved. Included in the audit committee's pre-approval was the review and consideration as to whether the provision of these non-audit services is compatible with maintaining the principal accountant's independence. ITEM 5: AUDIT COMMITTEE OF LISTED REGISTRANTS. Not applicable. ITEM 6: SCHEDULE OF INVESTMENTS. Except as noted below, the schedules of investments are included as part of the report to shareholders filed under Item 1 of this Form. The schedules of investments for the Schwab S&P 500 Fund, Schwab Small-Cap Index Fund, Schwab Total Stock Market Index Fund, and Schwab International Index Fund are filed under this Item. SCHWAB CAPITAL TRUST SCHWAB S&P 500 FUND PORTFOLIO HOLDINGS as of October 31, 2004 The following is the schedule of portfolio holdings at 10/31/04. The schedule should be read in conjunction with the fund's annual report for the fiscal year ended 10/31/04. We use the symbols below to designate certain characteristics of the securities. With the top ten holdings, the number in the circle is the security's rank among the top ten. (1) Top Ten Holding o Non-income producing security = Collateral for open futures contracts / Issuer is affiliated with the fund's adviser @ This security or a portion of this security is on loan
COST VALUE HOLDINGS BY CATEGORY ($x1,000) ($x1,000) -------------------------------------------------------------------------------- 99.9% COMMON STOCK 7,443,407 8,204,858 0.1% SHORT-TERM INVESTMENT 9,415 9,415 0.0% U.S. TREASURY OBLIGATIONS 973 973 -------------------------------------------------------------------------------- 100.0% TOTAL INVESTMENTS 7,453,795 8,215,246 7.8% COLLATERAL INVESTED FOR SECURITIES ON LOAN 641,932 641,932 (7.8)% OTHER ASSETS AND LIABILITIES, NET (639,803) -------------------------------------------------------------------------------- 100.0% TOTAL NET ASSETS 8,217,375
VALUE SECURITY AND NUMBER OF SHARES ($ X 1,000) COMMON STOCK 99.9% of net assets AEROSPACE / DEFENSE 1.9% -------------------------------------------------------------------------- @ The Boeing Co. 655,222 32,696 Crane Co. 44,919 1,252 General Dynamics Corp. 155,082 15,837 Goodrich Corp. 92,739 2,859 Lockheed Martin Corp. 343,496 18,923 Northrop Grumman Corp. 280,344 14,508 Raytheon Co. 351,072 12,807 Rockwell Automation, Inc. 144,498 6,024 @ Rockwell Collins, Inc. 139,398 4,944 Textron, Inc. 106,929 7,287 United Technologies Corp. 399,913 37,120 ----------- 154,257 AIR TRANSPORTATION 1.3% -------------------------------------------------------------------------- @o Delta Air Lines, Inc. 94,113 513 @ FedEx Corp. 232,042 21,144 @ Sabre Holdings Corp., Class A 110,153 2,369 Southwest Airlines Co. 614,218 9,686 United Parcel Service, Inc., Class B 875,969 69,359 ----------- 103,071 ALCOHOLIC BEVERAGES 0.5% -------------------------------------------------------------------------- @ Adolph Coors Co., Class B 28,531 1,903 @ Anheuser-Busch Cos., Inc. 625,034 31,220 Brown-Forman Corp., Class B 95,468 4,287 ----------- 37,410 APPAREL 0.5% -------------------------------------------------------------------------- o Coach, Inc. 146,000 6,808 Jones Apparel Group, Inc. 100,343 3,542 Liz Claiborne, Inc. 83,728 3,423 @ Nike, Inc., Class B 205,317 16,694 @ Reebok International Ltd. 47,859 1,771 VF Corp. 84,078 4,526 ----------- 36,764 AUTOMOTIVE PRODUCTS / MOTOR VEHICLES 1.1% -------------------------------------------------------------------------- Cooper Tire & Rubber Co. 56,866 1,108 Cummins, Inc. 33,451 2,344 Dana Corp. 115,009 1,715 @ Danaher Corp. 239,278 13,191 @ Delphi Corp. 433,000 3,642 Eaton Corp. 117,896 7,539 @ Ford Motor Co. 1,422,912 18,541 @ General Motors Corp. 437,828 16,878 Genuine Parts Co. 136,090 5,429 @o Goodyear Tire & Rubber Co. 135,681 1,368 @ Harley-Davidson, Inc. 230,333 13,260 @0 Navistar International Corp. 54,800 1,893 @ Visteon Corp. 99,156 705 ----------- 87,613 BANKS 8.0% -------------------------------------------------------------------------- @ AmSouth Bancorp. 275,065 7,259 (7) Bank of America Corp. 3,185,172 142,664 The Bank of New York Co., Inc. 606,514 19,687 BB&T Corp. 429,459 17,655 Comerica, Inc. 134,859 8,295
1 SCHWAB S&P 500 FUND PORTFOLIO HOLDINGS continued
VALUE SECURITY AND NUMBER OF SHARES ($ X 1,000) Fifth Third Bancorp 443,505 21,816 First Horizon National Corp. 96,900 4,194 @ Huntington Bancshares, Inc. 179,750 4,305 JPMorgan Chase & Co. 2,789,215 107,664 KeyCorp, Inc. 321,365 10,795 M&T Bank Corp. 92,304 9,507 Marshall & Ilsley Corp. 174,996 7,345 Mellon Financial Corp. 330,613 9,555 National City Corp. 515,773 20,100 North Fork Bancorp., Inc. 242,500 10,694 @ Northern Trust Corp. 171,112 7,279 PNC Financial Services Group, Inc. 220,027 11,507 Regions Financial Corp. 358,510 12,576 SouthTrust Corp. 256,507 11,176 State Street Corp. 262,111 11,808 SunTrust Banks, Inc. 278,749 19,618 Synovus Financial Corp. 235,632 6,407 U.S. Bancorp 1,460,541 41,786 Wachovia Corp. 1,021,821 50,284 Wells Fargo & Co. 1,322,357 78,971 Zions Bancorp. 70,147 4,642 ----------- 657,589 BUSINESS MACHINES & SOFTWARE 9.0% -------------------------------------------------------------------------- Adobe Systems, Inc. 185,489 10,393 @ Apple Computer, Inc. 301,876 15,858 Autodesk, Inc. 87,954 4,640 @o BMC Software, Inc. 176,808 3,345 o Cisco Systems, Inc. 5,294,483 101,707 o Compuware Corp. 296,522 1,717 o Comverse Technology, Inc. 148,815 3,071 o Dell, Inc. 1,955,032 68,543 @o EMC Corp. 1,890,655 24,333 o Gateway, Inc. 290,537 1,700 Hewlett-Packard Co. 2,349,878 43,849 (10) International Business Machines Corp. 1,311,743 117,729 @o Lexmark International, Inc., Class A 100,530 8,355 =(3) Microsoft Corp. 8,513,790 238,301 o NCR Corp. 73,899 4,164 o Network Appliance, Inc. 278,347 6,811 o Novell, Inc. 291,365 2,095 @o Oracle Corp. 4,033,549 51,065 Pitney Bowes, Inc. 180,015 7,876 o Siebel Systems, Inc. 384,366 3,651 o Sun Microsystems, Inc. 2,575,758 11,668 o Unisys Corp. 260,027 2,761 @o Xerox Corp. 652,960 9,644 ----------- 743,276 BUSINESS SERVICES 4.5% -------------------------------------------------------------------------- @o Affiliated Computer Services, Inc., Class A 103,375 5,639 o Allied Waste Industries, Inc. 247,115 2,016 o Apollo Group, Inc., Class A 150,300 9,920 Automatic Data Processing, Inc. 459,682 19,946 Cendant Corp. 821,254 16,910 @ Cintas Corp. 134,305 5,794 o Citrix Systems, Inc. 130,566 3,150 Computer Associates International, Inc. 456,066 12,638 @o Computer Sciences Corp. 146,718 7,287 o Convergys Corp. 110,751 1,441 Deluxe Corp. 38,466 1,465 o eBay, Inc. 514,370 50,208 Electronic Data Systems Corp. 398,621 8,479 Equifax, Inc. 107,607 2,814 First Data Corp. 667,288 27,546 o Fiserv, Inc. 152,764 5,429 H&R Block, Inc. 128,287 6,100 IMS Health, Inc. 182,707 3,870 o Interpublic Group of Cos., Inc. 325,157 3,986 o Intuit, Inc. 149,479 6,780 @o Mercury Interactive Corp. 70,943 3,081 @o Monster Worldwide, Inc. 87,965 2,467 @ Omnicom Group, Inc. 147,364 11,627 o Parametric Technology Corp. 206,030 1,069 Paychex, Inc. 293,462 9,624 PeopleSoft, Inc. 284,601 5,911 Robert Half International, Inc. 132,524 3,516 o SunGard Data Systems, Inc. 222,305 5,889 @o Symantec Corp. 242,502 13,808 Tyco International Ltd. 1,573,000 48,999 o Veritas Software Corp. 332,242 7,269 Waste Management, Inc. 450,805 12,839 o Yahoo! Inc. 1,058,458 38,306 ----------- 365,823 CHEMICALS 1.5% -------------------------------------------------------------------------- Air Products & Chemicals, Inc. 177,301 9,429 Dow Chemical Co. 727,450 32,692 E.I. du Pont de Nemours & Co. 778,038 33,354 Eastman Chemical Co. 59,183 2,809 @ Ecolab, Inc. 198,798 6,729 Great Lakes Chemical Corp. 38,937 998 o Hercules, Inc. 82,003 1,171 Monsanto Co. 206,398 8,824 PPG Industries, Inc. 132,163 8,425 @ Praxair, Inc. 253,588 10,701
2 SCHWAB S&P 500 FUND PORTFOLIO HOLDINGS continued
VALUE SECURITY AND NUMBER OF SHARES ($ X 1,000) Rohm & Haas Co. 174,959 7,417 Sigma-Aldrich Corp. 54,726 3,045 ----------- 125,594 CONSTRUCTION 0.5% -------------------------------------------------------------------------- Centex Corp. 97,736 5,076 @ Fluor Corp. 64,302 2,986 KB Home 36,866 3,032 @ Masco Corp. 341,573 11,702 Pulte Homes, Inc. 97,150 5,332 The Sherwin-Williams Co. 111,364 4,758 The Stanley Works 63,440 2,824 Vulcan Materials Co. 78,918 3,929 ----------- 39,639 CONSUMER DURABLES 0.2% -------------------------------------------------------------------------- Black & Decker Corp. 62,086 4,984 Leggett & Platt, Inc. 150,312 4,228 Maytag Corp. 61,971 1,079 Newell Rubbermaid, Inc. 213,537 4,604 Whirlpool Corp. 53,431 3,139 ----------- 18,034 CONTAINERS 0.1% -------------------------------------------------------------------------- Ball Corp. 88,112 3,511 Bemis Co. 81,458 2,156 o Pactiv Corp. 121,164 2,871 o Sealed Air Corp. 65,771 3,258 ----------- 11,796 ELECTRONICS 5.0% -------------------------------------------------------------------------- @o ADC Telecommunications, Inc. 632,138 1,397 @o Advanced Micro Devices, Inc. 272,013 4,575 @o Agilent Technologies, Inc. 384,975 9,647 o Altera Corp. 294,881 6,703 American Power Conversion Corp. 153,555 2,961 @ Analog Devices, Inc. 291,783 11,747 o Andrew Corp. 120,024 1,678 o Applied Materials, Inc. 1,321,542 21,277 o Applied Micro Circuits Corp. 238,073 867 o Broadcom Corp., Class A 250,633 6,780 o CIENA Corp. 449,272 1,110 @ Intel Corp. 5,023,205 111,817 ITT Industries, Inc. 72,010 5,843 o Jabil Circuit, Inc. 157,319 3,824 o JDS Uniphase Corp. 1,107,285 3,510 @o KLA-Tencor Corp. 155,010 7,058 Linear Technology Corp. 240,408 9,107 o LSI Logic Corp. 293,990 1,338 @o Lucent Technologies, Inc. 3,338,204 11,851 @ Maxim Integrated Products, Inc. 251,249 11,052 @o Micron Technology, Inc. 477,135 5,811 Molex, Inc. 146,907 4,344 @ Motorola, Inc. 1,838,552 31,733 o National Semiconductor Corp. 278,108 4,644 o Novellus Systems, Inc. 114,939 2,978 o Nvidia Corp. 125,865 1,821 PerkinElmer, Inc. 97,208 1,997 o PMC - Sierra, Inc. 133,386 1,369 o Power-One, Inc. 62,573 439 o QLogic Corp. 74,738 2,429 Qualcomm, Inc. 1,266,736 52,962 o Sanmina -- SCI Corp. 406,629 3,253 Scientific-Atlanta, Inc. 117,199 3,210 o Solectron Corp. 749,409 3,912 Symbol Technologies, Inc. 180,827 2,656 Tektronix, Inc. 71,399 2,165 o Tellabs, Inc. 322,453 2,580 o Teradyne, Inc. 148,524 2,460 @ Texas Instruments, Inc. 1,348,447 32,969 o Thermo Electron Corp. 127,063 3,685 @o Waters Corp. 93,000 3,840 Xilinx, Inc. 270,166 8,267 ----------- 413,666 ENERGY: RAW MATERIALS 1.8% -------------------------------------------------------------------------- @ Anadarko Petroleum Corp. 195,717 13,201 Apache Corp. 252,380 12,796 @ Baker Hughes, Inc. 259,586 11,118 @o BJ Services Co. 124,400 6,344 Burlington Resources, Inc. 309,044 12,825 Devon Energy Corp. 187,037 13,835 EOG Resources, Inc. 90,133 5,999 Halliburton Co. 344,508 12,761 o Noble Corp. 103,457 4,726 Occidental Petroleum Corp. 307,810 17,185 @o Rowan Cos., Inc. 80,970 2,067 Schlumberger Ltd. 457,887 28,820 Valero Energy Corp. 198,800 8,543 ----------- 150,220 FOOD & AGRICULTURE 3.4% -------------------------------------------------------------------------- Archer-Daniels-Midland Co. 505,107 9,784 Campbell Soup Co. 322,209 8,648 The Coca-Cola Co. 1,893,069 76,972 Coca-Cola Enterprises, Inc. 366,639 7,666 ConAgra Foods, Inc. 410,604 10,840 General Mills, Inc. 295,030 13,055 H.J. Heinz Co. 274,171 9,966 Hershey Foods Corp. 191,606 9,712 Kellogg Co. 319,427 13,735
3 SCHWAB S&P 500 FUND PORTFOLIO HOLDINGS continued
VALUE SECURITY AND NUMBER OF SHARES ($ X 1,000) McCormick & Co., Inc. 106,601 3,777 The Pepsi Bottling Group, Inc. 200,742 5,629 PepsiCo, Inc. 1,326,494 65,768 Sara Lee Corp. 617,438 14,374 Supervalu, Inc. 102,901 3,035 Sysco Corp. 498,610 16,090 Wm. Wrigley Jr. Co. 174,311 11,400 ----------- 280,451 GOLD 0.2% -------------------------------------------------------------------------- @ Newmont Mining Corp. 345,651 16,425 HEALTHCARE / DRUGS & MEDICINE 12.2% -------------------------------------------------------------------------- Abbott Laboratories 1,222,533 52,117 @ Allergan, Inc. 102,596 7,342 @ AmerisourceBergen Corp. 87,353 4,808 @o Amgen, Inc. 985,789 55,993 @o Anthem, Inc. 108,740 8,743 Applied Biosystems Group -- Applera Corp. 156,833 2,992 Bausch & Lomb, Inc. 39,537 2,410 @ Baxter International, Inc. 475,802 14,636 Becton Dickinson & Co. 196,776 10,331 @o Biogen Idec, Inc. 264,918 15,408 @ Biomet, Inc. 198,156 9,250 o Boston Scientific Corp. 659,732 23,288 Bristol-Myers Squibb Co. 1,511,208 35,408 C.R. Bard, Inc. 82,258 4,672 Cardinal Health, Inc. 335,974 15,707 o Caremark Rx, Inc. 362,644 10,868 @o Chiron Corp. 146,078 4,736 Eli Lilly & Co. 878,527 48,240 @o Express Scripts, Inc. 60,000 3,840 o Forest Laboratories, Inc. 287,240 12,811 @o Genzyme Corp. 177,186 9,297 o Gilead Sciences, Inc. 334,300 11,577 Guidant Corp. 243,874 16,247 @ HCA, Inc. 379,022 13,921 @ Health Management Associates, Inc., Class A 190,429 3,934 o Hospira, Inc. 121,133 3,865 o Humana, Inc. 124,343 2,381 @(8) Johnson & Johnson 2,324,156 135,684 @o King Pharmaceuticals, Inc. 187,724 2,048 Manor Care, Inc. 71,759 2,349 McKesson Corp. 227,183 6,057 @o Medco Health Solutions, Inc. 212,639 7,211 Medimmune, Inc. 193,581 5,501 Medtronic, Inc. 942,124 48,152 Merck & Co., Inc. 1,730,042 54,168 @ Mylan Laboratories, Inc. 209,700 3,611 (6) Pfizer, Inc. 5,912,611 171,170 Quest Diagnostics 81,055 7,095 Schering-Plough Corp. 1,148,084 20,792 o St. Jude Medical, Inc. 137,442 10,524 Stryker Corp. 311,894 13,439 o Tenet Healthcare Corp. 360,505 3,865 UnitedHealth Group, Inc. 517,316 37,454 o Watson Pharmaceuticals, Inc. 83,237 2,333 o WellPoint Health Networks, Inc. 121,322 11,848 Wyeth 1,034,682 41,025 o Zimmer Holdings, Inc. 190,692 14,796 ----------- 1,003,944 HOUSEHOLD PRODUCTS 2.2% -------------------------------------------------------------------------- Alberto-Culver Co., Class B 70,426 3,159 @ Avon Products, Inc. 367,854 14,549 Clorox Co. 165,110 9,015 Colgate-Palmolive Co. 413,539 18,452 The Gillette Co. 781,577 32,420 International Flavors & Fragrances, Inc. 72,428 2,828 = Procter & Gamble Co. 1,990,726 101,886 ----------- 182,309 INSURANCE 4.6% -------------------------------------------------------------------------- ACE Ltd. 220,000 8,373 Aetna, Inc. 118,847 11,290 AFLAC, Inc. 396,464 14,225 The Allstate Corp. 539,100 25,925 AMBAC Financial Group, Inc. 83,554 6,522 (9) American International Group, Inc. 2,040,150 123,858 @ AON Corp. 246,426 5,030 @ Chubb Corp. 148,677 10,724 CIGNA Corp. 108,571 6,890 Cincinnati Financial Corp. 130,868 5,464 Hartford Financial Services Group, Inc. 227,367 13,296 Jefferson-Pilot Corp. 103,914 5,018 Lincoln National Corp. 138,597 6,071 Loews Corp. 144,787 8,673 Marsh & McLennan Cos., Inc. 407,520 11,272 @ MBIA, Inc. 113,393 6,561 Metlife, Inc. 589,218 22,597 MGIC Investment Corp. 77,579 4,989 Principal Financial Group, Inc. 241,524 9,120 The Progressive Corp. 156,768 14,666 Prudential Financial, Inc. 402,500 18,704 @ Safeco Corp. 98,021 4,532 The St. Paul Travelors Cos., Inc. 517,355 17,569 Torchmark Corp. 86,710 4,684 @ UnumProvident Corp. 230,026 3,142
4 SCHWAB S&P 500 FUND PORTFOLIO HOLDINGS continued
VALUE SECURITY AND NUMBER OF SHARES ($ X 1,000) @ XL Capital Ltd., Class A 108,565 7,871 ----------- 377,066 MEDIA 3.5% -------------------------------------------------------------------------- Clear Channel Communications, Inc. 459,122 15,335 @o Comcast Corp., Class A 1,742,810 51,413 Dow Jones & Co., Inc. 64,009 2,833 Gannett Co., Inc. 207,069 17,176 @ Knight-Ridder, Inc. 61,087 4,186 The McGraw-Hill Cos., Inc. 148,062 12,770 Meredith Corp. 39,218 1,922 New York Times Co., Class A 117,850 4,720 R.R. Donnelley & Sons Co. 167,196 5,258 o Time Warner, Inc. 3,558,276 59,210 Tribune Co. 255,239 11,026 @o Univision Communications, Inc., Class A 251,484 7,786 @ Viacom, Inc., Class B 1,358,469 49,571 The Walt Disney Co. 1,593,305 40,183 ----------- 283,389 MISCELLANEOUS 0.6% -------------------------------------------------------------------------- 3M Co. 607,876 47,153 MISCELLANEOUS FINANCE 7.7% -------------------------------------------------------------------------- American Express Co. 990,581 52,570 The Bear Stearns Cos., Inc. 81,229 7,696 @ Capital One Financial Corp. 186,911 13,787 / The Charles Schwab Corp. 1,063,150 9,728 CIT Group, Inc. 80,000 3,232 (4) Citigroup, Inc. 4,056,339 179,980 Countrywide Financial Corp. 434,662 13,879 o E*TRADE Financial Corp. 285,500 3,683 Fannie Mae 753,227 52,839 Federated Investors, Inc., Class B 85,300 2,473 Franklin Resources, Inc. 193,688 11,741 Freddie Mac 535,802 35,684 Golden West Financial Corp. 118,205 13,821 @ Goldman Sachs Group, Inc. 378,200 37,207 Janus Capital Group, Inc. 186,007 2,837 Lehman Brothers Holdings, Inc. 211,104 17,342 MBNA Corp. 995,193 25,507 Merrill Lynch & Co., Inc. 730,834 39,421 Moody's Corp. 116,409 9,058 Morgan Stanley 855,539 43,709 o Providian Financial Corp. 223,272 3,472 SLM Corp. 341,883 15,474 Sovereign Bancorp, Inc. 265,600 5,750 @ T. Rowe Price Group, Inc. 99,307 5,538 Washington Mutual, Inc. 679,021 26,285 ----------- 632,713 NON-DURABLES & ENTERTAINMENT 1.2% -------------------------------------------------------------------------- Darden Restaurants, Inc. 126,412 3,097 @o Electronic Arts, Inc. 234,756 10,545 @ Fortune Brands, Inc. 113,691 8,279 Hasbro, Inc. 133,312 2,358 International Game Technology 272,552 9,005 @ Mattel, Inc. 328,493 5,752 McDonald's Corp. 981,496 28,611 o Starbucks Corp. 309,259 16,354 Wendy's International, Inc. 89,337 2,981 Yum! Brands, Inc. 225,398 9,805 ----------- 96,787 NON-FERROUS METALS 0.4% -------------------------------------------------------------------------- Alcoa, Inc. 676,287 21,979 Engelhard Corp. 95,939 2,715 Freeport-McMoran Copper & Gold, Inc., Class B 134,615 4,876 Phelps Dodge Corp. 72,480 6,345 ----------- 35,915 OIL: DOMESTIC 1.2% -------------------------------------------------------------------------- Amerada Hess Corp. 70,261 5,671 Ashland, Inc. 53,145 3,062 ConocoPhillips 535,948 45,186 Kerr-McGee Corp. 115,420 6,835 Marathon Oil Corp. 273,479 10,422 o Nabors Industries Ltd. 115,107 5,654 Sunoco, Inc. 59,302 4,410 o Transocean, Inc. 249,199 8,784 Unocal Corp. 206,022 8,602 ----------- 98,626 OIL: INTERNATIONAL 4.1% -------------------------------------------------------------------------- ChevronTexaco Corp. 1,663,314 88,255 (2) Exxon Mobil Corp. 5,094,097 250,732 ----------- 338,987 OPTICAL & PHOTO 0.2% -------------------------------------------------------------------------- @o Corning, Inc. 1,070,275 12,255
5 SCHWAB S&P 500 FUND PORTFOLIO HOLDINGS continued
VALUE SECURITY AND NUMBER OF SHARES ($ X 1,000) @ Eastman Kodak Co. 224,974 6,812 ----------- 19,067 PAPER & FOREST PRODUCTS 0.8% -------------------------------------------------------------------------- o Boise Cascade Corp. 66,153 1,953 @ Georgia-Pacific Corp. 197,318 6,825 International Paper Co. 376,413 14,496 Kimberly-Clark Corp. 389,600 23,247 Louisiana-Pacific Corp. 83,408 2,044 MeadWestvaco Corp. 155,777 4,912 Temple-Inland, Inc. 41,926 2,479 @ Weyerhaeuser Co. 188,097 11,782 ----------- 67,738 PRODUCER GOODS & MANUFACTURING 5.4% -------------------------------------------------------------------------- o American Standard Cos., Inc. 167,700 6,133 @o Avery Dennison Corp. 85,872 5,224 Caterpillar, Inc. 266,901 21,496 Cooper Industries Ltd., Class A 72,442 4,629 Deere & Co. 194,192 11,609 Dover Corp. 157,706 6,193 @ Emerson Electric Co. 328,181 21,020 @o Fisher Scientific International, Inc. 88,722 5,089 @=(1) General Electric Co. 8,267,470 282,086 Honeywell International, Inc. 667,980 22,498 Illinois Tool Works, Inc. 235,165 21,701 Ingersoll-Rand Co., Class A 134,964 9,237 Johnson Controls, Inc. 147,168 8,440 o Millipore Corp. 37,784 1,738 Pall Corp. 96,974 2,508 Parker Hannifin Corp. 91,418 6,457 Snap-On, Inc. 44,189 1,298 W.W. Grainger, Inc. 72,199 4,230 ----------- 441,586 RAILROAD & SHIPPING 0.5% -------------------------------------------------------------------------- Burlington Northern Santa Fe Corp. 288,677 12,070 CSX Corp. 167,740 6,122 Norfolk Southern Corp. 302,882 10,283 Union Pacific Corp. 201,337 12,678 ----------- 41,153 REAL PROPERTY 0.5% -------------------------------------------------------------------------- @ Apartment Investment & Management Co., Class A 72,500 2,660 Equity Office Properties Trust 314,006 8,830 @ Equity Residential 217,429 7,251 Plum Creek Timber Co., Inc. 144,500 5,244 ProLogis 142,400 5,551 Simon Property Group, Inc. 172,100 10,037 ----------- 39,573 RETAIL 6.7% -------------------------------------------------------------------------- @ Albertson's, Inc. 286,510 6,535 @o Autonation, Inc. 209,100 3,603 @o AutoZone, Inc. 64,777 5,299 o Bed, Bath & Beyond, Inc. 234,687 9,573 Best Buy Co., Inc. 252,672 14,963 o Big Lots, Inc. 87,567 1,085 Circuit City Stores, Inc. 158,574 2,577 @ Costco Wholesale Corp. 357,933 17,159 @ CVS Corp. 308,727 13,417 Dillards, Inc., Class A 62,888 1,289 Dollar General Corp. 260,124 5,007 @ Family Dollar Stores, Inc. 132,990 3,930 Federated Department Stores, Inc. 140,046 7,065 @ The Gap, Inc. 699,936 13,985 @ Home Depot, Inc. 1,719,111 70,621 @ J.C. Penney Co., Inc. Holding Co. 220,106 7,613 o Kohl's Corp. 265,171 13,460 o Kroger Co. 581,385 8,785 @ Limitedbrands 363,498 9,007 @ Lowe's Cos., Inc. 611,019 34,388 @ The May Department Stores Co. 225,801 5,884 Nordstrom, Inc. 108,076 4,667 o Office Depot, Inc. 243,533 3,943 RadioShack Corp. 125,208 3,747 @o Safeway, Inc. 345,477 6,302 @ Sears, Roebuck & Co. 165,710 5,800 Staples, Inc. 386,542 11,496 Target Corp. 707,815 35,405 @ Tiffany & Co. 113,553 3,331 TJX Cos., Inc. 385,766 9,251 o Toys 'R' Us, Inc. 166,616 3,001 =(5) Wal-Mart Stores, Inc. 3,322,091 179,127 Walgreen Co. 798,044 28,642 @ Winn-Dixie Stores, Inc. 105,395 363 ----------- 550,320 STEEL 0.1% -------------------------------------------------------------------------- Allegheny Technologies, Inc. 70,584 1,186 @ Nucor Corp. 122,610 5,178 @ United States Steel Corp. 87,046 3,196 Worthington Industries, Inc. 69,657 1,383 ----------- 10,943
6 SCHWAB S&P 500 FUND PORTFOLIO HOLDINGS continued
VALUE SECURITY AND NUMBER OF SHARES ($ X 1,000) TELEPHONE 3.4% -------------------------------------------------------------------------- Alltel Corp. 240,168 13,192 @ AT&T Corp. 621,840 10,640 o Avaya, Inc. 346,075 4,983 BellSouth Corp. 1,425,708 38,024 CenturyTel, Inc. 110,133 3,534 o Citizens Communications Co. 258,057 3,458 o Nextel Communications, Inc., Class A 860,271 22,789 o Qwest Communications International, Inc. 1,381,642 4,725 SBC Communications, Inc. 2,594,733 65,543 Sprint Corp. (FON Group) 1,130,036 23,674 @ Verizon Communications, Inc. 2,167,822 84,762 ----------- 275,324 TOBACCO 1.1% -------------------------------------------------------------------------- Altria Group, Inc. 1,606,665 77,859 @ Reynolds American, Inc. 114,809 7,906 UST, Inc. 127,974 5,267 ----------- 91,032 TRAVEL & RECREATION 0.7% -------------------------------------------------------------------------- Brunswick Corp. 73,572 3,452 @ Carnival Corp. 491,712 24,861 @ Harrah's Entertainment, Inc. 86,097 5,038 Hilton Hotels Corp. 296,097 5,892 Marriott International, Inc., Class A 175,734 9,576 Starwood Hotels & Resorts Worldwide, Inc. 161,921 7,729 ----------- 56,548 TRUCKING & FREIGHT 0.1% -------------------------------------------------------------------------- @ Paccar, Inc. 134,955 9,353 Ryder Systems, Inc. 50,813 2,546 ----------- 11,899 UTILITIES: ELECTRIC & GAS 3.2% -------------------------------------------------------------------------- o The AES Corp. 503,090 5,484 @o Allegheny Energy, Inc. 99,242 1,817 @ Ameren Corp. 150,280 7,213 @ American Electric Power Co., Inc. 307,485 10,126 @o Calpine Corp. 414,241 1,031 @ Centerpoint Energy, Inc. 235,015 2,470 @ Cinergy Corp. 140,058 5,535 @o CMS Energy Corp. 147,646 1,382 @ Consolidated Edison, Inc. 187,570 8,150 Constellation Energy Group, Inc. 132,786 5,394 Dominion Resources, Inc. 256,982 16,529 DTE Energy Co. 134,383 5,740 @ Duke Energy Corp. 729,612 17,897 @0 Dynegy, Inc., Class A 291,051 1,435 Edison International 255,377 7,789 @ El Paso Corp. 492,325 4,401 @ Entergy Corp. 178,608 11,674 @ Exelon Corp. 513,692 20,353 FirstEnergy Corp. 258,545 10,686 @ FPL Group, Inc. 143,198 9,866 @ KeySpan Corp. 126,365 5,048 Kinder Morgan, Inc. 96,339 6,201 Nicor, Inc. 35,789 1,343 NiSource, Inc. 204,355 4,383 Peoples Energy Corp. 27,820 1,190 o PG&E Corp. 311,920 9,994 Pinnacle West Capital Corp. 70,250 2,994 PPL Corp. 146,648 7,626 Progress Energy, Inc. 193,355 7,986 @ Public Service Enterprise Group, Inc. 185,439 7,898 Sempra Energy 178,781 5,996 @ The Southern Co. 575,055 18,166 TECO Energy, Inc. 154,169 2,158 TXU Corp. 236,850 14,500 @ Williams Cos., Inc. 429,773 5,377 Xcel Energy, Inc. 311,475 5,326 ----------- 261,158 SHORT-TERM INVESTMENT 0.1% of net assets Provident Institutional TempFund 9,414,995 9,415
FACE SECURITY AMOUNT RATE, MATURITY DATE ($ X 1,000) = U.S. Treasury Bills 1.54%-1.66%, 12/16/04 975 973
END OF INVESTMENTS. 7 SCHWAB S&P 500 FUND PORTFOLIO HOLDINGS continued
FACE SECURITY AMOUNT VALUE RATE, MATURITY DATE ($ X 1,000) ($ X 1,000) COLLATERAL INVESTED FOR SECURITIES ON LOAN 7.8% OF NET ASSETS COMMERCIAL PAPER & OTHER CORPORATE OBLIGATIONS 3.3% -------------------------------------------------------------------------- Canadian Imperial Bank of Commerce/New York 1.92%, 11/29/04 23,101 23,097 1.72%, 05/25/05 21,894 21,890 Crown Point Capital 1.80%, 11/05/04 8,536 8,523 Foreningssparbanken AB 1.83%, 11/15/04 63,439 63,430 Fortis Bank NY 1.78%, 06/06/05 9,163 9,162 2.06%, 06/08/05 6,590 6,589 Societe Generale NY 1.95%, 11/01/04 60,728 60,715 1.83%, 11/15/04 21,790 21,782 Westdeutsche Landesbank AG 1.50%, 01/10/05 54,770 54,756 ----------- 269,944 SHORT-TERM INVESTMENTS 4.5% -------------------------------------------------------------------------- Citibank, Time Deposit 1.76%, 11/01/04 15,069 15,069 SECURITY AND NUMBER OF SHARES Institutional Money Market Trust 356,919,456 356,919 ----------- 371,988
END OF COLLATERAL INVESTED FOR SECURITIES ON LOAN. In addition to the above, the fund held the following at 10/31/04. All numbers x $1,000 except number of contracts.
NUMBER OF CONTRACT UNREALIZED CONTRACTS VALUE GAINS FUTURES CONTRACTS S&P 500 Index, Long expires 12/17/04 10 2,826 68
8 SCHWAB CAPITAL TRUST SCHWAB SMALL-CAP INDEX FUND(R) PORTFOLIO HOLDINGS as of October 31, 2004 The following is the schedule of portfolio holdings at 10/31/04. The schedule should be read in conjunction with the fund's annual report for the fiscal year ended 10/31/04. We use the symbols below to designate certain characteristics of the securities. With the top ten holdings, the number in the circle is the security's rank among the top ten. (1) Top Ten Holding o Non-income producing security = Collateral for open futures contracts @ This security or a portion of this security is on loan
COST VALUE HOLDINGS BY CATEGORY ($X1,000) ($X1,000) -------------------------------------------------------------------------------- 100.0% COMMON STOCK 1,387,803 1,628,595 0.0% SHORT-TERM INVESTMENT 787 787 0.0% U.S. TREASURY OBLIGATIONS 120 120 -------------------------------------------------------------------------------- 100.0% TOTAL INVESTMENTS 1,388,710 1,629,502 8.6% COLLATERAL INVESTED FOR SECURITIES ON LOAN 140,272 140,272 (8.6)% OTHER ASSETS AND LIABILITIES, NET (140,048) -------------------------------------------------------------------------------- 100.0% TOTAL NET ASSETS 1,629,726
VALUE SECURITY AND NUMBER OF SHARES ($ X 1,000) COMMON STOCK 100.0% of net assets AEROSPACE / DEFENSE 1.0% -------------------------------------------------------------------------- o Armor Holdings, Inc. 70,200 2,599 o DRS Technologies, Inc. 60,900 2,206 EDO Corp. 44,900 1,256 = Engineered Support Systems, Inc. 58,950 2,832 o ESCO Technologies, Inc. 29,100 2,031 o Esterline Technologies Corp. 47,900 1,514 @ GenCorp, Inc. 89,400 1,243 o Teledyne Technologies, Inc. 73,300 1,874 o Veeco Instruments, Inc. 67,370 1,316 ----------- 16,871 AIR TRANSPORTATION 1.1% -------------------------------------------------------------------------- o AAR Corp. 73,100 859 o AirTran Holdings, Inc. 189,300 2,200 o Alaska Air Group, Inc. 65,800 1,733 @o America West Holdings Corp., Class B 81,300 372 o Aviall, Inc. 73,000 1,581 @o Continental Airlines, Inc., Class B 150,870 1,400 o EGL, Inc. 96,100 3,073 o ExpressJet Holdings, Inc. 108,300 1,204 o FLYi, Inc. 104,900 147 o Frontier Airlines, Inc. 82,200 687 @o Mesa Air Group, Inc. 72,800 418 @o Northwest Airlines Corp. 196,700 1,741 SkyWest, Inc. 131,500 2,246 ----------- 17,661 ALCOHOLIC BEVERAGES 0.1% -------------------------------------------------------------------------- o The Robert Mondavi Corp., Class A 36,600 1,994 APPAREL 1.6% -------------------------------------------------------------------------- o Aeropostale, Inc. 120,950 3,816 Brown Shoe Co., Inc. 41,600 1,136 The Buckle, Inc. 49,350 1,274 K-Swiss, Inc., Class A 61,200 1,530 Kellwood Co. 60,900 1,916 Kenneth Cole Productions, Inc., Class A 45,750 1,212 Oxford Industries, Inc. 37,100 1,376 Phillips-Van Heusen Corp. 70,250 1,601 o Quiksilver, Inc. 130,000 3,543 Russell Corp. 74,200 1,283 o Stage Stores, Inc. 42,900 1,545 Stride Rite Corp. 90,000 932 o The Warnaco Group, Inc. 96,200 1,962 Wolverine World Wide, Inc. 85,100 2,590 ----------- 25,716 AUTOMOTIVE PRODUCTS / MOTOR VEHICLES 1.6% -------------------------------------------------------------------------- A.O. Smith Corp., Class B 60,600 1,608
1 SCHWAB SMALL-CAP INDEX FUND PORTFOLIO HOLDINGS continued
VALUE SECURITY AND NUMBER OF SHARES ($ X 1,000) Arctic Cat, Inc. 32,400 814 Bandag, Inc. 43,300 1,992 o CSK Auto Corp. 105,200 1,540 o Fleetwood Enterprises, Inc. 123,400 1,554 o Group 1 Automotive, Inc. 51,000 1,443 o Keystone Automotive Industries, Inc. 34,800 627 Lithia Motors, Inc., Class A 42,400 960 Modine Manufacturing Co. 72,600 2,230 Monaco Coach Corp. 66,100 1,173 Sonic Automotive, Inc. 66,500 1,345 @ Superior Industries International, Inc. 60,300 1,644 o TBC Corp. 49,200 1,094 @o Tower Automotive, Inc. 133,700 199 =o(3) United Defense Industries, Inc. 118,600 4,761 Winnebago Industries, Inc. 76,200 2,393 ----------- 25,377 BANKS 7.0% -------------------------------------------------------------------------- Alabama National Bancorp 36,200 2,313 Anchor Bancorp Wisconsin, Inc. 52,600 1,364 BancFirst Corp. 17,300 1,125 BankAtlantic Bancorp, Inc., Class A 132,700 2,321 Boston Private Financial Holdings, Inc. 62,100 1,524 Brookline Bancorp, Inc. 133,800 2,073 Capital City Bank Group, Inc. 30,750 1,203 Capitol Bancorp Ltd. 32,800 1,007 Chemical Financial Corp. 50,387 1,881 City Holding Co. 37,700 1,306 Community Bank System, Inc. 64,900 1,792 Community Banks, Inc. 28,135 820 Community First Bankshares, Inc. 83,100 2,677 Community Trust Bancorp, Inc. 28,300 934 Corus Bankshares, Inc. 59,900 2,756 Dime Community Bancshares, Inc. 84,575 1,358 First Charter Corp. 67,200 1,716 First Commonwealth Financial Corp. 157,000 2,280 First Federal Capital Corp. 50,700 1,688 First Financial Bancorp 99,830 1,741 First Financial Bancshares, Inc. 35,431 1,494 First Merchants Corp. 40,130 998 First Niagra Financial Group, Inc. 179,677 2,505 First Republic Bank 34,500 1,663 o FirstFed Financial Corp. 35,530 1,826 Frontier Financial Corp. 42,000 1,617 Gold Banc Corp., Inc. 91,200 1,327 Hancock Holding Co. 73,434 2,324 Harbor Florida Bancshares, Inc. 53,000 1,698 Harleysville National Corp. 55,842 1,428 Independent Bank Corp. 34,200 1,128 Integra Bank Corp. 39,670 870 Irwin Financial Corp. 63,600 1,586 = MAF Bancorp., Inc. 70,725 3,032 Main Street Banks, Inc. 44,400 1,304 Mid-State Bancshares 53,400 1,433 Midwest Banc Holdings, Inc. 41,000 851 National Penn Bancshares, Inc. 78,838 2,086 NBT Bancorp., Inc. 71,000 1,643 NetBank, Inc. 106,700 990 Oriental Financial Group 49,015 1,389 PFF Bancorp, Inc. 37,600 1,483 PrivateBancorp, Inc. 45,400 1,469 Prosperity Bancshares, Inc. 49,500 1,349 Provident Bankshares Corp. 74,994 2,605 Republic Bancorp, Inc. 145,662 2,434 Riggs National Corp. 65,200 1,376 S&T Bancorp, Inc. 56,000 2,018 o S1 Corp. 160,100 1,503 Sandy Spring Bancorp, Inc. 33,200 1,148 Simmons First National Corp., Class A 32,300 870 = Southwest Bancorp of Texas, Inc. 156,200 3,661 Sterling Bancorp NY 35,400 1,022 Sterling Bancshares, Inc. Texas 101,850 1,443 o Sterling Financial Corp. Washington 49,850 1,873 Suffolk Bancorp 25,900 798 Susquehanna Bancshares, Inc. 108,775 2,705 Texas Regional Bancshares, Inc., Class A 106,628 3,405 Tompkins Trustco, Inc. 17,200 787 Trustco Bank Corp. NY 169,320 2,267 UMB Financial Corp. 46,093 2,371 Umpqua Holdings Corp. 97,552 2,427 @ United Community Financial Corp. 72,600 811 Unizan Financial Corp. 49,100 1,305 USB Holding Co., Inc. 46,905 1,275 WesBanco, Inc. 45,200 1,370 Wintrust Financial Corp. 44,800 2,554 ----------- 113,400 BUSINESS MACHINES & SOFTWARE 2.2% -------------------------------------------------------------------------- o Adaptec, Inc. 248,680 1,940 o Advanced Digital Information Corp. 146,000 1,307 Analogic Corp. 30,600 1,302 =o Arbitron, Inc. 66,000 2,387
2 SCHWAB SMALL-CAP INDEX FUND PORTFOLIO HOLDINGS continued
VALUE SECURITY AND NUMBER OF SHARES ($ X 1,000) o Artesyn Technologies, Inc. 88,600 859 Black Box Corp. 40,500 1,591 o Borland Software Corp. 183,800 1,882 o Cray, Inc. 194,500 650 o Enterasys Networks, Inc. 484,600 678 @o FindWhat.com 67,100 1,345 o Imagistics International, Inc. 37,700 1,298 o Intergraph Corp. 77,521 1,933 o InterVoice, Inc. 79,800 988 o Interwoven, Inc. 90,730 823 o Invision Technologies, Inc. 38,000 1,755 Landamerica Financial Group, Inc. 41,500 2,031 o LTX Corp. 140,600 914 o McData Corp., Class A 266,200 1,672 o Micromuse, Inc. 180,800 775 o Micros Systems, Inc. 38,800 2,294 o Omnicell, Inc. 51,200 529 @o PalmOne, Inc. 107,000 3,100 @o PTEK Holdings, Inc. 157,700 1,571 o Scansource, Inc. 28,100 1,740 o Zhone Technologies, Inc. 198,000 507 ----------- 35,871 BUSINESS SERVICES 14.5% -------------------------------------------------------------------------- @o Road, Inc. 118,260 745 ABM Industries, Inc. 110,300 2,289 o Administaff, Inc. 61,400 703 o Advent Software, Inc. 75,140 1,567 o The Advisory Board Co. 39,200 1,277 Advo, Inc. 68,850 2,200 o Agile Software Corp. 116,600 996 o Alderwoods Group, Inc. 89,000 902 @o Altiris, Inc. 57,700 1,569 @o American Superconductor Corp. 62,900 727 @o AMN Healthcare Services, Inc. 65,033 767 o Ansys, Inc. 68,000 1,877 o aQuantive, Inc. 138,120 1,236 @o Ariba, Inc. 138,006 2,118 o Ask Jeeves, Inc. 127,500 3,287 o Aspen Technology, Inc. 94,900 570 Bowne & Co., Inc. 80,200 997 o Bright Horizons Family Solutions, Inc. 29,900 1,893 =o CACI International, Inc., Class A 65,700 4,006 o Catalina Marketing Corp. 116,800 2,991 CDI Corp. 44,900 741 o Cell Genesys, Inc. 102,900 675 o Century Business Services, Inc.179,915 797 @=o Cerner Corp. 77,700 3,508 Chemed Corp. 26,500 1,602 o Ciber, Inc. 135,600 1,226 o Clarent Corp. 105,200 3 o Connetics Corp. 80,060 2,152 o CoStar Group, Inc. 40,600 1,639 o Cross Country Healthcare, Inc. 72,500 1,075 o CSG Systems International, Inc. 112,400 1,889 @o CuraGen Corp. 115,600 570 o Dendrite International, Inc. 94,030 1,378 o Digital Insight Corp. 77,800 1,218 @o Digital River, Inc. 72,100 2,401 o Digitas, Inc. 129,700 1,167 o Diversa Corp. 97,000 836 o Dot Hill Systems Corp. 100,200 626 o E.piphany, Inc. 174,300 763 @o Echelon Corp. 93,300 659 o Eclipsys Corp. 99,400 1,687 o eFunds Corp. 107,000 2,107 o Embarcadero Technologies, Inc. 61,000 496 o Encysive Pharmaceuticals, Inc. 119,100 1,040 o Epicor Software Corp. 112,700 1,732 o eResearch Technology, Inc. 114,700 1,341 o Euronet Worldwide, Inc. 68,200 1,563 o Exelixis, Inc. 162,100 1,443 @o F5 Networks, Inc. 78,280 3,127 o FileNet Corp. 89,100 2,480 o Forrester Research, Inc. 51,000 787 o FTI Consulting, Inc. 95,100 1,784 G&K Services, Inc., Class A 47,250 1,856 o Global Imaging Systems, Inc. 49,700 1,749 Grey Global Group, Inc. 2,620 2,623 o Harris Interactive, Inc. 129,500 881 o Heidrick & Struggles International, Inc. 41,600 1,191 o Hewitt Associates, Inc., Class A 118,380 3,318 o Identix, Inc. 190,632 1,390 o IDT Corp. 49,400 649 o IDX Systems Corp. 68,500 2,297 o InFocus Corp. 90,800 585 o Informatica Corp. 194,220 1,517 o Infospace, Inc. 71,390 3,748 o infoUSA, Inc. 118,800 1,244 o Internap Network Services Corp. 595,400 458 o Internet Security Systems 108,200 2,354 o JDA Software Group, Inc. 65,700 738 John H. Harland Co. 63,790 2,056 o Keane, Inc. 130,900 2,070 o Korn/Ferry International 85,000 1,479 o Labor Ready, Inc. 90,100 1,293 o Lionbridge Technologies, Inc. 105,600 495 =o Macrovision Corp. 106,140 2,870 o Magma Design Automation, Inc. 76,600 993 o Manhattan Associates, Inc. 66,700 1,372 o Mantech International Corp., Class A 63,100 1,364 o Manugistics Group, Inc. 187,300 478
3 SCHWAB SMALL-CAP INDEX FUND PORTFOLIO HOLDINGS continued
VALUE SECURITY AND NUMBER OF SHARES ($ X 1,000) o MAXIMUS, Inc. 49,690 1,351 o Mentor Graphics Corp. 158,900 1,850 @o MicroStrategy, Inc., Class A 36,500 2,189 @o Mindspeed Technologies, Inc. 229,200 543 o MPS Group, Inc. 237,000 2,496 o MRO Software, Inc. 57,300 625 @ Nautilus Group, Inc. 72,749 1,430 o Navigant Consulting, Inc. 104,750 2,605 o NCO Group, Inc. 71,860 1,922 NDCHealth Corp. 81,770 1,373 o NeighborCare, Inc. 100,700 2,581 o Netegrity, Inc. 77,700 827 o NetIQ Corp. 129,280 1,639 Newcastle Investment Corp. 78,600 2,406 o NIC, Inc. 134,700 567 o Openwave Systems, Inc. 147,500 1,736 @o Opsware, Inc. 181,700 983 @o Orbital Sciences Corp. 111,030 1,149 o Packeteer, Inc. 75,300 929 o Parametric Technology Corp. 583,075 3,026 o Paxar Corp. 89,185 1,967 o PDI, Inc. 32,800 938 o Per-Se Technologies, Inc. 63,900 932 @o Pre-Paid Legal Services, Inc. 37,300 1,040 @o Priceline.com, Inc. 84,300 1,681 o Progress Software Corp. 81,180 1,612 o ProQuest Co. 64,300 1,676 o QAD, Inc. 72,400 553 =o R.H. Donnelley Corp. 67,700 3,673 o RealNetworks, Inc. 383,100 1,858 @ Renaissance Learning, Inc. 70,800 1,347 o Resources Connection, Inc. 51,800 2,175 o Retek, Inc. 128,900 712 o RSA Security, Inc. 138,300 2,830 o SafeNet, Inc. 53,880 1,650 o Sapient Corp. 271,700 2,187 @o Seachange International, Inc. 57,400 978 o Secure Computing Corp. 82,000 643 o Seebeyond Technology Corp. 189,800 595 o Serena Software, Inc. 99,100 1,758 o SonicWALL, Inc. 160,560 803 o SourceCorp 37,000 621 Spartech Corp. 71,500 1,802 o Spherion Corp. 137,600 989 o SRA International, Inc., Class A 49,630 2,668 SS&C Technologies, Inc. 50,900 1,203 The Standard Register Co. 54,700 581 Startek, Inc. 32,800 907 @o STATS ChipPAC Ltd. 158,099 934 Strayer Education, Inc. 31,400 3,047 o SupportSoft, Inc. 96,600 490 o Symyx Technologies, Inc. 72,700 1,779 o TeleTech Holdings, Inc. 168,800 1,688 o Telik, Inc. 98,000 1,808 o Tetra Technologies, Inc. 49,600 1,485 o Transaction Systems Architects, Inc., Class A 84,300 1,382 =o United Online, Inc. 141,500 1,329 o URS Corp. 90,270 2,491 o Valueclick, Inc. 176,400 1,639 o Verity, Inc. 84,500 1,092 o Vignette Corp. 632,000 702 o Waste Connections, Inc. 106,950 3,371 Watson Wyatt & Co. Holdings 74,880 1,988 @o WebEx Communications, Inc. 98,200 2,160 o webMethods, Inc. 117,700 816 o Websense, Inc. 52,240 2,119 o Wind River Systems, Inc. 183,500 2,457 o Wireless Facilities, Inc. 151,600 1,119 @o(1) Wynn Resorts Ltd. 183,440 10,667 ----------- 235,466 CHEMICALS 2.2% -------------------------------------------------------------------------- A. Schulman, Inc. 68,400 1,358 Amcol International Corp. 66,800 1,175 Arch Chemicals, Inc. 52,700 1,494 Brady Corp., Class A 53,000 2,874 Crompton Corp. 259,860 2,417 o Entegris, Inc. 164,900 1,526 Ferro Corp. 94,800 1,997 Georgia Gulf Corp. 71,100 3,219 H.B. Fuller Co. 64,800 1,743 MacDermid, Inc. 68,900 2,174 o Millennium Chemicals, Inc. 139,900 3,005 o NewMarket Corp 36,000 807 o OM Group, Inc. 59,900 1,976 o PolyOne Corp. 208,800 1,581 o Rogers Corp. 37,000 1,588 Rollins, Inc. 101,050 2,663 Tredegar Corp. 85,000 1,424 o Trex Co., Inc. 33,300 1,336 WD-40 Co. 39,100 1,105 ----------- 35,462 CONSTRUCTION 2.0% -------------------------------------------------------------------------- American Woodmark Corp. 36,800 1,368 @= Beazer Homes USA, Inc. 30,369 3,334 o Ceradyne, Inc. 36,150 1,550 @ Eagle Materials, Inc. 42,300 2,923 ElkCorp 43,150 1,215 o EMCOR Group, Inc. 30,600 1,211 Granite Construction, Inc. 87,825 2,132 o Insituform Technologies, Inc., Class A 61,300 1,215 o Integrated Electrical Services, Inc. 82,600 314
4 SCHWAB SMALL-CAP INDEX FUND PORTFOLIO HOLDINGS continued
VALUE SECURITY AND NUMBER OF SHARES ($ X 1,000) M/I Homes, Inc. 32,100 1,380 o Mastec, Inc. 111,400 770 o NCI Building Systems, Inc. 44,100 1,418 @o Palm Harbor Homes, Inc. 51,800 776 o Quanta Services, Inc. 264,400 1,777 = Simpson Manufacturing Co., Inc. 52,700 3,388 o Surebeam Corp., Class A 132,000 2 Texas Industries, Inc. 48,000 2,445 @o USG Corp. 97,400 2,181 Walter Industries, Inc. 84,000 1,429 o WCI Communities, Inc. 99,700 2,353 ----------- 33,181 CONSUMER DURABLES 1.1% -------------------------------------------------------------------------- o Champion Enterprises, Inc. 157,000 1,710 o Genlyte Group, Inc. 30,600 2,251 o Griffon Corp. 67,800 1,508 Haverty Furniture Cos., Inc. 41,900 707 o Helen of Troy Ltd. 58,500 1,553 Kimball International, Inc., Class B 86,400 1,171 = La-Z-Boy, Inc. 119,400 1,575 o Red Robin Gourmet Burgers, Inc. 35,600 1,485 @o Select Comfort Corp. 82,800 1,417 Thomas Industries, Inc. 39,100 1,322 @ Toro Co. 54,500 3,720 ----------- 18,419 CONTAINERS 0.3% -------------------------------------------------------------------------- Greif, Inc., Class A 50,800 2,111 Silgan Holdings, Inc. 41,200 1,955 ----------- 4,066 ELECTRONICS 7.8% -------------------------------------------------------------------------- o Actel Corp. 59,000 895 Acuity Brands, Inc. 94,700 2,512 Agilysys, Inc. 70,400 1,203 Anixter International, Inc. 77,600 2,998 o Arris Group, Inc. 199,600 928 o Artisan Components, Inc. 51,500 1,666 o Aspect Communications Corp. 133,100 1,266 o Asyst Technologies, Inc. 108,700 582 o ATMI, Inc. 70,800 1,653 @o Avanex Corp. 310,400 854 o Axcelis Technologies, Inc. 222,400 1,913 Belden CDT, Inc. 106,537 2,368 =o Benchmark Electronics, Inc. 88,550 3,008 @o Biolase Technology, Inc. 55,500 379 @o Broadwing Corp. 109,090 621 o Brooks Automation, Inc. 101,424 1,509 o Bruker BioSciences Corp. 206,700 713 C&D Technologies, Inc. 57,600 1,031 o C-COR.net Corp. 98,700 742 =o Cabot Microelectronics Corp. 55,600 2,003 o CCC Information Services Group, Inc. 45,963 842 o Celera Genomics Group -- Applera Corp. 165,430 2,121 o Cepheid, Inc. 94,000 848 o Checkpoint Systems, Inc. 86,200 1,474 o Cirrus Logic, Inc. 186,800 943 =o CMGI, Inc. 909,900 1,247 o Coherent, Inc. 68,400 1,650 Cohu, Inc. 48,600 762 o CommScope, Inc. 114,450 2,061 o Comtech Telecommunications Corp. 32,200 883 o Cox Radio, Inc., Class A 95,400 1,517 o Credence Systems Corp. 214,400 1,619 CTS Corp. 77,000 1,017 Cubic Corp. 60,800 1,338 o Cyberonics 53,600 1,006 o Daktronics, Inc. 42,300 1,044 o Dionex Corp. 47,000 2,632 o DSP Group, Inc. 57,900 1,148 o Dupont Photomasks, Inc. 36,300 952 o Electro Scientific Industries, Inc. 63,700 1,080 o ESS Technology, Inc. 90,300 591 o Exar Corp. 92,372 1,387 o Excel Technology, Inc. 26,700 673 o Faro Technologies, Inc. 31,400 780 o FEI Co. 75,400 1,460 @o FuelCell Energy, Inc. 109,300 1,348 o Genesis Microchip, Inc. 73,600 1,043 o Harmonic, Inc. 164,800 1,371 o Hollywood Entertainment Corp. 136,600 1,328 @o Hutchinson Technology, Inc. 59,160 1,988 o Integrated Silicon Solutions, Inc. 78,800 592 o Intermagnetics General Corp. 62,171 1,585 o Kopin Corp. 161,400 591 @o Kulicke & Soffa Industries, Inc. 116,600 833 =o Lattice Semiconductor Corp. 256,600 1,275 o Littelfuse, Inc. 50,320 1,641 =o Macromedia, Inc. 150,600 4,087 o Mattson Technology, Inc. 111,300 934 o Mercury Computer Systems, Inc. 48,100 1,215 Methode Electronics, Class A 81,700 1,097 @o Microsemi Corp. 133,000 2,067 o MRV Communications, Inc. 245,100 850 MTS Systems Corp. 47,500 1,225 o Mykrolis Corp. 95,000 998 o Netopia, Inc. 31,600 79 o Newport Corp. 88,400 998 o Oplink Communications, Inc. 335,600 646
5 SCHWAB SMALL-CAP INDEX FUND PORTFOLIO HOLDINGS continued
VALUE SECURITY AND NUMBER OF SHARES ($ X 1,000) Park Electrochemical Corp. 44,550 936 o Photon Dynamics, Inc. 38,000 695 o Pinnacle Systems, Inc. 157,900 736 o Pixelworks, Inc. 100,600 1,136 o Plexus Corp. 95,200 1,180 o Power Integrations, Inc. 69,600 1,489 o Power-One, Inc. 192,100 1,349 o Powerwave Technologies, Inc. 233,500 1,744 o Quantum Corp. 413,600 1,108 o Rayovac Corp. 76,800 1,913 o Remec, Inc. 111,300 613 o Rofin-Sinar Technologies, Inc. 32,900 986 o Rudolph Technologies, Inc. 37,500 566 o ScanSoft, Inc. 237,500 920 o Silicon Image, Inc. 168,400 2,307 o Silicon Storage Technology, Inc. 217,700 1,622 Spectralink Corp. 43,100 526 o Standard Microsystems Corp. 41,400 912 o Stratex Networks, Inc. 193,200 351 o Superconductor Technologies, Inc. 111,000 118 o Synaptics, Inc. 56,000 1,772 o Technitrol, Inc. 91,600 1,495 o Tekelec 141,800 3,165 Tektronix, Inc. -- -- o Terayon Communication Systems Corp. 169,200 277 o THQ, Inc. 84,210 1,592 o Transmeta Corp. 394,700 825 o Triquint Semiconductor, Inc. 306,900 1,093 o TTM Technologies, Inc. 92,000 862 =o Varian, Inc. 74,500 2,718 o Viasat, Inc. 60,000 1,133 o Vicor Corp. 69,600 647 o Wilson Greatbatch Technologies, Inc. 48,400 820 o Zoran Corp. 97,200 981 ----------- 126,297 ENERGY: RAW MATERIALS 3.4% -------------------------------------------------------------------------- o Atwood Oceanics, Inc. 31,400 1,506 Berry Petroleum Co., Class A 48,900 1,866 Cabot Oil & Gas Corp. 74,500 3,152 CARBO Ceramics, Inc. 35,300 2,550 o Cimarex Energy Co. 93,900 3,369 o Denbury Resources, Inc. 117,600 2,916 @o Grey Wolf, Inc. 422,680 2,190 o Hanover Compressor Co. 190,700 2,483 o Headwaters, Inc. 76,400 2,407 o Hydril Co. 36,400 1,601 @o KFX, Inc. 125,600 1,173 o Kirby Corp. 55,000 2,310 o McDermott International, Inc. 150,600 2,056 NL Industries, Inc. 109,700 2,189 o Offshore Logistics, Inc. 51,200 1,851 o Oil States International, Inc. 110,700 2,032 Penn Virginia Corp. 41,000 1,476 Range Resources Corp. 153,900 2,416 o Seacor Holdings, Inc. 38,750 1,845 o Southwestern Energy Co. 81,820 3,759 o Swift Energy Co. 60,700 1,472 @o TC Pipelines L.P. 37,500 1,425 Unit Corp. 99,500 3,690 USEC, Inc. 187,800 1,814 o W-H Energy Services, Inc. 62,100 1,264 World Fuel Services Corp. 24,800 846 ----------- 55,658 FOOD & AGRICULTURE 1.2% -------------------------------------------------------------------------- @ American Italian Pasta Co., Class A 40,200 816 o Chiquita Brands International, Inc. 92,300 1,663 Delta & Pine Land Co. 87,100 2,292 Farmer Brothers Co. 32,600 870 o Fisher Communications, Inc. 19,800 932 o Hain Celestial Group, Inc. 79,743 1,290 @ Interstate Bakeries 104,600 430 Lance, Inc. 66,000 1,114 o Ralcorp Holdings, Inc. 64,166 2,358 Sanderson Farms, Inc. 45,100 1,465 Sensient Technologies Corp. 105,600 2,294 @o Tejon Ranch Co. 32,800 1,177 o United Natural Foods, Inc. 83,000 2,257 @o VistaCare, Inc., Class A 35,200 546 o Wild Oats Markets, Inc. 48,000 292 ----------- 19,796 GOLD 0.0% -------------------------------------------------------------------------- Royal Gold, Inc. 47,900 767 HEALTHCARE / DRUGS & MEDICINE 11.0% -------------------------------------------------------------------------- =o Abgenix, Inc. 198,700 1,810 o Accelrys, Inc. 56,100 323 o Advanced Medical Optics, Inc. 79,400 3,105 o Advanced Neuromodulation Systems, Inc. 45,900 1,461 o Albany Molecular Research, Inc. 73,100 630 o Alexion Pharmaceuticals, Inc. 61,300 1,094 Alpharma, Inc., Class A 116,900 1,981 @o American Healthways, Inc. 73,900 2,230 o American Medical Systems Holdings, Inc. 70,700 2,623
6 SCHWAB SMALL-CAP INDEX FUND PORTFOLIO HOLDINGS continued
VALUE SECURITY AND NUMBER OF SHARES ($ X 1,000) o AMERIGROUP Corp. 55,600 3,336 o Amsurg Corp. 68,250 1,596 @o Antigenics, Inc. 104,200 705 o Ariad Pharmaceuticals, Inc. 120,500 683 Arrow International, Inc. 92,900 2,654 @o Arthrocare Corp. 48,200 1,485 @o Atherogenics, Inc. 78,300 2,344 o Atrix Labs, Inc. 49,800 1,543 o Beverly Enterprises, Inc. 243,300 2,114 o BioMarin Pharmaceuticals, Inc. 146,100 603 @o Biosite, Inc. 35,000 1,708 Cambrex Corp. 57,600 1,289 o Centene Corp. 45,150 2,141 o Charles River Laboratories International, Inc. 40,954 1,916 o Conmed Corp. 67,900 1,906 o Corvel Corp. 24,700 646 o Cubist Pharmaceuticals, Inc. 91,200 931 @o CV Therapeutics, Inc. 72,000 1,205 Datascope Corp. 33,500 1,087 o Dendreon Corp. 125,500 1,298 = Diagnostic Products Corp. 65,400 2,887 o Digene Corp. 44,800 1,127 o Discovery Laboratories, Inc. 104,900 714 o DJ Orthopedics, Inc. 48,600 829 o Encore Medical Corp. 98,900 508 o Enzo Biochem, Inc. 71,464 1,264 o Enzon Pharmaceuticals, Inc. 99,560 1,610 o Epix Medical, Inc. 51,900 811 o First Horizon Pharmaceutical Corp. 81,200 1,996 o Genesis HealthCare Corp. 45,484 1,395 @o Genta, Inc. 178,400 446 @o Geron Corp. 96,900 761 o Haemonetics Corp. 56,600 1,859 o HealthExtras, Inc. 73,800 1,053 @o ICU Medical, Inc. 31,000 696 o Ii-Vi, Inc. 31,400 1,075 o Ilex Oncology, Inc. 82,400 2,081 o Immucor, Inc. 67,550 2,084 o Impax Laboratories, Inc. 131,600 1,942 @o Incyte Corp. 165,100 1,717 o Inspire Pharmaceuticals, Inc. 86,400 1,353 o Integra LifeSciences Holdings Corp. 65,200 2,092 @o InterMune, Inc. 72,500 940 o Intuitive Surgical, Inc. 74,900 2,186 = Invacare Corp. 67,700 3,126 @o Inverness Medical Innovations, Inc. 46,100 953 o Isis Pharmaceuticals, Inc. 129,600 603 o Kindred Healthcare, Inc. 80,200 1,933 o Kyphon, Inc. 87,700 2,203 Landauer, Inc. 20,400 995 o Lexicon Genetics, Inc. 145,400 947 =o LifePoint Hospitals, Inc. 85,800 2,782 @o Ligand Pharmaceuticals, Inc., Class B 167,600 1,494 @o Medarex, Inc. 174,900 1,331 Mentor Corp. 95,600 3,327 o Merit Medical Systems, Inc. 60,054 622 @=o MGI Pharma, Inc. 153,200 4,086 Mine Safety Appliances Co. 88,000 3,319 o Myriad Genetics, Inc. 68,200 1,209 o Nabi Biopharmaceuticals 130,976 1,814 o Nektar Therapeutics 179,460 2,586 o Noven Pharmacuticals, Inc. 53,000 1,195 @o NPS Pharmacuticals, Inc. 85,100 1,454 Oakley, Inc. 142,200 1,806 @o OCA, Inc. 115,400 477 o Ocular Sciences, Inc. 54,600 2,667 o Odyssey HealthCare, Inc. 82,850 640 o Onyx Pharmaceuticals, Inc. 77,800 2,183 Owens & Minor, Inc. 87,900 2,302 o Parexel International Corp. 59,500 1,145 =o Pediatrix Medical Group, Inc. 52,300 2,942 Perrigo Co. 153,000 2,782 @ PolyMedica Corp. 59,500 2,082 o Priority Healthcare Corp., Class B 83,600 1,510 o Province Healthcare Co. 112,300 2,408 o PSS World Medical, Inc. 147,000 1,656 @o Regeneron Pharmaceuticals, Inc. 120,800 878 o RehabCare Group, Inc. 37,000 850 =o Resmed, Inc. 76,200 3,581 @o Serologicals Corp. 55,600 1,315 o Sierra Health Services, Inc. 62,200 2,968 o Sola International, Inc. 72,400 1,389 @o Sunrise Senior Living, Inc. 46,500 1,772 @o SuperGen, Inc. 98,000 598 @o SurModics, Inc. 40,200 1,079 o Sybron Dental Specialties, Inc. 86,000 2,801 @o Tanox, Inc. 100,040 1,571 @o Thoratec Corp. 128,800 1,131 o Transkaryotic Therapies, Inc. 78,800 1,364 o United Surgical Partners International, Inc. 63,900 2,237 o United Therapeutics Corp. 48,400 1,513 @o USANA Health Sciences, Inc. 43,400 1,295 o Ventana Medical Systems, Inc. 34,200 1,851 o Vertex Pharmaceuticals, Inc. 177,400 1,930 o Viasys Healthcare, Inc. 70,410 1,203 =o Vicuron Pharmaceuticals, Inc. 122,900 1,723 =o Visx, Inc. 110,700 1,846 West Pharmaceutical Services, Inc. 67,200 1,540 o Wright Medical Group, Inc. 73,900 1,909
7 SCHWAB SMALL-CAP INDEX FUND PORTFOLIO HOLDINGS continued
VALUE SECURITY AND NUMBER OF SHARES ($ X 1,000) o XOMA Ltd. 195,400 401 ----------- 179,197 HOUSEHOLD PRODUCTS 0.1% -------------------------------------------------------------------------- o Elizabeth Arden, Inc. 62,800 1,506 o Playtex Products, Inc. 138,800 870 ----------- 2,376 INSURANCE 3.1% -------------------------------------------------------------------------- Alfa Corp. 177,100 2,462 o Argonaut Group, Inc. 63,000 1,166 Baldwin & Lyons, Inc., Class B 35,600 893 o CNA Surety Corp. 98,500 1,159 Commerce Group, Inc. 74,100 3,750 Delphi Financial Group, Inc., Class A 70,676 2,889 FBL Financial Group, Inc., Class A 64,700 1,676 Great American Financial Resources, Inc. 107,750 1,692 Harleysville Group, Inc. 67,800 1,412 Hooper Holmes, Inc. 148,500 780 Horace Mann Educators Corp. 96,100 1,634 Kansas City Life Insurance Co. 27,500 1,127 Liberty Corp. 43,600 1,763 o Navigators Group, Inc. 28,900 852 o Ohio Casualty Corp. 131,100 2,737 o Philadelphia Consolidated Holding Co. 50,000 2,899 Presidential Life Corp. 67,300 1,075 o ProAssurance Corp. 64,796 2,313 RLI Corp. 56,950 2,166 @ Selective Insurance Group, Inc. 62,800 2,454 State Auto Financial Corp. 88,400 2,515 Sterling Financial Corp. 49,350 1,308 Stewart Information Services Corp. 38,400 1,629 o Triad Guaranty, Inc. 32,700 1,782 o UICI 98,800 2,922 United Fire & Casualty Co. 22,800 1,371 o USI Holdings Corp. 106,200 1,032 @ Zenith National Insurance Corp. 42,600 1,750 ----------- 51,208 MEDIA 2.1% -------------------------------------------------------------------------- o Adolor Corp. 89,000 1,054 o AMC Entertainment, Inc. 83,600 1,606 o Applied Films Corp. 33,800 784 Banta Corp. 56,800 2,310 @ Blockbuster, Inc., Class A 85,600 582 o CNET Networks, Inc. 307,300 2,511 o Consolidated Graphics, Inc. 30,700 1,311 o Entravision Communications Corp., Class A 135,500 1,091 o Gaylord Entertainment Co. 84,600 2,835 Gray Television, Inc. 109,400 1,453 o Information Holdings, Inc. 47,300 1,295 o Insight Communications Co., Class A 133,100 1,126 o Journal Register Co. 93,500 1,758 o Lin TV Corp., Class A 60,400 1,098 o Mediacom Communications Corp., Class A 268,600 1,759 Movie Gallery, Inc. 74,900 1,212 o Primedia, Inc. 596,000 1,520 Pulitzer, Inc. 22,400 1,181 @ Regal Entertainment Group, Class A 120,100 2,391 o Salem Communications Corp., Class A 47,100 1,177 Sinclair Broadcast Group, Inc., Class A 190,300 1,332 o Spanish Broadcasting System, Class A 146,716 1,485 @o Tivo, Inc. 179,800 1,209 o Valuevision Media, Inc., Class A 84,200 879 ----------- 34,959 MISCELLANEOUS 0.3% -------------------------------------------------------------------------- o Coinstar, Inc. 48,600 1,255 @o NetFlix, Inc. 115,600 1,095 o Salix Pharmaceuticals Ltd. 82,200 1,318 o Saxon Capital, Inc. 66,000 1,267 ----------- 4,935 MISCELLANEOUS FINANCE 5.3% -------------------------------------------------------------------------- 1st Source Corp. 47,800 1,296 Amcore Financial, Inc. 55,650 1,693 o Bankunited Financial Corp., Class A 67,700 2,014 Blackrock, Inc., Class A 41,200 3,028 o Boca Resorts, Inc., Class A 90,800 2,152 Cash America International, Inc. 64,470 1,631 =(6) Cathay General Bancorp., Inc. 112,400 4,429 Central Pacific Financial Co. 46,400 1,418 CharterMac 110,900 2,568 The Commercial Capital Bancorp, Inc. 119,033 2,670 Commercial Federal Corp. 86,900 2,417 o CompuCredit Corp. 100,300 1,909 o Corrections Corp. of America 79,900 2,777 CVB Financial Corp. 110,174 2,732 = Downey Financial Corp. 60,440 3,340
8 SCHWAB SMALL-CAP INDEX FUND PORTFOLIO HOLDINGS continued
VALUE SECURITY AND NUMBER OF SHARES ($ X 1,000) (7) East-West Bancorp, Inc. 109,700 4,392 o eSpeed, Inc., Class A 99,440 979 Fidelity Bankshares, Inc. 34,400 1,337 o Financial Federal Corp. 42,700 1,593 First Community Bancorp 34,800 1,461 First Financial Corp. Indiana 31,000 979 First Financial Holdings, Inc. 29,000 881 Glacier Bancorp, Inc. 55,687 1,763 Hudson River Bancorp 68,800 1,349 IBERIABANK Corp. 14,700 897 Independent Bank Corp. Michigan 44,720 1,215 o Investment Technology Group, Inc. 99,400 1,531 =o La Quinta Corp. 396,700 3,193 o LabOne, Inc. 38,900 1,167 @o LaBranche & Co., Inc. 135,700 962 MB Financial, Inc. 61,600 2,633 MCG Capital Corp. 87,800 1,560 o Meritage Corp. 27,600 2,448 The Midland Co. 42,800 1,183 o National Western Life Insurance Co., Class A 7,500 1,126 Northwest Bancorp, Inc. 108,349 2,579 o Ocwen Financial Corp. 138,260 1,037 @o Portfolio Recovery Associates, Inc. 35,100 1,184 Provident Financial Services, Inc. 20,838 375 United Community Banks, Inc. Georgia 77,500 1,866 @o(2) UnitedGlobalCom, Inc., Class A 858,200 6,419 Value Line, Inc. 23,400 847 Waypoint Financial Corp. 73,700 2,024 o World Acceptance Corp. 41,000 959 ----------- 86,013 NON-DURABLES & ENTERTAINMENT 2.7% -------------------------------------------------------------------------- @o AFC Enterprises, Inc. 67,900 1,472 =o CEC Entertainment, Inc. 80,850 3,074 Churchill Downs, Inc. 30,200 1,147 @o CKE Restaurants, Inc. 127,200 1,535 @o Electronics Boutique Holdings Corp. 55,300 1,888 Handleman Co. 53,400 1,149 o Hibbet Sporting Goods, Inc. 50,950 1,139 IHOP Corp. 44,100 1,689 o Isle of Capri Casinos, Inc. 63,600 1,441 o Jack in the Box, Inc. 81,900 2,733 Landry's Restaurants, Inc. 60,400 1,636 @o Leapfrog Enterprises, Inc. 132,700 1,619 Lone Star Steakhouse & Saloon, Inc. 47,500 1,145 @o P.F. Chang's China Bistro, Inc. 58,000 2,949 @o Papa John's International, Inc. 39,700 1,282 o Penn National Gaming, Inc. 90,240 3,748 o Rare Hospitality International Inc. 76,050 2,107 Russ Berrie & Co., Inc. 47,400 988 o Ryan's Restaurant Group, Inc. 92,250 1,291 o Sotheby's Holdings, Inc., Class A 140,800 2,632 o The Steak N Shake Co. 62,100 1,023 o Stewart Enterprises, Inc., Class A 229,900 1,637 The Topps Co., Inc. 93,400 941 Triarc Cos., Class B 137,200 1,568 Tupperware Corp. 132,500 2,211 ----------- 44,044 NON-FERROUS METALS 0.9% -------------------------------------------------------------------------- o Century Aluminum Co. 68,500 1,585 Commercial Metals Co. 61,366 2,218 Gibraltar Industries, Inc. 44,300 1,551 o Hecla Mining Co. 269,200 1,814 Minerals Technologies, Inc. 45,800 2,753 Reliance Steel & Aluminum Co. 73,375 2,518 Southern Peru Copper Corp. 32,000 1,382 ----------- 13,821 OIL: DOMESTIC 2.8% -------------------------------------------------------------------------- o CAL Dive International, Inc. 86,700 3,070 o Comstock Resources, Inc. 76,600 1,685 o Encore Acquisition Co. 72,500 2,367 o Energy Partners Ltd. 73,300 1,287 Frontier Oil Corp. 59,500 1,463 o Global Industries Ltd. 251,700 1,689 Holly Corp. 71,850 1,764 o KCS Energy, Inc. 111,200 1,513 o Magnum Hunter Resources, Inc. 193,300 2,339 o(9) Plains Exploration & Production Co. 167,478 4,187 @o Quicksilver Resources, Inc. 107,600 3,403 o Remington Oil & Gas Corp. 60,800 1,547 o Spinnaker Exploration Co. 76,410 2,439 St. Mary Land & Exploration Co. 63,500 2,504 o Stone Energy Corp. 56,740 2,336 o Superior Energy Services, Inc. 169,500 2,185 o(5) Tesoro Petroleum Corp. 148,100 4,485 o Universal Compression Holdings, Inc. 70,600 2,441 Vintage Petroleum, Inc. 147,200 3,091 ----------- 45,795
9 SCHWAB SMALL-CAP INDEX FUND PORTFOLIO HOLDINGS continued
VALUE SECURITY AND NUMBER OF SHARES ($ X 1,000) OPTICAL & PHOTO 0.1% -------------------------------------------------------------------------- o August Technology Corp. 40,700 317 o Photronics, Inc. 74,000 1,299 ----------- 1,616 PAPER & FOREST PRODUCTS 0.8% -------------------------------------------------------------------------- o Buckeye Technologies, Inc. 84,000 886 o Caraustar Industries, Inc. 64,700 962 Chesapeake Corp. 43,300 1,005 Glatfelter 99,600 1,238 o Longview Fibre Co. 116,200 1,789 Potlatch Corp. 63,000 2,967 Rock-Tennessee Co., Class A 79,600 1,238 Universal Forest Products, Inc. 40,100 1,471 Wausau-Mosinee Paper Corp. 115,025 1,799 ----------- 13,355 PRODUCER GOODS & MANUFACTURING 6.0% -------------------------------------------------------------------------- o Actuant Corp., Class A 49,900 1,980 o Advanced Energy Industries, Inc. 74,400 734 o Aeroflex, Inc. 168,900 1,875 Albany International Corp., Class A 73,783 2,215 Applied Industrial Technologies, Inc. 44,100 1,641 = Aptargroup, Inc. 79,100 3,711 Baldor Electric Co. 74,620 1,748 Barnes Group, Inc. 52,100 1,355 Clarcor, Inc. 54,250 2,675 o Cuno, Inc. 37,900 2,179 Curtiss-Wright Corp. 44,700 2,495 Federal Signal Corp. 109,200 1,815 Franklin Electric Co., Inc. 46,800 1,796 o Gardner Denver, Inc. 45,300 1,358 Helix Technology Corp. 59,200 831 = Hughes Supply, Inc. 133,800 3,801 = IDEX Corp. 108,300 3,996 @o Ionics, Inc. 51,200 1,459 o Jacuzzi Brands, Inc. 170,900 1,478 o Jarden Corp. 61,700 2,167 JLG Industries, Inc. 98,800 1,648 Kaydon Corp. 64,100 1,897 = Kennametal, Inc. 79,300 3,690 =o Kos Pharmaceuticals, Inc. 79,200 2,827 Lennox International, Inc. 128,500 1,858 Libbey, Inc. 31,191 566 Lincoln Electric Holdings, Inc. 92,400 3,084 o Lone Star Technologies, Inc. 65,400 1,727 Manitowoc Co., Inc. 60,562 2,138 Matthews International Corp., Class A 72,900 2,443 o Maverick Tube Corp. 96,200 2,537 o Moog, Inc., Class A 58,250 2,186 MSC Industrial Direct Co., Class A 94,000 3,209 NACCO Industries, Inc., Class A 15,850 1,481 o Oceaneering International, Inc. 56,400 2,005 @o Plug Power, Inc. 165,600 991 Regal Beloit Corp. 56,000 1,310 o Safeguard Scientifics, Inc. 277,300 463 Sauer-Danfoss, Inc. 107,600 1,948 o Sequa Corp., Class A 23,800 1,285 @o The Shaw Group, Inc. 143,900 1,754 @o Sonic Solutions, Inc. 49,100 975 Steelcase, Inc., Class A 115,000 1,506 Stewart & Stevenson Services, Inc. 65,300 1,110 Tecumseh Products Co., Class A 42,000 1,818 Tennant Co. 20,500 836 o Triumph Group, Inc. 35,900 1,234 o Tyler Technologies, Inc. 94,000 820 o Ultratech Stepper, Inc. 54,600 929 Valmont Industries, Inc. 54,500 1,185 Watsco, Inc. 51,100 1,454 Watts Water Technologies, Inc., Class A 72,000 1,868 Woodward Governor Co. 25,600 1,550 ----------- 97,641 RAILROAD & SHIPPING 0.4% -------------------------------------------------------------------------- o Genesee & Wyoming, Inc., Class A 51,700 1,309 o Kansas City Southern Railway 142,500 2,415 o RailAmerica, Inc. 76,800 852 Westinghouse Air Brake Technologies Corp. 99,221 2,011 ----------- 6,587 REAL PROPERTY 6.3% -------------------------------------------------------------------------- o Alexander's, Inc. 11,300 2,233 Alexandria Real Estate Equities, Inc. 43,900 2,900 American Home Mortgage Investment Corp. 89,400 2,470 AMLI Residential Properties 54,500 1,715 Anthracite Capital, Inc. 115,100 1,333 @ Anworth Mortgage Asset Corp. 101,200 1,035 Bedford Property Investors, Inc. 37,500 1,078 = Brandywine Realty Trust 119,300 3,510 Capital Automotive Real Estate Investment Trust 81,300 2,623
10 SCHWAB SMALL-CAP INDEX FUND PORTFOLIO HOLDINGS continued
VALUE SECURITY AND NUMBER OF SHARES ($ X 1,000) Colonial Properties Trust 61,400 2,393 Commercial Net Lease Realty 117,600 2,261 Cornerstone Realty Income Trust, Inc. 125,900 1,236 Corporate Office Properties Trust SBI 77,200 2,117 CRT Properties, Inc. 60,800 1,347 EastGroup Properties, Inc. 47,400 1,679 Entertainment Properties Trust 53,600 2,139 Equity Inns, Inc. 101,700 966 o FelCor Lodging Trust, Inc. 135,200 1,571 Gables Residential Trust 65,700 2,398 Getty Realty Corp. 55,900 1,572 Glenborough Realty Trust, Inc. 72,400 1,520 Glimcher Realty Trust 80,500 2,079 o Homestore, Inc. 274,000 670 IMPAC Mortgage Holdings, Inc. 139,600 3,156 Investors Real Estate Trust 91,900 933 o Jones Lang LaSalle, Inc. 72,400 2,317 Kilroy Realty Corp. 60,600 2,409 Kramont Realty Trust 55,400 1,045 LaSalle Hotel Properties 60,900 1,749 Lexington Corp. Properties Trust 109,500 2,457 LNR Property Corp. 44,900 2,808 Manufactured Home Communities, Inc. 51,600 1,780 o Meristar Hospitality Corp. 200,000 1,168 MFA Mortgage Investments, Inc. 165,100 1,393 Mid-America Apartment Communities, Inc. 46,200 1,817 National Health Investors, Inc. 62,300 1,782 (8) New Century Financial Corp. 77,200 4,258 @ Novastar Financial, Inc. 53,200 2,302 Parkway Properties, Inc. 24,700 1,254 Post Properties, Inc. 85,500 2,744 PS Business Parks, Inc. 49,400 2,170 RAIT Investment Trust 57,200 1,528 Ramco-Gershenson Properties 38,100 1,029 Redwood Trust, Inc. 47,500 2,858 Saul Centers, Inc. 36,600 1,189 Senior Housing Properties Trust 135,800 2,548 Sovran Self Storage, Inc. 33,700 1,317 Summit Properties, Inc. 71,300 2,163 Sun Communities, Inc. 42,800 1,664 Tanger Factory Outlet Centers 30,800 1,455 Taubman Centers, Inc. 107,400 3,082 The Town & Country Trust 39,000 1,077 o Trammell Crow Co. 84,400 1,304 US Restaurant Properties, Inc. 51,700 916 ----------- 102,517 RETAIL 3.4% -------------------------------------------------------------------------- o A.C. Moore Arts & Crafts, Inc. 43,200 1,113 Aaron Rents, Inc. 105,850 2,297 o Big 5 Sporting Goods Corp. 52,100 1,323 Burlington Coat Factory Warehouse Corp. 100,540 2,219 Casey's General Stores, Inc. 111,600 1,987 The Cato Corp., Class A 45,600 1,047 o Central Garden & Pet Co. 40,600 1,450 o Charming Shoppes, Inc. 260,200 1,985 o The Children's Place Retail Stores, Inc. 60,820 1,878 Christopher & Banks Corp. 85,950 1,397 o Cost Plus, Inc. 50,000 1,615 o The Dress Barn, Inc. 64,800 1,039 o Drugstore.com, Inc. 178,700 568 The Finish Line, Class A 54,100 1,874 o Guitar Center, Inc. 53,460 2,386 o The Gymboree Corp. 70,100 848 o Insight Enterprises, Inc. 109,450 2,031 o Jo-Ann Stores, Inc. 50,910 1,255 Longs Drug Stores Corp. 84,100 2,077 o The Men's Wearhouse, Inc. 82,250 2,556 o Payless Shoesource, Inc. 155,610 1,480 o Petco Animal Supplies, Inc. 32,800 1,173 Ruddick Corp. 103,500 2,083 @o School Specialty, Inc. 41,700 1,706 o Sharper Image Corp. 34,300 702 o ShopKo Stores, Inc. 66,100 1,140 o Too, Inc. 77,800 1,713 =o Tractor Supply Co. 82,080 2,978 =o United Stationers, Inc. 73,100 3,253 Weis Markets, Inc. 61,600 2,264 @o West Marine, Inc. 44,900 1,101 =o Zale Corp. 112,500 3,209 ----------- 55,747 STEEL 1.1% -------------------------------------------------------------------------- o AK Steel Holding Corp. 229,000 2,182 Allegheny Technologies, Inc. 208,000 3,497 Carpenter Technology Corp. 51,800 2,458 @o Cleveland-Cliffs, Inc. 24,100 1,757 Quanex Corp. 37,300 1,891 Schnitzer Steel Industries, Inc., Class A 67,000 1,893 Steel Dynamics, Inc. 111,900 3,715 ----------- 17,393 TELEPHONE 1.2% -------------------------------------------------------------------------- o Autobytel.com, Inc. 83,900 584
11 SCHWAB SMALL-CAP INDEX FUND PORTFOLIO HOLDINGS continued
VALUE SECURITY AND NUMBER OF SHARES ($ X 1,000) o Commonwealth Telephone Enterprises, Inc. 44,600 2,035 o Ditech Communications Corp. 73,200 1,679 @o Dobson Communications Corp., Class A 275,600 366 o Equinix, Inc. 41,500 1,564 o Extreme Networks, Inc. 270,800 1,584 @o Finisar Corp. 503,440 740 o General Communication, Inc., Class A 130,000 1,191 Inter-Tel, Inc. 58,400 1,577 =o Interdigital Communications Corp. 116,400 1,851 @o j2 Global Communications, Inc. 52,200 1,574 o Price Communications Corp. 128,100 2,041 @o Primus Telecommunications Group, Inc. 205,900 393 SureWest Communications 33,300 944 @o Time Warner Telecom, Inc., Class A 163,500 837 @o Utstarcom, Inc. 22,800 390 ----------- 19,350 TOBACCO 0.3% -------------------------------------------------------------------------- Schweitzer-Mauduit International, Inc. 34,100 1,076 Universal Corp. 57,200 2,619 @ Vector Group Ltd. 82,049 1,268 ----------- 4,963 TRAVEL & RECREATION 1.6% -------------------------------------------------------------------------- o Argosy Gaming Co. 65,400 2,589 o Aztar Corp. 77,200 2,389 Central Parking Corp. 83,200 1,127 @o Dick's Sporting Goods, Inc. 75,300 2,711 o Dollar Thrifty Automotive Group, Inc. 57,400 1,385 o K2, Inc. 103,900 1,685 The Marcus Corp. 46,225 983 @o Multimedia Games, Inc. 61,600 813 o(10) Scientific Games Corp., Class A 194,200 4,113 @o Shuffle Master, Inc. 52,100 2,193 o Six Flags, Inc. 211,700 1,067 o The Sports Authority, Inc. 58,100 1,405 o Vail Resorts, Inc. 63,100 1,266 o WMS Industries, Inc. 68,300 1,998 ----------- 25,724 TRUCKING & FREIGHT 1.1% -------------------------------------------------------------------------- Arkansas Best Corp. 56,800 2,220 o Forward Air Corp. 48,700 2,005 o Knight Transportation, Inc. 121,100 2,845 o(4) Landstar Systems, Inc. 67,300 4,573 o Old Dominion Freight Line 54,700 1,533 o Pacer International, Inc. 84,500 1,500 USF Corp. 62,900 2,254 o Wabash National Corp. 61,400 1,509 ----------- 18,439 UTILITIES: ELECTRIC & GAS 2.3% -------------------------------------------------------------------------- American States Water Co. 34,850 857 o Aquila, Inc. 525,100 1,665 Avista Corp. 108,400 1,927 Black Hills Corp. 73,500 2,165 California Water Service Group 38,800 1,144 CH Energy Group, Inc. 36,000 1,607 Cleco Corp. 98,700 1,798 o El Paso Electric Co. 107,900 1,797 The Empire District Electric Co. 57,700 1,203 The Laclede Group, Inc. 46,700 1,408 MGE Energy, Inc. 42,300 1,341 New Jersey Resources Corp. 62,700 2,578 Northwest Natural Gas Co. 62,000 1,965 Otter Tail Corp. 58,300 1,508 PNM Resources, Inc. 136,250 3,172 @o Sierra Pacific Resources 249,100 2,391 South Jersey Industries 30,700 1,449 Southwest Gas Corp. 78,600 1,920 UIL Holdings Corp. 32,800 1,662 @ Unisource Energy Corp. 76,580 1,883 o Veritas DGC, Inc. 69,800 1,473 ----------- 36,913
FACE SECURITY AMOUNT RATE, MATURITY DATE ($ X 1,000) SHORT-TERM INVESTMENT 0.0% of net assets HSBC Bank, USA Grand Cayman Time Deposit 1.29%, 11/01/04 787 787
12 SCHWAB SMALL-CAP INDEX FUND PORTFOLIO HOLDINGS continued
FACE SECURITY AMOUNT VALUE RATE, MATURITY DATE ($ X 1,000) ($ X 1,000) U.S. TREASURY OBLIGATIONS 0.0% of net assets = U.S. Treasury Bills 1.59%-1.65%, 12/16/04 120 120
END OF INVESTMENTS. COLLATERAL INVESTED FOR SECURITIES ON LOAN 8.6% of net assets SECURITY AND NUMBER OF SHARES SHORT-TERM INVESTMENT 8.6% -------------------------------------------------------------------------- Securities Lending Investment Fund 140,271,911 140,272 END OF COLLATERAL INVESTED FOR SECURITIES ON LOAN. In addition to the above, the fund held the following at 10/31/04. All numbers x $1,000 except number of futures contracts.
NUMBER OF CONTRACT UNREALIZED CONTRACTS VALUE GAINS FUTURES CONTRACTS Russell 2000 Index, Long expires 12/17/04 4 1,169 35
13 SCHWAB CAPITAL TRUST SCHWAB TOTAL STOCK MARKET INDEX FUND(R) PORTFOLIO HOLDINGS as of October 31, 2004 The following is the schedule of portfolio holdings at 10/31/04. The schedule should be read in conjunction with the fund's annual report for the fiscal year ended 10/31/04. We use the symbols below to designate certain characteristics of the securities. With the top ten holdings, the number in the circle is the security's rank among the top ten. (1) Top Ten Holding o Non-income producing security = Collateral for open futures contracts / Issuer is affiliated with the fund's adviser > Security is valued at fair value (see Accounting Policies) @ This security or a portion of this security is on loan For fixed-rate obligations, the rate shown is the interest rate (the rate established when the obligation was issued) and the maturity date shown is the stated legal maturity.
COST VALUE HOLDINGS BY CATEGORY ($X1,000) ($X1,000) -------------------------------------------------------------------------------- 98.9% COMMON STOCK 1,070,799 1,127,570 0.7% SHORT-TERM INVESTMENT 8,015 8,015 0.0% U.S. TREASURY OBLIGATION 399 399 0.0% PREFERRED STOCK 68 69 0.0% CORPORATE BONDS 15 16 0.0% RIGHTS 130 8 0.0% WARRANTS 286 2 -------------------------------------------------------------------------------- 99.6% TOTAL INVESTMENTS 1,079,712 1,136,079 6.3% COLLATERAL INVESTED FOR SECURITIES ON LOAN 71,496 71,496 (5.9)% OTHER ASSETS AND LIABILITIES, NET (66,895) -------------------------------------------------------------------------------- 100.0% TOTAL NET ASSETS 1,140,680
VALUE SECURITY AND NUMBER OF SHARES ($ X 1,000) COMMON STOCK 98.9% of net assets AEROSPACE / DEFENSE 1.6% --------------------------------------------------------------------------- o Aerosonic Corp. 300 1 o Armor Holdings, Inc. 3,000 111 The Boeing Co. 68,800 3,433 @ Crane Co. 5,000 139 o DRS Technologies, Inc. 1,382 50 EDO Corp. 900 25 Engineered Support Systems, Inc. 2,475 119 o EnPro Industries, Inc. 920 20 o ESCO Technologies, Inc. 1,400 98 o Esterline Technologies Corp. 2,400 76 GenCorp, Inc. 2,500 35 General Dynamics Corp. 15,700 1,603 Goodrich Corp. 8,404 259 Heico Corp., Class A 2,286 32 Kaman Corp., Class A 1,300 14 o KVH Industries, Inc. 1,300 11 @ L-3 Communications Holdings, Inc. 9,100 600 Lockheed Martin Corp. 37,052 2,041 Northrop Grumman Corp. 30,032 1,554 Raytheon Co. 34,900 1,273 Rockwell Automation, Inc. 15,700 655 Rockwell Collins, Inc. 13,100 465 o SatCon Technology Corp. 900 2 o Teledyne Technologies, Inc. 12,157 311 Textron, Inc. 11,800 804 o Transtechnology Corp. 500 4 o Trimble Navigation Ltd. 5,700 164 United Technologies Corp. 42,034 3,902 o Veeco Instruments, Inc. 3,500 68 ----------- 17,869 AIR TRANSPORTATION 1.0% --------------------------------------------------------------------------- o AAR Corp. 2,500 29 o AirTran Holdings, Inc. 5,800 67 o Alaska Air Group, Inc. 1,900 50 @o AMR Corp. 12,000 93 @o ATA Holdings Corp. 1,200 1 o Aviall, Inc. 2,500 54 o Continental Airlines, Inc., Class B 5,000 47 @o Delta Air Lines, Inc. 10,300 56 o EGL, Inc. 4,150 133 o ExpressJet Holdings, Inc. 3,000 33 o FedEx Corp. 28,063 2,557 o FLYi, Inc. 1,600 2 o Hawk Corp., Class A 1,800 14 @o JetBlue Airways Corp. 7,975 176
1 SCHWAB TOTAL STOCK MARKET INDEX FUND PORTFOLIO HOLDINGS continued
VALUE SECURITY AND NUMBER OF SHARES ($ X 1,000) o MAIR Holdings, Inc. 1,100 10 o Mesa Air Group, Inc. 1,300 8 o Northwest Airlines Corp. 6,500 58 Sabre Holdings Corp., Class A 12,401 267 SkyWest, Inc. 4,000 68 Southwest Airlines Co. 64,125 1,011 United Parcel Service, Inc., Class B 91,480 7,243 ----------- 11,977 ALCOHOLIC BEVERAGES 0.4% --------------------------------------------------------------------------- Adolph Coors Co., Class B 2,500 167 Anheuser-Busch Cos., Inc. 67,000 3,347 Brown-Forman Corp., Class B 9,912 445 o Constellation Brands, Inc., Class A 8,800 345 National Beverage Corp. 7,400 60 o The Robert Mondavi Corp., Class A 2,500 136 ----------- 4,500 APPAREL 0.6% --------------------------------------------------------------------------- Brown Shoe Co., Inc. 3,300 90 The Buckle, Inc. 1,000 26 o Carter's, Inc. 2,500 79 o Coach, Inc. 16,004 746 o Columbia Sportswear Co. 4,350 263 o Finlay Enterprises, Inc. 1,000 20 o Guess?, Inc. 2,700 45 Haggar Corp. 1,200 20 o Hampshire Group Ltd. 1,000 31 o The J. Jill Group, Inc. 2,000 35 Jones Apparel Group, Inc. 12,156 429 K-Swiss, Inc., Class A 2,400 60 Kellwood Co. 2,900 91 Kenneth Cole Productions, Inc., Class A 3,100 82 Liz Claiborne, Inc. 18,600 760 Nike, Inc., Class B 20,700 1,683 Oshkosh B'Gosh, Inc., Class A 1,200 22 Phillips-Van Heusen Corp. 1,800 41 Polo Ralph Lauren Corp. 3,500 129 o Quiksilver, Inc. 2,000 55 Reebok International Ltd. 8,000 296 Russell Corp. 2,600 45 Saucony, Inc., Class B 1,900 46 o Skechers USA, Inc., Class A 6,500 72 o Stage Stores, Inc. 1,200 43 o Steven Madden Ltd. 1,800 29 Stride Rite Corp. 2,900 30 Superior Uniform Group, Inc. 1,600 23 Tandy Brands Accessories, Inc. 1,000 14 o Tarrant Apparel Group 1,700 2 o Timberland Co., Class A 1,400 86 o Unifi, Inc. 1,900 6 VF Corp. 15,000 807 o The Warnaco Group, Inc. 2,500 51 Wolverine World Wide, Inc. 5,200 158 ----------- 6,415 AUTOMOTIVE PRODUCTS / MOTOR VEHICLES 1.1% --------------------------------------------------------------------------- A.O. Smith Corp., Class B 1,300 35 o Aftermarket Technology Corp. 2,511 36 American Axle & Manufacturing Holdings, Inc. 5,300 152 ArvinMeritor, Inc. 4,900 91 Bandag, Inc. 3,200 147 BorgWarner, Inc. 5,400 250 Carlisle Cos., Inc. 3,600 209 Cascade Corp. 4,400 131 o Collins & Aikman Corp. 1,400 5 Cooper Tire & Rubber Co. 6,400 125 o CSK Auto Corp. 3,500 51 Cummins, Inc. 3,900 273 Dana Corp. 40,800 608 Danaher Corp. 24,000 1,323 @ Delphi Corp. 45,600 384 Donaldson Co., Inc. 8,800 261 o Dura Automotive Systems, Inc., Class A 12,100 102 Eaton Corp. 12,600 806 Federal Screw Works 250 8 @ Ford Motor Co. 148,736 1,938 General Motors Corp. 45,386 1,750 @ Gentex Corp. 2,300 76 Genuine Parts Co. 13,500 539 @o Goodyear Tire & Rubber Co. 12,500 126 o Group 1 Automotive, Inc. 1,400 40 Harley-Davidson, Inc. 25,500 1,468 o Keystone Automotive Industries, Inc. 1,800 32 @ Lear Corp. 5,800 313 Lithia Motors, Inc., Class A 700 16 o MarineMax, Inc. 800 20 o Midas, Inc. 1,300 25 Modine Manufacturing Co. 3,700 114 Monaco Coach Corp. 1,200 21 o Monro Muffler Brake, Inc. 1,050 26 Myers Industries, Inc. 2,580 27 @o Navistar International Corp. 6,900 238 @ Oshkosh Truck Corp. 4,500 265 Polaris Industries, Inc. 3,200 190 o Rush Enterprises, Inc., Class B 500 8 Sonic Automotive, Inc. 1,400 28 Standard Motor Products, Inc. 2,000 30
2 SCHWAB TOTAL STOCK MARKET INDEX FUND PORTFOLIO HOLDINGS continued
VALUE SECURITY AND NUMBER OF SHARES ($ X 1,000) o Stoneridge, Inc. 1,700 23 Superior Industries International, Inc. 800 22 o TBC Corp. 100 2 Thor Industries, Inc. 4,500 125 Titan International, Inc. 800 8 @o Tower Automotive, Inc. 2,300 3 United Auto Group, Inc. 1,000 27 o United Defense Industries, Inc. 900 36 o UQM Technologies, Inc. 1,500 4 @ Visteon Corp. 5,451 39 Winnebago Industries, Inc. 2,600 82 ----------- 12,658 BANKS 7.7% --------------------------------------------------------------------------- ABC Bancorp 1,500 31 Abigail Adams National Bancorp 500 9 Alabama National Bancorp 1,600 102 @ AmSouth Bancorp. 28,403 750 Anchor Bancorp Wisconsin, Inc. 3,100 80 Arrow Financial Corp. 991 29 @ Associated Banc-Corp. 10,719 372 BancFirst Corp. 500 33 Bancorpsouth, Inc. 7,612 181 Bank Mutual Corp. 6,168 76 (7) Bank of America Corp. 338,518 15,162 Bank of Hawaii Corp. 3,500 167 The Bank of New York Co., Inc. 65,500 2,126 BankAtlantic Bancorp, Inc., Class A 2,200 38 Banknorth Group, Inc. 14,890 525 BB&T Corp. 46,386 1,907 Berkshire Bancorp, Inc. 3,600 66 Boston Private Financial Holdings, Inc. 2,129 52 @ Brookline Bancorp, Inc. 2,405 37 Bryn Mawr Bank Corp. 1,400 27 Camden National Corp. 700 26 Capital City Bank Group, Inc. 1,500 59 o Capital Crossing Bank 2,000 55 Capitol Bancorp Ltd. 1,500 46 @ Capitol Federal Financial 6,920 235 Cascade Bancorp 2,655 54 Cavalry Bancorp, Inc. 500 9 o Central Coast Bancorp 1,464 33 Century Bancorp, Inc., Class A 800 25 Chemical Financial Corp. 1,318 49 Chittenden Corp. 2,272 64 Citizens Banking Corp. Michigan 4,590 150 Citizens South Banking Corp. 1,000 13 City Holding Co. 1,800 62 City National Corp. 3,100 214 The Colonial BancGroup, Inc. 10,100 219 Columbia Bancorp 700 22 Columbia Banking Systems, Inc. 1,951 48 Comerica, Inc. 13,496 830 @ Commerce Bancorp, Inc. N.J. 5,660 335 Commerce Bancshares, Inc. 12,093 594 Community Bank System, Inc. 1,400 39 Community First Bankshares, Inc. 2,000 64 Community Trust Bancorp, Inc. 2,261 75 @ Compass Bancshares, Inc. 11,400 545 Corus Bankshares, Inc. 2,000 92 Cullen/Frost Bankers, Inc. 3,300 162 Dime Community Bancshares, Inc. 3,375 54 @ Doral Financial Corp. 9,900 416 Exchange National Bancshares, Inc. 750 24 Fifth Third Bancorp 46,003 2,263 First Bancorp Puerto Rico 2,100 115 First Busey Corp. 1,500 28 First Charter Corp. 3,500 89 First Citizens BancShares, Inc., Class A 300 35 First Commonwealth Financial Corp. 2,504 36 First Federal Capital Corp. 2,500 83 First Financial Bancorp 1,839 32 First Financial Bancshares, Inc. 1,500 63 First Horizon National Corp. 10,800 467 First M & F Corp. 1,000 34 First Merchants Corp. 1,041 26 First Midwest Bancorp, Inc. Illinois 3,125 109 First National Bankshares of Florida, Inc. 6,117 151 First Niagra Financial Group, Inc. 3,104 43 First Oak Brook Bancshares, Inc. 1,500 47 The First of Long Island Corp. 2,000 88 First Republic Bank 800 39 o FirstFed Financial Corp. 2,900 149 FirstMerit Corp. 7,300 191 FNB Corp. 2,639 54 Frontier Financial Corp. 700 27 Fulton Financial Corp. 11,182 240 Gold Banc Corp., Inc. 1,400 20 Great Southern Bancorp, Inc. 1,400 47 Greater Bay Bancorp 5,406 169 Hancock Holding Co. 2,100 66 Harbor Florida Bancshares, Inc. 1,100 35 Harleysville National Corp. 1,157 30 Hibernia Corp., Class A 16,900 490 Home Federal Bancorp 800 19 Horizon Financial Corp. 2,156 42 Hudson City Bancorp, Inc. 19,100 698 Hudson United Bancorp 5,740 228 Huntington Bancshares, Inc. 18,290 438 Independent Bank Corp. 1,000 33
3 SCHWAB TOTAL STOCK MARKET INDEX FUND PORTFOLIO HOLDINGS continued
VALUE SECURITY AND NUMBER OF SHARES ($ X 1,000) Integra Bank Corp. 1,225 27 Interchange Financial Services Corp. 1,050 26 o Internet Capital Group, Inc. 350 2 Irwin Financial Corp. 3,700 92 JPMorgan Chase & Co. 295,944 11,423 KeyCorp, Inc. 34,300 1,152 Lakeland Financial Corp. 1,100 39 M&T Bank Corp. 8,962 923 MAF Bancorp., Inc. 1,648 71 Main Street Banks, Inc. 1,000 29 MainSource Financial Group, Inc. 1,575 34 Marshall & Ilsley Corp. 19,150 804 MASSBANK Corp. 1,500 56 Mellon Financial Corp. 35,800 1,035 Mercantile Bankshares Corp. 5,574 272 Merchants Bancshares, Inc. 750 22 Mid-State Bancshares 3,500 94 Midwest Banc Holdings, Inc. 1,300 27 Nara Bancorp, Inc. 4,000 76 National City Corp. 56,821 2,214 National Penn Bancshares, Inc. 1,132 30 NBT Bancorp., Inc. 1,400 32 NetBank, Inc. 3,300 31 NewMil Bancorp, Inc. 1,000 29 North Fork Bancorp., Inc. 29,274 1,291 North Valley Bancorp 1,500 28 Northern Trust Corp. 18,500 787 OceanFirst Financial Corp. 1,050 25 Old National Bancorp. 5,947 147 Omega Financial Corp. 1,000 36 Oriental Financial Group 1,512 43 Park National Corp. 805 105 Pennfed Finance Services, Inc. 2,000 65 Peoples Bank-Bridgeport 8,250 309 Peoples Financial Corp. 3,000 55 PFF Bancorp, Inc. 1,120 44 PNC Financial Services Group, Inc. 24,500 1,281 Popular, Inc. 26,800 689 Prosperity Bancshares, Inc. 2,400 65 Provident Bankshares Corp. 1,657 58 Regions Financial Corp. 39,314 1,379 Republic Bancorp, Inc. 4,669 78 Republic Bancorp, Inc., Class A 1,575 44 Riggs National Corp. 1,500 32 S&T Bancorp, Inc. 1,400 50 o S1 Corp. 12,930 121 Sandy Spring Bancorp, Inc. 2,900 100 Seacoast Banking Corp. of Florida 1,980 43 Shore Bancshares, Inc. 500 15 @o Silicon Valley Bancshares 2,200 88 Simmons First National Corp., Class A 1,000 27 Sky Financial Group, Inc. 8,510 229 The South Financial Group, Inc. 4,500 135 SouthTrust Corp. 28,554 1,244 Southwest Bancorp of Texas, Inc. 7,000 164 Southwest Bancorp, Inc. Oklahoma 3,300 77 State Bancorp, Inc. 882 20 State Street Corp. 28,000 1,261 Sterling Bancorp NY 1,523 44 Sterling Bancshares, Inc. Texas 2,100 30 o Sterling Financial Corp. Washington 1,218 46 Suffolk Bancorp 2,400 74 o Sun Bancorp, Inc. N.J. 3,307 77 SunTrust Banks, Inc. 31,842 2,241 Susquehanna Bancshares, Inc. 3,168 79 SY Bancorp, Inc. 1,400 32 Synovus Financial Corp. 24,600 669 TCF Financial Corp. 13,600 429 Texas Regional Bancshares, Inc., Class A 2,326 74 Timberland Bancorp, Inc. 1,000 25 Tompkins Trustco, Inc. 770 35 TriCo Bancshares 400 9 Trustco Bank Corp. NY 2,857 38 Trustmark Corp. 4,300 136 U.S. Bancorp 158,531 4,536 UCBH Holdings, Inc. 4,700 203 UMB Financial Corp. 1,787 92 Umpqua Holdings Corp. 343 9 Union Bankshares Corp. 700 23 UnionBanCal Corp. 22,600 1,373 United Bankshares, Inc. 3,400 125 Unizan Financial Corp. 1,371 36 USB Holding Co., Inc. 1,865 51 Valley National Bancorp 7,756 220 Wachovia Corp. 108,236 5,326 Washington Trust Bancorp, Inc. 1,000 28 Wells Fargo & Co. 140,077 8,365 WesBanco, Inc. 3,200 97 West Coast Bancorp 1,200 28 Westamerica Bancorp. 1,700 97 WestCorp., Inc. 4,707 188 Whitney Holding Corp. 4,450 194 Wilmington Trust Corp. 5,700 197 Wintrust Financial Corp. 1,800 103 WSFS Financial Corp. 1,000 54 Zions Bancorp. 7,700 510 ----------- 87,675 BUSINESS MACHINES & SOFTWARE 7.5% --------------------------------------------------------------------------- o 3Com Corp. 17,900 74 o 3D Systems Corp. 1,400 16
4 SCHWAB TOTAL STOCK MARKET INDEX FUND PORTFOLIO HOLDINGS continued
VALUE SECURITY AND NUMBER OF SHARES ($ X 1,000) o Adaptec, Inc. 5,700 44 Adobe Systems, Inc. 20,000 1,121 o Advanced Digital Information Corp. 2,600 23 Analogic Corp. 4,700 200 o Apple Computer, Inc. 30,800 1,618 o Arbitron, Inc. 2,120 77 o Artesyn Technologies, Inc. 1,100 11 o Ascential Software Corp. 2,912 41 Autodesk, Inc. 8,400 443 o Avici Systems, Inc. 375 2 o Avocent Corp. 13,963 497 o BEA Systems, Inc. 30,400 247 Black Box Corp. 5,200 204 o BMC Software, Inc. 19,000 359 o Borland Software Corp. 3,000 31 o Cisco Systems, Inc. 563,969 10,834 o Cognitronics Corp. 2,600 9 o Compuware Corp. 19,900 115 o Comverse Technology, Inc. 13,400 277 o Concurrent Computer Corp. 3,000 6 o CoSine Communications, Inc. 730 2 o Dell, Inc. 209,300 7,338 @ Diebold, Inc. 5,300 254 o Digital Lightwave, Inc. 1,300 1 o EMC Corp. 199,686 2,570 o Enterasys Networks, Inc. 8,500 12 Fair Isaac Corp. 7,744 234 o Flow International Corp. 900 3 o Foundry Networks, Inc. 9,300 113 o Gateway, Inc. 11,800 69 o General Binding Corp. 500 7 o Hanger Orthopedic Group, Inc. 5,400 35 Hewlett-Packard Co. 252,916 4,719 IKON Office Solutions, Inc. 12,500 131 o Imagistics International, Inc. 2,840 98 o Immersion Corp. 800 4 o Input/Output, Inc. 4,200 29 o Integrated Device Technology, Inc. 4,200 50 o Intellisync Corp. 1,500 3 @o Intergraph Corp. 9,700 242 o Interland, Inc. 510 2 (10) International Business Machines Corp. 139,850 12,552 o InterVoice, Inc. 1,678 21 o Interwoven, Inc. 5,925 54 o Invision Technologies, Inc. 1,500 69 Iomega Corp. 12,400 57 @o Juniper Networks, Inc. 38,065 1,013 @ Landamerica Financial Group, Inc. 5,300 259 o Lantronix, Inc. 1,900 2 @o LaserCard Corp. 1,000 8 o Lawson Software, Inc. 8,000 46 o Lexmark International, Inc., Class A 10,900 906 o LTX Corp. 1,900 12 o Maxtor Corp. 17,748 53 o McData Corp., Class A 2,617 16 Microchip Technology, Inc. 16,475 498 o Micromuse, Inc. 2,900 12 o Micros Systems, Inc. 5,500 325 =(3) Microsoft Corp. 892,760 24,988 o MIPS Technology, Inc., Class A 1,100 9 o MSC.Software Corp. 1,800 16 o NCR Corp. 11,900 671 o Network Appliance, Inc. 27,500 673 o Novell, Inc. 25,600 184 o Oracle Corp. 429,500 5,437 @o PalmOne, Inc. 1,569 45 o PalmSource, Inc. 2,500 56 @o Peregrine Systems, Inc. 144 3 Pitney Bowes, Inc. 20,000 875 o Precis, Inc. 1,200 3 o Printronix, Inc. 2,400 40 o Roxio, Inc. 724 4 @o Sandisk Corp. 11,000 230 o Scansource, Inc. 600 37 >o Seagate Escrow Security 7,500 2 o Siebel Systems, Inc. 25,100 238 @o Silicon Graphics, Inc. 4,800 6 @o SoftBrands, Inc. 689 1 o Storage Technology Corp. 14,400 389 >o StorageNetworks, Inc. 2,100 -- o Sun Microsystems, Inc. 248,230 1,124 o Sybase, Inc. 19,036 301 o Tech Data Corp. 5,300 214 o The Titan Corp. 6,381 95 Total System Services, Inc. 16,300 385 o Unisys Corp. 27,600 293 o Versata, Inc. 9 -- o Vitria Technology, Inc. 925 3 @o Xerox Corp. 65,700 970 o Zhone Technologies, Inc. 1,000 3 ----------- 85,363 BUSINESS SERVICES 5.8% --------------------------------------------------------------------------- o 4Kids Entertainment, Inc. 1,000 18 @o Road, Inc. 4,400 28 Aaron Rents, Inc., Class A 2,175 44 ABM Industries, Inc. 4,900 102 o Actuate Corp. 2,300 6 o Adesa, Inc. 8,200 165 o Administaff, Inc. 2,800 32 o Advent Software, Inc. 4,100 86 o The Advisory Board Co. 1,000 33 Advo, Inc. 4,050 129
5 SCHWAB TOTAL STOCK MARKET INDEX FUND PORTFOLIO HOLDINGS continued
VALUE SECURITY AND NUMBER OF SHARES ($ X 1,000) o Aether Systems, Inc. 1,100 4 @o Affiliated Computer Services, Inc., Class A 12,000 655 o Affymetrix, Inc. 4,900 149 o Agile Software Corp. 1,900 16 o Akamai Technologies, Inc. 8,938 124 o The Allied Defense Group, Inc. 500 10 o Allied Waste Industries, Inc. 26,600 217 Ambassadors International, Inc. 1,700 22 o American Locker Group, Inc. 500 6 o American Superconductor Corp. 700 8 o AMN Healthcare Services, Inc. 4,110 49 o Analysts International Corp. 2,400 9 Angelica Corp. 2,500 60 o Ansoft Corp. 2,300 37 o answerthink, Inc. 1,700 7 o Ansys, Inc. 3,400 94 o Anteon International Corp. 2,000 79 o Apollo Group, Inc., Class A 17,050 1,125 Aramark Corp., Class B 9,300 210 o Arena Pharmaceuticals, Inc. 800 4 o Ariba, Inc. 2,770 43 >o Artistdirect, Inc. 1,000 -- @o Ask Jeeves, Inc. 4,400 113 o Aspen Technology, Inc. 6,000 36 o Atari, Inc. 1,600 2 Automatic Data Processing, Inc. 48,100 2,087 o BearingPoint, Inc. 7,100 62 o BindView Development Corp. 1,700 6 o The BISYS Group, Inc. 9,000 131 o Blue Coat Systems, Inc. 340 6 o Blue Martini Software, Inc. 285 1 o Bottomline Technologies, Inc. 2,000 20 Bowne & Co., Inc. 4,200 52 o Braun Consulting, Inc. 1,300 3 o Bright Horizons Family Solutions, Inc. 1,300 82 The Brink's Co. 5,600 180 @o BroadVision, Inc. 1,090 3 o Brocade Communications Systems, Inc. 21,000 143 o CACI International, Inc., Class A 2,100 128 @o Career Education Corp. 8,614 270 o Carreker Corp. 3,700 33 o Casella Waste Systems, Inc., Class A 2,500 31 o Catalina Marketing Corp. 5,900 151 o Catapult Communications Corp. 1,600 39 CDI Corp. 3,700 61 @ CDW Corp. 6,800 422 o Cell Genesys, Inc. 1,500 10 Cendant Corp. 83,720 1,724 o Centra Software, Inc. 2,400 4 o Ceridian Corp. 19,500 336 @o Cerner Corp. 4,200 190 Certegy, Inc. 4,150 147 o Charles River Associates, Inc. 2,500 100 o Checkfree Corp. 7,900 245 Chemed Corp. 700 42 o Chindex International, Inc. 2,200 17 o ChoicePoint, Inc. 6,900 287 o Chordiant Software, Inc. 1,100 3 o Ciber, Inc. 1,900 17 @ Cintas Corp. 15,350 662 o Citrix Systems, Inc. 20,000 483 o Clarent Corp. 1,545 -- o Clarus Corp. 1,200 9 o Click Commerce, Inc. 320 2 o Closure Medical Corp. 3,400 58 o Cognizant Technology Solutions Corp., Class A 10,600 360 o Com21, Inc. 1,400 -- o Comarco, Inc. 500 4 Computer Associates International, Inc. 47,226 1,309 o Computer Sciences Corp. 16,238 807 o Concord Communications, Inc. 1,600 13 o Connetics Corp. 3,400 91 o Convergys Corp. 10,500 137 o Copart, Inc. 6,550 122 o Corillian Corp. 2,000 10 o Corinthian Colleges, Inc. 9,200 132 o Corio, Inc. 1,400 2 o Cornell Cos., Inc. 2,100 29 @ Corporate Executive Board Co. 2,700 172 o Correctional Services Corp. 2,000 5 o CoStar Group, Inc. 800 32 Courier Corp. 4,200 183 o Covansys Corp. 5,000 58 o Credit Acceptance Corp. 2,400 53 o Cross Country Healthcare, Inc. 1,600 24 o CSG Systems International, Inc. 5,400 91 o CuraGen Corp. 2,100 10 o Datastream Systems, Inc. 1,300 8 Deluxe Corp. 3,800 145 o Dendrite International, Inc. 3,600 53 @o DeVry, Inc. 4,800 70 o Digimarc Corp. 3,500 32 o Digital Insight Corp. 2,300 36 o Digital River, Inc. 2,100 70 o Digitas, Inc. 4,000 36 o Diversa Corp. 1,100 9 o Divine, Inc., Class A 161 -- o DoubleClick, Inc. 10,737 68 @o DST Systems, Inc. 8,100 363 o Dun & Bradstreet Corp. 16,000 905 o Dyax Corp. 2,000 11 o E.piphany, Inc. 2,100 9
6 SCHWAB TOTAL STOCK MARKET INDEX FUND PORTFOLIO HOLDINGS continued
VALUE SECURITY AND NUMBER OF SHARES ($ X 1,000) o Earthlink, Inc. 11,850 122 o eBay, Inc. 52,924 5,166 o Echelon Corp. 3,700 26 o Eclipsys Corp. 1,800 31 o Edgewater Technology, Inc. 767 3 o Education Management Corp. 5,900 158 o eFunds Corp. 5,002 98 Electronic Data Systems Corp. 42,100 895 o eLoyalty Corp. 190 1 o Embarcadero Technologies, Inc. 2,900 24 o Encysive Pharmaceuticals, Inc. 2,600 23 Ennis, Inc. 4,500 91 o Entrust, Inc. 2,800 9 o EPIQ Systems, Inc. 550 8 >o ePresence, Inc. 2,700 -- Equifax, Inc. 11,800 309 @o eResearch Technology, Inc. 5,625 66 o Exelixis, Inc. 1,800 16 o Exponent, Inc. 3,000 81 o F5 Networks, Inc. 3,300 132 Factset Research Systems, Inc. 2,500 125 o Falcon Products, Inc. 1,500 3 @o FalconStor Software, Inc. 1,200 9 o Fargo Electronics, Inc. 2,000 26 @o FileNet Corp. 3,800 106 o First Consulting Group, Inc. 1,800 8 First Data Corp. 71,932 2,969 o Firstwave Technologies, Inc. 1,000 1 o Fiserv, Inc. 15,300 544 o Five Star Quality Care, Inc. 135 1 o Forrester Research, Inc. 4,100 63 Friedman Billings Ramsey Group, Inc., Class A 12,080 207 o FTI Consulting, Inc. 2,700 51 G&K Services, Inc., Class A 3,700 145 o Gartner, Inc., Class A 10,300 123 @o Genaissance Pharmaceuticals, Inc. 1,800 3 o Genencor International, Inc. 14,000 217 o Gentiva Health Services, Inc. 3,250 55 >o Genuity, Inc., Class A 280 -- o Geoworks Corp. 800 -- o Global Imaging Systems, Inc. 2,100 74 @ Global Payments, Inc. 8,520 467 @o Google, Inc., Class A 22,500 4,291 o GP Strategies Corp. 1,500 12 Grey Global Group, Inc. 200 200 GTECH Holdings Corp. 9,400 223 H&R Block, Inc. 21,300 1,013 >o HA-LO Industries, Inc. 2,100 -- @o Heidrick & Struggles International, Inc. 3,100 89 o Hewitt Associates, Inc., Class A 7,820 219 o Hudson Highland Group, Inc. 360 10 o Hyperion Solutions Corp. 2,850 114 @o IAC/InterActiveCorp 57,117 1,235 o iBEAM Broadcasting Corp. 290 -- @o ICOS Corp. 2,700 61 o ICT Group, Inc. 500 4 o Identix, Inc. 1,600 12 o IDT Corp. 4,200 55 o IDX Systems Corp. 4,000 134 o iGate Corp. 1,300 5 IMS Health, Inc. 19,300 409 o InFocus Corp. 1,600 10 o Infonet Services Corp., Class B 11,200 20 o Informatica Corp. 6,700 52 o Inforte Corp. 3,700 25 @o Infospace, Inc. 3,872 203 o infoUSA, Inc. 2,300 24 o Innodata Isogen, Inc. 2,400 12 o Interactive Intelligence, Inc. 1,000 4 o Intercept, Inc. 1,500 28 o Internet Security Systems 4,600 100 o Interpublic Group of Cos., Inc. 34,144 419 o Intrado, Inc. 3,600 49 o Intuit, Inc. 16,715 758 @o Invitrogen Corp. 3,629 210 @o Iron Mountain, Inc. 9,787 323 o ITT Educational Services, Inc. 6,000 228 Jack Henry & Associates, Inc. 6,300 117 o Jacobs Engineering Group, Inc. 3,800 155 o JDA Software Group, Inc. 2,000 22 John H. Harland Co. 3,500 113 o Kana Software, Inc. 528 1 o Kanbay International, Inc. 3,000 72 o Keane, Inc. 3,960 63 o Keith Cos., Inc. 3,000 51 Kelly Services, Inc., Class A 3,200 86 o Kforce, Inc. 405 4 o Kinder Morgan Management LLC 3,321 137 o Korn/Ferry International 3,600 63 o Kronos, Inc. 1,875 92 @o Lamar Advertising Co., Class A 6,700 278 o Laureate Education, Inc. 4,700 184 o Learning Tree International, Inc. 1,400 19 o Liberate Technologies 5,900 14 o Lightbridge, Inc. 2,200 11 o LookSmart Ltd. 2,400 4 o Luminex Corp. 800 6 o Macrovision Corp. 3,100 84 o Magma Design Automation, Inc. 1,700 22 o Management Network Group, Inc. 2,400 5 o Manhattan Associates, Inc. 1,300 27 Manpower, Inc. 6,991 316 o Manugistics Group, Inc. 2,300 6 o MAPICS, Inc. 1,000 9 o Mapinfo Corp. 3,125 31
7 SCHWAB TOTAL STOCK MARKET INDEX FUND PORTFOLIO HOLDINGS continued
VALUE SECURITY AND NUMBER OF SHARES ($ X 1,000) o Matria Healthcare, Inc. 1,200 37 o Matrixone, Inc. 1,700 10 o MAXIMUS, Inc. 1,700 46 o Maxygen, Inc. 1,500 14 o McAfee, Inc. 14,445 350 o Mechanical Technology, Inc. 1,800 8 o Medical Staffing Network Holdings, Inc. 1,300 10 o MemberWorks, Inc. 4,500 134 o Mentor Graphics Corp. 5,700 66 @o Mercury Interactive Corp. 7,500 326 o Meta Group, Inc. 1,100 5 o MetaSolv, Inc. 2,800 7 o Metro One Telecommunications 4,400 7 o Michael Baker Corp. 500 9 @o MicroStrategy, Inc., Class A 856 51 @o Microvision, Inc. 900 5 o Millenium Cell, Inc. 2,200 2 o Mindspeed Technologies, Inc. 7,598 18 o Moldflow Corp. 300 4 @o Monster Worldwide, Inc. 9,800 275 o MPS Group, Inc. 8,100 85 o MRO Software, Inc. 3,900 43 o Multi-Color Corp. 750 11 o Nassda Corp. 500 2 National Instruments Corp. 5,675 156 Nautilus Group, Inc. 4,125 81 o Navigant Consulting, Inc. 2,500 62 o NAVTEQ Corp. 6,100 246 o NCO Group, Inc. 2,701 72 NDCHealth Corp. 1,900 32 o NeighborCare, Inc. 12,500 320 o Neoforma, Inc. 1,500 10 o Neon Systems, Inc. 2,400 9 o NeoRx Corp. 400 1 o Netegrity, Inc. 1,500 16 o NetIQ Corp. 7,704 98 o Netratings, Inc. 3,000 57 o Netscout Systems, Inc. 1,800 12 o Netsolve, Inc. 1,600 18 Newcastle Investment Corp. 2,200 67 o NMS Communications Corp. 1,500 7 o Nuance Communications, Inc. 1,000 4 o NYFIX, Inc. 750 4 Omnicom Group, Inc. 16,800 1,326 o On Assignment, Inc. 1,700 9 o Onyx Software Corp. 350 1 o Openwave Systems, Inc. 5,271 62 o Opnet Technologies, Inc. 3,600 28 o Opsware, Inc. 800 4 Option Care, Inc. 1,500 20 o Orbital Sciences Corp. 2,600 27 o Packeteer, Inc. 1,100 14 o Parametric Technology Corp. 9,700 50 o Paxar Corp. 2,300 51 Paychex, Inc. 32,400 1,063 o PC-Tel, Inc. 1,400 11 o PDI, Inc. 2,900 83 o Pec Solutions, Inc. 1,000 14 o Pegasus Solutions, Inc. 3,900 41 o PeopleSoft, Inc. 29,693 617 o Per-Se Technologies, Inc. 10,000 146 o Perot Systems Corp., Class A 9,100 146 o Phoenix Technologies Ltd. 1,300 8 o Pixar, Inc. 5,600 450 o PLATO Learning, Inc. 1,433 13 o Polycom, Inc. 9,200 190 o Pomeroy IT Solutions, Inc. 2,100 27 o Portal Software, Inc. 1,220 3 @o Pre-Paid Legal Services, Inc. 3,600 100 o PRG-Schultz International, Inc. 2,500 13 @o Priceline.com, Inc. 3,983 79 o Progress Software Corp. 4,200 83 o ProQuest Co. 1,700 44 o QRS Corp. 450 3 o Quality Systems, Inc. 900 46 o Quest Software, Inc. 7,700 113 Quixote Corp. 1,300 23 o Quovadx, Inc. 2,600 5 o R.H. Donnelley Corp. 2,000 109 o Radiant Systems, Inc. 1,300 7 o RealNetworks, Inc. 6,000 29 @o Red Hat, Inc. 7,100 91 o Redback Networks, Inc. 8,076 36 o Register.com 1,296 7 o RemedyTemp, Inc., Class A 1,200 12 Renaissance Learning, Inc. 2,100 40 Republic Services, Inc. 17,700 545 o Resources Connection, Inc. 3,100 130 o Retek, Inc. 3,843 21 The Reynolds & Reynolds Co., Class A 7,500 185 Robert Half International, Inc. 14,000 371 RPC, Inc. 3,400 71 o RSA Security, Inc. 5,000 102 o Rural Cellular Corp., Class A 1,200 7 o Saba Software, Inc. 500 2 o SafeNet, Inc. 2,770 85 o Sagent Technology, Inc. 1,500 -- o Sapient Corp. 9,100 73 o Seachange International, Inc. 3,350 57 o Secure Computing Corp. 3,200 25 o Seebeyond Technology Corp. 3,100 10 o Selectica, Inc. 1,900 7 o Serena Software, Inc. 4,600 82 The ServiceMaster Co. 22,900 294 o SFBC International, Inc. 1,500 42 @o Sirius Satellite Radio, Inc. 1,200 5
8 SCHWAB TOTAL STOCK MARKET INDEX FUND PORTFOLIO HOLDINGS continued
VALUE SECURITY AND NUMBER OF SHARES ($ X 1,000) o Sitel Corp. 2,800 5 o Sonic Foundry, Inc. 600 1 o SONICblue, Inc. 2,600 -- o SonicWALL, Inc. 4,900 25 o SourceCorp 3,600 60 Spartech Corp. 4,200 106 o Spherion Corp. 1,830 13 o SportsLine.com, Inc. 2,300 4 o SPSS, Inc. 3,200 43 SS&C Technologies, Inc. 11,100 262 The Standard Register Co. 4,100 44 Startek, Inc. 1,400 39 o Stericycle, Inc. 4,700 213 o Stratasys, Inc. 1,350 40 Strayer Education, Inc. 700 68 o SumTotal Systems, Inc. 463 2 o SunGard Data Systems, Inc. 23,900 633 o SupportSoft, Inc. 4,800 24 o Sycamore Networks, Inc. 18,200 67 o Symantec Corp. 28,400 1,617 o Symyx Technologies, Inc. 3,800 93 o Synopsys, Inc. 13,684 222 o Synplicity, Inc. 1,200 6 Syntel, Inc. 2,500 46 Talx Corp. 1,700 48 o TeleCommunication Systems, Inc., Class A 1,300 4 @o TeleTech Holdings, Inc. 5,000 50 o Tetra Tech, Inc. 12,031 158 o Tetra Technologies, Inc. 3,700 111 o TIBCO Software, Inc. 16,000 156 o Tier Technologies, Inc., Class B 500 4 o Transaction Systems Architects, Inc., Class A 5,200 85 o TRC Cos., Inc. 1,350 24 o Trizetto Group, Inc. 5,900 40 o Tumbleweed Communications Corp. 2,000 8 o United Online, Inc. 6,150 58 o Universal Electronics, Inc. 2,200 39 @o UNOVA, Inc. 5,600 86 o URS Corp. 3,700 102 o Usinternetworking, Inc. 1,100 -- o VA Software Corp. 1,427 3 o Valueclick, Inc. 6,000 56 o Vastera, Inc. 2,000 3 o Ventiv Health, Inc. 2,233 39 o Verint Systems, Inc. 2,500 97 o VeriSign, Inc. 20,875 560 o Verisity Ltd. 4,500 32 o Veritas Software Corp. 35,024 766 o Verity, Inc. 4,100 53 o Vertel Corp. 900 -- Viad Corp. 3,625 78 o Viewpoint Corp. 2,000 6 o Vignette Corp. 8,948 10 o Volt Information Sciences, Inc. 2,100 61 o Waste Connections, Inc. 5,250 165 Waste Industries USA, Inc. 1,500 17 Waste Management, Inc. 48,100 1,370 o WatchGuard Technologies, Inc. 1,800 7 Watson Wyatt & Co. Holdings 4,600 122 o WebEx Communications, Inc. 2,500 55 o WebMD Corp. 19,426 147 o webMethods, Inc. 1,921 13 o Websense, Inc. 2,500 101 o Weight Watchers International, Inc. 8,700 313 o Westaff, Inc. 2,000 6 o Wind River Systems, Inc. 6,760 91 o Wireless Facilities, Inc. 1,800 13 o Witness Systems, Inc. 2,100 33 @o WorldGate Communications, Inc. 2,000 3 @o Wynn Resorts Ltd. 4,000 233 o Xybernaut Corp. 1,400 2 o Yahoo! Inc. 111,144 4,022 @o Zix Corp. 900 5 ----------- 65,670 CHEMICALS 1.5% --------------------------------------------------------------------------- @ A. Schulman, Inc. 2,300 46 Aceto Corp. 7,875 124 o AEP Industries, Inc. 400 4 Air Products & Chemicals, Inc. 17,700 941 Airgas, Inc. 5,000 123 Albemarle Corp. 4,500 161 Amcol International Corp. 5,000 88 Arch Chemicals, Inc. 2,700 77 o Bio-Rad Laboratories, Inc., Class A 1,000 52 Brady Corp., Class A 700 38 Cabot Corp. 5,200 177 Calgon Carbon Corp. 2,300 16 @o Celgene Corp. 11,000 326 Crompton Corp. 8,924 83 Cytec Industries, Inc. 7,400 344 Dow Chemical Co. 76,266 3,427 E.I. du Pont de Nemours & Co. 83,195 3,567 Eastman Chemical Co. 5,600 266 Ecolab, Inc. 21,500 728 o Entegris, Inc. 6,000 56 Ferro Corp. 4,200 89 o Foamex International, Inc. 2,600 10 Georgia Gulf Corp. 3,300 149 Great Lakes Chemical Corp. 3,600 92 H.B. Fuller Co. 2,000 54 Hawkins, Inc. 1,900 23
9 SCHWAB TOTAL STOCK MARKET INDEX FUND PORTFOLIO HOLDINGS continued
VALUE SECURITY AND NUMBER OF SHARES ($ X 1,000) o Hercules, Inc. 8,500 121 Kronos Worldwide, Inc. 2,504 100 Lubrizol Corp. 3,400 118 Lyondell Chemical Co. 14,800 340 MacDermid, Inc. 3,800 120 o Matrixx Initiatives, Inc. 1,700 21 o Millennium Chemicals, Inc. 5,400 116 Monsanto Co. 21,645 925 o The Mosaic Co. 9,500 143 o NewMarket Corp 2,000 45 Oil-Dri Corp. of America 400 6 Olin Corp. 4,820 90 o OM Group, Inc. 2,400 79 o Omnova Solutions, Inc. 3,400 18 o Oxigene, Inc. 900 5 Penford Corp. 2,700 42 o PolyOne Corp. 3,200 24 PPG Industries, Inc. 13,900 886 Praxair, Inc. 25,700 1,085 o Rogers Corp. 300 13 Rohm & Haas Co. 26,753 1,134 Rollins, Inc. 4,450 117 RPM International, Inc. 9,600 169 Sigma-Aldrich Corp. 6,300 351 Stepan Co. 1,200 29 Tredegar Corp. 2,600 44 o Trex Co., Inc. 500 20 o Uniroyal Technology Corp. 1,100 -- Valspar Corp. 4,200 196 WD-40 Co. 1,600 45 Wellman, Inc. 5,400 40 o Westlake Chemical Corp. 1,000 23 @o Zoltek Cos., Inc. 1,500 13 ----------- 17,539 CONSTRUCTION 0.9% --------------------------------------------------------------------------- American Woodmark Corp. 1,000 37 Ameron International Corp. 3,400 115 Apogee Enterprises, Inc. 1,200 15 o Armstrong Holdings, Inc. 1,600 2 @ Beazer Homes USA, Inc. 851 93 Brookfield Homes Corp. 3,500 91 Building Material Holding Corp. 4,000 116 o Cavco Industries, Inc. 205 8 Centex Corp. 10,700 556 Craftmade International, Inc. 2,800 58 D.R. Horton, Inc. 18,453 554 o Dominion Homes, Inc. 500 10 o Dycom Industries, Inc. 5,399 176 Eagle Materials, Inc. 3,381 234 ElkCorp 3,450 97 o EMCOR Group, Inc. 700 28 Florida Rock Industries, Inc. 2,325 120 Fluor Corp. 5,600 260 o Global Power Equipment Group, Inc. 1,000 8 Granite Construction, Inc. 4,850 118 o Hovnanian Enterprises, Inc., Class A 6,200 233 o Huttig Building Products, Inc. 811 6 o Insituform Technologies, Inc., Class A 1,300 26 o Integrated Electrical Services, Inc. 1,800 7 KB Home 3,900 321 Lafarge North America, Inc. 6,200 304 Lennar Corp., Class A 14,490 652 Levitt Corp., Class A 550 13 M/I Homes, Inc. 1,800 77 Martin Marietta Materials, Inc. 4,200 191 Masco Corp. 35,800 1,227 o Mastec, Inc. 5,350 37 MDC Holdings, Inc. 1,464 112 o NCI Building Systems, Inc. 2,900 93 @o NVR, Inc. 500 314 o Palm Harbor Homes, Inc. 2,700 40 o Performance Technologies, Inc. 1,600 10 Pulte Homes, Inc. 11,372 624 o Quanta Services, Inc. 8,900 60 The Ryland Group, Inc. 3,400 324 o SBA Communications Corp. 1,300 11 The Sherwin-Williams Co. 13,000 555 Simpson Manufacturing Co., Inc. 1,600 103 o Socket Communications, Inc. 800 1 Standard-Pacific Corp. 2,400 135 The Stanley Works 6,600 294 o Surebeam Corp., Class A 2,711 -- @ Technical Olympic USA, Inc. 2,250 57 Texas Industries, Inc. 1,000 51 o Toll Brothers, Inc. 5,600 260 United Mobile Homes, Inc. 1,600 23 @o USG Corp. 3,900 87 Vulcan Materials Co. 9,400 468 Walter Industries, Inc. 1,900 32 o WCI Communities, Inc. 3,800 90 o WESCO International, Inc. 4,800 120 o West Corp. 4,500 127 o Westell Technologies, Inc., Class A 2,560 14 o Yankee Candle Co., Inc. 3,700 103 ----------- 9,898 CONSUMER DURABLES 0.4% --------------------------------------------------------------------------- o Applica, Inc. 3,100 12 Black & Decker Corp. 7,100 570 o Champion Enterprises, Inc. 4,700 51 o Chromcraft Revington, Inc. 1,300 16
10 SCHWAB TOTAL STOCK MARKET INDEX FUND PORTFOLIO HOLDINGS continued
VALUE SECURITY AND NUMBER OF SHARES ($ X 1,000) o Compx International, Inc. 800 12 Ethan Allen Interiors, Inc. 4,200 160 Flexsteel Industries, Inc. 600 11 Furniture Brands International, Inc. 4,700 102 o Gemstar -- TV Guide International, Inc. 21,160 122 o Genlyte Group, Inc. 1,600 118 o Griffon Corp. 2,590 58 Haverty Furniture Cos., Inc. 4,200 71 o Helen of Troy Ltd. 2,000 53 Hillenbrand Industries, Inc. 5,800 289 o Interface, Inc., Class A 3,300 29 Kimball International, Inc., Class B 3,600 49 La-Z-Boy, Inc. 5,800 76 Leggett & Platt, Inc. 16,200 456 @ Maytag Corp. 7,100 123 o MITY Enterprises, Inc. 600 9 @o Mohawk Industries, Inc. 4,819 410 National Presto Industries, Inc. 400 16 Newell Rubbermaid, Inc. 23,900 515 o Recoton Corp. 500 -- o Restoration Hardware, Inc. 1,700 9 @o Salton, Inc. 1,100 7 Skyline Corp. 100 4 Stanley Furniture Co., Inc. 2,600 116 Sturm Ruger & Co., Inc. 2,800 25 o Tempur-Pedic International, Inc. 8,000 130 Thomas Industries, Inc. 3,200 108 @ Toro Co. 800 55 o United Rentals, Inc. 5,900 91 o Virco Manufacturing Corp. 1,170 9 o Water Pik Technologies, Inc. 195 3 Whirlpool Corp. 6,000 352 ----------- 4,237 CONTAINERS 0.2% --------------------------------------------------------------------------- Ball Corp. 12,600 502 Bemis Co. 6,400 169 o Crown Holdings, Inc. 6,100 69 Greif, Inc., Class A 3,700 154 o Mobile Mini, Inc. 600 17 o Mod-Pac Corp. 500 6 o Owens-Illinois, Inc. 16,200 300 Packaging Dynamics Corp. 260 4 o Pactiv Corp. 12,400 294 o Sealed Air Corp. 8,500 421 Silgan Holdings, Inc. 2,900 138 @ Sonoco Products Co. 4,100 109 ----------- 2,183 ELECTRONICS 5.3% --------------------------------------------------------------------------- o ACT Teleconferencing, Inc. 1,100 1 o Actel Corp. 1,100 17 Acuity Brands, Inc. 17,200 456 @ Acxiom Corp. 25,700 643 o ADC Telecommunications, Inc. 28,220 62 o ADE Corp. 3,100 48 o Adelphia Communications, Class A 6,301 2 o Advanced Fibre Communications, Inc. 3,500 55 @o Advanced Micro Devices, Inc. 29,000 488 o Advanced Power Technology, Inc. 1,500 11 o Agere Systems, Inc., Class A 70,116 85 o Agilent Technologies, Inc. 39,317 985 Agilysys, Inc. 1,600 27 o Alliance Semiconductor Corp. 1,200 4 o Alliant Techsystems, Inc. 2,437 140 o Altera Corp. 30,400 691 o American Physicians Capital, Inc. 2,500 80 American Power Conversion Corp. 16,600 320 o American Science & Engineering, Inc. 500 18 o American Technical Ceramics Corp. 500 6 o AMIS Holdings, Inc. 2,500 38 @o Amkor Technology, Inc. 14,400 72 o Amphenol Corp., Class A 8,800 302 o Anadigics, Inc. 1,150 3 Analog Devices, Inc. 30,200 1,216 o Anaren, Inc. 3,300 40 o Andrew Corp. 10,925 153 Anixter International, Inc. 3,300 128 o Applied Materials, Inc. 139,098 2,239 o Applied Micro Circuits Corp. 12,238 45 o Arris Group, Inc. 2,600 12 o Arrow Electronics, Inc. 12,000 288 o Artisan Components, Inc. 1,100 36 o Aspect Communications Corp. 4,200 40 o Astronics Corp. 1,250 6 o Asyst Technologies, Inc. 1,700 9 o Atmel Corp. 37,900 121 o ATMI, Inc. 1,400 33 o Audiovox Corp., Class A 1,600 23 o Avanex Corp. 2,100 6 o Avid Technology, Inc. 3,600 191 o Avnet, Inc. 11,288 191 AVX Corp. 14,000 168 o Aware, Inc. 1,100 3 o Axcelis Technologies, Inc. 7,044 61 o AXT, Inc. 800 1 Badger Meter, Inc. 1,000 49
11 SCHWAB TOTAL STOCK MARKET INDEX FUND PORTFOLIO HOLDINGS continued
VALUE SECURITY AND NUMBER OF SHARES ($ X 1,000) BEI Technologies, Inc. 3,700 111 Bel Fuse, Inc., Class A 1,200 35 Belden CDT, Inc. 4,400 98 o Bell Microproducts, Inc. 1,000 9 o Benchmark Electronics, Inc. 10,050 341 o BioVeris Corp. 3,800 24 Boston Acoustics, Inc. 1,300 17 o Broadcom Corp., Class A 26,200 709 o Brooks Automation, Inc. 1,364 20 o Bruker BioSciences Corp. 2,100 7 C&D Technologies, Inc. 4,500 81 o C-COR.net Corp. 3,100 23 o Cabot Microelectronics Corp. 660 24 @o Cadence Design Systems, Inc. 22,600 281 o CalAmp Corp. 1,000 7 o Captaris, Inc. 2,200 10 o CCC Information Services Group, Inc. 7,322 134 o Celera Genomics Group -- Applera Corp. 5,600 72 o Ceva, Inc. 433 3 Chase Corp. 100 2 o Checkpoint Systems, Inc. 4,600 79 o Chronimed, Inc. 600 4 o CIENA Corp. 17,294 43 o Cirrus Logic, Inc. 3,800 19 o ClearOne Communications, Inc. 1,000 4 o CMGI, Inc. 14,086 19 o Coherent, Inc. 1,300 31 Cohu, Inc. 1,100 17 o CommScope, Inc. 4,900 88 o Computer Network Technology Corp. 1,100 5 o Comtech Telecommunications Corp. 1,450 40 @o Conexant Systems, Inc. 25,046 43 o Cox Radio, Inc., Class A 4,600 73 o Credence Systems Corp. 1,700 13 @o Cree, Inc. 6,000 207 CTS Corp. 5,800 77 Cubic Corp. 1,200 26 @o Cyberonics 3,700 69 o Cymer, Inc. 1,700 48 o Cypress Semiconductor Corp. 8,500 90 o Daktronics, Inc. 5,600 138 o DDi Corp. 8 -- o Diodes, Inc. 2,850 83 o Dionex Corp. 1,200 67 o DSP Group, Inc. 3,300 65 o Ducommun, Inc. 4,300 101 o Dupont Photomasks, Inc. 1,900 50 o Dynamics Research Corp. 1,200 21 o Electro Rent Corp. 5,100 58 o Electro Scientific Industries, Inc. 1,300 22 o Electroglas, Inc. 900 3 o Electronics for Imaging 3,400 61 o Emcore Corp. 1,500 2 o EMS Technologies, Inc. 1,000 17 o Emulex Corp. 5,900 62 @o Energizer Holdings, Inc. 6,333 294 @o Energy Conversion Devices, Inc. 600 10 o ESS Technology, Inc. 2,100 14 o Exar Corp. 3,300 50 o Excel Technology, Inc. 600 15 o Fairchild Semiconductor International, Inc., Class A 8,600 124 o FEI Co. 1,500 29 o First Virtual Communications, Inc. 240 -- @o Flir Systems, Inc. 2,400 128 o FormFactor, Inc. 2,500 59 Frequency Electronics, Inc. 500 6 o FSI International, Inc. 1,300 6 o FuelCell Energy, Inc. 1,200 15 o General Cable Corp. 2,200 27 o Genus, Inc. 500 1 o Gerber Scientific, Inc. 1,900 15 @o Getty Images, Inc. 4,600 272 o Glenayre Technologies, Inc. 2,300 4 o GTC Biotherapeutics, Inc. 1,800 3 Harman International Industries, Inc. 6,800 817 o Harmonic, Inc. 6,342 53 Harris Corp. 7,000 431 o Harvard Bioscience, Inc. 500 2 Hearst-Argyle Television, Inc. 3,700 96 o Herley Industries, Inc. 4,000 70 o HI/FN, Inc. 800 6 o Hollywood Entertainment Corp. 4,300 42 @o Hutchinson Technology, Inc. 16,600 558 o Illumina, Inc. 1,500 10 o Integrated Circuit Systems, Inc. 5,400 122 o Integrated Silicon Solutions, Inc. 3,400 26 Intel Corp. 533,832 11,883 @o Intelli-Check, Inc. 500 3 o Interactive Data Corp. 20,700 408 o Intermagnetics General Corp. 2,056 52 o International Rectifier Corp. 6,600 262 @ Intersil Corp., Class A 12,364 202 o Itron, Inc. 2,500 52 ITT Industries, Inc. 8,700 706 o Ixia 5,200 66 o IXYS Corp. 900 6 o Jabil Circuit, Inc. 15,400 374 o JDS Uniphase Corp. 112,424 356 Keithley Instruments, Inc. 3,200 56 o Kemet Corp. 6,700 52 @o KLA-Tencor Corp. 15,000 683 o Kopin Corp. 2,500 9
12 SCHWAB TOTAL STOCK MARKET INDEX FUND PORTFOLIO HOLDINGS continued
VALUE SECURITY AND NUMBER OF SHARES ($ X 1,000) o Kulicke & Soffa Industries, Inc. 4,400 31 o Lam Research Corp. 11,600 302 o Lattice Semiconductor Corp. 4,600 23 o LeCroy Corp. 900 15 o Lightpath Technologies, Inc., Class A 75 -- Linear Technology Corp. 25,000 947 o Littelfuse, Inc. 4,500 147 o Logicvision, Inc. 1,000 2 o LSI Logic Corp. 29,964 136 o Lucent Technologies, Inc. 301,923 1,072 o Macromedia, Inc. 4,500 122 o Mattson Technology, Inc. 4,100 34 Maxim Integrated Products, Inc. 27,453 1,208 o Maxwell Technologies, Inc. 1,000 11 o Measurement Specialties, Inc. 700 18 o MEMC Electronic Materials, Inc. 16,300 153 o Mercury Computer Systems, Inc. 3,600 91 o Mestek, Inc. 700 13 Methode Electronics, Class A 3,600 48 o Micron Technology, Inc. 49,500 603 o Microsemi Corp. 7,000 109 o MKS Instruments, Inc. 4,300 68 Mocon, Inc. 600 5 Molex, Inc. 16,125 477 o Monolithic System Technology, Inc. 1,200 5 Motorola, Inc. 193,455 3,339 o MRV Communications, Inc. 4,307 15 MTS Systems Corp. 4,500 116 o Mykrolis Corp. 3,021 32 @o Nanogen, Inc. 1,500 6 o Nanometrics, Inc. 300 4 o National Semiconductor Corp. 29,200 488 o Netopia, Inc. 2,100 5 o Newport Corp. 4,200 47 o Novellus Systems, Inc. 11,171 289 o Novoste Corp. 1,600 2 o Nvidia Corp. 7,000 101 @o Omnivision Technologies, Inc. 2,800 45 o Oplink Communications, Inc. 4,600 9 o Optical Communication Products, Inc. 500 1 o OSI Systems, Inc. 3,700 64 Park Electrochemical Corp. 3,600 76 @o Parkervision, Inc. 400 2 o Paxson Communications Corp. 1,900 2 o Pemstar, Inc. 1,600 3 o Pericom Semiconductor Corp. 600 5 PerkinElmer, Inc. 11,477 236 @o Photon Dynamics, Inc. 3,400 62 o Pinnacle Systems, Inc. 1,800 8 o Pixelworks, Inc. 4,100 46 o Planar Systems, Inc. 3,700 36 o Plantronics, Inc. 4,000 174 o Plexus Corp. 1,700 21 o PLX Technology, Inc. 1,300 12 o Powell Industries, Inc. 1,000 16 @o Power Integrations, Inc. 1,400 30 o Power-One, Inc. 6,000 42 o Powerwave Technologies, Inc. 3,200 24 o QLogic Corp. 8,522 277 Qualcomm, Inc. 135,100 5,649 o Quantum Corp. 5,500 15 o QuickLogic Corp. 900 2 o Radisys Corp. 3,700 49 o Rambus, Inc. 8,200 141 Raven Industries, Inc. 2,800 63 o Rayovac Corp. 2,800 70 o Remec, Inc. 2,500 14 o Rex Stores Corp. 1,875 29 o RF Micro Devices, Inc. 13,700 89 Richardson Electronics Ltd. 1,300 11 o Rofin-Sinar Technologies, Inc. 1,900 57 o Rudolph Technologies, Inc. 500 8 o Sanmina -- SCI Corp. 41,316 331 o SBS Technologies, Inc. 1,700 23 o ScanSoft, Inc. 1,204 5 Scientific-Atlanta, Inc. 11,900 326 o SCM Microsystems, Inc. 1,200 4 o Seagate Technology 8,500 107 o Semitool, Inc. 4,300 33 o Semtech Corp. 6,000 125 o Silicon Image, Inc. 2,000 27 o Silicon Laboratories, Inc. 5,000 150 o Silicon Storage Technology, Inc. 7,000 52 o Siliconix, Inc. 8,100 335 o Sipex Corp. 1,600 9 o Sirenza Microdevices, Inc. 1,300 6 o Sirf Technology Holdings, Inc. 3,500 41 o Skyworks Solutions, Inc. 5,689 51 o Solectron Corp. 81,520 426 o Somera Communications, Inc. 1,900 2 Spectralink Corp. 1,000 12 o Spherix, Inc. 500 2 o Standard Microsystems Corp. 3,600 79 o Stratex Networks, Inc. 2,800 5 @>o Superior Telecom, Inc. 1,124 -- o Supertex, Inc. 1,400 30 Symbol Technologies, Inc. 19,437 286 o Symmetricom, Inc. 8,450 72 o Synaptics, Inc. 3,500 111 @o Taser International, Inc. 6,000 245 o Technitrol, Inc. 4,000 65 o Tekelec 8,700 194 Tektronix, Inc. 9,202 279 @>o TelCove 4,638 -- o Tellabs, Inc. 32,800 262 o Teradyne, Inc. 15,559 258
13 SCHWAB TOTAL STOCK MARKET INDEX FUND PORTFOLIO HOLDINGS continued
VALUE SECURITY AND NUMBER OF SHARES ($ X 1,000) o Terayon Communication Systems Corp. 2,800 5 o Tessco Technologies, Inc. 900 12 o Tessera Technologies, Inc. 3,000 84 Texas Instruments, Inc. 143,397 3,506 o Therma-Wave, Inc. 1,000 3 o Thermo Electron Corp. 26,550 770 o Thomas & Betts Corp. 7,300 207 o THQ, Inc. 1,950 37 o Three-Five Systems, Inc. 1,099 2 o Tollgrade Communications, Inc. 3,600 34 @o Transmeta Corp. 4,500 9 @o Transwitch Corp. 3,100 3 o Tripath Technology, Inc. 1,800 2 o Triquint Semiconductor, Inc. 5,310 19 o Troy Group, Inc. 2,000 6 o TTM Technologies, Inc. 4,400 41 o Tweeter Home Entertainment Group, Inc. 1,100 7 United Industrial Corp. 1,200 38 Unitil Corp. 600 17 @o Valence Technology, Inc. 1,400 5 o Varian Semiconductor Equipment Associates, Inc. 1,500 52 o Varian, Inc. 5,800 212 o Viasat, Inc. 3,500 66 o Vicor Corp. 4,200 39 o Virage Logic Corp. 1,400 22 @o Vishay Intertechnology, Inc. 11,781 152 o Vitesse Semiconductor Corp. 6,986 19 o Waters Corp. 8,700 359 o Western Digital Corp. 15,700 131 o Western Wireless Corp., Class A 7,700 224 o Wilson Greatbatch Technologies, Inc. 1,100 19 o WJ Communications, Inc. 2,300 5 Xilinx, Inc. 27,600 845 o YDI Wireless, Inc. 100 -- o Zebra Technologies Corp., Class A 6,375 338 o Zoran Corp. 1,761 18 ----------- 60,574 ENERGY: RAW MATERIALS 2.0% --------------------------------------------------------------------------- Alliance Resource Partners L.P. 1,700 98 Anadarko Petroleum Corp. 19,530 1,317 Apache Corp. 28,372 1,438 APCO Argentina, Inc. 200 7 Arch Coal, Inc. 3,500 114 o Atwood Oceanics, Inc. 1,200 58 Baker Hughes, Inc. 28,300 1,212 Berry Petroleum Co., Class A 2,000 76 o BJ Services Co. 14,300 729 Buckeye Partners L.P. 3,400 139 Burlington Resources, Inc. 34,000 1,411 Cabot Oil & Gas Corp. 14,400 609 CARBO Ceramics, Inc. 3,000 217 o Cimarex Energy Co. 3,122 112 o Cooper Cameron Corp. 3,300 160 o CREDO Petroleum Corp. 1,800 25 o Denbury Resources, Inc. 4,900 122 Devon Energy Corp. 18,680 1,382 ENSCO International, Inc. 11,200 342 Enterprise Products Partners L.P. 17,000 392 EOG Resources, Inc. 11,400 759 o FMC Technologies, Inc. 4,591 139 o Forest Oil Corp. 4,450 136 o Grant Prideco, Inc. 6,100 125 o Grey Wolf, Inc. 5,800 30 Halliburton Co. 36,700 1,359 o Hanover Compressor Co. 5,600 73 @o Headwaters, Inc. 2,500 79 Helmerich & Payne, Inc. 4,800 137 o Hydril Co. 2,500 110 @ Inergy L.P. 2,000 54 Joy Global, Inc. 8,600 291 o Key Energy Services, Inc. 10,300 118 o Kirby Corp. 2,800 118 Lufkin Industries, Inc. 500 18 Massey Energy Co. 6,800 183 @ Natural Resource Partners L.P. 2,000 88 NL Industries, Inc. 5,300 106 o Noble Corp. 10,100 461 Noble Energy, Inc. 3,500 203 Occidental Petroleum Corp. 33,100 1,848 o Offshore Logistics, Inc. 3,600 130 o Oil States International, Inc. 3,600 66 o Parker Drilling Co. 2,800 11 Peabody Energy Corp. 3,800 242 @ Penn Virginia Resource Partners L.P. 2,500 108 Plains All American Pipeline L.P. 4,600 163 Range Resources Corp. 5,400 85 o Reliant Energy, Inc. 22,625 233 o Rowan Cos., Inc. 3,400 87 Schlumberger Ltd. 50,000 3,147 o Seacor Holdings, Inc. 1,250 60 @o Smith International, Inc. 7,400 430 o Swift Energy Co. 2,500 61 o TC Pipelines L.P. 2,400 91 Tidewater, Inc. 2,700 84 Unit Corp. 4,400 163 USEC, Inc. 3,000 29 Valero Energy Corp. 22,298 958 o W-H Energy Services, Inc. 900 18 o Weatherford International Ltd. 10,600 554
14 SCHWAB TOTAL STOCK MARKET INDEX FUND PORTFOLIO HOLDINGS continued
VALUE SECURITY AND NUMBER OF SHARES ($ X 1,000) Western Gas Resources, Inc. 4,000 117 o Westmoreland Coal Co. 3,500 81 World Fuel Services Corp. 3,000 102 o Xanser Corp. 1,400 4 ----------- 23,419 FOOD & AGRICULTURE 3.1% --------------------------------------------------------------------------- o 7-Eleven, Inc. 5,000 105 @ American Italian Pasta Co., Class A 1,000 20 The Andersons, Inc. 1,500 35 Archer-Daniels-Midland Co. 53,958 1,045 >o Aurora Foods, Inc. 2,500 -- Bridgford Foods Corp. 300 3 o Cadiz, Inc. 84 1 Campbell Soup Co. 35,400 950 o Chiquita Brands International, Inc. 10,000 180 Coca-Cola Bottling Co. Consolidated 400 21 The Coca-Cola Co. 202,200 8,221 Coca-Cola Enterprises, Inc. 37,200 778 ConAgra Foods, Inc. 43,293 1,143 Consolidated-Tomoka Land Co. 900 33 Corn Products International, Inc. 7,800 384 o Dean Foods Co. 8,613 257 o Del Monte Foods Co. 8,931 95 Delta & Pine Land Co. 2,000 53 o Embrex, Inc. 1,300 17 @> Fleming Cos., Inc. 3,400 -- Flowers Foods, Inc. 19,515 495 Fresh Brands, Inc. 1,800 14 Fresh Del Monte Produce, Inc. 4,200 110 General Mills, Inc. 31,300 1,385 o Green Mountain Coffee Roasters, Inc. 900 23 o Griffen Land & Nurseries, Inc. 300 8 H.J. Heinz Co. 27,900 1,014 o Hain Celestial Group, Inc. 1,406 23 Hershey Foods Corp. 21,400 1,085 Hormel Foods Corp. 6,500 183 Ingles Markets, Inc., Class A 300 4 @ Interstate Bakeries 3,200 13 o J & J Snack Foods Corp. 3,200 142 @ The J.M. Smuckers Co. 2,438 109 o John B. Sanfilippo & Son 5,000 90 Kellogg Co. 34,400 1,479 @ Kraft Foods, Inc., Class A 37,500 1,249 Lance, Inc. 2,900 49 o Lesco, Inc. 500 6 Lindsay Manufacturing Co. 800 19 Marsh Supermarkets, Inc., Class B 1,000 11 o Maui Land & Pineapple Co., Inc. 800 26 McCormick & Co., Inc. 8,300 294 MGP Ingredients, Inc. 3,400 28 o Monterey Pasta Co. 700 3 Nash Finch Co. 1,700 52 o Neogen Corp. 625 12 o The Pantry, Inc. 400 9 o Peet's Coffee & Tea, Inc. 1,800 46 The Pepsi Bottling Group, Inc. 23,400 656 PepsiAmericas, Inc. 13,200 267 PepsiCo, Inc. 140,800 6,981 o Performance Food Group Co. 1,900 44 Pilgrim's Pride Corp., Class B 1,400 38 o Ralcorp Holdings, Inc. 6,700 246 Rocky Mountain Chocolate Factory, Inc. 1,650 21 Sanderson Farms, Inc. 5,250 171 Sara Lee Corp. 64,378 1,499 o The Scotts Co., Class A 2,800 180 Seaboard Corp. 200 139 Sensient Technologies Corp. 2,300 50 o Smart & Final, Inc. 2,700 40 o Smithfield Foods, Inc. 6,300 153 o Spartan Stores, Inc. 500 2 Standard Commercial Corp. 1,100 18 Supervalu, Inc. 18,087 533 Sysco Corp. 52,036 1,679 Tasty Baking Co. 500 4 o Tejon Ranch Co. 674 24 Tootsie Roll Industries, Inc. 2,255 68 Tyson Foods, Inc., Class A 27,840 404 o United Natural Foods, Inc. 2,600 71 @o VistaCare, Inc., Class A 1,000 16 o Wild Oats Markets, Inc. 3,800 23 Wm. Wrigley Jr. Co. 19,100 1,249 o Zapata Corp. 1,000 59 ----------- 35,957 GOLD 0.2% --------------------------------------------------------------------------- o Glamis Gold Ltd. 11,100 220 o Meridian Gold, Inc. 6,600 111 Newmont Mining Corp. 34,251 1,628 Royal Gold, Inc. 3,100 50 ----------- 2,009 HEALTHCARE / DRUGS & MEDICINE 11.5% --------------------------------------------------------------------------- o 1-800 Contacts, Inc. 500 8 @o aaiPharma, Inc. 4,300 12 Abbott Laboratories 128,205 5,465 o Abgenix, Inc. 7,100 65 o Abiomed, Inc. 800 9 o Accelrys, Inc. 1,300 7
15 SCHWAB TOTAL STOCK MARKET INDEX FUND PORTFOLIO HOLDINGS continued
VALUE SECURITY AND NUMBER OF SHARES ($ X 1,000) @o Accredo Health, Inc. 2,841 65 o Aclara BioSciences, Inc. 2,400 9 @o Advanced Medical Optics, Inc. 2,400 94 o Advanced Neuromodulation Systems, Inc. 1,050 33 @o AeroGen, Inc. 640 1 o Albany Molecular Research, Inc. 1,600 14 o Align Technology, Inc. 8,700 90 o Alkermes, Inc. 3,100 38 @ Allergan, Inc. 11,900 852 o Alliance Imaging, Inc. 1,800 13 o Allscripts Healthcare Solutions, Inc. 1,900 18 Alpharma, Inc., Class A 3,700 63 o Amedisys, Inc. 2,500 76 o America Service Group, Inc. 3,300 118 @o American Healthways, Inc. 3,100 94 o American Medical Systems Holdings, Inc. 3,900 145 @o AMERIGROUP Corp. 900 54 AmerisourceBergen Corp. 10,324 568 o Amgen, Inc. 107,168 6,087 o Amsurg Corp. 4,800 112 o Amylin Pharmaceuticals, Inc. 2,300 49 o Andrx Corp. 6,400 138 @o Anthem, Inc. 14,417 1,159 o Antigenics, Inc. 1,400 9 o Aphton Corp. 800 3 Applied Biosystems Group -- Applera Corp. 16,500 315 @o Apria Healthcare Group, Inc. 10,500 287 o Arqule, Inc. 8,800 40 Arrow International, Inc. 6,400 183 o Arthrocare Corp. 1,400 43 o Aspect Medical Systems, Inc. 3,700 67 o Atrix Labs, Inc. 1,400 43 o AVANIR Pharmaceuticals, Class A 1,900 6 o Avant Immunotherapeutics, Inc. 3,000 6 o Avigen, Inc. 900 3 o Barr Pharmaceuticals, Inc. 8,781 331 Bausch & Lomb, Inc. 3,400 207 Baxter International, Inc. 50,118 1,542 Beckman Coulter, Inc. 5,100 303 Becton Dickinson & Co. 21,300 1,118 o Beverly Enterprises, Inc. 8,800 76 o BioCryst Pharmaceuticals, Inc. 1,400 7 o Biogen Idec, Inc. 28,125 1,636 o BioMarin Pharmaceuticals, Inc. 1,800 7 Biomet, Inc. 20,125 939 @o Biosite, Inc. 1,400 68 o Biosource International, Inc. 1,500 9 o Bone Care International, Inc. 1,400 32 o Boston Scientific Corp. 67,800 2,393 o Bradley Pharmaceuticals, Inc. 1,700 28 Bristol-Myers Squibb Co. 161,550 3,785 C.R. Bard, Inc. 8,000 454 o Caliper Life Sciences, Inc. 700 5 Cambrex Corp. 3,400 76 Cardinal Health, Inc. 36,160 1,690 @o Caremark Rx, Inc. 37,090 1,112 @o Cell Therapeutics, Inc. 1,400 9 o Centene Corp. 500 24 @o Cephalon, Inc. 3,500 167 o Cerus Corp. 500 1 @o Charles River Laboratories International, Inc. 6,416 300 o Chattem, Inc. 1,200 40 o Chiron Corp. 15,100 490 o Cholestech Corp. 1,700 14 o ChromaVision Medical Systems, Inc. 1,100 1 o Ciphergen Biosystems, Inc. 1,700 6 CNS, Inc. 5,000 57 o Collagenex Pharmaceuticals, Inc. 3,000 18 o Community Health Systems, Inc. 7,100 190 o Conmed Corp. 1,700 48 @ Cooper Cos., Inc. 2,200 155 o Corixa Corp. 1,802 7 o Corvel Corp. 1,900 50 o Covance, Inc. 5,800 230 o Coventry Health Care, Inc. 14,400 589 @o CryoLife, Inc. 750 5 o CTI Molecular Imaging, Inc. 2,000 16 o Cubist Pharmaceuticals, Inc. 1,900 19 o Curis, Inc. 3,140 12 o CV Therapeutics, Inc. 1,100 18 o Cytogen Corp. 230 2 o Cytyc Corp. 7,800 204 D&K Healthcare Resources, Inc. 3,200 23 o Dade Behring Holdings, Inc. 2,600 146 Datascope Corp. 2,500 81 o DaVita, Inc. 24,750 733 o Deltagen, Inc. 2,200 -- o Dendreon Corp. 1,400 14 Dentsply International, Inc. 6,550 341 Diagnostic Products Corp. 1,700 75 o Digene Corp. 1,400 35 o DJ Orthopedics, Inc. 3,000 51 o Durect Corp. 2,000 4 @o Dynacq Healthcare, Inc. 3,616 18 @o Edwards Lifesciences Corp. 3,900 133 Eli Lilly & Co. 92,400 5,074 o Emisphere Technologies, Inc. 800 2 o Endo Pharmaceutical Holdings, Inc. 10,500 229 o Enpath Medical, Inc. 3,000 27 o Entremed, Inc. 1,200 3
16 SCHWAB TOTAL STOCK MARKET INDEX FUND PORTFOLIO HOLDINGS continued
VALUE SECURITY AND NUMBER OF SHARES ($ X 1,000) o Enzo Biochem, Inc. 1,782 32 o Enzon Pharmaceuticals, Inc. 4,400 71 o Eon Labs, Inc. 7,800 192 @o Express Scripts, Inc. 6,300 403 o Eyetech Pharmaceuticals, Inc. 2,500 106 o First Health Group Corp. 8,700 139 o First Horizon Pharmaceutical Corp. 3,400 84 o Forest Laboratories, Inc. 27,500 1,227 @o Gen-Probe, Inc. 3,400 119 o Gene Logic, Inc. 1,300 4 o Genelabs Technologies, Inc. 800 1 o Genentech, Inc. 43,300 1,971 o Genesis HealthCare Corp. 6,250 192 o Genta, Inc. 2,900 7 o Genzyme Corp. 15,232 799 @o Geron Corp. 1,000 8 o Gilead Sciences, Inc. 36,620 1,268 Guidant Corp. 25,816 1,720 o Guilford Pharmaceuticals, Inc. 1,200 5 o Haemonetics Corp. 3,700 122 @ HCA, Inc. 39,100 1,436 Health Management Associates, Inc., Class A 15,900 328 @o Health Net, Inc. 16,600 403 Healthcare Services Group 3,750 69 o HealthExtras, Inc. 1,900 27 o HealthTronics Surgical Services, Inc. 3,500 24 o Henry Schein, Inc. 2,300 145 o Hologic, Inc. 2,600 52 o Hospira, Inc. 14,070 449 o Human Genome Sciences, Inc. 5,100 52 o Humana, Inc. 18,900 362 @o ICU Medical, Inc. 550 12 o Idexx Laboratories, Inc. 2,500 125 o Ii-Vi, Inc. 1,900 65 o ImClone Systems, Inc. 6,935 304 o Immucor, Inc. 1,687 52 o Immunogen, Inc. 1,500 8 o Immunomedics, Inc. 2,400 7 o IMPAC Medical Systems, Inc. 3,000 47 o Impax Laboratories, Inc. 1,600 24 o Inamed Corp. 13,950 741 o Incyte Corp. 2,600 27 o Indevus Pharmaceuticals, Inc. 1,800 12 o Inspire Pharmaceuticals, Inc. 1,300 20 @o Integra LifeSciences Holdings Corp. 1,100 35 o InterMune, Inc. 1,100 14 o Intuitive Surgical, Inc. 1,050 31 Invacare Corp. 2,000 92 o Isis Pharmaceuticals, Inc. 1,900 9 @o IVAX Corp. 18,437 334 (8) Johnson & Johnson 246,370 14,383 o Kendle International, Inc. 2,700 17 o Kindred Healthcare, Inc. 4,624 111 o Kinetic Concepts, Inc. 2,500 125 @o King Pharmaceuticals, Inc. 18,516 202 o Kosan Biosciences, Inc. 2,500 16 o KV Pharmaceutical Co., Class A 2,700 54 o Kyphon, Inc. 3,000 75 o Laboratory Corp. of America Holdings 12,800 586 Landauer, Inc. 1,100 54 o Lexicon Genetics, Inc. 6,900 45 @o LifePoint Hospitals, Inc. 2,300 75 @o Ligand Pharmaceuticals, Inc., Class B 2,300 21 @o Lincare Holdings, Inc. 7,100 261 o Magellan Health Services, Inc. 3,007 112 Manor Care, Inc. 8,000 262 @o Maxim Pharmaceuticals, Inc. 2,400 6 McKesson Corp. 22,900 611 @o Med-Design Corp. 1,200 1 o Medarex, Inc. 3,000 23 o Medcath Corp. 1,500 26 @o Medco Health Solutions, Inc. 23,638 802 o Medical Action Industries, Inc. 2,500 42 o Medicines Co. 1,700 45 Medicis Pharmaceutical Corp., Class A 3,400 138 o Medimmune, Inc. 19,875 565 @o Medis Technologies Ltd. 1,110 14 Medtronic, Inc. 100,974 5,161 @ Mentor Corp. 3,000 104 Merck & Co., Inc. 183,552 5,747 Meridian Bioscience, Inc. 5,000 67 o Merit Medical Systems, Inc. 2,222 23 o MGI Pharma, Inc. 3,800 101 o Millennium Pharmaceuticals, Inc. 25,856 336 o MIM Corp. 1,500 9 Mine Safety Appliances Co. 2,700 102 o Molecular Devices Corp. 8,100 162 o Molina Healthcare, Inc. 2,500 92 @ Mylan Laboratories, Inc. 45,000 775 o Myogen, Inc. 2,500 22 o Myriad Genetics, Inc. 1,400 25 o Nabi Biopharmaceuticals 2,800 39 National Healthcare Corp. 600 18 Nature's Sunshine Products, Inc. 4,000 61 o NBTY, Inc. 16,000 441 o Nektar Therapeutics 2,200 32 o Neose Technologies, Inc. 500 4 o Neurocrine Biosciences, Inc. 1,400 65 o Neurogen Corp. 800 6 @o Northfield Laboratories, Inc. 1,100 15 o Noven Pharmacuticals, Inc. 5,500 124
17 SCHWAB TOTAL STOCK MARKET INDEX FUND PORTFOLIO HOLDINGS continued
VALUE SECURITY AND NUMBER OF SHARES ($ X 1,000) o NPS Pharmacuticals, Inc. 1,000 17 o Nutraceutical International Corp. 5,000 78 o Nuvelo, Inc. 300 3 Oakley, Inc. 6,700 85 @o OCA, Inc. 2,112 9 o Ocular Sciences, Inc. 1,500 73 o Odyssey HealthCare, Inc. 2,250 17 Omnicare, Inc. 7,500 207 o Onyx Pharmaceuticals, Inc. 1,800 51 o OraSure Technologies, Inc. 1,500 10 o Orchid BioSciences, Inc. 280 3 o Oscient Pharmaceuticals Corp. 2,100 7 o OSI Pharmaceuticals, Inc. 1,692 110 Owens & Minor, Inc. 2,000 52 @o Pacificare Health Systems, Inc. 18,800 670 o Pain Therapeutics, Inc. 2,600 18 o Par Pharmaceutical Cos., Inc. 1,900 75 o Parexel International Corp. 2,400 46 @o Patterson Cos., Inc. 10,600 398 o Pediatrix Medical Group, Inc. 3,000 169 Perrigo Co. 7,300 133 (6) Pfizer, Inc. 631,552 18,283 o Pharmaceutical Product Development, Inc. 5,000 211 o Pharmacopeia Drug Discovery, Inc. 650 4 o Pharmacyclics, Inc. 1,100 13 o Pharmion Corp. 2,500 115 PolyMedica Corp. 4,400 154 o Pozen, Inc. 1,300 11 o Praecis Pharmaceuticals, Inc. 1,600 3 o Priority Healthcare Corp., Class B 2,000 36 o Protein Design Labs, Inc. 4,100 79 o Province Healthcare Co. 4,825 103 o PSS World Medical, Inc. 5,800 65 o QMed, Inc. 500 4 Quest Diagnostics 7,410 649 o Regeneration Technologies, Inc. 1,700 13 o Regeneron Pharmaceuticals, Inc. 1,900 14 o RehabCare Group, Inc. 4,000 92 o Renal Care Group, Inc. 7,050 222 o Res-Care, Inc. 4,500 55 o Resmed, Inc. 2,000 94 o Respironics, Inc. 1,900 97 o Sangamo Biosciences, Inc. 1,200 5 o Savient Pharmaceuticals, Inc. 2,300 5 Schering-Plough Corp. 121,750 2,205 Select Medical Corp. 7,500 129 o Sepracor, Inc. 6,600 303 o Serologicals Corp. 1,200 28 @o Sierra Health Services, Inc. 11,700 558 o Sola International, Inc. 2,700 52 o SonoSite, Inc. 1,600 46 o Specialty Laboratories 700 7 o St. Jude Medical, Inc. 14,800 1,133 o Steris Corp. 6,100 126 Stryker Corp. 33,600 1,448 o Sunrise Senior Living, Inc. 4,900 187 o SuperGen, Inc. 900 5 o Sybron Dental Specialties, Inc. 4,633 151 o Symbion, Inc. 2,500 39 o Tanox, Inc. 4,900 77 o Techne Corp. 3,800 137 o Tenet Healthcare Corp. 36,650 393 o Theragenics Corp. 2,500 9 o Third Wave Technologies, Inc. 1,800 14 @o Thoratec Corp. 2,636 23 o Titan Pharmaceuticals, Inc. 800 2 o Transgenomic, Inc. 1,200 2 o Transkaryotic Therapies, Inc. 3,400 59 o Triad Hospitals, Inc. 6,044 200 o Trimeris, Inc. 500 6 o TriPath Imaging, Inc. 2,600 18 o Tripos, Inc. 6,000 24 o United Surgical Partners International, Inc. 1,400 49 UnitedHealth Group, Inc. 66,300 4,800 Universal Health Services, Class B 4,000 166 o Urologix, Inc. 1,800 9 o US Physical Therapy, Inc. 3,500 53 o USANA Health Sciences, Inc. 1,000 30 o Utah Medical Products, Inc. 2,500 45 Valeant Pharmaceuticals International 7,900 190 o Varian Medical Systems, Inc. 11,900 478 o VCA Antech, Inc. 5,400 121 o Ventana Medical Systems, Inc. 1,200 65 o Vertex Pharmaceuticals, Inc. 3,144 34 o Viasys Healthcare, Inc. 2,982 51 o Vical, Inc. 1,600 8 @o Viropharma, Inc. 1,000 3 o Visx, Inc. 3,100 52 Vital Signs, Inc. 1,900 66 o Watson Pharmaceuticals, Inc. 7,732 217 o WellPoint Health Networks, Inc. 12,680 1,238 West Pharmaceutical Services, Inc. 6,600 151 o Wright Medical Group, Inc. 1,700 44 Wyeth 109,400 4,338 o XOMA Ltd. 2,400 5 Young Innovations, Inc. 2,000 64 o Zimmer Holdings, Inc. 20,300 1,575 o Zymogenetics, Inc. 2,000 38 ----------- 131,748 HOUSEHOLD PRODUCTS 1.8% --------------------------------------------------------------------------- Alberto-Culver Co., Class B 6,950 312
18 SCHWAB TOTAL STOCK MARKET INDEX FUND PORTFOLIO HOLDINGS continued
VALUE SECURITY AND NUMBER OF SHARES ($ X 1,000) Avon Products, Inc. 39,000 1,542 Church & Dwight Co., Inc. 4,950 135 Clorox Co. 27,000 1,474 Colgate-Palmolive Co. 42,500 1,896 The Estee Lauder Cos., Inc., Class A 10,300 442 The Gillette Co. 81,400 3,377 Inter Parfums, Inc. 675 9 International Flavors & Fragrances, Inc. 4,400 172 @ Nu Skin Enterprises, Inc., Class A 6,500 126 = Procter & Gamble Co. 213,400 10,922 ----------- 20,407 INSURANCE 4.3% --------------------------------------------------------------------------- @ 21st Century Holding Co. 1,500 16 21st Century Insurance Group 7,200 95 Aetna, Inc. 14,800 1,406 AFLAC, Inc. 42,600 1,528 Alfa Corp. 6,800 95 o Alleghany Corp. 216 62 o Allmerica Financial Corp. 4,900 147 The Allstate Corp. 58,874 2,831 AMBAC Financial Group, Inc. 10,250 800 American Financial Group, Inc. 5,500 163 (9) American International Group, Inc. 216,222 13,127 American National Insurance Co. 1,300 137 @ AmerUs Group Co. 4,400 184 @ AON Corp. 25,500 520 o Arch Capital Group Ltd. 3,900 147 o Argonaut Group, Inc. 2,400 44 Arthur J. Gallagher & Co. 6,800 191 Baldwin & Lyons, Inc., Class B 750 19 Brown & Brown, Inc. 5,500 230 Chubb Corp. 16,547 1,194 CIGNA Corp. 12,800 812 Cincinnati Financial Corp. 12,810 535 o Clark, Inc. 1,700 22 o CNA Financial Corp. 20,900 500 o CNA Surety Corp. 2,200 26 Commerce Group, Inc. 1,600 81 Crawford & Co., Class B 1,600 11 Delphi Financial Group, Inc., Class A 4,515 185 EMC Insurance Group, Inc. 1,200 24 Erie Indemnity Co., Class A 5,500 276 FBL Financial Group, Inc., Class A 2,090 54 Fidelity National Financial, Inc. 16,017 604 First American Corp. 7,800 243 First United Corp. 2,200 46 o FPIC Insurance Group, Inc. 400 11 @ Fremont General Corp. 6,200 133 o Genworth Financial, Inc. 19,000 453 Great American Financial Resources, Inc. 2,800 44 Harleysville Group, Inc. 1,800 37 Hartford Financial Services Group, Inc. 24,400 1,427 HCC Insurance Holdings, Inc. 5,300 157 Hilb, Rogal & Hobbs Co. 3,000 95 Hooper Holmes, Inc. 4,600 24 Horace Mann Educators Corp. 1,800 31 Independence Holding Co. 2,700 51 Infinity Property & Casualty Corp. 2,500 78 Jefferson-Pilot Corp. 12,600 608 Liberty Corp. 1,000 40 Lincoln National Corp. 15,100 661 Loews Corp. 15,000 898 o Markel Corp. 300 95 Marsh & McLennan Cos., Inc. 43,000 1,189 MBIA, Inc. 13,750 796 Mercury General Corp. 5,400 278 Metlife, Inc. 62,000 2,378 MGIC Investment Corp. 9,300 598 o MIIX Group, Inc. 2,400 -- o National Medical Health Card Systems, Inc. 800 17 Nationwide Financial Services, Inc., Class A 1,300 45 o Navigators Group, Inc. 1,500 44 NYMAGIC, Inc. 2,100 43 @ Odyssey Re Holdings Corp. 5,400 118 o Ohio Casualty Corp. 5,500 115 Old Republic International Corp. 16,350 382 o Penn Treaty American Corp. 600 1 Penn-America Group, Inc. 1,400 21 o Philadelphia Consolidated Holding Co. 1,000 58 The Phoenix Cos., Inc. 7,000 74 PMA Capital Corp., Class A 700 6 @ The PMI Group, Inc. 8,100 314 Presidential Life Corp. 1,000 16 Principal Financial Group, Inc. 25,400 959 o ProAssurance Corp. 1,670 60 The Progressive Corp. 21,300 1,993 Protective Life Corp. 5,500 216 Prudential Financial, Inc. 45,500 2,114 Radian Group, Inc. 9,202 441 @ Reinsurance Group of America, Inc. 5,100 220 RLI Corp. 2,800 106 Safeco Corp. 12,500 578 Safety Insurance Group, Inc. 1,000 23 SCPIE Holdings, Inc. 700 6 Selective Insurance Group, Inc. 1,200 47
19 SCHWAB TOTAL STOCK MARKET INDEX FUND PORTFOLIO HOLDINGS continued
VALUE SECURITY AND NUMBER OF SHARES ($ X 1,000) o SNTL Corp. -- Litigation Trust Certificates 1,300 -- The St. Paul Travelers Cos., Inc. 54,550 1,853 Stancorp Financial Group, Inc. 2,500 188 State Auto Financial Corp. 1,300 37 Sterling Financial Corp. 1,250 33 Stewart Information Services Corp. 3,700 157 Torchmark Corp. 10,600 573 Transatlantic Holdings, Inc. 6,437 375 o Triad Guaranty, Inc. 1,700 93 o UICI 2,500 74 United Fire & Casualty Co. 500 30 Unitrin, Inc. 5,600 242 UnumProvident Corp. 23,914 327 o USI Holdings Corp. 4,500 44 W.R. Berkley Corp. 10,200 436 o WellChoice, Inc. 6,800 284 @ Zenith National Insurance Corp. 600 25 ----------- 49,225 MEDIA 3.8% --------------------------------------------------------------------------- o Acme Communications, Inc. 1,900 11 o Adolor Corp. 1,700 20 o Advanced Marketing Services, Inc. 2,400 25 o AMC Entertainment, Inc. 5,400 104 o America's Car Mart, Inc. 2,500 86 @o American Tower Corp., Class A 19,500 335 Banta Corp. 2,700 110 Belo Corp., Class A 9,400 219 Blockbuster, Inc., Class A 6,900 47 @o Cablevision Systems Corp., NY Group, Class A 18,800 387 Cadmus Communications Corp. 3,900 58 o Carmike Cinemas, Inc. 2,500 89 @o Charter Communications, Inc., Class A 20,300 51 o Citadel Broadcasting Corp. 2,500 36 Clear Channel Communications, Inc. 49,721 1,661 @o CNET Networks, Inc. 9,983 82 o Comcast Corp., Class A 148,336 4,376 o Comcast Corp., Special Class A 42,800 1,243 o Consolidated Graphics, Inc. 3,900 167 o Cox Communications, Inc., Class A 50,635 1,744 o Crown Media Holdings, Inc., Class A 6,000 54 o Cumulus Media, Inc., Class A 5,100 83 o DAG Media, Inc. 2,500 9 o Daily Journal Corp. 500 18 o DGSE Cos., Inc. 700 2 o The DIRECTV Group, Inc. 83,476 1,400 Dow Jones & Co., Inc. 9,000 398 The E.W. Scripps Co., Class A 12,000 573 o EchoStar Communications Corp., Class A 21,300 673 o Emmis Communications Corp., Class A 4,300 80 o Entercom Communications Corp. 3,000 100 o Entravision Communications Corp., Class A 5,000 40 o Fox Entertainment Group, Inc., Class A 36,250 1,075 Gannett Co., Inc. 23,500 1,949 o Gaylord Entertainment Co. 2,625 88 >o GC Cos., Inc. 500 -- Gray Television, Inc. 5,600 74 Harte-Hanks, Inc. 8,100 208 Hollinger International, Inc., Class A 7,300 130 o Information Holdings, Inc. 2,200 60 o Insight Communications Co., Class A 5,200 44 John Wiley & Sons, Class A 6,300 204 Journal Communications, Inc., Class A 7,500 121 o Journal Register Co. 3,200 60 Knight-Ridder, Inc. 5,700 391 Lee Enterprises, Inc. 2,500 116 o Liberty Media International, Inc., Class A 10,961 395 o Lifeline Systems, Inc. 4,600 111 o Lin TV Corp., Class A 3,300 60 o Lynch Interactive Corp. 900 28 @o Martha Stewart Living Omnimedia, Class A 3,900 69 McClatchy Co., Class A 7,200 500 The McGraw-Hill Cos., Inc. 17,300 1,492 Media General, Inc., Class A 2,000 117 o Mediacom Communications Corp., Class A 7,600 50 Meredith Corp. 6,000 294 o Merrimac Industries, Inc. 600 5 Metro-Goldwyn-Mayer, Inc. 13,134 155 o Moscow CableCom Corp. 1,400 10 @ Movie Gallery, Inc. 3,525 57 o Network Equipment Technologies, Inc. 5,000 43 New York Times Co., Class A 13,200 529 o Nexstar Broadcasting Group, Inc., Class A 4,500 33 o Playboy Enterprises, Inc., Class B 4,500 50 Pulitzer, Inc. 3,000 158 o Quipp, Inc. 900 12 R.R. Donnelley & Sons Co. 17,000 535
20 SCHWAB TOTAL STOCK MARKET INDEX FUND PORTFOLIO HOLDINGS continued
VALUE SECURITY AND NUMBER OF SHARES ($ X 1,000) o Radio One, Inc., Class A 9,500 139 >o Radio Unica Communications Corp. 300 -- The Reader's Digest Association, Inc., Class A 7,300 103 @ Regal Entertainment Group, Class A 4,200 84 o Saga Communications, Inc., Class A 3,750 63 o Salem Communications Corp., Class A 900 22 o Scholastic Corp. 2,200 67 Sinclair Broadcast Group, Inc., Class A 4,800 34 o The Source Interlink Cos., Inc. 5,000 50 o The Sportsman's Guide, Inc. 5,000 117 Thomas Nelson, Inc. 3,300 73 o Time Warner, Inc. 367,052 6,108 @o Tivo, Inc. 4,500 30 Tribune Co. 26,900 1,162 @o Univision Communications, Inc., Class A 25,510 790 o Valassis Communications, Inc. 5,900 203 o Valuevision Media, Inc., Class A 1,400 15 Viacom, Inc., Class B 144,012 5,255 The Walt Disney Co. 167,150 4,216 Washington Post, Class B 600 549 o Westwood One, Inc. 7,200 166 o XM Satellite Radio Holdings, Inc., Class A 15,300 494 ----------- 43,244 MISCELLANEOUS 0.5% --------------------------------------------------------------------------- 3M Co. 65,000 5,042 o Alliance Data Systems Corp. 6,600 279 o Coinstar, Inc. 5,200 134 o The Geo Group, Inc. 3,800 76 o i2 Technologies, Inc. 15,300 11 >o Jupiter Media Metrix, Inc. 1,673 -- o Life Time Fitness, Inc. 2,500 58 @o NetFlix, Inc. 6,000 57 @>o Nucentrix Broadband Networks, Inc. 2,100 5 o Saxon Capital, Inc. 3,500 67 ----------- 5,729 MISCELLANEOUS FINANCE 7.9% --------------------------------------------------------------------------- 1st Source Corp. 1,571 43 A.G. Edwards, Inc. 5,900 214 @o Accredited Home Lenders Holding Co. 2,500 90 @>o Actrade Financial Technologies Ltd. 1,000 -- Advanta Corp., Class A 7,400 169 o Affiliated Managers Group, Inc. 1,800 101 Alliance Capital Management Holding L.P. 5,200 198 @ Allied Capital Corp. 11,015 293 Amcore Financial, Inc. 1,200 37 @ American Capital Strategies Ltd. 5,100 158 American Express Co. 105,150 5,580 o AmeriCredit Corp. 12,300 239 o Ameritrade Holding Corp. 34,300 447 Apollo Investment Corp. 5,000 68 o Asset Acceptance Capital Corp. 2,500 46 Asta Funding, Inc. 2,000 36 @ Astoria Financial Corp. 7,000 274 Bank of the Ozarks, Inc. 2,800 90 @o Bankunited Financial Corp., Class A 2,200 65 Banner Corp. 1,200 36 o Bay View Capital Corp. 506 8 The Bear Stearns Cos., Inc. 13,620 1,290 o Berkshire Hathaway, Inc., Class A 96 8,088 Berkshire Hills Bancorp, Inc. 1,400 53 Blackrock, Inc., Class A 400 29 o Boca Resorts, Inc., Class A 4,300 102 o BOK Financial Corp. 4,540 207 @o BP Prudhoe Bay Royalty Trust 2,200 98 Camco Financial Corp. 700 11 Capital Corp. of the West 1,050 48 @ Capital One Financial Corp. 19,900 1,468 Cash America International, Inc. 2,500 63 Cathay General Bancorp., Inc. 3,200 126 Central Pacific Financial Co. 900 27 o Cenveo, Inc. 1,300 4 / The Charles Schwab Corp. 111,120 1,017 Charter Financial Corp. 900 34 CharterMac 3,900 90 Chesterfield Financial Corp. 1,500 47 @ Chicago Mercantile Exchange 1,800 316 CIT Group, Inc. 18,600 751 =(5) Citigroup, Inc. 424,936 18,854 Citizens First Bancorp, Inc. 700 17 Coastal Financial Corp. 2,759 41 The Commercial Capital Bancorp, Inc. 5,362 120 Commercial Federal Corp. 3,000 83 o CompuCredit Corp. 4,400 84 o Corrections Corp. of America 3,828 133 Countrywide Financial Corp. 53,000 1,692 Cross Timbers Royalty Trust 1,500 54 CVB Financial Corp. 3,382 84 Downey Financial Corp. 2,000 111 o E*TRADE Financial Corp. 30,035 387 East-West Bancorp, Inc. 2,600 104 Eaton Vance Corp. 5,800 253
21 SCHWAB TOTAL STOCK MARKET INDEX FUND PORTFOLIO HOLDINGS continued
VALUE SECURITY AND NUMBER OF SHARES ($ X 1,000) o eSpeed, Inc., Class A 3,300 32 Fannie Mae 81,400 5,710 Federated Investors, Inc., Class B 9,950 288 Fidelity Bankshares, Inc. 1,933 75 o Financial Federal Corp. 3,300 123 Financial Industries Corp. 700 6 First Financial Corp. Indiana 600 19 First Financial Holdings, Inc. 1,400 43 First Indiana Corp. 1,375 30 o The First Marblehead Corp. 5,000 268 First Place Financial Corp. Ohio 2,900 57 Flagstar Bancorp., Inc. 6,200 130 Flushing Financial Corp. 3,300 64 Franklin Resources, Inc. 20,600 1,249 Freddie Mac 57,700 3,843 @ Gabelli Asset Management, Inc., Class A 700 32 Glacier Bancorp, Inc. 3,812 121 Golden West Financial Corp. 11,900 1,391 Goldman Sachs Group, Inc. 38,700 3,807 Heritage Financial Corp. 700 15 Hudson River Bancorp 3,200 63 Hugoton Royalty Trust 3,300 94 IBERIABANK Corp. 700 43 Independence Community Bank Corp. 6,600 248 Independent Bank Corp. Michigan 1,636 44 IndyMac Bancorp, Inc. 3,400 110 o Instinet Group, Inc. 1,200 6 International Bancshares Corp. 3,662 135 Interpool, Inc. 1,200 21 o Investment Technology Group, Inc. 4,750 73 @ Investors Financial Services Corp. 5,500 212 o ITLA Capital Corp. 700 34 Janus Capital Group, Inc. 19,200 293 Jefferies Group, Inc. 4,100 165 o Knight Trading Group, Inc., Class A 9,700 101 o La Quinta Corp. 13,000 105 o LabOne, Inc. 2,100 63 o LaBranche & Co., Inc. 2,400 17 @ Legg Mason, Inc. 10,050 640 Lehman Brothers Holdings, Inc. 23,872 1,961 Leucadia National Corp. 5,136 304 MB Financial, Inc. 1,800 77 MBNA Corp. 104,650 2,682 MCG Capital Corp. 4,700 84 McGrath RentCorp 800 31 o Meritage Corp. 500 44 Merrill Lynch & Co., Inc. 79,800 4,304 o Metris Cos., Inc. 3,000 29 o MicroFinancial, Inc. 1,900 9 The Midland Co. 1,800 50 MoneyGram International, Inc. 14,500 270 Moody's Corp. 13,300 1,035 Morgan Stanley 90,300 4,613 MutualFirst Financial, Inc. 2,000 48 National Financial Partners Corp. 2,500 77 o National Western Life Insurance Co., Class A 300 45 o Nelnet, Inc., Class A 4,500 87 New York Community Bancorp, Inc. 22,697 417 >o NextCard, Inc. 2,600 -- o North American Scientific, Inc. 700 4 Northrim BanCorp, Inc. 2,500 57 Northway Financial, Inc. 200 7 Northwest Bancorp, Inc. 5,000 119 Nuveen Investments, Inc., Class A 7,300 231 Oak Hill Financial, Inc. 1,000 38 o Ocwen Financial Corp. 5,920 44 PAB Bankshares, Inc. 700 9 Pacific Capital Bancorp. 2,844 91 Partners Trust Financial Group, Inc. 3,971 40 The Peoples Holding Co. 750 25 o Piper Jaffray Cos. 950 42 PMC Commercial Trust 1,500 22 o Portfolio Recovery Associates, Inc. 2,000 67 Provident Financial Holdings 750 22 Provident Financial Services, Inc. 917 16 o Providian Financial Corp. 23,900 372 R&G Financial Corp., Class B 2,550 96 Raymond James Financial, Inc. 6,900 180 Resource America, Inc., Class A 2,000 49 Santander BanCorp 4,686 131 SEI Investments Co. 9,700 349 o Siebert Financial Corp. 2,900 10 SLM Corp. 37,300 1,688 Sovereign Bancorp, Inc. 28,942 627 State Financial Services Corp., Class A 2,000 57 Student Loan Corp. 1,700 249 SWS Group, Inc. 1,141 22 T. Rowe Price Group, Inc. 10,700 597 @o Tarragon Corp. 2,948 40 TF Financial Corp. 700 20 United Community Banks, Inc. Georgia 3,750 90 o UnitedGlobalCom, Inc., Class A 31,000 232 Value Line, Inc. 300 11 W Holding Co., Inc. 7,803 156 @ W.P. Carey & Co. LLC 4,100 127 Waddell & Reed Financial, Inc., Class A 7,250 152 Washington Federal, Inc. 7,220 184
22 SCHWAB TOTAL STOCK MARKET INDEX FUND PORTFOLIO HOLDINGS continued
VALUE SECURITY AND NUMBER OF SHARES ($ X 1,000) Washington Mutual, Inc. 73,578 2,848 Waypoint Financial Corp. 3,651 100 Webster Financial Corp. 3,790 181 o Wellsford Real Properties, Inc. 1,400 22 Wesco Financial Corp. 200 69 Westwood Holdings Group, Inc. 285 5 o WFS Financial, Inc. 4,100 181 White Mountains Insurance Group Ltd. 200 102 Willow Grove Bancorp, Inc. 1,596 27 o World Acceptance Corp. 1,000 23 ----------- 89,846 NON-DURABLES & ENTERTAINMENT 1.4% --------------------------------------------------------------------------- o A.T. Cross Co., Class A 2,400 12 Action Performance Cos., Inc. 600 6 o Activision, Inc. 11,175 162 o AFC Enterprises, Inc. 1,000 22 o American Greetings Corp., Class A 8,500 225 Applebee's International, Inc. 7,912 181 Bob Evans Farms, Inc. 2,200 52 @ Boyd Gaming Corp. 5,300 177 o Boyds Collection Ltd. 2,200 7 @o Brinker International, Inc. 6,900 223 o Buca, Inc. 1,100 5 o Cabela's, Inc., Class A 3,500 88 CBRL Group, Inc. 3,300 120 o CEC Entertainment, Inc. 2,025 77 o Centillium Communications, Inc. 1,000 2 @o The Cheesecake Factory 1,925 84 Churchill Downs, Inc. 900 34 o CKE Restaurants, Inc. 4,800 58 Darden Restaurants, Inc. 13,300 326 o Dave and Buster's, Inc. 1,700 30 o Department 56, Inc. 3,300 50 Dover Motorsports, Inc. 1,400 7 o Drew Industries, Inc. 2,500 78 o Electronic Arts, Inc. 25,200 1,132 o Electronics Boutique Holdings Corp. 1,300 44 o EMAK Worldwide, Inc. 500 5 o Enesco Group, Inc. 1,100 7 Fortune Brands, Inc. 17,700 1,289 o Fossil, Inc. 2,962 88 Handleman Co. 6,600 142 Hasbro, Inc. 14,500 256 o Hibbet Sporting Goods, Inc. 2,362 53 o Hollywood Media Corp. 1,100 4 IHOP Corp. 3,000 115 International Game Technology 29,100 961 International Speedway Corp., Class A 3,245 153 o Isle of Capri Casinos, Inc. 9,400 213 o Jack in the Box, Inc. 4,200 140 @o Krispy Kreme Doughnuts, Inc. 2,100 22 Lancaster Colony Corp. 3,400 146 Landry's Restaurants, Inc. 1,800 49 Lone Star Steakhouse & Saloon, Inc. 4,400 106 o Luby's, Inc. 1,400 9 @o Marvel Enterprises, Inc. 11,700 180 Mattel, Inc. 34,300 601 McDonald's Corp. 102,800 2,997 o Midway Games, Inc. 5,600 53 Movado Group, Inc. 7,400 128 o O'Charleys, Inc. 400 6 @o Oneida Ltd. 700 1 Outback Steakhouse, Inc. 7,000 277 @o P.F. Chang's China Bistro, Inc. 800 41 @o Panera Bread Co., Class A 800 28 o Papa John's International, Inc. 1,700 55 o Penn National Gaming, Inc. 4,900 203 o Rare Hospitality International Inc. 3,325 92 o RC2 Corp. 2,200 61 Regis Corp. 3,900 167 Ruby Tuesday, Inc. 5,600 138 Russ Berrie & Co., Inc. 1,000 21 o Ryan's Restaurant Group, Inc. 2,250 31 SCP Pool Corp. 5,662 165 o Service Corp. International 24,100 159 o Smith & Wollensky Restaurant Group, Inc. 900 5 o Sonic Corp. 2,812 77 o Sotheby's Holdings, Inc., Class A 2,938 55 o Starbucks Corp. 31,300 1,655 o The Steak N Shake Co. 1,580 26 o Stewart Enterprises, Inc., Class A 7,200 51 @o Take-Two Interactive Software, Inc. 8,000 264 The Topps Co., Inc. 1,700 17 o Trans World Entertainment Corp. 1,500 16 Triarc Cos., Class B 4,400 50 Tupperware Corp. 4,800 80 Wendy's International, Inc. 10,300 344 World Wrestling Entertainment, Inc. 4,900 61 Yum! Brands, Inc. 24,000 1,044 ----------- 16,109 NON-FERROUS METALS 0.4% --------------------------------------------------------------------------- o A.M. Castle & Co. 1,500 17 Alcoa, Inc. 70,464 2,290 o Brush Engineered Materials, Inc. 3,600 56 o Century Aluminum Co. 3,100 72 Commercial Metals Co. 3,500 127
23 SCHWAB TOTAL STOCK MARKET INDEX FUND PORTFOLIO HOLDINGS continued
VALUE SECURITY AND NUMBER OF SHARES ($ X 1,000) o Commonwealth Industries, Inc. 1,300 12 o Encore Wire Corp. 3,000 37 Engelhard Corp. 9,300 263 Freeport-McMoran Copper & Gold, Inc., Class B 16,000 580 Gibraltar Industries, Inc. 2,500 88 o Imco Recycling, Inc. 1,400 16 o Kaiser Aluminum Corp. 2,000 -- Minerals Technologies, Inc. 3,100 186 Mueller Industries, Inc. 1,700 45 Phelps Dodge Corp. 7,330 642 Reliance Steel & Aluminum Co. 4,250 146 o RTI International Metals, Inc. 4,000 80 Southern Peru Copper Corp. 5,400 233 o Stillwater Mining Co. 1,133 14 o Titanium Metals Corp. 900 17 o Wolverine Tube, Inc. 1,000 10 ----------- 4,931 OIL: DOMESTIC 1.6% --------------------------------------------------------------------------- Amerada Hess Corp. 6,400 517 Ashland, Inc. 7,000 403 o CAL Dive International, Inc. 4,000 142 Chesapeake Energy Corp. 19,200 309 o Comstock Resources, Inc. 4,500 99 ConocoPhillips 56,098 4,730 Consol Energy, Inc. 8,300 294 Crosstex Energy L.P. 2,000 63 @ Diamond Offshore Drilling, Inc. 12,300 416 o Enbridge Energy Management LLC 1,153 51 o Encore Acquisition Co. 1,500 49 o Energy Partners Ltd. 1,700 30 Frontier Oil Corp. 3,600 88 o Global Industries Ltd. 4,400 30 Gulf Island Fabrication, Inc. 2,800 57 o Gulfmark Offshore, Inc. 1,600 31 o Harvest Natural Resources, Inc. 6,000 91 Holly Corp. 4,000 98 o Houston Exploration Co. 5,400 316 @ Kaneb Services LLC 1,466 46 Kerr-McGee Corp. 14,583 864 @ Magellan Midstream Partners 1,200 66 o Magnum Hunter Resources, Inc. 5,750 70 Marathon Oil Corp. 29,000 1,105 @ Markwest Energy Partners L.P. 500 22 o Meridian Resource Corp. 3,100 25 Murphy Oil Corp. 8,500 680 o Nabors Industries Ltd. 11,817 580 @o National-Oilwell, Inc. 5,569 188 o Newfield Exploration Co. 3,700 215 o OYO Geospace Corp. 300 5 Pacific Energy Partners L.P. 3,500 99 Patina Oil & Gas Corp. 6,250 179 Patterson-UTI Energy, Inc. 13,200 254 Pioneer Natural Resources Co. 14,333 464 o Plains Exploration & Production Co. 6,579 164 Pogo Producing Co. 6,300 289 o Premcor, Inc. 6,100 238 o Pride International, Inc. 10,200 188 o Quicksilver Resources, Inc. 2,800 89 o Remington Oil & Gas Corp. 2,900 74 o Spinnaker Exploration Co. 2,900 93 St. Mary Land & Exploration Co. 3,700 146 o Stone Energy Corp. 976 40 Sunoco Logistics Partners L.P. 2,000 79 Sunoco, Inc. 5,500 409 o Superior Energy Services, Inc. 4,900 63 o Syntroleum Corp. 4,000 28 TEPPCO Partners L.P. 4,000 157 o Tesoro Petroleum Corp. 4,800 145 o Todco, Class A 5,500 93 o Transmontaigne, Inc. 1,600 9 o Transocean, Inc. 25,231 889 o Ultra Petroleum Corp. 6,500 316 o Universal Compression Holdings, Inc. 2,900 100 Unocal Corp. 22,507 940 Valero L.P. 1,600 90 o Varco International, Inc. 7,140 198 Vintage Petroleum, Inc. 10,500 221 XTO Energy, Inc. 19,457 649 ----------- 18,383 OIL: INTERNATIONAL 3.2% --------------------------------------------------------------------------- @o ATP Oil & Gas Corp. 1,600 21 ChevronTexaco Corp. 179,634 9,532 =(2) Exxon Mobil Corp. 537,816 26,471 GlobalSantaFe Corp. 19,155 565 ----------- 36,589 OPTICAL & PHOTO 0.2% --------------------------------------------------------------------------- o APA Optics, Inc. 1,000 1 o August Technology Corp. 1,300 10 o BMC Industries, Inc. 2,100 -- o Corning, Inc. 112,607 1,289 CPI Corp. 400 5 @ Eastman Kodak Co. 26,000 787 o Fischer Imaging Corp. 500 2 Imation Corp. 2,000 63 o Ingram Micro, Inc., Class A 13,400 231 @o Lexar Media, Inc. 5,400 37 o Meade Instruments Corp. 800 3 o Photronics, Inc. 1,400 25
24 SCHWAB TOTAL STOCK MARKET INDEX FUND PORTFOLIO HOLDINGS continued
VALUE SECURITY AND NUMBER OF SHARES ($ X 1,000) >o Polaroid Corp. 3,800 -- o Zomax, Inc. 2,000 7 o Zygo Corp. 500 5 ----------- 2,465 PAPER & FOREST PRODUCTS 0.8% --------------------------------------------------------------------------- o Boise Cascade Corp. 6,400 189 Bowater, Inc. 2,300 85 o Buckeye Technologies, Inc. 1,200 13 Chesapeake Corp. 1,000 23 CSS Industries, Inc. 900 28 Deltic Timber Corp. 700 28 @ Georgia-Pacific Corp. 44,365 1,535 International Paper Co. 39,304 1,514 o Kadant, Inc. 1 -- Kimberly-Clark Corp. 40,639 2,425 Louisiana-Pacific Corp. 4,800 118 MeadWestvaco Corp. 11,674 368 Packaging Corp. of America 6,000 131 Potlatch Corp. 13,400 631 Rayonier, Inc. 1,592 75 Rock-Tennessee Co., Class A 1,500 23 @o Smurfit-Stone Container Corp. 10,900 189 Temple-Inland, Inc. 4,400 260 Wausau-Mosinee Paper Corp. 4,700 73 Weyerhaeuser Co. 16,750 1,049 ----------- 8,757 PRODUCER GOODS & MANUFACTURING 4.9% --------------------------------------------------------------------------- o Aaon, Inc. 4,075 60 o Actuant Corp., Class A 2,840 113 o Advanced Energy Industries, Inc. 3,900 38 o Aeroflex, Inc. 5,400 60 @o AGCO Corp. 3,762 73 Alamo Group, Inc. 500 9 Albany International Corp., Class A 3,918 118 o American Standard Cos., Inc. 17,900 655 Ametek, Inc. 4,200 138 Applied Industrial Technologies, Inc. 2,900 108 Aptargroup, Inc. 2,200 103 o Astec Industries, Inc. 500 7 Avery Dennison Corp. 9,700 590 o AZZ, Inc. 700 9 Baldor Electric Co. 3,800 89 Barnes Group, Inc. 500 13 o BE Aerospace, Inc. 1,100 9 o Blount International, Inc. 1,200 17 Blyth, Inc. 4,800 144 Briggs & Stratton Corp. 3,000 215 o Cantel Medical Corp. 2,381 53 o Capstone Turbine Corp. 2,600 5 Caterpillar, Inc. 28,700 2,312 CIRCOR International, Inc. 3,750 71 Clarcor, Inc. 1,700 84 Cognex Corp. 2,900 74 o Columbus McKinnon Corp. 2,400 19 Cooper Industries Ltd., Class A 7,200 460 o Cuno, Inc. 1,300 75 Curtiss-Wright Corp. 300 17 @o CyberCare, Inc. 900 -- Deere & Co. 21,500 1,285 o DiamondCluster International, Inc., Class A 1,000 12 Dover Corp. 16,700 656 o Duratek, Inc. 4,000 81 Emerson Electric Co. 35,000 2,242 @o Evergreen Solar, Inc. 1,000 3 o The Fairchild Corp., Class A 3,100 11 @ Fastenal Co. 6,600 365 Federal Signal Corp. 2,800 47 o Fisher Scientific International, Inc. 8,876 509 o Flowserve Corp. 3,900 84 o FMC Corp. 3,100 136 Franklin Electric Co., Inc. 3,800 146 o Gardner Denver, Inc. 1,700 51 =(1) General Electric Co. 863,066 29,448 The Gorman-Rupp Co. 2,875 62 Graco, Inc. 7,012 241 o GrafTech International Ltd. 2,100 19 Hardinge, Inc. 1,800 20 Harsco Corp. 3,100 150 Helix Technology Corp. 1,100 15 Herman Miller, Inc. 5,700 132 o Hexcel Corp. 2,000 31 HNI Corp. 4,000 162 Honeywell International, Inc. 71,062 2,393 Hubbell, Inc., Class B 3,800 174 Hughes Supply, Inc. 2,600 74 o Ibis Technology Corp. 800 2 IDEX Corp. 3,150 116 Illinois Tool Works, Inc. 25,850 2,385 Ingersoll-Rand Co., Class A 13,700 938 o Ionics, Inc. 400 11 o Jacuzzi Brands, Inc. 2,000 17 o Jarden Corp. 1,650 58 JLG Industries, Inc. 1,800 30 Johnson Controls, Inc. 15,000 860 Juno Lighting, Inc. 1,429 53 Kaydon Corp. 3,300 98 Kennametal, Inc. 4,000 186 Knape & Vogt Manufacturing Co. 2,200 29 o Kos Pharmaceuticals, Inc. 700 25 o Ladish Co., Inc. 1,300 13 Lawson Products, Inc. 2,000 87
25 SCHWAB TOTAL STOCK MARKET INDEX FUND PORTFOLIO HOLDINGS continued
VALUE SECURITY AND NUMBER OF SHARES ($ X 1,000) Lennox International, Inc. 4,771 69 Libbey, Inc. 500 9 Lincoln Electric Holdings, Inc. 3,900 130 o Lone Star Technologies, Inc. 1,200 32 o Magnetek, Inc. 1,500 9 Manitowoc Co., Inc. 2,900 102 o Material Sciences Corp. 4,000 52 Matthews International Corp., Class A 1,900 64 o Maverick Tube Corp. 3,800 100 o Merix Corp. 3,700 38 o Micrel, Inc. 6,800 76 Middleby Corp. 3,500 172 o Milacron, Inc. 2,300 6 o Millipore Corp. 5,100 235 o Modtech Holdings, Inc. 1,000 8 o Moog, Inc., Class A 3,525 132 MSC Industrial Direct Co., Class A 4,300 147 NACCO Industries, Inc., Class A 1,300 122 o NATCO Group, Inc., Class A 1,200 11 NN, Inc. 1,800 20 Nordson Corp. 4,000 140 o Oceaneering International, Inc. 3,600 128 Pall Corp. 10,900 282 o Park-Ohio Holdings Corp. 2,600 54 Parker Hannifin Corp. 11,000 777 Penn Engineering & Manufacturing Corp. 1,000 18 Pentair, Inc. 7,000 262 o Plug Power, Inc. 2,248 13 o Possis Medical, Inc. 1,100 12 Precision Castparts Corp. 5,151 309 o Presstek, Inc. 1,100 11 Regal Beloit Corp. 3,200 75 @o Research Frontiers, Inc. 800 6 Robbins & Myers, Inc. 600 13 Roper Industries, Inc. 1,500 93 o Safeguard Scientifics, Inc. 3,300 6 Sauer-Danfoss, Inc. 3,800 69 o Sequa Corp., Class A 2,800 151 o The Shaw Group, Inc. 2,000 24 Snap-On, Inc. 4,000 118 @ SPX Corp. 8,610 330 Standex International Corp. 3,000 79 Steelcase, Inc., Class A 3,500 46 Stewart & Stevenson Services, Inc. 1,000 17 o Strattec Security Corp. 1,500 94 Tecumseh Products Co., Class A 3,200 139 Teleflex, Inc. 4,300 188 Tennant Co. 2,100 86 o Tenneco Automotive, Inc. 1,980 25 @o Terex Corp. 3,700 141 The Timken Co. 6,600 158 Trinity Industries, Inc. 1,100 34 o Triumph Group, Inc. 1,200 41 o Ultratech Stepper, Inc. 1,300 22 Valhi, Inc. 8,600 131 Valmont Industries, Inc. 1,900 41 W.W. Grainger, Inc. 7,300 428 Watsco, Inc. 3,400 97 Watts Water Technologies, Inc., Class A 1,000 26 Woodward Governor Co. 500 30 X-Rite, Inc. 2,000 26 York International Corp. 3,800 121 ----------- 55,590 RAILROAD & SHIPPING 0.5% --------------------------------------------------------------------------- Alexander & Baldwin, Inc. 5,600 205 Burlington Northern Santa Fe Corp. 30,300 1,267 CSX Corp. 17,100 624 Florida East Coast Industries, Class A 3,600 136 GATX Corp. 4,000 109 o General Maritime Corp. 3,000 114 o Greenbrier Cos., Inc. 1,600 40 o Kansas City Southern Railway 5,050 86 Maritrans, Inc. 2,500 42 Norfolk Southern Corp. 31,400 1,066 OMI Corp. 6,500 117 Overseas Shipholding Group 3,700 211 o SCS Transportation, Inc. 4,100 74 Union Pacific Corp. 22,000 1,385 Westinghouse Air Brake Technologies Corp. 2,828 57 ----------- 5,533 REAL PROPERTY 2.1% --------------------------------------------------------------------------- Affordable Residential Communities 3,000 39 o Alexander's, Inc. 700 138 Alexandria Real Estate Equities, Inc. 2,500 165 AMB Property Corp. 7,300 274 American Financial Realty Trust 8,500 125 American Home Mortgage Investment Corp. 2,000 55 American Land Lease, Inc. 1,700 34 American Mortgage Acceptance Co. 1,500 24 o American Real Estate Partners L.P. 3,800 83 o American Realty Investors, Inc. 1,037 8 o American Retirement Corp. 700 6
26 SCHWAB TOTAL STOCK MARKET INDEX FUND PORTFOLIO HOLDINGS continued
VALUE SECURITY AND NUMBER OF SHARES ($ X 1,000) AMLI Residential Properties 1,000 31 Annaly Mortgage Management, Inc. 9,400 169 Anthracite Capital, Inc. 4,900 57 Anworth Mortgage Asset Corp. 1,000 10 @ Apartment Investment & Management Co., Class A 7,400 272 Archstone-Smith Trust 15,285 513 Arden Realty, Inc. 5,500 187 AvalonBay Communities, Inc. 6,100 399 o Avatar Holdings, Inc. 700 31 Bedford Property Investors, Inc. 2,900 83 Boston Properties, Inc. 9,900 591 Brandywine Realty Trust 3,000 88 BRE Properties, Class A 5,000 199 Camden Property Trust 2,300 104 Capital Automotive Real Estate Investment Trust 2,800 90 @ Capstead Mortgage Corp. 2,240 25 CarrAmerica Realty Corp. 5,400 174 Catellus Development Corp. 9,689 279 o CB Richard Ellis Group, Inc., Class A 4,500 117 CBL & Associates Properties, Inc. 2,200 144 Centerpoint Properties Trust 3,600 167 Colonial Properties Trust 2,000 78 Commercial Net Lease Realty 3,320 64 Cornerstone Realty Income Trust, Inc. 2,200 22 Corporate Office Properties Trust SBI 3,500 96 Correctional Properties Trust 1,600 43 Cousins Properties, Inc. 5,200 194 Crescent Real Estate Equity Co. 7,400 118 CRT Properties, Inc. 2,700 60 Developers Diversified Realty Corp. 7,612 318 Duke Realty Corp. 12,990 443 EastGroup Properties, Inc. 900 32 Entertainment Properties Trust 2,200 88 Equity Inns, Inc. 2,700 26 Equity Office Properties Trust 32,738 921 Equity One, Inc. 6,600 139 Equity Residential 24,700 824 @ Essex Property Trust, Inc. 2,600 204 Federal Realty Investment Trust 5,200 247 o FelCor Lodging Trust, Inc. 5,700 66 First Industrial Realty Trust 2,600 100 Forest City Enterprises, Inc., Class A 5,200 286 Gables Residential Trust 3,000 109 General Growth Properties, Inc. 18,600 614 Getty Realty Corp. 2,000 56 Glenborough Realty Trust, Inc. 2,400 50 Glimcher Realty Trust 3,800 98 Global Signal, Inc. 5,000 119 o Golf Trust of America, Inc. L.P. 2,400 5 Health Care Property Investors, Inc. 10,648 296 Health Care Real Estate Investment Trust, Inc. 5,200 187 Healthcare Realty Trust, Inc. 2,400 97 Heritage Property Investment Trust 4,000 122 Highwoods Properties, Inc. 5,600 139 Home Properties, Inc. 2,500 103 o Homestore, Inc. 4,200 10 Hospitality Properties Trust 6,000 257 @o Host Marriott Corp. 25,400 370 HRPT Properties Trust 13,500 151 IMPAC Mortgage Holdings, Inc. 4,800 109 Inland Real Estate Corp. 5,500 83 Innkeepers USA Trust 1,500 21 iStar Financial, Inc. 9,390 389 o Jones Lang LaSalle, Inc. 2,300 74 Kilroy Realty Corp. 1,800 72 Kimco Realty Corp. 9,350 510 Kramont Realty Trust 1,400 26 LaSalle Hotel Properties 3,500 101 @ Lexington Corp. Properties Trust 3,000 67 Liberty Property Trust 8,300 337 LNR Property Corp. 1,200 75 LTC Properties, Inc. 2,800 53 The Macerich Co. 5,200 311 Mack-Cali Realty Corp. 5,900 261 Maguire Properties, Inc. 3,000 78 Manufactured Home Communities, Inc. 3,000 103 o Meristar Hospitality Corp. 2,200 13 MFA Mortgage Investments, Inc. 5,500 46 Mid-America Apartment Communities, Inc. 2,500 98 The Mills Corp. 5,400 299 National Health Investors, Inc. 3,100 89 National Health Realty, Inc. 2,300 46 Nationwide Health Properties, Inc. 5,100 115 @ New Century Financial Corp. 3,600 199 New Plan Excel Realty Trust 8,500 222 @ Novastar Financial, Inc. 2,000 87 Omega Healthcare Investors, Inc. 2,784 31 Pan Pacific Retail Properties, Inc. 2,201 125 Parkway Properties, Inc. 500 25 Pennsylvania Real Estate Investment Trust 2,500 101 Plum Creek Timber Co., Inc. 15,047 546 Post Properties, Inc. 2,200 71 Prentiss Properties Trust 2,700 97 Price Legacy Corp. 60 1
27 SCHWAB TOTAL STOCK MARKET INDEX FUND PORTFOLIO HOLDINGS continued
VALUE SECURITY AND NUMBER OF SHARES ($ X 1,000) ProLogis 15,074 588 PS Business Parks, Inc. 3,000 132 Public Storage, Inc. 10,900 570 RAIT Investment Trust 3,300 88 Ramco-Gershenson Properties 1,400 38 Realty Income Corp. 2,300 110 Reckson Associates Realty Corp. 5,300 161 Redwood Trust, Inc. 2,500 150 @ Regency Centers Corp. 5,700 279 The Rouse Co. 7,900 527 Saul Centers, Inc. 2,100 68 Senior Housing Properties Trust 4,950 93 >o Shelbourne Properties I 500 5 >o Shelbourne Properties III 500 3 Shurgard Storage Centers, Inc., Class A 4,500 179 Simon Property Group, Inc. 18,574 1,083 SL Green Realty Corp. 4,200 230 Sovran Self Storage, Inc. 800 31 The St. Joe Co. 5,300 270 Summit Properties, Inc. 3,300 100 Sun Communities, Inc. 3,000 117 Tanger Factory Outlet Centers 800 38 Taubman Centers, Inc. 4,100 118 @ Thornburg Mortgage, Inc. 7,800 223 The Town & Country Trust 1,000 28 o Trammell Crow Co. 2,800 43 Trizec Properties, Inc. 12,700 203 United Dominion Realty Trust, Inc. 9,400 198 Universal Health Realty Income 900 28 Urstadt Biddle Properties, Inc. 500 8 Urstadt Biddle Properties, Inc., Class A 1,000 16 US Restaurant Properties, Inc. 1,000 18 Ventas, Inc. 5,800 156 Vornado Realty Trust 10,500 706 Washington Real Estate Investment Trust 3,100 97 Weingarten Realty Investment 7,975 288 ----------- 23,704 RETAIL 6.1% --------------------------------------------------------------------------- o 1-800-Flowers.com, Inc., Class A 3,700 30 @o 99 Cents Only Stores 3,066 47 o A.C. Moore Arts & Crafts, Inc. 1,400 36 Aaron Rents, Inc. 3,750 81 @ Abercrombie & Fitch Co., Class A 8,300 325 o Advance Auto Parts, Inc. 6,360 249 Albertson's, Inc. 30,468 695 o Alloy, Inc. 3,100 12 @o Amazon.com, Inc. 33,700 1,150 @o American Eagle Outfitters, Inc. 5,050 206 o AnnTaylor Stores Corp. 9,825 221 Arden Group, Inc., Class A 600 59 o Asbury Automotive Group, Inc. 4,100 55 @o Autonation, Inc. 21,600 372 @o AutoZone, Inc. 8,900 728 o Barnes & Noble, Inc. 7,400 246 o Bed, Bath & Beyond, Inc. 23,700 967 @ Best Buy Co., Inc. 26,150 1,549 o Big Lots, Inc. 11,100 138 @o BJ's Wholesale Club, Inc. 6,100 177 Blair Corp. 1,500 47 Borders Group, Inc. 9,000 205 o Brightpoint, Inc. 1,650 25 o Brookstone, Inc. 7,425 142 Burlington Coat Factory Warehouse Corp. 2,500 55 o Carmax, Inc. 3,923 103 Casey's General Stores, Inc. 5,100 91 The Cato Corp., Class A 1,200 28 o Central Garden & Pet Co. 1,600 57 o Charming Shoppes, Inc. 7,700 59 o Chico's FAS, Inc. 6,650 266 o The Children's Place Retail Stores, Inc. 1,800 56 Christopher & Banks Corp. 2,650 43 Circuit City Stores, Inc. 16,500 268 @ Claire's Stores, Inc. 16,000 416 o Coldwater Creek, Inc. 6,112 141 o Cost Plus, Inc. 700 23 Costco Wholesale Corp. 38,600 1,850 CVS Corp. 33,500 1,456 DEB Shops, Inc. 1,600 39 Dillards, Inc., Class A 5,500 113 Dollar General Corp. 27,775 535 @o Dollar Tree Stores, Inc. 8,650 250 o The Dress Barn, Inc. 5,500 88 o Duckwall-ALCO Stores, Inc. 1,800 29 Family Dollar Stores, Inc. 10,200 301 Federated Department Stores, Inc. 22,400 1,130 The Finish Line, Class A 1,800 62 Foot Locker, Inc. 14,100 344 @o Footstar, Inc. 600 2 Fred's, Inc. 3,262 57 Friedman's, Inc., Class A 6,500 11 o GameStop Corp., Class A 500 10 @ The Gap, Inc. 73,900 1,477 o Genesco, Inc. 4,300 110 Goody's Family Clothing, Inc. 5,000 44 o Great Atlantic & Pacific Tea Co. 2,200 14 o Guitar Center, Inc. 1,700 76 o The Gymboree Corp. 2,100 25 Home Depot, Inc. 187,000 7,682 o HOT Topic, Inc. 6,300 130 o Insight Enterprises, Inc. 4,650 86
28 SCHWAB TOTAL STOCK MARKET INDEX FUND PORTFOLIO HOLDINGS continued
VALUE SECURITY AND NUMBER OF SHARES ($ X 1,000) J.C. Penney Co., Inc. Holding Co. 22,400 775 o Jo-Ann Stores, Inc. 3,795 94 o Kirkland's, Inc. 1,000 9 o Kohl's Corp. 25,800 1,310 o Kroger Co. 60,800 919 @ Limitedbrands 42,144 1,044 o Linens 'N Things, Inc. 4,300 104 Longs Drug Stores Corp. 3,300 82 Lowe's Cos., Inc. 63,700 3,585 @ The May Department Stores Co. 24,000 625 o The Men's Wearhouse, Inc. 2,400 75 Michaels Stores, Inc. 9,800 285 @ The Neiman Marcus Group, Inc., Class A 2,700 164 o Nobel Learning Communities, Inc. 500 4 Nordstrom, Inc. 10,300 445 o O'Reilly Automotive, Inc. 2,200 95 o Office Depot, Inc. 26,000 421 Pacific Sunwear of California 9,975 234 o Party City Corp. 3,800 56 o Pathmark Stores, Inc. 3,900 17 o Payless Shoesource, Inc. 5,906 56 o PC Connection, Inc. 3,000 22 Pep Boys-Manny, Moe & Jack 2,500 36 o Petco Animal Supplies, Inc. 5,000 179 PETsMART, Inc. 11,100 355 Pier 1 Imports, Inc. 3,900 70 o Pricesmart, Inc. 200 2 RadioShack Corp. 14,100 422 o Rent-A-Center, Inc. 5,250 126 o Retail Ventures, Inc. 700 5 o Rite Aid Corp. 40,400 150 Ross Stores, Inc. 13,400 352 Ruddick Corp. 3,100 62 o Safeway, Inc. 33,400 609 Saks, Inc. 16,900 207 @o School Specialty, Inc. 1,600 65 @ Sears, Roebuck & Co. 21,200 742 o Shoe Carnival, Inc. 1,200 14 o ShopKo Stores, Inc. 8,900 153 > Spiegel, Inc., Class A 5,000 -- Staples, Inc. 41,200 1,225 o Stein Mart, Inc. 3,800 63 Talbots, Inc. 5,700 150 Target Corp. 74,600 3,731 @ Tiffany & Co. 11,500 337 TJX Cos., Inc. 40,400 969 o Too, Inc. 1,742 38 o Toys 'R' Us, Inc. 18,300 330 o Tractor Supply Co. 4,000 145 o Tuesday Morning Corp. 2,500 82 Unifirst Corp. 3,900 104 o United Stationers, Inc. 2,900 129 o Urban Outfitters, Inc. 6,400 262 =(4) Wal-Mart Stores, Inc. 354,600 19,120 Walgreen Co. 84,400 3,029 Weis Markets, Inc. 1,700 62 o West Marine, Inc. 1,100 27 o Whitehall Jewellers, Inc. 1,800 14 Whole Foods Market, Inc. 6,100 497 @o Williams-Sonoma, Inc. 9,200 351 o Winmark Corp. 1,200 31 @ Winn-Dixie Stores, Inc. 16,800 58 o Zale Corp. 5,020 143 ----------- 70,156 STEEL 0.2% --------------------------------------------------------------------------- o AK Steel Holding Corp. 4,027 38 Allegheny Technologies, Inc. 7,700 129 Ampco-Pittsburgh Corp. 2,800 37 Carpenter Technology Corp. 2,500 119 o International Steel Group, Inc. 7,900 292 @ Nucor Corp. 11,000 465 Quanex Corp. 2,500 127 Roanoke Electric Steel Corp. 800 12 Ryerson Tull, Inc. 1,600 26 Schnitzer Steel Industries, Inc., Class A 1,650 47 Steel Dynamics, Inc. 3,500 116 Steel Technologies, Inc. 3,700 89 o United States Steel Corp. 9,900 363 Worthington Industries, Inc. 7,200 143 ----------- 2,003 TELEPHONE 3.1% --------------------------------------------------------------------------- Adtran, Inc. 7,000 151 @o Alamosa Holdings, Inc. 8,000 80 o Alaska Communications Systems Group, Inc. 2,700 19 Alltel Corp. 26,435 1,452 Applied Signal Technology, Inc. 2,100 64 AT&T Corp. 63,947 1,094 o AT&T Latin America Corp., Class A 2,100 -- Atlantic Tele-Network, Inc. 1,300 39 o Avaya, Inc. 35,385 510 BellSouth Corp. 150,450 4,013 o Carrier Access Corp. 2,500 22 o Centennial Communications Corp. 8,000 50 CenturyTel, Inc. 10,500 337 o Cincinnati Bell, Inc. 18,568 63 o Citizens Communications Co. 22,400 300 o Commonwealth Telephone Enterprises, Inc. 9,400 429 o Computer Access Technology Corp. 800 5
29 SCHWAB TOTAL STOCK MARKET INDEX FUND PORTFOLIO HOLDINGS continued
VALUE SECURITY AND NUMBER OF SHARES ($ X 1,000) Copper Mountain Networks, Inc. 5,200 13 @o Covad Communications Group, Inc. 7,000 10 Crown Castle International Corp. 20,900 320 CT Communications, Inc. 4,500 56 @>o CTC Communications Group, Inc. 1,550 -- D&E Communications, Inc. 4,000 49 o Ditech Communications Corp. 4,100 94 o Equinix, Inc. 2,565 97 o Extreme Networks, Inc. 4,500 26 o Finisar Corp. 7,900 12 @o Global Crossing Ltd. 2,500 35 Hickory Tech Corp. 6,100 70 o ID Systems, Inc. 3,000 45 Inter-Tel, Inc. 6,000 162 o Interdigital Communications Corp. 4,500 72 o j2 Global Communications, Inc. 2,000 60 @o Level 3 Communications, Inc. 53,000 178 o Liberty Media Corp., Class A 219,239 1,956 o MCI, Inc. 23,300 402 @>o McLeodUSA, Inc., Class A Escrow 21,892 -- o Net2Phone, Inc. 1,600 6 o Nextel Communications, Inc., Class A 88,900 2,355 @o Nextel Partners, Inc., Class A 15,200 256 North Pittsburgh Systems, Inc. 3,500 72 o Novatel Wireless, Inc. 160 3 o NTL, Inc. 6,000 399 NWH, Inc. 2,500 40 @o Pegasus Communications Corp., Class A 6,320 52 o Price Communications Corp. 4,047 64 o Primus Telecommunications Group, Inc. 7,500 14 o Qwest Communications International, Inc. 118,337 405 @o RCN Corp. 2,300 -- SBC Communications, Inc. 273,212 6,901 o Sonus Networks, Inc. 19,400 114 o Spectrasite, Inc. 4,000 205 Sprint Corp. (FON Group) 116,750 2,446 Sunrise Telecom, Inc. 2,000 5 o Talk America Holdings, Inc. 5,000 28 o Teleglobe International Holdings Ltd. 400 1 Telephone & Data Systems, Inc. 4,300 322 o Time Warner Telecom, Inc., Class A 4,500 23 o U.S. Cellular Corp. 6,100 254 >o U.S. Wireless Corp. 400 -- o Ubiquitel, Inc. 10,000 57 o Ulticom, Inc. 4,800 83 o Utstarcom, Inc. 1,200 21 Verizon Communications, Inc. 228,786 8,946 Warwick Valley Telephone Co. 2,100 51 ----------- 35,408 TOBACCO 0.9% --------------------------------------------------------------------------- Altria Group, Inc. 168,800 8,180 o M&F Worldwide Corp. 1,200 16 @ Reynolds American, Inc. 11,332 780 Schweitzer-Mauduit International, Inc. 5,800 183 Universal Corp. 1,800 83 UST, Inc. 12,700 523 Vector Group Ltd. 3,388 52 ----------- 9,817 TRAVEL & RECREATION 0.9% --------------------------------------------------------------------------- o Alliance Gaming Corp. 3,000 28 Ambassadors Group, Inc. 1,700 53 o Amerco, Inc. 900 36 Ameristar Casinos, Inc. 1,700 59 o Argosy Gaming Co. 1,600 63 o Aztar Corp. 1,900 59 o Bally Total Fitness Holding Corp. 6,500 26 Brunswick Corp. 13,900 652 o Caesars Entertainment, Inc. 24,300 435 Callaway Golf Co. 5,600 58 @ Carnival Corp. 50,000 2,528 Cedar Fair L.P. 5,300 154 Central Parking Corp. 1,600 22 Choice Hotels International, Inc. 3,400 170 o Dick's Sporting Goods, Inc. 1,000 36 o Dollar Thrifty Automotive Group, Inc. 3,500 84 Dover Downs Gaming & Entertainment, Inc. 1,480 15 o Empire Resorts, Inc. 500 4 Harrah's Entertainment, Inc. 9,900 579 Hilton Hotels Corp. 30,426 605 o Interstate Hotels & Resorts, Inc. 82 -- o K2, Inc. 1,700 28 o Laidlaw International, Inc. 8,200 137 @o Lakes Entertainment, Inc. 1,800 21 Mandalay Resort Group 6,600 454 The Marcus Corp. 4,600 98 Marine Products Corp. 270 5 Marriott International, Inc., Class A 18,700 1,019 o MGM Mirage 12,300 662 o MTR Gaming Group, Inc. 2,300 21 @o Multimedia Games, Inc. 1,500 20 o Navigant International, Inc. 4,300 54 o Rent-Way, Inc. 3,200 25
30 SCHWAB TOTAL STOCK MARKET INDEX FUND PORTFOLIO HOLDINGS continued
VALUE SECURITY AND NUMBER OF SHARES ($ X 1,000) o Scientific Games Corp., Class A 6,500 138 @o Shuffle Master, Inc. 1,875 79 o Six Flags, Inc. 7,500 38 Speedway Motorsports, Inc. 2,300 76 o The Sports Authority, Inc. 370 9 Starwood Hotels & Resorts Worldwide, Inc. 17,730 846 @ Station Casinos, Inc. 4,650 237 o Stellent, Inc. 1,100 8 o Vail Resorts, Inc. 3,800 76 @o WMS Industries, Inc. 1,500 44 ----------- 9,761 TRUCKING & FREIGHT 0.4% --------------------------------------------------------------------------- Arkansas Best Corp. 1,100 43 BancTrust Financial Group, Inc. 1,100 21 @ C.H. Robinson Worldwide, Inc. 7,500 405 CNF, Inc. 4,500 197 Expeditors International Washington, Inc. 8,100 462 o Forward Air Corp. 3,600 148 Heartland Express, Inc. 6,706 137 J.B. Hunt Transport Services, Inc. 6,500 266 o Knight Transportation, Inc. 2,700 63 o Landstar Systems, Inc. 7,600 516 o Old Dominion Freight Line 2,700 76 Overnite Corp. 2,500 81 Paccar, Inc. 14,100 977 o Pacer International, Inc. 2,800 50 Ryder Systems, Inc. 6,400 321 o Swift Transportation Co., Inc. 5,970 113 USF Corp. 1,300 47 @o Wabash National Corp. 2,500 61 Werner Enterprises, Inc. 5,832 124 o Yellow Roadway Corp. 4,594 220 ----------- 4,328 UTILITIES: ELECTRIC & GAS 3.1% --------------------------------------------------------------------------- o The AES Corp. 52,596 573 AGL Resources, Inc. 4,300 134 o Allegheny Energy, Inc. 10,500 192 Allete, Inc. 2,733 93 Alliant Energy Corp. 9,300 245 Ameren Corp. 15,100 725 American Electric Power Co., Inc. 33,820 1,114 American States Water Co. 950 23 Aqua America, Inc. 3,671 80 Atmos Energy Corp. 4,200 108 Avista Corp. 3,800 68 o BayCorp Holdings Ltd. 6 -- Black Hills Corp. 1,400 41 @o Calpine Corp. 12,300 31 Cascade Natural Gas Corp. 3,500 71 @ Centerpoint Energy, Inc. 26,100 274 Central Vermont Public Service Corp. 2,700 59 CH Energy Group, Inc. 1,900 85 @ Cinergy Corp. 15,100 597 Cleco Corp. 3,400 62 o CMS Energy Corp. 5,000 47 @ Consolidated Edison, Inc. 17,000 739 Constellation Energy Group, Inc. 16,800 682 o Distributed Energy Systems Corp. 1,400 3 Dominion Resources, Inc. 26,610 1,712 DPL, Inc. 11,452 247 DTE Energy Co. 13,801 589 @ Duke Energy Corp. 76,800 1,884 @ Duquesne Light Holdings, Inc. 6,100 105 Edison International 58,700 1,790 @ El Paso Corp. 51,387 459 o El Paso Electric Co. 2,800 47 Energen Corp. 2,600 140 Energy East Corp. 12,214 308 Entergy Corp. 18,200 1,190 Equitable Resources, Inc. 4,400 243 Exelon Corp. 54,474 2,158 FirstEnergy Corp. 28,217 1,166 Florida Public Utilites Co. 1,066 18 FPL Group, Inc. 14,700 1,013 @ Great Plains Energy, Inc. 9,000 256 Green Mountain Power Corp. 3,800 98 Hawaiian Electric Industries, Inc. 5,200 146 Idacorp, Inc. 4,200 130 @ KeySpan Corp. 13,400 535 Kinder Morgan, Inc. 10,700 689 The Laclede Group, Inc. 3,300 100 MDU Resources Group, Inc. 10,950 281 MGE Energy, Inc. 400 13 National Fuel Gas Co. 5,800 163 New Jersey Resources Corp. 1,650 68 Nicor, Inc. 3,000 113 NiSource, Inc. 22,864 490 @ Northeast Utilities, Inc. 10,124 196 Northwest Natural Gas Co. 2,700 86 o NRG Energy, Inc. 9,000 250 NSTAR 3,867 191 NUI Corp. 2,500 34 OGE Energy Corp. 6,500 165 @ Oneok, Inc. 7,400 199 Otter Tail Corp. 1,100 29 Peoples Energy Corp. 3,200 137 Pepco Holdings, Inc. 5,000 103 o PG&E Corp. 34,900 1,118 Piedmont Natural Gas Co. 1,600 73 Pinnacle West Capital Corp. 6,800 290
31 SCHWAB TOTAL STOCK MARKET INDEX FUND PORTFOLIO HOLDINGS continued
VALUE SECURITY AND NUMBER OF SHARES ($ X 1,000) PNM Resources, Inc. 5,500 128 PPL Corp. 15,000 780 Progress Energy, Inc. 21,159 874 @ Public Service Enterprise Group, Inc. 19,000 809 Puget Energy, Inc. 7,500 174 Questar Corp. 8,100 389 @ SCANA Corp. 7,905 293 Sempra Energy 19,175 643 o Sierra Pacific Resources 4,476 43 @ The Southern Co. 60,900 1,924 o Southern Union Co. 5,785 127 Southwest Gas Corp. 3,600 88 TECO Energy, Inc. 5,600 78 Texas Genco Holdings, Inc. 5,680 265 TXU Corp. 26,400 1,616 UGI Corp. 4,100 158 UIL Holdings Corp. 5,400 274 @ Unisource Energy Corp. 3,800 93 Vectren Corp. 5,766 149 o Veritas DGC, Inc. 3,000 63 Westar Energy, Inc. 8,200 172 WGL Holdings, Inc. 3,000 85 @ Williams Cos., Inc. 42,360 530 Wisconsin Energy Corp. 11,400 372 WPS Resources Corp. 2,400 114 Xcel Energy, Inc. 34,195 585 ----------- 35,894 PREFERRED STOCK 0.0% of net assets REAL PROPERTY 0.0% --------------------------------------------------------------------------- Commercial Net Lease Realty 147 4 Simon Property Group LP 1,200 65 ----------- 69
FACE SECURITY AMOUNT RATE, MATURITY DATE ($ X 1,000) CORPORATE BONDS 0.0% of net assets FIXED-RATE OBLIGATIONS 0.0% --------------------------------------------------------------------------- Brookfield Homes Corp. 12.00%, 06/30/20 15 16
VALUE SECURITY AND NUMBER OF SHARES ($ X 1,000) WARRANTS 0.0% of net assets AIR TRANSPORTATION 0.0% --------------------------------------------------------------------------- >o Timco Aviation Services expires 02/28/07 160 -- BUSINESS MACHINES & SOFTWARE 0.0% --------------------------------------------------------------------------- o MicroStrategy, Inc. expires 06/24/04 57 -- BUSINESS SERVICES 0.0% --------------------------------------------------------------------------- o Redback Networks, Inc. expires 01/02/11 81 -- @o Redback Networks, Inc. expires 01/02/11 85 -- ELECTRONICS 0.0% --------------------------------------------------------------------------- >o Pinnacle Holdings, Inc. expires 11/13/07 9 -- HEALTHCARE / DRUGS & MEDICINE 0.0% --------------------------------------------------------------------------- o Magellan Health Services, Inc. expires 01/05/11 7 -- NON-FERROUS METALS 0.0% --------------------------------------------------------------------------- o Metals USA, Inc. expires 10/31/07 97 -- REAL PROPERTY 0.0% --------------------------------------------------------------------------- o General Growth Properties, Inc. expires 11/09/04 1,860 2 RIGHTS 0.0% of net assets BUSINESS MACHINES & SOFTWARE 0.0% --------------------------------------------------------------------------- o Comdisco Holding Co. 4,700 2 BUSINESS SERVICES 0.0% --------------------------------------------------------------------------- o Information Resources, Inc. 2,500 6 HEALTHCARE / DRUGS & MEDICINE 0.0% --------------------------------------------------------------------------- o OSI Pharmaceuticals, Inc. expires 01/18/05 1,640 -- TELEPHONE 0.0% --------------------------------------------------------------------------- >o WilTel Communications, Inc. 4,800 --
32 SCHWAB TOTAL STOCK MARKET INDEX FUND PORTFOLIO HOLDINGS continued
VALUE SECURITY AND NUMBER OF SHARES ($ X 1,000) SHORT-TERM INVESTMENTS 0.7% of net assets Provident Institutional TempFund 8,014,950 8,015
FACE SECURITY AMOUNT RATE, MATURITY DATE ($ X 1,000) > U.S. Treasury Bill 1.63%, 12/16/04 400 399
END OF INVESTMENTS. COLLATERAL INVESTED FOR SECURITIES ON LOAN 6.3% of net assets COMMERCIAL PAPER & OTHER CORPORATE OBLIGATIONS 2.5% --------------------------------------------------------------------------- Canadian Imperial Bank of Commerce/New York 1.92%, 11/29/04 3,848 3,847 1.72%, 05/25/05 1,516 1,516 Crown Point Capital 1.80%, 11/05/04 1,851 1,851 Foreningssparbanken AB 1.83%, 11/15/04 10,855 10,853 Fortis Bank NY 1.78%, 06/06/05 1,381 1,381 Societe Generale NY 1.95%, 11/01/04 5,456 5,455 1.83%, 11/15/04 1,571 1,570 Westdeutsche Landesbank AG 1.50%, 01/10/05 2,340 2,339 ----------- 28,812 SHORT-TERM INVESTMENTS 3.8% --------------------------------------------------------------------------- Citibank, Time Deposit 1.76%, 11/01/04 1,709 1,709
VALUE SECURITY AND NUMBER OF SHARES ($ X 1,000) Institutional Money Market Trust 40,974,861 40,975 ----------- 42,684
END OF COLLATERAL INVESTED FOR SECURITIES ON LOAN. In addition to the above, the fund held the following at 10/31/04. All numbers x $1,000 except number of contracts.
NUMBER OF CONTRACT UNREALIZED CONTRACTS VALUE GAINS FUTURES CONTRACTS Russell 2000 Index, Long expires 12/17/04 4 1,169 29 S&P 500 Index, Long expires 12/17/04 23 6,499 50 ---------- 79
33 SCHWAB CAPITAL TRUST SCHWAB INTERNATIONAL INDEX FUND(R) PORTFOLIO HOLDINGS as of October 31, 2004 The following is the schedule of portfolio holdings at 10/31/04. The schedule should be read in conjunction with the fund's annual report for the fiscal year ended 10/31/04. We use the symbols below to designate certain characteristics of the securities. With the top ten holdings, the number in the circle is the security's rank among the top ten. (1) Top Ten Holding o Non-income producing security * American Depositary Receipt > Security is valued at fair value (see Accounting Policies) @ This security or a portion of this security is on loan
COST VALUE HOLDINGS BY CATEGORY ($X1,000) ($X1,000) -------------------------------------------------------------------------------- 99.3% FOREIGN COMMON STOCK 995,647 1,228,866 0.4% FOREIGN PREFERRED STOCK 3,801 5,016 0.2% SHORT-TERM INVESTMENT 1,954 1,954 0.0% RIGHTS -- 107 0.0% WARRANTS 200 -- -------------------------------------------------------------------------------- 99.9% TOTAL INVESTMENTS 1,001,602 1,235,943 8.4% COLLATERAL INVESTED FOR SECURITIES ON LOAN 103,711 103,711 (8.3)% OTHER ASSETS AND LIABILITIES, NET (102,147) -------------------------------------------------------------------------------- 100.0% TOTAL NET ASSETS 1,237,507
VALUE SECURITY AND NUMBER OF SHARES ($ X 1,000) FOREIGN COMMON STOCK 99.3% of net assets AUSTRALIA 4.1% -------------------------------------------------------------------------- AMP Ltd. 250,773 1,195 Australia & New Zealand Banking Group Ltd. 358,594 5,464 BHP Billiton Ltd. 727,139 7,521 @ Coles Myer Ltd. 218,165 1,555 Commonwealth Bank of Australia 245,112 5,877 Foster's Group Ltd. 374,154 1,411 Insurance Australia Group Ltd. 337,549 1,359 Macquarie Bank Ltd. 41,612 1,231 Macquarie Infrastructure Group 386,221 1,070 @ National Australia Bank Ltd. 296,328 6,257 @ News Corp. Ltd. 266,154 2,141 @ QBE Insurance Group Ltd. 125,449 1,287 @ Rio Tinto Ltd. 60,818 1,663 Suncorp-Metway Ltd. 107,619 1,376 Telstra Corp. Ltd. 416,897 1,454 Wesfarmers Ltd. 68,881 1,788 Westpac Banking Corp. 346,721 4,890 Woodside Petroleum Ltd. 81,387 1,184 Woolworths Ltd. 202,146 2,020 ----------- 50,743 BELGIUM 0.9% -------------------------------------------------------------------------- @ Dexia 121,918 2,435 Electrabel SA 5,314 1,981 Fortis 201,153 5,094 Solvay SA 12,932 1,300 ----------- 10,810 CANADA 6.2% -------------------------------------------------------------------------- @ Alcan, Inc. 62,405 2,883 Bank of Montreal 99,813 4,709 @ Bank of Nova Scotia 198,704 6,451 Barrick Gold Corp. 99,691 2,256 @ BCE, Inc. 53,656 1,244 @ Brascan Corp. 47,850 1,702 @ Canadian Imperial Bank of Commerce 71,216 4,315 Canadian National Railway Co. 54,467 2,929 Canadian Natural Resources Ltd. 51,800 2,178 @ Enbridge, Inc. 33,700 1,461 EnCana Corp. 85,217 4,220 @ Imperial Oil Ltd. 24,010 1,396 o Inco Ltd. 37,300 1,317 Loblaw Cos. Ltd. 21,098 1,143 Magna International, Inc., Class A 16,447 1,211 Manulife Financial Corp. 156,550 7,300 @ National Bank of Canada 36,900 1,476 o Nortel Networks Corp. 784,900 2,651
1 SCHWAB INTERNATIONAL INDEX FUND PORTFOLIO HOLDINGS continued
VALUE SECURITY AND NUMBER OF SHARES ($ X 1,000) Petro-Canada 43,200 2,355 Placer Dome, Inc. 83,200 1,786 Power Corp. of Canada 59,004 1,418 @ Power Financial Corp. 52,600 1,294 @ Royal Bank of Canada 127,717 6,638 @ Sun Life Financial Services of Canada, Inc. 122,164 3,752 Suncor Energy, Inc. 81,600 2,786 Talisman Energy, Inc. 76,875 2,061 @ Thomson Corp. 40,000 1,386 @ TransCanada Corp. 94,561 2,142 ----------- 76,460 DENMARK 0.6% -------------------------------------------------------------------------- AP Moller-Maersk A/S 224 1,649 Danske Bank A/S 93,525 2,606 Novo-Nordisk A/S, Class B 46,150 2,287 TDC A/S 23,628 872 ----------- 7,414 FRANCE 10.6% -------------------------------------------------------------------------- Accor SA 37,106 1,536 Air Liquide SA 20,461 3,295 @o Alcatel SA, Class A 245,737 3,582 Arcelor SA 72,096 1,343 AXA 261,489 5,611 BNP Paribas 157,814 10,710 Bouygues 42,044 1,651 Carrefour SA 112,519 4,914 Cie Generale D'Optique Essilor International SA 19,882 1,345 @ Compagnie de Saint-Gobain 60,643 3,321 Credit Agricole SA 128,809 3,764 France Telecom SA 209,724 5,986 o Groupe Danone 46,320 3,865 L'Oreal SA 58,705 3,991 Lafarge SA 30,598 2,785 Lagardere S.C.A. 24,730 1,589 LVMH Moet-Hennessy Louis Vuitton SA 44,980 3,073 Michelin (C.G.D.E.), Class B 28,839 1,565 Pernod-Ricard 9,539 1,317 Peugeot SA 32,613 1,998 Pinault-Printemps-Redoute SA 12,173 1,144 Renault SA 34,255 2,858 Sanofi-Aventis 173,827 12,670 Schneider Electric SA 40,373 2,665 Societe Generale, Class A 62,745 5,803 STMicroelectronics NV 117,296 2,156 Suez SA 155,587 3,626 @(5) Total SA 110,932 23,001 Veolia Environnement 52,576 1,588 Vinci SA 13,931 1,654 @o Vivendi Universal SA 177,845 4,844 *o Vivendi Universal SA 54,392 1,492 ----------- 130,742 GERMANY 7.2% -------------------------------------------------------------------------- Adidas-Salomon AG 9,200 1,282 Allianz AG 54,188 5,747 BASF AG 103,335 6,428 Bayer AG 128,045 3,617 o Bayerische Hypo-und Vereinsbank AG 66,874 1,304 o Commerzbank AG 88,400 1,611 DaimlerChrysler AG 168,370 6,935 Deutsche Bank AG 99,862 7,570 Deutsche Boerse AG 19,400 966 Deutsche Post AG 75,227 1,466 o Deutsche Telekom AG 487,262 9,310 E.ON AG 118,150 9,586 o Infineon Technologies AG 123,500 1,342 Linde AG 14,312 862 Metro AG 29,214 1,391 Muenchener Rueckversicherungs AG 30,394 2,965 RWE AG 69,676 3,680 SAP AG 39,024 6,628 Schering AG 33,246 2,131 Siemens AG 153,790 11,415 ThyssenKrupp AG 63,966 1,196 Volkswagen AG 40,893 1,811 ----------- 89,243 HONG KONG / CHINA 1.3% -------------------------------------------------------------------------- Cheung Kong Holdings Ltd. 299,000 2,478 CLP Holdings Ltd. 340,080 1,953 Hang Seng Bank Ltd. 154,700 2,057 Hong Kong & China Gas Co. 718,400 1,384 HongKong Electric Holdings 277,756 1,242 o Hutchison Telecommunications International Ltd. 5,517 4 Hutchison Whampoa Ltd. 413,800 3,176 Sun Hung Kai Properties Ltd. 265,694 2,458 Swire Pacific Ltd., Class A 190,000 1,343 ----------- 16,095
2 SCHWAB INTERNATIONAL INDEX FUND PORTFOLIO HOLDINGS continued
VALUE SECURITY AND NUMBER OF SHARES ($ X 1,000) ITALY 3.5% -------------------------------------------------------------------------- Alleanza Assicurazioni SPA 100,995 1,188 Assicurazioni Generali SPA 185,554 5,493 Banca Intesa SPA 645,355 2,635 Banco Popolare di Verona e Novara 75,422 1,334 @ Enel SPA 429,348 3,872 ENI-Ente Nazionale Idrocarburi SPA 490,576 11,108 Mediaset SPA 110,368 1,255 Mediobanca SPA 95,210 1,315 Riunione Adriatica di Sicurta SPA 60,519 1,275 Sanpaolo IMI SPA 189,885 2,401 Telecom Italia SPA 1,132,740 2,810 TIM SPA 753,178 4,426 UniCredito Italiano SPA 856,214 4,585 ----------- 43,697 JAPAN 17.8% -------------------------------------------------------------------------- Aeon Co. Ltd. 84,000 1,342 Ajinomoto Co., Inc. 111,000 1,227 Asahi Glass Co. Ltd. 146,000 1,339 Asahi Kasei Corp. 250,000 1,064 Bridgestone Corp. 126,000 2,278 Canon, Inc. 162,000 7,979 @ Chubu Electric Power Co., Inc. 122,100 2,650 Dai Nippon Printing Co. Ltd. 117,000 1,599 Denso Corp. 92,000 2,201 East Japan Railway Co. 653 3,425 Eisai Co. Ltd. 37,000 1,063 Fanuc Ltd. 24,300 1,465 Fuji Photo Film Co. Ltd. 92,000 3,136 Fujisawa Pharmaceutical Co. Ltd. 47,000 1,226 Fujitsu Ltd. 326,000 1,937 Honda Motor Co. Ltd. 152,700 7,362 Hoya Corp. 21,600 2,213 Ito-Yokado Co. Ltd. 68,000 2,433 Itochu Corp. 273,000 1,172 Japan Tobacco, Inc. 126 1,105 JFE Holdings, Inc. 94,000 2,518 @ The Kansai Electric Power Co. 130,000 2,434 Kao Corp. 109,000 2,510 KDDI Corp. -- 2 Keyence Corp. 5,900 1,327 o Kintetsu Corp. 305,830 971 Kirin Brewery Co. Ltd. 127,000 1,139 Komatsu Ltd. 193,000 1,289 Konica Minolta Holdings, Inc. 81,000 1,079 Kyocera Corp. 31,500 2,281 Kyushu Electric Power Co. 82,400 1,630 @ Matsushita Electric Industrial Co. Ltd. 403,912 5,846 Millea Holdings, Inc. 284 3,744 Mitsubishi Corp. 198,000 2,183 Mitsubishi Electric Corp. 303,000 1,415 @ Mitsubishi Estate Co. Ltd. 190,000 2,002 Mitsubishi Heavy Industries Ltd. 565,000 1,586 Mitsubishi Tokyo Financial Group, Inc. 787 6,670 Mitsui & Co. Ltd. 239,000 2,005 Mitsui Fudosan Co. Ltd. 142,000 1,504 Mitsui Sumitomo Insurance Co. Ltd. 247,000 2,024 Mizuho Financial Group, Inc. 1,255 4,834 Murata Manufacturing Co. Ltd. 43,900 2,088 NEC Corp. 269,000 1,490 @ Nikko Cordial Corp. 240,000 1,071 Nintendo Co. Ltd. 19,700 2,219 Nippon Oil Corp. 250,000 1,584 Nippon Steel Corp. 1,020,000 2,382 Nippon Telegraph & Telephone Corp. 1,007 4,267 Nissan Motor Co. Ltd. 486,000 5,469 Nitto Denko Corp. 28,000 1,326 Nomura Holdings, Inc. 345,000 4,224 NTT DoCoMo, Inc. 3,541 6,236 OJI Paper Co. Ltd. 165,000 940 Omron Corp. 43,000 974 Osaka Gas Co. Ltd. 394,000 1,139 Ricoh Co. Ltd. 118,000 2,200 Rohm Co. Ltd. 21,000 2,152 Sankyo Co. Ltd. 59,000 1,222 @ Sanyo Electric Co. Ltd. 309,000 986 Secom Co. Ltd. 38,500 1,396 Sekisui House Ltd. 94,000 968 Seven-Eleven Japan Co. Ltd. 71,000 2,053 @ Sharp Corp. 184,000 2,537 @ Shin-Etsu Chemical Co. Ltd. 68,900 2,615 Shionogi & Co. Ltd. 61,000 945 SMC Corp. 11,000 1,176 @ Softbank Corp. 41,000 1,853 Sompo Japan Insurance, Inc. 160,000 1,392
3 SCHWAB INTERNATIONAL INDEX FUND PORTFOLIO HOLDINGS continued
VALUE SECURITY AND NUMBER OF SHARES ($ X 1,000) Sony Corp. 168,500 5,855 @ Sumitomo Corp. 137,000 1,018 Sumitomo Electric Industries Ltd. 131,000 1,240 Sumitomo Mitsui Financial Group, Inc. 764 4,957 Takeda Pharmaceutical Co. Ltd. 160,200 7,724 TDK Corp. 22,000 1,525 Tohoku Electric Power Co. 83,700 1,426 The Tokyo Electric Power Co., Inc. 219,300 4,956 Tokyo Electron Ltd. 28,000 1,516 @ Tokyo Gas Co. Ltd. 507,000 1,886 Toppan Printing Co. Ltd. 122,000 1,176 Toshiba Corp. 566,000 2,276 (8) Toyota Motor Corp. 538,500 20,944 o UFJ Holdings, Inc. 686 3,177 West Japan Railway Co. 225 896 @ Yamanouchi Pharmaceutical Co. Ltd. 59,000 2,161 Yamato Transport Co. Ltd. 78,000 1,050 ----------- 219,896 NETHERLANDS 5.6% -------------------------------------------------------------------------- ABN Amro Holdings NV 298,017 7,108 @ Aegon NV 259,846 2,836 Akzo Nobel NV 51,942 1,948 @o ASML Holding NV 93,364 1,327 European Aeronautic Defense & Space Co. 51,882 1,475 Heineken Nv 49,073 1,538 ING Groep NV 340,404 8,985 o Koninklijke Ahold NV 218,958 1,515 Koninklijke Philips Electronics NV 255,925 6,039 Reed Elsevier NV 117,871 1,544 (7) Royal Dutch Petroleum Co. 398,487 21,589 Royal KPN NV 360,914 2,878 TPG NV 67,143 1,618 Unilever NV 110,002 6,381 VNU NV 47,654 1,298 Wolters Kluwer NV 55,267 1,005 ----------- 69,084 SINGAPORE 0.1% -------------------------------------------------------------------------- Singapore Telecommunications Ltd. 1,096,370 1,593 SPAIN 3.9% -------------------------------------------------------------------------- Altadis SA 49,394 1,808 Banco Bilbao Vizcaya Argentaria SA 587,573 9,193 @ Banco Popular Espanol 29,001 1,641 @ Banco Santander Central Hispano SA 834,597 9,290 Endesa SA 173,742 3,516 Iberdrola SA 149,580 3,265 Inditex SA 47,334 1,199 Repsol YPF SA 178,984 3,868 Telefonica SA 900,159 14,817 ----------- 48,597 SWEDEN 1.9% -------------------------------------------------------------------------- Electrolux AB, Series B 61,579 1,138 Hennes & Mauritz AB, Series B 88,355 2,565 Nordea Bank AB 420,569 3,621 Sandvik AB 44,107 1,646 Skandinaviska Enskilda Banken, Series A 85,410 1,417 Svenska Cellulosa AB, Series B 35,963 1,335 Svenska Handelsbanken AB, Series A 112,602 2,430 o Telefonaktiebolaget LM Ericsson, Class B 2,846,579 8,244 Volvo AB, Series B 40,445 1,527 ----------- 23,923 SWITZERLAND 7.8% -------------------------------------------------------------------------- o ABB Ltd. 336,908 1,941 Adecco SA, Registered 26,587 1,276 Compangnie Financiere Richemont AG, Series A 102,430 2,894 o Credit Suisse Group 218,120 7,434 Holcim Ltd. 30,865 1,644 (9) Nestle SA, Registered 77,668 18,311 (6) Novartis AG, Registered 460,530 21,887 Roche Holdings -- Genus 135,932 13,848 Swiss Reinsurance, Registered 65,184 3,988 Swisscom AG, Registered 5,043 1,810 o Syngenta AG 20,323 1,932 UBS AG, Registered 216,176 15,528 Zurich Financial Services AG 28,547 4,051 ----------- 96,544
4 SCHWAB INTERNATIONAL INDEX FUND PORTFOLIO HOLDINGS continued
VALUE SECURITY AND NUMBER OF SHARES ($ x 1,000) UNITED KINGDOM 27.8% -------------------------------------------------------------------------- AstraZeneca PLC 328,216 13,423 Aviva PLC 444,350 4,437 BAA PLC 211,384 2,221 BAE Systems PLC 605,069 2,641 Barclays PLC 1,265,372 12,335 BG Group PLC 679,151 4,418 BHP Billiton PLC 472,369 4,791 BOC Group PLC 97,556 1,568 Boots Group PLC 162,117 1,955 (1) BP PLC 4,216,549 40,755 British American Tobacco PLC 301,717 4,533 British Land Co. PLC 100,943 1,378 British Sky Broadcasting PLC 246,398 2,296 BT Group PLC 1,675,638 5,703 Cable & Wireless PLC 485,728 930 Cadbury Schweppes PLC 396,080 3,284 Carnival PLC 30,775 1,625 Centrica Plc 775,505 3,421 Compass Group PLC 440,157 1,815 Diageo PLC 596,684 7,965 Dixons Group PLC 356,181 1,121 Friends Provident PLC 333,413 831 (4) GlaxoSmithKline PLC 1,142,422 24,010 GUS PLC 188,042 3,070 Hanson Plc 150,209 1,106 HBOS PLC 747,598 9,993 Hilton Group PLC 287,543 1,358 (2) HSBC Holdings PLC 2,103,680 33,901 Imperial Tobacco Group PLC 142,051 3,311 Intercontinental Hotels Group PLC 149,688 1,828 ITV PLC 564,218 1,106 J. Sainsbury PLC 234,962 1,110 Kingfisher PLC 442,761 2,452 Land Securities Group PLC 95,357 2,084 Legal & General Group PLC 1,220,030 2,213 Lloyds TSB Group PLC 1,065,026 8,411 Man Group PLC 57,326 1,373 Marks & Spencer Group PLC 443,141 2,915 National Grid Transco PLC 584,973 5,075 Next PLC 57,431 1,757 Pearson PLC 158,738 1,739 Prudential PLC 382,001 2,803 Reckitt Benckiser PLC 111,099 3,041 Reed Elsevier PLC 236,461 2,108 Rentokil Initial PLC 364,152 1,034 Reuters Group PLC 267,194 1,815 Rio Tinto PLC 206,808 5,396 Rolls-Royce Group PLC 296,618 1,409 Rolls-Royce Group PLC, B Shares 9,432,452 18 (10) Royal Bank of Scotland Group PLC 547,776 16,109 SABMiller PLC 162,857 2,344 Scottish & Newcastle PLC 145,929 1,078 Scottish & Southern Energy PLC 173,758 2,657 Scottish Power PLC 347,294 2,798 Severn Trent Water PLC 70,101 1,176 o Shell Transport & Trading Co. PLC 1,852,117 14,550 Smith & Nephew PLC 175,479 1,487 Smiths Group PLC 107,917 1,474 Tesco PLC 1,445,671 7,602 Unilever PLC 523,823 4,406 United Utilities PLC 99,658 1,048 (3) Vodafone Group PLC 12,980,507 33,179 Wolseley PLC 111,522 1,923 WPP Group PLC 230,860 2,312 ----------- 344,025 FOREIGN PREFERRED STOCK 0.4% of net assets AUSTRALIA 0.3% -------------------------------------------------------------------------- News Corp. Ltd. 524,340 4,113 GERMANY 0.1% -------------------------------------------------------------------------- Henkel KGaA 12,100 903 WARRANTS 0.0% of net assets FRANCE 0.0% -------------------------------------------------------------------------- >o Casino Guichard Perrachon SA, expires 12/15/05 1,026 -- UNITED STATES 0.0% -------------------------------------------------------------------------- o NTL, Inc., Series A, expires 01/13/11 48 -- RIGHTS 0.0% of net assets UNITED KINGDOM 0.0% -------------------------------------------------------------------------- o Prudential PLC 63,666 107
5 SCHWAB INTERNATIONAL INDEX FUND PORTFOLIO HOLDINGS continued
FACE SECURITY AMOUNT RATE, MATURITY DATE ($ X 1,000) SHORT-TERM INVESTMENT 0.2% of net assets HSBC Bank, USA Grand Cayman Time Deposit 1.29%, 11/01/04 1,954 1,954 --------------------------------------------------------------------------
END OF INVESTMENTS. COLLATERAL INVESTED FOR SECURITIES ON LOAN 8.4% of net assets SHORT-TERM INVESTMENT 8.4% -------------------------------------------------------------------------- Securities Lending Investment Fund 103,710,647 103,711
END OF COLLATERAL INVESTED FOR SECURITIES ON LOAN. 6 ITEM 7: DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable. ITEM 8: PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable. ITEM 9: PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS. Not applicable. ITEM 10: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not applicable. ITEM 11: CONTROLS AND PROCEDURES. (a) Based on their evaluation of Registrant's disclosure controls and procedures, as of a date within 90 days of the filing date, Registrant's Chief Executive Officer, Evelyn Dilsaver and Registrant's Principal Financial Officer, George Pereira, have concluded that Registrant's disclosure controls and procedures are: (i) reasonably designed to ensure that information required to be disclosed in this report is appropriately communicated to Registrant's officers to allow timely decisions regarding disclosures required in this report; (ii) reasonably designed to ensure that information required to be disclosed in this report is recorded, processed, summarized and reported in a timely manner; and (iii) are effective in achieving the goals described in (i) and (ii) above. (b) During the second fiscal quarter of the period covered by this report, there have been no changes in Registrant's internal control over financial reporting that the above officers believe to have materially affected, or to be reasonably likely to materially affect, Registrant's internal control over financial reporting. ITEM 12: EXHIBITS. (a)(1) Registrant's code of ethics (that is the subject of the disclosure required by Item 2(a)) is attached. (2) Separate certifications for Registrant's principal executive officer and principal financial officer, as required by Rule 30a-2(a) under the 1940 Act, are attached. (3) Not applicable. (b) A certification for Registrant's principal executive officer and principal financial officer, as required by Rule 30a-2(b) under the 1940 Act, is attached. This certification is being furnished to the Securities and Exchange Commission solely pursuant to 18 U.S.C. section 1350 and is not being filed as part of the Form N-CSR with the Commission. Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. (Registrant) Schwab Capital Trust By: /s/ Evelyn Dilsaver ---------------------------- Evelyn Dilsaver Chief Executive Officer Date: December 16, 2004 ----------- Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By: /s/ Evelyn Dilsaver ---------------------------- Evelyn Dilsaver Chief Executive Officer Date: December 16, 2004 ----------- By: /s/ George Pereira ---------------------------- George Pereira Principal Financial Officer Date: December 16, 2004 -----------