-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GdnJ6HwbNj3ajctjr5QJkJAc6ebz94B1cZ0V2l1Mx81WQivIuXj5hWoPjdC7P4zu bpeyI5XTsXVE+Vm5z4eRIA== 0000950134-05-000355.txt : 20050107 0000950134-05-000355.hdr.sgml : 20050107 20050107140029 ACCESSION NUMBER: 0000950134-05-000355 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20041031 FILED AS OF DATE: 20050107 DATE AS OF CHANGE: 20050107 EFFECTIVENESS DATE: 20050107 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SCHWAB INVESTMENTS CENTRAL INDEX KEY: 0000869365 IRS NUMBER: 000000000 STATE OF INCORPORATION: MA FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: N-CSR SEC ACT: 1940 Act SEC FILE NUMBER: 811-06200 FILM NUMBER: 05517816 BUSINESS ADDRESS: STREET 1: 101 MONTGOMERY ST CITY: SAN FRANCISCO STATE: CA ZIP: 94104 BUSINESS PHONE: 4156277000 MAIL ADDRESS: STREET 1: 101 MONTGOMERY ST CITY: SAN FRANCISCO STATE: CA ZIP: 94104 N-CSR 1 f04029nvcsr.txt FORM N-CSR FOR SCHWAB INVESTMENTS 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: 811-6200 Schwab Investments - Schwab 1000 Fund ----------------------------------------------- (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 Investments 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 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. Registrant is composed of nine series. One series has a fiscal year-end of October 31, whose annual financial statements are reported in Item 1, and eight series have a fiscal year-end of August 31. Principal accountant fees disclosed in Items 4(a)-(d) and 4(g) include fees billed for services rendered to each of the nine series, based on their respective 2004 and 2003 fiscal years. (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: $216,417 2003: $193,748 (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: $15,279 2003: $13,700 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: $26,118 2003: $23,771 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: $4592 2003: $4891 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: $209,481 2003: $368,406 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: $4,141,356 (H) During the past fiscal year, all non-audit services provided by Registrant's principal accountant to either Registrant's investment adviser or to any entity controlling, controlled by, or under common control with Registrant's investment adviser that provides ongoing services to Registrant were pre-approved. Included in the audit committee's pre-approval was the review and consideration as to whether the provision of these non-audit services is compatible with maintaining the principal accountant's independence. ITEM 5: AUDIT COMMITTEE OF LISTED REGISTRANTS. Not applicable. ITEM 6: SCHEDULE OF INVESTMENTS. SCHWAB INVESTMENTS SCHWAB 1000 FUND(R) PORTFOLIO HOLDINGS as of October 31, 2004 The following is the schedule of portfolio holdings at 10/31/04. The schedule should be read in conjunction with the fund's annual report for the fiscal year ended 10/31/04. We use the symbols below to designate certain characteristics of the securities. With the top ten holdings, the number in the circle is the security's rank among the top ten. (1) Top Ten Holding o Non-income producing security = Collateral for open futures contracts / Issuer is affiliated with the fund's adviser > Security is valued at fair value (see Accounting Policies) @ This security or a portion of this security is on loan
COST VALUE HOLDINGS BY CATEGORY ($X1,000) ($X1,000) - -------------------------------------------------------------------------------- 99.7% COMMON STOCK 3,915,127 6,375,544 0.2% SHORT-TERM INVESTMENT 13,754 13,754 0.0% PREFERRED STOCKS 376 382 0.0% U.S. TREASURY OBLIGATION 299 299 0.0% WARRANTS -- 9 - -------------------------------------------------------------------------------- 99.9% TOTAL INVESTMENTS 3,929,556 6,389,988 10.3% COLLATERAL INVESTED FOR SECURITIES ON LOAN 659,658 659,658 (10.2)% OTHER ASSETS AND LIABILITIES, NET (654,395) - -------------------------------------------------------------------------------- 100.0% TOTAL NET ASSETS 6,395,251
VALUE SECURITY AND NUMBER OF SHARES ($ X 1,000) COMMON STOCK 99.7% of net assets AEROSPACE/DEFENSE 1.7% ------------------------------------------------------------------------- The Boeing Co. 425,182 21,217 @ Crane Co. 31,950 890 @ General Dynamics Corp. 106,000 10,825 Goodrich Corp. 62,992 1,942 @ L-3 Communications Holdings, Inc. 56,700 3,738 Lockheed Martin Corp. 239,684 13,204 Northrop Grumman Corp. 192,094 9,941 Raytheon Co. 239,300 8,730 Rockwell Automation, Inc. 100,100 4,173 Rockwell Collins, Inc. 94,900 3,366 Textron, Inc. 72,900 4,968 United Technologies Corp. 268,627 24,934 ----------- 107,928 AIR TRANSPORTATION 1.1% ------------------------------------------------------------------------- @o AMR Corp. 85,500 660 FedEx Corp. 159,960 14,576 @o JetBlue Airways Corp. 54,500 1,202 @ Sabre Holdings Corp., Class A 77,000 1,656 Southwest Airlines Co. 422,225 6,658 United Parcel Service, Inc., Class B 598,100 47,358 ----------- 72,110 ALCOHOLIC BEVERAGES 0.4% ------------------------------------------------------------------------- @ Adolph Coors Co., Class B 19,500 1,301 Anheuser-Busch Cos., Inc. 425,900 21,274 Brown-Forman Corp., Class B 64,956 2,916 o Constellation Brands, Inc., Class A 56,500 2,216 ----------- 27,707 APPAREL 0.4% ------------------------------------------------------------------------- @o Coach, Inc. 99,628 4,646 Jones Apparel Group, Inc. 67,700 2,390 Liz Claiborne, Inc. 58,600 2,396 Nike, Inc., Class B 140,700 11,440 Reebok International Ltd. 31,600 1,169 o Timberland Co., Class A 18,700 1,148 VF Corp. 57,900 3,117 ----------- 26,306 AUTOMOTIVE PRODUCTS / MOTOR VEHICLES 1.1% ------------------------------------------------------------------------- American Axle & Manufacturing Holdings, Inc. 28,100 806 ArvinMeritor, Inc. 36,800 687 BorgWarner, Inc. 29,400 1,364 Carlisle Cos., Inc. 16,600 965 Cooper Tire & Rubber Co. 39,700 773 Cummins, Inc. 22,600 1,584 Dana Corp. 79,789 1,190 @ Danaher Corp. 164,600 9,074 @ Delphi Corp. 300,600 2,528 Donaldson Co., Inc. 46,600 1,384 Eaton Corp. 81,400 5,205
1 SCHWAB 1000 FUND PORTFOLIO HOLDINGS continued
VALUE SECURITY AND NUMBER OF SHARES ($ X 1,000) Ford Motor Co. 923,170 12,029 @ General Motors Corp. 300,534 11,586 Gentex Corp. 41,200 1,360 Genuine Parts Co. 93,275 3,721 @ Harley-Davidson, Inc. 157,600 9,073 Lear Corp. 36,300 1,957 @o Navistar International Corp. 36,800 1,271 @ Oshkosh Truck Corp. 18,700 1,101 @ Polaris Industries, Inc. 23,200 1,377 @ Thor Industries, Inc. 30,800 857 ----------- 69,892 BANKS 7.9% ------------------------------------------------------------------------- @ AmSouth Bancorp. 188,275 4,969 @ Associated Banc-Corp. 58,987 2,046 Bancorpsouth, Inc. 41,900 997 (7) Bank of America Corp. 2,158,336 96,672 Bank of Hawaii Corp. 29,950 1,430 The Bank of New York Co., Inc. 400,700 13,007 Banknorth Group, Inc. 92,200 3,252 @ BB&T Corp. 292,781 12,036 City National Corp. 26,300 1,812 The Colonial BancGroup, Inc. 66,800 1,446 @ Comerica, Inc. 92,374 5,682 @ Commerce Bancorp, Inc. N.J. 40,600 2,405 Commerce Bancshares, Inc. 36,690 1,801 Compass Bancshares, Inc. 65,212 3,115 Cullen/Frost Bankers, Inc. 27,900 1,367 @ Doral Financial Corp. 57,900 2,431 @ Fifth Third Bancorp 300,630 14,788 First Horizon National Corp. 67,400 2,917 First Midwest Bancorp, Inc. Illinois 24,900 869 FirstMerit Corp. 45,300 1,184 FNB Corp. 24,740 508 Fulton Financial Corp. 60,991 1,309 Greater Bay Bancorp 28,100 878 Hibernia Corp., Class A 83,200 2,413 Hudson City Bancorp, Inc. 102,400 3,742 Hudson United Bancorp 24,100 959 Huntington Bancshares, Inc. 122,735 2,939 JPMorgan Chase & Co. 1,886,776 72,830 KeyCorp, Inc. 219,046 7,358 M&T Bank Corp. 63,201 6,510 Marshall & Ilsley Corp. 118,870 4,989 Mellon Financial Corp. 226,688 6,551 Mercantile Bankshares Corp. 42,775 2,085 National City Corp. 354,750 13,825 North Fork Bancorp., Inc. 166,375 7,337 Northern Trust Corp. 118,150 5,026 Park National Corp. 7,400 961 Peoples Bank-Bridgeport 49,500 1,856 PNC Financial Services Group, Inc. 151,530 7,925 Popular, Inc. 142,400 3,662 Regions Financial Corp. 245,744 8,621 Sky Financial Group, Inc. 49,530 1,331 The South Financial Group, Inc. 31,700 952 SouthTrust Corp. 177,974 7,754 State Street Corp. 179,100 8,068 SunTrust Banks, Inc. 190,463 13,405 Synovus Financial Corp. 161,962 4,404 TCF Financial Corp. 76,000 2,395 Trustmark Corp. 31,300 987 U.S. Bancorp 993,453 28,423 UCBH Holdings, Inc. 24,200 1,043 UnionBanCal Corp. 78,100 4,745 Valley National Bancorp 52,918 1,501 @ Wachovia Corp. 692,320 34,069 Wells Fargo & Co. 895,032 53,451 Westamerica Bancorp. 17,600 1,006 WestCorp., Inc. 27,300 1,090 Whitney Holding Corp. 21,700 946 Wilmington Trust Corp. 35,300 1,220 Zions Bancorp. 48,300 3,196 ----------- 506,496 BUSINESS MACHINES & Software 8.4% ------------------------------------------------------------------------- o 3Com Corp. 200,150 829 @ Adobe Systems, Inc. 125,500 7,032 o Apple Computer, Inc. 198,800 10,443 o Ascential Software Corp. 31,900 449 Autodesk, Inc. 59,900 3,160 o Avocent Corp. 25,200 897 o BEA Systems, Inc. 217,600 1,767 o BMC Software, Inc. 121,300 2,295 o Cisco Systems, Inc. 3,607,000 69,290 o Compuware Corp. 206,100 1,193 o Comverse Technology, Inc. 103,500 2,136 o Dell, Inc. 1,336,000 46,840 @ Diebold, Inc. 39,018 1,867 o EMC Corp. 1,294,000 16,654 Fair Isaac Corp. 38,925 1,176 o Foundry Networks, Inc. 70,000 849 o Gateway, Inc. 201,400 1,178 Hewlett-Packard Co. 1,629,340 30,403 IKON Office Solutions, Inc. 78,600 825 o Integrated Device Technology, Inc. 56,300 665 (10) International Business Machines Corp. 912,900 81,933
2 SCHWAB 1000 FUND PORTFOLIO HOLDINGS continued
VALUE SECURITY AND NUMBER OF SHARES ($ X 1,000) o Juniper Networks, Inc. 278,700 7,416 @o Lexmark International, Inc., Class A 69,000 5,735 o Maxtor Corp. 131,700 390 @ Microchip Technology, Inc. 111,200 3,364 =(3) Microsoft Corp. 5,769,100 161,477 o NCR Corp. 50,751 2,860 o Network Appliance, Inc. 185,000 4,527 o Novell, Inc. 200,400 1,441 o Oracle Corp. 2,770,014 35,068 @o Peregrine Systems, Inc. 2,104 38 Pitney Bowes, Inc. 123,300 5,394 @o Sandisk Corp. 85,000 1,774 >o Seagate Escrow Security 126,560 36 o Siebel Systems, Inc. 266,100 2,528 o Storage Technology Corp. 59,400 1,605 o Sun Microsystems, Inc. 1,757,600 7,962 o Sybase, Inc. 51,900 822 o Tech Data Corp. 30,400 1,228 o The Titan Corp. 43,700 649 Total System Services, Inc. 105,500 2,490 o Unisys Corp. 175,750 1,866 @o Xerox Corp. 445,250 6,576 ----------- 537,127 BUSINESS SERVICES 4.6% ------------------------------------------------------------------------- o Adesa, Inc. 7,800 157 @o Affiliated Computer Services, Inc., Class A 69,700 3,802 @o Allied Waste Industries, Inc. 171,865 1,402 @o Apollo Group, Inc., Class A 102,950 6,795 Aramark Corp., Class B 99,100 2,235 Automatic Data Processing, Inc. 316,800 13,746 o BearingPoint, Inc. 104,400 908 o The BISYS Group, Inc. 63,500 927 o Brocade Communications Systems, Inc. 138,200 938 @o Career Education Corp. 53,700 1,685 @ CDW Corp. 44,600 2,767 Cendant Corp. 545,448 11,231 o Ceridian Corp. 80,200 1,383 Certegy, Inc. 34,800 1,230 o Checkfree Corp. 48,300 1,497 o ChoicePoint, Inc. 46,966 1,955 @ Cintas Corp. 91,700 3,956 o Citrix Systems, Inc. 88,000 2,123 o Cognizant Technology Solutions Corp., Class A 70,200 2,387 @ Computer Associates International, Inc. 312,579 8,662 @o Computer Sciences Corp. 100,496 4,992 o Convergys Corp. 76,800 999 o Copart, Inc. 47,700 886 o Corinthian Colleges, Inc. 47,400 681 @ Corporate Executive Board Co. 20,000 1,273 Deluxe Corp. 27,100 1,032 @o DeVry, Inc. 37,600 549 @o DST Systems, Inc. 44,800 2,009 o Dun & Bradstreet Corp. 39,100 2,211 o Earthlink, Inc. 85,700 885 o eBay, Inc. 349,500 34,115 o Education Management Corp. 38,900 1,043 Electronic Data Systems Corp. 257,600 5,479 @ Equifax, Inc. 74,700 1,953 First Data Corp. 454,543 18,764 o Fiserv, Inc. 103,889 3,692 Friedman Billings Ramsey Group, Inc., Class A 75,500 1,294 o Gartner, Inc., Class A 62,500 744 @ Global Payments, Inc. 20,000 1,095 @ GTECH Holdings Corp. 63,400 1,501 H&R Block, Inc. 93,600 4,451 @o IAC/InterActiveCorp 372,727 8,058 @o ICOS Corp. 33,800 761 IMS Health, Inc. 128,500 2,722 @o Interpublic Group of Cos., Inc. 222,350 2,726 o Intuit, Inc. 100,300 4,550 @o Invitrogen Corp. 27,500 1,592 @o Iron Mountain, Inc. 68,550 2,266 o ITT Educational Services, Inc. 24,300 924 Jack Henry & Associates, Inc. 47,900 893 o Jacobs Engineering Group, Inc. 29,800 1,214 @o Lamar Advertising Co., Class A 55,100 2,282 Manpower, Inc. 46,600 2,109 o McAfee, Inc. 86,600 2,096 @o Mercury Interactive Corp. 48,200 2,093 @o Monster Worldwide, Inc. 60,500 1,697 National Instruments Corp. 41,700 1,148 @ Omnicom Group, Inc. 101,900 8,040 Paychex, Inc. 202,342 6,636 o PeopleSoft, Inc. 198,106 4,115 o Perot Systems Corp., Class A 59,700 957 @o Pixar, Inc. 29,600 2,380 o Polycom, Inc. 53,300 1,101 o Red Hat, Inc. 94,600 1,215 Republic Services, Inc. 84,900 2,615 The Reynolds & Reynolds Co., Class A 36,000 886 Robert Half International, Inc. 91,800 2,435 The ServiceMaster Co. 158,400 2,034 @o Sirius Satellite Radio, Inc. 661,600 2,580 o Stericycle, Inc. 22,600 1,024
3 SCHWAB 1000 FUND PORTFOLIO HOLDINGS continued
VALUE SECURITY AND NUMBER OF SHARES ($ X 1,000) o SunGard Data Systems, Inc. 154,200 4,085 @o Symantec Corp. 167,200 9,520 o Synopsys, Inc. 83,400 1,354 o VeriSign, Inc. 129,635 3,478 o Veritas Software Corp. 228,279 4,995 Viad Corp. 11,825 255 Waste Management, Inc. 310,375 8,839 o WebMD Corp. 164,700 1,245 o Yahoo! Inc. 721,912 26,126 ----------- 292,480 CHEMICALS 1.5% ------------------------------------------------------------------------- Air Products & Chemicals, Inc. 121,900 6,483 Airgas, Inc. 39,700 977 o Bio-Rad Laboratories, Inc., Class A 13,600 707 Cabot Corp. 33,200 1,131 @o Celgene Corp. 87,000 2,577 Cytec Industries, Inc. 21,000 977 Dow Chemical Co. 494,752 22,234 E.I. du Pont de Nemours & Co. 534,389 22,909 Eastman Chemical Co. 41,425 1,966 @ Ecolab, Inc. 138,300 4,681 Lubrizol Corp. 27,700 962 Lyondell Chemical Co. 94,900 2,181 Monsanto Co. 140,548 6,008 PPG Industries, Inc. 91,100 5,808 @ Praxair, Inc. 174,400 7,360 Rohm & Haas Co. 119,414 5,062 RPM International, Inc. 62,100 1,095 Sigma-Aldrich Corp. 37,100 2,064 Valspar Corp. 27,100 1,265 ----------- 96,447 CONSTRUCTION 0.8% ------------------------------------------------------------------------- Centex Corp. 66,600 3,459 @ D.R. Horton, Inc. 126,433 3,793 Florida Rock Industries, Inc. 23,100 1,193 @ Fluor Corp. 44,100 2,048 o Hovnanian Enterprises, Inc., Class A 32,400 1,216 KB Home 24,900 2,048 Lafarge North America, Inc. 37,000 1,813 Lennar Corp., Class A 84,400 3,796 Martin Marietta Materials, Inc. 26,200 1,193 Masco Corp. 234,300 8,027 MDC Holdings, Inc. 17,369 1,333 o NVR, Inc. 3,500 2,195 Pulte Homes, Inc. 66,500 3,650 The Ryland Group, Inc. 13,300 1,269 The Sherwin-Williams Co. 76,400 3,264 Standard-Pacific Corp. 17,700 994 The Stanley Works 43,400 1,932 @o Toll Brothers, Inc. 39,200 1,817 Vulcan Materials Co. 54,600 2,718 o West Corp. 36,100 1,015 ----------- 48,773 CONSUMER DURABLES 0.3% ------------------------------------------------------------------------- Black & Decker Corp. 41,650 3,344 Ethan Allen Interiors, Inc. 20,000 762 Furniture Brands International, Inc. 30,000 654 Hillenbrand Industries, Inc. 33,100 1,648 Leggett & Platt, Inc. 103,000 2,897 @ Maytag Corp. 42,050 732 @o Mohawk Industries, Inc. 35,639 3,032 @ Newell Rubbermaid, Inc. 147,209 3,174 o United Rentals, Inc. 41,400 639 Whirlpool Corp. 37,400 2,197 ----------- 19,079 CONTAINERS 0.2% ------------------------------------------------------------------------- Ball Corp. 60,400 2,407 Bemis Co. 56,800 1,503 o Crown Holdings, Inc. 88,600 1,006 o Owens-Illinois, Inc. 79,300 1,469 o Pactiv Corp. 84,350 1,998 o Sealed Air Corp. 45,499 2,254 Sonoco Products Co. 52,141 1,390 ----------- 12,027 ELECTRONICS 5.0% ------------------------------------------------------------------------- @ Acxiom Corp. 45,600 1,140 @o ADC Telecommunications, Inc. 431,800 954 o Adelphia Communications, Class A 75,707 22 o Advanced Fibre Communications, Inc. 46,700 729 @o Advanced Micro Devices, Inc. 186,900 3,144 @o Agere Systems, Inc., Class A 895,900 1,084 @o Agilent Technologies, Inc. 257,000 6,440 o Alliant Techsystems, Inc. 20,700 1,190 @o Altera Corp. 203,100 4,616 American Power Conversion Corp. 106,600 2,055 @o Amkor Technology, Inc. 93,300 465 o Amphenol Corp., Class A 46,800 1,607 Analog Devices, Inc. 199,000 8,012 @o Andrew Corp. 82,400 1,152 o Applied Materials, Inc. 898,900 14,472 o Applied Micro Circuits Corp. 164,700 600 o Arrow Electronics, Inc. 60,500 1,450
4 SCHWAB 1000 FUND PORTFOLIO HOLDINGS continued
VALUE SECURITY AND NUMBER OF SHARES ($ X 1,000) o Atmel Corp. 252,900 804 o Avid Technology, Inc. 16,500 874 o Avnet, Inc. 64,300 1,091 AVX Corp. 93,200 1,118 @o Broadcom Corp., Class A 164,400 4,447 @o Cadence Design Systems, Inc. 141,050 1,755 o CIENA Corp. 254,200 628 o Cymer, Inc. 19,300 550 o Cypress Semiconductor Corp. 64,600 680 o Emulex Corp. 44,500 468 o Energizer Holdings, Inc. 45,300 2,103 o Fairchild Semiconductor International, Inc., Class A 63,200 908 @o Getty Images, Inc. 30,300 1,792 Harman International Industries, Inc. 35,200 4,230 @ Harris Corp. 35,800 2,203 o Integrated Circuit Systems, Inc. 38,600 870 @ Intel Corp. 3,413,800 75,991 o Interactive Data Corp. 49,800 983 o International Rectifier Corp. 34,400 1,367 @ Intersil Corp., Class A 74,600 1,217 ITT Industries, Inc. 49,400 4,008 o Jabil Circuit, Inc. 107,100 2,604 o JDS Uniphase Corp. 769,755 2,440 @o KLA-Tencor Corp. 104,400 4,753 o Lam Research Corp. 69,900 1,820 Linear Technology Corp. 164,900 6,246 o LSI Logic Corp. 203,400 925 o Lucent Technologies, Inc. 2,265,519 8,043 Maxim Integrated Products, Inc. 172,029 7,568 @o Micron Technology, Inc. 327,600 3,990 o MKS Instruments, Inc. 27,800 440 Molex, Inc. 102,121 3,020 Motorola, Inc. 1,246,886 21,521 o National Semiconductor Corp. 193,400 3,230 o Novellus Systems, Inc. 81,800 2,119 o Nvidia Corp. 86,900 1,257 @o Omnivision Technologies, Inc. 29,200 464 PerkinElmer, Inc. 68,100 1,399 o QLogic Corp. 49,700 1,615 Qualcomm, Inc. 862,200 36,049 @o Rambus, Inc. 52,600 904 o RF Micro Devices, Inc. 99,500 648 o Sanmina -- SCI Corp. 277,452 2,220 Scientific-Atlanta, Inc. 81,400 2,230 o Semtech Corp. 39,600 827 o Silicon Laboratories, Inc. 26,700 800 o Solectron Corp. 514,500 2,686 Symbol Technologies, Inc. 123,770 1,818 Tektronix, Inc. 45,400 1,377 o Tellabs, Inc. 223,900 1,791 o Teradyne, Inc. 102,600 1,699 @ Texas Instruments, Inc. 923,455 22,579 o Thermo Electron Corp. 87,384 2,534 o Varian Semiconductor Equipment Associates, Inc. 19,200 665 @o Vishay Intertechnology, Inc. 86,150 1,114 o Waters Corp. 65,100 2,688 o Western Digital Corp. 110,500 920 @o Western Wireless Corp., Class A 45,400 1,323 Xilinx, Inc. 185,600 5,679 o Zebra Technologies Corp., Class A 38,025 2,015 ----------- 323,239 ENERGY: RAW MATERIALS 1.7% ------------------------------------------------------------------------- Anadarko Petroleum Corp. 134,680 9,084 @ Apache Corp. 173,820 8,813 Arch Coal, Inc. 28,300 920 Baker Hughes, Inc. 177,820 7,616 @o BJ Services Co. 85,000 4,335 Burlington Resources, Inc. 212,634 8,824 o Cooper Cameron Corp. 28,900 1,397 Devon Energy Corp. 126,516 9,358 ENSCO International, Inc. 80,300 2,453 EOG Resources, Inc. 61,800 4,114 o FMC Technologies, Inc. 35,600 1,076 o Forest Oil Corp. 28,700 875 o Grant Prideco, Inc. 65,200 1,341 Halliburton Co. 236,960 8,777 Massey Energy Co. 40,500 1,091 o Noble Corp. 71,800 3,280 Noble Energy, Inc. 30,500 1,769 Occidental Petroleum Corp. 208,200 11,624 Peabody Energy Corp. 33,100 2,111 o Reliant Energy, Inc. 158,100 1,625 @o Rowan Cos., Inc. 56,000 1,430 @o Smith International, Inc. 53,800 3,125 Tidewater, Inc. 32,500 1,005 Valero Energy Corp. 136,976 5,886 o Weatherford International Ltd. 69,900 3,653 Western Gas Resources, Inc. 35,800 1,049 ----------- 106,631 FOOD & AGRICULTURE 3.4% ------------------------------------------------------------------------- o 7-Eleven, Inc. 59,900 1,262 Archer-Daniels-Midland Co. 346,836 6,718 @ Campbell Soup Co. 220,200 5,910 The Coca-Cola Co. 1,299,300 52,830 Coca-Cola Enterprises, Inc. 243,700 5,096 ConAgra Foods, Inc. 284,359 7,507 @o Dean Foods Co. 83,750 2,500 o Del Monte Foods Co. 111,695 1,193 General Mills, Inc. 202,250 8,950 H.J. Heinz Co. 188,700 6,859
5 SCHWAB 1000 FUND PORTFOLIO HOLDINGS continued
VALUE SECURITY AND NUMBER OF SHARES ($ X 1,000) Hershey Foods Corp. 139,400 7,066 Hormel Foods Corp. 74,400 2,091 @ The J.M. Smuckers Co. 26,800 1,193 Kellogg Co. 209,200 8,996 @ Kraft Foods, Inc., Class A 250,100 8,331 McCormick & Co., Inc. 74,500 2,640 The Pepsi Bottling Group, Inc. 137,500 3,855 PepsiAmericas, Inc. 77,500 1,569 PepsiCo, Inc. 898,860 44,565 o Performance Food Group Co. 24,600 572 @ Sara Lee Corp. 421,600 9,815 @o The Scotts Co., Class A 17,200 1,105 @o Smithfield Foods, Inc. 59,400 1,439 @ Supervalu, Inc. 72,000 2,123 Sysco Corp. 341,400 11,017 Tootsie Roll Industries, Inc. 28,561 866 Tyson Foods, Inc., Class A 188,082 2,727 Wm. Wrigley Jr. Co. 120,500 7,881 ----------- 216,676 GOLD 0.2% ------------------------------------------------------------------------- Newmont Mining Corp. 215,238 10,228 HEALTHCARE / DRUGS & MEDICINE 11.8% ------------------------------------------------------------------------- Abbott Laboratories 827,500 35,276 @o Accredo Health, Inc. 25,700 592 @ Allergan, Inc. 70,100 5,016 @ AmerisourceBergen Corp. 59,995 3,302 @o Amgen, Inc. 670,140 38,064 o Amylin Pharmaceuticals, Inc. 50,200 1,069 o Andrx Corp. 38,700 837 @o Anthem, Inc. 74,100 5,958 Applied Biosystems Group--Applera Corp. 111,600 2,129 o Barr Pharmaceuticals, Inc. 54,225 2,042 Bausch & Lomb, Inc. 28,200 1,719 Baxter International, Inc. 329,300 10,129 @ Beckman Coulter, Inc. 33,000 1,964 Becton Dickinson & Co. 136,300 7,156 @o Biogen Idec, Inc. 181,660 10,565 Biomet, Inc. 137,100 6,400 @o Boston Scientific Corp. 446,884 15,775 Bristol-Myers Squibb Co. 1,029,300 24,117 C.R. Bard, Inc. 55,600 3,158 Cardinal Health, Inc. 229,856 10,746 @o Caremark Rx, Inc. 245,856 7,368 @o Cephalon, Inc. 29,900 1,425 @o Charles River Laboratories International, Inc. 24,600 1,151 o Chiron Corp. 100,612 3,262 o Community Health Systems, Inc. 52,900 1,419 Cooper Cos., Inc. 16,900 1,189 o Covance, Inc. 33,300 1,323 o Coventry Health Care, Inc. 48,300 1,975 o Cytyc Corp. 58,900 1,537 o Dade Behring Holdings, Inc. 21,900 1,233 o DaVita, Inc. 51,150 1,515 Dentsply International, Inc. 42,550 2,213 @o Edwards Lifesciences Corp. 31,700 1,084 Eli Lilly & Co. 601,568 33,032 o Endo Pharmaceutical Holdings, Inc. 70,700 1,541 @o Express Scripts, Inc. 42,100 2,694 o First Health Group Corp. 50,700 807 o Forest Laboratories, Inc. 196,100 8,746 @o Gen-Probe, Inc. 25,800 904 @o Genzyme Corp. 120,200 6,307 o Gilead Sciences, Inc. 228,200 7,903 Guidant Corp. 166,772 11,110 @ HCA, Inc. 248,272 9,119 @ Health Management Associates, Inc., Class A 128,728 2,660 @o Health Net, Inc. 60,900 1,477 o Henry Schein, Inc. 23,400 1,480 o Hospira, Inc. 83,260 2,657 o Human Genome Sciences, Inc. 69,400 714 o Humana, Inc. 86,500 1,657 o Idexx Laboratories, Inc. 18,700 932 @o ImClone Systems, Inc. 40,300 1,765 Inamed Corp. 18,800 999 @o IVAX Corp. 131,656 2,383 (8) Johnson & Johnson 1,574,920 91,944 @o King Pharmaceuticals, Inc. 129,266 1,410 o Laboratory Corp. of America Holdings 76,700 3,513 o Lincare Holdings, Inc. 52,700 1,937 Manor Care, Inc. 47,800 1,565 @o Martek Biosciences Corp. 14,800 696 McKesson Corp. 156,228 4,165 @o Medco Health Solutions, Inc. 144,922 4,914 @ Medicis Pharmaceutical Corp., Class A 29,400 1,196 o Medimmune, Inc. 132,750 3,773 Medtronic, Inc. 641,000 32,762 Merck & Co., Inc. 1,176,008 36,821 o Millennium Pharmaceuticals, Inc. 161,620 2,098 @ Mylan Laboratories, Inc. 144,312 2,485 o NBTY, Inc. 35,700 983 o Neurocrine Biosciences, Inc. 19,000 884 Omnicare, Inc. 55,000 1,517 @o Pacificare Health Systems, Inc. 45,000 1,603 o Par Pharmaceutical Cos., Inc. 18,300 722 @o Patterson Cos., Inc. 73,400 2,753 (6) Pfizer, Inc. 4,009,712 116,081
6 SCHWAB 1000 FUND PORTFOLIO HOLDINGS continued
VALUE SECURITY AND NUMBER OF SHARES ($ x 1,000) o Pharmaceutical Product Development, Inc. 30,100 1,271 o Protein Design Labs, Inc. 50,300 963 Quest Diagnostics 55,700 4,876 o Renal Care Group, Inc. 35,650 1,125 o Respironics, Inc. 18,800 961 Schering-Plough Corp. 785,100 14,218 Select Medical Corp. 52,000 894 o Sepracor, Inc. 45,600 2,094 o St. Jude Medical, Inc. 92,500 7,083 o Steris Corp. 37,300 773 Stryker Corp. 214,000 9,221 o Techne Corp. 22,100 796 o Tenet Healthcare Corp. 249,409 2,674 o Triad Hospitals, Inc. 40,500 1,338 UnitedHealth Group, Inc. 355,181 25,715 Universal Health Services, Class B 29,200 1,214 Valeant Pharmaceuticals International 44,600 1,070 o Varian Medical Systems, Inc. 72,800 2,923 o Watson Pharmaceuticals, Inc. 58,000 1,626 o WellPoint Health Networks, Inc. 81,950 8,003 Wyeth 712,200 28,239 o Zimmer Holdings, Inc. 129,700 10,063 ----------- 752,557 HOUSEHOLD PRODUCTS 2.0% ------------------------------------------------------------------------- Alberto-Culver Co., Class B 47,250 2,120 @ Avon Products, Inc. 252,800 9,998 Church & Dwight Co., Inc. 32,550 886 Clorox Co. 113,300 6,186 Colgate-Palmolive Co. 283,800 12,663 The Estee Lauder Cos., Inc., Class A 65,200 2,800 The Gillette Co. 535,910 22,230 International Flavors & Fragrances, Inc. 50,200 1,960 = Procter & Gamble Co. 1,364,000 69,810 ----------- 128,653 INSURANCE 4.5% ------------------------------------------------------------------------- Aetna, Inc. 81,765 7,768 AFLAC, Inc. 271,100 9,727 o Alleghany Corp. 4,020 1,161 o Allmerica Financial Corp. 28,500 858 The Allstate Corp. 362,448 17,430 AMBAC Financial Group, Inc. 57,400 4,481 American Financial Group, Inc. 39,200 1,160 (9) American International Group, Inc. 1,382,471 83,930 American National Insurance Co. 14,300 1,503 @ AON Corp. 168,312 3,435 Arthur J. Gallagher & Co. 48,400 1,360 @ Brown & Brown, Inc. 36,900 1,541 Chubb Corp. 100,700 7,263 @ CIGNA Corp. 75,300 4,779 Cincinnati Financial Corp. 85,519 3,570 o CNA Financial Corp. 135,900 3,248 Erie Indemnity Co., Class A 34,300 1,719 Fidelity National Financial, Inc. 87,584 3,305 First American Corp. 42,000 1,310 Hartford Financial Services Group, Inc. 156,700 9,164 HCC Insurance Holdings, Inc. 34,300 1,019 Jefferson-Pilot Corp. 75,587 3,650 Lincoln National Corp. 95,400 4,179 Loews Corp. 99,400 5,954 o Markel Corp. 5,300 1,685 Marsh & McLennan Cos., Inc. 279,600 7,734 MBIA, Inc. 77,300 4,473 Mercury General Corp. 29,100 1,497 Metlife, Inc. 388,900 14,914 @ MGIC Investment Corp. 52,900 3,402 Nationwide Financial Services, Inc., Class A 30,200 1,045 @ Odyssey Re Holdings Corp. 34,900 763 Old Republic International Corp. 97,162 2,269 The PMI Group, Inc. 47,800 1,856 Principal Financial Group, Inc. 170,200 6,427 The Progressive Corp. 106,800 9,991 Protective Life Corp. 36,900 1,450 Prudential Financial, Inc. 269,800 12,538 Radian Group, Inc. 50,300 2,411 Reinsurance Group of America, Inc. 32,500 1,400 Safeco Corp. 74,300 3,436 The St. Paul Travelors Cos., Inc. 356,522 12,107 Stancorp Financial Group, Inc. 15,700 1,183 Torchmark Corp. 60,700 3,279 Transatlantic Holdings, Inc. 35,125 2,046 Unitrin, Inc. 36,200 1,563 @ UnumProvident Corp. 158,871 2,170 @ W.R. Berkley Corp. 44,750 1,913 ----------- 285,066 MEDIA 4.0% ------------------------------------------------------------------------- @o American Tower Corp., Class A 113,800 1,956 Belo Corp., Class A 61,400 1,427 @o Cablevision Systems Corp., NY Group, Class A 163,900 3,373 Clear Channel Communications, Inc. 313,029 10,455 o Comcast Corp., Class A 1,192,880 35,190
7 SCHWAB 1000 FUND PORTFOLIO HOLDINGS continued
VALUE SECURITY AND NUMBER OF SHARES ($ x 1,000) o Cox Communications, Inc., Class A 316,986 10,917 @o The DIRECTV Group, Inc. 739,183 12,396 Dow Jones & Co., Inc. 43,850 1,940 @ The E.W. Scripps Co., Class A 86,750 4,140 o EchoStar Communications Corp., Class A 110,900 3,507 o Emmis Communications Corp., Class A 29,400 550 o Entercom Communications Corp. 27,500 913 o Fox Entertainment Group, Inc., Class A 230,000 6,822 Gannett Co., Inc. 145,500 12,069 Harte-Hanks, Inc. 46,900 1,207 John Wiley & Sons, Class A 33,100 1,074 Knight-Ridder, Inc. 42,800 2,933 Lee Enterprises, Inc. 24,000 1,112 McClatchy Co., Class A 24,700 1,717 @ The McGraw-Hill Cos., Inc. 100,750 8,690 Media General, Inc., Class A 12,700 740 Meredith Corp. 27,000 1,323 Metro-Goldwyn-Mayer, Inc. 132,655 1,568 New York Times Co., Class A 79,826 3,197 R.R. Donnelley & Sons Co. 109,400 3,441 o Radio One, Inc., Class A 56,200 823 o Time Warner, Inc. 2,338,630 38,915 Tribune Co. 163,300 7,055 o Univision Communications, Inc., Class A 172,910 5,353 o Valassis Communications, Inc. 28,000 963 @ Viacom, Inc., Class B 927,579 33,847 @ The Walt Disney Co. 1,097,021 27,667 Washington Post, Class B 5,200 4,758 o Westwood One, Inc. 53,600 1,237 o XM Satellite Radio Holdings, Inc., Class A 108,500 3,507 ----------- 256,782 MISCELLANEOUS 0.5% ------------------------------------------------------------------------- @ 3M Co. 416,900 32,339 MISCELLANEOUS FINANCE 8.3% ------------------------------------------------------------------------- @ A.G. Edwards, Inc. 42,143 1,528 @o Affiliated Managers Group, Inc. 15,250 852 @ Allied Capital Corp. 68,500 1,821 @ American Capital Strategies Ltd. 34,700 1,074 @ American Express Co. 672,700 35,700 o AmeriCredit Corp. 84,000 1,630 @o Ameritrade Holding Corp. 226,600 2,950 @ Astoria Financial Corp. 42,500 1,661 The Bear Stearns Cos., Inc. 55,771 5,284 o Berkshire Hathaway, Inc., Class A 617 51,982 o BOK Financial Corp. 31,606 1,438 @ Capital One Financial Corp. 125,850 9,283 / The Charles Schwab Corp. 730,497 6,684 Chicago Mercantile Exchange 17,700 3,110 (5) CIT Group, Inc. 114,500 4,626 Citigroup, Inc. 2,744,001 121,751 Countrywide Financial Corp. 296,238 9,459 o E*TRADE Financial Corp. 196,400 2,534 Eaton Vance Corp. 36,900 1,610 @ Fannie Mae 517,800 36,324 Federated Investors, Inc., Class B 58,250 1,689 Franklin Resources, Inc. 133,900 8,117 Freddie Mac 367,600 24,482 Golden West Financial Corp. 81,400 9,517 Goldman Sachs Group, Inc. 257,800 25,362 Independence Community Bank Corp. 44,000 1,656 IndyMac Bancorp, Inc. 29,900 965 International Bancshares Corp. 26,000 962 @ Investors Financial Services Corp. 35,100 1,351 Janus Capital Group, Inc. 129,200 1,970 Jefferies Group, Inc. 29,200 1,172 o Knight Trading Group, Inc., Class A 61,500 639 @ Legg Mason, Inc. 53,400 3,402 Lehman Brothers Holdings, Inc. 144,570 11,876 Leucadia National Corp. 37,300 2,206 MBNA Corp. 681,180 17,459 Merrill Lynch & Co., Inc. 497,400 26,830 MoneyGram International, Inc. 13,900 259 Moody's Corp. 79,900 6,217 Morgan Stanley 586,010 29,939 New York Community Bancorp, Inc. 140,882 2,587 Nuveen Investments, Inc., Class A 49,800 1,574 o Providian Financial Corp. 155,700 2,421 Raymond James Financial, Inc. 39,150 1,022 SEI Investments Co. 56,500 2,033 SLM Corp. 234,750 10,625 Sovereign Bancorp, Inc. 179,758 3,892 Student Loan Corp. 10,800 1,582 T. Rowe Price Group, Inc. 66,700 3,720 Waddell & Reed Financial, Inc., Class A 44,200 929 Washington Federal, Inc. 41,229 1,052 Washington Mutual, Inc. 462,810 17,915 Webster Financial Corp. 28,400 1,357 Wesco Financial Corp. 3,900 1,338 ----------- 529,418
8 SCHWAB 1000 FUND PORTFOLIO HOLDINGS continued
VALUE SECURITY AND NUMBER OF SHARES ($ x 1,000) NON-DURABLES & Entertainment 1.3% ------------------------------------------------------------------------- o Activision, Inc. 71,400 1,034 Applebee's International, Inc. 44,175 1,010 @o Brinker International, Inc. 51,800 1,673 CBRL Group, Inc. 26,600 964 @o The Cheesecake Factory 27,650 1,200 Darden Restaurants, Inc. 88,450 2,167 o Electronic Arts, Inc. 159,700 7,174 @ Fortune Brands, Inc. 78,200 5,694 Hasbro, Inc. 93,687 1,657 International Game Technology 187,700 6,202 International Speedway Corp., Class A 28,500 1,341 o Krispy Kreme Doughnuts, Inc. 32,300 342 Lancaster Colony Corp. 19,200 825 @o Marvel Enterprises, Inc. 58,050 894 Mattel, Inc. 225,520 3,949 McDonald's Corp. 673,100 19,621 Outback Steakhouse, Inc. 40,175 1,591 Regis Corp. 23,500 1,006 Ruby Tuesday, Inc. 34,800 860 o Service Corp. International 161,700 1,069 o Starbucks Corp. 211,700 11,195 Wendy's International, Inc. 61,200 2,042 Yum! Brands, Inc. 155,120 6,748 ----------- 80,258 NON-FERROUS METALS 0.4% ------------------------------------------------------------------------- Alcoa, Inc. 463,495 15,064 Engelhard Corp. 67,387 1,907 Freeport-McMoran Copper & Gold, Inc., Class B 92,394 3,346 Phelps Dodge Corp. 48,000 4,202 ----------- 24,519 OIL: DOMESTIC 1.4% ------------------------------------------------------------------------- Amerada Hess Corp. 48,200 3,890 Ashland, Inc. 36,900 2,126 Chesapeake Energy Corp. 127,400 2,049 ConocoPhillips 364,678 30,746 Consol Energy, Inc. 48,200 1,706 @ Diamond Offshore Drilling, Inc. 70,000 2,366 Kerr-McGee Corp. 80,004 4,738 Marathon Oil Corp. 183,000 6,974 Murphy Oil Corp. 49,340 3,948 o Nabors Industries Ltd. 78,700 3,866 @o National-Oilwell, Inc. 45,700 1,541 o Newfield Exploration Co. 30,100 1,752 Patina Oil & Gas Corp. 36,800 1,053 Patterson-UTI Energy, Inc. 87,000 1,673 Pioneer Natural Resources Co. 77,000 2,495 Pogo Producing Co. 34,200 1,568 o Pride International, Inc. 72,800 1,345 Sunoco, Inc. 39,500 2,937 o Ultra Petroleum Corp. 39,900 1,939 Unocal Corp. 138,834 5,796 o Varco International, Inc. 52,400 1,451 XTO Energy, Inc. 137,066 4,575 ----------- 90,534 OIL: INTERNATIONAL 3.6% ------------------------------------------------------------------------- ChevronTexaco Corp. 1,135,092 60,228 (2) Exxon Mobil Corp. 3,473,230 170,952 ----------- 231,180 OPTICAL & PHOTO 0.2% ------------------------------------------------------------------------- o Corning, Inc. 716,041 8,198 @ Eastman Kodak Co. 153,700 4,654 o Ingram Micro, Inc., Class A 81,200 1,401 ----------- 14,253 PAPER & FOREST PRODUCTS 0.8% ------------------------------------------------------------------------- o Boise Cascade Corp. 46,400 1,370 @ Bowater, Inc. 29,800 1,098 @ Georgia-Pacific Corp. 136,388 4,718 International Paper Co. 257,345 9,910 Kimberly-Clark Corp. 267,860 15,983 Louisiana-Pacific Corp. 56,900 1,395 MeadWestvaco Corp. 107,653 3,394 Packaging Corp. of America 56,600 1,241 Rayonier, Inc. 26,196 1,242 @o Smurfit-Stone Container Corp. 132,600 2,302 Temple-Inland, Inc. 29,200 1,726 Weyerhaeuser Co. 119,700 7,498 ----------- 51,877 PRODUCER GOODS & MANUFACTURING 5.0% ------------------------------------------------------------------------- @o AGCO Corp. 47,500 922 o American Standard Cos., Inc. 114,700 4,195 Ametek, Inc. 36,000 1,185 @ Avery Dennison Corp. 59,300 3,608 Blyth, Inc. 23,700 713 Briggs & Stratton Corp. 11,900 855 Caterpillar, Inc. 182,300 14,682 Cooper Industries Ltd., Class A 50,100 3,201 @ Deere & Co. 130,700 7,813 @ Dover Corp. 108,700 4,269 Emerson Electric Co. 225,700 14,456 @ Fastenal Co. 40,800 2,253
9 SCHWAB 1000 FUND PORTFOLIO HOLDINGS continued
VALUE SECURITY AND NUMBER OF SHARES ($ x 1,000) o Fisher Scientific International, Inc. 60,860 3,491 @=(1) General Electric Co. 5,602,200 191,147 Graco, Inc. 37,050 1,274 Harsco Corp. 22,000 1,066 Herman Miller, Inc. 39,200 906 HNI Corp. 31,300 1,265 Honeywell International, Inc. 458,863 15,454 Hubbell, Inc., Class B 32,138 1,469 Illinois Tool Works, Inc. 159,642 14,732 Ingersoll-Rand Co., Class A 93,100 6,372 Johnson Controls, Inc. 101,400 5,815 o Millipore Corp. 26,100 1,200 Pall Corp. 67,133 1,736 Parker Hannifin Corp. 63,575 4,490 Pentair, Inc. 52,800 1,974 Precision Castparts Corp. 33,300 1,998 Roper Industries, Inc. 19,200 1,184 Snap-On, Inc. 31,350 921 @ SPX Corp. 40,800 1,565 Teleflex, Inc. 21,300 933 The Timken Co. 47,800 1,147 W.W. Grainger, Inc. 48,900 2,865 York International Corp. 21,500 685 ----------- 321,841 RAILROAD & SHIPPING 0.4% ------------------------------------------------------------------------- Burlington Northern Santa Fe Corp. 199,053 8,322 CSX Corp. 114,900 4,194 Norfolk Southern Corp. 209,500 7,113 Union Pacific Corp. 138,861 8,744 ----------- 28,373 REAL PROPERTY 1.7% ------------------------------------------------------------------------- AMB Property Corp. 43,900 1,646 @ Annaly Mortgage Management, Inc. 61,400 1,104 Apartment Investment & Management Co., Class A 50,600 1,857 Archstone-Smith Trust 102,500 3,439 Arden Realty, Inc. 34,500 1,176 AvalonBay Communities, Inc. 38,200 2,501 Boston Properties, Inc. 56,700 3,386 BRE Properties, Class A 26,900 1,073 Camden Property Trust 21,200 963 CarrAmerica Realty Corp. 28,200 909 Catellus Development Corp. 55,398 1,598 CBL & Associates Properties, Inc. 16,300 1,068 Centerpoint Properties Trust 24,800 1,148 Cousins Properties, Inc. 26,100 971 @ Crescent Real Estate Equity Co. 53,300 853 Developers Diversified Realty Corp. 54,500 2,278 Duke Realty Corp. 73,000 2,489 Equity Office Properties Trust 214,400 6,029 Equity Residential 147,800 4,929 Essex Property Trust, Inc. 12,300 965 Federal Realty Investment Trust 26,400 1,253 Forest City Enterprises, Inc., Class A 26,750 1,470 General Growth Properties, Inc. 115,300 3,804 Health Care Property Investors, Inc. 69,600 1,937 Health Care Real Estate Investment Trust, Inc. 26,500 954 Healthcare Realty Trust, Inc. 23,000 928 Hospitality Properties Trust 35,900 1,538 @o Host Marriott Corp. 171,300 2,492 iStar Financial, Inc. 57,800 2,394 Kimco Realty Corp. 59,300 3,235 Liberty Property Trust 42,900 1,740 The Macerich Co. 31,000 1,852 Mack-Cali Realty Corp. 31,200 1,378 The Mills Corp. 25,900 1,436 New Plan Excel Realty Trust 52,500 1,373 Pan Pacific Retail Properties, Inc. 21,700 1,229 Plum Creek Timber Co., Inc. 98,200 3,564 ProLogis 96,608 3,766 Public Storage, Inc. 68,100 3,558 Realty Income Corp. 20,400 979 Regency Centers Corp. 32,100 1,568 The Rouse Co. 55,100 3,675 Shurgard Storage Centers, Inc., Class A 24,500 973 Simon Property Group, Inc. 116,670 6,804 SL Green Realty Corp. 21,300 1,168 The St. Joe Co. 40,800 2,077 @ Thornburg Mortgage, Inc. 38,700 1,106 Trizec Properties, Inc. 81,000 1,292 United Dominion Realty Trust, Inc. 68,100 1,436 Ventas, Inc. 43,000 1,157 Vornado Realty Trust 66,900 4,496 Weingarten Realty Investment 43,950 1,589 ----------- 108,603 RETAIL 6.6% ------------------------------------------------------------------------- @o 99 Cents Only Stores 38,766 597 @ Abercrombie & Fitch Co., Class A 51,800 2,030 o Advance Auto Parts, Inc. 39,300 1,537
10 SCHWAB 1000 FUND PORTFOLIO HOLDINGS continued
VALUE SECURITY AND NUMBER OF SHARES ($ x 1,000) Albertson's, Inc. 196,742 4,488 @o Amazon.com, Inc. 217,100 7,410 o AnnTaylor Stores Corp. 36,450 819 @o Autonation, Inc. 142,500 2,455 @o AutoZone, Inc. 44,900 3,673 o Barnes & Noble, Inc. 35,800 1,191 o Bed, Bath & Beyond, Inc. 158,800 6,477 @ Best Buy Co., Inc. 173,550 10,278 o Big Lots, Inc. 62,800 778 o BJ's Wholesale Club, Inc. 37,500 1,089 @ Borders Group, Inc. 41,600 948 o Carmax, Inc. 55,600 1,465 o Chico's FAS, Inc. 46,800 1,873 Circuit City Stores, Inc. 106,100 1,724 @ Claire's Stores, Inc. 52,500 1,366 Costco Wholesale Corp. 245,508 11,770 CVS Corp. 211,514 9,192 Dollar General Corp. 176,069 3,389 @o Dollar Tree Stores, Inc. 61,800 1,786 Family Dollar Stores, Inc. 92,400 2,730 Federated Department Stores, Inc. 96,900 4,889 Foot Locker, Inc. 76,900 1,876 @ The Gap, Inc. 482,500 9,640 Home Depot, Inc. 1,179,397 48,450 J.C. Penney Co., Inc. Holding Co. 146,300 5,061 o Kohl's Corp. 182,200 9,248 o Kroger Co. 393,730 5,949 @ Limitedbrands 274,168 6,794 Lowe's Cos., Inc. 418,600 23,559 @ The May Department Stores Co. 154,750 4,033 Michaels Stores, Inc. 71,800 2,089 @ The Neiman Marcus Group, Inc., Class A 26,200 1,594 Nordstrom, Inc. 73,700 3,182 o O'Reilly Automotive, Inc. 29,200 1,257 o Office Depot, Inc. 168,048 2,721 Pacific Sunwear of California 42,000 984 @ PETsMART, Inc. 76,800 2,456 Pier 1 Imports, Inc. 47,800 858 RadioShack Corp. 88,132 2,638 o Rent-A-Center, Inc. 45,750 1,098 o Rite Aid Corp. 276,900 1,030 Ross Stores, Inc. 81,600 2,144 @o Safeway, Inc. 237,180 4,326 Saks, Inc. 73,640 900 @ Sears, Roebuck & Co. 113,600 3,976 Staples, Inc. 265,560 7,898 Talbots, Inc. 30,400 802 Target Corp. 477,900 23,905 @ Tiffany & Co. 77,100 2,261 TJX Cos., Inc. 265,400 6,364 o Toys 'R' Us, Inc. 114,580 2,064 o Urban Outfitters, Inc. 42,600 1,747 =(4) Wal-Mart Stores, Inc. 2,267,900 122,285 Walgreen Co. 546,500 19,614 Whole Foods Market, Inc. 32,200 2,622 @o Williams-Sonoma, Inc. 62,700 2,393 ----------- 421,772 STEEL 0.1% ------------------------------------------------------------------------- @ Nucor Corp. 83,800 3,539 @ United States Steel Corp. 56,360 2,070 Worthington Industries, Inc. 46,100 915 ----------- 6,524 TELEPHONE 3.3% ------------------------------------------------------------------------- Adtran, Inc. 42,500 918 Alltel Corp. 164,567 9,040 AT&T Corp. 425,617 7,282 o Avaya, Inc. 235,100 3,385 BellSouth Corp. 979,400 26,121 CenturyTel, Inc. 74,287 2,384 o Citizens Communications Co. 152,518 2,044 o Crown Castle International Corp. 118,000 1,807 @o Level 3 Communications, Inc. 363,200 1,220 o Liberty Media Corp., Class A 1,549,300 13,820 o Nextel Communications, Inc., Class A 571,600 15,142 o Nextel Partners, Inc., Class A 98,000 1,650 o NTL, Inc. 46,700 3,106 o Qwest Communications International, Inc. 948,647 3,244 SBC Communications, Inc. 1,750,128 44,208 @ Sprint Corp. (FON Group) 756,028 15,839 Telephone & Data Systems, Inc. 30,900 2,314 o U.S. Cellular Corp. 46,100 1,920 Verizon Communications, Inc. 1,464,693 57,270 ----------- 212,714 TOBACCO 1.0% ------------------------------------------------------------------------- @ Altria Group, Inc. 1,093,500 52,991 @ Reynolds American, Inc. 78,700 5,419 UST, Inc. 88,900 3,659 ----------- 62,069 TRAVEL & RECREATION 0.5% ------------------------------------------------------------------------- Brunswick Corp. 49,100 2,304 o Caesars Entertainment, Inc. 162,600 2,910 @ Harrah's Entertainment, Inc. 59,200 3,464 Hilton Hotels Corp. 203,467 4,049
11 SCHWAB 1000 FUND PORTFOLIO HOLDINGS continued
VALUE SECURITY AND NUMBER OF SHARES ($ x 1,000) @ Mandalay Resort Group 34,900 2,401 Marriott International, Inc., Class A 120,700 6,577 o MGM Mirage 75,700 4,073 Starwood Hotels & Resorts Worldwide, Inc. 108,400 5,174 @ Station Casinos, Inc. 32,200 1,641 ----------- 32,593 TRUCKING & FREIGHT 0.3% ------------------------------------------------------------------------- @ C.H. Robinson Worldwide, Inc. 45,200 2,438 CNF, Inc. 26,700 1,169 Expeditors International Washington, Inc. 56,400 3,220 J.B. Hunt Transport Services, Inc. 43,000 1,757 Paccar, Inc. 93,870 6,506 Ryder Systems, Inc. 34,500 1,729 o Swift Transportation Co., Inc. 44,900 849 Werner Enterprises, Inc. 42,800 907 o Yellow Roadway Corp. 25,300 1,214 ----------- 19,789 UTILITIES: ELECTRIC & GAS 3.3% ------------------------------------------------------------------------- o The AES Corp. 334,106 3,642 AGL Resources, Inc. 34,500 1,076 o Allegheny Energy, Inc. 68,200 1,249 Allete, Inc. 15,566 529 Alliant Energy Corp. 59,300 1,564 Ameren Corp. 97,730 4,691 American Electric Power Co., Inc. 211,920 6,979 Aqua America, Inc. 49,675 1,086 @o Calpine Corp. 221,700 552 Centerpoint Energy, Inc. 164,217 1,726 @ Cinergy Corp. 95,465 3,773 @ Consolidated Edison, Inc. 128,100 5,566 Constellation Energy Group, Inc. 89,750 3,646 Dominion Resources, Inc. 174,016 11,193 DPL, Inc. 67,892 1,466 DTE Energy Co. 90,183 3,852 @ Duke Energy Corp. 488,162 11,975 @o Dynegy, Inc., Class A 202,300 997 Edison International 174,700 5,328 @ El Paso Corp. 344,646 3,081 Energen Corp. 19,400 1,043 Energy East Corp. 78,384 1,975 Entergy Corp. 122,821 8,028 Equitable Resources, Inc. 33,400 1,847 Exelon Corp. 352,374 13,961 FirstEnergy Corp. 176,898 7,311 FPL Group, Inc. 98,600 6,794 @ Great Plains Energy, Inc. 37,200 1,060 Hawaiian Electric Industries, Inc. 40,400 1,133 @ KeySpan Corp. 85,334 3,409 Kinder Morgan, Inc. 66,200 4,261 MDU Resources Group, Inc. 60,800 1,559 National Fuel Gas Co. 43,700 1,224 Nicor, Inc. 23,700 889 NiSource, Inc. 140,880 3,022 @ Northeast Utilities, Inc. 71,800 1,388 NSTAR 28,400 1,405 OGE Energy Corp. 46,700 1,185 @ Oneok, Inc. 54,800 1,470 Peoples Energy Corp. 19,700 843 Pepco Holdings, Inc. 92,025 1,897 o PG&E Corp. 222,358 7,124 Piedmont Natural Gas Co. 20,300 924 Pinnacle West Capital Corp. 49,000 2,088 PPL Corp. 95,220 4,951 Progress Energy, Inc. 131,400 5,427 o Public Service Enterprise Group, Inc. 126,100 5,371 Puget Energy, Inc. 50,600 1,177 Questar Corp. 44,600 2,141 @ SCANA Corp. 59,500 2,207 @ Sempra Energy 121,438 4,073 @ The Southern Co. 394,700 12,469 TECO Energy, Inc. 100,800 1,411 TXU Corp. 157,712 9,655 Vectren Corp. 40,600 1,050 Westar Energy, Inc. 38,900 815 @ Williams Cos., Inc. 277,909 3,477 Wisconsin Energy Corp. 63,200 2,063 WPS Resources Corp. 19,500 926 Xcel Energy, Inc. 214,035 3,660 ----------- 210,684 PREFERRED STOCK 0.0% of net assets REAL PROPERTY 0.0% ------------------------------------------------------------------------- Simon Property Group LP 7,020 382 WARRANTS 0.0% of net assets REAL PROPERTY 0.0% ------------------------------------------------------------------------- General Growth Properties, Inc. expires 11/09/04 11,530 9
12 SCHWAB 1000 FUND PORTFOLIO HOLDINGS continued
VALUE SECURITY AND NUMBER OF SHARES ($ x 1,000) SHORT-TERM INVESTMENT 0.2% of net assets Provident Institutional TempFund 13,754,005 13,754
FACE SECURITY AMOUNT RATE, MATURITY DATE ($ x 1,000) U.S. TREASURY OBLIGATION 0.0% of net assets = U.S. Treasury Bill 1.63%, 12/16/04 300 299 -------------------------------------------------------------------------
END OF INVESTMENTS.
FACE SECURITY AMOUNT RATE, MATURITY DATE ($ 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 futures contracts.
NUMBER OF CONTRACT UNREALIZED CONTRACTS VALUE GAINS FUTURES CONTRACTS S&P 500 Index, Long expires 12/17/04 30 8,477 87
13 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 Investments - Schwab 1000 Fund 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 ------------
EX-99.CODE ETH 2 f04029exv99wcodeeth.txt CODE OF ETHICS THE SCHWABFUNDS CODE OF BUSINESS CONDUCT AND ETHICS FOR PRINCIPAL EXECUTIVE AND SENIOR FINANCIAL OFFICERS OUR VISION Provide shareholders with the most useful and ethical Mutual Funds in the world. OUR VALUES Be fair, empathetic and responsive in serving our shareholders. Strive relentlessly to innovate what we do and how we do it. Always earn and be worthy of our shareholders' trust. SHAREHOLDER VALUE The SchwabFunds' Principal Executive Officer and Principal Financial Officer and any other officers who serve a similar function shall endeavor to act in the best interests of the SchwabFunds and their shareholders. INTRODUCTION The SchwabFunds Code of Business Conduct and Ethics ("Code") covers all of the investment companies within the SchwabFunds' complex. This Code applies to the SchwabFunds' Principal Executive Officer and Principal Financial Officer and any other officers who serve a similar function (each an "Officer"). The SchwabFunds are committed to the highest standards of ethical conduct in the fulfillment of our Vision and Values. We are proud of our long-standing reputation for integrity and honesty that strengthens our Vision to provide our shareholders with the most useful and ethical mutual funds in the world. This reputation is not just a source of competitive advantage in the financial services industry; it is fundamental to the way we do business. This Code provides guidance on how you, as an Officer, uphold these ethical standards. It applies to your service to the SchwabFunds. The Code consists of an outline of policies regarding conduct in several key areas: ethical behavior and legal compliance, conflicts of interest, confidentiality and business practices. You are responsible for reviewing the Code and for acting in compliance with the Code in your daily activities. The Code is not exhaustive; it provides guidance for carrying out your responsibilities on behalf of the SchwabFunds and observing the highest standards of ethical conduct. Because the Code does not address every possible situation that may arise, you are responsible for exercising good judgment, applying ethical principles, and raising questions when in doubt. Your integrity and good judgment enhance the SchwabFunds' brand, build the SchwabFunds' reputation, and are the foundation of trust for our shareholder and business relationships. GENERAL SCHWABFUNDS AND PERSONAL STANDARDS OF CONDUCT As an Officer you have a responsibility to act in a manner in which you earn the public's trust and confidence. Your conduct is guided by our values, which are to: - Be fair, empathetic and responsive in serving our shareholders. - Strive relentlessly to innovate what we do and how we do it. - Always earn and be worthy of our shareholders' trust. - 1 - SCHWABFUNDS CONDUCT The following general principles guide our SchwabFunds conduct: - You will act in accordance with applicable laws and regulations and will not tolerate behavior that is otherwise. - You will make public disclosures as required by law and regulation and as deemed appropriate to enable reasonable evaluation of the SchwabFunds. - You will strive to provide an equitable return for our investors. - You will provide products and services designed to help shareholders achieve their financial goals. - You will conduct business fairly, in open competition. INDIVIDUAL CONDUCT The following general principles guide your individual conduct: - You will not take any action that will violate any applicable law or regulation. - You will adhere to the highest standards of ethical conduct. - You will maintain the confidentiality of all information you obtain in the course of your employment. - You will escalate issues which you reasonably believe may place the SchwabFunds at risk, and report any behavior you reasonably believe is wrong. - You will not abuse or take the SchwabFunds' assets or use them for your personal gain. - You will not engage in any activities that create a conflict of interest (as defined below) between you and the SchwabFunds. - You will comport yourself publicly in a manner that does not bring discredit on the SchwabFunds. - You will deal fairly with shareholders, colleagues and others. - You will comply with this Code. You have personal responsibility to conduct the SchwabFunds' business in a manner consistent with these principles, and you cannot avoid this responsibility by contrary instructions from a supervisor or by turning a blind eye. Many of these principles are explained in more detail below and in the SchwabFunds' other polices and procedures. If you have questions on any of them, you should consult with the Chief Legal Officer of the SchwabFunds or the Chief Compliance Officer of Charles Schwab Investment Management, Inc. ("CSIM"). ETHICAL BEHAVIOR Your decisions and behavior have far-reaching implications. Standards of ethical and professional conduct reflect on the individual, on the SchwabFunds brand, and on the investment industry as a whole. A strong personal sense of ethics should always play a significant role in guiding you towards a proper course of action. - 2- COMPLIANCE WITH LAWS, RULES, REGULATIONS AND POLICIES The foundation of the SchwabFunds' ethical standards is compliance with the letter and spirit of the law. You must respect and obey all of the laws, rules and regulations applicable to our business, including among others, securities and other federal, state and local laws. You are responsible for being familiar and complying with the SchwabFunds' policies and procedures. Although you are not expected to know the details of each law governing our business, you are expected to be familiar with and comply with the SchwabFunds' policies and procedures and, when in doubt, to seek advice from the Chief Legal Officer or Chief Compliance Officer as outlined in this Code. CONSEQUENCES FOR FAILURE TO COMPLY AND REPORTING CERTAIN CONDUCT You can be subject to discipline up to and including termination of employment if you violate this Code. If you know of, or reasonably believe there is, a violation of applicable laws or this Code, you must report that information immediately to the Chief Legal Officer. You should not conduct preliminary investigations, unless authorized to do so by the Chief Legal Officer. Anyone who in good faith raises an issue regarding a possible violation of law regulation or SchwabFunds policy or any suspected illegal or unethical behavior will be protected from retaliation. CONFLICTS OF INTEREST To maintain the highest ethical standards in conducting our business, it is important that you do not place yourself in a position that would cloud your judgment in carrying out the business affairs of the SchwabFunds. A "conflict of interest" occurs when your private interest interferes in any way -- or even appears to interfere -- with the interests of the SchwabFunds. You have a duty to report any material transaction or relationship that reasonably could be expected to be or to create a conflict of interest with the SchwabFunds. If you have any questions regarding what might constitute a conflict of interest, or to report any transaction or relationship that you believe has occurred or may occur that might constitute a conflict of interest, contact the Chief Legal Officer or Chief Compliance Officer. Certain conflicts of interest arise out of the relationships between Officers and the SchwabFunds and already are subject to conflict of interest provisions in the Investment Company Act of 1940 ("Investment Company Act") and the Investment Advisers Act of 1940 ("Investment Advisers Act"). For example, Officers may not individually engage in certain transactions (such as the purchase or sale of securities or other property) with the SchwabFunds because of their status as "affiliated persons" of the SchwabFunds. The SchwabFunds' and CSIM's compliance programs and procedures are designed to prevent, or identify and correct, violations of these provisions. This Code does not, and is not intended to, repeat or replace these programs and procedures, and such conflicts fall outside of the parameters of this Code. Although typically not presenting an opportunity for improper personal benefit, conflicts arise from, or as a result of, the contractual relationship between the SchwabFunds and CSIM. Each Officer may also be an officer or employee of CSIM or Schwab. As a result, this Code recognizes that the Officers will, in the normal course of their duties (whether formally for the SchwabFunds or for CSIM, or for both), be involved in establishing policies and implementing decisions that will have different effects on CSIM and the SchwabFunds. The participation of the Officers in such activities is inherent in the contractual relationship between the SchwabFunds and CSIM and is consistent with the performance by the Officers of their duties as officers of the SchwabFunds. Thus, if performed in conformity with the provisions of the Investment Company Act and the Investment Advisers Act, such activities will be deemed to have been handled ethically. In addition, it is recognized by the Trustees that the Officers may also be officers or employees of one or more other investment companies covered by this or other codes. - 3 - INSIDE INFORMATION It is unlawful to trade in the securities of any SchwabFunds on the basis of material nonpublic (or inside) information or to disclose such information to others who may profit from it. Generally, material information is any information that an investor would likely consider important in deciding whether to buy, sell or hold securities or that could affect the market price of the securities. Examples include actual or estimated financial results or change in dividends; significant discoveries or product developments; possible mergers, acquisitions or divestitures; major changes in business strategies; obtaining or losing significant contracts; and threatened major litigation or related developments. Do not disclose inside information to anyone except those who have a need to know it in order to fulfill their responsibilities for the SchwabFunds and in accordance with SchwabFunds policy. If you have or receive information and are unsure whether it is within the definition of inside information or whether its release might be contrary to a fiduciary or other obligation, contact the Chief Legal Officer prior to disclosing any such information. ACCEPTANCE OF GIFTS OR ENTERTAINMENT The acceptance of gifts or excessive entertainment from shareholders, vendors, suppliers, competitors or other employees must not constitute a conflict of interest or create the appearance of impropriety. You may accept small gifts and entertainment that are worth less than the amount Charles Schwab Corporation policy sets as a limit, but you must be personally satisfied that the gift or entertainment is not intended to influence your judgment or the performance of your duties. If you have any questions regarding the appropriateness of a gift, you must obtain approval from the Chief Compliance Officer before accepting it. CONFIDENTIALITY OF INFORMATION As mutual funds, we have particular responsibilities for safeguarding the information of our shareholders and the proprietary information of the SchwabFunds. You should be mindful of this obligation when you use the telephone, fax, telex, electronic mail, and other electronic means of storing and transmitting information. You should not discuss confidential information in public areas where it can be overheard, read confidential documents in public places, nor leave or discard confidential documents where they can be retrieved by others. CONFIDENTIALITY OF SHAREHOLDER INFORMATION Information concerning the identity of SchwabFunds' underlying shareholders and their transactions and accounts is confidential. Such information may not be disclosed to persons working on behalf of the SchwabFunds except as they may need to know it in order to fulfill their responsibilities to the SchwabFunds. You may not disclose such information to anyone or any firm outside the SchwabFunds unless (i) the outside firm needs to know the information in order to perform services for the SchwabFunds and is bound to maintain its confidentiality; (ii) when the shareholder has consented or been given an opportunity to request that the information not be shared; (iii) as required by law; or (iv) as authorized by the Chief Legal Officer or Chief Compliance Officer. Information regarding shareholder or SchwabFunds transactions must not be used in any way to influence trades in personal accounts or in the accounts of other shareholders, including those of other employees, officers and directors. Trading ahead of shareholder or SchwabFunds transactions is known as frontrunning and is prohibited. Following shareholder or SchwabFunds transactions with your trading activity is known as piggybacking or shadowing and is likewise prohibited. If you reasonably believe improper trading in personal, shareholder or SchwabFunds accounts has occurred, you must report such conduct to the Chief Legal Officer. - 4 - PRIVACY The SchwabFunds is committed to safeguarding its customers' privacy. We do not sell any personally identifiable customer information. Sharing of such information with third parties is limited to situations related to the processing and servicing of customer accounts, and to specifically delineated exceptions in the federal privacy law. We share information with our affiliates as allowed by federal law. You must be familiar with the procedural and systemic safeguards we maintain to protect this information and report any breaches of these safeguards to the Chief Legal Officer or Chief Compliance Officer. PROPRIETARY INFORMATION OF THE SCHWABFUNDS You have the responsibility to safeguard the SchwabFunds' proprietary information. Proprietary information includes intellectual property (copyrights, trademarks or patents or trade secrets), particular know-how (business or organizational designs, or business, marketing or service plans or ideas) and sensitive information about the SchwabFunds (databases, records, salary information or unpublished financial reports). If you have any questions about what constitutes proprietary information, or if you believe such information has been compromised, contact the Chief Legal Officer. PROTECTION AND USE OF SCHWABFUNDS ASSETS You are obligated to protect the SchwabFunds' assets and ensure their efficient use. Theft, carelessness and waste have a direct impact on the SchwabFunds. SchwabFunds equipment should not be used for non-SchwabFunds business, though incidental personal use may be permitted. Breaches of this obligation must be reported to the Chief Legal Officer. NON-RETALIATION It is your obligation to report issues regarding possible violations of business regulations or this Code when you suspect in good faith that a violation may have or might occur. No Officer will be retaliated against for making a good faith complaint or bringing inappropriate conduct to the SchwabFunds' attention, for assisting another Officer in making a good faith report, for cooperating in an investigation, or for filing an administrative claim with a state or federal governmental agency. Any employee who engages in retaliatory conduct in violation of our policies will be subject to disciplinary action, up to and including termination of employment. If you reasonably believe retaliatory conduct has occurred, you must report such conduct to the Chief Legal Officer. BUSINESS PRACTICES It is your obligation to report issues regarding possible violations of business regulations or this Code when you suspect in good faith that a violation may have or might occur. As a financial institution, it is imperative that we operate with efficiency, and the highest business standards and that we maintain and provide accurate information. FINANCIAL DISCLOSURES The SchwabFunds are committed to providing full, fair, accurate, timely and understandable disclosure in reports and documents that the SchwabFunds file with, or submit to, the Securities and Exchange Commission and other regulatory agencies and in other public communications made by the SchwabFunds. You are required to comply with SchwabFunds policies and procedures to provide such full, fair, accurate, timely and understandable disclosure. If you have any questions about your duties in supporting the SchwabFunds' financial reporting processes, contact the Chief Legal Officer or Chief Compliance Officer. - 5 - CONDUCT OF AUDITS Neither you nor any other person acting under your direction shall directly or indirectly take any action to fraudulently influence, coerce, manipulate, or mislead any independent public or certified public accountant engaged in the performance of an audit or review of the SchwabFunds' financial statements. Types of conduct that constitute improper influence include, but are not limited to, directly or indirectly: - Offering or paying bribes or other financial incentives, including offering future employment or contracts for non-audit services; - Providing an auditor with inaccurate or misleading legal analysis; - Threatening to cancel or canceling existing non-audit or audit engagements if the auditor objects to the issuer's accounting; - Seeking to have a partner removed from the audit engagement because the partner objects to the SchwabFunds' accounting; - Blackmailing; and - Making physical threats. If you reasonably believe improper influence has occurred, you must report such conduct to the Chief Legal Officer or the Chief Compliance Officer. RECORD-KEEPING We require honest and accurate recording and reporting of information to maintain the integrity of our business records and to make responsible business decisions. The SchwabFunds' books, records and accounts must (i) accurately reflect all transactions of the SchwabFunds and all other events that are subject of a specific regulatory record-keeping requirement; (ii) be maintained in reasonable detail; and (iii) conform both to applicable legal requirements and to the SchwabFunds' system of internal controls. Unrecorded or "off the books" funds or assets are prohibited unless permitted by applicable law or regulation. Business records must not contain exaggeration, derogatory remarks, guesswork, or inappropriate characterizations of people and companies. This applies equally to e-mail, internal memoranda, formal reports, and all other forms of business records. You must be familiar with the SchwabFunds' record retention policies and always retain or destroy records according to them. In the event of litigation, governmental investigation or the threat of such action, you should consult the Chief Legal Officer or the Chief Compliance Officer regarding record retention. SALES PRACTICES If you transact business for shareholders, you are required to know and observe the SchwabFunds' specific policies and procedures for shareholder sales and transactions, such as the content and use of sales materials, documentation for transactions, quotations and suitability. Likewise, if you transact business with third parties (such as vendors or suppliers), you will be required to know and observe the SchwabFunds' policies and procedures for such transactions, such as marketing policies, procedures for performing due diligence on third parties, and obtaining proper authorizations for any agreements. You must be familiar with any enumerated policies and procedures governing your sales activities and use good judgment in complying with them. You must seek advice from the Chief Legal Officer or the Chief Compliance Officer if you have any questions. - 6 - COMPETITION AND FAIR DEALING We operate our business fairly and honestly. We seek competitive advantage through performance and dedication to our Vision and Values and never through unethical or illegal business practices. It is our policy to comply with anti-trust laws. These laws are complex and not easily summarized but at a minimum require that there be no agreement or understanding between the SchwabFunds and their competitors that affect prices, terms or conditions of sale or that unreasonably restrain full and fair competition. You must always respect the rights of and deal fairly with the SchwabFunds' shareholders and competitors. You must never take unfair advantage of anyone through manipulation, concealment, abuse of privileged information, misrepresentation of material facts, or any other unfair dealing practice. If you have any question about what constitutes an unfair business practice, you should consult the Chief Legal Officer. PROHIBITION OF BRIBERY AND KICKBACKS Our policies prohibit bribery or kickbacks of any kind and to anyone in the conduct of our business. The U.S. government has a number of laws and regulations applicable specifically to business gratuities that may be accepted by U.S. and foreign government personnel. The promise, offer or delivery to an official or employee of the U.S. government or an official, employee or candidate of a foreign government of a gift, favor, payment or other gratuity in violation of these rules would not only violate SchwabFunds policy but could also be a criminal offense. Similarly, federal law, as well as the laws of many states, prohibits engaging in "commercial bribery." Commercial bribery involves soliciting, demanding or agreeing to accept anything of value from any person intending to influence or be rewarded in connection with any business or transaction, and prohibits all such behavior, for example, with respect to vendors, competitors, shareholders, and government employees. If you have any questions or need any guidance, you should contact the Chief Legal Officer. COMPLIANCE PROCEDURES We will work together to ensure compliance with the Code and to take prompt action in response to reported violations of the Code. SEEKING GUIDANCE If you are unsure of what to do in any situation, seek guidance before you act. Use the SchwabFunds resources, including the Chief Legal Officer or the Chief Compliance Officer. If you feel that it is not appropriate to discuss a matter with the Chief Legal Officer or the Chief Compliance Officer, you may contact the Ombudsperson for the Charles Schwab Corporation. Remember that you must report all incidents of misconduct, and you may do so without fear of retaliation. If you have violated the Code, however, making a report will not protect you from the consequences of your actions. REPORTING CONDUCT THAT MAY BE IN VIOLATION OF THE CODE You must report conduct that you believe to be in violation of the Code, SchwabFunds policy, law or regulation. Reports should be escalated in the following manner: - If you have a reasonable belief that a violation has occurred, or may occur, you must report the conduct to the Chief Legal Officer. - The Chief Legal Officer will take all appropriate action to investigate any potential violation reported to the Chief Legal Officer and will notify counsel for SchwabFunds independent Trustees ("Trustees") and counsel for the SchwabFunds of the substance of the potential violation. - 7 - - If after investigation, the Chief Legal Officer reasonably believes that no violation has occurred, the Chief Legal Officer is not required to take any further action. - Any matter that the Chief Legal Officer believes is a violation will be reported to the Trustees. - If the Trustees concur that a violation has occurred, the Trustees will consider appropriate action, which may include review of, and appropriate modification to, applicable policies and procedures; notification to appropriate personnel of CSIM or its board; notification to appropriate personnel of the Charles Schwab Corporation or its board; or a recommendation to dismiss the Officer. ROLES IN OBSERVING COMPLIANCE As Officer of the SchwabFunds, you have a role in observing compliance with the Code. In general, that includes: ROLE OF OFFICERS - Read and be familiar with conduct rules outlined in this Code and periodically review them. - Affirm in writing to the Trustees that the Officer has received, read and understands the Code. - Annually affirm to the Trustees that the Officer has complied with the requirements of the Code. - Comply with the conduct standards outlined in this Code in all dealings and actions, including those with shareholders, the public and vendors. - Report in a timely manner to the Chief Legal Officer any conduct that may constitute a violation of the Code, SchwabFunds policies, or laws, rules and regulations. - Raise questions or concerns about conduct issues with your supervisor, the Chief Legal Officer or Chief Compliance Officer, and seek advice when in doubt. - Cooperate with management during fact-finding investigations and comply with any confidentiality rules imposed. ROLE OF TRUSTEES - Review the Code annually and recommend any changes. - Review the Officer reports of compliance with the Code. INTERPRETATION OF CODE AND WAIVERS OF THE CODE The Chief Legal Officer is responsible for applying the Code to specific situations in which questions are presented under it and has the authority to interpret the Code in any particular situation. However, waivers of the Code may be made only by the Trustees and will be promptly disclosed publicly as required by law. AMENDMENTS This Code may not be amended except in written form, which is specifically approved or ratified by a majority of the Trustees including a majority of the independent Trustees. Any amendments will, to the extent required, be disclosed in accordance with law. - 8 - OTHER POLICIES AND PROCEDURES This Code constitutes the sole code of ethics adopted by the SchwabFunds for purposes of Section 406 of the Sarbanes-Oxley Act of 2002 and the rules and forms applicable to registered investment companies thereunder. Insofar as other policies or procedures of the SchwabFunds, CSIM, Charles Schwab & Co., Charles Schwab Corporation or other SchwabFunds service providers govern or purport to govern the behavior or activities of an Officer who is subject to this Code, they are superseded by this Code to the extent that they conflict with the provisions of this Code. CSIM's code of ethics under Rule 17j-1 pursuant to the Investment Company Act of 1940 and CSIM's, Charles Schwab & Co.'s, and the Charles Schwab Corporation's policies and procedures set forth in their respective compliance manuals and elsewhere are separate requirements applying to the Officers and are not part of this Code. CONFIDENTIALITY All reports and records prepared or maintained pursuant to this Code will be considered confidential and shall be maintained and protected accordingly. Except as otherwise required by law or this Code, such matters shall not be disclosed to anyone other than the Trustees, CSIM, the Charles Schwab Corporation and their respective counsel. INTERNAL USE This Code is intended for internal use by the SchwabFunds and does not constitute an admission, by or on behalf of any SchwabFunds, as to any fact, circumstance, or legal conclusion. CONTACTS If you have further questions about the Code, or about its applicability with respect to a particular matter, please contact the Chief Legal Officer or Chief Compliance Officer. If you feel that it is not appropriate to discuss a matter with Chief Legal Officer or the Chief Compliance Officer, you may contact the Ombudsperson. CHIEF LEGAL OFFICER: Koji Felton 415-667-3461 CHIEF COMPLIANCE OFFICER: Randy Fillmore 415-636-3680 CHARLES SCHWAB CORPORATION OMBUDSPERSON: Sam Scott Miller, Esq. 212-506-5130 Orrick Herrington & Sutcliffe LLP - 9 - EX-99.CERT 3 f04029exv99wcert.txt SECTION 302 CERTIFICATIONS CERTIFICATIONS I, Evelyn Dilsaver, certify that: 1. I have reviewed this report on Form N-CSR of Schwab Investments - Schwab 1000 Fund; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: December 16, 2004 /s/ Evelyn Dilsaver ----------------- ------------------------------------- Evelyn Dilsaver President and Chief Executive Officer CERTIFICATIONS I, George Pereira, certify that: 1. I have reviewed this report on Form N-CSR of Schwab Investments - Schwab 1000 Fund; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: December 16, 2004 /s/ George Pereira ----------------- ----------------------------------------- George Pereira Treasurer and Principal Financial Officer EX-99.906CERT 4 f04029exv99w906cert.txt SECTION 906 CERTIFICATIONS CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report for Schwab Investments - Schwab 1000 Fund ("issuer") on Form N-CSR for the period ended October 31, 2004 ("periodic report"), each of the undersigned, being the Chief Executive Officer and Principal Financial Officer, hereby certifies, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge: (1) The periodic report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the periodic report fairly presents, in all material respects, the financial condition and results of operations of the issuer for the period presented therein. /s/ Evelyn Dilsaver Date: December 16, 2004 - ----------------------------------------- ------------------------------------- Evelyn Dilsaver President and Chief Executive Officer /s/ George Pereira Date: December 16, 2004 - ----------------------------------------- ------------------------------------- George Pereira Treasurer and Principal Financial Officer 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. 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