UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT
OF
REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-7704
Schwab Capital Trust
-----------------------------------------
(Exact name of registrant as specified in charter)
101 Montgomery Street, San Francisco, California 94104
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(Address of principal executive offices) (Zip code)
Evelyn Dilsaver
Schwab Capital Trust
101 Montgomery Street, San Francisco, California 94104
-----------------------------------------------------------
(Name and address of agent for service)
Registrant's telephone number, including area code: (415) 627-7000
Date of fiscal year end: October 31
Date of reporting period: October 31, 2005
ITEM 1: REPORT(s) TO SHAREHOLDERS.
SCHWAB EQUITY INDEX FUNDS
ANNUAL REPORT
October 31, 2005
Schwab S&P 500 Index Fund
(formerly Schwab S&P 500 Fund)
Schwab 1000 Index(R) Fund
(formerly 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 cost-efficient ways to tap into the power of the stock market
for long-term growth potential.
IN THIS REPORT
Management's Discussion .......................................... 2
Performance and Fund Facts
Schwab S&P 500 Index Fund................ 7
Schwab 1000 Index(R) Fund................ 11
Schwab Small-Cap Index Fund(R)........... 14
Schwab Total Stock Market
Index Fund(R)............................ 17
Schwab International Index Fund(R)....... 20
Fund Expenses..................................................... 23
Financial Statements
Schwab S&P 500 Index Fund................ 25
Schwab 1000 Index(R) Fund................ 34
Schwab Small-Cap Index Fund(R)........... 43
Schwab Total Stock Market
Index Fund(R)............................ 51
Schwab International Index Fund(R)....... 60
Financial Notes................................................... 68
Investment Advisory
Agreement Approval................................................ 74
Trustees and Officers............................................. 77
Glossary.......................................................... 81
- ------------------------------------------------------------------------------
Select Shares(R) are available on many Schwab Funds(R)
Schwab Funds offers Select Shares, a share class that carries lower expenses
than Investor Shares(TM) in exchange for higher investment minimums on many of
its funds. Select Shares are available for initial purchases of $50,000 or more
of a single fund in a single account and for shareholders who add to their
existing Investor Share position, bringing the value to or above $50,000. We
encourage shareholders of Investor Shares to review their portfolio to see if
they are eligible to exchange into Select Shares. If you believe you are
eligible, you should contact Schwab to perform a tax-free interclass exchange
into Select Shares. Instructions for performing a tax-free interclass exchange
can also be referenced on the Schwab Funds website at WWW.SCHWAB.COM/SCHWABFUNDS
under Schwab Funds Investor Information.
Fund investment adviser: Charles Schwab Investment Management, Inc. (CSIM).
Distributor and transfer agent: Charles Schwab & Co., Inc. (Schwab).
The industry/sector classification of the funds' portfolio holdings uses the
Global Industry Classification Standard (GICS) which was developed by and is the
exclusive property of Morgan Stanley Capital International Inc. and Standard &
Poor's. GICS is a service mark of MSCI and S&P and has been licensed for use by
Charles Schwab & Co., Inc.
[PHOTO OF CHARLES SCHWAB]
Charles Schwab
Chairman
Investors should consider carefully information contained in the prospectus,
including investment objectives, risks, charges and expenses. You can request a
prospectus by calling Schwab at 1-800-435-4000. Please read the prospectus
carefully before investing.
Performance data quoted represents past performance and does not indicate future
results. Current performance may be lower or higher. Investment value will
fluctuate, and shares, when redeemed, may be worth more or less than original
cost. Small-cap funds are subject to greater volatility than those in other
asset categories.
FROM THE CHAIRMAN
Dear Shareholder,
I founded Schwab over thirty years ago to be a home for serious investors. That
mission continues to guide us today as we constantly innovate on behalf of our
clients. By continuing to provide the highest quality products and services--at
a great price--we remain true to our heritage.
I take particular pride in the Schwab Funds. Founded over 15 years ago, they
have now grown to include more than 50 funds with over $140 billion in assets as
of this report date. With a variety of investment strategies, Schwab Funds
provide a range of innovative investment choices that can serve as a foundation
for your asset allocation plan. We've continued to expand our product offering
over the past year, as Schwab Funds President Evelyn Dilsaver explains in more
detail on the following page.
Schwab Funds is managed by Charles Schwab Investment Management, Inc., one of
the largest mutual fund managers in the U.S. Our portfolio managers share a
passion for market analysis and use some of the most sophisticated financial
models available. I am proud of their depth of experience, which reflects an
average tenure of more than 15 years in the investment industry. Furthermore, I
am impressed with the commitment that our managers bring to the stewardship of
the funds, for you, their shareholders.
This commitment and experience is evident in our funds' performance. I'm
especially pleased to highlight the strong performance of the Schwab Small-Cap
Equity Fund which ranked in the top 2% of its category for the one-year period
ended October 31, 2005. 1
In closing, I want to thank you for investing with us. We strive every day to
warrant the trust you have placed in us; that will never change.
Sincerely,
/s/ Charles Schwab
1 Source: Lipper Small Cap Core Funds. For the one-year period, rankings were:
Select Shares #11 and Investor Shares #12 out of 604 funds. Numbers assume
reinvestment of dividends and capital gains over each time period. Lipper,
Inc. rankings are based on average total returns not including sales charges.
MANAGEMENT'S DISCUSSION for the year ended October 31, 2005
[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'm pleased to bring you the annual report for the Schwab Equity Index Funds for
the one-year period ended October 31, 2005.
With their market-tracking performance, broad diversification and lower costs,
index funds can complement a portfolio of actively managed funds. For example,
the Schwab 1000 Index Fund includes the stocks of the largest 1,000 publicly
traded companies in the United States. This fund has delivered solid results and
is a tax-efficient investment that can serve as the core stock portion of an
asset allocation strategy.
We continue to develop and manage Schwab Funds to help you achieve your goals
and to provide an uncomplicated way to build a well-diversified portfolio. In
terms of development, Schwab Funds launched seven new funds in 2005. Among the
new funds is the Schwab Large-Cap Growth Fund, which commenced operations on
October 3, 2005. This fund seeks capital appreciation by selecting companies
with market capitalizations greater than $5 billion and is actively managed by a
team of investment professionals that understands how a disciplined investment
strategy can help achieve competitive returns.
I speak for all of Schwab Funds when I say we want Schwab to be the place where
investors can find useful, quality financial products and services to help them
succeed.
Thank you for investing in Schwab Funds.
Sincerely,
/s/ Evelyn Dilsaver
Investors should consider carefully information contained in the prospectus,
including investment objectives, risks, charges and expenses. You can request a
prospectus by calling Schwab at 1-800-435-4000. Please read the prospectus
carefully before investing.
Investment value will fluctuate, and shares, when redeemed, may be worth more or
less than original cost.
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 the funds. Prior to joining the firm in October 1997, he worked for more than
eight years in asset management.
[PHOTO OF LARRY MANO]
LARRY MANO, vice president and senior portfolio manager of the investment
adviser, is responsible for the day-to-day management of the Schwab Total Stock
Market Index Fund and co-management of the remaining funds. Prior to joining the
firm in 1998, he worked for 20 years in equity management.
THE INVESTMENT ENVIRONMENT AND THE FUNDS
Despite a turbulent year in the news, the markets remained in a steady growth
mode and ended the one-year report period with positive results. Oil prices hit
all-time highs and the Federal Reserve continued to raise short-term interest
rates to curb inflationary pressures, raising the Fed Funds Target eight
consecutive times in the one-year report period. The moves had a limited impact
on overall economic growth, due primarily to the record-low level of interest
rates from which the increases began.
Despite concerns of high energy prices, which remained a significant headwind
for economic performance throughout the period, corporate earnings remained
strong throughout the year. Additionally, with the unemployment rate hovering
around 5% and GDP growth around 3.6%, job and income growth remained positive
and investors remained optimistic. Productivity gains and more restrictive
monetary policy kept a lid on core inflation. The productivity gains, coupled
with foreign investors buying large amounts of U.S. government securities,
helped contain increases in long-term interest rates. These conditions caused
the dollar to rally, which took pressure off the price of imported goods.
The big news for the past few months was the impact of Hurricanes Katrina and
Rita. The devastation caused by these storms was particularly heavy with respect
to the energy infrastructure in the South. Oil prices rose sharply in the
aftermath of the hurricanes, with crude oil peaking above $71 per barrel in
early September. However, a quick action by the federal government to release
Strategic Petroleum Reserves and soften oil demand led to a subsequent decline
off that peak. While the full economic effect of the hurricanes was unknown at
the end of the report period, the damage appears to be limited to the regions in
the hurricanes' path and to the energy infrastructures in the area.
Another significant event that occurred during the report period was the
appointment of Ben Bernanke to succeed Alan Greenspan as Chairman of the Federal
Reserve Board. Although he has not yet been confirmed into office, Bernanke's
experience on the Federal Open Market Committee and his expertise in monetary
economics has eased the concerns of the markets and caused investors to expect a
smooth transition.
Source of Sector Classification: S&P and MSCI.
Schwab Equity Index Funds 3
MANAGEMENT'S DISCUSSION continued
[PHOTO OF TOM BROWN]
TOM BROWN, an associate portfolio manager of the investment adviser, is
responsible for day-to-day co-management of the funds except for the Schwab
Total Stock Market Index Fund. He joined Schwab in 1995, became a trader in
1999, and was named to his current position in 2004.
Despite tragic hurricanes, rising interest rates, and soaring energy prices, the
funds and their respective benchmarks held up well. The S&P 500 Index 1 posted
gains of 8.72% for the one-year period ending on October 31, 2005 while the
Russell 2000 Index also displayed a positive return of 12.08%. As improving
fundamentals and attractive valuations have strengthened investor interest in
emerging markets, the MSCI EAFE (Morgan Stanley Capital International, Inc.
Europe, Australasia, and Far East) Index also had an impressive return of 18.09%
for the one-year report period.
Although bonds did not fare nearly as well as equities this period, performance
was still positive, up by 1.13%, as measured by the Lehman Brothers U.S.
Aggregate Bond Index. This differential is not unusual, given that we were in
the midst of an economic recovery during the period. When the economy is strong
and job growth is robust, investors expect to see inflation, which generally
leads to higher interest rates and ultimately brings down prices for bonds. In
summary, the markets have seen quite a few events with the potential to diminish
investor confidence, but as of the end of the period, significant negative
impacts had not materialized.
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.
8.72% S&P 500(R) INDEX: measures U.S. large-cap stocks
12.08% RUSSELL 2000(R) INDEX: measures U.S. small-cap stocks
18.09% MSCI-EAFE(R) INDEX: measures (in U.S. dollars) large-cap stocks in
Europe, Australasia and the Far East
1.13% LEHMAN BROTHERS U.S. AGGREGATE BOND INDEX: measures the U.S. bond
market
[LINE GRAPH]
LEHMAN
BROTHERS U.S.
AGGREGATE S&P 500(R) RUSSELL 2000(R) MSCI-EAFE(R)
BOND INDEX INDEX INDEX INDEX
31-Oct-04 0.00 0.00 0.00 0.00
07-Nov-04 -0.52 3.21 3.53 3.71
14-Nov-04 -0.49 4.88 6.60 4.81
21-Nov-04 -0.40 3.69 5.15 5.92
28-Nov-04 -0.47 4.81 8.21 6.96
05-Dec-04 -0.38 5.62 10.13 8.68
12-Dec-04 0.13 5.37 8.44 5.79
19-Dec-04 -0.05 5.95 10.16 7.36
26-Dec-04 0.02 7.40 11.44 10.52
02-Jan-05 0.12 7.59 11.89 11.52
09-Jan-05 -0.09 5.35 5.32 8.50
16-Jan-05 0.27 5.22 6.07 8.74
23-Jan-05 0.68 3.75 4.98 7.81
30-Jan-05 0.70 4.08 5.33 8.68
06-Feb-05 1.05 6.95 9.55 10.43
13-Feb-05 1.03 7.23 9.11 11.16
20-Feb-05 0.51 6.94 8.33 12.75
27-Feb-05 0.47 7.86 9.63 13.40
06-Mar-05 0.44 8.86 10.92 15.44
13-Mar-05 -0.43 6.96 7.84 15.54
20-Mar-05 -0.34 6.04 7.13 14.06
27-Mar-05 -0.79 4.42 5.88 11.43
03-Apr-05 -0.16 4.59 5.31 11.55
10-Apr-05 -0.28 5.37 5.20 12.02
17-Apr-05 0.55 1.95 0.06 10.11
24-Apr-05 0.78 2.81 1.57 10.36
01-May-05 0.98 3.28 -0.15 8.71
08-May-05 0.79 4.60 2.83 10.65
15-May-05 1.27 3.14 0.36 8.08
22-May-05 1.34 6.33 5.10 8.34
29-May-05 1.73 7.22 6.42 9.41
05-Jun-05 2.23 7.01 7.02 9.48
12-Jun-05 1.96 7.23 8.07 9.40
19-Jun-05 1.94 8.95 11.20 11.36
26-Jun-05 2.67 6.70 8.83 10.42
03-Jul-05 2.25 7.01 11.08 9.74
10-Jul-05 2.07 8.60 14.40 9.31
17-Jul-05 1.96 10.06 14.69 11.35
24-Jul-05 1.84 10.59 17.12 12.34
31-Jul-05 1.70 10.68 17.49 13.59
07-Aug-05 1.25 10.02 14.58 14.44
14-Aug-05 1.94 10.44 14.14 18.32
21-Aug-05 2.10 9.54 12.85 16.11
28-Aug-05 2.25 8.24 12.20 16.21
04-Sep-05 3.04 9.47 14.77 19.45
11-Sep-05 2.68 11.60 17.33 20.67
18-Sep-05 2.20 11.33 16.32 20.04
25-Sep-05 2.28 9.32 13.47 18.92
02-Oct-05 1.94 10.56 15.67 21.65
09-Oct-05 1.89 7.66 11.63 19.16
16-Oct-05 1.35 6.84 9.71 18.26
23-Oct-05 1.86 6.22 9.65 15.53
30-Oct-05 1.09 7.95 10.12 16.68
31-Oct-05 1.13 8.72 12.08 18.09
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.
Source of Sector Classification: S&P and MSCI.
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.
4 Schwab Equity Index Funds
PERFORMANCE AT A GLANCE
Total return for the 12 months ended 10/31/05
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 INDEX FUND
Investor Shares ....................... 8.44%
Select Shares(R) ...................... 8.66%
e.Shares(R) ........................... 8.58%
Benchmark ............................. 8.72%
Performance Details ................... pages 7-9
SCHWAB 1000 INDEX(R) FUND
Investor Shares ....................... 10.04%
Select Shares ......................... 10.21%
Benchmark ............................. 10.28%
Performance Details ................... pages 11-12
SCHWAB SMALL-CAP INDEX FUND(R)
Investor Shares ....................... 12.66%
Select Shares ......................... 12.86%
Benchmark ............................. 12.85%
Performance Details ................... pages 14-15
SCHWAB TOTAL STOCK MARKET
INDEX FUND(R)
Investor Shares ....................... 10.45%
Select Shares ......................... 10.63%
Benchmark ............................. 10.77%
Performance Details ................... pages 17-18
SCHWAB INTERNATIONAL INDEX FUND(R)
Investor Shares ....................... 17.30%
Select Shares ......................... 17.56%
Benchmark ............................. 17.77%
Performance Details ................... pages 20-21
THE FUNDS IN THIS REPORT ARE INDEX FUNDS AND SHARE THE SAME BASIC INVESTMENT
STRATEGY: They are designed to track the performance of a stock market index.
Each fund tracks a different index. Bear in mind that indices are unmanaged and
cannot be invested in directly. Also, unlike an index, the fund's return
includes the impact of operating expenses.
THE SCHWAB S&P 500 INDEX FUND was up 8.44% for the report period, closely
tracking its benchmark, the S&P 500 Index, which was up 8.72%. Bear in mind that
the fund's return, unlike the index, includes the impact of operating expenses.
Most of the fund's appreciation occurred during the second and third quarter of
2005. With the price of crude oil appreciating during the period, energy-related
stocks were the overall top performers in the fund. Within the Schwab S&P 500
Index Fund, the best performing sectors were Utilities and Energy. On the
downside, Telecommunication Services and Consumer Discretionary were the worst
performing sectors and detracted from overall performance. Some of the top
performing companies within the fund were Altria Group, Inc. and Exxon Mobil
Corp.
THE SCHWAB 1000 INDEX FUND was up 10.04% for the report period, closely tracking
its benchmark, the Schwab 1000 Index, which was up 10.28%. Bear in mind that the
fund's return, unlike the index, includes the impact of operating expenses.
Leading contributors to the fund's performance included the Utilities and Energy
sectors. Health Care also played an active role in the total returns for the
period. The top performing stocks in the fund were Altria Group, Inc., Exxon
Mobile Corp., and Google, Inc. Conversely, although the weakest performing
industry group was Automobiles and Components, the fund's performance was not
heavily impacted, due to relatively light exposure to this sector. Fannie Mae
and Pfizer, Inc. were some of the worst performers of the portfolio.
THE SCHWAB SMALL-CAP INDEX FUND returned 12.66% for the period, closely tracking
its benchmark, the Schwab Small-Cap Index, which was up 12.85%. Bear in mind
that the fund's return, unlike the index, includes the impact of operating
expenses. Two of the leading contributors to total returns were the Energy and
Industrials sectors. The top
Source of Sector Classification: S&P and MSCI. 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
performing industry within the fund was Energy, due to the appreciation of oil
prices during the wake of the hurricanes. Insurance and Capital Goods were other
industries that performed well throughout the reporting period. Some of the top
performing stocks within the portfolio were Covanta Holding Corporation and
Marine Products Corporation.
THE SCHWAB TOTAL STOCK MARKET INDEX FUND returned 10.45% for the period, closely
tracking its benchmark, the Dow Jones Wilshire 5000 Composite Index 1, which was
up 10.77%. Bear in mind that the fund's return, unlike the index, includes the
impact of operating expenses. Some of the top performing sectors for the fund
were Utilities, Energy, and Health Care. Stocks that performed well within the
portfolio were Altria Group, Inc. and Exxon Mobil Corp. In contrast, Consumer
Discretionary and Telecommunication Services continued to struggle during the
period. Pfizer, Inc. and Wal-Mart Stores, Inc. were among the stocks which
detracted from returns.
THE SCHWAB INTERNATIONAL INDEX FUND was up 17.30% for the period, closely
tracking its benchmark, the Schwab International Index, which was up 17.77% Bear
in mind that the fund's return, unlike the index, includes the impact of
operating expenses. Within the fund, Australia and Switzerland were the best
performing countries, while Singapore and Italy were the underperformers and
contributed the least to total returns. The top industries within the fund were
Energy, Utilities, and Health Care Equipment and Services. Similar to the United
States, Automobiles and Components was the weakest performing industry within
the fund.
1 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.
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 INDEX FUND
INVESTOR SHARES PERFORMANCE as of 10/31/05
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:
INVESTOR Fund Category:
SHARES Benchmark: MORNINGSTAR
Ticker Symbol: S&P 500(R) LARGE-CAP
SWPIX INDEX BLEND
1 YEAR 8.44% 8.72% 9.53%
5 YEARS -2.02% -1.73% -1.41%
SINCE INCEPTION 5/1/96 7.97% 8.37% 6.95%
1 YEAR 5 YEARS SINCE INCEPTION
Fund: Fund: Fund:
INVESTOR INVESTOR INVESTOR
SHARES Fund Category: SHARES Fund Category: SHARES Fund Category:
Ticker MORNINGSTAR Ticker MORNINGSTAR Ticker MORNINGSTAR
Symbol: LARGE-CAP Symbol: LARGE-CAP Symbol: LARGE-CAP
TOTAL RETURNS AFTER TAX SWPIX BLEND SWPIX BLEND SWPIX BLEND
- ---------------------------------------------------------------------------------------------------------------------------------
PRE-LIQUIDATION (still own shares) 8.18% 7.38% -2.36% -2.22% 7.62% n/a
- ---------------------------------------------------------------------------------------------------------------------------------
POST-LIQUIDATION (shares were sold) 5.82% 5.25% -1.88% -1.62% 6.84% 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.
$20,737 INVESTOR SHARES
$21,473 S&P 500(R) INDEX
[LINE GRAPH]
INVESTOR S&P 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
30-Nov-04 $19,894 $20,553
31-Dec-04 $20,561 $21,251
31-Jan-05 $20,053 $20,733
28-Feb-05 $20,472 $21,168
31-Mar-05 $20,108 $20,794
30-Apr-05 $19,722 $20,399
31-May-05 $20,351 $21,047
30-Jun-05 $20,373 $21,077
31-Jul-05 $21,123 $21,861
31-Aug-05 $20,925 $21,662
30-Sep-05 $21,090 $21,837
31-Oct-05 $20,737 $21,473
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 10/31/05 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 INDEX FUND
SELECT SHARES(R) PERFORMANCE as of 10/31/05
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:
SELECT
SHARES Benchmark: Fund Category:
Ticker Symbol: S&P 500(R) MORNINGSTAR
SWPPX INDEX LARGE-CAP BLEND
1 YEAR 8.66% 8.72% 9.53%
5 YEARS -1.85% -1.73% -1.41%
SINCE INCEPTION: 5/19/97 5.92% 6.09% 5.50%
1 YEAR 5 YEARS SINCE INCEPTION
Fund: Fund: Fund:
SELECT SELECT SELECT
SHARES Fund Category: SHARES Fund Category: SHARES Fund Category:
Ticker MORNINGSTAR Ticker MORNINGSTAR Ticker MORNINGSTAR
Symbol: LARGE-CAP Symbol: LARGE-CAP Symbol: LARGE-CAP
TOTAL RETURNS AFTER TAX SWPPX BLEND SWPPX BLEND SWPPX BLEND
- ---------------------------------------------------------------------------------------------------------------------------------
PRE-LIQUIDATION (still own shares) 8.38% 7.38% -2.23% -2.22% 5.52% n/a
- ---------------------------------------------------------------------------------------------------------------------------------
POST-LIQUIDATION (shares were sold) 5.99% 5.25% -1.75% -1.62% 4.94% 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.
$81,295 SELECT SHARES
$82,399 S&P 500(R) INDEX
[LINE GRAPH]
SELECT S&P 500(R)
SHARES INDEX
19-May-97 $50,000 $50,000
31-May-97 $50,935 $50,930
30-Jun-97 $53,190 $53,212
31-Jul-97 $57,395 $57,442
31-Aug-97 $54,165 $54,225
30-Sep-97 $57,120 $57,191
31-Oct-97 $55,215 $55,281
30-Nov-97 $57,745 $57,841
31-Dec-97 $58,745 $58,836
31-Jan-98 $59,375 $59,489
28-Feb-98 $63,660 $63,778
31-Mar-98 $66,880 $67,043
30-Apr-98 $67,550 $67,720
31-May-98 $66,370 $66,556
30-Jun-98 $69,040 $69,258
31-Jul-98 $68,295 $68,524
31-Aug-98 $58,435 $58,629
30-Sep-98 $62,165 $62,387
31-Oct-98 $67,155 $67,459
30-Nov-98 $71,245 $71,547
31-Dec-98 $75,340 $75,668
31-Jan-99 $78,475 $78,831
28-Feb-99 $76,015 $76,379
31-Mar-99 $79,030 $79,434
30-Apr-99 $82,085 $82,509
31-May-99 $80,140 $80,561
30-Jun-99 $84,545 $85,033
31-Jul-99 $81,885 $82,380
31-Aug-99 $81,490 $81,968
30-Sep-99 $79,230 $79,721
31-Oct-99 $84,230 $84,767
30-Nov-99 $85,935 $86,491
31-Dec-99 $91,000 $91,585
31-Jan-00 $86,420 $86,987
29-Feb-00 $84,770 $85,341
31-Mar-00 $93,050 $93,687
30-Apr-00 $90,235 $90,867
31-May-00 $88,350 $89,004
30-Jun-00 $90,515 $91,203
31-Jul-00 $89,110 $89,780
31-Aug-00 $94,655 $95,356
30-Sep-00 $89,635 $90,322
31-Oct-00 $89,230 $89,942
30-Nov-00 $82,200 $82,855
31-Dec-00 $82,655 $83,261
31-Jan-01 $85,540 $86,217
28-Feb-01 $77,745 $78,354
31-Mar-01 $72,835 $73,386
30-Apr-01 $78,480 $79,088
31-May-01 $78,965 $79,618
30-Jun-01 $77,055 $77,683
31-Jul-01 $76,285 $76,922
31-Aug-01 $71,500 $72,107
30-Sep-01 $65,735 $66,280
31-Oct-01 $66,955 $67,546
30-Nov-01 $72,065 $72,727
31-Dec-01 $72,700 $73,367
31-Jan-02 $71,635 $72,296
28-Feb-02 $70,240 $70,901
31-Mar-02 $72,865 $73,567
30-Apr-02 $68,430 $69,108
31-May-02 $67,940 $68,597
30-Jun-02 $63,095 $63,713
31-Jul-02 $58,170 $58,750
31-Aug-02 $58,580 $59,132
30-Sep-02 $52,175 $52,704
31-Oct-02 $56,775 $57,342
30-Nov-02 $60,140 $60,719
31-Dec-02 $56,585 $57,155
31-Jan-03 $55,085 $55,658
28-Feb-03 $54,250 $54,823
31-Mar-03 $54,790 $55,355
30-Apr-03 $59,300 $59,916
31-May-03 $62,430 $63,073
30-Jun-03 $63,180 $63,881
31-Jul-03 $64,305 $65,005
31-Aug-03 $65,560 $66,273
30-Sep-03 $64,850 $65,570
31-Oct-03 $68,480 $69,281
30-Nov-03 $69,065 $69,891
31-Dec-03 $72,695 $73,553
31-Jan-04 $74,010 $74,907
29-Feb-04 $75,025 $75,948
31-Mar-04 $73,880 $74,801
30-Apr-04 $72,695 $73,627
31-May-04 $73,710 $74,635
30-Jun-04 $75,110 $76,083
31-Jul-04 $72,610 $73,565
31-Aug-04 $72,910 $73,859
30-Sep-04 $73,710 $74,657
31-Oct-04 $74,810 $75,799
30-Nov-04 $77,815 $78,869
31-Dec-04 $80,475 $81,551
31-Jan-05 $78,495 $79,561
28-Feb-05 $80,130 $81,232
31-Mar-05 $78,755 $79,794
30-Apr-05 $77,245 $78,278
31-May-05 $79,700 $80,767
30-Jun-05 $79,785 $80,880
31-Jul-05 $82,755 $83,889
31-Aug-05 $81,980 $83,125
30-Sep-05 $82,630 $83,799
31-Oct-05 $81,295 $82,399
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 10/31/05 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 INDEX FUND
e.SHARES(R) PERFORMANCE as of 10/31/05
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.
[BAR CHART]
Fund:
e.SHARES Benchmark: Fund Category:
Ticker Symbol: S&P 500(R) MORNINGSTAR
SWPEX INDEX LARGE-CAP BLEND
1 YEAR 8.58% 8.72% 9.53%
5 YEARS -1.94% -1.73% -1.41%
SINCE INCEPTION: 5/1/96 8.07% 8.37% 6.95%
1 YEAR 5 YEARS SINCE INCEPTION
Fund: Fund: Fund:
e.SHARES Fund Category: e.SHARES Fund Category: e.SHARES Fund Category:
Ticker MORNINGSTAR Ticker MORNINGSTAR Ticker MORNINGSTAR
Symbol: LARGE-CAP Symbol: LARGE-CAP Symbol: LARGE-CAP
TOTAL RETURNS AFTER TAX SWPEX BLEND SWPEX BLEND SWPEX BLEND
- ----------------------------------------------------------------------------------------------------------------------------------
PRE-LIQUIDATION (still own shares) 8.31% 7.38% -2.30% -2.22% 7.69% n/a
- ----------------------------------------------------------------------------------------------------------------------------------
POST-LIQUIDATION (shares were sold) 5.93% 5.25% -1.82% -1.62% 6.91% 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.
$20,916 e.SHARES
$21,473 S&P 500(R) INDEX
[LINE GRAPH]
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
30-Nov-04 $20,039 $20,553
31-Dec-04 $20,716 $21,251
31-Jan-05 $20,215 $20,733
28-Feb-05 $20,627 $21,168
31-Mar-05 $20,271 $20,794
30-Apr-05 $19,882 $20,399
31-May-05 $20,516 $21,047
30-Jun-05 $20,538 $21,077
31-Jul-05 $21,294 $21,861
31-Aug-05 $21,105 $21,662
30-Sep-05 $21,272 $21,837
31-Oct-05 $20,916 $21,473
All figures on this page assume dividends and distributions were reinvested.
Index figures do not include trading and management costs, which would lower
performance. Indices are unmanaged, and you cannot invest in them directly.
1 The pre-tax total return and the graph do not reflect the deduction of taxes
that a shareholder would pay on fund distributions or the redemption of fund
shares. After-tax returns are calculated using the highest historical
individual federal marginal income tax rates in effect as of 10/31/05 and do
not reflect the impact of state and local taxes or the alternative minimum
tax. Actual returns depend on an investor's situation and may differ from
those shown. After-tax returns may not be relevant to investors who hold their
fund shares through tax-deferred arrangements. Pre-liquidation after-tax
returns reflect the tax effects of purchases and sales of securities within
the fund portfolios and assume investors continue to hold fund shares at the
end of the measurement periods. Post-liquidation figures assume investors sold
fund shares at the end of the measurement periods and reflect both the effects
of taxable distributions and any taxable gains or losses realized upon the
sale of shares. Source for category information: Morningstar, Inc. Some funds
in this category may not use tax-efficient strategies.
2 Fund expenses have been partially absorbed by CSIM and Schwab. Without these
reductions, the fund's returns would have been lower.
Schwab Equity Index Funds 9
SCHWAB S&P 500 INDEX FUND
FUND FACTS as of 10/31/05
STYLE ASSESSMENT 1
[GRAPHIC]
INVESTMENT STYLE
Value Blend Growth
MARKET CAP
Large / / /X/ / /
Medium / / / / / /
Small / / / / / /
STATISTICS
NUMBER OF HOLDINGS 501
- --------------------------------------------------------------------------------
WEIGHTED AVERAGE MARKET CAP ($ x 1,000,000) $88,354
- --------------------------------------------------------------------------------
PRICE/EARNINGS RATIO (P/E) 18.0
- --------------------------------------------------------------------------------
PRICE/BOOK RATIO (P/B) 2.8
- --------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 4%
- --------------------------------------------------------------------------------
MINIMUM INITIAL INVESTMENT 2
Investor Shares $2,500
($1,000 for retirement, education and custodial accounts)
Select Shares $50,000
e.Shares
($500 for retirement, education and custodial accounts) $1,000
- --------------------------------------------------------------------------------
TOP HOLDINGS 3
% OF
SECURITY NET ASSETS
- --------------------------------------------------------------------------------
(1) GENERAL ELECTRIC CO. 3.3%
- --------------------------------------------------------------------------------
(2) EXXON MOBIL CORP. 3.3%
- --------------------------------------------------------------------------------
(3) MICROSOFT CORP. 2.2%
- --------------------------------------------------------------------------------
(4) CITIGROUP, INC. 2.2%
- --------------------------------------------------------------------------------
(5) PROCTER & GAMBLE CO. 1.7%
- --------------------------------------------------------------------------------
(6) JOHNSON & JOHNSON 1.7%
- --------------------------------------------------------------------------------
(7) BANK OF AMERICA CORP. 1.6%
- --------------------------------------------------------------------------------
(8) AMERICAN INTERNATIONAL GROUP, INC. 1.6%
- --------------------------------------------------------------------------------
(9) PFIZER, INC. 1.5%
- --------------------------------------------------------------------------------
(10) ALTRIA GROUP, INC. 1.4%
- --------------------------------------------------------------------------------
TOTAL 20.5%
SECTOR WEIGHTINGS % of Investments
This chart shows the fund's sector composition as of the report date. A sector
is a portion of the overall stock market that is made up of industries whose
business components share similar characteristics.
[PIE CHART]
21.1% FINANCIALS
15.2% INFORMATION TECHNOLOGY
13.2% HEALTH CARE
11.2% INDUSTRIALS
10.6% CONSUMER DISCRETIONARY
9.8% CONSUMER STAPLES
9.5% ENERGY
3.4% UTILITIES
3.1% TELECOMMUNICATION
SERVICES
2.9% MATERIALS
Portfolio holdings may have changed since the report date.
Source of Sector Classification: S&P and MSCI.
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 10/31/05, 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 INDEX(R) FUND
INVESTOR SHARES PERFORMANCE as of 10/31/05
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:
INVESTOR
SHARES
Ticker Benchmark: Fund Category:
Symbol: SCHWAB 1000 MORNINGSTAR
SNXFX INDEX(R) LARGE-CAP BLEND
1 YEAR 10.04 10.28 9.53
5 YEARS 2 -1.40 -1.10 -1.41
10 YEARS 2 9.21 9.57 8.20
1 YEAR 5 YEARS 10 YEARS
Fund: Fund: Fund:
INVESTOR INVESTOR INVESTOR
SHARES Fund Category: SHARES Fund Category: SHARES Fund Category:
Ticker MORNINGSTAR Ticker MORNINGSTAR Ticker MORNINGSTAR
Symbol: LARGE-CAP Symbol: LARGE-CAP Symbol: LARGE-CAP
TOTAL RETURNS AFTER TAX SNXFX BLEND SNXFX BLEND SNXFX BLEND
- --------------------------------------------------------------------------------------------------------------------------------
PRE-LIQUIDATION (still own shares) 9.81% 7.38% -1.68% -2.22% 8.83% 6.61%
- --------------------------------------------------------------------------------------------------------------------------------
POST-LIQUIDATION (shares were sold) 6.81% 5.25% -1.33% -1.62% 7.96% 6.36%
- --------------------------------------------------------------------------------------------------------------------------------
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.
$24,150 INVESTOR SHARES
$24,963 SCHWAB 1000 INDEX(R)
$24,425 S&P 500(R) INDEX
[LINE GRAPH]
INVESTOR SCHWAB 1000 S&P 500(R)
SHARES INDEX(R) INDEX
31-Oct-95 $10,000 $10,000 $10,000
30-Nov-95 $10,432 $10,441 $10,438
31-Dec-95 $10,586 $10,597 $10,639
31-Jan-96 $10,899 $10,919 $11,001
29-Feb-96 $11,061 $11,081 $11,104
31-Mar-96 $11,161 $11,188 $11,210
30-Apr-96 $11,349 $11,378 $11,375
31-May-96 $11,618 $11,654 $11,667
30-Jun-96 $11,586 $11,635 $11,712
31-Jul-96 $11,036 $11,083 $11,194
31-Aug-96 $11,336 $11,382 $11,430
30-Sep-96 $11,967 $12,019 $12,072
31-Oct-96 $12,211 $12,262 $12,406
30-Nov-96 $13,092 $13,151 $13,343
31-Dec-96 $12,870 $12,937 $13,079
31-Jan-97 $13,611 $13,686 $13,895
28-Feb-97 $13,662 $13,734 $14,005
31-Mar-97 $13,054 $13,135 $13,431
30-Apr-97 $13,756 $13,828 $14,231
31-May-97 $14,630 $14,722 $15,097
30-Jun-97 $15,237 $15,344 $15,773
31-Jul-97 $16,471 $16,583 $17,027
31-Aug-97 $15,680 $15,799 $16,073
30-Sep-97 $16,522 $16,648 $16,953
31-Oct-97 $15,977 $16,102 $16,386
30-Nov-97 $16,648 $16,789 $17,145
31-Dec-97 $16,979 $17,124 $17,440
31-Jan-98 $17,100 $17,256 $17,634
28-Feb-98 $18,360 $18,543 $18,905
31-Mar-98 $19,293 $19,503 $19,873
30-Apr-98 $19,491 $19,716 $20,074
31-May-98 $19,063 $19,285 $19,728
30-Jun-98 $19,830 $20,060 $20,529
31-Jul-98 $19,555 $19,779 $20,312
31-Aug-98 $16,634 $16,826 $17,379
30-Sep-98 $17,707 $17,926 $18,493
31-Oct-98 $19,114 $19,375 $19,996
30-Nov-98 $20,303 $20,585 $21,208
31-Dec-98 $21,590 $21,888 $22,430
31-Jan-99 $22,408 $22,720 $23,367
28-Feb-99 $21,655 $21,981 $22,640
31-Mar-99 $22,524 $22,857 $23,546
30-Apr-99 $23,439 $23,800 $24,457
31-May-99 $22,898 $23,257 $23,880
30-Jun-99 $24,038 $24,434 $25,205
31-Jul-99 $23,272 $23,656 $24,419
31-Aug-99 $23,046 $23,462 $24,297
30-Sep-99 $22,434 $22,764 $23,631
31-Oct-99 $23,916 $24,300 $25,127
30-Nov-99 $24,496 $24,867 $25,638
31-Dec-99 $26,124 $26,534 $27,148
31-Jan-00 $24,898 $25,298 $25,785
29-Feb-00 $24,905 $25,330 $25,297
31-Mar-00 $27,058 $27,534 $27,771
30-Apr-00 $26,040 $26,500 $26,935
31-May-00 $25,359 $25,810 $26,383
30-Jun-00 $26,040 $26,517 $27,034
31-Jul-00 $25,658 $26,110 $26,613
31-Aug-00 $27,396 $27,885 $28,266
30-Sep-00 $26,131 $26,597 $26,773
31-Oct-00 $25,910 $26,385 $26,661
30-Nov-00 $23,699 $24,136 $24,560
31-Dec-00 $23,979 $24,416 $24,680
31-Jan-01 $24,795 $25,230 $25,556
28-Feb-01 $22,497 $22,892 $23,226
31-Mar-01 $20,963 $21,335 $21,753
30-Apr-01 $22,673 $23,087 $23,443
31-May-01 $22,817 $23,239 $23,600
30-Jun-01 $22,314 $22,732 $23,027
31-Jul-01 $22,014 $22,434 $22,801
31-Aug-01 $20,610 $21,011 $21,374
30-Sep-01 $18,880 $19,250 $19,647
31-Oct-01 $19,304 $19,690 $20,022
30-Nov-01 $20,780 $21,198 $21,558
31-Dec-01 $21,040 $21,470 $21,748
31-Jan-02 $20,796 $21,225 $21,430
28-Feb-02 $20,394 $20,822 $21,016
31-Mar-02 $21,211 $21,663 $21,807
30-Apr-02 $20,059 $20,492 $20,485
31-May-02 $19,868 $20,300 $20,334
30-Jun-02 $18,432 $18,834 $18,886
31-Jul-02 $17,049 $17,424 $17,415
31-Aug-02 $17,155 $17,536 $17,528
30-Sep-02 $15,370 $15,714 $15,623
31-Oct-02 $16,628 $17,008 $16,997
30-Nov-02 $17,589 $17,994 $17,998
31-Dec-02 $16,581 $16,965 $16,942
31-Jan-03 $16,167 $16,551 $16,498
28-Feb-03 $15,901 $16,282 $16,251
31-Mar-03 $16,080 $16,466 $16,408
30-Apr-03 $17,361 $17,781 $17,760
31-May-03 $18,301 $18,758 $18,696
30-Jun-03 $18,535 $19,003 $18,936
31-Jul-03 $18,909 $19,391 $19,269
31-Aug-03 $19,296 $19,802 $19,645
30-Sep-03 $19,068 $19,578 $19,436
31-Oct-03 $20,176 $20,723 $20,536
30-Nov-03 $20,402 $20,959 $20,717
31-Dec-03 $21,346 $21,938 $21,803
31-Jan-04 $21,724 $22,336 $22,204
29-Feb-04 $22,034 $22,666 $22,512
31-Mar-04 $21,751 $22,379 $22,173
30-Apr-04 $21,353 $21,975 $21,824
31-May-04 $21,650 $22,287 $22,123
30-Jun-04 $22,028 $22,691 $22,553
31-Jul-04 $21,252 $21,896 $21,806
31-Aug-04 $21,340 $21,994 $21,893
30-Sep-04 $21,610 $22,281 $22,130
31-Oct-04 $21,947 $22,636 $22,468
30-Nov-04 $22,857 $23,587 $23,378
31-Dec-04 $23,657 $24,421 $24,173
31-Jan-05 $23,055 $23,809 $23,583
28-Feb-05 $23,548 $24,325 $24,079
31-Mar-05 $23,172 $23,909 $23,652
30-Apr-05 $22,734 $23,457 $23,203
31-May-05 $23,548 $24,306 $23,941
30-Jun-05 $23,671 $24,440 $23,974
31-Jul-05 $24,580 $25,394 $24,866
31-Aug-05 $24,354 $25,163 $24,640
30-Sep-05 $24,533 $25,351 $24,840
31-Oct-05 $24,150 $24,963 $24,425
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 10/31/05 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 INDEX FUND
SELECT SHARES(R) PERFORMANCE as of 10/31/05
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:
SELECT
SHARES Benchmark: Fund Category:
Ticker Symbol: SCHWAB 1000 MORNINGSTAR
SNXSX INDEX(R) LARGE-CAP BLEND
1 YEAR 10.21% 10.28% 9.53%
5 YEARS 2 -1.27% -1.10% -1.41%
SINCE INCEPTION: 5/19/97 2 6.51% 6.71% 5.50%
1 YEAR 5 YEARS SINCE INCEPTION
Fund: Fund: Fund:
SELECT SELECT SELECT
SHARES Fund Category: SHARES Fund Category: SHARES Fund Category:
Ticker MORNINGSTAR Ticker MORNINGSTAR Ticker MORNINGSTAR
Symbol: LARGE-CAP Symbol: LARGE-CAP Symbol: LARGE-CAP
TOTAL RETURNS AFTER TAX SNXSX BLEND SNXSX BLEND SNXSX BLEND
- -----------------------------------------------------------------------------------------------------------------------------------
PRE-LIQUIDATION (still own shares) 9.96% 7.38% -1.59% -2.22% 6.16% n/a
- -----------------------------------------------------------------------------------------------------------------------------------
POST-LIQUIDATION (shares were sold) 6.95% 5.25% -1.24% -1.62% 5.49% 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.
$85,205 SELECT SHARES
$86,587 SCHWAB 1000 INDEX(R)
$82,399 S&P 500(R) INDEX
[LINE GRAPH]
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
30-Nov-04 $80,540 $81,812 $78,869
31-Dec-04 $83,375 $84,706 $81,551
31-Jan-05 $81,255 $82,583 $79,561
28-Feb-05 $82,990 $84,375 $81,232
31-Mar-05 $81,685 $82,931 $79,794
30-Apr-05 $80,145 $81,362 $78,278
31-May-05 $83,035 $84,306 $80,767
30-Jun-05 $83,470 $84,774 $80,880
31-Jul-05 $86,700 $88,082 $83,889
31-Aug-05 $85,905 $87,281 $83,125
30-Sep-05 $86,555 $87,934 $83,799
31-Oct-05 $85,205 $86,587 $82,399
All figures on this page assume dividends and distributions were reinvested.
Index figures do not include trading and management costs, which would lower
performance. Indices are unmanaged, and you cannot invest in them directly.
1 The pre-tax total return and the graph do not reflect the deduction of taxes
that a shareholder would pay on fund distributions or the redemption of fund
shares. After-tax returns are calculated using the highest historical
individual federal marginal income tax rates in effect as of 10/31/05 and do
not reflect the impact of state and local taxes or the alternative minimum
tax. Actual returns depend on an investor's situation and may differ from
those shown. After-tax returns may not be relevant to investors who hold their
fund shares through tax-deferred arrangements. Pre-liquidation after-tax
returns reflect the tax effects of purchases and sales of securities within
the fund portfolios and assume investors continue to hold fund shares at the
end of the measurement periods. Post-liquidation figures assume investors sold
fund shares at the end of the measurement periods and reflect both the effects
of taxable distributions and any taxable gains or losses realized upon the
sale of shares. Source for category information: Morningstar, Inc. Some funds
in this category may not use tax-efficient strategies.
2 Fund expenses have been partially absorbed by CSIM and Schwab. Without these
reductions, the fund's returns would have been lower.
12 Schwab Equity Index Funds
SCHWAB 1000 INDEX FUND
FUND FACTS as of 10/31/05
STYLE ASSESSMENT 1
[GRAPHIC]
INVESTMENT STYLE
Value Blend Growth
MARKET CAP
Large / / /X/ / /
Medium / / / / / /
Small / / / / / /
STATISTICS
NUMBER OF HOLDINGS 986
- -------------------------------------------------------------------------------
WEIGHTED AVERAGE MARKET CAP ($ x 1,000,000) $78,614
- -------------------------------------------------------------------------------
PRICE/EARNINGS RATIO (P/E) 18.8
- -------------------------------------------------------------------------------
PRICE/BOOK RATIO (P/B) 2.8
- -------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 6%
- -------------------------------------------------------------------------------
MINIMUM INITIAL INVESTMENT 2
Investor Shares $2,500
($1,000 for retirement, education and custodial accounts)
Select Shares $50,000
- -------------------------------------------------------------------------------
TOP HOLDINGS 3
% OF
SECURITY NET ASSETS
- -------------------------------------------------------------------------------
(1) EXXON MOBIL CORP. 2.7%
- -------------------------------------------------------------------------------
(2) GENERAL ELECTRIC CO. 2.7%
- -------------------------------------------------------------------------------
(3) MICROSOFT CORP. 2.1%
- -------------------------------------------------------------------------------
(4) CITIGROUP, INC. 1.8%
- -------------------------------------------------------------------------------
(5) WAL-MART STORES, INC. 1.5%
- -------------------------------------------------------------------------------
(6) PROCTER & GAMBLE CO. 1.5%
- -------------------------------------------------------------------------------
(7) JOHNSON & JOHNSON 1.4%
- -------------------------------------------------------------------------------
(8) BANK OF AMERICA CORP. 1.3%
- -------------------------------------------------------------------------------
(9) AMERICAN INTERNATIONAL GROUP, INC. 1.3%
- -------------------------------------------------------------------------------
(10) PFIZER, INC. 1.2%
- -------------------------------------------------------------------------------
TOTAL 17.5%
SECTOR WEIGHTINGS % of Investments
This chart shows the fund's sector composition as of the report date. A sector
is a portion of the overall stock market that is made up of industries whose
business components share similar characteristics.
[PIE CHART]
21.9% FINANCIALS
15.2% INFORMATION TECHNOLOGY
12.8% HEALTH CARE
12.1% CONSUMER DISCRETIONARY
10.0% INDUSTRIALS
9.8% CONSUMER STAPLES
9.0% ENERGY
3.4% UTILITIES
2.9% MATERIALS
2.8% TELECOMMUNICATION
SERVICES
0.1% OTHER
Portfolio holdings may have changed since the report date.
Source of Sector Classification: S&P and MSCI.
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 10/31/05, 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 10/31/05
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:
INVESTOR Benchmark: Fund Category:
SHARES SCHWAB MORNINGSTAR
Ticker Symbol: SMALL-CAP SMALL-CAP
SWSMX INDEX(R) BLEND
1 YEAR 12.66% 12.85% 13.72%
5 YEARS 2 5.08% 5.20% 9.75%
10 YEARS 2 9.51% 10.46% 11.86%
</Table>
1 YEAR 5 YEARS 10 YEARS
Fund: Fund: Fund:
INVESTOR Fund Category: INVESTOR Fund Category: INVESTOR Fund Category:
SHARES MORNINGSTAR SHARES MORNINGSTAR SHARES MORNINGSTAR
Ticker Symbol: SMALL-CAP Ticker Symbol: SMALL-CAP Ticker Symbol: SMALL-CAP
TOTAL RETURNS AFTER TAX SWSMX BLEND SWSMX BLEND SWSMX BLEND
- -----------------------------------------------------------------------------------------------------------------------------------
PRE-LIQUIDATION (still own shares) 12.56% 10.95% 4.02% 8.39% 8.76% 9.88%
- -----------------------------------------------------------------------------------------------------------------------------------
POST-LIQUIDATION (shares were sold) 8.36% 8.84% 3.77% 7.76% 8.03% 9.49%
- -----------------------------------------------------------------------------------------------------------------------------------
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.
$24,830 INVESTOR SHARES
$27,069 SCHWAB SMALL-CAP INDEX(R)
$24,854 RUSSELL 2000(R) INDEX
[LINE GRAPH]
SCHWAB RUSSELL
INVESTOR SMALL-CAP 2000(R)
SHARES INDEX(R) INDEX
31-Oct-95 $10,000 $10,000 $10,000
30-Nov-95 $10,462 $10,480 $10,420
31-Dec-95 $10,659 $10,732 $10,695
31-Jan-96 $10,599 $10,705 $10,683
29-Feb-96 $11,003 $11,135 $11,017
31-Mar-96 $11,175 $11,328 $11,241
30-Apr-96 $11,794 $11,928 $11,843
31-May-96 $12,205 $12,336 $12,309
30-Jun-96 $11,751 $11,942 $11,803
31-Jul-96 $10,728 $10,978 $10,773
31-Aug-96 $11,381 $11,675 $11,399
30-Sep-96 $11,888 $12,104 $11,845
31-Oct-96 $11,673 $11,897 $11,662
30-Nov-96 $12,171 $12,370 $12,143
31-Dec-96 $12,311 $12,600 $12,461
31-Jan-97 $12,639 $12,898 $12,710
28-Feb-97 $12,199 $12,583 $12,403
31-Mar-97 $11,586 $11,971 $11,817
30-Apr-97 $11,672 $12,006 $11,850
31-May-97 $13,053 $13,476 $13,168
30-Jun-97 $13,683 $14,173 $13,733
31-Jul-97 $14,606 $14,981 $14,371
31-Aug-97 $14,882 $15,318 $14,701
30-Sep-97 $15,995 $16,520 $15,777
31-Oct-97 $15,296 $15,799 $15,084
30-Nov-97 $15,140 $15,655 $14,986
31-Dec-97 $15,474 $15,983 $15,248
31-Jan-98 $15,093 $15,731 $15,007
28-Feb-98 $16,288 $17,032 $16,116
31-Mar-98 $17,006 $17,800 $16,780
30-Apr-98 $17,093 $17,922 $16,873
31-May-98 $16,063 $16,868 $15,963
30-Jun-98 $16,088 $16,916 $15,997
31-Jul-98 $14,825 $15,615 $14,701
31-Aug-98 $11,932 $12,604 $11,846
30-Sep-98 $12,720 $13,395 $12,774
31-Oct-98 $13,326 $14,030 $13,295
30-Nov-98 $14,028 $14,757 $13,991
31-Dec-98 $14,921 $15,718 $14,857
31-Jan-99 $14,949 $15,786 $15,055
28-Feb-99 $13,700 $14,466 $13,836
31-Mar-99 $13,892 $14,743 $14,051
30-Apr-99 $14,985 $16,092 $15,310
31-May-99 $15,252 $16,373 $15,534
30-Jun-99 $16,096 $17,446 $16,236
31-Jul-99 $16,014 $17,309 $15,791
31-Aug-99 $15,536 $16,821 $15,207
30-Sep-99 $15,692 $16,964 $15,210
31-Oct-99 $15,986 $17,244 $15,272
30-Nov-99 $16,978 $18,321 $16,184
31-Dec-99 $18,531 $20,067 $18,016
31-Jan-00 $17,832 $19,316 $17,726
29-Feb-00 $20,196 $21,843 $20,653
31-Mar-00 $19,580 $21,271 $19,292
30-Apr-00 $18,613 $20,243 $18,130
31-May-00 $17,738 $19,261 $17,073
30-Jun-00 $19,240 $20,870 $18,562
31-Jul-00 $18,476 $20,060 $17,964
31-Aug-00 $20,334 $22,075 $19,335
30-Sep-00 $19,718 $21,403 $18,767
31-Oct-00 $19,377 $21,011 $17,930
30-Nov-00 $17,519 $19,010 $16,088
31-Dec-00 $19,223 $20,852 $17,470
31-Jan-01 $19,537 $21,133 $18,380
28-Feb-01 $18,061 $19,539 $17,175
31-Mar-01 $17,244 $18,656 $16,335
30-Apr-01 $18,626 $20,168 $17,612
31-May-01 $19,129 $20,709 $18,046
30-Jun-01 $19,977 $21,636 $18,668
31-Jul-01 $19,076 $20,674 $17,658
31-Aug-01 $18,542 $20,088 $17,088
30-Sep-01 $15,924 $17,258 $14,788
31-Oct-01 $16,731 $18,122 $15,653
30-Nov-01 $17,956 $19,459 $16,864
31-Dec-01 $19,050 $20,631 $17,905
31-Jan-02 $18,365 $19,864 $17,719
28-Feb-02 $17,711 $19,157 $17,233
31-Mar-02 $19,246 $20,829 $18,619
30-Apr-02 $19,148 $20,717 $18,788
31-May-02 $18,266 $19,769 $17,954
30-Jun-02 $17,308 $18,730 $17,063
31-Jul-02 $14,946 $16,166 $14,487
31-Aug-02 $15,022 $16,261 $14,451
30-Sep-02 $14,053 $15,210 $13,413
31-Oct-02 $14,445 $15,633 $13,844
30-Nov-02 $15,556 $16,836 $15,079
31-Dec-02 $14,770 $16,004 $14,239
31-Jan-03 $14,078 $15,213 $13,844
28-Feb-03 $13,605 $14,717 $13,426
31-Mar-03 $13,770 $14,900 $13,599
30-Apr-03 $15,200 $16,461 $14,889
31-May-03 $16,838 $18,229 $16,486
30-Jun-03 $17,135 $18,558 $16,785
31-Jul-03 $18,026 $19,537 $17,835
31-Aug-03 $18,906 $20,493 $18,652
30-Sep-03 $18,510 $20,071 $18,307
31-Oct-03 $20,039 $21,731 $19,845
30-Nov-03 $20,742 $22,500 $20,549
31-Dec-03 $21,176 $22,989 $20,966
31-Jan-04 $21,773 $23,621 $21,876
29-Feb-04 $21,863 $23,717 $22,073
31-Mar-04 $21,951 $23,822 $22,279
30-Apr-04 $20,855 $22,635 $21,142
31-May-04 $21,187 $23,010 $21,478
30-Jun-04 $22,183 $24,098 $22,383
31-Jul-04 $20,701 $22,502 $20,876
31-Aug-04 $20,546 $22,335 $20,770
30-Sep-04 $21,608 $23,504 $21,744
31-Oct-04 $22,039 $23,988 $22,172
30-Nov-04 $23,931 $26,051 $24,095
31-Dec-04 $24,664 $26,838 $24,808
31-Jan-05 $23,717 $25,832 $23,773
28-Feb-05 $24,173 $26,332 $24,175
31-Mar-05 $23,483 $25,543 $23,484
30-Apr-05 $22,170 $24,153 $22,138
31-May-05 $23,695 $25,832 $23,588
30-Jun-05 $24,496 $26,705 $24,499
31-Jul-05 $25,998 $28,357 $26,052
31-Aug-05 $25,498 $27,814 $25,570
30-Sep-05 $25,621 $27,943 $25,649
31-Oct-05 $24,830 $27,069 $24,854
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 10/31/05 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 10/31/05
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:
SELECT Benchmark:
SHARES SCHWAB Fund Category:
Ticker Symbol: SMALL-CAP MORNINGSTAR
SWSSX INDEX(R) SMALL-CAP BLEND
1 YEAR 12.86% 12.85% 13.72%
5 YEARS 5.23% 5.20% 9.75%
SINCE INCEPTION: 5/19/97 8.60% 9.17% 10.34%
1 YEAR 5 YEARS SINCE INCEPTION
Fund: Fund Fund: Fund Fund: Fund
SELECT Category: SELECT Category: SELECT Category:
SHARES MORNINGSTAR SHARES MORNINGSTAR SHARES MORNINGSTAR
Ticker Symbol: SMALL-CAP Ticker Symbol: SMALL-CAP Ticker Symbol: SMALL-CAP
TOTAL RETURNS AFTER TAX SWSSX BLEND SWSSX BLEND SWSSX BLEND
- --------------------------------------------------------------------------------------------------------------------------------
PRE-LIQUIDATION (still own shares) 12.73% 10.95% 4.13% 8.39% 7.72% n/a
- --------------------------------------------------------------------------------------------------------------------------------
POST-LIQUIDATION (shares were sold) 8.52% 8.84% 3.88% 7.76% 7.07% 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.
$100,425 SELECT SHARES
$104,935 SCHWAB SMALL-CAP INDEX(R)
$ 98,073 RUSSELL 2000(R) INDEX
[LINE GRAPH]
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
30-Nov-04 $96,650 $100,989 $95,077
31-Dec-04 $99,570 $104,038 $97,891
31-Jan-05 $95,800 $100,139 $93,809
28-Feb-05 $97,640 $102,076 $95,394
31-Mar-05 $94,855 $99,019 $92,666
30-Apr-05 $89,555 $93,628 $87,356
31-May-05 $95,800 $100,138 $93,078
30-Jun-05 $99,035 $103,523 $96,671
31-Jul-05 $105,095 $109,926 $102,800
31-Aug-05 $103,120 $107,823 $100,898
30-Sep-05 $103,570 $108,323 $101,211
31-Oct-05 $100,425 $104,935 $98,073
All figures on this page assume dividends and distributions were reinvested.
Index figures do not include trading and management costs, which would lower
performance. Indices are unmanaged, and you cannot invest in them directly.
1 The pre-tax total return and the graph do not reflect the deduction of taxes
that a shareholder would pay on fund distributions or the redemption of fund
shares. After-tax returns are calculated using the highest historical
individual federal marginal income tax rates in effect as of 10/31/05 and do
not reflect the impact of state and local taxes or the alternative minimum
tax. Actual returns depend on an investor's situation and may differ from
those shown. After-tax returns may not be relevant to investors who hold their
fund shares through tax-deferred arrangements. Pre-liquidation after-tax
returns reflect the tax effects of purchases and sales of securities within
the fund portfolios and assume investors continue to hold fund shares at the
end of the measurement periods. Post-liquidation figures assume investors sold
fund shares at the end of the measurement periods and reflect both the effects
of taxable distributions and any taxable gains or losses realized upon the
sale of shares. Source for category information: Morningstar, Inc. Some funds
in this category may not use tax-efficient strategies.
2 Fund expenses have been partially absorbed by CSIM and Schwab. Without these
reductions, the fund's returns would have been lower.
Schwab Equity Index Funds 15
SCHWAB SMALL-CAP INDEX FUND
FUND FACTS as of 10/31/05
STYLE ASSESSMENT 1
[GRAPHIC]
INVESTMENT STYLE
Value Blend Growth
MARKET CAP
Large / / / / / /
Medium / / / / / /
Small / / /X/ / /
STATISTICS
NUMBER OF HOLDINGS 1,027
- --------------------------------------------------------------------------------
WEIGHTED AVERAGE MARKET CAP ($ x 1,000,000) $1,310
- --------------------------------------------------------------------------------
PRICE/EARNINGS RATIO (P/E) 28.3
- --------------------------------------------------------------------------------
PRICE/BOOK RATIO (P/B) 2.3
- --------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 40%
- --------------------------------------------------------------------------------
MINIMUM INITIAL INVESTMENT 2
Investor Shares $2,500
($1,000 for retirement, education and custodial accounts)
Select Shares $50,000
- --------------------------------------------------------------------------------
TOP HOLDINGS 3
% OF
SECURITY NET ASSETS
- --------------------------------------------------------------------------------
(1) VINTAGE PETROLEUM, INC. 0.3%
- --------------------------------------------------------------------------------
(2) CIMAREX ENERGY CO. 0.3%
- --------------------------------------------------------------------------------
(3) CERNER CORP. 0.3%
- --------------------------------------------------------------------------------
(4) TODCO, Class A 0.3%
- --------------------------------------------------------------------------------
(5) INTUITIVE SURGICAL, INC. 0.3%
- --------------------------------------------------------------------------------
(6) PROTEIN DESIGN LABS, INC. 0.3%
- --------------------------------------------------------------------------------
(7) GAMESTOP CORP., Class A 0.2%
- --------------------------------------------------------------------------------
(8) RANGE RESOURCES CORP. 0.2%
- --------------------------------------------------------------------------------
(9) ADTRAN, INC. 0.2%
- --------------------------------------------------------------------------------
(10) SALESFORCE.COM, INC. 0.2%
- --------------------------------------------------------------------------------
TOTAL 2.6%
SECTOR WEIGHTINGS % of Investments
This chart shows the fund's sector composition as of the report date. A sector
is a portion of the overall stock market that is made up of industries whose
business components share similar characteristics.
[PIE CHART]
21.8% FINANCIALS
16.8% INFORMATION TECHNOLOGY
16.1% CONSUMER DISCRETIONARY
14.0% INDUSTRIALS
11.4% HEALTH CARE
7.7% ENERGY
4.5% MATERIALS
2.9% UTILITIES
2.7% CONSUMER STAPLES
1.2% TELECOMMUNICATION
SERVICES
0.9% OTHER
Portfolio holdings may have changed since the report date.
Source of Sector Classification: S&P and MSCI.
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 10/31/05, 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 10/31/05
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:
INVESTOR DOW JONES Fund Category:
SHARES WILSHIRE 5000 MORNINGSTAR
Ticker Symbol: COMPOSITE LARGE-CAP
SWTIX INDEX(SM) BLEND
1 YEAR 10.45% 10.77% 9.53%
5 YEARS 2 -0.59% -0.45% -1.41%
SINCE INCEPTION: 6/1/99 2 1.44% 1.55% 0.81%
1 YEAR 5 YEARS 10 YEARS
Fund: Fund: Fund:
INVESTOR Fund Category: INVESTOR Fund Category: INVESTOR Fund Category:
SHARES MORNINGSTAR SHARES MORNINGSTAR SHARES MORNINGSTAR
Ticker Symbol: LARGE-CAP Ticker Symbol: LARGE-CAP Ticker Symbol: LARGE-CAP
TOTAL RETURNS AFTER TAX SWTIX BLEND SWTIX BLEND SWTIX BLEND
- ------------------------------------------------------------------------------------------------------------------------------------
PRE-LIQUIDATION (still own shares) 10.25% 7.38% -0.87% -2.22% 1.19% n/a
- ------------------------------------------------------------------------------------------------------------------------------------
POST-LIQUIDATION (shares were sold) 7.05% 5.25% -0.65% -1.62% 1.09% 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.
$10,963 INVESTOR SHARES
$11,042 DOW JONES WILSHIRE 5000 COMPOSITE INDEX(SM)
[LINE GRAPH]
DOW JONES
WILSHIRE 5000
INVESTOR SHARES COMPOSITE 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
30-Nov-04 $10,379 $10,437
31-Dec-04 $10,747 $10,815
31-Jan-05 $10,467 $10,528
28-Feb-05 $10,684 $10,747
31-Mar-05 $10,504 $10,556
30-Apr-05 $10,272 $10,318
31-May-05 $10,662 $10,720
30-Jun-05 $10,752 $10,817
31-Jul-05 $11,185 $11,270
31-Aug-05 $11,074 $11,160
30-Sep-05 $11,148 $11,238
31-Oct-05 $10,963 $11,042
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 10/31/05 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 10/31/05
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:
SELECT DOW JONES
SHARES WILSHIRE 5000 Fund Category:
Ticker Symbol: COMPOSITE MORNINGSTAR
SWTSX INDEX(SM) LARGE-CAP BLEND
1 YEAR 10.63% 10.77% 9.53%
5 YEARS -0.43% -0.45% -1.41%
SINCE INCEPTION: 6/1/99 1.59% 1.55% 0.81%
1 YEAR 5 YEARS 10 YEARS
Fund: Fund: Fund:
SELECT SELECT SELECT
SHARES Fund Category: SHARES Fund Category: SHARES Fund Category:
Ticker MORNINGSTAR Ticker MORNINGSTAR Ticker MORNINGSTAR
Symbol: LARGE-CAP Symbol: LARGE-CAP Symbol: LARGE-CAP
TOTAL RETURNS AFTER TAX SWTSX BLEND SWTSX BLEND SWTSX BLEND
- ----------------------------------------------------------------------------------------------------------------------------------
PRE-LIQUIDATION (still own shares) 10.40% 7.38% -0.75% -2.22% 1.31% n/a
- ----------------------------------------------------------------------------------------------------------------------------------
POST-LIQUIDATION (shares were sold) 7.20% 5.25% -0.54% -1.62% 1.20% 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.
$55,345 SELECT SHARES
$55,211 DOW JONES WILSHIRE 5000 COMPOSITE INDEX(SM)
[LINE GRAPH]
DOW JONES
WILSHIRE 5000
COMPOSITE
SELECT 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
30-Nov-04 $52,330 $52,183
31-Dec-04 $54,175 $54,077
31-Jan-05 $52,790 $52,639
28-Feb-05 $53,880 $53,734
31-Mar-05 $52,950 $52,782
30-Apr-05 $51,810 $51,590
31-May-05 $53,800 $53,602
30-Jun-05 $54,225 $54,084
31-Jul-05 $56,430 $56,350
31-Aug-05 $55,875 $55,798
30-Sep-05 $56,275 $56,188
31-Oct-05 $55,345 $55,211
All figures on this page assume dividends and distributions were reinvested.
Index figures do not include trading and management costs, which would lower
performance. Indices are unmanaged, and you cannot invest in them directly.
1 The pre-tax total return and the graph do not reflect the deduction of taxes
that a shareholder would pay on fund distributions or the redemption of fund
shares. After-tax returns are calculated using the highest historical
individual federal marginal income tax rates in effect as of 10/31/05 and do
not reflect the impact of state and local taxes or the alternative minimum
tax. Actual returns depend on an investor's situation and may differ from
those shown. After-tax returns may not be relevant to investors who hold their
fund shares through tax-deferred arrangements. Pre-liquidation after-tax
returns reflect the tax effects of purchases and sales of securities within
the fund portfolios and assume investors continue to hold fund shares at the
end of the measurement periods. Post-liquidation figures assume investors sold
fund shares at the end of the measurement periods and reflect both the effects
of taxable distributions and any taxable gains or losses realized upon the
sale of shares. Source for category information: Morningstar, Inc. Some funds
in this category may not use tax-efficient strategies.
2 Fund expenses have been partially absorbed by CSIM and Schwab. Without these
reductions, the fund's returns would have been lower.
18 Schwab Equity Index Funds
SCHWAB TOTAL STOCK MARKET INDEX FUND
FUND FACTS as of 10/31/05
STYLE ASSESSMENT 1
[GRAPHIC]
INVESTMENT STYLE
Value Blend Growth
MARKET CAP
Large / / /X/ / /
Medium / / / / / /
Small / / / / / /
STATISTICS
NUMBER OF HOLDINGS 2,782
- --------------------------------------------------------------------------------
WEIGHTED AVERAGE MARKET CAP ($ x 1,000,000) $71,118
- --------------------------------------------------------------------------------
PRICE/EARNINGS RATIO (P/E) 19.2
- --------------------------------------------------------------------------------
PRICE/BOOK RATIO (P/B) 2.7
- --------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 2%
- --------------------------------------------------------------------------------
MINIMUM INITIAL INVESTMENT 2
Investor Shares $2,500
($1,000 for retirement, education and custodial accounts)
Select Shares $50,000
- --------------------------------------------------------------------------------
TOP HOLDINGS 3
% OF
SECURITY NET ASSETS
- --------------------------------------------------------------------------------
(1) EXXON MOBIL CORP. 2.5%
- --------------------------------------------------------------------------------
(2) GENERAL ELECTRIC CO. 2.4%
- --------------------------------------------------------------------------------
(3) MICROSOFT CORP. 1.9%
- --------------------------------------------------------------------------------
(4) CITIGROUP, INC. 1.6%
- --------------------------------------------------------------------------------
(5) PROCTER & GAMBLE CO. 1.3%
- --------------------------------------------------------------------------------
(6) JOHNSON & JOHNSON 1.3%
- --------------------------------------------------------------------------------
(7) BANK OF AMERICA CORP. 1.2%
- --------------------------------------------------------------------------------
(8) AMERICAN INTERNATIONAL GROUP, INC. 1.1%
- --------------------------------------------------------------------------------
(9) PFIZER, INC. 1.1%
- --------------------------------------------------------------------------------
(10) WAL-MART STORES, INC. 1.1%
- --------------------------------------------------------------------------------
TOTAL 15.5%
SECTOR WEIGHTINGS % of Investments
This chart shows the fund's sector composition as of the report date. A sector
is a portion of the overall stock market that is made up of industries whose
business components share similar characteristics.
[PIE CHART]
21.7% FINANCIALS
15.4% INFORMATION TECHNOLOGY
12.7% HEALTH CARE
12.6% CONSUMER DISCRETIONARY
10.6% INDUSTRIALS
8.9% CONSUMER STAPLES
8.8% ENERGY
3.3% UTILITIES
3.1% MATERIALS
2.6% TELECOMMUNICATION SERVICES
0.3% OTHER
Portfolio holdings may have changed since the report date.
Source of Sector Classification: S&P and MSCI.
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 10/31/05, 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 10/31/05
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:
INVESTOR Fund Category:
SHARES Benchmark: MORNINGSTAR
Ticker SCHWAB FOREIGN
Symbol: INTERNATIONAL LARGE-CAP
SWINX INDEX(R) BLEND
1 YEAR 17.30 17.77 17.76
5 YEARS 1.60 2.15 1.24
10 YEARS 5.80 6.35 6.11
1 YEAR 5 YEARS 10 YEARS
Fund: Fund: Fund:
INVESTOR INVESTOR INVESTOR
SHARES Fund Category: SHARES Fund Category: SHARES Fund Category:
Ticker MORNINGSTAR Ticker MORNINGSTAR Ticker MORNINGSTAR
Symbol: LARGE-CAP Symbol: LARGE-CAP Symbol: LARGE-CAP
TOTAL RETURNS AFTER TAX SWINX BLEND SWINX BLEND SWINX BLEND
- -----------------------------------------------------------------------------------------------------------------------------------
PRE-LIQUIDATION (still own shares) 16.89% 15.37% 1.22% 0.30% 5.44% 4.68%
- -----------------------------------------------------------------------------------------------------------------------------------
POST-LIQUIDATION (shares were sold) 11.51% 10.38% 1.19% 0.52% 4.90% 4.55%
- -----------------------------------------------------------------------------------------------------------------------------------
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.
$17,574 INVESTOR SHARES
$18,522 SCHWAB INTERNATIONAL INDEX(R)
$17,588 MSCI EAFE(R) INDEX
[LINE GRAPH]
SCHWAB
INVESTOR INTERNATIONAL MSCI EAFE(R)
SHARES INDEX(R) INDEX
31-Oct-95 $10,000 $10,000 $10,000
30-Nov-95 $10,216 $10,280 $10,278
31-Dec-95 $10,580 $10,677 $10,692
31-Jan-96 $10,608 $10,712 $10,736
29-Feb-96 $10,626 $10,732 $10,773
31-Mar-96 $10,808 $10,932 $11,001
30-Apr-96 $11,071 $11,190 $11,321
31-May-96 $10,952 $11,058 $11,113
30-Jun-96 $11,035 $11,134 $11,175
31-Jul-96 $10,725 $10,845 $10,849
31-Aug-96 $10,826 $10,940 $10,873
30-Sep-96 $11,126 $11,262 $11,162
31-Oct-96 $11,107 $11,224 $11,048
30-Nov-96 $11,606 $11,744 $11,488
31-Dec-96 $11,545 $11,641 $11,339
31-Jan-97 $11,168 $11,254 $10,943
28-Feb-97 $11,333 $11,442 $11,122
31-Mar-97 $11,426 $11,519 $11,162
30-Apr-97 $11,508 $11,643 $11,221
31-May-97 $12,356 $12,497 $11,952
30-Jun-97 $13,046 $13,227 $12,610
31-Jul-97 $13,442 $13,585 $12,815
31-Aug-97 $12,466 $12,605 $11,857
30-Sep-97 $13,322 $13,396 $12,521
31-Oct-97 $12,254 $12,311 $11,558
30-Nov-97 $12,245 $12,263 $11,440
31-Dec-97 $12,389 $12,436 $11,540
31-Jan-98 $12,845 $12,940 $12,067
28-Feb-98 $13,591 $13,722 $12,842
31-Mar-98 $13,944 $14,081 $13,238
30-Apr-98 $14,038 $14,177 $13,342
31-May-98 $14,038 $14,143 $13,277
30-Jun-98 $14,159 $14,235 $13,378
31-Jul-98 $14,196 $14,326 $13,513
31-Aug-98 $12,445 $12,521 $11,839
30-Sep-98 $12,045 $12,111 $11,475
31-Oct-98 $13,236 $13,380 $12,671
30-Nov-98 $13,917 $14,133 $13,320
31-Dec-98 $14,352 $14,597 $13,846
31-Jan-99 $14,305 $14,518 $13,804
28-Feb-99 $13,986 $14,232 $13,476
31-Mar-99 $14,615 $14,885 $14,038
30-Apr-99 $15,208 $15,526 $14,606
31-May-99 $14,465 $14,743 $13,854
30-Jun-99 $15,019 $15,344 $14,394
31-Jul-99 $15,565 $15,914 $14,822
31-Aug-99 $15,705 $16,063 $14,877
30-Sep-99 $15,997 $16,337 $15,027
31-Oct-99 $16,852 $17,207 $15,590
30-Nov-99 $17,622 $17,955 $16,131
31-Dec-99 $19,177 $19,532 $17,580
31-Jan-00 $17,670 $18,114 $16,464
29-Feb-00 $17,917 $18,407 $16,906
31-Mar-00 $18,958 $19,452 $17,562
30-Apr-00 $17,935 $18,400 $16,639
31-May-00 $17,424 $17,860 $16,233
30-Jun-00 $18,077 $18,527 $16,867
31-Jul-00 $17,377 $17,809 $16,161
31-Aug-00 $17,690 $18,122 $16,301
30-Sep-00 $16,770 $17,185 $15,507
31-Oct-00 $16,230 $16,650 $15,141
30-Nov-00 $15,491 $15,900 $14,573
31-Dec-00 $15,803 $16,235 $15,091
31-Jan-01 $15,937 $16,408 $15,095
28-Feb-01 $14,571 $14,984 $13,966
31-Mar-01 $13,591 $13,947 $13,018
30-Apr-01 $14,524 $14,908 $13,912
31-May-01 $14,004 $14,351 $13,397
30-Jun-01 $13,408 $13,738 $12,847
31-Jul-01 $13,071 $13,406 $12,624
31-Aug-01 $12,696 $13,031 $12,332
30-Sep-01 $11,552 $11,851 $11,082
31-Oct-01 $11,754 $12,078 $11,366
30-Nov-01 $12,119 $12,456 $11,786
31-Dec-01 $12,209 $12,540 $11,855
31-Jan-02 $11,577 $11,887 $11,226
28-Feb-02 $11,665 $11,989 $11,304
31-Mar-02 $12,306 $12,621 $11,916
30-Apr-02 $12,345 $12,726 $11,994
31-May-02 $12,511 $12,905 $12,147
30-Jun-02 $12,005 $12,383 $11,663
31-Jul-02 $10,828 $11,175 $10,512
31-Aug-02 $10,799 $11,151 $10,488
30-Sep-02 $9,631 $9,947 $9,361
31-Oct-02 $10,186 $10,539 $9,864
30-Nov-02 $10,613 $11,004 $10,312
31-Dec-02 $10,300 $10,653 $9,966
31-Jan-03 $9,853 $10,205 $9,550
28-Feb-03 $9,655 $9,996 $9,331
31-Mar-03 $9,456 $9,799 $9,148
30-Apr-03 $10,350 $10,762 $10,045
31-May-03 $10,975 $11,407 $10,654
30-Jun-03 $11,234 $11,678 $10,911
31-Jul-03 $11,462 $11,943 $11,176
31-Aug-03 $11,642 $12,146 $11,445
30-Sep-03 $11,959 $12,485 $11,797
31-Oct-03 $12,654 $13,232 $12,532
30-Nov-03 $12,993 $13,584 $12,811
31-Dec-03 $14,022 $14,678 $13,811
31-Jan-04 $14,133 $14,804 $14,006
29-Feb-04 $14,447 $15,128 $14,329
31-Mar-04 $14,406 $15,075 $14,410
30-Apr-04 $14,124 $14,779 $14,084
31-May-04 $14,184 $14,862 $14,132
30-Jun-04 $14,447 $15,135 $14,441
31-Jul-04 $14,083 $14,747 $13,972
31-Aug-04 $14,093 $14,762 $14,033
30-Sep-04 $14,488 $15,184 $14,400
31-Oct-04 $14,982 $15,727 $14,891
30-Nov-04 $15,913 $16,709 $15,908
31-Dec-04 $16,575 $17,402 $16,606
31-Jan-05 $16,164 $16,991 $16,302
28-Feb-05 $16,885 $17,766 $17,006
31-Mar-05 $16,524 $17,382 $16,580
30-Apr-05 $16,195 $16,965 $16,190
31-May-05 $16,153 $16,987 $16,198
30-Jun-05 $16,349 $17,246 $16,414
31-Jul-05 $16,874 $17,776 $16,917
31-Aug-05 $17,471 $18,327 $17,345
30-Sep-05 $18,016 $19,016 $18,117
31-Oct-05 $17,574 $18,522 $17,588
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 10/31/05 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 10/31/05
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:
SELECT Fund Category:
SHARES Benchmark: MORNINGSTAR
Ticker SCHWAB FOREIGN
Symbol: INTERNATIONAL LARGE-CAP
SWISX INDEX(R) BLEND
1 Year 17.56 17.77 17.76
5 Years 1.76 2.15 1.24
Since Inception: 5/19/97 4.24 4.58 4.14
1 YEAR 5 YEARS SINCE INCEPTION
Fund: Fund: Fund:
SELECT SELECT SELECT
SHARES Fund Category: SHARES Fund Category: SHARES Fund Category:
Ticker MORNINGSTAR Ticker MORNINGSTAR Ticker MORNINGSTAR
Symbol: LARGE-CAP Symbol: LARGE-CAP Symbol: LARGE-CAP
TOTAL RETURNS AFTER TAX SWISX BLEND SWISX BLEND SWISX BLEND
- --------------------------------------------------------------------------------------------------------------------------------
PRE-LIQUIDATION (still own shares) 17.11% 15.37% 1.34 0.30 3.87 n/a
- --------------------------------------------------------------------------------------------------------------------------------
POST-LIQUIDATION (shares were sold) 11.70% 10.38% 1.29 0.52 3.48 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.
$71,050 SELECT SHARES
$73,041 SCHWAB INTERNATIONAL INDEX(R)
$72,474 MSCI EAFE(R) INDEX
[LINE GRAPH]
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 $58,377 $57,712
29-Feb-04 $58,195 $59,655 $59,045
31-Mar-04 $58,035 $59,446 $59,376
30-Apr-04 $56,935 $58,279 $58,034
31-May-04 $57,180 $58,609 $58,231
30-Jun-04 $58,240 $59,684 $59,506
31-Jul-04 $56,770 $58,155 $57,572
31-Aug-04 $56,810 $58,214 $57,826
30-Sep-04 $58,400 $59,877 $59,335
31-Oct-04 $60,440 $62,020 $61,358
30-Nov-04 $64,190 $65,891 $65,549
31-Dec-04 $66,850 $68,624 $68,427
31-Jan-05 $65,230 $67,001 $67,174
28-Feb-05 $68,140 $70,061 $70,076
31-Mar-05 $66,725 $68,544 $68,317
30-Apr-05 $65,395 $66,901 $66,712
31-May-05 $65,230 $66,987 $66,745
30-Jun-05 $66,020 $68,009 $67,633
31-Jul-05 $68,180 $70,098 $69,709
31-Aug-05 $70,550 $72,272 $71,473
30-Sep-05 $72,835 $74,987 $74,654
31-Oct-05 $71,050 $73,041 $72,474
All figures on this page assume dividends and distributions were reinvested.
Index figures do not include trading and management costs, which would lower
performance. Indices are unmanaged, and you cannot invest in them directly.
1 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 10/31/05 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 10/31/05
STYLE ASSESSMENT 1
[GRAPHIC]
INVESTMENT STYLE
Value Blend Growth
MARKET CAP
Large / / /X/ / /
Medium / / / / / /
Small / / / / / /
TOP HOLDINGS 2
% of
Security Net Assets
- --------------------------------------------------------------------------------
(1) BP PLC 3.0%
- --------------------------------------------------------------------------------
(2) HSBC HOLDINGS PLC 2.2%
- --------------------------------------------------------------------------------
(3) VODAFONE GROUP PLC 2.1%
- --------------------------------------------------------------------------------
(4) GLAXOSMITHKLINE PLC 1.9%
- --------------------------------------------------------------------------------
(5) TOTAL SA 1.9%
- --------------------------------------------------------------------------------
(6) NOVARTIS AG, Registered 1.7%
- --------------------------------------------------------------------------------
(7) ROYAL DUTCH SHELL PLC, A Shares 1.7%
- --------------------------------------------------------------------------------
(8) TOYOTA MOTOR CORP. 1.5%
- --------------------------------------------------------------------------------
(9) NESTLE SA, Registered 1.5%
- --------------------------------------------------------------------------------
(10) ROCHE HOLDINGS--GENUS 1.3%
- --------------------------------------------------------------------------------
TOTAL 18.8%
STATISTICS
NUMBER OF HOLDINGS 344
- --------------------------------------------------------------------------------
WEIGHTED AVERAGE MARKET CAP ($ x 1,000,000) $61,669
- --------------------------------------------------------------------------------
PRICE/EARNINGS RATIO (P/E) 18.0
- --------------------------------------------------------------------------------
PRICE/BOOK RATIO (P/B) 2.4
- --------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 10%
- --------------------------------------------------------------------------------
MINIMUM INITIAL INVESTMENT 3
Investor Shares $2,500
($1,000 for retirement, education and custodial accounts)
Select Shares $50,000
- --------------------------------------------------------------------------------
Sector and Country Weightings % of Investments
These charts show the fund's sector and country composition as of the report
date. A sector is a portion of the overall stock market that is made up of
industries whose business components share similar characteristics.
SECTOR
[PIE CHART]
30.5% FINANCIALS
11.5% ENERGY
10.1% CONSUMER DISCRETIONARY
9.4% HEALTH CARE
8.0% CONSUMER STAPLES
7.9% TELECOMMUNICATION SERVICES
6.8% INDUSTRIALS
5.8% MATERIALS
5.2% UTILITIES
4.5% INFORMATION TECHNOLOGY
0.3% OTHER
COUNTRY
[PIE CHART]
27.4% UNITED KINGDOM
19.9% JAPAN
10.3% FRANCE
7.7% SWITZERLAND
7.5% GERMANY
6.5% CANADA
6.2% AUSTRALIA
4.4% SPAIN
4.2% NETHERLANDS
5.9% OTHER
Portfolio holdings may have changed since the report date. Source of Sector
Classification: S&P and MSCI.
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 10/31/05, 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 (unaudited)
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, 2005 and held
through October 31, 2005.
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 5/1/05 at 10/31/05 5/1/05-10/31/05
- ----------------------------------------------------------------------------------------------------------------------------------
SCHWAB S&P 500 INDEX FUND
Investor Shares
Actual Return 0.37% $1,000 $1,051.50 $1.90
Hypothetical 5% Return 0.37% $1,000 $1,023.36 $1.87
Select Shares(R)
Actual Return 0.19% $1,000 $1,052.40 $0.98
Hypothetical 5% Return 0.19% $1,000 $1,024.25 $0.96
e.Shares(R)
Actual Return 0.22% $1,000 $1,052.00 $1.11
Hypothetical 5% Return 0.22% $1,000 $1,024.12 $1.10
- ----------------------------------------------------------------------------------------------------------------------------------
SCHWAB 1000 INDEX(R) FUND
Investor Shares
Actual Return 0.50% $1,000 $1,062.30 $2.59
Hypothetical 5% Return 0.50% $1,000 $1,022.70 $2.54
Select Shares
Actual Return 0.35% $1,000 $1,063.20 $1.81
Hypothetical 5% Return 0.35% $1,000 $1,023.45 $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 its annualized expense ratio,
multiplied by the average account value over the period, multiplied by 184
days of the period, and divided by 365 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 5/1/05 at 10/31/05 5/1/05-10/31/05
- ------------------------------------------------------------------------------------------------------------------------------------
SCHWAB SMALL-CAP INDEX FUND(R)
Investor Shares
Actual Return 0.58% $1,000 $1,120.00 $3.10
Hypothetical 5% Return 0.58% $1,000 $1,022.28 $2.96
Select Shares
Actual Return 0.41% $1,000 $1,121.40 $2.18
Hypothetical 5% Return 0.41% $1,000 $1,023.15 $2.08
- ------------------------------------------------------------------------------------------------------------------------------------
SCHWAB TOTAL STOCK MARKET INDEX FUND(R)
Investor Shares
Actual Return 0.54% $1,000 $1,067.30 $2.81
Hypothetical 5% Return 0.54% $1,000 $1,022.48 $2.75
Select Shares
Actual Return 0.38% $1,000 $1,068.20 $1.99
Hypothetical 5% Return 0.38% $1,000 $1,023.28 $1.95
- ------------------------------------------------------------------------------------------------------------------------------------
SCHWAB INTERNATIONAL INDEX FUND(R)
Investor Shares
Actual Return 0.68% $1,000 $1,085.20 $3.56
Hypothetical 5% Return 0.68% $1,000 $1,021.79 $3.46
Select Shares
Actual Return 0.49% $1,000 $1,086.50 $2.58
Hypothetical 5% Return 0.49% $1,000 $1,022.73 $2.50
1 Based on the most recent six-month expense ratio; may differ from the expense
ratio provided in Financial Highlights.
2 Expenses for each share class are equal to its annualized expense ratio,
multiplied by the average account value over the period, multiplied by 184
days of the period, and divided by 365 days of the fiscal year.
24 Schwab Equity Index Funds
SCHWAB S&P 500 INDEX FUND
FINANCIAL STATEMENTS
FINANCIAL HIGHLIGHTS
11/1/04- 11/1/03- 11/1/02- 11/1/01- 11/1/00-
INVESTOR SHARES 10/31/05 10/31/04 10/31/03 10/31/02 10/31/01
- -----------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA ($)
- -----------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of period 17.61 16.36 13.79 16.45 22.15
------------------------------------------------------------------
Income or loss from investment operations:
Net investment income 0.34 0.23 0.20 0.20 0.17
Net realized and unrealized gains or losses 1.14 1.23 2.57 (2.68) (5.70)
------------------------------------------------------------------
Total income or loss from investment operations 1.48 1.46 2.77 (2.48) (5.53)
Less distributions:
Dividends from net investment income (0.30) (0.21) (0.20) (0.18) (0.17)
------------------------------------------------------------------
Net asset value at end of period 18.79 17.61 16.36 13.79 16.45
------------------------------------------------------------------
Total return (%) 8.44 9.03 20.39 (15.32) (25.11)
RATIOS/SUPPLEMENTAL DATA (%)
- -----------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net operating expenses 0.37 0.37 0.36 0.35 0.35
Gross operating expenses 0.40 0.45 0.46 0.46 0.46
Net investment income 1.74 1.35 1.45 1.21 0.95
Portfolio turnover rate 4 3 3 8 4
Net assets, end of period ($ x 1,000,000) 3,666 3,849 3,510 2,760 3,070
See financial notes. 25
SCHWAB S&P 500 INDEX FUND
FINANCIAL HIGHLIGHTS
11/1/04- 11/1/03- 11/1/02- 11/1/01- 11/1/00-
SELECT SHARES 10/31/05 10/31/04 10/31/03 10/31/02 10/31/01
- ----------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA ($)
- ----------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of period 17.68 16.41 13.83 16.50 22.21
-----------------------------------------------------------------
Income or loss from investment operations:
Net investment income 0.36 0.26 0.24 0.22 0.20
Net realized and unrealized gains or losses 1.16 1.24 2.57 (2.69) (5.71)
-----------------------------------------------------------------
Total income or loss from investment operations 1.52 1.50 2.81 (2.47) (5.51)
Less distributions:
Dividends from net investment income (0.32) (0.23) (0.23) (0.20) (0.20)
-----------------------------------------------------------------
Net asset value at end of period 18.88 17.68 16.41 13.83 16.50
-----------------------------------------------------------------
Total return (%) 8.66 9.25 20.62 (15.20) (24.97)
RATIOS/SUPPLEMENTAL DATA (%)
- ----------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net operating expenses 0.19 0.19 0.19 0.19 0.19
Gross operating expenses 0.25 0.30 0.31 0.31 0.31
Net investment income 1.92 1.53 1.63 1.37 1.11
Portfolio turnover rate 4 3 3 8 4
Net assets, end of period ($ x 1,000,000) 3,938 4,119 3,692 3,029 3,563
26 See financial notes.
SCHWAB S&P 500 INDEX FUND
11/1/04- 11/1/03- 11/1/02- 11/1/01- 11/1/00-
e.SHARES 10/31/05 10/31/04 10/31/03 10/31/02 10/31/01
- -----------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA ($)
- -----------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of period 17.62 16.37 13.79 16.46 22.17
------------------------------------------------------------------
Income or loss from investment operations:
Net investment income 0.39 0.26 0.23 0.23 0.20
Net realized and unrealized gains or losses 1.11 1.21 2.56 (2.71) (5.71)
------------------------------------------------------------------
Total income or loss from investment operations 1.50 1.47 2.79 (2.48) (5.51)
Less distributions:
Dividends from net investment income (0.31) (0.22) (0.21) (0.19) (0.20)
------------------------------------------------------------------
Net asset value at end of period 18.81 17.62 16.37 13.79 16.46
------------------------------------------------------------------
Total return (%) 8.58 9.10 20.55 (15.32) (25.02)
RATIOS/SUPPLEMENTAL DATA (%)
- -----------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net operating expenses 0.24 0.28 0.28 0.28 0.28
Gross operating expenses 0.25 0.30 0.31 0.31 0.31
Net investment income 1.88 1.44 1.54 1.28 1.02
Portfolio turnover rate 4 3 3 8 4
Net assets, end of period ($ x 1,000,000) 220 249 246 220 304
See financial notes. 27
SCHWAB S&P 500 INDEX FUND
SUMMARY OF PORTFOLIO HOLDINGS as of October 31, 2005
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 Schwab Funds(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
@ All or a portion of this security is on loan
COST VALUE
HOLDINGS BY CATEGORY ($x1,000) ($x1,000)
- --------------------------------------------------------------------------------
99.9% COMMON STOCK 6,588,735 7,815,203
0.0% U.S. TREASURY
OBLIGATIONS 692 692
- --------------------------------------------------------------------------------
99.9% TOTAL INVESTMENTS 6,589,427 7,815,895
1.2% COLLATERAL INVESTED
FOR SECURITIES ON LOAN 93,658 93,658
(1.1)% OTHER ASSETS AND
LIABILITIES, NET (85,436)
- --------------------------------------------------------------------------------
100.0% TOTAL NET ASSETS 7,824,117
% OF NET VALUE
SECURITY AND NUMBER OF SHARES ASSETS ($ x 1,000)
COMMON STOCK 99.9% of net assets
AUTOMOBILES & COMPONENTS 0.6%
-------------------------------------------------------------------------
Other Securities 0.6 43,958
BANKS 7.3%
-------------------------------------------------------------------------
(7) Bank of America
Corp. 2,898,120 1.6 126,764
U.S. Bancorp 1,310,900 0.5 38,776
Wachovia Corp. 1,139,550 0.7 57,570
Wells Fargo & Co. 1,210,516 0.9 72,873
Other Securities 3.6 278,252
-------- -----------
7.3 574,235
CAPITAL GOODS 8.7%
-------------------------------------------------------------------------
3M Co. 552,603 0.5 41,987
The Boeing Co. 593,330 0.5 38,353
=(1) General Electric Co. 7,564,419 3.3 256,509
Tyco International
Ltd. 1,441,577 0.5 38,043
United Technologies
Corp. 726,861 0.5 37,273
Other Securities 3.4 266,484
-------- -----------
8.7 678,649
COMMERCIAL SERVICES & SUPPLIES 0.9%
-------------------------------------------------------------------------
Other Securities 0.9 68,647
CONSUMER DURABLES & APPAREL 1.2%
-------------------------------------------------------------------------
Other Securities 1.2 96,985
DIVERSIFIED FINANCIALS 8.2%
-------------------------------------------------------------------------
American Express
Co. 896,504 0.6 44,619
/ The Charles Schwab
Corp. 745,315 0.1 11,329
(4) Citigroup, Inc. 3,708,732 2.2 169,786
Goldman Sachs Group,
Inc. 326,946 0.5 41,316
JPMorgan Chase &
Co. 2,537,862 1.2 92,936
Merrill Lynch & Co.,
Inc. 673,026 0.6 43,572
Morgan Stanley 784,609 0.5 42,691
Other Securities 2.5 196,344
-------- -----------
8.2 642,593
28 See financial notes.
SCHWAB S&P 500 INDEX FUND
% OF NET VALUE
SECURITY AND NUMBER OF SHARES ASSETS ($ x 1,000)
ENERGY 9.5%
---------------------------------------------------------------------------
ChevronTexaco
Corp. 1,622,963 1.2 92,622
ConocoPhillips 1,005,577 0.8 65,745
=(2) Exxon Mobil Corp. 4,532,210 3.3 254,438
Schlumberger Ltd. 421,406 0.5 38,251
Other Securities 3.7 287,754
-------- -----------
9.5 738,810
FOOD & STAPLES RETAILING 2.4%
---------------------------------------------------------------------------
Wal-Mart Stores, Inc. 1,783,886 1.1 84,396
Other Securities 1.3 105,104
-------- -----------
2.4 189,500
FOOD BEVERAGE & TOBACCO 4.9%
---------------------------------------------------------------------------
(10) Altria Group, Inc. 1,475,494 1.4 110,736
The Coca-Cola Co. 1,503,274 0.8 64,310
PepsiCo, Inc. 1,199,296 0.9 70,854
Other Securities 1.8 134,823
-------- -----------
4.9 380,723
HEALTH CARE EQUIPMENT & SERVICES 5.2%
---------------------------------------------------------------------------
Medtronic, Inc. 866,206 0.6 49,079
UnitedHealth Group,
Inc. 916,297 0.7 53,044
Other Securities 3.9 307,230
-------- -----------
5.2 409,353
HOTELS RESTAURANTS & LEISURE 1.4%
---------------------------------------------------------------------------
Other Securities 1.4 112,275
HOUSEHOLD & PERSONAL PRODUCTS 2.5%
---------------------------------------------------------------------------
=(5) Procter & Gamble
Co. 2,439,958 1.7 136,613
Other Securities 0.8 55,739
-------- -----------
2.5 192,352
INSURANCE 4.8%
---------------------------------------------------------------------------
(8) American International Group,
Inc. 1,871,723 1.6 121,288
Other Securities 3.2 253,070
-------- -----------
4.8 374,358
MATERIALS 2.9%
---------------------------------------------------------------------------
Other Securities 2.9 230,356
MEDIA 3.4%
---------------------------------------------------------------------------
o Comcast Corp.,
Class A 1,579,531 0.6 43,958
Time Warner, Inc. 3,391,284 0.8 60,467
Viacom, Inc.,
Class B 1,154,698 0.4 35,761
Other Securities 1.6 126,229
-------- -----------
3.4 266,415
PHARMACEUTICALS & BIOTECHNOLOGY 7.9%
---------------------------------------------------------------------------
Abbott Laboratories 1,110,600 0.6 47,811
o Amgen, Inc. 886,202 0.9 67,139
Eli Lilly & Co. 805,300 0.5 40,096
(6) Johnson & Johnson 2,136,946 1.7 133,816
Merck & Co., Inc. 1,577,888 0.6 44,528
(9) Pfizer, Inc. 5,318,550 1.5 115,625
Wyeth 968,895 0.5 43,174
Other Securities 1.6 128,288
-------- -----------
7.9 620,477
REAL ESTATE 0.7%
---------------------------------------------------------------------------
Other Securities 0.7 57,636
RETAILING 3.8%
---------------------------------------------------------------------------
@ Home Depot, Inc. 1,527,260 0.8 62,679
Other Securities 3.0 237,676
-------- -----------
3.8 300,355
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT 3.1%
---------------------------------------------------------------------------
Intel Corp. 4,395,616 1.3 103,297
Other Securities 1.8 139,576
-------- -----------
3.1 242,873
SOFTWARE & SERVICES 5.2%
---------------------------------------------------------------------------
=(3) Microsoft Corp. 6,606,793 2.2 169,795
Other Securities 3.0 235,160
-------- -----------
5.2 404,955
TECHNOLOGY HARDWARE & EQUIPMENT 7.0%
---------------------------------------------------------------------------
o Cisco Systems, Inc. 4,576,968 1.0 79,868
o Dell, Inc. 1,722,383 0.7 54,910
Hewlett-Packard Co. 2,067,149 0.8 57,963
International Business
Machines Corp. 1,151,594 1.2 94,293
See financial notes. 29
SCHWAB S&P 500 INDEX FUND
SUMMARY OF PORTFOLIO HOLDINGS continued
% OF NET VALUE
SECURITY AND NUMBER OF SHARES ASSETS ($ x 1,000)
Motorola, Inc. 1,783,756 0.5 39,528
Qualcomm, Inc. 1,169,944 0.6 46,517
Other Securities 2.2 170,204
-------- -----------
7.0 543,283
TELECOMMUNICATION SERVICES 3.1%
---------------------------------------------------------------------------
SBC Communications,
Inc. 2,357,762 0.7 56,233
Sprint Corp.
(FON Group) 2,084,463 0.6 48,589
Verizon Communications,
Inc. 1,981,776 0.8 62,446
Other Securities 1.0 73,899
-------- -----------
3.1 241,167
TRANSPORTATION 1.8%
---------------------------------------------------------------------------
United Parcel Service, Inc.,
Class B 797,790 0.7 58,191
Other Securities 1.1 78,311
-------- -----------
1.8 136,502
UTILITIES 3.4%
---------------------------------------------------------------------------
Other Securities 3.4 268,746
SECURITY
RATE, MATURITY DATE
FACE AMOUNT ($ x 1,000)
U.S. TREASURY OBLIGATIONS 0.0% of net assets
= U.S. Treasury Bills
3.40%-3.47%, 12/15/05
695 0.0 692
END OF INVESTMENTS.
VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
COLLATERAL INVESTED FOR SECURITIES ON LOAN
1.2% of net assets
SHORT-TERM INVESTMENT 1.2%
---------------------------------------------------------------------------
Securities Lending Investment
Fund 93,657,666 93,658
END OF COLLATERAL INVESTED FOR SECURITIES ON LOAN.
In addition to the above, the fund held the following at 10/31/05. All numbers x
$1,000 except number of contracts.
FUTURES CONTRACTS
Number of Contract Unrealized
Contracts Value Gains
S&P 500 Index e-mini, Long
Expires 12/18/05 50 3,025 42
30 See financial notes.
SCHWAB S&P 500 INDEX FUND
Statement of
ASSETS AND LIABILITIES
As of October 31, 2005. All numbers x 1,000 except NAV.
ASSETS
- --------------------------------------------------------------------------------
Investments, at value
(including $92,279 of securities on loan) $7,815,895 a
Collateral invested for securities on loan 93,658
Receivables:
Fund shares sold 5,698
Dividends 7,173
Investments sold 4,998
Due from brokers for futures 34
Income from securities on loan 19
Prepaid expenses + 76
--------------
TOTAL ASSETS 7,927,551
LIABILITIES
- --------------------------------------------------------------------------------
Collateral invested for securities on loan 93,658
Bank overdraft 1,045
Payables:
Fund shares redeemed 8,177
Interest expense 50
Investment adviser and administrator fees 51
Transfer agent and shareholder service fees 132
Trustee fees 1
Accrued expenses + 320
--------------
TOTAL LIABILITIES 103,434
NET ASSETS
- --------------------------------------------------------------------------------
TOTAL ASSETS 7,927,551
TOTAL LIABILITIES - 103,434
--------------
NET ASSETS $7,824,117
NET ASSETS BY SOURCE
Capital received from investors 7,316,267
Net investment income not yet distributed 100,796
Net realized capital losses (819,456) b
Net unrealized capital gains 1,226,510 b
NET ASSET VALUE (NAV) BY SHARE CLASS
SHARES
SHARE CLASS NET ASSETS / OUTSTANDING = NAV
Investor Shares $3,666,167 195,079 $18.79
Select Shares $3,937,976 208,606 $18.88
e.Shares $219,974 11,692 $18.81
Unless stated, all numbers x 1,000.
a The fund paid $6,589,427 for these securities.
Not counting short-term obligations and government securities, the fund's
security transactions during the period were:
Purchases $348,154
Sales/maturities $1,278,559
The fund's total security transactions (including transactions related to the
redemption-in-kind) with other Schwab Funds(R) during the period were
$515,008.
b These derive from investments and futures.
FEDERAL TAX DATA
--------------------------------------------------------
PORTFOLIO COST $6,654,355
NET UNREALIZED GAINS AND LOSSES:
Gains $2,253,612
Losses + (1,092,072)
--------------
$1,161,540
NET UNDISTRIBUTED EARNINGS:
Ordinary income $100,796
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 29,212
2013 + 175,897
--------------
$754,486
THE FOLLOWING RECLASSIFICATIONS WERE
MADE AS A RESULT OF THE REDEMPTION-
IN-KIND WITH OTHER SCHWAB FUNDS:
RECLASSIFICATIONS:
Capital received from
investors $231,642
Reclassified as:
Realized capital losses ($231,642)
See financial notes. 31
SCHWAB S&P 500 INDEX FUND
Statement of
OPERATIONS
For November 1, 2004 through October 31, 2005. All numbers x 1,000.
INVESTMENT INCOME
- --------------------------------------------------------------------------------
Dividends $172,556
Interest 100
Lending of securities + 772
------------
TOTAL INVESTMENT INCOME 173,428
NET REALIZED GAINS AND LOSSES
- --------------------------------------------------------------------------------
Net realized gains on investments 76,428 a
Net realized gains on futures contracts + 1,254
------------
NET REALIZED GAINS 77,682
NET UNREALIZED GAINS AND LOSSES
- --------------------------------------------------------------------------------
Net unrealized gains on investments 465,017
Net unrealized losses on futures contracts + (26)
------------
NET UNREALIZED GAINS 464,991
EXPENSES
- --------------------------------------------------------------------------------
Investment adviser and administrator fees 9,693 b
Transfer agent and shareholder service fees:
Investor Shares 9,732 c
Select Shares 4,088 c
e.Shares 242 c
Trustees' fees 68 d
Custodian fees 240
Portfolio accounting fees 1,089
Professional fees 55
Registration fees 146
Shareholder reports 473
Interest expense 144
Other expenses + 113
------------
Total expenses 26,083
Expense reduction - 3,310 e
------------
NET EXPENSES 22,773
INCREASE IN NET ASSETS FROM OPERATIONS
- --------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME 173,428
NET EXPENSES - 22,773
------------
NET INVESTMENT INCOME 150,655
NET REALIZED GAINS 77,682 f
NET UNREALIZED GAINS + 464,991 f
------------
INCREASE IN NET ASSETS FROM OPERATIONS $693,328
Unless stated, all numbers x 1,000.
a Includes gains of $232,619 from redemption-in-kind by other Schwab Funds(R).
b Calculated as a percentage of average daily net assets: 0.15% of the first
$500 million; 0.09% of the next $4.5 billion; 0.08% of the next $5 billion;
and 0.07% of the assets beyond that. These fees are paid to Charles Schwab
Investments Management, Inc. (CSIM).
Prior to February 28, 2005, these fees were calculated as a percentage of
average daily net assets: 0.20% of the first $500 million and 0.17% of the
assets beyond that.
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%, 0.05%,
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 $546 from the investment adviser (CSIM) and $2,764 from the transfer
agent and shareholder service agent (Schwab). These reductions reflect a
guarantee by CSIM and Schwab to limit the net operating expenses of this fund
through February 27, 2006, as follows:
% OF AVERAGE
SHARE CLASS DAILY NET ASSETS
--------------------------------------
Investor Shares 0.37
Select Shares 0.19
e.Shares 0.28
These limits exclude interest, taxes and certain non-routine expenses.
f These add up to a net gain on investments of $542,673.
32 See financial notes.
SCHWAB S&P 500 INDEX FUND
Statements of
CHANGES IN NET ASSETS
For the current and prior report periods. All numbers x 1,000.
OPERATIONS
- --------------------------------------------------------------------------------
11/1/04-10/31/05 11/1/03-10/31/04
Net investment income $150,655 $115,762
Net realized gains or losses 77,682 (33,884)
Net unrealized gains + 464,991 600,470
--------------------------------------
INCREASE IN NET ASSETS
FROM OPERATIONS 693,328 682,348
DISTRIBUTIONS PAID
- --------------------------------------------------------------------------------
DIVIDENDS FROM NET INVESTMENT INCOME
Investor Shares 64,372 46,375
Select Shares 75,732 52,459
e.Shares + 4,246 3,356
--------------------------------------
TOTAL DIVIDENDS FROM NET INVESTMENT INCOME $144,350 $102,190 a,b
TRANSACTIONS IN FUND SHARES
- --------------------------------------------------------------------------------
11/1/04-10/31/05 11/1/03-10/31/04
SHARES VALUE SHARES VALUE
SHARES SOLD
Investor Shares 24,608 $453,452 43,461 $748,116
Select Shares 44,426 826,293 48,984 845,969
e.Shares + 2,521 46,535 3,507 60,506
----------------------------------------------------
TOTAL SHARES SOLD 71,555 $1,326,280 95,952 $1,654,591
SHARES REINVESTED
Investor Shares 3,370 $61,509 2,680 $44,333
Select Shares 3,694 67,604 2,844 47,146
e.Shares + 210 3,838 182 3,018
----------------------------------------------------
TOTAL SHARES REINVESTED 7,274 $132,951 5,706 $94,497
SHARES REDEEMED
Investor Shares (51,474) ($955,673) (42,120) ($725,021)
Select Shares (72,497) (1,349,747) (43,789) (755,806) c
e.Shares + (5,182) (96,047) (4,554) (78,428)
----------------------------------------------------
TOTAL SHARES REDEEMED (129,153) ($2,401,467) (90,463) ($1,559,255) d
NET TRANSACTIONS IN
FUND SHARES (50,324) ($942,236) 11,195 $189,833
SHARES OUTSTANDING AND NET ASSETS
- --------------------------------------------------------------------------------
11/1/04-10/31/05 11/1/03-10/31/04
SHARES NET ASSETS SHARES NET ASSETS
Beginning of period 465,701 $8,217,375 454,506 $7,447,384
Total increase or
decrease + (50,324) (393,258) 11,195 769,991
----------------------------------------------------
END OF PERIOD 415,377 $7,824,117 465,701 $8,217,375 e
a UNAUDITED
For corporations, 100% of the fund's dividends for the report period qualify
for the dividends-received deduction.
The fund designates $144,350 of the dividend distribution for the fiscal year
ended 10/31/05 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 2006 via IRS Form 1099 of the amounts for use in preparing
their 2005 income tax return.
b The tax-basis components of distributions for the period ended 10/31/05 are:
CURRENT PRIOR
PERIOD PERIOD
Ordinary income $144,350 $102,190
LT Cap. Gains $-- $--
c For the current period, includes redemption-in-kind by other Schwab Funds(R)
as follows:
MARKETTRACK SHARES VALUE
All Equity Portfolio 11,054 $206,923
Growth Portfolio 7,857 $147,092
Balanced Portfolio 4,089 $76,546
d For shares purchased on or before 4/29/05 and held less than 180 days, the
fund charges 0.75% redemption fee. For shares purchased after 4/29/05 and held
less than 30 days, the fund charges 2.00% redemption fee.
CURRENT PRIOR
PERIOD PERIOD
Investor Shares $192 $238
Select Shares 200 238
e.Shares + 15 + 10
-------------------
TOTAL $407 $486
e Includes distributable net investment income in the amount of $100,796 and
$94,491 at the end of the current period and prior period, respectively.
Percent of fund shares owned by other Schwab Funds(R) as of the end of the
current period:
SCHWAB MARKETTRACK PORTFOLIOS
Conservative Portfolio 0.6%
See financial notes. 33
SCHWAB 1000 INDEX(R) FUND
FINANCIAL STATEMENTS
FINANCIAL HIGHLIGHTS
11/1/04- 11/1/03- 11/1/02- 11/1/01- 11/1/00-
INVESTOR SHARES 10/31/05 10/31/04 10/31/03 10/31/02 10/31/01
- -------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA ($)
- -------------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of period 32.54 30.25 25.25 29.57 39.95
--------------------------------------------------------------------
Income or loss from investment operations:
Net investment income 0.55 0.37 0.33 0.31 0.26
Net realized and unrealized gains or losses 2.70 2.26 4.99 (4.36) (10.40)
--------------------------------------------------------------------
Total income or loss from investment operations 3.25 2.63 5.32 (4.05) (10.14)
Less distributions:
Dividends from net investment income (0.48) (0.34) (0.32) (0.27) (0.24)
--------------------------------------------------------------------
Net asset value at end of period 35.31 32.54 30.25 25.25 29.57
--------------------------------------------------------------------
Total return (%) 10.04 8.78 21.34 (13.87) (25.50)
RATIOS/SUPPLEMENTAL DATA (%)
- -------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net operating expenses 0.50 0.50 0.49 0.46 0.46
Gross operating expenses 0.50 0.50 0.51 0.52 0.51
Net investment income 1.49 1.15 1.27 1.04 0.78
Portfolio turnover rate 6 5 5 9 8
Net assets, end of period ($ x 1,000,000) 4,166 4,258 3,974 3,223 3,852
34 See financial notes.
SCHWAB 1000 INDEX FUND
11/1/04- 11/1/03- 11/1/02- 11/1/01- 11/1/00-
SELECT SHARES 10/31/05 10/31/04 10/31/03 10/31/02 10/31/01
- -------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA ($)
- -------------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of period 32.56 30.27 25.26 29.58 39.98
--------------------------------------------------------------------
Income or loss from investment operations:
Net investment income 0.56 0.42 0.37 0.35 0.31
Net realized and unrealized gains or losses 2.74 2.25 4.99 (4.36) (10.41)
--------------------------------------------------------------------
Total income or loss from investment operations 3.30 2.67 5.36 (4.01) (10.10)
Less distributions:
Dividends from net investment income (0.52) (0.38) (0.35) (0.31) (0.30)
--------------------------------------------------------------------
Net asset value at end of period 35.34 32.56 30.27 25.26 29.58
--------------------------------------------------------------------
Total return (%) 10.21 8.90 21.52 (13.77) (25.40)
RATIOS/SUPPLEMENTAL DATA (%)
- -------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net operating expenses 0.35 0.35 0.35 0.35 0.35
Gross operating expenses 0.35 0.35 0.36 0.37 0.36
Net investment income 1.63 1.30 1.41 1.15 0.89
Portfolio turnover rate 6 5 5 9 8
Net assets, end of period ($ x 1,000,000) 2,328 2,138 1,996 1,588 1,911
See financial notes. 35
SCHWAB 1000 INDEX FUND
SUMMARY OF PORTFOLIO HOLDINGS as of October 31, 2005
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 Schwab Funds(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
@ All or a portion of this security is on loan
COST VALUE
HOLDINGS BY CATEGORY ($ x 1,000) ($ x 1,000)
- --------------------------------------------------------------------------------
99.8% COMMON STOCK 3,537,111 6,483,237
0.1% SHORT-TERM
INVESTMENT 5,430 5,430
0.0% U.S. TREASURY
OBLIGATION 398 398
- --------------------------------------------------------------------------------
99.9% TOTAL INVESTMENTS 3,542,939 6,489,065
3.7% COLLATERAL INVESTED FOR
SECURITIES ON LOAN 235,290 235,290
(3.6)% OTHER ASSETS AND
LIABILITIES, NET (230,804)
- --------------------------------------------------------------------------------
100.0% TOTAL NET ASSETS 6,493,551
% OF NET VALUE
SECURITY AND NUMBER OF SHARES ASSETS ($ x 1,000)
COMMON STOCK 99.8% of net assets
AUTOMOBILES & COMPONENTS 0.5%
-------------------------------------------------------------------------
Other Securities 0.5 35,062
BANKS 7.1%
-------------------------------------------------------------------------
(8) Bank of America
Corp. 1,971,067 1.3 86,214
U.S. Bancorp 915,765 0.4 27,088
Wachovia Corp. 785,243 0.6 39,671
Wells Fargo & Co. 829,067 0.8 49,910
Other Securities 4.0 255,967
-------- -----------
7.1 458,850
CAPITAL GOODS 7.4%
-------------------------------------------------------------------------
3M Co. 383,920 0.4 29,170
The Boeing Co. 408,604 0.4 26,412
=(2) General Electric Co. 5,117,534 2.7 173,536
Other Securities 3.9 251,833
-------- -----------
7.4 480,951
COMMERCIAL SERVICES & SUPPLIES 1.2%
-------------------------------------------------------------------------
Other Securities 1.2 77,000
CONSUMER DURABLES & APPAREL 1.5%
-------------------------------------------------------------------------
Other Securities 1.5 97,684
DIVERSIFIED FINANCIALS 7.5%
-------------------------------------------------------------------------
American Express
Co. 618,788 0.5 30,797
/ The Charles Schwab
Corp. 666,890 0.2 10,137
(4) Citigroup, Inc. 2,523,200 1.8 115,512
Goldman Sachs Group,
Inc. 233,670 0.5 29,529
JPMorgan Chase &
Co. 1,753,831 1.0 64,225
Merrill Lynch & Co.,
Inc. 453,215 0.5 29,341
Morgan Stanley 535,123 0.4 29,116
Other Securities 2.6 177,072
-------- -----------
7.5 485,729
ENERGY 8.8%
-------------------------------------------------------------------------
@ Chevron Texaco
Corp. 1,121,151 1.0 63,984
36 See financial notes.
SCHWAB 1000 INDEX FUND
% OF NET VALUE
SECURITY AND NUMBER OF SHARES ASSETS ($ x 1,000)
ConocoPhillips 678,682 0.7 44,372
(1) Exxon Mobil Corp. 3,097,377 2.7 173,887
Schlumberger Ltd. 287,603 0.4 26,106
Other Securities 4.0 264,531
-------- -----------
8.8 572,880
FOOD & STAPLES RETAILING 2.7%
-------------------------------------------------------------------------
=(5) Wal-Mart Stores,
Inc. 2,017,892 1.5 95,466
Other Securities 1.2 79,779
-------- -----------
2.7 175,245
FOOD BEVERAGE & TOBACCO 5.0%
-------------------------------------------------------------------------
Altria Group, Inc. 1,001,686 1.2 75,177
The Coca-Cola Co. 1,195,903 0.8 51,161
PepsiCo, Inc. 829,508 0.8 49,007
Other Securities 2.2 147,929
-------- -----------
5.0 323,274
HEALTH CARE EQUIPMENT & SERVICES 5.1%
-------------------------------------------------------------------------
Medtronic, Inc. 595,108 0.5 33,719
UnitedHealth Group,
Inc. 630,168 0.6 36,480
Other Securities 4.0 263,256
-------- -----------
5.1 333,455
HOTELS RESTAURANTS & LEISURE 1.7%
-------------------------------------------------------------------------
Other Securities 1.7 113,138
HOUSEHOLD & PERSONAL PRODUCTS 2.1%
-------------------------------------------------------------------------
=(6) Procter & Gamble
Co. 1,682,360 1.5 94,195
Other Securities 0.6 43,929
-------- -----------
2.1 138,124
INSURANCE 5.6%
-------------------------------------------------------------------------
(9) American International Group,
Inc. 1,278,239 1.3 82,830
o Berkshire Hathaway, Inc.,
Class A 766 1.0 65,799
Other Securities 3.3 216,355
-------- -----------
5.6 364,984
MATERIALS 3.1%
-------------------------------------------------------------------------
Other Securities 3.1 199,965
MEDIA 4.0%
-------------------------------------------------------------------------
@o Comcast Corp.,
Class A 1,107,239 0.5 30,814
@ Time Warner, Inc. 2,167,003 0.6 38,638
Other Securities 2.9 192,952
-------- -----------
4.0 262,404
PHARMACEUTICALS & BIOTECHNOLOGY 7.7%
-------------------------------------------------------------------------
Abbott Laboratories 760,007 0.5 32,718
o Amgen, Inc. 619,877 0.7 46,962
Eli Lilly & Co. 546,393 0.4 27,205
o Genentech, Inc. 506,813 0.7 45,917
(7) Johnson & Johnson 1,453,305 1.4 91,006
Merck & Co., Inc. 1,090,550 0.5 30,775
(10) Pfizer, Inc. 3,636,919 1.2 79,067
Wyeth 658,266 0.5 29,332
Other Securities 1.8 115,403
-------- -----------
7.7 498,385
REAL ESTATE 1.7%
-------------------------------------------------------------------------
Other Securities 1.7 110,340
RETAILING 4.0%
-------------------------------------------------------------------------
Home Depot, Inc. 1,035,686 0.7 42,505
Other Securities 3.3 219,522
-------- -----------
4.0 262,027
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT 2.8%
-------------------------------------------------------------------------
Intel Corp. 3,042,293 1.1 71,494
Other Securities 1.7 108,188
-------- -----------
2.8 179,682
SOFTWARE & SERVICES 6.1%
-------------------------------------------------------------------------
o Google, Inc., Class A 133,618 0.8 49,725
=(3) Microsoft Corp. 5,213,207 2.1 133,979
o Oracle Corp. 2,561,449 0.5 32,479
Other Securities 2.7 181,948
-------- -----------
6.1 398,131
See financial notes. 37
SCHWAB 1000 INDEX FUND
SUMMARY OF PORTFOLIO HOLDINGS continued
% OF NET VALUE
SECURITY AND NUMBER OF SHARES ASSETS ($ x 1,000)
TECHNOLOGY HARDWARE & EQUIPMENT 6.3%
-------------------------------------------------------------------------
o Cisco Systems, Inc. 3,213,218 0.9 56,071
o Dell, Inc. 1,202,423 0.6 38,333
Hewlett-Packard
Co. 1,438,272 0.6 40,329
International Business
Machines Corp. 797,737 1.0 65,319
Qualcomm, Inc. 805,483 0.5 32,026
Other Securities 2.7 175,370
-------- -----------
6.3 407,448
TELECOMMUNICATION SERVICES 2.8%
-------------------------------------------------------------------------
SBC Communications,
Inc. 1,625,177 0.6 38,761
Sprint Corp.
(FON Group) 1,367,507 0.5 31,877
Verizon Communications,
Inc. 1,361,951 0.7 42,915
Other Securities 1.0 66,921
-------- -----------
2.8 180,474
TRANSPORTATION 1.7%
-------------------------------------------------------------------------
United Parcel Service, Inc.,
Class B 552,244 0.6 40,281
Other Securities 1.1 66,601
-------- -----------
1.7 106,882
UTILITIES 3.4%
-------------------------------------------------------------------------
Other Securities 3.4 221,123
SHORT-TERM INVESTMENT 0.1% of net assets
Provident Institutional
TempFund 5,429,809 0.1 5,430
SECURITY
RATE, MATURITY DATE
FACE AMOUNT ($ x 1,000)
U.S. TREASURY OBLIGATION 0.0% of net assets
= U.S. Treasury Bill
3.35%, 12/15/05
400 0.0 398
END OF INVESTMENTS.
SECURITY FACE AMOUNT VALUE
RATE, MATURITY DATE ($ x 1,000) ($ x 1,000)
COLLATERAL INVESTED FOR SECURITIES ON LOAN
3.7% of net assets
COMMERCIAL PAPER & OTHER CORPORATE
OBLIGATIONS 0.1%
-------------------------------------------------------------------------
Skandinav Enskilda Bank
3.94%, 11/17/05 3,486 3,486
SECURITY AND NUMBER OF SHARES
SHORT-TERM INVESTMENTS 3.6%
-------------------------------------------------------------------------
Institutional Money Market
Trust 164,341,566 164,342
SECURITY FACE AMOUNT
RATE, MATURITY DATE ($ x 1,000)
National City Bank,
Time Deposit
3.98%, 11/01/05 57,906 57,906
Nordea Bank,
Time Deposit
4.03%, 11/01/05 4,778 4,778
Rabobank, Time Deposit
4.03%, 11/01/05 4,778 4,778
-----------
231,804
END OF COLLATERAL INVESTED FOR SECURITIES ON LOAN.
38 See financial notes.
SCHWAB 1000 INDEX FUND
In addition to the above, the fund held the following at 10/31/05. All numbers x
$1,000 except number of contracts.
FUTURES CONTRACTS
Number of Contract Unrealized
Contracts Value Losses
S&P 500 Index e-mini, Long
Expires 12/18/05 50 3,025 (8)
See financial notes. 39
SCHWAB 1000 INDEX FUND
Statement of
ASSETS AND LIABILITIES
As of October 31, 2005. All numbers x 1,000 except NAV.
ASSETS
- --------------------------------------------------------------------------------
Investments, at value
(including $228,955 of securities on loan) $6,489,065 a
Collateral invested for securities on loan 235,290
Receivables:
Fund shares sold 4,080
Interest 4
Dividends 5,280
Income from securities on loan 105
Prepaid expenses + 67
--------------
TOTAL ASSETS 6,733,891
LIABILITIES
- --------------------------------------------------------------------------------
Collateral invested for securities on loan 235,290
Payables:
Fund shares redeemed 4,523
Due to brokers from futures 8
Interest expense 26
Investment adviser and administrator fees 117
Transfer agent and shareholder service fees 103
Trustee fees 1
Accrued expenses + 272
--------------
TOTAL LIABILITIES 240,340
NET ASSETS
- --------------------------------------------------------------------------------
TOTAL ASSETS 6,733,891
TOTAL LIABILITIES - 240,340
--------------
NET ASSETS $6,493,551
NET ASSETS BY SOURCE
Capital received from investors 3,993,831
Net investment income not yet distributed 67176
Net realized capital losses (513,574) b
Net unrealized capital gains 2,946,118 b
NET ASSET VALUE (NAV) BY SHARE CLASS
SHARES
SHARE CLASS NET ASSETS / OUTSTANDING = NAV
Investor Shares $4,165,812 117,989 $35.31
Select Shares $2,327,739 65,873 $35.34
Unless stated, all numbers x 1,000.
a The fund paid $3,542,939 for these securities.
Not counting short-term obligations and government securities, the fund's
security transactions during the period were:
Purchases $373,854
Sales/maturities $795,419
The fund's total security transactions with other Schwab Funds(R) during the
period were $132,041.
b These derive from investments and futures.
FEDERAL TAX DATA
----------------------------------------------
PORTFOLIO COST $3,547,691
NET UNREALIZED GAINS AND LOSSES:
Gains $3,251,927
Losses + (310,553)
--------------
$2,941,374
NET UNDISTRIBUTED EARNINGS:
Ordinary income $67,176
Long-term capital gains $--
CAPITAL LOSSES UTILIZED $30,478
UNUSED CAPITAL LOSSES:
Expires 10/31 of: Loss amount
2009 82,442
2010 250,409
2011 164,037
2012 + 11,942
--------------
$508,830
RECLASSIFICATIONS:
Net realized capital gains $189
Reclassified as:
Net investment income
not yet distributed ($189)
40 See financial notes.
SCHWAB 1000 INDEX FUND
Statement of
OPERATIONS
For November 1, 2004 through October 31, 2005. All numbers x 1,000.
INVESTMENT INCOME
- --------------------------------------------------------------------------------
Dividends $129,880 a
Interest 58
Lending of securities + 1,268
------------
TOTAL INVESTMENT INCOME 131,206
NET REALIZED GAINS AND LOSSES
- --------------------------------------------------------------------------------
Net realized gains on investments 44,606
Net realized gains on futures contracts + 838
------------
NET REALIZED GAINS 45,444
NET UNREALIZED GAINS AND LOSSES
- --------------------------------------------------------------------------------
Net unrealized gains on investments 485,694
Net unrealized losses on futures contracts + (95)
------------
NET UNREALIZED GAINS 485,599
EXPENSES
- --------------------------------------------------------------------------------
Investment adviser and administrator fees 14,690 b
Transfer agent and shareholder service fees:
Investor Shares 10,872 c
Select Shares 2,243 c
Trustees' fees 54 d
Custodian fees 201
Portfolio accounting fees 864
Professional fees 55
Registration fees 144
Shareholder reports 412
Interest expense 88
Other expenses + 91
------------
Total expenses 29,714 e
INCREASE IN NET ASSETS FROM OPERATIONS
- --------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME 131,206
NET EXPENSES - 29,714
------------
NET INVESTMENT INCOME 101,492
NET REALIZED GAINS 45,444 f
NET UNREALIZED GAINS + 485,599 f
------------
INCREASE IN NET ASSETS FROM OPERATIONS $632,535
Unless stated, all numbers x 1,000.
a Net of $14 foreign withholding tax.
b Calculated as a percentage of average daily net assets: 0.30% of the first
$500 million; 0.22% of the next $4.5 billion; 0.20% of the next $5 billion;
and 0.18% of the assets beyond that. These fees are paid to Charles Schwab
Investments Management, Inc. (CSIM).
Prior to February 28, 2005, these fees were calculated as a percentage of
average daily net assets: 0.30% of the first $500 million and 0.22% of the
assets beyond that.
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 CSIM and Schwab have guaranteed that the annual net operating expenses
(excluding interest, taxes and certain non-routine expenses) through February
27, 2006, will not exceed the fund's average daily net assets as follows:
% OF AVERAGE
SHARE CLASS DAILY NET ASSETS
------------------------------------
Investor Shares 0.51
Select Shares 0.36
These limits exclude interest, taxes and certain non-routine expenses.
f These add up to a net gain on investments of $531,043
See financial notes. 41
SCHWAB 1000 INDEX FUND
Statements of
CHANGES IN NET ASSETS
For the current and prior report periods. All numbers x 1,000.
OPERATIONS
- --------------------------------------------------------------------------------
11/1/04-10/31/05 11/1/03-10/31/04
Net investment income $101,492 $76,032
Net realized gains or losses 45,444 (10,801)
Net unrealized gains + 485,599 458,477
----------------------------------------
INCREASE IN NET ASSETS
FROM OPERATIONS 632,535 523,708
DISTRIBUTIONS PAID
- --------------------------------------------------------------------------------
DIVIDENDS FROM NET INVESTMENT INCOME
Investor Shares 61,678 45,314
Select Shares + 33,954 25,058
----------------------------------------
TOTAL DIVIDENDS FROM NET INVESTMENT INCOME $95,632 $70,372 a,b
TRANSACTIONS IN FUND SHARES
- --------------------------------------------------------------------------------
11/1/04-10/31/05 11/1/03-10/31/04
SHARES VALUE SHARES VALUE
SHARES SOLD
Investor Shares 10,950 $375,768 19,479 $619,405
Select Shares + 11,316 393,335 9,808 311,874
----------------------------------------------------
TOTAL SHARES SOLD 22,266 $769,103 29,287 $931,279
SHARES REINVESTED
Investor Shares 1,674 $56,670 1,365 $41,809
Select Shares + 840 28,419 698 21,363
----------------------------------------------------
TOTAL SHARES REINVESTED 2,514 $85,089 2,063 $63,172
SHARES REDEEMED
Investor Shares (25,490) ($881,852) (21,346) ($679,008)
Select Shares + (11,930) (410,943) (10,792) (343,161)
----------------------------------------------------
TOTAL SHARES REDEEMED (37,420) ($1,292,795) (32,138) ($1,022,169) c
NET TRANSACTIONS
IN FUND SHARES (12,640) $(438,603) (788) $(27,718)
SHARES OUTSTANDING AND NET ASSETS
- --------------------------------------------------------------------------------
11/1/04-10/31/05 11/1/03-10/31/04
SHARES NET ASSETS SHARES NET ASSETS
Beginning of period 196,502 $6,395,251 197,290 $5,969,633
Total increase or
decrease + (12,640) 98,300 (788) 425,618
----------------------------------------------------
END OF PERIOD 183,862 $6,493,551 196,502 $6,395,251 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 $95,632 of the dividend distribution for the fiscal year
ended 10/31/05 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 2006 via IRS Form 1099 of the amounts for use in preparing
their 2005 income tax return.
b The tax-basis components of distributions paid are:
CURRENT PRIOR
PERIOD PERIOD
Ordinary income $95,632 $70,372
Long-term
capital gains $-- $--
c For shares purchased on or before 4/29/05 and held less than 180 days, the
fund charges 0.75% redemption fee. For shares purchased after 4/29/05 and held
less than 30 days, the fund charges 2.00% redemption fee.
CURRENT PERIOD:
Investor Shares $151
Select Shares + 65
--------
TOTAL $216
PRIOR PERIOD:
Investor Shares $218
Select Shares + 83
--------
TOTAL $301
Dollar amounts are net of the redemption fee proceeds.
d Includes distributable net investment income in the amount of $67,176 and
$61,506 at the end of the current period and prior period, respectively.
42 See financial notes.
SCHWAB SMALL-CAP INDEX FUND(R)
FINANCIAL STATEMENTS
FINANCIAL HIGHLIGHTS
11/1/04- 11/1/03- 11/1/02- 11/1/01- 11/1/00-
INVESTOR SHARES 10/31/05 10/31/04 10/31/03 10/31/02 10/31/01
- -------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA ($)
- -------------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of period 19.92 18.22 13.27 15.98 21.06
--------------------------------------------------------------------
Income or loss from investment operations:
Net investment income 0.14 0.13 0.11 0.13 0.07
Net realized and unrealized gains or losses 2.38 1.68 4.98 (2.17) (2.76)
--------------------------------------------------------------------
Total income or loss from investment operations 2.52 1.81 5.09 (2.04) (2.69)
Less distributions:
Dividends from net investment income (0.13) (0.11) (0.14) (0.09) (0.08)
Distributions from net realized gains -- -- -- (0.58) (2.31)
--------------------------------------------------------------------
Total distributions (0.13) (0.11) (0.14) (0.67) (2.39)
--------------------------------------------------------------------
Net asset value at end of period 22.31 19.92 18.22 13.27 15.98
--------------------------------------------------------------------
Total return (%) 12.66 9.98 38.72 (13.66) (13.66)
RATIOS/SUPPLEMENTAL DATA (%)
- -------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net operating expenses 0.58 0.59 0.56 0.49 0.49
Gross operating expenses 0.58 0.59 0.60 0.60 0.61
Net investment income 0.57 0.66 0.74 0.77 0.49
Portfolio turnover rate 40 39 34 44 49
Net assets, end of period ($ x 1,000,000) 823 869 886 722 804
See financial notes. 43
SCHWAB SMALL-CAP INDEX FUND
FINANCIAL HIGHLIGHTS
11/1/04- 11/1/03- 11/1/02- 11/1/01- 11/1/00-
SELECT SHARES 10/31/05 10/31/04 10/31/03 10/31/02 10/31/01
- ------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA ($)
- ------------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of period 19.96 18.25 13.28 16.00 21.09
-------------------------------------------------------------------
Income or loss from investment operations:
Net investment income 0.17 0.17 0.14 0.14 0.11
Net realized and unrealized gains or losses 2.39 1.68 4.99 (2.18) (2.78)
-------------------------------------------------------------------
Total income or loss from investment operations 2.56 1.85 5.13 (2.04) (2.67)
Less distributions:
Dividends from net investment income (0.16) (0.14) (0.16) (0.10) (0.11)
Distributions from net realized gains -- -- -- (0.58) (2.31)
-------------------------------------------------------------------
Total distributions (0.16) (0.14) (0.16) (0.68) (2.42)
-------------------------------------------------------------------
Net asset value at end of period 22.36 19.96 18.25 13.28 16.00
-------------------------------------------------------------------
Total return (%) 12.86 10.16 39.02 (13.62) (13.56)
RATIOS/SUPPLEMENTAL DATA (%)
- ------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net operating expenses 0.41 0.42 0.41 0.38 0.38
Gross operating expenses 0.43 0.44 0.45 0.45 0.46
Net investment income 0.74 0.82 0.89 0.88 0.60
Portfolio turnover rate 40 39 34 44 49
Net assets, end of period ($ x 1,000,000) 795 761 759 638 727
44 See financial notes.
SCHWAB SMALL-CAP INDEX FUND
SUMMARY OF PORTFOLIO HOLDINGS as of October 31, 2005
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
@ All or a portion of this security is on loan
COST VALUE
HOLDINGS BY CATEGORY ($x1,000) ($x1,000)
- --------------------------------------------------------------------------------
99.1% COMMON STOCK 1,252,687 1,603,334
0.8% SHORT-TERM
INVESTMENT 12,862 12,862
0.0% U.S. TREASURY
OBLIGATIONS 483 483
- --------------------------------------------------------------------------------
99.9% TOTAL INVESTMENTS 1,266,032 1,616,679
13.4% COLLATERAL INVESTED FOR
SECURITIES ON LOAN 216,545 216,545
(13.3)% OTHER ASSETS AND
LIABILITIES, NET (215,250)
- --------------------------------------------------------------------------------
100.0% TOTAL NET ASSETS 1,617,974
% OF NET VALUE
SECURITY AND NUMBER OF SHARES ASSETS ($ x 1,000)
COMMON STOCK 99.1% of net assets
AUTOMOBILES & COMPONENTS 0.9%
-------------------------------------------------------------------------
Other Securities 0.9 14,499
BANKS 8.7%
-------------------------------------------------------------------------
Other Securities 8.7 141,550
CAPITAL GOODS 8.6%
-------------------------------------------------------------------------
Crane Co. 97,717 0.2 3,025
o Flowserve Corp. 86,629 0.2 3,032
@ GATX Corp. 81,695 0.2 3,053
Kennametal, Inc. 60,398 0.2 3,087
o McDermott International,
Inc. 107,475 0.2 3,905
@o The Shaw Group, Inc. 123,985 0.2 3,323
@o USG Corp. 64,943 0.2 3,839
o WESCO International,
Inc. 76,376 0.2 3,036
York International
Corp. 64,904 0.2 3,642
Other Securities 6.8 109,899
-------- -----------
8.6 139,841
COMMERCIAL SERVICES & SUPPLIES 3.9%
-------------------------------------------------------------------------
Other Securities 3.9 62,617
See financial notes. 45
SCHWAB SMALL-CAP INDEX FUND
SUMMARY OF PORTFOLIO HOLDINGS continued
% OF NET VALUE
SECURITY AND NUMBER OF SHARES ASSETS ($ x 1,000)
CONSUMER DURABLES & APPAREL 3.3%
-------------------------------------------------------------------------
Other Securities 3.3 53,647
DIVERSIFIED FINANCIALS 2.0%
-------------------------------------------------------------------------
@o CompuCredit Corp. 76,489 0.2 3,352
MoneyGram International,
Inc. 131,867 0.2 3,204
Other Securities 1.6 25,663
-------- -----------
2.0 32,219
ENERGY 7.1%
-------------------------------------------------------------------------
Cabot Oil & Gas Corp. 82,102 0.2 3,759
=o(2) Cimarex Energy Co. 126,287 0.3 4,958
Frontier Oil Corp. 89,184 0.2 3,289
(8) Range Resources
Corp. 112,016 0.2 3,998
o Spinnaker Exploration
Co. 51,243 0.2 3,156
@ St. Mary Land & Exploration
Co. 89,860 0.2 3,056
o(4) Todco, Class A 99,877 0.3 4,469
=(1) Vintage Petroleum,
Inc. 108,000 0.3 5,604
Other Securities 5.2 83,127
-------- -----------
7.1 115,416
FOOD & STAPLES RETAILING 0.7%
-------------------------------------------------------------------------
Other Securities 0.7 10,660
FOOD BEVERAGE & TOBACCO 1.3%
-------------------------------------------------------------------------
Other Securities 1.3 21,100
HEALTH CARE EQUIPMENT & SERVICES 7.5%
-------------------------------------------------------------------------
@o Advanced Medical Optics,
Inc. 101,894 0.2 3,636
@o(3) Cerner Corp. 58,675 0.3 4,955
=o(5) Intuitive Surgical, Inc. 49,955 0.3 4,433
=o LifePoint Hospitals, Inc. 81,441 0.2 3,184
= Mentor Corp. 70,133 0.2 3,156
=o Pediatrix Medical Group,
Inc. 39,726 0.2 3,061
=o Sierra Health Services,
Inc. 43,728 0.2 3,280
=o VCA Antech, Inc. 135,670 0.2 3,500
Other Securities 5.7 91,622
-------- -----------
7.5 120,827
HOTELS RESTAURANTS & LEISURE 3.0%
-------------------------------------------------------------------------
Other Securities 3.0 48,340
HOUSEHOLD & PERSONAL PRODUCTS 0.8%
-------------------------------------------------------------------------
Other Securities 0.8 12,227
INSURANCE 3.8%
-------------------------------------------------------------------------
=o Philadelphia Consolidated
Holding Co. 36,819 0.2 3,544
Other Securities 3.6 57,612
-------- -----------
3.8 61,156
MATERIALS 5.1%
-------------------------------------------------------------------------
= Aptargroup, Inc. 60,297 0.2 3,087
= Chemtura Corp. 366,090 0.2 3,917
= Eagle Materials, Inc. 31,173 0.2 3,320
=o FMC Corp. 58,253 0.2 3,171
Other Securities 4.3 69,085
-------- -----------
5.1 82,580
MEDIA 2.5%
-------------------------------------------------------------------------
Other Securities 2.5 40,343
PHARMACEUTICALS & BIOTECHNOLOGY 4.1%
-------------------------------------------------------------------------
=o Kos Pharmaceuticals,
Inc. 61,130 0.2 3,668
o Neurocrine Biosciences,
Inc. 57,408 0.2 3,032
=o(6) Protein Design Labs,
Inc. 155,921 0.3 4,369
=o Techne Corp. 68,072 0.2 3,691
@o Vertex Pharmaceuticals,
Inc. 138,194 0.2 3,144
Other Securities 3.0 47,665
-------- -----------
4.1 65,569
REAL ESTATE 7.3%
-------------------------------------------------------------------------
Essex Property Trust,
Inc. 35,995 0.2 3,235
Global Signal, Inc. 86,141 0.2 3,571
Other Securities 6.9 112,138
-------- -----------
7.3 118,944
RETAILING 5.4%
-------------------------------------------------------------------------
@o(7) Gamestop Corp.,
Class A 116,025 0.2 4,116
46 See financial notes.
SCHWAB SMALL-CAP INDEX FUND
% OF NET VALUE
SECURITY AND NUMBER OF SHARES ASSETS ($ x 1,000)
OTHER SECURITIES 5.2 83,918
-------- ----------
5.4 88,034
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT 3.3%
-------------------------------------------------------------------------
Other Securities 3.3 53,566
SOFTWARE & SERVICES 7.9%
-------------------------------------------------------------------------
@o Akamai Technologies,
Inc. 208,157 0.2 3,609
o CNET Networks, Inc. 224,828 0.2 3,055
=o Parametric Technology
Corp. 471,910 0.2 3,072
=o(10) Salesforce.com, Inc. 157,259 0.2 3,930
=o Sybase, Inc. 158,962 0.2 3,537
Other Securities 6.9 110,759
-------- ----------
7.9 127,962
TECHNOLOGY HARDWARE & EQUIPMENT 5.4%
-------------------------------------------------------------------------
=(9) Adtran, Inc. 131,924 0.2 3,991
o UNOVA, Inc. 100,816 0.2 3,125
Other Securities 5.0 80,834
-------- ----------
5.4 87,950
TELECOMMUNICATION SERVICES 1.2%
-------------------------------------------------------------------------
o Alamosa Holdings,
Inc. 219,874 0.2 3,254
@o Level 3 Communications,
Inc. 1,121,772 0.2 3,253
Other Securities 0.8 12,966
-------- ----------
1.2 19,473
TRANSPORTATION 2.3%
-------------------------------------------------------------------------
@o AMR Corp. 266,155 0.2 3,596
Other Securities 2.1 33,188
-------- ----------
2.3 36,784
UTILITIES 3.0%
-------------------------------------------------------------------------
Other Securities 3.0 48,030
SECURITY
RATE, MATURITY DATE
FACE AMOUNT ($ x 1,000)
SHORT-TERM INVESTMENTS 0.8% of net assets
Wachovia Bank, Grand Cayman
Time Deposit
3.48%, 11/01/05
12,862 0.8 12,862
U.S. TREASURY OBLIGATIONS 0.0% of net assets
= U.S. Treasury Bills
3.28%-3.40%, 12/15/05
485 0.0 483
END OF INVESTMENTS.
SECURITY AND NUMBER OF SHARES
COLLATERAL INVESTED FOR SECURITIES ON LOAN
13.4% of net assets
SHORT-TERM INVESTMENT 13.4%
-------------------------------------------------------------------------
Securities Lending Investments
Fund 216,544,696 216,545
END OF COLLATERAL INVESTED FOR SECURITIES ON LOAN.
In addition to the above, the fund held the following at 10/31/05. All numbers x
$1,000 except number of contracts.
FUTURES CONTRACTS
Number of Contract Unrealized
Contracts Value Gains
Russell 2000 Index, e-mini Futures, Long
Expires 12/18/05 186 12,075 66
See financial notes. 47
SCHWAB SMALL-CAP INDEX FUND
Statement of
ASSETS AND LIABILITIES
As of October 31, 2005. All numbers x 1,000 except NAV.
ASSETS
- -------------------------------------------------------------------------------
Investments, at value
(including $214,681 of securities on loan) $1,616,679 a
Collateral invested for securities on loan 216,545
Receivables:
Fund shares sold 904
Interest 1
Dividends 961
Investments sold 10
Due from brokers for futures 406
Income from securities on loan 179
Prepaid expenses + 24
-------------
TOTAL ASSETS 1,835,709
LIABILITIES
- -------------------------------------------------------------------------------
Collateral invested for securities on loan 216,545
Payables:
Fund shares redeemed 1,018
Investment adviser and administrator fees 39
Transfer agent and shareholder service fees 23
Trustee fees 1
Accrued expenses + 109
-------------
TOTAL LIABILITIES 217,735
NET ASSETS
- -------------------------------------------------------------------------------
TOTAL ASSETS 1,835,709
TOTAL LIABILITIES - 217,735
-------------
NET ASSETS $1,617,974
NET ASSETS BY SOURCE
Capital received from investors 1,249,511
Net investment income not yet distributed 8,490
Net realized capital gains 9,260 b
Net unrealized capital gains 350,713 b
NET ASSET VALUE (NAV) BY SHARE CLASS
SHARES
SHARE CLASS NET ASSETS / OUTSTANDING = NAV
Investor Shares $822,978 36,894 $22.31
Select Shares $794,996 35,560 $22.36
Unless stated, all numbers x 1,000.
a The fund paid $1,266,032 for these securities.
Not counting short-term obligations and government securities, the fund's
security transactions during the period were:
Purchases $675,553
Sales/maturities $890,859
The fund's total security transactions with other Schwab Funds(R) during the
period were $127,782.
b These derive from investments and futures.
FEDERAL TAX DATA
---------------------------------------------------
PORTFOLIO COST $1,267,201
NET UNREALIZED GAINS AND LOSSES:
Gains $457,212
Losses + (107,734)
----------
$349,478
NET UNDISTRIBUTED EARNINGS:
Ordinary income $8,490
Long-term capital gains $10,495
CAPITAL LOSSES UTILIZED $68,700
48 See financial notes.
SCHWAB SMALL-CAP INDEX FUND
Statement of
OPERATIONS
For November 1, 2004 through October 31, 2005. All numbers x 1,000.
INVESTMENT INCOME
- --------------------------------------------------------------------------------
Dividends $17,415 a
Interest 96
Lending of securities + 1,798
-----------
TOTAL INVESTMENT INCOME 19,309
NET REALIZED GAINS AND LOSSES
- --------------------------------------------------------------------------------
Net realized gains on investments 81,228
Net realized gains on futures contracts + 83
-----------
NET REALIZED GAINS 81,311
NET UNREALIZED GAINS AND LOSSES
- --------------------------------------------------------------------------------
Net unrealized gains on investments 109,855
Net unrealized gains on futures contracts + 31
-----------
NET UNREALIZED GAINS 109,886
EXPENSES
- --------------------------------------------------------------------------------
Investment adviser and administrator fees 4,933 b
Transfer agent and shareholder service fees:
Investor Shares 2,186 c
Select Shares 798 c
Trustees' fees 18 d
Custodian fees 199
Portfolio accounting fees 230
Professional fees 42
Registration fees 45
Shareholder reports 80
Interest expense 23
Other expenses + 30
-----------
Total expenses 8,584
Expense reduction - 169 e
-----------
NET EXPENSES 8,415
INCREASE IN NET ASSETS FROM OPERATIONS
- --------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME 19,309
NET EXPENSES - 8,415
-----------
NET INVESTMENT INCOME 10,894
NET REALIZED GAINS 81,311 f
NET UNREALIZED GAINS + 109,886 f
-----------
INCREASE IN NET ASSETS FROM OPERATIONS $202,091
Unless stated, all numbers x 1,000.
a Net of $7 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 Includes $24 from the investment adviser (CSIM) and $145 from the transfer
agent and shareholder service agent (Schwab). It reflects a guarantee by CSIM
and Schwab to limit the net operating expenses of this fund through February
27, 2006, as follows:
% OF AVERAGE
SHARE CLASS DAILY NET ASSETS
----------------------------------------
Investor Shares 0.60
Select Shares 0.42
These limits exclude interest, taxes and certain non-routine expenses.
f These add up to a net gain on investments of $191,197.
See financial notes. 49
SCHWAB SMALL-CAP INDEX FUND
Statements of
CHANGES IN NET ASSETS
For the current and prior report periods. All numbers x 1,000.
OPERATIONS
- --------------------------------------------------------------------------------
11/1/04-10/31/05 11/1/03-10/31/04
Net investment income $10,894 $12,316
Net realized gains 81,311 215,610
Net unrealized gains or losses + 109,886 (67,250)
---------------- -----------------
INCREASE IN NET ASSETS
FROM OPERATIONS 202,091 160,676
DISTRIBUTIONS PAID
- --------------------------------------------------------------------------------
DIVIDENDS FROM NET INVESTMENT INCOME
Investor Shares 5,474 5,423
Select Shares + 5,977 5,623
---------------- -----------------
TOTAL DIVIDENDS FROM NET INVESTMENT INCOME $11,451 $11,046 a,b
TRANSACTIONS IN FUND SHARES
- --------------------------------------------------------------------------------
11/1/04-10/31/05 11/1/03-10/31/04
SHARES VALUE SHARES VALUE
SHARES SOLD
Investor Shares 4,246 $91,743 5,935 $114,857
Select Shares + 5,026 109,688 6,358 121,773
-----------------------------------------------------
TOTAL SHARES SOLD 9,272 $201,431 12,293 $236,630
SHARES REINVESTED
Investor Shares 237 $5,085 270 $5,073
Select Shares + 256 5,502 278 5,234
-----------------------------------------------------
TOTAL SHARES REINVESTED 493 $10,587 548 $10,307
SHARES REDEEMED
Investor Shares (11,218) ($243,579) (11,208) ($215,266)
Select Shares + (7,843) (170,831) (10,118) (196,867)
-----------------------------------------------------
TOTAL SHARES REDEEMED (19,061) ($414,410) (21,326) ($412,133) c
NET TRANSACTIONS
IN FUND SHARES (9,296) ($202,392) (8,485) ($165,196)
SHARES OUTSTANDING AND NET ASSETS
- --------------------------------------------------------------------------------
11/1/04-10/31/05 11/1/03-10/31/04
SHARES NET ASSETS SHARES NET ASSETS
Beginning of period 81,750 $1,629,726 90,235 $1,645,292
Total decrease + (9,296) (11,752) (8,485) (15,566)
-----------------------------------------------------
END OF PERIOD 72,454 $1,617,974 81,750 $1,629,726 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 $11,314 of the dividend distribution for the fiscal year
ended 10/31/05 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 2006 via IRS Form 1099 of the amounts for use in preparing
their 2005 income tax return.
b The tax-basis components of distributions paid are:
CURRENT PRIOR
PERIOD PERIOD
Ordinary income $11,451 $11,046
Long-term
capital gains $-- $--
c For shares purchased on or before 4/29/05 and held less than 180 days, the
fund charges 0.75% redemption fee. For shares purchased after 4/29/05 and held
less than 30 days, the fund charges 2.00% redemption fee.
CURRENT PRIOR
PERIOD PERIOD
Investor Shares $44 $68
Select Shares + 50 + 33
-- --
TOTAL $94 $101
Dollar amounts are net of the redemption fee proceeds.
d Includes distributable net investment income in the amount of $8,490 and
$9,047 at the end of the current period and prior period, respectively.
Percent of fund shares owned by other Schwab Funds(R) as of the end of the
current period:
SCHWAB MARKETTRACK PORTFOLIOS
All Equity Portfolio 7.2%
Growth Portfolio 8.2%
Balanced Portfolio 4.9%
Conservative Portfolio 1.9%
SCHWAB ANNUITY PORTFOLIOS
Growth Portfolio II 0.4%
50 See financial notes.
SCHWAB TOTAL STOCK MARKET INDEX FUND(R)
FINANCIAL STATEMENTS
FINANCIAL HIGHLIGHTS
11/1/04- 11/1/03- 11/1/02- 11/1/01- 11/1/00-
INVESTOR SHARES 10/31/05 10/31/04 10/31/03 10/31/02 10/31/01
- ---------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA ($)
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of period 19.04 17.48 14.35 16.62 22.49
-----------------------------------------------------------------
Income or loss from investment operations:
Net investment income 0.29 0.19 0.16 0.16 0.15
Net realized and unrealized gains or losses 1.69 1.53 3.14 (2.27) (5.87)
-----------------------------------------------------------------
Total income or loss from investment operations 1.98 1.72 3.30 (2.11) (5.72)
Less distributions:
Dividends from net investment income (0.25) (0.16) (0.17) (0.16) (0.15)
-----------------------------------------------------------------
Net asset value at end of period 20.77 19.04 17.48 14.35 16.62
-----------------------------------------------------------------
Total return (%) 10.45 9.93 23.24 (12.86) (25.55)
RATIOS/SUPPLEMENTAL DATA (%)
- ---------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net operating expenses 0.54 0.56 0.53 0.40 0.40
Gross operating expenses 0.54 0.56 0.59 0.62 0.65
Net investment income 1.37 1.07 1.18 1.11 0.94
Portfolio turnover rate 2 2 3 2 2
Net assets, end of period ($ x 1,000,000) 600 592 469 263 224
See financial notes. 51
SCHWAB TOTAL STOCK MARKET INDEX FUND
FINANCIAL HIGHLIGHTS
11/1/04- 11/1/03- 11/1/02- 11/1/01- 11/1/00-
SELECT SHARES 10/31/05 10/31/04 10/31/03 10/31/02 10/31/01
- ---------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA ($)
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of period 19.09 17.52 14.37 16.65 22.52
-----------------------------------------------------------------
Income or loss from investment operations:
Net investment income 0.31 0.22 0.20 0.19 0.18
Net realized and unrealized gains or losses 1.71 1.54 3.14 (2.29) (5.87)
-----------------------------------------------------------------
Total income or loss from investment operations 2.02 1.76 3.34 (2.10) (5.69)
Less distributions:
Dividends from net investment income (0.28) (0.19) (0.19) (0.18) (0.18)
-----------------------------------------------------------------
Net asset value at end of period 20.83 19.09 17.52 14.37 16.65
-----------------------------------------------------------------
Total return (%) 10.63 10.10 23.50 (12.81) (25.40)
RATIOS/SUPPLEMENTAL DATA (%)
- ---------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net operating expenses 0.39 0.39 0.36 0.27 0.27
Gross operating expenses 0.39 0.41 0.44 0.47 0.50
Net investment income 1.52 1.23 1.35 1.24 1.07
Portfolio turnover rate 2 2 3 2 2
Net assets, end of period ($ x 1,000,000) 617 548 429 264 257
52 See financial notes.
SCHWAB TOTAL STOCK MARKET INDEX FUND
SUMMARY OF PORTFOLIO HOLDINGS as of October 31, 2005
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 Schwab Funds(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
COST VALUE
HOLDINGS BY CATEGORY ($x1,000) ($x1,000)
- --------------------------------------------------------------------------------
99.6% COMMON STOCK 1,058,474 1,212,821
0.3% SHORT-TERM
INVESTMENT 3,196 3,196
0.0% U.S. TREASURY
OBLIGATIONS 274 274
0.0% PREFERRED STOCK 64 74
0.0% WARRANTS 147 --
0.0% RIGHTS -- --
- --------------------------------------------------------------------------------
99.9% TOTAL INVESTMENTS 1,062,155 1,216,365
2.2% COLLATERAL INVESTED FOR
SECURITIES ON LOAN 26,922 26,922
(2.1)% OTHER ASSETS AND
LIABILITIES, NET (26,001)
- --------------------------------------------------------------------------------
100.0% TOTAL NET ASSETS 1,217,286
% OF NET VALUE
SECURITY AND NUMBER OF SHARES ASSETS ($ x 1,000)
COMMON STOCK 99.6% of net assets
AUTOMOBILES & COMPONENTS 0.6%
-------------------------------------------------------------------------
Other Securities 0.6 6,867
BANKS 7.3%
-------------------------------------------------------------------------
=(7) Bank of America
Corp. 338,518 1.2 14,807
U.S. Bancorp 158,531 0.4 4,689
Wachovia Corp. 133,649 0.6 6,752
Wells Fargo & Co. 137,577 0.7 8,282
Other Securities 4.4 54,573
-------- -----------
7.3 89,103
BUSINESS SERVICES 0.1%
-------------------------------------------------------------------------
Other Securities 0.1 1,052
CAPITAL GOODS 7.6%
-------------------------------------------------------------------------
3M Co. 65,000 0.4 4,939
The Boeing Co. 68,800 0.4 4,447
=(2) General Electric Co. 854,566 2.4 28,978
Other Securities 4.4 53,970
-------- -----------
7.6 92,334
See financial notes. 53
SCHWAB TOTAL STOCK MARKET INDEX FUND
SUMMARY OF PORTFOLIO HOLDINGS continued
% OF NET VALUE
SECURITY AND NUMBER OF SHARES ASSETS ($ x 1,000)
COMMERCIAL SERVICES & SUPPLIES 1.6%
-------------------------------------------------------------------------
Other Securities 1.6 19,884
CONSUMER DURABLES & APPAREL 1.8%
-------------------------------------------------------------------------
Other Securities 1.8 22,351
DIVERSIFIED FINANCIALS 7.0%
-------------------------------------------------------------------------
American Express
Co. 105,150 0.4 5,233
/ The Charles Schwab
Corp. 111,120 0.1 1,689
=(4) Citigroup, Inc. 427,436 1.6 19,568
Goldman Sachs Group,
Inc. 38,700 0.4 4,891
JPMorgan Chase &
Co. 295,944 0.9 10,838
Merrill Lynch & Co.,
Inc. 79,800 0.4 5,166
Morgan Stanley 90,300 0.4 4,913
Other Securities 2.8 32,320
-------- -----------
7.0 84,618
ENERGY 8.6%
-------------------------------------------------------------------------
ChevronTexaco Corp. 192,819 0.9 11,004
ConocoPhillips 112,196 0.6 7,335
=(1) Exxon Mobil Corp. 537,816 2.5 30,193
Schlumberger Ltd. 50,000 0.4 4,539
Other Securities 4.2 52,071
-------- -----------
8.6 105,142
FOOD & STAPLES RETAILING 2.3%
-------------------------------------------------------------------------
(10) Wal-Mart Stores, Inc. 289,200 1.1 13,682
Other Securities 1.2 14,531
-------- -----------
2.3 28,213
FOOD BEVERAGE & TOBACCO 4.6%
-------------------------------------------------------------------------
Altria Group, Inc. 168,800 1.0 12,668
The Coca-Cola Co. 202,200 0.7 8,650
PepsiCo, Inc. 140,800 0.7 8,319
Other Securities 2.2 26,241
-------- -----------
4.6 55,878
HEALTH CARE EQUIPMENT & SERVICES 5.6%
-------------------------------------------------------------------------
Medtronic, Inc. 98,374 0.5 5,574
UnitedHealth Group,
Inc. 102,600 0.5 5,940
Other Securities 4.6 56,300
-------- -----------
5.6 67,814
HOTELS RESTAURANTS & LEISURE 1.8%
-------------------------------------------------------------------------
Other Securities 1.8 21,909
HOUSEHOLD & PERSONAL PRODUCTS 2.0%
-------------------------------------------------------------------------
=(5) Procter & Gamble
Co. 290,815 1.3 16,283
Other Securities 0.7 8,224
-------- -----------
2.0 24,507
INSURANCE 5.3%
-------------------------------------------------------------------------
(8) American International Group,
Inc. 211,922 1.1 13,733
o Berkshire Hathaway, Inc.,
Class A 119 0.9 10,222
Other Securities 3.3 40,656
-------- -----------
5.3 64,611
MATERIALS 3.3%
-------------------------------------------------------------------------
Other Securities 3.3 39,827
MEDIA 3.8%
-------------------------------------------------------------------------
Time Warner, Inc. 367,052 0.5 6,545
Viacom, Inc., Class B 144,012 0.4 4,460
Other Securities 2.9 35,149
-------- -----------
3.8 46,154
PHARMACEUTICALS & BIOTECHNOLOGY 7.1%
-------------------------------------------------------------------------
Abbott Laboratories 125,705 0.5 5,412
o Amgen, Inc. 103,268 0.6 7,824
Eli Lilly & Co. 92,400 0.4 4,601
o Genentech, Inc. 83,300 0.6 7,547
(6) Johnson & Johnson 246,370 1.3 15,428
Merck & Co., Inc. 183,552 0.4 5,180
(9) Pfizer, Inc. 631,552 1.1 13,730
Wyeth 109,400 0.4 4,875
Other Securities 1.8 22,245
-------- -----------
7.1 86,842
54 See financial notes.
SCHWAB TOTAL STOCK MARKET INDEX FUND
% OF NET VALUE
SECURITY AND NUMBER OF SHARES ASSETS ($ x 1,000)
REAL ESTATE 2.1%
-------------------------------------------------------------------------
Other Securities 2.1 26,128
RETAILING 4.2%
-------------------------------------------------------------------------
Home Depot, Inc. 181,000 0.6 7,428
Other Securities 3.6 43,559
-------- -----------
4.2 50,987
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT 2.8%
-------------------------------------------------------------------------
Intel Corp. 533,832 1.0 12,545
Other Securities 1.8 21,071
-------- -----------
2.8 33,616
SOFTWARE & SERVICES 6.3%
-------------------------------------------------------------------------
o Google, Inc., Class A 22,500 0.7 8,373
=(3) Microsoft Corp. 884,960 1.9 22,743
o Oracle Corp. 429,500 0.5 5,446
Other Securities 3.2 39,492
-------- -----------
6.3 76,054
TECHNOLOGY HARDWARE & EQUIPMENT 6.2%
-------------------------------------------------------------------------
o Cisco Systems, Inc. 563,969 0.8 9,841
o Dell, Inc. 202,100 0.5 6,443
Hewlett-Packard Co. 252,916 0.6 7,092
International Business
Machines Corp. 135,450 0.9 11,091
Qualcomm, Inc. 135,100 0.4 5,372
Other Securities 3.0 36,004
-------- -----------
6.2 75,843
TELECOMMUNICATION SERVICES 2.6%
-------------------------------------------------------------------------
SBC Communications,
Inc. 281,016 0.6 6,702
Sprint Corp.
(FON Group) 229,430 0.4 5,348
Verizon Communications,
Inc. 232,468 0.6 7,325
Other Securities 1.0 12,850
-------- -----------
2.6 32,225
TELEPHONE 0.0%
-------------------------------------------------------------------------
Other Securities 0.0 5
TRANSPORTATION 1.7%
-------------------------------------------------------------------------
United Parcel Service, Inc.,
Class B 91,480 0.6 6,673
Other Securities 1.1 13,899
-------- -----------
1.7 20,572
UTILITIES 3.3%
-------------------------------------------------------------------------
Other Securities 3.3 40,285
PREFERRED STOCK 0.0% of net assets
REAL ESTATE 0.0%
-------------------------------------------------------------------------
Other Securities 0.0 74
WARRANTS 0.0% of net assets
MEDIA 0.0%
-------------------------------------------------------------------------
Other Securities 0.0 --
SOFTWARE & SERVICES 0.0%
-------------------------------------------------------------------------
Other Securities 0.0 --
RIGHTS 0.0% of net assets
PHARMACEUTICALS & BIOTECHNOLOGY 0.0%
-------------------------------------------------------------------------
Other Securities 0.0 --
SECURITY
RATE, MATURITY DATE
FACE AMOUNT ($ x 1,000)
SHORT-TERM INVESTMENT 0.3% of net assets
Wachovia Bank, Grand Cayman
Time Deposit
3.48%, 11/01/05
3,196 0.3 3,196
U.S. TREASURY OBLIGATIONS 0.0% of net assets
= U.S. Treasury Bills
3.46%-3.53%, 12/15/05
275 0.0 274
END OF INVESTMENTS.
See financial notes. 55
SCHWAB TOTAL STOCK MARKET INDEX FUND
SUMMARY OF PORTFOLIO HOLDINGS continued
VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
COLLATERAL INVESTED FOR SECURITIES ON LOAN
2.2% of net assets
SHORT-TERM INVESTMENT 2.2%
-------------------------------------------------------------------------
Securities Lending Investments
Fund 26,921,966 26,922
END OF COLLATERAL INVESTED FOR SECURITIES ON LOAN.
In addition to the above, the fund held the following at 10/31/05. All numbers x
$1,000 except number of contracts.
FUTURES CONTRACTS
Number of Contract Unrealized
Contracts Value Gains
S&P 500 Index, e-mini, Long
Expires 12/18/05 55 3,327 65
56 See financial notes.
SCHWAB TOTAL STOCK MARKET INDEX FUND
Statement of
ASSETS AND LIABILITIES
As of October 31, 2005. All numbers x 1,000 except NAV.
ASSETS
- --------------------------------------------------------------------------------
Investments, at value
(including $26,507 of securities on loan) $1,216,365 a
Collateral invested for securities on loan 26,922
Receivables:
Fund shares sold 1,024
Dividends 992
Due from brokers for futures 107
Income from securities on loan 15
Prepaid expenses + 18
----------
TOTAL ASSETS 1,245,443
LIABILITIES
- --------------------------------------------------------------------------------
Collateral invested for securities on loan 26,922
Payables:
Fund shares redeemed 1,107
Investment adviser and administrator fees 25
Transfer agent and shareholder service fees 17
Interest expense 3
Accrued expenses + 83
----------
TOTAL LIABILITIES 28,157
NET ASSETS
- --------------------------------------------------------------------------------
TOTAL ASSETS 1,245,443
TOTAL LIABILITIES - 28,157
----------
NET ASSETS $1,217,286
NET ASSETS BY SOURCE
Capital received from investors 1,069,522
Net investment income not yet distributed 11,788
Net realized capital losses (18,299)b
Net unrealized capital gains 154,275 b
NET ASSET VALUE (NAV) BY SHARE CLASS
SHARES
SHARE CLASS NET ASSETS + OUTSTANDING = NAV
Investor Shares $ 599,976 28,883 $20.77
Select Shares $ 617,310 29,633 $20.83
Unless stated, all numbers x 1,000.
a The fund paid $1,062,155 for these securities.
Includes securities valued at fair value worth $9 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 $27,611
Sales/maturities $43,444
The fund's total security transactions with other Schwab Funds(R) during the
period were $652.
b These derive from investments and futures.
FEDERAL TAX DATA
-------------------------------------------------
PORTFOLIO COST $1,063,013
NET UNREALIZED GAINS AND LOSSES:
Gains $327,833
Losses + (174,481)
------------
$153,352
NET UNDISTRIBUTED EARNINGS:
Ordinary income $11,792
Long-term capital gains $--
CAPITAL LOSSES UTILIZED $4,388
UNUSED CAPITAL LOSSES:
Expires 10/31 of: Loss amount
2009 $1,044
2010 11,486
2011 3,976
2012 + 874
-----------
$17,380
See financial notes. 57
SCHWAB TOTAL STOCK MARKET INDEX FUND
Statement of
OPERATIONS
For November 1, 2004 through October 31, 2005. All numbers x 1,000.
INVESTMENT INCOME
- --------------------------------------------------------------------------------
Dividends $22,841 a
Interest 57
Lending of securities + 221
---------
TOTAL INVESTMENT INCOME 23,119
NET REALIZED GAINS AND LOSSES
- --------------------------------------------------------------------------------
Net realized gains on investments 3,493
Net realized gains on futures contracts + 501
---------
NET REALIZED GAINS 3,994
NET UNREALIZED GAINS AND LOSSES
- --------------------------------------------------------------------------------
Net unrealized gains on investments 97,843
Net unrealized losses on futures contracts + (14)
---------
NET UNREALIZED GAINS 97,829
EXPENSES
- --------------------------------------------------------------------------------
Investment adviser and administrator fees 3,060 b
Transfer agent and shareholder service fees:
Investor Shares 1,548 c
Select Shares 590 c
Trustees' fees 13 d
Custodian fees 82
Portfolio accounting fees 171
Professional fees 41
Registration fees 66
Shareholder reports 65
Interest expense 6
Other expenses + 36
---------
Total expenses 5,678
Expense reduction - 36 e
---------
NET EXPENSES 5,642
INCREASE IN NET ASSETS FROM OPERATIONS
- --------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME 23,119
NET EXPENSES - 5,642
---------
NET INVESTMENT INCOME 17,477
NET REALIZED GAINS 3,994 f
NET UNREALIZED GAINS + 97,829 f
---------
INCREASE IN NET ASSETS FROM OPERATIONS $119,300
Unless stated, all numbers x 1,000.
a Net of $2 foreign withholding tax.
b 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).
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). These reductions reflect a guarantee by CSIM and Schwab to
limit the net operating expenses of this fund through February 27, 2006, as
follows:
% OF AVERAGE
SHARE CLASS DAILY NET ASSETS
-------------------------------------------------
Investor Shares 0.58
Select Shares 0.39
These limits exclude interest, taxes and certain non-routine expenses.
f These add up to a net gain on investments of $101,823.
58 See financial notes.
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
- --------------------------------------------------------------------------------
11/1/04-10/31/05 11/1/03-10/31/04
Net investment income $17,477 $12,208
Net realized gains 3,994 286
Net unrealized gains + 97,829 83,701
-----------------------------------
INCREASE IN NET ASSETS
FROM OPERATIONS 119,300 96,195
DISTRIBUTIONS PAID
- --------------------------------------------------------------------------------
DIVIDENDS FROM NET INVESTMENT INCOME
Investor Shares 7,770 4,522
Select Shares + 7,956 4,835
-----------------------------------
TOTAL DIVIDENDS FROM NET INVESTMENT INCOME $15,726 $9,357 a,b
TRANSACTIONS IN FUND SHARES
- --------------------------------------------------------------------------------
11/1/04-10/31/05 11/1/03-10/31/04
SHARES VALUE SHARES VALUE
SHARES SOLD
Investor Shares 5,085 $102,573 9,767 $180,735
Select Shares + 6,795 138,664 8,998 165,692
-------------------------------------------------
TOTAL SHARES SOLD 11,880 $241,237 18,765 $346,427
SHARES REINVESTED
Investor Shares 362 $7,203 237 $4,213
Select Shares + 328 6,531 222 3,957
-------------------------------------------------
TOTAL SHARES REINVESTED 690 $13,734 459 $8,170
SHARES REDEEMED
Investor Shares (7,672) ($155,939) (5,759) ($106,552)
Select Shares + (6,203) (126,000) (5,052) (92,791)
-------------------------------------------------
TOTAL SHARES REDEEMED (13,875) ($281,939) (10,761) ($199,343) c
NET TRANSACTIONS
IN FUND SHARES (1,305) ($26,968) 8,463 $155,254
SHARES OUTSTANDING AND NET ASSETS
- --------------------------------------------------------------------------------
11/1/04-10/31/05 11/1/03-10/31/04
SHARES NET ASSETS SHARES NET ASSETS
Beginning of period 59,821 $1,140,680 51,358 $898,588
Total increase or
decrease + (1,305) 76,606 8,463 242,092
-------------------------------------------------
END OF PERIOD 58,516 $1,217,286 59,821 $1,140,680 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 $15,726 of the dividend distribution for the fiscal year
ended 10/31/05 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 2006 via IRS Form 1099 of the amounts for use in preparing
their 2005 income tax return.
b The tax-basis components of distributions paid are:
CURRENT PRIOR
PERIOD PERIOD
Ordinary income $15,726 $ 9,357
Long-term capital
gains $-- $--
c For shares purchased on or before 4/29/05 and held less than 180 days, the
fund charges 0.75% redemption fee. For shares purchased after 4/29/05 and held
less than 30 days, the fund charges 2.00% redemption fee.
CURRENT PERIOD:
Investor Shares $38
Select Shares + 32
-------
TOTAL $70
PRIOR PERIOD:
Investor Shares $70
Select Shares + 59
-------
TOTAL $129
Dollar amounts are net of the redemption fee proceeds.
d Includes distributable net investment income in the amount of $11,788 and
$10,037 at the end of the current period and prior period, respectively.
See financial notes. 59
SCHWAB INTERNATIONAL INDEX FUND(R)
FINANCIAL STATEMENTS
FINANCIAL HIGHLIGHTS
11/1/04- 11/1/03- 11/1/02- 11/1/01- 11/1/00-
INVESTOR SHARES 10/31/05 10/31/04 10/31/03 10/31/02 10/31/01
- --------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA ($)
- --------------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of period 14.82 12.74 10.47 12.22 17.13
-------------------------------------------------------------------
Income or loss from investment operations:
Net investment income 0.35 0.26 0.23 0.21 0.15
Net realized and unrealized gains or losses 2.18 2.05 2.25 (1.82) (4.81)
-------------------------------------------------------------------
Total income or loss from investment operations 2.53 2.31 2.48 (1.61) (4.66)
Less distributions:
Dividends from net investment income (0.28) (0.23) (0.21) (0.14) (0.25)
-------------------------------------------------------------------
Net asset value at end of period 17.07 14.82 12.74 10.47 12.22
-------------------------------------------------------------------
Total return (%) 17.30 18.40 24.24 (13.34) (27.58)
RATIOS/SUPPLEMENTAL DATA (%)
- --------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net operating expenses 0.68 0.69 0.65 0.58 0.58
Gross operating expenses 0.72 0.73 0.74 0.76 0.75
Net investment income 2.05 1.78 2.01 1.70 1.14
Portfolio turnover rate 10 1 7 13 18
Net assets, end of period ($ x 1,000,000) 595 550 494 443 519
60 See financial notes.
SCHWAB INTERNATIONAL INDEX FUND
11/1/04- 11/1/03- 11/1/02- 11/1/01- 11/1/00-
SELECT SHARES 10/31/05 10/31/04 10/31/03 10/31/02 10/31/01
- ------------------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA ($)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of period 14.83 12.75 10.47 12.23 17.14
-----------------------------------------------------------------------------
Income or loss from investment operations:
Net investment income 0.38 0.28 0.25 0.21 0.16
Net realized and unrealized gains or losses 2.19 2.05 2.26 (1.82) (4.80)
-----------------------------------------------------------------------------
Total income or loss from investment operations 2.57 2.33 2.51 (1.61) (4.64)
Less distributions:
Dividends from net investment income (0.31) (0.25) (0.23) (0.15) (0.27)
-----------------------------------------------------------------------------
Net asset value at end of period 17.09 14.83 12.75 10.47 12.23
-----------------------------------------------------------------------------
Total return (%) 17.56 18.56 24.50 (13.31) (27.45)
RATIOS/SUPPLEMENTAL DATA (%)
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net operating expenses 0.50 0.50 0.49 0.47 0.47
Gross operating expenses 0.57 0.58 0.59 0.61 0.60
Net investment income 2.23 1.97 2.19 1.81 1.25
Portfolio turnover rate 10 1 7 13 18
Net assets, end of period ($ x 1,000,000) 776 687 629 536 616
See financial notes. 61
SCHWAB INTERNATIONAL INDEX FUND
SUMMARY OF PORTFOLIO HOLDINGS as of October 31, 2005
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 Schwab Funds(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
@ All or a portion of this security is on loan
COST VALUE
HOLDINGS BY CATEGORY ($ x 1,000) ($ x 1,000)
- --------------------------------------------------------------------------------
99.4% FOREIGN COMMON
STOCK 958,909 1,362,937
0.3% SHORT-TERM
INVESTMENT 4,247 4,247
0.1% FOREIGN PREFERRED
STOCK 766 1,042
0.0% WARRANTS 200 --
- --------------------------------------------------------------------------------
99.8% TOTAL INVESTMENTS 964,122 1,368,226
6.2% COLLATERAL INVESTED FOR
SECURITIES ON LOAN 85,164 85,164
(6.0)% OTHER ASSETS AND
LIABILITIES, NET (82,204)
- --------------------------------------------------------------------------------
100.0% TOTAL NET ASSETS 1,371,186
% OF NET VALUE
SECURITY AND NUMBER OF SHARES ASSETS ($ x 1,000)
FOREIGN COMMON STOCK 99.4% of net assets
AUSTRALIA 4.3%
-------------------------------------------------------------------------
BHP Billiton Ltd. 600,162 0.7 9,309
Other Securities 3.6 50,254
-------- -----------
4.3 59,563
BELGIUM 0.9%
-------------------------------------------------------------------------
Other Securities 0.9 12,114
CANADA 6.5%
-------------------------------------------------------------------------
@ Manulife Financial
Corp. 131,759 0.5 6,860
@ Royal Bank of Canada 107,744 0.5 7,605
Other Securities 5.5 74,820
-------- -----------
6.5 89,285
DENMARK 0.7%
-------------------------------------------------------------------------
Other Securities 0.7 9,313
FRANCE 10.3%
-------------------------------------------------------------------------
AXA SA 260,843 0.6 7,556
BNP Paribas 132,633 0.7 10,060
Sanofi-Aventis 173,827 1.0 13,927
Societe Generale,
Class A 61,146 0.5 6,984
@(5) Total SA 102,990 1.9 25,920
Other Securities 5.6 76,843
-------- -----------
10.3 141,290
GERMANY 7.4%
-------------------------------------------------------------------------
Allianz AG 59,288 0.6 8,388
BASF AG 94,612 0.5 6,824
DaimlerChrysler AG 142,504 0.5 7,142
@ Deutsche Bank AG 94,035 0.6 8,817
Deutsche Telekom AG 411,262 0.5 7,274
E.ON AG 112,817 0.7 10,225
Siemens AG 144,278 0.8 10,747
Other Securities 3.2 42,876
-------- -----------
7.4 102,293
HONG KONG / CHINA 1.0%
-------------------------------------------------------------------------
Other Securities 1.0 14,204
62 See financial notes.
SCHWAB INTERNATIONAL INDEX FUND
% OF NET VALUE
SECURITY AND NUMBER OF SHARES ASSETS ($ x 1,000)
IRELAND 0.1%
-------------------------------------------------------------------------
Other Securities 0.1 989
ITALY 3.4%
-------------------------------------------------------------------------
@ ENI-Ente Nazionale
Idrocarburi SPA 429,220 0.8 11,490
Other Securities 2.6 34,922
-------- -----------
3.4 46,412
JAPAN 19.8%
-------------------------------------------------------------------------
Canon, Inc. 139,395 0.5 7,381
Honda Motor Co. Ltd. 141,539 0.6 7,874
Mitsubishi UFJ Financial
Group, Inc. 988 0.9 12,423
Mizuho Financial Group,
Inc. 1,395 0.7 9,316
Nippon Telegraph & Telephone
Corp. 1,667 0.6 7,971
Sumitomo Mitsui Financial
Group, Inc. 938 0.6 8,666
Takeda Pharmaceutical Co.
Ltd. 141,200 0.6 7,742
(8) Toyota Motor Corp. 442,703 1.5 20,535
Other Securities 13.8 189,961
-------- -----------
19.8 271,869
NETHERLANDS 3.7%
-------------------------------------------------------------------------
ABN Amro Holdings
NV 311,572 0.5 7,370
ING Groep NV 366,162 0.8 10,561
Unilever NV 94,924 0.5 6,680
Other Securities 1.9 25,767
-------- -----------
3.7 50,378
SPAIN 4.2%
-------------------------------------------------------------------------
Banco Bilbao Vizcaya
Argentaria SA 590,624 0.8 10,416
Banco Santander Central
Hispano SA 1,036,437 1.0 13,199
Telefonica SA 830,416 1.0 13,256
Other Securities 1.4 20,619
-------- -----------
4.2 57,490
SWEDEN 2.0%
-------------------------------------------------------------------------
Telefonaktiebolaget LM
Ericsson, Class B 2,453,793 0.6 8,044
Other Securities 1.4 18,996
-------- -----------
2.0 27,040
SWITZERLAND 7.7%
-------------------------------------------------------------------------
Credit Suisse Group 190,854 0.6 8,445
(9) Nestle SA, Registered 67,591 1.5 20,133
(6) Novartis AG,
Registered 430,836 1.7 23,180
(10) Roche Holdings --
Genus 121,834 1.3 18,209
UBS AG, Registered 177,232 1.1 15,115
Other Securities 1.5 20,245
-------- -----------
7.7 105,327
UNITED KINGDOM 27.4%
-------------------------------------------------------------------------
AstraZeneca PLC 284,404 0.9 12,722
Barclays PLC 1,124,769 0.8 11,146
(1) BP PLC 3,683,430 3.0 40,802
Diageo PLC 523,989 0.6 7,739
(4) GlaxoSmithKline
PLC 1,023,700 1.9 26,625
HBOS PLC 673,991 0.7 9,956
(2) HSBC Holdings
PLC 1,947,777 2.2 30,602
Lloyds TSB Group
PLC 957,348 0.6 7,829
Rio Tinto PLC 188,475 0.5 7,181
Royal Bank of Scotland
Group PLC 549,711 1.1 15,222
(7) Royal Dutch Shell PLC,
A Shares 749,220 1.7 23,104
Royal Dutch Shell PLC,
B Shares 497,774 1.2 16,237
Tesco PLC 1,376,566 0.5 7,330
(3) Vodafone Group
PLC 11,087,405 2.1 29,109
Other Securities 9.6 129,766
-------- -----------
27.4 375,370
See financial notes. 63
SCHWAB INTERNATIONAL INDEX FUND
SUMMARY OF PORTFOLIO HOLDINGS continued
% OF NET VALUE
SECURITY AND NUMBER OF SHARES ASSETS ($ x 1,000)
UNITED STATES 0.0%
-------------------------------------------------------------------------
Other Securities 0.0 --
FOREIGN PREFERRED STOCK 0.1% of net assets
GERMANY 0.1%
-------------------------------------------------------------------------
Other Securities 0.1 1,042
WARRANTS 0.0% of net assets
FRANCE 0.0%
-------------------------------------------------------------------------
Other Securities 0.0 --
UNITED STATES 0.0%
-------------------------------------------------------------------------
Other Securities 0.0 --
SECURITY
RATE, MATURITY DATE
FACE AMOUNT ($ x 1,000)
SHORT-TERM INVESTMENT 0.3% of net assets
Wachovia Bank, Grand Cayman
Time Deposit
3.48%, 11/01/05
4,247 0.3 4,247
END OF INVESTMENTS.
The foreign securities were valued at fair value in accordance with board
approved procedures (see Accounting Policies).
VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
COLLATERAL INVESTED FOR SECURITIES ON LOAN
6.2% of net assets
OTHER INVESTMENT COMPANIES 6.2%
-------------------------------------------------------------------------
Securities Lending
Investments Fund 85,164,128 85,164
END OF COLLATERAL INVESTED FOR SECURITIES ON LOAN.
64 See financial notes.
SCHWAB INTERNATIONAL INDEX FUND
Statement of
ASSETS AND LIABILITIES
As of October 31, 2005. All numbers x 1,000 except NAV.
ASSETS
- ---------------------------------------------------------------------------------
Investments, at value
(including $81,513 of securities on loan) $1,368,226 a
Collateral invested for securities on loan 85,164
Foreign currency 329 b
Receivables:
Fund shares sold 1,273
Dividends 2,155
Income from securities on loan 33
Dividend tax reclaim 238
Prepaid expenses + 25
-------------
TOTAL ASSETS 1,457,443
LIABILITIES
- ---------------------------------------------------------------------------------
Collateral invested for securities on loan 85,164
Cash overdraft 309
Payables:
Fund shares redeemed 544
Investment adviser and administrator fees 38
Transfer agent and shareholder service fees 27
Accrued expenses + 175
-------------
TOTAL LIABILITIES 86,257
NET ASSETS
- ---------------------------------------------------------------------------------
TOTAL ASSETS 1,457,443
TOTAL LIABILITIES - 86,257
-------------
NET ASSETS $1,371,186
NET ASSETS BY SOURCE
Capital received from investors 1,238,568
Net investment income not yet distributed 25,265
Net realized capital losses (296,707)
Net unrealized capital gains 404,060
NET ASSET VALUE (NAV) BY SHARE CLASS
SHARES
SHARE CLASS NET ASSETS / OUTSTANDING = NAV
Investor Shares $595,389 34,871 $17.07
Select Shares $775,797 45,402 $17.09
Unless stated, all numbers x 1,000.
a The fund paid $964,122 for these securities.
Not counting short-term obligations and government securities, the fund's
security transactions during the period were:
Purchases $131,589
Sales/maturities $188,232
The fund's total security transactions with other Schwab Funds(R) during the
period were $7,302.
b The fund paid $321 for these currencies.
FEDERAL TAX DATA
PORTFOLIO COST $969,936
NET UNREALIZED GAINS AND LOSSES:
Gains $454,477
Losses + (56,187)
------------
$398,290
AS OF OCTOBER 31, 2005:
NET UNDISTRIBUTED EARNINGS:
Ordinary income $26,505
Long-term capital gains $--
CAPITAL LOSSES UTILIZED $16,242
UNUSED CAPITAL LOSSES:
Expires 10/31 of: Loss amount
2008 1,176
2009 130,942
2010 112,722
2011 39,016
2012 + 8,278
----------
$292,134
RECLASSIFICATIONS:
Net realized capital gains $ 813
Reclassified as:
Net investment income
not yet distributed ($813)
See financial notes. 65
SCHWAB INTERNATIONAL INDEX FUND
Statement of
OPERATIONS
For November 1, 2004 through October 31, 2005. All numbers x 1,000.
INVESTMENT INCOME
- ---------------------------------------------------------------------------------
Dividends $35,822 a
Interest 107
Securities on loan + 1,179
----------
TOTAL INVESTMENT INCOME 37,108
NET REALIZED GAINS AND LOSSES
- ---------------------------------------------------------------------------------
Net realized gains on investments 16,890
Net realized losses on foreign currency transactions + (1,075)
----------
NET REALIZED GAINS 15,815
NET UNREALIZED GAINS AND LOSSES
- ---------------------------------------------------------------------------------
Net unrealized gains on investments 169,763
Net unrealized losses on foreign currency transactions + (93)
----------
NET UNREALIZED GAINS 169,670
EXPENSES
- ---------------------------------------------------------------------------------
Investment adviser and administrator fees 5,414 b
Transfer agent and shareholder service fees:
Investor Shares 1,480 c
Select Shares 767 c
Trustees' fees 15 d
Custodian fees 587
Portfolio accounting fees 190
Professional fees 43
Registration fees 45
Shareholder reports 75
Interest expense 4
Other expenses 69
----------
Total expenses + 8,689
Expense reduction _ 835 e
----------
NET EXPENSES 7,854
INCREASE IN NET ASSETS FROM OPERATIONS
- ---------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME 37,108
NET EXPENSES _ 7,854
----------
NET INVESTMENT INCOME 29,254
NET REALIZED GAINS 15,815 f
NET UNREALIZED GAINS + 169,670 f
----------
INCREASE IN NET ASSETS FROM OPERATIONS $214,739
Unless stated, all numbers x 1,000.
a Net of $4,537 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 $539 from the investment adviser (CSIM) and $296 from the transfer
agent and shareholder service agent (Schwab). These reductions reflect a
guarantee by CSIM and Schwab to limit the net operating expenses of this fund
through at least February 27, 2006, as follows:
% OF AVERAGE
SHARE CLASS DAILY NET ASSETS
--------------------------------------
Investor Shares 0.69
Select Shares 0.50
These limits exclude interest, taxes and certain non-routine expenses.
f These add up to a net gain on investments of $185,485.
66 See financial notes.
SCHWAB INTERNATIONAL INDEX FUND
Statements of
CHANGES IN NET ASSETS
For the current and prior report periods. All numbers x 1,000.
OPERATIONS
- --------------------------------------------------------------------------------
11/1/04-10/31/05 11/1/03-10/31/04
Net investment income $29,254 $22,962
Net realized gains or losses 15,815 (7,817)
Net unrealized gains + 169,670 187,892
-----------------------------------
INCREASE IN NET ASSETS FROM OPERATIONS 214,739 203,037
DISTRIBUTIONS PAID
- --------------------------------------------------------------------------------
DIVIDENDS FROM NET INVESTMENT INCOME
Investor Shares 10,423 9,069
Select Shares + 14,231 12,465
-----------------------------------
TOTAL DIVIDENDS FROM NET INVESTMENT INCOME $24,654 $21,534 a,b
TRANSACTIONS IN FUND SHARES
- --------------------------------------------------------------------------------
11/1/04-10/31/05 11/1/03-10/31/04
SHARES VALUE SHARES VALUE
SHARES SOLD
Investor Shares 5,337 $85,930 5,725 $80,057
Select Shares + 7,993 128,120 5,772 80,804
--------- --------- ------- ---------
TOTAL SHARES SOLD 13,330 $214,050 11,497 $160,861
SHARES REINVESTED
Investor Shares 617 $9,445 629 $8,293
Select Shares + 864 13,224 882 11,628
--------- --------- ------- ---------
TOTAL SHARES REINVESTED 1,481 $22,669 1,511 $19,921
SHARES REDEEMED
Investor Shares (8,209) ($132,435) (7,955) ($111,302)
Select Shares + (9,795) (160,690) (9,688) (136,414)
--------- --------- ------- ---------
TOTAL SHARES REDEEMED (18,004) ($293,125) (17,643) ($247,716) c
NET TRANSACTIONS IN FUND
SHARES (3,193) $(56,406) (4,635) $(66,934)
SHARES OUTSTANDING AND NET ASSETS
- --------------------------------------------------------------------------------
11/1/04-10/31/05 11/1/03-10/31/04
SHARES NET ASSETS SHARES NET ASSETS
Beginning of period 83,466 $1,237,507 $ 88,101 $1,122,938
Total increase or decrease + (3,193) 133,679 (4,635) 114,569
--------- ---------- -------- ----------
END OF PERIOD 80,273 $1,371,186 83,466 $1,237,507 d
Unless stated, all numbers x 1,000.
a UNAUDITED
The fund designates $22,047 of the dividend distribution for the fiscal year
ended 10/31/05 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 2006 via IRS Form 1099 of the amounts for use in preparing
their 2005 income tax return.
b The tax-basis components of distributions paid were:
CURRENT PRIOR
PERIOD PERIOD
Ordinary income $24,654 $21,534
Long-term
capital gains $-- $--
c For shares purchased on or before 4/29/05 and held less than 180 days, the
fund charges 1.50% redemption fee. For shares purchased after 4/29/05 and held
less than 30 days, the fund charges 2.00% redemption fee.
CURRENT PERIOD:
Investor Shares $52
Select Shares + 106
------
TOTAL $158
PRIOR PERIOD:
Investor Shares $50
Select Shares + 22
------
TOTAL $72
Dollar amounts are net of the redemption fee proceeds.
d Includes distributable net investment income in the amount of $25,265 and
$21,478 at the end of the current period and prior period, respectively.
Percent of fund shares owned by other Schwab Funds(R) as of the end of the
current period:
SCHWAB MARKETTRACK PORTFOLIOS
All Equity Portfolio 10.1%
Growth Portfolio 9.6%
Balanced Portfolio 5.7%
Conservative Portfolio 2.2%
SCHWAB ANNUITY PORTFOLIOS
Growth Portfolio II 0.5%
See financial notes. 67
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 INDEX FUND -- -- --
- --------------------------------------------------------------------------------
SCHWAB 1000 INDEX FUND -- --
- --------------------------------------------------------------------------------
SMALL-CAP INDEX FUND -- --
- --------------------------------------------------------------------------------
TOTAL STOCK MARKET
INDEX FUND -- --
- --------------------------------------------------------------------------------
INTERNATIONAL INDEX FUND -- --
- --------------------------------------------------------------------------------
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 INDEX FUND
Schwab Short-Term Bond Market Fund
Schwab Total Bond Market Fund
Schwab YieldPlus Fund
Schwab Tax-Free 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 Tax-Free YieldPlus Fund
Schwab California Long-Term Tax-Free Bond Fund
Schwab GNMA Fund
SCHWAB CAPITAL TRUST organized May 7, 1993
SCHWAB S&P 500 INDEX FUND
SCHWAB INSTITUTIONAL SELECT 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 Premier Equity Fund
Schwab Core Equity Fund
Schwab Dividend Equity Fund
Schwab Large-Cap Growth Fund
Schwab Small-Cap Equity Fund
Schwab Hedged Equity Fund
Schwab Financial Services Fund
Schwab Health Care Fund
Schwab Technology Fund
Schwab Target 2010 Fund
Schwab Target 2020 Fund
Schwab Target 2030 Fund
Schwab Target 2040 Fund
Schwab Retirement Income Fund
68
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 ("due to/from broker").
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 counterparties to the contracts are unable to meet the
terms of the contracts or if the value of the foreign currency changes
unfavorably, the fund could sustain a loss.
THE FUNDS MAY 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. If the value of the collateral falls below 100%, it will be
adjusted the following day.
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.
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 Schwab Funds(R)
buy and sell fund
69
SCHWAB EQUITY INDEX FUNDS
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 Schwab Funds when
practical. When one fund is seeking to sell a security that another is seeking
to buy, an interfund transaction can allow both funds to benefit by reducing
transaction costs. This practice is limited to funds that share the same
investment adviser, trustees and officers.
Pursuant to an exemptive order issued by the SEC, the funds may enter into
interfund borrowing and lending transactions within the Schwab Funds. 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 Schwab Funds.
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 Schwab
Funds have custodian overdraft facilities and line of credit arrangements of
$150 million and $100 million with PNC Bank, N.A. and Bank of America, N.A.,
respectively. The funds pay interest on the amounts they borrow at rates that
are negotiated periodically.
AMOUNT WEIGHTED
OUTSTANDING AVERAGE AVERAGE
AT 10/31/05 BORROWING* INTEREST RATE*
FUND ($ x 1,000) ($ x 1,000) (%)
- --------------------------------------------------------------------------------
SCHWAB S&P 500
INDEX FUND 1,045 7,639 3.30
- --------------------------------------------------------------------------------
SCHWAB 1000
INDEX FUND -- 4,548 3.15
- --------------------------------------------------------------------------------
SCHWAB SMALL-CAP
INDEX FUND -- 2,272 3.07
- --------------------------------------------------------------------------------
SCHWAB TOTAL
STOCK MARKET
INDEX FUND -- 905 3.77
- --------------------------------------------------------------------------------
SCHWAB INTERNATIONAL
INDEX FUND 309 2,464 4.03
- --------------------------------------------------------------------------------
* 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 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.
70
SCHWAB EQUITY INDEX FUNDS
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 guidelines 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.
- - MUTUAL FUNDS: valued at their respective net asset values as determined by
those funds, in accordance with the 1940 Act for a given day.
SECURITY TRANSACTIONS are recorded as of the date the order to buy or sell the
security is executed.
DIVIDENDS AND DISTRIBUTIONS FROM PORTFOLIO SECURITIES are recorded on the date
they are effective (the ex-dividend date), although the funds record certain
foreign security dividends on the day they learn of the ex-dividend date.
INCOME FROM INTEREST AND THE ACCRETION OF DISCOUNT is recorded as it accrues.
REALIZED GAINS AND LOSSES from security transactions are based on the identified
costs of the securities involved.
ASSETS AND LIABILITIES DENOMINATED IN FOREIGN CURRENCIES are reported in U.S.
dollars. For assets and liabilities held on a given date, the dollar value is
based on market exchange rates in effect on that date. Transactions involving
foreign currencies, including purchases, sales, income receipts and expense
payments, are calculated using exchange rates in effect on the transaction date.
EXPENSES that are specific to a fund are charged directly to that fund. Expenses
that are common to all funds within a trust generally are allocated among the
funds in proportion to their average daily net assets.
71
SCHWAB EQUITY INDEX FUNDS
FOR FUNDS OFFERING MULTIPLE SHARE CLASSES, all of the realized and unrealized
gains or losses and net investment income, other than class specific expenses,
are allocated daily to each class in proportion to its 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.
72
SCHWAB EQUITY INDEX FUNDS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF:
Schwab S&P 500 Index Fund
Schwab 1000 Index 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 Index Fund (one of the
portfolios constituting Schwab Investments), Schwab S&P 500 Index 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 referred to as the "Funds") at October 31, 2005, the results of
each of their operations for the year then ended, 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, 2005 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
PRICEWATERHOUSECOOPERS LLP
San Francisco, California
December 16, 2005
73
INVESTMENT ADVISORY AGREEMENT APPROVAL
The Investment Company Act of 1940 (the "1940 Act") requires that initial
approval of, as well as the continuation of, a fund's investment advisory
agreement must be specifically approved (1) by the vote of the trustees or by a
vote of the shareholders of the fund, and (2) by the vote of a majority of the
trustees who are not parties to the investment advisory agreement or "interested
persons" of any party (the "Independent Trustees"), cast in person at a meeting
called for the purpose of voting on such approval. In connection with such
approvals, the fund's trustees must request and evaluate, and the investment
adviser is required to furnish, such information as may be reasonably necessary
to evaluate the terms of the advisory agreement. In addition, the Securities and
Exchange Commission (the "SEC") takes the position that, as part of their
fiduciary duties with respect to fund fees, fund boards are required to evaluate
the material factors applicable to a decision to approve an investment advisory
agreement.
Consistent with these responsibilities, the Board of Trustees (the "Board")
calls and holds one or more meetings each year that are dedicated, in whole or
in part, to considering whether to renew the investment advisory agreement
between Schwab Investments and Schwab Capital Trust (the "Trusts") and CSIM (the
"Agreements") with respect to existing funds in the Trusts, operating as of
December 31 of the previous year, including the Schwab S&P 500 Index Fund, the
Schwab 1000 Index Fund, the Schwab Small-Cap Index Fund, the Schwab Total Stock
Market Index Fund and the Schwab International Index Fund, and to review certain
other agreements pursuant to which CSIM provides investment advisory services to
certain other registered investment companies. In preparation for the
meeting(s), the Board requests and reviews a wide variety of materials provided
by CSIM, including information about CSIM's affiliates, personnel and
operations. The Board also receives extensive data provided by third parties.
This information is in addition to the detailed information about the funds that
the Board reviews during the course of each year, including information that
relates to fund operations and fund performance. The trustees also receive
memoranda from counsel regarding the responsibilities of trustees for the
approval of investment advisory contracts. In addition, the Independent Trustees
receive advice from their counsel, meet in executive session outside the
presence of fund management and participate in question and answer sessions with
representatives of CSIM.
At the May 24, 2005 meeting of the Board, the trustees, including a majority of
the Independent Trustees, approved the renewal of the Agreements for an
additional one year period. The Board's approval of the Agreements was based on
consideration and evaluation of a variety of specific factors discussed at that
meeting and at prior meetings, including:
1. the nature, extent and quality of the services provided to the funds under
the Agreements, including the resources of CSIM and its affiliates dedicated
to the funds;
2. each fund's investment performance and how it compared to that of certain
other comparable mutual funds;
3. each fund's expenses and how those expenses compared to those of certain
other comparable mutual funds;
4. the profitability of CSIM and its affiliates, including Charles Schwab & Co.,
Inc. ("Schwab"), with respect to each fund, including both direct and
indirect benefits accruing to CSIM and its affiliates; and
5. the extent to which economies of scale would be realized as the funds grow
and whether fee levels in the Agreements reflect those economies of scale for
the benefit of fund investors.
74
NATURE, EXTENT AND QUALITY OF SERVICES. The Board considered the nature, extent
and quality of the services provided by CSIM to the funds and the resources of
CSIM and its affiliates dedicated to the funds. In this regard, the trustees
evaluated, among other things, CSIM's personnel, experience, track record and
compliance program. The trustees also considered the fact that Schwab's
extensive branch network, Internet access, investment and research tools,
telephone services, and array of account features benefit the funds. The
trustees also considered Schwab's excellent reputation as a full service
brokerage firm and its overall financial condition. Finally, the trustees
considered that the vast majority of the funds' investors are also brokerage
clients of Schwab, and that CSIM and its affiliates are uniquely positioned to
provide services and support to the funds and such shareholders. Following such
evaluation, the Board concluded, within the context of its full deliberations,
that the nature, extent and quality of services provided by CSIM to the funds
and the resources of CSIM and its affiliates dedicated to the funds supported
renewal of the Agreements.
FUND PERFORMANCE. The Board considered fund performance in determining whether
to renew the Agreements. Specifically, the trustees considered each fund's
performance relative to a peer group of other mutual funds and appropriate
indices/benchmarks, in light of total return, yield and market trends. As part
of this review, the trustees considered the composition of the peer group,
selection criteria and the reputation of the third party who prepared the peer
group analysis. In evaluating the performance of each fund, the trustees
considered both market risk and shareholder risk expectations for such fund.
Following such evaluation, the Board concluded, within the context of its full
deliberations, that the performance of the funds supported renewal of the
Agreements.
FUND EXPENSES. With respect to the funds' expenses, the trustees considered the
rate of compensation called for by the Agreements, and each fund's net operating
expense ratio, in each case, in comparison to those of other comparable mutual
funds, such peer groups and comparisons having been selected and calculated by
an independent third party. The trustees considered the effects of CSIM's and
Schwab's voluntary waiver of management and other fees to prevent total fund
expenses from exceeding a specified cap. The trustees also considered fees
charged by CSIM to other mutual funds and to other types of accounts, such as
wrap accounts and offshore funds, but, with respect to such other types of
accounts, accorded less weight to such comparisons due to the unique legal,
regulatory, compliance and operating features of mutual funds as compared to
these other types of accounts. Following such evaluation, the Board concluded,
within the context of its full deliberations, that the expenses of the funds are
reasonable and supported renewal of the Agreements.
PROFITABILITY. With regard to profitability, the trustees considered the
compensation flowing to CSIM and its affiliates, directly or indirectly. In
this connection, the trustees reviewed management's profitability analyses,
together with certain commentary thereon from an independent accounting firm.
The trustees also considered any other benefits derived by CSIM from its
relationship with the funds, such as whether, by virtue of its management of the
funds, CSIM obtains investment information or other research resources that aid
it in providing advisory services to other clients. The trustees considered
whether the varied levels of compensation and profitability under the Agreements
and other service agreements were reasonable and justified in light of
75
the quality of all services rendered to each fund by CSIM and its affiliates.
Based on this evaluation, the Board concluded, within the context of its full
deliberations, that the profitability of CSIM is reasonable and supported
renewal of the Agreements.
ECONOMIES OF SCALE. The trustees considered the existence of any economies of
scale and whether those are passed along to a fund's shareholders through a
graduated investment advisory fee schedule or other means, including any fee
waivers by CSIM and its affiliates. In this regard, and consistent with their
consideration of fund expenses, the trustees considered that CSIM and Schwab
have previously committed resources to minimize the effects on shareholders of
diseconomies of scale during periods when fund assets were relatively small
through their contractual expense waivers. For example,such diseconomies of
scale may particularly affect newer funds or funds with investment strategies
that are from time to time out of favor, but shareholders may benefit from the
continued availability of such funds at subsidized expense levels. The trustees
also considered CSIM's agreement to contractual investment advisory fee
schedules which include lower fees at higher graduated asset levels. Based on
this evaluation, the Board concluded, within the context of its full delibera-
tions, that the funds obtain reasonable benefit from economies of scale.
In the course of their deliberations, the trustees did not identify any
particular information or factor that was all-important or controlling. Based
on the trustees' deliberation and their evaluation of the information described
above, the Board, including all of the Independent Trustees, unanimously
approved the continuation of the Agreements and concluded that the compensation
under the Agreements is fair and reasonable in light of such services and
expenses and such other matters as the trustees have considered to be relevant
in the exercise of their reasonable judgment.
76
TRUSTEES AND OFFICERS
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 Schwab Funds(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 56 Schwab Funds 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.
INDEPENDENT TRUSTEES
NAME AND
YEAR OF BIRTH TRUSTEE SINCE MAIN OCCUPATIONS AND OTHER DIRECTORSHIPS AND AFFILIATIONS
- ------------------------------------------------------------------------------------------------------------------------------------
MARIANN BYERWALTER 2000 (all trusts). Chairman, JDN Corp. Advisory LLC (real estate); Trustee, Stanford University,
1960 America First Cos., Omaha, NE (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; Director, Pacific Life Insurance Company (insurance); Trustee, Laudus
Trust and Laudus Variable Insurance Trust. 2 Until 2001: Stanford University,
Special Advisor to the President. From 1996-2001: Stanford University, Vice
President of Business Affairs, Chief Financial Officer.
- ------------------------------------------------------------------------------------------------------------------------------------
DONALD F. DORWARD Family of Funds, 1989; Chief Executive Officer, Dorward & Associates (corporate management, marketing
1931 Investments, 1991; and communications consulting). Until 1999: Executive Vice President, Managing
Capital Trust, 1993; Director, Grey Advertising San Francisco. Until 1996: President, Chief Executive
Annuity Portfolios, 1994. Officer, Allen & Dorward Advertising.
1 The Schwab Funds 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 This includes 10 series of the Laudus Trust and the sole series of the Laudus
Variable Insurance Trust.
77
INDEPENDENT TRUSTEES continued
NAME AND
YEAR OF BIRTH TRUSTEE SINCE MAIN OCCUPATIONS AND OTHER DIRECTORSHIPS AND AFFILIATIONS
- ------------------------------------------------------------------------------------------------------------------------------------
WILLIAM A. HASLER 2000 (all trusts). Until February 2004, Co-Chief Executive Officer, Aphton Corporation
1941 (bio-pharmaceuticals). Prior to August 1998, Dean of the Haas School of
Business, University of California, Berkeley (higher education).
Director, Aphton Corporation (bio-pharmaceuticals), Mission West Properties
(commercial real estate), Stratex Networks (network equipment), TOUSA (home
building), Genitope Corp. (bio-pharmaceuticals), Pacific Stock & Option
Exchange; Non-Executive Chairman, Solectron Corporation (manufacturing);
Trustee, Laudus Trust and Laudus Variable Insurance Trust. 3
- ------------------------------------------------------------------------------------------------------------------------------------
ROBERT G. HOLMES Family of Funds, 1989; Chairman, Chief Executive Officer, Director, Semloh Financial, Inc.
1931 Investments, 1991; (international financial services and investment advisory firm).
Capital Trust, 1993;
Annuity Portfolios, 1994.
- ------------------------------------------------------------------------------------------------------------------------------------
GERALD B. SMITH 2000 (all trusts). Since 1990, Chairman and Chief Executive Officer and founder of Smith Graham &
1950 Co. (investment advisors).
Director, Cooper Industries (electrical products, tools and hardware), Chairman,
Texas Southern University Foundation; Executive Committee & Board Member, MD
Anderson Cancer Center; Chairman of the audit committee of Northern Border
Partners, M.L.P. (energy).
- ------------------------------------------------------------------------------------------------------------------------------------
DONALD R. STEPHENS Family of Funds, 1989; Managing Partner, D.R. Stephens & Co. (investments). Until 1996: Chairman, Chief
1938 Investments, 1991; Executive Officer, North American Trust (real estate investment trust).
Capital Trust, 1993;
Annuity Portfolios, 1994.
- ------------------------------------------------------------------------------------------------------------------------------------
MICHAEL W. WILSEY Family of Funds, 1989; Chairman, Chief Executive Officer, Wilsey Bennett, Inc. (real estate
1943 Investments, 1991; investment and management, and other investments).
Capital Trust, 1993;
Annuity Portfolios, 1994.
3 This includes 10 series of the Laudus Trust and the sole series of the Laudus
Variable Insurance Trust.
78
INTERESTED TRUSTEES
NAME AND TRUST POSITION(S);
YEAR OF BIRTH TRUSTEE SINCE MAIN OCCUPATIONS AND OTHER DIRECTORSHIPS AND AFFILIATIONS
- ------------------------------------------------------------------------------------------------------------------------------------
CHARLES R. SCHWAB 4 Chairman, Trustee: Chairman, Chief Executive Officer and Director, The Charles Schwab Corporation,
1937 Family of Funds, 1989; Charles Schwab & Co., Inc.; Chairman and Director, Charles Schwab Investment
Investments, 1991; Management, Inc., Charles Schwab Bank, National Association; Chairman and Chief
Capital Trust, 1993; Executive Officer, Schwab (SI) Holdings Inc. I, Schwab International Holdings,
Annuity Portfolios, 1994. Inc.; Chief Executive Officer and Director, Schwab Holdings, Inc.; Director,
U.S. Trust Company, National Association, U.S. Trust Corporation, United States
Trust Company of New York. Until 5/03, Co-Chief Executive Officer, The Charles
Schwab Corporation.
Trustee, Charles and Helen Schwab Foundation; Chairman, All Kinds of Minds
Institute (education), Stanford University; Chairman and Director, Charles
Schwab Foundation; Chairman of the Finance Committee, San Francisco Museum of
Modern Art.
- ------------------------------------------------------------------------------------------------------------------------------------
RANDALL W. MERK 4 Trustee, 2005 Executive Vice President and President, Asset Management Products & Services
1954 (all trusts). Enterprise, Charles Schwab & Co., Inc.; Director, Charles Schwab Asset
Management (Ireland) Limited. From 9/02 to 7/04, Mr. Merk was President and
Chief Executive Officer, Charles Schwab Investment Management, Inc. and
Executive Vice President, Charles Schwab & Co., Inc. Prior to 9/02, Mr. Merk was
President and Chief Investment Officer, American Century Investment Management,
and Director, American Century Companies, Inc. (6/01 to 8/02); Chief Investment
Officer, Fixed, American Century Companies, Inc. (1/97 to 6/01).
OFFICERS OF THE TRUST
NAME AND
YEAR OF BIRTH TRUST OFFICE(S) HELD MAIN OCCUPATIONS AND OTHER DIRECTORSHIPS AND AFFILIATIONS
- ------------------------------------------------------------------------------------------------------------------------------------
EVELYN DILSAVER President, Chief Executive Vice President, President, Director, Charles Schwab Investment
1955 Executive Officer Management, Inc. Vice President, Laudus Trust and Laudus Variable Insurance
(all trusts). Trust. Until 7/04: Senior Vice President for Development and Distribution, Asset
Management Products & Services Enterprise. Until 6/03: Executive Vice President,
Chief Financial Officer, Chief Administrative Officer, U.S. Trust.
- ------------------------------------------------------------------------------------------------------------------------------------
STEPHEN B. WARD Senior Vice President, Senior Vice President, Chief Investment Officer, Director, Charles Schwab
1955 Chief Investment Investment Management, Inc.; Chief Investment Officer, The Charles Schwab Trust
Officer (all trusts). Co.
4 In addition to their positions with the investment adviser and the
distributor, Messrs. Schwab and Merk also own stock of the Charles Schwab
Corporation.
79
OFFICERS OF THE TRUST continued
NAME AND
YEAR OF BIRTH TRUST OFFICE(s) HELD MAIN OCCUPATIONS AND OTHER DIRECTORSHIPS AND AFFILIATIONS
- ------------------------------------------------------------------------------------------------------------------------------------
KIMON DAIFOTIS Senior Vice President, Senior Vice President and Chief Investment Officer, Fixed Income, Charles Schwab
1959 Chief Investment Investment Management, Inc. Until 6/04: Vice President, Charles Schwab
Officer (all trusts). Investment Management, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
JEFFREY MORTIMER Senior Vice President, Senior Vice President, Chief Investment Officer, Equities, Charles Schwab
1963 Chief Investment Investment Management, Inc.; Vice President, Chief Investment Officer, Laudus
Officer (all trusts). Trust and Laudus Variable Insurance Trust. Until 5/04: Vice President, Charles
Schwab Investment Management, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
RANDALL FILLMORE Chief Compliance Senior Vice President, Institutional Compliance and Chief Compliance Officer,
1960 Officer (all trusts). Charles Schwab Investment Management, Inc.; Chief Compliance Officer, Laudus
Trust and Laudus Variable Insurance Trust. Until 9/03: Vice President, Charles
Schwab & Co., Inc. and Charles Schwab Investment Management, Inc. Until 2002:
Vice President, Internal Audit, Charles Schwab & Co., Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
KOJI E. FELTON Secretary (all trusts). Senior Vice President, Chief Counsel and Corporate Secretary, Charles Schwab
1961 Investment Management, Inc.; Senior Vice President and Deputy General Counsel,
Charles Schwab & Co., Inc. Prior to 6/98, Branch Chief in Enforcement at U.S.
Securities and Exchange Commission in San Francisco.
- ------------------------------------------------------------------------------------------------------------------------------------
GEORGE PEREIRA Treasurer, Principal Senior Vice President and Chief Financial Officer, Charles Schwab Investment
1964 Financial Officer Management, Inc.; Director, Charles Schwab Asset Management (Ireland) Limited.
(all trusts) From 12/99 to 11/04, Senior Vice President, Financial Reporting, Charles Schwab
& Co., Inc.
80
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.
The industry/sector classification of the funds' portfolio holdings uses the
Global Industry Classification Standard (GICS) which was developed by and is the
exclusive property of Morgan Stanley Capital International Inc. and Standard &
Poor's. GICS is a service mark of MSCI and S&P and has been licensed for use by
Charles Schwab & Co., Inc.
81
NOTES
NOTES
NOTES
Schwab Funds(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 Schwab Funds.
Whether you're an experienced investor or just starting out, Schwab Funds 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 Schwab Fund. 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 Schwab Funds at:
P.O. Box 3812
Englewood, CO
80155-3812
When selling or exchanging shares, be sure to include the signatures of at least
one of the persons whose name is on the account.
PROXY VOTING POLICIES, PROCEDURES AND RESULTS
A description of the proxy voting policies and procedures used to determine how
to vote proxies on behalf of the funds is available without charge, upon
request, by visiting Schwab's website at www.schwab .com/schwabfunds, the SEC's
website at http://www.sec.gov, or by contacting Schwab Funds 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 website 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 SCHWAB FUNDS FAMILY(R)
STOCK FUNDS
Schwab Institutional Select(R) S&P 500 Fund
Schwab S&P 500 Index Fund
Schwab 1000 Index(R) Fund
Schwab Small-Cap Index Fund(R)
Schwab Total Stock Market Index Fund(R)
Schwab International Index Fund(R)
Schwab Premier Equity Fund(TM)
Schwab Core Equity Fund(TM)
Schwab Dividend Equity Fund(TM)
Schwab Large-Cap Growth Fund(TM)
Schwab Small-Cap Equity Fund(TM)
Schwab Hedged Equity Fund(TM)
Schwab Financial Services Fund(TM)
Schwab Health Care Fund(TM)
Schwab Technology Fund(TM)
ASSET ALLOCATION FUNDS
Schwab MarketTrack All Equity Portfolio(TM)
Schwab MarketTrack Growth Portfolio(TM)
Schwab MarketTrack Balanced Portfolio(TM)
Schwab MarketTrack Conservative Portfolio(TM)
Schwab Target 2010 Fund
Schwab Target 2020 Fund
Schwab Target 2030 Fund
Schwab Target 2040 Fund
Schwab Retirement Income Fund
BOND FUNDS
Schwab YieldPlus Fund(R)
Schwab Short-Term Bond Market Fund(TM)
Schwab Total Bond Market Fund(TM)
Schwab GNMA Fund(TM)
Schwab Tax-Free YieldPlus Fund(TM)
Schwab Short/Intermediate Tax-Free Bond Fund(TM)
Schwab Long-Term Tax-Free Bond Fund(TM)
Schwab California Tax-Free YieldPlus 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 eligible 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
Schwab Funds(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)2005 Charles Schwab & Co., Inc. All rights reserved.
Member SIPC
Printed on recycled paper.
MFR13810-08
SCHWAB ACTIVE EQUITY FUNDS
ANNUAL REPORT
October 31, 2005
Schwab Premier Equity Fund(TM)
Schwab Core Equity Fund(TM)
Schwab Dividend Equity Fund(TM)
Schwab Large-Cap Growth Fund(TM)
Schwab Small-Cap Equity Fund(TM)
Schwab Hedged Equity Fund(TM)
Schwab Financial Services Fund(TM)
(formerly Financial Services Focus Fund)
Schwab Health Care Fund(TM)
(formerly Health Care Focus Fund)
Schwab Technology Fund(TM)
(formerly Technology Focus Fund)
[CHARLES SCHWAB LOGO]
The power of Schwab Equity Ratings(R). The convenience and
diversification of mutual funds.
IN THIS REPORT
MANAGEMENT'S DISCUSSION.............................................. 2
PERFORMANCE AND FUND FACTS
Schwab Premier Equity Fund(TM).............. 9
Schwab Core Equity Fund(TM)................. 12
Schwab Dividend Equity Fund(TM)............. 14
Schwab Large-Cap Growth Fund(TM)............ 17
Schwab Small-Cap Equity Fund(TM)............ 20
Schwab Hedged Equity Fund(TM)............... 23
Schwab Financial Services Fund(TM).......... 26
Schwab Health Care Fund(TM)................. 28
Schwab Technology Fund(TM)................. 30
FUND EXPENSES........................................................ 32
FINANCIAL STATEMENTS
Schwab Premier Equity Fund(TM).............. 34
Schwab Core Equity Fund(TM)................. 42
Schwab Dividend Equity Fund(TM)............. 49
Schwab Large-Cap Growth Fund(TM)............ 57
Schwab Small-Cap Equity Fund(TM)............ 64
Schwab Hedged Equity Fund(TM)............... 73
Schwab Financial Services Fund(TM).......... 83
Schwab Health Care Fund(TM)................. 89
Schwab Technology Fund(TM).................. 95
FINANCIAL NOTES...................................................... 101
INVESTMENT ADVISORY
AGREEMENT APPROVAL................................................... 107
TRUSTEES AND OFFICERS................................................ 112
GLOSSARY............................................................. 116
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SELECT SHARES(R) ARE AVAILABLE ON MANY SCHWAB FUNDS(R)
Schwab Funds offers Select Shares, a share class that carries lower expenses
than Investor Shares(TM) in exchange for higher investment minimums on many of
its funds. Select Shares are available for initial purchases of $50,000 or more
of a single fund in a single account and for shareholders who add to their
existing Investor Share position, bringing the value to or above $50,000. We
encourage shareholders of Investor Shares to review their portfolio to see if
they are eligible to exchange into Select Shares. If you believe you are
eligible, you should contact Schwab to perform a tax-free interclass exchange
into Select Shares. Instructions for performing a tax-free interclass exchange
can also be referenced on the Schwab Funds website at WWW.SCHWAB.COM/SCHWABFUNDS
under Schwab Funds Investor Information.
Fund investment adviser: Charles Schwab Investment Management, Inc. (CSIM).
Distributor and transfer agent: Charles Schwab & Co., Inc. (Schwab).
The industry/sector classification of the funds' portfolio holdings uses the
Global Industry Classification Standard (GICS) which was developed by and is the
exclusive property of Morgan Stanley Capital International Inc. and Standard &
Poor's. GICS is a service mark of MSCI and S&P and has been licensed for use by
Charles Schwab & Co., Inc.
[PHOTO OF CHARLES SCHWAB]
Charles Schwab
Chairman
Investors should consider carefully information contained in the prospectus,
including investment objectives, risks, charges and expenses. You can request a
prospectus by calling Schwab at 1-800-435-4000. Please read the prospectus
carefully before investing.
Performance data quoted represents past performance and does not indicate future
results. Current performance may be lower or higher. Investment value will
fluctuate, and shares, when redeemed, may be worth more or less than original
cost. Small-cap funds are subject to greater volatility than those in other
asset categories.
FROM THE CHAIRMAN
Dear Shareholder,
I founded Schwab over thirty years ago to be a home for serious investors. That
mission continues to guide us today as we constantly innovate on behalf of our
clients. By continuing to provide the highest quality products and services--at
a great price--we remain true to our heritage.
I take particular pride in the Schwab Funds. Founded over 15 years ago, they
have now grown to include more than 50 funds with over $140 billion in assets as
of this report date. With a variety of investment strategies, Schwab Funds
provide a range of innovative investment choices that can serve as a foundation
for your asset allocation plan. We've continued to expand our product offering
over the past year, as Schwab Funds President Evelyn Dilsaver explains in more
detail on the following page.
Schwab Funds is managed by Charles Schwab Investment Management, Inc., one of
the largest mutual fund managers in the U.S. Our portfolio managers share a
passion for market analysis and use some of the most sophisticated financial
models available. I am proud of their depth of experience, which reflects an
average tenure of more than 15 years in the investment industry. Furthermore, I
am impressed with the commitment that our managers bring to the stewardship of
the funds, for you, their shareholders.
This commitment and experience is evident in our funds' performance. I'm
especially pleased to highlight the strong performance of the Schwab Small-Cap
Equity Fund which ranked in the top 2% of its category for the one-year period
ended October 31, 2005. 1
In closing, I want to thank you for investing with us. We strive every day to
warrant the trust you have placed in us; that will never change.
Sincerely,
/s/ Charles Schwab
1 Source: Lipper Small Cap Core Funds. For the one-year period, rankings were:
Select Shares #11 and Investor Shares #12 out of 604 funds. Numbers assume
reinvestment of dividends and capital gains over each time period. Lipper,
Inc. rankings are based on average total returns not including sales charges.
MANAGEMENT'S DISCUSSION for the year ended October 31, 2005
[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'm pleased to bring you the annual report for the Schwab Active Equity Funds
for the period ended October 31, 2005. Although the period was marked by
volatility, all of the funds with at least a one-year track record beat their
respective benchmarks for the one-year period.
In addition to our suite of actively managed funds, we also have a strong
line-up of index funds. With their market-tracking performance, broad
diversification and lower costs, index funds can complement a portfolio of
actively managed funds. For example, the Schwab 1000 Index Fund includes the
stocks of the largest 1,000 publicly traded companies in the United States. This
fund has delivered solid results and is a tax-efficient investment that can
serve as the core stock portion of an asset allocation strategy.
We continue to develop and manage Schwab Funds to help you achieve your goals
and to provide an uncomplicated way to build a well-diversified portfolio. In
terms of development, Schwab Funds launched seven new funds in 2005. Among the
new funds is the Schwab Large-Cap Growth Fund, which commenced operations on
October 3, 2005. This fund seeks capital appreciation by selecting companies
with market capitalizations greater than $5 billion and is actively managed by a
team of investment professionals that understands how a disciplined investment
strategy can help achieve competitive returns.
I speak for all of Schwab Funds when I say we want Schwab to be the place where
investors can find useful, quality financial products and services to help them
succeed.
Thank you for investing in Schwab Funds.
Sincerely,
/s/ Evelyn Dilsaver
Investors should consider carefully information contained in the prospectus,
including investment objectives, risks, charges and expenses. You can request a
prospectus by calling Schwab at 1-800-435-4000. Please read the prospectus
carefully before investing.
Investment value will fluctuate, and shares, when redeemed, may be worth more or
less than original cost.
2 Schwab Active Equity Funds
[PHOTO OF JEFFREY MORTIMER, VIVIENNE HSU, LARRY MANO]
JEFFREY MORTIMER, CFA, at right, senior vice president and chief investment
officer, equities, of the investment adviser, is responsible for the overall
management of the funds. Prior to joining the firm in October 1997, he worked
for more than eight years in asset management.
VIVIENNE HSU, CFA, at left, vice president and senior equities portfolio
manager of the investment adviser, is responsible for the day-to-day
co-management of the funds. Prior to joining the firm in August 2004, she worked
for more than 11 years in asset management and quantitative analysis.
LARRY MANO, in front, vice president and senior portfolio manager of the
investment adviser, is responsible for the day-to-day co-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
Despite a turbulent year in the news, the markets remained in a steady growth
mode and ended the one-year report period with positive results. Oil prices hit
all-time highs and the Federal Reserve continued to raise short-term interest
rates to curb inflationary pressures, raising the Fed Funds Target eight
consecutive times in the one-year report period. The moves had a limited impact
on overall economic growth, due primarily to the record-low level of interest
rates from which the increases began.
Despite concerns of high energy prices, which remained a significant headwind
for economic performance throughout the period, corporate earnings remained
strong throughout the year. Additionally, with the unemployment rate hovering
around 5% and GDP growth around 3.6%, job and income growth remained positive
and investors remained optimistic. Productivity gains and more restrictive
monetary policy kept a lid on core inflation. The productivity gains, coupled
with foreign investors buying large amounts of U.S. government securities,
helped contain increases in long-term interest rates. These conditions caused
the dollar to rally, which took pressure off the price of imported goods.
The big news for the past few months was the impact of Hurricanes Katrina and
Rita. The devastation caused by these storms was particularly heavy with respect
to the energy infrastructure in the South. Oil prices rose sharply in the
aftermath of the hurricanes, with crude oil peaking above $71 per barrel in
early September. However, a quick action by the federal government to release
Strategic Petroleum Reserves and soften oil demand led to a subsequent decline
off that peak. While the full economic effect of the hurricanes was unknown at
the end of the report period, the damage appears to be limited to the regions in
the hurricanes' path and to the energy infrastructures in the area.
Another significant event that occurred during the report period was the
appointment of Ben Bernanke to succeed Alan Greenspan as Chairman of the Federal
Reserve Board. Although he has not yet been confirmed into office, Bernanke's
experience on the Federal Open Market Committee and his expertise in monetary
economics has eased the concerns of the markets and caused investors to expect a
smooth transition.
Schwab Active Equity Funds 3
MANAGEMENT'S DISCUSSION continued
Despite tragic hurricanes, rising interest rates, and soaring energy prices, the
funds and their respective benchmarks held up well. The S&P 500 Index 1 posted
gains of 8.72% for the one-year period ending on October 31, 2005 while the
Russell 2000 Index also displayed a positive return of 12.08%. As improving
fundamentals and attractive valuations have strengthened investor interest in
emerging markets, the MSCI EAFE (Morgan Stanley Capital International, Inc.
Europe, Australasia, and Far East) Index also had an impressive return of 18.09%
for the one-year report period.
Although bonds did not fare nearly as well as equities this period, performance
was still positive, up by 1.13%, as measured by the Lehman Brothers U.S.
Aggregate Bond Index. This differential is not unusual, given that we were in
the midst of an economic recovery during the period. When the economy is strong
and job growth is robust, investors expect to see inflation, which generally
leads to higher interest rates and ultimately brings down prices for bonds. In
summary, the markets have seen quite a few events with the potential to diminish
investor confidence, but as of the end of the period, significant negative
impacts had not materialized.
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.
8.72% S&P 500(R) INDEX: measures U.S. large-cap stocks
12.08% RUSSELL 2000(R) INDEX: measures U.S. small-cap stocks
18.09% MSCI-EAFE(R) INDEX: measures (in U.S. dollars) large-cap stocks in
Europe, Australasia and the Far East
1.13% LEHMAN BROTHERS U.S. AGGREGATE BOND INDEX: measures the U.S. bond market
[LINE GRAPH]
LEHMAN BROTHERS
U.S. AGGREGATE S&P 500(R) RUSSELL 2000(R) MSCI-EAFE(R)
BOND INDEX INDEX INDEX INDEX
31-Oct-04 0.00 0.00 0.00 0.00
07-Nov-04 -0.52 3.21 3.53 3.71
14-Nov-04 -0.49 4.88 6.60 4.81
21-Nov-04 -0.40 3.69 5.15 5.92
28-Nov-04 -0.47 4.81 8.21 6.96
05-Dec-04 -0.38 5.62 10.13 8.68
12-Dec-04 0.13 5.37 8.44 5.79
19-Dec-04 -0.05 5.95 10.16 7.36
26-Dec-04 0.02 7.40 11.44 10.52
02-Jan-05 0.12 7.59 11.89 11.52
09-Jan-05 -0.09 5.35 5.32 8.50
16-Jan-05 0.27 5.22 6.07 8.74
23-Jan-05 0.68 3.75 4.98 7.81
30-Jan-05 0.70 4.08 5.33 8.68
06-Feb-05 1.05 6.95 9.55 10.43
13-Feb-05 1.03 7.23 9.11 11.16
20-Feb-05 0.51 6.94 8.33 12.75
27-Feb-05 0.47 7.86 9.63 13.40
06-Mar-05 0.44 8.86 10.92 15.44
13-Mar-05 -0.43 6.96 7.84 15.54
20-Mar-05 -0.34 6.04 7.13 14.06
27-Mar-05 -0.79 4.42 5.88 11.43
03-Apr-05 -0.16 4.59 5.31 11.55
10-Apr-05 -0.28 5.37 5.20 12.02
17-Apr-05 0.55 1.95 0.06 10.11
24-Apr-05 0.78 2.81 1.57 10.36
01-May-05 0.98 3.28 -0.15 8.71
08-May-05 0.79 4.60 2.83 10.65
15-May-05 1.27 3.14 0.36 8.08
22-May-05 1.34 6.33 5.10 8.34
29-May-05 1.73 7.22 6.42 9.41
05-Jun-05 2.23 7.01 7.02 9.48
12-Jun-05 1.96 7.23 8.07 9.40
19-Jun-05 1.94 8.95 11.20 11.36
26-Jun-05 2.67 6.70 8.83 10.42
03-Jul-05 2.25 7.01 11.08 9.74
10-Jul-05 2.07 8.60 14.40 9.31
17-Jul-05 1.96 10.06 14.69 11.35
24-Jul-05 1.84 10.59 17.12 12.34
31-Jul-05 1.70 10.68 17.49 13.59
07-Aug-05 1.25 10.02 14.58 14.44
14-Aug-05 1.94 10.44 14.14 18.32
21-Aug-05 2.10 9.54 12.85 16.11
28-Aug-05 2.25 8.24 12.20 16.21
04-Sep-05 3.04 9.47 14.77 19.45
11-Sep-05 2.68 11.60 17.33 20.67
18-Sep-05 2.20 11.33 16.32 20.04
25-Sep-05 2.28 9.32 13.47 18.92
02-Oct-05 1.94 10.56 15.67 21.65
09-Oct-05 1.89 7.66 11.63 19.16
16-Oct-05 1.35 6.84 9.71 18.26
23-Oct-05 1.86 6.22 9.65 15.53
30-Oct-05 1.09 7.95 10.12 16.68
31-Oct-05 1.13 8.72 12.08 18.09
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.
Schwab Equity Ratings(R) are produced by the Schwab Center for Investment
Research(R).
Data source: Charles Schwab & Co., Inc.
Source of Sector Classification: S&P and MSCI.
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.
4 Schwab Active Equity Funds
PERFORMANCE AT A GLANCE
Total return for the 12 months ended 10/31/05, except where noted.
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE DOES
NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL
FLUCTUATE SO THAT AN INVESTOR'S SHARES MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN PERFORMANCE DATA
QUOTED. TO OBTAIN PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH END,
PLEASE VISIT WWW.SCHWAB.COM/SCHWABFUNDS.
SCHWAB PREMIER EQUITY FUND(TM)
Investor Shares 1............... 7.00%
Select Shares 1................. 7.10%
Benchmark 1..................... 2.52%
Fund Category 1, 2.............. 2.71%
Performance Details............. pages 9-10
SCHWAB CORE EQUITY FUND(TM) 15.74%
Benchmark....................... 8.72%
Fund Category 2................. 9.53%
Performance Details............. page 12
SCHWAB DIVIDEND EQUITY FUND(TM)
Investor Shares................. 9.98%
Select Shares(R)................ 10.17%
Benchmark....................... 8.72%
Fund Category 2................. 10.02%
Performance Details............. pages 14-15
SCHWAB LARGE-CAP GROWTH FUND(TM)
Investor Shares 3............... -2.70%
Select Shares 3................. -2.70%
Benchmark 3..................... -0.97%
Fund Category 2, 3.............. -1.15%
Performance Details............. pages 17-18
THE SCHWAB PREMIER EQUITY FUND was launched on March 21, 2005. Performance
numbers are for the period since inception and are not annualized. The fund is
comprised of approximately 100 stocks that have been identified using Schwab
Equity Ratings as likely to outperform the market over the next 12 months. The
portfolio is diversified across sectors and capitalization size, and generally
invests in only A or B rated stocks. Since its inception, the Schwab Premier
Equity Fund was up 7.00%, well above its benchmark, the S&P 500 Index, which was
up 2.52% for the same period. Energy stocks came off of their highs towards the
end of the report period, but still posted a solid return of 7% for the
inception-to-date period. Sector and industry group weights had a slightly
negative impact on fund performance while an overweight to the Information
Technology and Energy sectors positively affected performance. Stock selection
was the most positive aspect of performance for the period as A-rated stocks
excelled. Stock selection in the Diversified Financials, Insurance, as well as
Software & Services industry groups was particularly strong. Some of the better
performing stocks in the Insurance industry group were W.R. Berkley Corporation,
Loews Corporation, AFLAC, Inc., and Metlife, Inc.
THE SCHWAB CORE EQUITY FUND was up 15.74% for the one-year report period, well
above its benchmark, the S&P 500 Index, which returned 8.72%. Returns were
driven by large energy and utility stocks, which were up over 33% and 23%
respectively. The underperforming sectors for the period included Consumer
Discretionary and Telecommunication Services. Helping the fund's performance was
the stock selection process, which can be attributed to Schwab Equity Ratings'
rigorous stock evaluation and its ability to identify stocks likely to
outperform the market. The fund's underweight to the Consumer Discretionary and
Financial sectors, added to the overall performance. Stocks that performed well
during the one-year period were Burlington Resources, Inc., Franklin Resources,
Inc. and The Gillette Company, after being acquired by Procter & Gamble Co.
Source of Sector Classification: S&P and MSCI. 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. Performance
results less than one year are not annualized.
Expenses may be partially absorbed by CSIM and Schwab. Without these
reductions, the funds' total returns would have been lower. Performance does
not reflect the deduction of taxes that a shareholder would pay on fund
distributions or on the redemption of fund shares.
Schwab Equity Ratings(R) are produced by the Schwab Center for Investment
Research(R).
1 Total return is for 3/21/05 - 10/31/05.
2 Source for category information: Morningstar, Inc.
3 Total return is for 10/3/05 - 10/31/05.
Schwab Active Equity Funds 5
MANAGEMENT'S DISCUSSION continued
PERFORMANCE AT A GLANCE
Total return for the 12 months ended 10/31/05, except where noted.
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE DOES
NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL
FLUCTUATE SO THAT AN INVESTOR'S SHARES MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN PERFORMANCE DATA
QUOTED. TO OBTAIN PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH END,
PLEASE VISIT WWW.SCHWAB.COM/SCHWABFUNDS.
SCHWAB SMALL-CAP EQUITY FUND(TM)
Investor Shares................... 23.65%
Select Shares..................... 23.83%
Benchmark......................... 15.27%
Fund Category 1................... 13.72%
Performance Details............... pages 20-21
SCHWAB HEDGED EQUITY FUND(TM)
Investor Shares 2................. 6.96%
Select Shares..................... 16.52%
Benchmark......................... 8.72%
Fund Category 1................... 7.62%
Performance Details............... pages 23-24
SCHWAB FINANCIAL SERVICES FUND(TM) 18.62%
Benchmark......................... 9.34%
Fund Category 1................... 8.97%
Performance Details............... page 26
SCHWAB HEALTH CARE FUND(TM)....... 30.15%
Benchmark......................... 11.02%
Fund Category 1................... 15.21%
Performance Details............... page 28
SCHWAB TECHNOLOGY FUND(TM) ....... 10.41%
Benchmark......................... 5.81%
Fund Category 1................... 8.86%
Performance Details............... page 30
THE SCHWAB DIVIDEND EQUITY FUND, which was up 9.98% for the period, handily
outperformed its benchmark, the S&P 500 Index, which increased 8.72%. A
significant amount of the fund's outperformance can be attributed to Schwab
Equity Ratings' ability to identify stocks likely to outperform the market. On
the positive side, the fund's underweight position in technology stocks and
overweight in utilities helped performance. Among the winners were The Gillette
Company, Marathon Oil Corporation, AON Corporation, and Edison International.
The fund is also designed to provide current income from dividends that are
eligible for the reduced tax rate on qualified dividend income. As a result,
lower dividend yields kept us away from many energy stocks, which excelled
during the period.
THE SCHWAB LARGE-CAP GROWTH FUND was launched on October 3, 2005. Performance
numbers are for the period since inception and are not annualized. The Schwab
Large-Cap Growth Fund was down 2.70% for the nearly one-month period, slightly
underperforming its benchmark, the Russell 1000 Growth Index, which was down
0.97%. Stocks as a whole struggled during the month of October as the S&P 500
Index was down 1.73%. Energy stocks came down from their lofty heights during
the month of October, as the group lost over 8%. Similarly, the Utilities and
the Telecommunication Services also had a tough period, while the overall
strengths in the fund were found in the Financial and Materials sectors. For the
nearly one-month period, A-rated stocks within the Russell 1000 Growth lagged
and large positions of Exxon Mobil Corp. and Chevron Texaco Corporation slightly
detracted from fund performance. Some of the better performing stocks for the
period included Monster Worldwide, Inc., an online recruitment service, and
Microsoft Corp.
Source of Sector Classification: S&P and MSCI. 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. Performance
results less than one year are not annualized.
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.
The Hedged Equity Fund's long positions can decline in value at the same time
the value of its shorted stocks increases, thereby increasing the potential
for loss. The potential loss associated with short positions is much greater
than the original value of the securities sold. The use of borrowing and short
sales may cause the fund to have higher expenses than those of equity funds
that do not use such techniques.
Since the Financial Services, Health Care, and Technology funds focus their
investments on companies involved in specific sectors, these funds may involve
a greater degree of risk than an investment in other mutual funds with greater
diversification.
Schwab Equity Ratings(R) are produced by the Schwab Center for Investment
Research(R).
1 Source for category information: Morningstar, Inc.
2 Total return is for 3/1/05 - 10/31/05.
6 Schwab Active Equity Funds
THE SCHWAB SMALL-CAP EQUITY FUND was up 23.65%, outperforming its benchmark, the
S&P 600 Small-Cap Index, which was up 15.27% for the year-end period. Small-cap
energy stocks were up over 60% for the period, contributing to the overall
performance of the equity markets. Another leading contributor to the
markets' performance for the year was the Health Care and Industrials sectors
which were up 20% for the year. Among the top performers were Payless
Shoesource, Inc., Hydril Co., and Investment Technology Group, Inc. From an
industry group standpoint, Insurance as well as Food & Staples shined, while
Automobiles, Household & Personal Products, and Pharmaceuticals & Biotechnology
all struggled during the period. Further, it was difficult to avoid
underperformers in the small-cap area of the technology sector. Borland
Software, producers of platform software technology solutions, was one of the
securities that detracted from performance.
THE SCHWAB HEDGED EQUITY FUND Select Shares were up 16.52%, outperforming their
benchmark, the S&P 500 Index, which returned 8.72% for the 12-month period. In
addition, the fund's Investor Shares, which were launched on March 1, 2005,
returned 6.96% since inception, outperforming the 1.44% return of the benchmark
S&P 500 Index for that period. Prior to the devastation of the hurricanes, the
fund was growing steadily and was positioned to outperform more than it did, but
at the end of the quarter, results were dampened due to a slight underweight to
Energy, which rallied as a result of concerns of temporary energy shortages.
Importantly, in addition to outperforming its benchmark, the fund maintained
less market volatility and a lower weighted average market capitalization than
the broad equity market. The results of stock selection for the period were
positive. On the long side, within the Insurance and Software industries,
positions in AON Corp, Burlington Resources, Inc., and Apple Computer, Inc.
contributed to overall returns.
THE SCHWAB FINANCIAL SERVICES FUND returned 18.62% for the one-year report
period, beating its benchmark, the S&P 1500 SuperComposite Financials Sector
Index, which was up 9.34%. The diverse nature of the Financial Services sector
proved helpful during the year as the group posted positive returns, despite
concerns about the narrowing of interest rate spreads at Banks. The fund
benefited from being smaller than the benchmark, as the fund's weighted average
market capitalization was about one-fourth of the benchmark. With the help of
Schwab Equity Ratings' ability to identify stocks likely to outperform the
market over the next
Source of Sector Classification: S&P and MSCI.
Schwab Active Equity Funds 7
MANAGEMENT'S DISCUSSION continued
12 months, the fund was able to find winners that produced substantial returns.
The fund sidestepped a struggling Fannie Mae and caught the momentum behind
Franklin Resources, Inc., Investment Technology Group, Inc., and AFLAC, Inc.
THE SCHWAB HEALTH CARE FUND, which was up 30.15% for the one-year reporting
period, was the best performing of the three sector funds. The fund outperformed
its benchmark, the S&P 1500 SuperComposite Health Care Sector Index, which was
up 11.02%. Health Care stocks posted solid returns for the year, with one
industry group, Health Care Equipment and Services, returning 26%. The fund
maintained lower price/earnings and price/book ratios than the benchmark, which
added value to overall returns. The fund also benefited from its emphasis on
holdings that were smaller than the benchmark, particularly as a result of
underweighting large pharmaceutical stocks. Much of the fund's out-performance
can be attributed to the Health Care sector, as Schwab's Equity Ratings
identified a number of A-rated stocks that climbed more than 100% for the
period. Some of the largest contributors to the fund were Humana, Inc. and
Express Scripts, Inc.
THE SCHWAB TECHNOLOGY FUND was up 10.41% for the period, outperforming its
benchmark, the S&P 1500 SuperComposite Technology Sector Index, which was up
5.81%. During the report period, Technology stocks posted reasonable gains, with
each of its three industry groups posting similar returns. Since performance for
the three industry groups did not vary by much for the period, little could be
gained by overweighting each group and therefore, the fund showed almost no
benefit or loss from industry weights. Software firms such as Autodesk, Inc. and
Progress Software Corp., both business solutions companies, contributed to the
overall returns for the fund whereas holdings of Avaya, Inc. and Xerox
Corp. slightly detracted from performance.
Source of Sector Classification: S&P and MSCI.
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.
8 Schwab Active Equity Funds
SCHWAB PREMIER EQUITY FUND(TM)
INVESTOR SHARES PERFORMANCE as of 10/31/05
TOTAL RETURNS 1, 2
This chart compares performance of the fund's Investor Shares with its benchmark
and Morningstar category.
[BAR CHART]
Fund: Fund Category:
INVESTOR SHARES Benchmark: MORNINGSTAR
Ticker Symbol: S&P 500(R) LARGE-CAP
SWPNX INDEX BLEND
SINCE INCEPTION: 3/21/05 7.00% 2.52% 2.71%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE DOES
NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL
FLUCTUATE SO THAT AN INVESTOR'S SHARES MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN PERFORMANCE DATA
QUOTED. TO OBTAIN PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH END,
PLEASE VISIT WWW.SCHWAB.COM/SCHWABFUNDS.
PERFORMANCE OF A HYPOTHETICAL $10,000 INVESTMENT 1
This graph shows performance since inception of a hypothetical $10,000
investment in the fund's Investor Shares, compared with a similar investment in
its benchmark.
$10,700 INVESTOR SHARES
$10,252 S&P 500(R) INDEX
[LINE GRAPH]
INVESTOR S&P 500(R)
SHARES INDEX
21-Mar-05 $10,000 $10,000
31-Mar-05 $9,960 $9,928
30-Apr-05 $9,530 $9,739
31-May-05 $10,160 $10,049
30-Jun-05 $10,360 $10,063
31-Jul-05 $10,840 $10,437
31-Aug-05 $10,820 $10,343
30-Sep-05 $10,950 $10,426
31-Oct-05 $10,700 $10,252
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.
Performance results less than one year are not annualized.
1 Fund expenses have been absorbed by CSIM and Schwab. Without these reductions,
the fund's returns would have been lower. These returns do not reflect the
deduction of taxes that a shareholder would pay on fund distributions or the
redemption of fund shares.
2 Source for category information: Morningstar, Inc.
Schwab Active Equity Funds 9
SCHWAB PREMIER EQUITY FUND
SELECT SHARES(R) PERFORMANCE as of 10/31/05
TOTAL RETURNS 1, 2
This chart compares performance of the fund's Select Shares with its benchmark
and Morningstar category.
[BAR CHART]
Fund: Fund Category:
SELECT SHARES Benchmark: MORNINGSTAR
Ticker Symbol: S&P 500(R) LARGE-CAP
SWPSX INDEX BLEND
SINCE INCEPTION: 3/21/05 7.10% 2.52% 2.71%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE DOES
NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL
FLUCTUATE SO THAT AN INVESTOR'S SHARES MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN PERFORMANCE DATA
QUOTED. TO OBTAIN PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH END,
PLEASE VISIT WWW.SCHWAB.COM/SCHWABFUNDS.
PERFORMANCE OF A HYPOTHETICAL $50,000 INVESTMENT 1
This graph shows performance since inception of a hypothetical $50,000
investment (the minimum investment for this share class) in the fund's Select
Shares, compared with a similar investment in its benchmark.
$53,550 SELECT SHARES
$51,261 S&P 500(R) INDEX
[LINE GRAPH]
SELECT S&P 500(R)
SHARES INDEX
21-Mar-05 $50,000 $50,000
31-Mar-05 $49,800 $49,640
30-Apr-05 $47,650 $48,697
31-May-05 $50,800 $50,245
30-Jun-05 $51,800 $50,316
31-Jul-05 $54,200 $52,187
31-Aug-05 $54,100 $51,713
30-Sep-05 $54,800 $52,131
31-Oct-05 $53,550 $51,261
All figures on this page assume dividends and distributions were reinvested.
Index figures do not include trading and management costs, which would lower
performance. Indices are unmanaged, and you cannot invest in them directly.
Performance results less than one year are not annualized.
1 Fund expenses have been partially absorbed by CSIM and Schwab. Without these
reductions, the fund's returns would have been lower. These returns do not
reflect the deduction of taxes that a shareholder would pay on fund
distributions or the redemption of fund shares.
2 Source for category information: Morningstar, Inc.
10 Schwab Active Equity Funds
SCHWAB PREMIER EQUITY FUND
FUND FACTS as of 10/31/05
STYLE ASSESSMENT 1
[GRAPHIC]
INVESTMENT STYLE
VALUE BLEND GROWTH
MARKET CAP
Large / / /X/ / /
Medium / / / / / /
Small / / / / / /
STATISTICS
NUMBER OF HOLDINGS 101
- --------------------------------------------------------------------------------
WEIGHTED AVERAGE MARKET CAP ($ x 1,000,000) $24,424
- --------------------------------------------------------------------------------
PRICE/EARNINGS RATIO (P/E) 19.9
- --------------------------------------------------------------------------------
PRICE/BOOK RATIO (P/B) 2.6
- --------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 2 33%
- --------------------------------------------------------------------------------
MINIMUM INITIAL INVESTMENT 3
Investor Shares $2,500
($1,000 for retirement, education and custodial accounts)
Select Shares $50,000
- --------------------------------------------------------------------------------
TOP HOLDINGS 4
% OF
SECURITY NET ASSETS
- --------------------------------------------------------------------------------
(1) APPLE COMPUTER, INC. 1.2%
- --------------------------------------------------------------------------------
(2) INVESTMENT TECHNOLOGY GROUP, INC. 1.2%
- --------------------------------------------------------------------------------
(3) W.R. BERKLEY CORP. 1.2%
- --------------------------------------------------------------------------------
(4) AUTODESK, INC. 1.2%
- --------------------------------------------------------------------------------
(5) HELMERICH & PAYNE, INC. 1.2%
- --------------------------------------------------------------------------------
(6) AMR CORP. 1.2%
- --------------------------------------------------------------------------------
(7) J.C. PENNY CO., INC. HOLDING CO. 1.2%
- --------------------------------------------------------------------------------
(8) PRUDENTIAL FINANCIAL, INC. 1.2%
- --------------------------------------------------------------------------------
(9) PAYLESS SHOESOURCE, INC. 1.1%
- --------------------------------------------------------------------------------
(10) PRIDE INTERNATIONAL, INC. 1.1%
- --------------------------------------------------------------------------------
TOTAL 11.8%
SECTOR WEIGHTINGS % of Investments
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]
18.8% FINANCIALS
17.9% INFORMATION TECHNOLOGY
14.6% HEALTH CARE
11.6% INDUSTRIALS
11.0% CONSUMER DISCRETIONARY
9.5% CONSUMER STAPLES
8.6% ENERGY
3.5% MATERIAL
3.1% UTILITIES
1.1% TELECOMMUNICATION SERVICES
0.3% OTHER
Portfolio holdings may have changed since the report date.
Source of Sector Classification: S&P and MSCI.
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 10/31/05, which may have changed since then, and is not a
precise indication of risk or performance--past, present, or future.
2 Not annualized.
3 Please see prospectus for further detail and eligibility requirements.
4 This list is not a recommendation of any security by the investment adviser.
Schwab Active Equity Funds 11
SCHWAB CORE EQUITY FUND(TM)
PERFORMANCE as of 10/31/05
AVERAGE ANNUAL TOTAL RETURNS 1, 2
This chart compares performance of the fund with its benchmark and Morningstar
category.
Fund Category:
Fund Benchmark: MORNINGSTAR
Ticker Symbol: S&P 500(R) LARGE-CAP
SWANX INDEX BLEND
1 YEAR 15.74% 8.72% 9.53%
5 YEARS -0.71% -1.73% -1.41%
SINCE INCEPTION: 7/1/96 9.23% 8.19% 7.01%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE DOES
NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL
FLUCTUATE SO THAT AN INVESTOR'S SHARES MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN PERFORMANCE DATA
QUOTED. TO OBTAIN PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH END,
PLEASE VISIT WWW.SCHWAB.COM/SCHWABFUNDS.
PERFORMANCE OF A HYPOTHETICAL $10,000 INVESTMENT 1
This graph shows performance since inception of a hypothetical $10,000
investment in the fund, compared with a similar investment in its benchmark.
$22,806 FUND
$20,855 S&P 500(R) INDEX
[LINE GRAPH]
S&P 500(R)
FUND INDEX
<Fn>
01-Jul-96 $10,000 $10,000
31-Jul-96 $9,690 $9,558
31-Aug-96 $9,880 $9,760
30-Sep-96 $10,620 $10,308
31-Oct-96 $11,010 $10,593
30-Nov-96 $11,640 $11,393
31-Dec-96 $11,368 $11,168
31-Jan-97 $11,959 $11,865
28-Feb-97 $11,908 $11,958
31-Mar-97 $11,287 $11,468
30-Apr-97 $12,081 $12,152
31-May-97 $12,722 $12,890
30-Jun-97 $13,272 $13,468
31-Jul-97 $14,462 $14,539
31-Aug-97 $13,821 $13,724
30-Sep-97 $14,646 $14,475
31-Oct-97 $13,964 $13,992
30-Nov-97 $14,676 $14,640
31-Dec-97 $14,963 $14,891
31-Jan-98 $15,054 $15,057
28-Feb-98 $16,155 $16,142
31-Mar-98 $16,801 $16,969
30-Apr-98 $16,949 $17,140
31-May-98 $16,620 $16,845
30-Jun-98 $17,448 $17,529
31-Jul-98 $17,198 $17,343
31-Aug-98 $14,555 $14,839
30-Sep-98 $15,565 $15,790
31-Oct-98 $16,529 $17,074
30-Nov-98 $17,561 $18,109
31-Dec-98 $19,158 $19,152
31-Jan-99 $20,138 $19,952
28-Feb-99 $19,134 $19,332
31-Mar-99 $19,961 $20,105
30-Apr-99 $20,882 $20,883
31-May-99 $20,493 $20,390
30-Jun-99 $21,910 $21,522
31-Jul-99 $21,189 $20,850
31-Aug-99 $21,154 $20,746
30-Sep-99 $20,658 $20,177
31-Oct-99 $22,347 $21,455
30-Nov-99 $22,808 $21,891
31-Dec-99 $24,474 $23,180
31-Jan-00 $23,416 $22,017
29-Feb-00 $24,296 $21,600
31-Mar-00 $26,222 $23,712
30-Apr-00 $25,087 $22,998
31-May-00 $24,232 $22,527
30-Jun-00 $24,844 $23,083
31-Jul-00 $24,309 $22,723
31-Aug-00 $25,839 $24,135
30-Sep-00 $24,117 $22,860
31-Oct-00 $23,633 $22,764
30-Nov-00 $22,000 $20,971
31-Dec-00 $22,589 $21,073
31-Jan-01 $22,575 $21,821
28-Feb-01 $20,549 $19,831
31-Mar-01 $19,250 $18,574
30-Apr-01 $20,507 $20,017
31-May-01 $20,577 $20,151
30-Jun-01 $20,228 $19,662
31-Jul-01 $19,711 $19,469
31-Aug-01 $18,342 $18,250
30-Sep-01 $17,071 $16,776
31-Oct-01 $17,504 $17,096
30-Nov-01 $18,495 $18,407
31-Dec-01 $18,547 $18,569
31-Jan-02 $18,280 $18,298
28-Feb-02 $17,887 $17,945
31-Mar-02 $18,660 $18,620
30-Apr-02 $17,816 $17,491
31-May-02 $17,788 $17,362
30-Jun-02 $16,692 $16,126
31-Jul-02 $15,611 $14,870
31-Aug-02 $15,737 $14,966
30-Sep-02 $14,290 $13,339
31-Oct-02 $15,301 $14,513
30-Nov-02 $15,667 $15,368
31-Dec-02 $14,971 $14,466
31-Jan-03 $14,546 $14,087
28-Feb-03 $14,221 $13,876
31-Mar-03 $14,504 $14,010
30-Apr-03 $15,509 $15,165
31-May-03 $16,343 $15,964
30-Jun-03 $16,556 $16,168
31-Jul-03 $16,881 $16,453
31-Aug-03 $17,164 $16,774
30-Sep-03 $17,051 $16,596
31-Oct-03 $17,985 $17,535
30-Nov-03 $18,296 $17,689
31-Dec-03 $19,192 $18,616
31-Jan-04 $19,391 $18,959
29-Feb-04 $19,605 $19,222
31-Mar-04 $19,548 $18,932
30-Apr-04 $19,220 $18,635
31-May-04 $19,420 $18,890
30-Jun-04 $19,876 $19,257
31-Jul-04 $19,149 $18,619
31-Aug-04 $19,192 $18,694
30-Sep-04 $19,505 $18,896
31-Oct-04 $19,705 $19,185
30-Nov-04 $20,932 $19,962
31-Dec-04 $21,782 $20,640
31-Jan-05 $21,248 $20,137
28-Feb-05 $22,157 $20,560
31-Mar-05 $21,811 $20,196
30-Apr-05 $21,176 $19,812
31-May-05 $21,999 $20,442
30-Jun-05 $22,172 $20,471
31-Jul-05 $22,979 $21,232
31-Aug-05 $22,835 $21,039
30-Sep-05 $23,297 $21,209
31-Oct-05 $22,806 $20,855
All figures on this page assume dividends and distributions were reinvested.
Index figures do not include trading and management costs, which would lower
performance. Indices are unmanaged, and you cannot invest in them directly.
1 Fund expenses have been partially absorbed by CSIM and Schwab. Without these
reductions, the fund's returns would have been lower. These returns do not
reflect the deduction of taxes that a shareholder would pay on fund
distributions or the redemption of fund shares.
2 Source for category information: Morningstar, Inc.
12 Schwab Active Equity Funds
SCHWAB CORE EQUITY FUND
FUND FACTS as of 10/31/05
STYLE ASSESSMENT 1
[GRAPHIC]
INVESTMENT STYLE
VALUE BLEND GROWTH
MARKET CAP
Large / / /X/ / /
Medium / / / / / /
Small / / / / / /
STATISTICS
NUMBER OF HOLDINGS 93
- --------------------------------------------------------------------------------
WEIGHTED AVERAGE MARKET CAP ($ x 1,000,000) $60,334
- --------------------------------------------------------------------------------
PRICE/EARNINGS RATIO (P/E) 18.0
- --------------------------------------------------------------------------------
PRICE/BOOK RATIO (P/B) 2.8
- --------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 48%
- --------------------------------------------------------------------------------
MINIMUM INITIAL INVESTMENT 2 $2,500
($1,000 for retirement, education and custodial accounts)
- --------------------------------------------------------------------------------
TOP HOLDINGS 3
% OF
SECURITY NET ASSETS
- --------------------------------------------------------------------------------
(1) AMERICAN EXPRESS CO. 5.0%
- --------------------------------------------------------------------------------
(2) BOEING CO. 4.7%
- --------------------------------------------------------------------------------
(3) EXXON MOBIL CORP. 4.4%
- --------------------------------------------------------------------------------
(4) INTEL CORP. 4.3%
- --------------------------------------------------------------------------------
(5) COCA-COLA CO. 4.2%
- --------------------------------------------------------------------------------
(6) UNIONBANCAL CORP. 4.0%
- --------------------------------------------------------------------------------
(7) HEWLETT-PACKARD CO. 4.0%
- --------------------------------------------------------------------------------
(8) FRANKLIN RESOURCES, INC. 3.7%
- --------------------------------------------------------------------------------
(9) CSX CORP. 3.5%
- --------------------------------------------------------------------------------
(10) LOCKHEED MARTIN CORP. 3.3%
- --------------------------------------------------------------------------------
TOTAL 41.1%
SECTOR WEIGHTINGS % of Investments
This chart shows the fund's sector composition as of the report date. A sector
is a portion of the overall stock market that is made up of industries whose
business components share similar characteristics.
[PIE CHART]
25.3% FINANCIALS
19.9% INFORMATION TECHNOLOGY
15.6% INDUSTRIALS
14.9% HEALTH CARE
7.2% ENERGY
6.1% CONSUMER DISCRETIONARY
5.3% CONSUMER STAPLES
1.8% UTILITIES
1.7% TELECOMMUNICATION SERVICES
0.6% MATERIAL
1.6% OTHER
Portfolio holdings may have changed since the report date.
Source of Sector Classification: S&P and MSCI.
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 10/31/05, 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 Active Equity Funds 13
SCHWAB DIVIDEND EQUITY FUND(TM)
INVESTOR SHARES PERFORMANCE as of 10/31/05
AVERAGE ANNUAL TOTAL RETURNS 1, 2
This chart compares performance of the fund's Investor Shares with a benchmark
and the fund's Morningstar category.
[BAR CHART]
Fund: Fund Category:
INVESTOR SHARES Benchmark: MORNINGSTAR
Ticker Symbol: S&P 500(R) LARGE-CAP
SWDIX INDEX VALUE
1 YEAR 9.98% 8.72% 10.02%
SINCE INCEPTION: 9/2/03 15.38% 10.56% 12.32%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE DOES
NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL
FLUCTUATE SO THAT AN INVESTOR'S SHARES MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN PERFORMANCE DATA
QUOTED. TO OBTAIN PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH END,
PLEASE VISIT WWW.SCHWAB.COM/SCHWABFUNDS.
PERFORMANCE OF A HYPOTHETICAL $10,000 INVESTMENT 1
This graph shows performance since inception of a hypothetical $10,000
investment in the fund's Investor Shares, compared with a similar investment in
a benchmark.
$13,640 INVESTOR SHARES
$12,433 S&P 500(R) INDEX
[LINE GRAPH]
INVESTOR S&P 500(R)
SHARES INDEX
02-Sep-03 $10,000 $10,000
30-Sep-03 $9,900 $9,894
31-Oct-03 $10,600 $10,454
30-Nov-03 $10,850 $10,546
31-Dec-03 $11,417 $11,099
31-Jan-04 $11,559 $11,303
29-Feb-04 $11,851 $11,460
31-Mar-04 $11,860 $11,287
30-Apr-04 $11,667 $11,110
31-May-04 $11,820 $11,262
30-Jun-04 $12,025 $11,480
31-Jul-04 $11,902 $11,100
31-Aug-04 $12,220 $11,145
30-Sep-04 $12,299 $11,265
31-Oct-04 $12,402 $11,437
30-Nov-04 $12,957 $11,901
31-Dec-04 $13,312 $12,305
31-Jan-05 $13,081 $12,005
28-Feb-05 $13,458 $12,257
31-Mar-05 $13,356 $12,040
30-Apr-05 $13,198 $11,811
31-May-05 $13,451 $12,187
30-Jun-05 $13,537 $12,204
31-Jul-05 $13,994 $12,658
31-Aug-05 $13,888 $12,543
30-Sep-05 $13,991 $12,645
31-Oct-05 $13,640 $12,433
All figures on this page assume dividends and distributions were reinvested.
Index figures do not include trading and management costs, which would lower
performance. Indices are unmanaged, and you cannot invest in them directly.
1 Fund expenses have been partially absorbed by CSIM and Schwab. Without these
reductions, the fund's returns would have been lower. These returns do not
reflect the deduction of taxes that a shareholder would pay on fund
distributions or the redemption of fund shares.
2 Source for category information: Morningstar, Inc.
14 Schwab Active Equity Funds
SCHWAB DIVIDEND EQUITY FUND
SELECT SHARES(R) PERFORMANCE as of 10/31/05
AVERAGE ANNUAL TOTAL RETURNS 1, 2
THIS CHART COMPARES PERFORMANCE OF THE FUND'S SELECT SHARES WITH A BENCHMARK AND
THE FUND'S MORNINGSTAR CATEGORY.
[BAR CHART]
Fund: Fund Category:
SELECT SHARES Benchmark: MORNINGSTAR
Ticker Symbol: S&P 500(R) LARGE-CAP
SWDSX INDEX VALUE
1 YEAR 10.17% 8.72% 10.02%
SINCE INCEPTION: 9/2/03 15.50% 10.56% 12.32%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE DOES
NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL
FLUCTUATE SO THAT AN INVESTOR'S SHARES MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN PERFORMANCE DATA
QUOTED. TO OBTAIN PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH END,
PLEASE VISIT WWW.SCHWAB.COM/SCHWABFUNDS.
PERFORMANCE OF A HYPOTHETICAL $50,000 INVESTMENT 1
This graph shows performance since inception of a hypothetical $50,000
investment (the minimum investment for this share class) in the fund's Select
Shares, compared with a similar investment in a benchmark.
$68,350 SELECT SHARES
$62,167 S&P 500(R) INDEX
[LINE GRAPH]
SELECT S&P 500(R)
SHARES INDEX
02-Sep-03 $50,000 $50,000
30-Sep-03 $49,500 $49,470
31-Oct-03 $53,000 $52,270
30-Nov-03 $54,250 $52,730
31-Dec-03 $57,085 $55,493
31-Jan-04 $57,795 $56,514
29-Feb-04 $59,255 $57,300
31-Mar-04 $59,300 $56,434
30-Apr-04 $58,335 $55,548
31-May-04 $59,100 $56,309
30-Jun-04 $60,140 $57,402
31-Jul-04 $59,525 $55,502
31-Aug-04 $61,165 $55,724
30-Sep-04 $61,530 $56,326
31-Oct-04 $62,045 $57,187
30-Nov-04 $64,875 $59,504
31-Dec-04 $66,640 $61,527
31-Jan-05 $65,480 $60,025
28-Feb-05 $67,375 $61,286
31-Mar-05 $66,885 $60,201
30-Apr-05 $66,095 $59,057
31-May-05 $67,360 $60,935
30-Jun-05 $67,815 $61,021
31-Jul-05 $70,100 $63,291
31-Aug-05 $69,620 $62,715
30-Sep-05 $70,115 $63,223
31-Oct-05 $68,350 $62,167
All figures on this page assume dividends and distributions were reinvested.
Index figures do not include trading and management costs, which would lower
performance. Indices are unmanaged, and you cannot invest in them directly.
1 Fund expenses have been partially absorbed by CSIM and Schwab. Without these
reductions, the fund's returns would have been lower. These returns do not
reflect the deduction of taxes that a shareholder would pay on fund
distributions or the redemption of fund shares.
2 Source for category information: Morningstar, Inc.
Schwab Active Equity Funds 15
SCHWAB DIVIDEND EQUITY FUND
FUND FACTS as of 10/31/05
STYLE ASSESSMENT 1
[GRAPHIC]
INVESTMENT STYLE
VALUE BLEND GROWTH
MARKET CAP
Large /X/ / / / /
Medium / / / / / /
Small / / / / / /
STATISTICS
NUMBER OF HOLDINGS 112
- --------------------------------------------------------------------------------
WEIGHTED AVERAGE MARKET CAP ($ x 1,000,000) $49,274
- --------------------------------------------------------------------------------
PRICE/EARNINGS RATIO (P/E) 15.8
- --------------------------------------------------------------------------------
PRICE/BOOK RATIO (P/B) 2.6
- --------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 26%
- --------------------------------------------------------------------------------
SEC YIELD 2
Investor Shares 1.84%
Select Shares 1.98%
- --------------------------------------------------------------------------------
SEC YIELD--NO WAIVER 3
Investor Shares 1.84%
Select Shares 1.98%
- --------------------------------------------------------------------------------
MINIMUM INITIAL INVESTMENT 4
Investor Shares $2,500
($1,000 for retirement, education and custodial accounts)
Select Shares $50,000
- --------------------------------------------------------------------------------
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.
TOP HOLDINGS 5
% OF
SECURITY NET ASSETS
- --------------------------------------------------------------------------------
(1) CHEVRONTEXACO CORP. 1.6%
- --------------------------------------------------------------------------------
(2) KELLOGG CO. 1.4%
- --------------------------------------------------------------------------------
(3) CONOCOPHILLIPS 1.4%
- --------------------------------------------------------------------------------
(4) PNC FINANCIAL SERVICES GROUP, INC. 1.4%
- --------------------------------------------------------------------------------
(5) ST. PAUL TRAVELERS COS., INC. 1.3%
- --------------------------------------------------------------------------------
(6) JPMORGAN CHASE & CO. 1.3%
- --------------------------------------------------------------------------------
(7) MARATHON OIL CORP. 1.3%
- --------------------------------------------------------------------------------
(8) HEWLETT-PACKARD CO. 1.3%
- --------------------------------------------------------------------------------
(9) MOTOROLA, INC. 1.3%
- --------------------------------------------------------------------------------
(10) ALTRIA GROUP, INC. 1.3%
- --------------------------------------------------------------------------------
TOTAL 13.6%
SECTOR WEIGHTINGS % of Investments
This chart shows the fund's sector composition as of the report date. A sector
is a portion of the overall stock market that is made up of industries whose
business components share similar characteristics.
[PIE CHART]
25.3% FINANCIALS
12.8% INDUSTRIALS
12.8% UTILITIES
12.2% CONSUMER STAPLES
8.3% INFORMATION TECHNOLOGY
6.7% HEALTH CARE
6.2% TELECOMMUNICATION SERVICES
5.5% ENERGY
5.5% CONSUMER DISCRETIONARY
4.4% MATERIAL
0.3% OTHER
Portfolio holdings may have changed since the report date.
Source of Sector Classification: S&P and MSCI.
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 10/31/05, which may have changed since then, and is not a
precise indication of risk or performance--past, present, or future.
2 Fund expenses have been partially absorbed by CSIM and Schwab. The yield does
not reflect the deduction of taxes that a shareholder would pay on fund
distributions or on the redemption of fund shares.
3 Yield if fund expenses had not been partially absorbed by CSIM and Schwab.
4 Please see prospectus for further detail and eligibility requirements.
5 This list is not a recommendation of any security by the investment adviser.
16 Schwab Active Equity Funds
Schwab Large-Cap Growth Fund(TM)
INVESTOR SHARES PERFORMANCE as of 10/31/05
TOTAL RETURNS 1, 2
This chart compares performance of the fund's Investor Shares with its benchmark
and Morningstar category.
[BAR CHART]
Fund:
INVESTOR
SHARES Fund Category:
Ticker Benchmark: MORNINGSTAR
Symbol: RUSSELL 1000(R) LARGE-CAP
SWLNX GROWTH INDEX GROWTH
Since Inception: 10/3/05 -2.70% -0.97% -1.15%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE DOES
NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL
FLUCTUATE SO THAT AN INVESTOR'S SHARES MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN PERFORMANCE DATA
QUOTED. TO OBTAIN PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH END,
PLEASE VISIT WWW.SCHWAB.COM/SCHWABFUNDS.
PERFORMANCE OF A HYPOTHETICAL $10,000 INVESTMENT 1
This graph shows performance since inception of a hypothetical $10,000
investment in the fund's Investor Shares, compared with a similar investment in
its benchmark.
$9,730 INVESTOR SHARES
$9,903 RUSSELL 1000(R) GROWTH INDEX
$9,833 S&P 500(R) INDEX
[LINE GRAPH]
INVESTOR RUSSELL 1000(R)
SHARES GROWTH INDEX S&P 500(R) Index
03-Oct-05 $10,000 $10,000 $10,000
31-Oct-05 $9,730 $9,903 $9,833
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.
Performance results less than one year are not annualized.
1 Fund expenses have been partially absorbed by CSIM and Schwab. Without these
reductions, the fund's returns would have been lower. These returns do not
reflect the deduction of taxes that a shareholder would pay on fund
distributions or the redemption of fund shares.
2 Source for category information: Morningstar, Inc.
Schwab Active Equity Funds 17
SCHWAB LARGE-CAP GROWTH FUND
SELECT SHARES(R) PERFORMANCE as of 10/31/05
TOTAL RETURNS 1, 2
This chart compares performance of the fund's Select Shares with its benchmark
and Morningstar category.
[BAR CHART]
Fund:
SELECT
SHARES
Ticker Benchmark: Fund Category:
Symbol: RUSSELL 1000(R) MORNINGSTAR
SWLSX GROWTH INDEX LARGE-CAP GROWTH
SINCE INCEPTION: 10/3/05 -2.70% -0.97% -1.15%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE DOES
NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL
FLUCTUATE SO THAT AN INVESTOR'S SHARES MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN PERFORMANCE DATA
QUOTED. TO OBTAIN PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH END,
PLEASE VISIT WWW.SCHWAB.COM/SCHWABFUNDS.
PERFORMANCE OF A HYPOTHETICAL $50,000 INVESTMENT 1
This graph shows performance since inception of a hypothetical $50,000
investment (the minimum investment for this share class) in the fund's Select
Shares, compared with a similar investment in its benchmark.
$48,650 SELECT SHARES
$49,515 RUSSELL 1000(R) GROWTH INDEX
$49,166 S&P 500(R) INDEX
[LINE GRAPH]
SELECT RUSSELL 1000(R) S&P 500(R)
SHARES GROWTH INDEX INDEX
03-Oct-05 $50,000 $50,000 $50,000
31-Oct-05 $48,650 $49,515 $49,166
All figures on this page assume dividends and distributions were reinvested.
Index figures do not include trading and management costs, which would lower
performance. Indices are unmanaged, and you cannot invest in them directly.
Performance results less than one year are not annualized.
1 Fund expenses have been partially absorbed by CSIM and Schwab. Without these
reductions, the fund's returns would have been lower. These returns do not
reflect the deduction of taxes that a shareholder would pay on fund
distributions or the redemption of fund shares.
2 Source for category information: Morningstar, Inc.
18 Schwab Active Equity Funds
SCHWAB LARGE-CAP GROWTH FUND
FUND FACTS as of 10/31/05
STYLE ASSESSMENT 1
[GRAPHIC]
INVESTMENT STYLE
VALUE BLEND GROWTH
MARKET CAP
Large / / / / /X/
Medium / / / / / /
Small / / / / / /
STATISTICS
NUMBER OF HOLDINGS 60
- --------------------------------------------------------------------------------
WEIGHTED AVERAGE MARKET CAP ($ x 1,000,000) $74,362
- --------------------------------------------------------------------------------
PRICE/EARNINGS RATIO (P/E) 21.4
- --------------------------------------------------------------------------------
PRICE/BOOK RATIO (P/B) 4.2
- --------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 2 4%
- --------------------------------------------------------------------------------
MINIMUM INITIAL INVESTMENT 3
Investor Shares $2,500
($1,000 for retirement, education and custodial accounts)
Select Shares $50,000
- --------------------------------------------------------------------------------
TOP HOLDINGS 4
% OF
SECURITY NET ASSETS
- --------------------------------------------------------------------------------
(1) JOHNSON & JOHNSON 4.4%
- --------------------------------------------------------------------------------
(2) INTEL CORP. 3.8%
- --------------------------------------------------------------------------------
(3) PFIZER, INC. 3.5%
- --------------------------------------------------------------------------------
(4) EXXON MOBIL CORP. 3.4%
- --------------------------------------------------------------------------------
(5) INTERNATIONAL BUSINESS MACHINES CORP. 3.2%
- --------------------------------------------------------------------------------
(6) HEWLETT-PACKARD CO. 3.2%
- --------------------------------------------------------------------------------
(7) GENERAL DYNAMICS CORP. 3.1%
- --------------------------------------------------------------------------------
(8) UNITEDHEALTH GROUP, INC. 2.6%
- --------------------------------------------------------------------------------
(9) QUALCOMM, INC. 2.3%
- --------------------------------------------------------------------------------
(10) COCA-COLA CO. 2.3%
- --------------------------------------------------------------------------------
TOTAL 31.8%
SECTOR WEIGHTINGS % of investments
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]
28.1% INFORMATION TECHNOLOGY
22.5% HEALTH CARE
12.2% FINANCIALS
11.7% INDUSTRIALS
10.2% CONSUMER DISCRETIONARY
6.2% ENERGY
5.6% CONSUMER STAPLES
1.7% MATERIAL
1.1% UTILITIES
0.7% OTHER
Portfolio holdings may have changed since the report date.
Source of Sector Classification: S&P and MSCI.
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 10/31/05, which may have changed since then, and is not a
precise indication of risk or performance--past, present, or future.
2 Not annualized.
3 Please see prospectus for further detail and eligibility requirements.
4 This list is not a recommendation of any security by the investment adviser.
Schwab Active Equity Funds 19
SCHWAB SMALL-CAP EQUITY FUND(TM)
INVESTOR SHARES PERFORMANCE as of 10/31/05
AVERAGE ANNUAL TOTAL RETURNS 1, 2
This chart compares performance of the fund's Investor Shares with its benchmark
and Morningstar category.
[BAR CHART]
Fund: Fund
INVESTOR Category:
Ticker Benchmark: MORNINGSTAR
Symbol: S&P SMALLCAP SMALL-CAP
SWSIX 600 INDEX BLEND
1 YEAR 23.65 15.27 13.72
SINCE INCEPTION: 7/1/03 27.88 21.14 19.12
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE DOES
NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL
FLUCTUATE SO THAT AN INVESTOR'S SHARES MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN PERFORMANCE DATA
QUOTED. TO OBTAIN PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH END,
PLEASE VISIT WWW.SCHWAB.COM/SCHWABFUNDS.
PERFORMANCE OF A HYPOTHETICAL $10,000 INVESTMENT 1
This graph shows performance since inception of a hypothetical $10,000
investment in the fund's Investor Shares, compared with a similar investment in
its benchmark.
$17,778 INVESTOR SHARES
$15,663 S&P SMALLCAP 600 INDEX
[LINE GRAPH]
INVESTOR SHARES S&P SMALLCAP 600 INDEX
01-Jul-03 $10,000 $10,000
31-Jul-03 $10,590 $10,520
31-Aug-03 $10,920 $11,032
30-Sep-03 $10,800 $10,708
31-Oct-03 $11,810 $11,636
30-Nov-03 $12,370 $12,076
31-Dec-03 $12,749 $12,290
31-Jan-04 $13,238 $12,644
29-Feb-04 $13,523 $12,887
31-Mar-04 $13,706 $13,054
30-Apr-04 $13,238 $12,621
31-May-04 $13,289 $12,814
30-Jun-04 $14,194 $13,524
31-Jul-04 $13,472 $12,783
31-Aug-04 $13,279 $12,670
30-Sep-04 $13,981 $13,338
31-Oct-04 $14,377 $13,587
30-Nov-04 $15,558 $14,749
31-Dec-04 $15,810 $15,074
31-Jan-05 $15,539 $14,733
28-Feb-05 $15,969 $15,156
31-Mar-05 $15,957 $14,763
30-Apr-05 $14,872 $13,938
31-May-05 $16,161 $14,861
30-Jun-05 $16,885 $15,344
31-Jul-05 $17,982 $16,267
31-Aug-05 $17,835 $16,028
30-Sep-05 $17,869 $16,169
31-Oct-05 $17,778 $15,663
All figures on this page assume dividends and distributions were reinvested.
Index figures do not include trading and management costs, which would lower
performance. Indices are unmanaged, and you cannot invest in them directly.
1 Fund expenses have been partially absorbed by CSIM and Schwab. Without these
reductions, the fund's returns would have been lower. These returns do not
reflect the deduction of taxes that a shareholder would pay on fund
distributions or the redemption of fund shares.
2 Source for category information: Morningstar, Inc.
20 Schwab Active Equity Funds
SCHWAB SMALL-CAP EQUITY FUND
SELECT SHARES(R) PERFORMANCE as of 10/31/05
AVERAGE ANNUAL TOTAL RETURNS 1, 2
This chart compares performance of the fund's Select Shares with its benchmark
and Morningstar category.
[BAR CHART]
Fund:
SELECT
SHARES Benchmark: Fund Category:
Ticker Symbol: S&P SMALLCAP MORNINGSTAR
SWSCX 600 INDEX SMALL-CAP BLEND
1 Year 23.83% 15.27% 13.72%
Since Inception: 7/1/03 28.07% 21.14% 19.12%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE DOES
NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL
FLUCTUATE SO THAT AN INVESTOR'S SHARES MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN PERFORMANCE DATA
QUOTED. TO OBTAIN PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH END,
PLEASE VISIT WWW.SCHWAB.COM/SCHWABFUNDS.
PERFORMANCE OF A HYPOTHETICAL $50,000 INVESTMENT 1
This graph shows performance since inception of a hypothetical $50,000
investment (the minimum investment for this share class) in the fund's Select
Shares, compared with a similar investment in its benchmark.
$89,205 SELECT SHARES
$78,315 S&P SMALLCAP 600 INDEX
[LINE GRAPH]
SELECT SHARES S&P SMALLCAP 600 INDEX
01-Jul-03 $50,000 $50,000
31-Jul-03 $52,950 $52,600
31-Aug-03 $54,600 $55,162
30-Sep-03 $54,000 $53,540
31-Oct-03 $59,050 $58,182
30-Nov-03 $61,900 $60,381
31-Dec-03 $63,800 $61,450
31-Jan-04 $66,240 $63,220
29-Feb-04 $67,665 $64,433
31-Mar-04 $68,580 $65,271
30-Apr-04 $66,240 $63,104
31-May-04 $66,545 $64,069
30-Jun-04 $71,075 $67,619
31-Jul-04 $67,460 $63,913
31-Aug-04 $66,495 $63,351
30-Sep-04 $70,055 $66,690
31-Oct-04 $72,040 $67,937
30-Nov-04 $77,940 $73,745
31-Dec-04 $79,255 $75,368
31-Jan-05 $77,840 $73,664
28-Feb-05 $80,045 $75,779
31-Mar-05 $79,990 $73,816
30-Apr-05 $74,560 $69,690
31-May-05 $81,065 $74,303
30-Jun-05 $84,680 $76,718
31-Jul-05 $90,220 $81,336
31-Aug-05 $89,485 $80,141
30-Sep-05 $89,655 $80,846
31-Oct-05 $89,205 $78,315
All figures on this page assume dividends and distributions were reinvested.
Index figures do not include trading and management costs, which would lower
performance. Indices are unmanaged, and you cannot invest in them directly.
1 Fund expenses have been partially absorbed by CSIM and Schwab. Without these
reductions, the fund's returns would have been lower. These returns do not
reflect the deduction of taxes that a shareholder would pay on fund
distributions or the redemption of fund shares.
2 Source for category information: Morningstar, Inc.
Schwab Active Equity Funds 21
SCHWAB SMALL-CAP EQUITY FUND
FUND FACTS as of 10/31/05
STYLE ASSESSMENT 1
[GRAPHIC]
INVESTMENT STYLE
VALUE BLEND GROWTH
MARKET CAP
Large / / / / / /
Medium / / / / / /
Small / / /X/ / /
STATISTICS
NUMBER OF HOLDINGS 131
- --------------------------------------------------------------------------------
WEIGHTED AVERAGE MARKET CAP ($ x 1,000,000) $1,628
- --------------------------------------------------------------------------------
PRICE/EARNINGS RATIO (P/E) 22.1
- --------------------------------------------------------------------------------
PRICE/BOOK RATIO (P/B) 2.3
- --------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 90%
- --------------------------------------------------------------------------------
MINIMUM INITIAL INVESTMENT 2
Investor Shares $2,500
($1,000 for retirement, education and custodial accounts)
Select Shares $50,000
- --------------------------------------------------------------------------------
TOP HOLDINGS 3
% OF
SECURITY NET ASSETS
(1) THOMAS & BETTS CORP. 3.1%
- --------------------------------------------------------------------------------
(2) SIERRA HEALTH SERVICES, INC. 3.0%
- --------------------------------------------------------------------------------
(3) INVESTMENT TECHNOLOGY GROUP, INC. 2.8%
- --------------------------------------------------------------------------------
(4) BANK OF HAWAII CORP. 2.8%
- --------------------------------------------------------------------------------
(5) CROWN HOLDINGS, INC. 2.8%
- --------------------------------------------------------------------------------
(6) HELMERICH & PAYNE, INC. 2.7%
- --------------------------------------------------------------------------------
(7) VECTOR GROUP LTD. 2.5%
- --------------------------------------------------------------------------------
(8) TRW AUTOMOTIVE HOLDINGS CORP. 2.4%
- --------------------------------------------------------------------------------
(9) GATX CORP. 2.4%
- --------------------------------------------------------------------------------
(10) JOHN WILEY & SONS, CLASS A 2.2%
- --------------------------------------------------------------------------------
TOTAL 26.7%
SECTOR WEIGHTINGS % of Investments
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]
18.6% INFORMATION TECHNOLOGY
15.5% INDUSTRIALS
15.2% FINANCIALS
14.4% CONSUMER DISCRETIONARY
12.0% HEALTH CARE
7.0% MATERIAL
6.0% ENERGY
5.9% CONSUMER STAPLES
2.0% TELECOMMUNICATION SERVICES
0.5% UTILITIES
2.9% OTHER
Portfolio holdings may have changed since the report date.
Source of Sector Classification: S&P and MSCI.
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 10/31/05, 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.
22 Schwab Active Equity Funds
SCHWAB HEDGED EQUITY FUND(TM)
INVESTOR SHARES PERFORMANCE as of 10/31/05
TOTAL RETURNS 1, 2
This chart compares performance of the fund's Investor Shares with its benchmark
and Morningstar category.
[BAR CHART]
Fund:
INVESTOR Fund
SHARES Category:
Ticker Benchmark: MORNINGSTAR
Symbol: S&P 500(R) MODERATE
SWHIX INDEX ALLOCATION
SINCE INCEPTION: 3/1/05 6.96% 1.44% 1.79%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE DOES
NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL
FLUCTUATE SO THAT AN INVESTOR'S SHARES MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN PERFORMANCE DATA
QUOTED. TO OBTAIN PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH END,
PLEASE VISIT WWW.SCHWAB.COM/SCHWABFUNDS.
PERFORMANCE OF A HYPOTHETICAL $10,000 INVESTMENT 1
This graph shows performance since inception of a hypothetical $10,000
investment in the fund's Investor Shares, compared with a similar investment in
its benchmark.
$10,696 INVESTOR SHARES
$10,144 S&P 500(R) INDEX
[LINE GRAPH]
INVESTOR SHARES S&P 500(R) INDEX
01-Mar-05 $10,000 $10,000
31-Mar-05 $9,985 $9,823
30-Apr-05 $10,030 $9,636
31-May-05 $10,259 $9,943
30-Jun-05 $10,311 $9,957
31-Jul-05 $10,607 $10,327
31-Aug-05 $10,548 $10,233
30-Sep-05 $10,688 $10,316
31-Oct-05 $10,696 $10,144
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.
Performance results less than one year are not annualized.
1 Fund expenses have been partially absorbed by CSIM and Schwab. Without these
reductions, the fund's returns would have been lower. These returns do not
reflect the deduction of taxes that a shareholder would pay on fund
distributions or the redemption of fund shares.
2 Source for category information: Morningstar, Inc.
Schwab Active Equity Funds 23
SCHWAB HEDGED EQUITY FUND
SELECT SHARES(R) PERFORMANCE as of 10/31/05
AVERAGE ANNUAL TOTAL RETURNS 1, 2
This chart compares performance of the fund with a benchmark and the fund's
Morningstar category.
[BAR CHART]
Fund:
SELECT Fund Category:
SHARES Benchmark: MORNINGSTAR
Ticker Symbol: S&P 500(R) MODERATE
SWHEX INDEX ALLOCATION
1 Year 16.52% 8.72% 7.62%
3 Years 15.48% 12.84% 10.43%
Since Inception: 9/3/02 14.01% 11.02% 9%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE DOES
NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL
FLUCTUATE SO THAT AN INVESTOR'S SHARES MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN PERFORMANCE DATA
QUOTED. TO OBTAIN PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH END,
PLEASE VISIT WWW.SCHWAB.COM/SCHWABFUNDS.
PERFORMANCE OF A HYPOTHETICAL $50,000 INVESTMENT 1
This graph shows performance since inception of a hypothetical $50,000
investment (the minimum investment for this share class) in the fund's Select
Shares, compared with a similar investment in its benchmark.
$75,800 SELECT SHARES
$69,674 S&P 500(R) INDEX
[LINE GRAPH]
SELECT SHARES S&P 500(R) INDEX
03-Sep-02 $50,000 $50,000
30-Sep-02 $47,700 $44,565
31-Oct-02 $49,200 $48,487
30-Nov-02 $49,400 $51,343
31-Dec-02 $48,750 $48,329
31-Jan-03 $48,100 $47,063
28-Feb-03 $47,700 $46,357
31-Mar-03 $48,550 $46,806
30-Apr-03 $50,450 $50,663
31-May-03 $52,250 $53,333
30-Jun-03 $52,850 $54,016
31-Jul-03 $53,500 $54,966
31-Aug-03 $54,200 $56,038
30-Sep-03 $53,950 $55,444
31-Oct-03 $57,650 $58,582
30-Nov-03 $58,800 $59,098
31-Dec-03 $59,900 $62,195
31-Jan-04 $61,100 $63,339
29-Feb-04 $62,150 $64,219
31-Mar-04 $62,650 $63,250
30-Apr-04 $61,100 $62,257
31-May-04 $62,000 $63,110
30-Jun-04 $64,050 $64,334
31-Jul-04 $62,250 $62,204
31-Aug-04 $61,700 $62,453
30-Sep-04 $63,750 $63,128
31-Oct-04 $65,050 $64,094
30-Nov-04 $68,750 $66,689
31-Dec-04 $70,350 $68,957
31-Jan-05 $69,350 $67,274
28-Feb-05 $70,820 $68,687
31-Mar-05 $70,660 $67,471
30-Apr-05 $71,030 $66,189
31-May-05 $72,600 $68,294
30-Jun-05 $72,970 $68,390
31-Jul-05 $75,120 $70,934
31-Aug-05 $74,700 $70,288
30-Sep-05 $75,745 $70,858
31-Oct-05 $75,800 $69,674
All figures on this page assume dividends and distributions were reinvested.
Index figures do not include trading and management costs, which would lower
performance. Indices are unmanaged, and you cannot invest in them directly.
1 Fund expenses have been partially absorbed by CSIM and Schwab. Without these
reductions, the fund's returns would have been lower. These returns do not
reflect the deduction of taxes that a shareholder would pay on fund
distributions or the redemption of fund shares.
2 Source for category information: Morningstar, Inc.
24 Schwab Active Equity Funds
SCHWAB HEDGED EQUITY FUND
FUND FACTS as of 10/31/05
TOP LONG HOLDINGS 1
% OF
SECURITY NET ASSETS
- --------------------------------------------------------------------------------
(1) CROWN HOLDINGS, INC. 3.3%
- --------------------------------------------------------------------------------
(2) KERR-MCGEE CORP. 3.2%
- --------------------------------------------------------------------------------
(3) AON CORP. 3.1%
- --------------------------------------------------------------------------------
(4) LOEWS CORP. 3.1%
- --------------------------------------------------------------------------------
(5) HEWLETT PACKARD CO. 3.0%
- --------------------------------------------------------------------------------
TOTAL 15.7%
TOP SHORT POSITIONS 1
% OF
SECURITY NET ASSETS
- --------------------------------------------------------------------------------
(1) PAR PHARMACEUTICAL COS., INC. 1.9%
- --------------------------------------------------------------------------------
(2) WERNER ENTERPRISES, INC. 1.6%
- --------------------------------------------------------------------------------
(3) MARTEK BIOSCIENCES CORP. 1.6%
- --------------------------------------------------------------------------------
(4) ACCREDITED HOME LENDERS HOLDING CO. 1.6%
- --------------------------------------------------------------------------------
(5) TITANIUM METALS CORP. 1.5%
- --------------------------------------------------------------------------------
TOTAL 8.2%
STATISTICS
NUMBER OF HOLDINGS
Long Holdings 133
Short Positions 55
- --------------------------------------------------------------------------------
WEIGHTED AVERAGE MARKET CAP ($ x 1,000,000)
Long Holdings $27,974
Short Positions $3,492
- --------------------------------------------------------------------------------
PRICE/EARNINGS RATIO (P/E)
Long Holdings 19.3
Short Positions 33.9
- --------------------------------------------------------------------------------
PRICE/BOOK RATIO (P/B)
Long Holdings 2.4
Short Positions 2.6
- --------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 2 87%
- --------------------------------------------------------------------------------
MINIMUM INITIAL INVESTMENT 3
Investor Shares $2,500
($1,000 for retirement, education and custodial
accounts)
Select Shares $50,000
- --------------------------------------------------------------------------------
Portfolio holdings may have changed since the report date.
Source of Sector Classification: S&P and MSCI.
1 This list is not a recommendation of any security by the investment adviser.
2 Short positions have been excluded from the calculation of portfolio turnover
because at the time of entering into the short positions, the fund did not
intend to hold the positions for more than one year.
3 Please see prospectus for further detail and eligibility requirements.
Schwab Active Equity Funds 25
SCHWAB FINANCIAL SERVICES FUND(TM)
PERFORMANCE as of 10/31/05
AVERAGE ANNUAL TOTAL RETURNS 1, 2
This chart compares performance of the fund with a benchmark and the fund's
Morningstar category.
[BAR CHART]
Benchmark:
FUND S&P 1500 Fund Category:
Ticker SUPERCOMPOSITE MORNINGSTAR
Symbol: FINANCIALS FINANCIAL
SWFFX SECTOR INDEX SERVICES
1 YEAR 18.62% 9.34% 8.97%
5 YEARS 7.23% 4.2% 7.38%
SINCE INCEPTION: 7/3/00 10.23% 8.09% 11.21%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE DOES
NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL
FLUCTUATE SO THAT AN INVESTOR'S SHARES MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN PERFORMANCE DATA
QUOTED. TO OBTAIN PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH END,
PLEASE VISIT WWW.SCHWAB.COM/SCHWABFUNDS.
PERFORMANCE OF A HYPOTHETICAL $10,000 INVESTMENT 1
This graph shows performance since inception of a hypothetical $10,000
investment in the fund, compared with a similar investment in a benchmark and an
additional index.
$16,818 FUND
$15,148 S&P 1500 SUPERCOMPOSITE FINANCIALS SECTOR INDEX
$9,035 S&P 500(R) INDEX
[LINE GRAPH]
S&P 1500
SUPERCOMPOSITE
FINANCIALS
FUND SECTOR INDEX S&P 500(R) INDEX
03-Jul-00 $10,000 $10,000 $10,000
31-Jul-00 $10,770 $11,015 $9,844
31-Aug-00 $11,830 $12,059 $10,455
30-Sep-00 $12,050 $12,376 $9,903
31-Oct-00 $11,860 $12,328 $9,862
30-Nov-00 $11,200 $11,627 $9,085
31-Dec-00 $12,136 $12,761 $9,129
31-Jan-01 $11,928 $12,692 $9,453
28-Feb-01 $11,501 $11,898 $8,591
31-Mar-01 $11,023 $11,528 $8,046
30-Apr-01 $11,637 $11,970 $8,672
31-May-01 $12,032 $12,447 $8,730
30-Jun-01 $12,094 $12,479 $8,518
31-Jul-01 $11,761 $12,325 $8,434
31-Aug-01 $11,096 $11,582 $7,906
30-Sep-01 $10,368 $10,916 $7,267
31-Oct-01 $10,139 $10,685 $7,406
30-Nov-01 $10,805 $11,442 $7,974
31-Dec-01 $11,172 $11,736 $8,044
31-Jan-02 $10,919 $11,577 $7,927
28-Feb-02 $10,982 $11,457 $7,774
31-Mar-02 $11,499 $12,195 $8,066
30-Apr-02 $11,351 $11,936 $7,577
31-May-02 $11,362 $11,913 $7,521
30-Jun-02 $10,866 $11,347 $6,986
31-Jul-02 $10,433 $10,471 $6,442
31-Aug-02 $10,549 $10,689 $6,484
30-Sep-02 $9,378 $ 9,455 $5,779
31-Oct-02 $9,959 $10,256 $6,287
30-Nov-02 $10,212 $10,664 $6,658
31-Dec-02 $9,786 $10,125 $6,267
31-Jan-03 $9,593 $ 9,951 $6,103
28-Feb-03 $9,379 $ 9,649 $6,011
31-Mar-03 $9,464 $ 9,613 $6,069
30-Apr-03 $10,558 $10,747 $6,570
31-May-03 $11,051 $11,332 $6,916
30-Jun-03 $11,136 $11,367 $7,004
31-Jul-03 $11,458 $11,893 $7,128
31-Aug-03 $11,447 $11,800 $7,267
30-Sep-03 $11,597 $11,878 $7,190
31-Oct-03 $12,615 $12,706 $7,596
30-Nov-03 $13,001 $12,720 $7,663
31-Dec-03 $13,260 $13,311 $8,065
31-Jan-04 $13,844 $13,729 $8,213
29-Feb-04 $14,146 $14,111 $8,327
31-Mar-04 $14,071 $13,990 $8,202
30-Apr-04 $13,206 $13,308 $8,073
31-May-04 $13,379 $13,579 $8,183
30-Jun-04 $13,573 $13,657 $8,342
31-Jul-04 $13,379 $13,379 $8,066
31-Aug-04 $13,822 $13,844 $8,098
30-Sep-04 $14,049 $13,755 $8,186
31-Oct-04 $14,179 $13,854 $8,311
30-Nov-04 $14,881 $14,303 $8,648
31-Dec-04 $15,559 $14,898 $8,942
31-Jan-05 $15,011 $14,527 $8,724
28-Feb-05 $14,941 $14,466 $8,907
31-Mar-05 $14,567 $13,951 $8,749
30-Apr-05 $14,637 $13,932 $8,583
31-May-05 $15,221 $14,347 $8,856
30-Jun-05 $15,769 $14,595 $8,868
31-Jul-05 $16,352 $14,877 $9,198
31-Aug-05 $16,224 $14,605 $9,114
30-Sep-05 $16,480 $14,724 $9,188
31-Oct-05 $16,818 $15,148 $9,035
All figures on this page assume dividends and distributions were reinvested.
Index figures do not include trading and management costs, which would lower
performance. Indices are unmanaged, and you cannot invest in them directly.
1 Fund expenses have been partially absorbed by CSIM and Schwab. Without these
reductions, the fund's returns would have been lower. These returns do not
reflect the deduction of taxes that a shareholder would pay on fund
distributions or the redemption of fund shares.
2 Source for category information: Morningstar, Inc.
26 Schwab Active Equity Funds
,
SCHWAB FINANCIAL SERVICES FUND
FUND FACTS as of 10/31/05
TOP HOLDINGS 1
% of
Security Net Assets
- --------------------------------------------------------------------------------
(1) COMERICA, INC. 5.9%
- --------------------------------------------------------------------------------
(2) PRINCIPAL FINANCIAL GROUP, INC. 5.4%
- --------------------------------------------------------------------------------
(3) METLIFE, INC. 5.0%
- --------------------------------------------------------------------------------
(4) UNIONBANCAL CORP. 4.9%
- --------------------------------------------------------------------------------
(5) PRUDENTIAL FINANCIAL, INC. 4.8%
- --------------------------------------------------------------------------------
(6) AFLAC, INC. 4.7%
- --------------------------------------------------------------------------------
(7) NORTHERN TRUST CORP. 4.7%
- --------------------------------------------------------------------------------
(8) FRANKLIN RESOURCES, INC. 4.7%
- --------------------------------------------------------------------------------
(9) BANK OF HAWAII CORP. 4.6%
- --------------------------------------------------------------------------------
(10) KEYCORP, INC. 4.6%
- --------------------------------------------------------------------------------
TOTAL 49.3%
STATISTICS
NUMBER OF HOLDINGS 42
- --------------------------------------------------------------------------------
WEIGHTED AVERAGE MARKET CAP ($ x 1,000,000) $16,938
- --------------------------------------------------------------------------------
PRICE/EARNINGS RATIO (P/E) 14.5
- --------------------------------------------------------------------------------
PRICE/BOOK RATIO (P/B) 2.2
- --------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 74%
- --------------------------------------------------------------------------------
MINIMUM INITIAL INVESTMENT 2 $2,500
($1,000 for retirement, education and custodial accounts)
- --------------------------------------------------------------------------------
INDUSTRY WEIGHTINGS % of investments
This chart shows the fund's industry composition as of the report date.
[PIE CHART]
37.8% DIVERSIFIED FINANCIALS
29.8% BANKS
29.1% INSURANCE
2.3% REAL ESTATE
1.0% OTHER
Portfolio holdings may have changed since the report date.
Source of Sector Classification: S&P and MSCI.
1 This list is not a recommendation of any security by the investment adviser.
2 Please see prospectus for further detail and eligibility requirements.
Schwab Active Equity Funds 27
SCHWAB HEALTH CARE FUND(TM)
PERFORMANCE as of 10/31/05
AVERAGE ANNUAL TOTAL RETURNS 1, 2
This chart compares performance of the fund with a benchmark and the fund's
Morningstar category.
[BAR CHART]
Benchmark:
FUND S&P 1500
Ticker SUPERCOMPOSITE Fund Category:
Symbol: HEALTH CARE MORNINGSTAR
SWHFX SECTOR INDEX HEALTH CARE
1 Year 30.15% 11.02% 15.21%
5 Years 6.89% -0.80% -0.57%
Since Inception 6.98% 0.08% 0.95%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE DOES
NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL
FLUCTUATE SO THAT AN INVESTOR'S SHARES MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN PERFORMANCE DATA
QUOTED. TO OBTAIN PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH END,
PLEASE VISIT WWW.SCHWAB.COM/SCHWABFUNDS.
PERFORMANCE OF A HYPOTHETICAL $10,000 INVESTMENT 1
This graph shows performance since inception of a hypothetical $10,000
investment in the fund, compared with a similar investment in a benchmark and an
additional index.
$14,334 FUND
$10,041 S&P 1500 SUPERCOMPOSITE HEALTH CARE SECTOR INDEX
$9,035 S&P 500(R) INDEX
[LINE GRAPH]
S&P 1500
SUPERCOMPOSITE
HEALTH CARE S&P 500(R)
FUND SECTOR INDEX INDEX
03-Jul-00 $10,000 $10,000 $10,000
31-Jul-00 $9,450 $9,489 $9,844
31-Aug-00 $9,820 $9,669 $10,455
30-Sep-00 $10,160 $10,146 $9,903
31-Oct-00 $10,270 $10,451 $9,862
30-Nov-00 $10,460 $10,793 $9,085
31-Dec-00 $10,905 $11,158 $9,129
31-Jan-01 $9,848 $10,230 $9,453
28-Feb-01 $9,797 $10,234 $8,591
31-Mar-01 $8,892 $9,447 $8,046
30-Apr-01 $9,268 $9,792 $8,672
31-May-01 $9,492 $9,949 $8,730
30-Jun-01 $9,278 $9,605 $8,518
31-Jul-01 $9,594 $10,019 $8,434
31-Aug-01 $9,258 $9,700 $7,906
30-Sep-01 $9,228 $9,729 $7,267
31-Oct-01 $9,146 $9,706 $7,406
30-Nov-01 $9,624 $10,180 $7,974
31-Dec-01 $9,335 $9,918 $8,044
31-Jan-02 $9,111 $9,786 $7,927
28-Feb-02 $8,989 $9,799 $7,774
31-Mar-02 $9,101 $9,868 $8,066
30-Apr-02 $8,582 $9,318 $7,577
31-May-02 $8,389 $9,122 $7,521
30-Jun-02 $7,657 $8,292 $6,986
31-Jul-02 $7,291 $8,088 $6,442
31-Aug-02 $7,433 $8,181 $6,484
30-Sep-02 $6,986 $7,701 $5,779
31-Oct-02 $7,240 $8,127 $6,287
30-Nov-02 $7,342 $8,313 $6,658
31-Dec-02 $7,060 $8,037 $6,267
31-Jan-03 $7,009 $8,013 $6,103
28-Feb-03 $6,825 $7,855 $6,011
31-Mar-03 $7,080 $8,138 $6,069
30-Apr-03 $7,377 $8,423 $6,570
31-May-03 $7,560 $8,651 $6,916
30-Jun-03 $8,030 $9,018 $7,004
31-Jul-03 $8,245 $8,966 $7,128
31-Aug-03 $8,173 $8,675 $7,267
30-Sep-03 $8,276 $8,705 $7,190
31-Oct-03 $8,613 $8,810 $7,596
30-Nov-03 $9,287 $8,978 $7,663
31-Dec-03 $9,655 $9,455 $8,065
31-Jan-04 $10,288 $9,736 $8,213
29-Feb-04 $10,513 $9,822 $8,327
31-Mar-04 $10,871 $9,483 $8,202
30-Apr-04 $10,820 $9,744 $8,073
31-May-04 $10,861 $9,740 $8,183
30-Jun-04 $11,085 $9,748 $8,342
31-Jul-04 $10,452 $9,200 $8,066
31-Aug-04 $10,585 $9,353 $8,098
30-Sep-04 $10,983 $9,226 $8,186
31-Oct-04 $11,014 $9,043 $8,311
30-Nov-04 $11,913 $9,244 $8,648
31-Dec-04 $12,648 $9,771 $8,942
31-Jan-05 $12,597 $9,492 $8,724
28-Feb-05 $12,791 $9,780 $8,907
31-Mar-05 $12,751 $9,738 $8,749
30-Apr-05 $12,873 $10,031 $8,583
31-May-05 $13,384 $10,159 $8,856
30-Jun-05 $13,864 $10,157 $8,868
31-Jul-05 $14,130 $10,395 $9,198
31-Aug-05 $14,334 $10,390 $9,114
30-Sep-05 $14,569 $10,346 $9,188
31-Oct-05 $14,334 $10,041 $9,035
All figures on this page assume dividends and distributions were reinvested.
Index figures do not include trading and management costs, which would lower
performance. Indices are unmanaged, and you cannot invest in them directly.
1 Fund expenses have been partially absorbed by CSIM and Schwab. Without these
reductions, the fund's returns would have been lower. These returns do not
reflect the deduction of taxes that a shareholder would pay on fund
distributions or the redemption of fund shares.
2 Source for category information: Morningstar, Inc.
28 Schwab Active Equity Funds
SCHWAB HEALTH CARE FUND
FUND FACTS as of 10/31/05
TOP HOLDINGS 1
% of
Security Net Assets
- --------------------------------------------------------------------------------
(1) EXPRESS SCRIPTS, INC. 4.2%
- --------------------------------------------------------------------------------
(2) AMERICOURCEBERGEN CORP. 4.0%
- --------------------------------------------------------------------------------
(3) MCKESSON CORP. 4.0%
- --------------------------------------------------------------------------------
(4) CIGNA CORP. 3.9%
- --------------------------------------------------------------------------------
(5) BAXTER INTERNATIONAL, INC. 3.9%
- --------------------------------------------------------------------------------
(6) UNITEDHEALTH GROUP, INC. 3.7%
- --------------------------------------------------------------------------------
(7) CARDINAL HEALTH, INC. 3.7%
- --------------------------------------------------------------------------------
(8) PFIZER, INC. 3.5%
- --------------------------------------------------------------------------------
(9) BECTON DICKINSON & CO. 3.4%
- --------------------------------------------------------------------------------
(10) JOHNSON & JOHNSON 3.4%
- --------------------------------------------------------------------------------
TOTAL 37.7%
STATISTICS
NUMBER OF HOLDINGS 49
- --------------------------------------------------------------------------------
WEIGHTED AVERAGE MARKET CAP ($ x 1,000,000) $29,393
- --------------------------------------------------------------------------------
PRICE/EARNINGS RATIO (P/E) 33.7
- --------------------------------------------------------------------------------
PRICE/BOOK RATIO (P/B) 3.4
- --------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 42%
- --------------------------------------------------------------------------------
MINIMUM INITIAL INVESTMENT 2 $2,500
($1,000 for retirement, education and custodial accounts)
- --------------------------------------------------------------------------------
INDUSTRY WEIGHTINGS % of investments
This chart shows the fund's industry composition as of the report date.
[PIE CHART]
67.9% HEALTH CARE EQUIPMENT & SERVICES
31.5% PHARMACEUTICALS & BIOTECHNOLOGY
0.6% OTHER
Portfolio holdings may have changed since the report date.
Source of Sector Classification: S&P and MSCI.
1 This list is not a recommendation of any security by the investment adviser.
2 Please see prospectus for further detail and eligibility requirements.
Schwab Active Equity Funds 29
SCHWAB TECHNOLOGY FUND(TM)
PERFORMANCE as of 10/31/05
AVERAGE ANNUAL TOTAL RETURNS 1, 2
This chart compares performance of the fund with a benchmark and the fund's
Morningstar category.
[BAR CHART]
Benchmark:
FUND S&P 500
Ticker SUPERCOMPOSITE Fund Category:
Symbol: TECHNOLOGY MORNINGSTAR
SWTFX SECTOR INDEX TECHNOLOGY
1 Year 10.41% 5.81% 8.86%
5 Years -10.54% -12.95% -15.96%
Since Inception -12.57% -15.40% -17.25%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE DOES
NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL
FLUCTUATE SO THAT AN INVESTOR'S SHARES MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN PERFORMANCE DATA
QUOTED. TO OBTAIN PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH END,
PLEASE VISIT WWW.SCHWAB.COM/SCHWABFUNDS.
PERFORMANCE OF A HYPOTHETICAL $10,000 INVESTMENT 1
This graph shows performance since inception of a hypothetical $10,000
investment in the fund, compared with a similar investment in a benchmark and an
additional index.
$4,880 FUND
$4,093 S&P 1500 SUPERCOMPOSITE TECHNOLOGY SECTOR INDEX
$9,035 S&P 500(R) INDEX
[LINE GRAPH]
S&P 500
SUPERCOMPOSITE
TECHNOLOGY S&P 500(R)
FUND SECTOR INDEX INDEX
03-Jul-00 $10,000 $10,000 $10,000
31-Jul-00 $9,480 $9,481 $9,844
31-Aug-00 $10,910 $10,594 $10,455
30-Sep-00 $9,220 $8,695 $9,903
31-Oct-00 $8,520 $8,189 $9,862
30-Nov-00 $6,500 $6,477 $9,085
31-Dec-00 $5,940 $5,835 $9,129
31-Jan-01 $6,950 $6,872 $9,453
28-Feb-01 $5,110 $4,993 $8,591
31-Mar-01 $4,420 $4,361 $8,046
30-Apr-01 $5,320 $5,110 $8,672
31-May-01 $5,240 $4,867 $8,730
30-Jun-01 $5,290 $4,925 $8,518
31-Jul-01 $4,850 $4,649 $8,434
31-Aug-01 $4,210 $4,094 $7,906
30-Sep-01 $3,270 $3,279 $7,267
31-Oct-01 $3,860 $3,852 $7,406
30-Nov-01 $4,480 $4,490 $7,974
31-Dec-01 $4,500 $4,425 $8,044
31-Jan-02 $4,560 $4,485 $7,927
28-Feb-02 $4,040 $3,870 $7,774
31-Mar-02 $4,320 $4,140 $8,066
30-Apr-02 $3,840 $3,650 $7,577
31-May-02 $3,670 $3,505 $7,521
30-Jun-02 $3,290 $3,075 $6,986
31-Jul-02 $2,950 $2,781 $6,442
31-Aug-02 $2,880 $2,741 $6,484
30-Sep-02 $2,450 $2,266 $5,779
31-Oct-02 $2,900 $2,754 $6,287
30-Nov-02 $3,310 $3,228 $6,658
31-Dec-02 $2,890 $2,765 $6,267
31-Jan-03 $2,840 $2,719 $6,103
28-Feb-03 $2,860 $2,778 $6,011
31-Mar-03 $2,810 $2,738 $6,069
30-Apr-03 $3,110 $2,989 $6,570
31-May-03 $3,400 $3,255 $6,916
30-Jun-03 $3,430 $3,257 $7,004
31-Jul-03 $3,720 $3,442 $7,128
31-Aug-03 $3,980 $3,657 $7,267
30-Sep-03 $3,890 $3,618 $7,190
31-Oct-03 $4,320 $3,931 $7,596
30-Nov-03 $4,610 $4,001 $7,663
31-Dec-03 $4,590 $4,089 $8,065
31-Jan-04 $5,140 $4,238 $8,213
29-Feb-04 $5,060 $4,100 $8,327
31-Mar-04 $4,860 $3,998 $8,202
30-Apr-04 $4,440 $3,794 $8,073
31-May-04 $4,630 $3,991 $8,183
30-Jun-04 $4,750 $4,095 $8,342
31-Jul-04 $4,300 $3,766 $8,066
31-Aug-04 $4,100 $3,569 $8,098
30-Sep-04 $4,290 $3,679 $8,186
31-Oct-04 $4,420 $3,868 $8,311
30-Nov-04 $4,730 $4,061 $8,648
31-Dec-04 $4,940 $4,181 $8,942
31-Jan-05 $4,580 $3,955 $8,724
28-Feb-05 $4,650 $3,968 $8,907
31-Mar-05 $4,540 $3,873 $8,749
30-Apr-05 $4,200 $3,711 $8,583
31-May-05 $4,680 $4,006 $8,856
30-Jun-05 $4,580 $3,939 $8,868
31-Jul-05 $4,860 $4,179 $9,198
31-Aug-05 $4,920 $4,168 $9,114
30-Sep-05 $5,000 $4,180 $9,188
31-Oct-05 $4,880 $4,093 $9,035
All figures on this page assume dividends and distributions were reinvested.
Index figures do not include trading and management costs, which would lower
performance. Indices are unmanaged, and you cannot invest in them directly.
1 Fund expenses have been partially absorbed by CSIM and Schwab. Without these
reductions, the fund's returns would have been lower. These returns do not
reflect the deduction of taxes that a shareholder would pay on fund
distributions or the redemption of fund shares.
2 Source for category information: Morningstar, Inc.
30 Schwab Active Equity Funds
SCHWAB TECHNOLOGY FUND
FUND FACTS as of 10/31/05
TOP HOLDINGS 1
% of
SECURITY Net Assets
- --------------------------------------------------------------------------------
(1) INTERNATIONAL BUSINESS MACHINES CORP. 8.1%
- --------------------------------------------------------------------------------
(2) HEWLETT-PACKARD CO. 7.2%
- --------------------------------------------------------------------------------
(3) MOTOROLA, INC. 7.2%
- --------------------------------------------------------------------------------
(4) INTEL CORP. 6.5%
- --------------------------------------------------------------------------------
(5) TEXAS INSTRUMENTS, INC. 6.0%
- --------------------------------------------------------------------------------
(6) ORACLE CORP. 5.2%
- --------------------------------------------------------------------------------
(7) AUTODESK, INC. 3.5%
- --------------------------------------------------------------------------------
(8) APPLIED MATERIALS, INC. 3.1%
- --------------------------------------------------------------------------------
(9) PROGRESS SOFTWARE CORP. 3.1%
- --------------------------------------------------------------------------------
(10) APPLE COMPUTER, INC. 3.0%
- --------------------------------------------------------------------------------
TOTAL 52.9%
STATISTICS
NUMBER OF HOLDINGS 45
- --------------------------------------------------------------------------------
WEIGHTED AVERAGE MARKET CAP ($ x 1,000,000) $42,008
- --------------------------------------------------------------------------------
PRICE/EARNINGS RATIO (P/E) 23.0
- --------------------------------------------------------------------------------
PRICE/BOOK RATIO (P/B) 3.3
- --------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 89%
- --------------------------------------------------------------------------------
MINIMUM INITIAL INVESTMENT 2 $2,500
($1,000 for retirement, education and custodial accounts)
- --------------------------------------------------------------------------------
INDUSTRY WEIGHTINGS % OF INVESTMENTS
This chart shows the fund's industry composition as of the report date.
[PIE CHART]
39.9% TECHNOLOGY HARDWARE & EQUIPMENT
38.5% SOFTWARE & SERVICES
20.9% SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT
0.7% OTHER
Portfolio holdings may have changed since the report date.
Source of Sector Classification: S&P and MSCI.
1 This list is not a recommendation of any security by the investment adviser.
2 Please see prospectus for further detail and eligibility requirements.
Schwab Active Equity Funds 31
FUND EXPENSES (unaudited)
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, 2005 and held
through October 31, 2005, unless noted otherwise.
ACTUAL RETURN lines in the table below provide information about actual account
values and actual expenses. You may use this information, together with the
amount you invested, to estimate the expenses that you paid over the period. To
do so, simply divide your account value by $1,000 (for example, an $8,600
account value / $1,000 = 8.6), then multiply the result by the number given for
your fund or share class under the heading entitled "Expenses Paid During
Period."
HYPOTHETICAL RETURN lines in the table below provide information about
hypothetical account values and hypothetical expenses based on a fund's or share
class' actual expense ratio and an assumed return of 5% per year before
expenses. Because the return used is not an actual return, it may not be used to
estimate the actual ending account value or expenses you paid for the period.
You may use this information to compare the ongoing costs of investing in the
fund and other funds. To do so, compare this 5% hypothetical example with the 5%
hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only, and do not reflect any transactional costs, such as
redemption fees. If these transactional costs were included, your costs would
have been higher.
ENDING
BEGINNING ACCOUNT VALUE EXPENSES
EXPENSE RATIO 1 ACCOUNT VALUE (Net of Expenses) PAID DURING PERIOD
(Annualized) at 5/1/05 at 10/31/05 5/1/05-10/31/05
- ------------------------------------------------------------------------------------------------------------------------------------
SCHWAB PREMIER EQUITY FUND(TM)
Investor Shares
Actual Return 0.88% $1,000 $1,122.80 $4.69 2
Hypothetical 5% Return 0.88% $1,000 $1,020.78 $4.47 2
Select Shares
Actual Return 0.77% $1,000 $1,123.80 $4.10 2
Hypothetical 5% Return 0.77% $1,000 $1,021.34 $3.90 2
- ------------------------------------------------------------------------------------------------------------------------------------
SCHWAB CORE EQUITY FUND(TM)
Actual Return 0.75% $1,000 $1,077.00 $3.93 3
Hypothetical 5% Return 0.75% $1,000 $1,021.42 $3.82 3
1 Based on the most recent six-month expense ratio; may differ from the expense
ratio provided in Financial Highlights.
2 Schwab and the investment adviser have agreed that "annual operating expenses"
(excluding interest, taxes, and certain non-routine expense) of Investor
Shares and Select Shares will equal 0.00% from 3/21/05 (commencement of
operations) through 6/30/05.
For the period 7/1/05-2/27/06, Schwab and the investment adviser have agreed
to limit the net operating expenses of Investor and Select Shares to 1.30% and
1.15%, respectively. Based on these expense ratios, "Expenses Paid During
Period" would be: $6.96 based on Actual Return and $6.61 based on Hypothetical
5% Return for Investor Shares; and, $6.16 based on Actual Return and $5.85
based on Hypothetical 5% Return for Select Shares.
3 Expenses for each fund or share class are equal to its annualized expense
ratio, multiplied by the average account value over the period, multiplied by
184 days of the period, and divided by 365 days of the fiscal year.
32 Schwab Active Equity Funds
FUND EXPENSES continued
ENDING
BEGINNING ACCOUNT VALUE EXPENSES
EXPENSE RATIO 1 ACCOUNT VALUE (Net of Expenses) PAID DURING PERIOD
(Annualized) at 5/1/05 at 10/31/05 5/1/05-10/31/05
- ------------------------------------------------------------------------------------------------------------------------------------
SCHWAB DIVIDEND EQUITY FUND(TM)
Investor Shares
Actual Return 1.06% $1,000 $1,033.40 $5.45 2
Hypothetical 5% Return 1.06% $1,000 $1,019.85 $5.41 2
Select Shares(R)
Actual Return 0.91% $1,000 $1,034.20 $4.68 2
Hypothetical 5% Return 0.91% $1,000 $1,020.60 $4.65 2
- ------------------------------------------------------------------------------------------------------------------------------------
SCHWAB LARGE-CAP GROWTH FUND(TM)
Investor Shares
Actual Return 1.20% $1,000 $1,027.00 $1.00 3
Hypothetical 5% Return 1.20% $1,000 $1,003.13 $0.99 3
Select Shares
Actual Return 0.99% $1,000 $1,027.00 $0.82 3
Hypothetical 5% Return 0.99% $1,000 $1,003.30 $0.81 3
- ------------------------------------------------------------------------------------------------------------------------------------
SCHWAB SMALL-CAP EQUITY FUND(TM)
Investor Shares
Actual Return 1.27% $1,000 $1,195.40 $7.05 2
Hypothetical 5% Return 1.27% $1,000 $1,018.78 $6.49 2
Select Shares
Actual Return 1.11% $1,000 $1,196.40 $6.12 2
Hypothetical 5% Return 1.11% $1,000 $1,019.63 $5.63 2
- ------------------------------------------------------------------------------------------------------------------------------------
SCHWAB HEDGED EQUITY FUND(TM)
Investor Shares
Actual Return 2.32% $1,000 $1,066.40 $12.08 2
Hypothetical 5% Return 2.32% $1,000 $1,013.51 $11.77 2
Select Shares
Actual Return 2.12% $1,000 $1,067.20 $11.05 2
Hypothetical 5% Return 2.12% $1,000 $1,014.52 $10.76 2
- ------------------------------------------------------------------------------------------------------------------------------------
SCHWAB FINANCIAL SERVICES FUND(TM)
Actual Return 1.07% $1,000 $1,149.00 $5.80 2
Hypothetical 5% Return 1.07% $1,000 $1,019.80 $5.45 2
- ------------------------------------------------------------------------------------------------------------------------------------
SCHWAB HEALTH CARE FUND(TM)
Actual Return 0.88% $1,000 $1,113.50 $4.71 2
Hypothetical 5% Return 0.88% $1,000 $1,020.74 $4.51 2
- ------------------------------------------------------------------------------------------------------------------------------------
SCHWAB TECHNOLOGY FUND(TM)
Actual Return 0.96% $1,000 $1,161.90 $5.21 2
Hypothetical 5% Return 0.96% $1,000 $1,020.39 $4.87 2
1 Based on the most recent six-month expense ratio; may differ from the expense
ratio provided in Financial Highlights.
2 Expenses for each fund or share class are equal to its annualized expense
ratio, multiplied by the average account value over the period, multiplied by
184 days of the period, and divided by 365 days of the fiscal year.
3 Expenses for this share class are equal to its annualized expense ratio,
multiplied by the average account value over the period, multiplied by 29 days
of the period (from 10/3/05, commencement of operations through 10/31/05), and
divided by 365 days of the fiscal year.
Schwab Active Equity Funds 33
SCHWAB PREMIER EQUITY FUND(TM)
FINANCIAL STATEMENTS
FINANCIAL HIGHLIGHTS
3/21/05 1-
INVESTOR SHARES 10/31/05
- ------------------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA ($)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of period 10.00
-------------------------------------------------------------------------------------
Income or loss from investment operations:
Net investment income 0.02
Net realized and unrealized gains 0.68
-------------------------------------------------------------------------------------
Total income from investment operations 0.70
-------------------------------------------------------------------------------------
Net asset value at end of period 10.70
-------------------------------------------------------------------------------------
Total return (%) 7.00 2
RATIOS/SUPPLEMENTAL DATA (%)
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net operating expenses 0.78 3
Gross operating expenses 1.23 3
Net investment income 0.52 3
Portfolio turnover rate 33 2
Net assets, end of period ($ x 1,000,000) 364
1 Commencement of operations.
2 Not annualized.
3 Annualized.
34 See financial notes.
SCHWAB PREMIER EQUITY FUND
3/21/05 1-
SELECT SHARES 10/31/05
- ------------------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA ($)
Net asset value at beginning of period 10.00
-------------------------------------------------------------------------------------
Income or loss from investment operations:
Net investment income 0.03
Net realized and unrealized gains 0.68
-------------------------------------------------------------------------------------
Total income from investment operations 0.71
-------------------------------------------------------------------------------------
Net asset value at end of period 10.71
-------------------------------------------------------------------------------------
Total return (%) 7.10 2
RATIOS/SUPPLEMENTAL DATA (%)
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net operating expenses 0.68 3
Gross operating expenses 1.08 3
Net investment income 0.63 3
Portfolio turnover rate 33 2
Net assets, end of period ($ x 1,000,000) 481
1 Commencement of operations.
2 Not annualized.
3 Annualized.
See financial notes. 35
SCHWAB PREMIER EQUITY FUND
PORTFOLIO HOLDINGS as of October 31, 2005
This section shows all the securities in the fund's portfolio by industry
classification and their value, as of the report date.
The fund files its complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. The fund's Form N-Q is
available on the SEC's website at http://www.sec.gov and may be reviewed and
copied at the SEC's Public Reference Room in Washington, D.C. Call
1-800-SEC-0330 for information on the operation of the Public Reference Room.
The schedule of portfolio holdings filed on the fund's most recent Form N-Q is
available by visiting Schwab's website at www.schwab.com/schwabfunds.
We use the symbols below to designate certain characteristics of the securities.
With the top ten holdings, the number in the circle is the security's rank among
the top ten.
(1) Top ten holding
o Non-income producing security
@ All or a portion of this security is on loan
COST VALUE
HOLDINGS BY CATEGORY ($x1,000) ($x1,000)
- --------------------------------------------------------------------------------
99.4% COMMON STOCK 800,543 839,981
0.3% SHORT-TERM
INVESTMENT 2,307 2,307
- --------------------------------------------------------------------------------
99.7% TOTAL INVESTMENTS 802,850 842,288
3.5% COLLATERAL INVESTED FOR
SECURITIES ON LOAN 29,935 29,935
(3.2)% OTHER ASSETS AND
LIABILITIES, NET (27,084)
- --------------------------------------------------------------------------------
100.0% TOTAL NET ASSETS 845,139
VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
COMMON STOCK 99.4% of net assets
AUTOMOBILES & COMPONENTS 0.9%
--------------------------------------------------------------------------
ArvinMeritor, Inc. 450,800 7,226
BANKS 2.9%
--------------------------------------------------------------------------
Bank of Hawaii Corp. 173,100 8,894
Comerica, Inc. 163,600 9,453
Wachovia Corp. 128,500 6,492
-----------
24,839
CAPITAL GOODS 6.3%
--------------------------------------------------------------------------
The Boeing Co. 139,200 8,998
Goodrich Corp. 207,700 7,492
Lockheed Martin Corp. 149,200 9,036
Northrop Grumman Corp. 170,800 9,163
Precision Castparts Corp. 195,400 9,254
Raytheon Co. 242,900 8,975
-----------
52,918
COMMERCIAL SERVICES & SUPPLIES 2.0%
--------------------------------------------------------------------------
Equifax, Inc. 267,300 9,214
Herman Miller, Inc. 277,900 7,617
-----------
16,831
CONSUMER DURABLES & APPAREL 3.3%
--------------------------------------------------------------------------
@ Hasbro, Inc. 300,000 5,652
K-Swiss, Inc., Class A 256,500 7,811
Newell Rubbermaid, Inc. 405,000 9,311
VF Corp. 105,000 5,486
-----------
28,260
DIVERSIFIED FINANCIALS 6.2%
--------------------------------------------------------------------------
American Express Co. 157,400 7,834
o AmeriCredit Corp. 326,200 7,291
Franklin Resources, Inc. 107,800 9,526
o(2) Investment Technology Group,
Inc. 320,600 10,423
Mellon Financial Corp. 263,800 8,360
Principal Financial Group, Inc. 185,000 9,181
-----------
52,615
ENERGY 8.6%
--------------------------------------------------------------------------
Burlington Resources, Inc. 124,200 8,970
ChevronTexaco Corp. 160,000 9,131
Devon Energy Corp. 141,600 8,550
Exxon Mobil Corp. 163,800 9,196
(5) Helmerich & Payne, Inc. 177,500 9,833
o(10) Pride International, Inc. 343,000 9,628
o Transocean, Inc. 160,100 9,204
o Veritas DGC, Inc. 253,200 8,156
-----------
72,668
36 See financial notes.
SCHWAB PREMIER EQUITY FUND
VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
FOOD & STAPLES RETAILING 2.0%
--------------------------------------------------------------------------
o Kroger Co. 418,500 8,328
Supervalu, Inc. 279,600 8,788
-----------
17,116
FOOD BEVERAGE & TOBACCO 6.8%
--------------------------------------------------------------------------
Archer-Daniels-Midland Co. 392,600 9,568
The Coca-Cola Co. 218,400 9,343
Kellogg Co. 157,400 6,952
PepsiAmericas, Inc. 348,000 8,115
@ Pilgrim's Pride Corp., Class B 275,000 8,657
Tyson Foods, Inc., Class A 419,500 7,467
@ Vector Group Ltd. 365,000 7,286
-----------
57,388
HEALTH CARE EQUIPMENT & SERVICES 9.2%
--------------------------------------------------------------------------
Aetna, Inc. 95,460 8,454
Bausch & Lomb, Inc. 113,600 8,428
Baxter International, Inc. 236,300 9,034
Becton Dickinson & Co. 156,200 7,927
CIGNA Corp. 80,800 9,362
o Express Scripts, Inc. 124,100 9,359
o Haemonetics Corp. 133,000 6,444
McKesson Corp. 203,200 9,231
UnitedHealth Group, Inc. 163,600 9,471
-----------
77,710
HOTELS RESTAURANTS & LEISURE 0.7%
--------------------------------------------------------------------------
Hilton Hotels Corp. 314,100 6,109
HOUSEHOLD & PERSONAL PRODUCTS 0.6%
--------------------------------------------------------------------------
Kimberly-Clark Corp. 93,700 5,326
INSURANCE 9.6%
--------------------------------------------------------------------------
AFLAC, Inc. 171,200 8,180
o Allmerica Financial Corp.218,300 8,317
Chubb Corp. 103,000 9,576
Hartford Financial Services Group,
Inc. 89,300 7,122
Loews Corp. 101,000 9,391
o Metlife, Inc. 185,700 9,175
Nationwide Financial Services, Inc.,
Class A 230,700 9,318
(8) Prudential Financial, Inc. 134,400 9,783
(3) W.R. Berkley Corp. 234,300 10,239
-----------
81,101
MATERIALS 3.5%
--------------------------------------------------------------------------
o Crown Holdings, Inc. 576,000 9,343
Martin Marietta Materials, Inc. 112,500 8,877
Rohm & Haas Co. 118,100 5,141
Vulcan Materials Co. 90,300 5,869
-----------
29,230
MEDIA 2.0%
--------------------------------------------------------------------------
o DreamWorks Animation SKG,
Inc. 354,000 9,077
o Getty Images, Inc. 94,700 7,861
-----------
16,938
PHARMACEUTICALS & BIOTECHNOLOGY 5.4%
--------------------------------------------------------------------------
Applied Biosystems Group --
Applera Corp. 393,200 9,543
o Invitrogen Corp. 65,300 4,152
Johnson & Johnson 130,700 8,185
o King Pharmaceuticals, Inc. 609,200 9,400
Merck & Co., Inc. 226,900 6,403
Pfizer, Inc. 357,500 7,772
-----------
45,455
RETAILING 4.1%
--------------------------------------------------------------------------
American Eagle Outfitters, Inc. 330,900 7,793
(7) J.C. Penney Co., Inc. Holding
Co. 191,100 9,784
Nordstrom, Inc. 210,600 7,297
o(9) Payless Shoesource, Inc. 527,600 9,692
-----------
34,566
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT 3.2%
--------------------------------------------------------------------------
Intel Corp. 394,800 9,278
National Semiconductor Corp. 411,300 9,307
Texas Instruments, Inc. 285,700 8,157
-----------
26,742
SOFTWARE & SERVICES 9.7%
--------------------------------------------------------------------------
(4) Autodesk, Inc. 217,900 9,834
o BEA Systems, Inc. 838,300 7,394
See financial notes. 37
SCHWAB PREMIER EQUITY FUND
PORTFOLIO HOLDINGS continued
VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
o Compuware Corp. 831,600 6,728
o Earthlink, Inc. 853,100 9,393
Fair Isaac Corp. 222,200 9,279
o Oracle Corp. 522,200 6,621
The Reynolds & Reynolds Co.,
Class A 288,100 7,646
o Sybase, Inc. 405,900 9,031
o Synopsys, Inc. 496,000 9,399
United Online, Inc. 485,800 6,515
----------
81,840
TECHNOLOGY HARDWARE & EQUIPMENT 5.0%
--------------------------------------------------------------------------
o(1) Apple Computer, Inc. 181,300 10,441
o Emulex Corp. 452,100 8,368
o NCR Corp. 299,300 9,045
Scientific-Atlanta, Inc. 197,600 7,003
@o Xerox Corp. 512,400 6,953
----------
41,810
TELECOMMUNICATION SERVICES 1.1%
--------------------------------------------------------------------------
o Crown Castle International
Corp. 377,900 9,266
TRANSPORTATION 3.3%
--------------------------------------------------------------------------
@o(6) AMR Corp. 727,200 9,824
CNF, Inc. 158,400 8,913
CSX Corp. 208,400 9,547
----------
28,284
UTILITIES 3.0%
--------------------------------------------------------------------------
Duke Energy Corp. 263,300 6,972
FirstEnergy Corp. 195,000 9,262
PPL Corp. 303,400 9,509
----------
25,743
SECURITY FACE AMOUNT VALUE
RATE, MATURITY DATE ($ x 1,000) ($ x 1,000)
SHORT-TERM INVESTMENT
0.3% of net assets
Wachovia Bank, Grand Cayman
Time Deposit
3.48%, 11/01/05 2,307 2,307
END OF INVESTMENTS.
VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
COLLATERAL INVESTED FOR SECURITIES ON LOAN
3.5% of net assets
SHORT-TERM INVESTMENT 3.5%
--------------------------------------------------------------------------
Securities Lending Investments
Fund 29,934,856 29,935
END OF COLLATERAL INVESTED FOR SECURITIES ON LOAN.
38 See financial notes.
SCHWAB PREMIER EQUITY FUND
Statement of
ASSETS AND LIABILITIES
As of October 31, 2005. All numbers x 1,000 except NAV.
ASSETS
- --------------------------------------------------------------------------------
Investments, at value
(including $29,453 of securities on loan) $842,288 a
Collateral invested for securities on loan 29,935
Receivables:
Fund shares sold 4,476
Dividends 134
Investments sold 9,419
Reimbursement from adviser 4
Income from securities on loan + 17
-----------
TOTAL ASSETS 886,273
LIABILITIES
- --------------------------------------------------------------------------------
Collateral invested for securities on loan 29,935
Payables:
Fund shares redeemed 806
Investments bought 10,329
Transfer agent and shareholder service fees 11
Trustees' fees 1
Accrued expenses + 52
-----------
TOTAL LIABILITIES 41,134
NET ASSETS
- --------------------------------------------------------------------------------
TOTAL ASSETS 886,273
TOTAL LIABILITIES - 41,134
-----------
NET ASSETS $845,139
NET ASSETS BY SOURCE
Capital received from investors 804,014
Net investment income not yet distributed 2,233
Net realized capital losses (546)
Net unrealized capital gains 39,438
NET ASSET VALUE (NAV) BY SHARE CLASS
SHARES
SHARE CLASS NET ASSETS / OUTSTANDING = NAV
Investor Shares $364,185 34,032 $10.70
Select Shares $480,954 44,921 $10.71
Unless stated, all numbers x 1,000.
a The fund paid $802,850 for these securities.
Not counting short-term obligations and government securities, the fund's
security transactions during the period were:
Purchases $1,013,795
Sales/maturities $211,757
The fund's total security transactions with other Schwab Funds(R) during the
period were $23,120.
FEDERAL TAX DATA
--------------------------------------------
PORTFOLIO COST $802,850
NET UNREALIZED GAINS AND LOSSES:
Gains $65,938
Losses + (26,500)
-----------
$39,438
NET UNDISTRIBUTED EARNINGS:
Ordinary income $2,233
Long-term capital gains $--
UNUSED CAPITAL LOSSES:
Expires 10/31 of: Loss amount
2013 $546
See financial notes. 39
SCHWAB PREMIER EQUITY FUND
Statement of
OPERATIONS
For March 21, 2005 through October 31, 2005. All numbers x 1,000.
INVESTMENT INCOME
- --------------------------------------------------------------------------------
Dividends $4,809
Interest 161
Securities on loan + 23
-----------
TOTAL INVESTMENT INCOME 4,993
NET REALIZED GAINS AND LOSSES
- --------------------------------------------------------------------------------
Net realized losses on investments sold (689)
Net realized gains on futures contracts + 143
-----------
NET REALIZED LOSSES (546)
NET UNREALIZED GAINS AND LOSSES
- --------------------------------------------------------------------------------
Net unrealized gains on investments 39,438
EXPENSES
- --------------------------------------------------------------------------------
Investment adviser and administrator fees 3,476 a
Transfer agent and shareholder service fees
Investor Shares 407 b
Select Shares 222 b
Trustees' fees 6 c
Custodian fees 25
Portfolio accounting fees 58
Professional fees 19
Registration fees 105
Shareholder reports 58
Other expenses + 3
-----------
Total expenses 4,379
Expense reduction - 1,619 d
-----------
NET EXPENSES 2,760
INCREASE IN NET ASSETS FROM OPERATIONS
- --------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME 4,993
NET EXPENSES - 2,760
-----------
NET INVESTMENT INCOME 2,233
NET REALIZED LOSSES (546) e
NET UNREALIZED GAINS + 39,438 e
-----------
INCREASE IN NET ASSETS FROM OPERATIONS $41,125
Unless stated, all numbers x 1,000.
a Calculated as a percentage of average daily net assets: 0.91% of the first
$500 million; 0.885% of the next $500 million; and 0.86% of assets beyond
that. These fees are paid to Charles Schwab Investment Management, Inc.
(CSIM).
b Calculated as a percentage of average daily net assets: for transfer agent
services, 0.05% of the fund's assets; for shareholder services, 0.20% 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 $1,401 from the investment adviser (CSIM) and $218 from the transfer
agent and shareholder service agent (Schwab). These reductions reflect a
guarantee by CSIM and Schwab to limit the net operating expenses of this fund
through June 30, 2005 at 0.00% for both Investor Shares and Select Shares. For
the period July 1, 2005 through February 27, 2006, CSIM and Schwab have
guaranteed to limit the annual net operating expenses of this fund as follows:
% OF AVERAGE
SHARE CLASS DAILY NET ASSETS
---------------------------------------
Investor Shares 1.30
Select Shares 1.15
These limits exclude interest, taxes and certain non-routine expenses.
e These add up to a net gain on investments of $38,892.
40 See financial notes.
SCHWAB PREMIER EQUITY FUND
Statements of
CHANGES IN NET ASSETS
For the current period only. Because the fund commenced operations on March 21,
2005, it has no prior report period. All numbers x 1,000. Figures for current
period are unaudited.
OPERATIONS
- --------------------------------------------------------------------------------
3/21/05-10/31/05
Net investment income $2,233
Net realized losses (546)
Net unrealized gains + 39,438
----------
INCREASE IN NET ASSETS
FROM OPERATIONS $41,125
TRANSACTIONS IN FUND SHARES
- --------------------------------------------------------------------------------
3/21/05-10/31/05
SHARES VALUE
SHARES SOLD
Investor Shares 37,370 $381,553
Select Shares + 48,755 497,896
--------------------------
TOTAL SHARES SOLD 86,125 $879,449
SHARES REDEEMED
Investor Shares (3,338) ($35,148)
Select Shares + (3,834) (40,287)
--------------------------
TOTAL SHARES REDEEMED (7,172) ($75,435) a
NET TRANSACTIONS IN FUND
SHARES 78,953 $804,014
SHARES OUTSTANDING AND NET ASSETS
- --------------------------------------------------------------------------------
3/21/05-10/31/05
SHARES NET ASSETS
Beginning of period -- $--
Total increase + 78,953 845,139 b
--------------------------
END OF PERIOD 78,953 $845,139 c
Unless stated, all numbers x 1,000.
a The fund charges 2.00% of early withdrawal fees on shares redeemed 30 days or
less after the purchase:
CURRENT
PERIOD
Investor Shares $25
Select Shares + 28
-------
TOTAL $53
Dollar amounts are net of the redemption fee proceeds.
b Figures for shares represent shares sold plus shares reinvested, minus shares
redeemed. Figures for net assets represent the changes in net assets from
operations plus the changes in value of transactions in fund shares, minus
distributions paid.
c Includes distributable net investment income in the amount of $2,233.
See financial notes. 41
SCHWAB CORE EQUITY FUND(TM)
FINANCIAL STATEMENTS
FINANCIAL HIGHLIGHTS
11/1/04- 11/1/03- 11/1/02- 11/1/01- 11/1/00-
10/31/05 10/31/04 10/31/03 10/31/02 10/31/01
- ------------------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA ($) 1
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of period 13.81 12.71 10.89 12.53 18.53
--------------------------------------------------------------------------
Income or loss from investment operations:
Net investment income 0.13 0.12 0.10 0.08 0.08
Net realized and unrealized gains or losses 2.03 1.09 1.79 (1.64) (4.57)
--------------------------------------------------------------------------
Total income or loss from investment operations 2.16 1.21 1.89 (1.56) (4.49)
Less distributions:
Dividends from net investment income (0.16) (0.11) (0.07) (0.08) (0.07)
Distributions from net realized gains -- -- -- -- (1.44)
--------------------------------------------------------------------------
Total distributions (0.16) (0.11) (0.07) (0.08) (1.51)
--------------------------------------------------------------------------
Net asset value at end of period 15.81 13.81 12.71 10.89 12.53
--------------------------------------------------------------------------
Total return (%) 15.74 9.57 17.54 (12.58) (25.93)
RATIOS/SUPPLEMENTAL DATA (%) 1
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net operating expenses 0.75 0.75 0.75 0.75 0.75
Gross operating expenses 0.85 0.88 0.88 0.91 0.88
Net investment income 0.93 0.89 0.94 0.63 0.55
Portfolio turnover rate 48 86 73 114 106
Net assets, end of period ($ x 1,000,000) 547 263 237 179 210
1 Prior to June 1, 2002, the fund's day-to-day investment management was handled
by a subadviser, Symphony Asset Management LLC.
42 See financial notes.
SCHWAB CORE EQUITY FUND
PORTFOLIO HOLDINGS as of October 31, 2005
This section shows all the securities in the fund's portfolio by industry
classification and their value, as of the report date.
The fund files its complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. The fund's Form N-Q is
available on the SEC's website at http://www.sec.gov and may be reviewed and
copied at the SEC's Public Reference Room in Washington, D.C. Call
1-800-SEC-0330 for information on the operation of the Public Reference Room.
The schedule of portfolio holdings filed on the fund's most recent Form N-Q is
available by visiting Schwab's website at www.schwab.com/schwabfunds.
We use the symbols below to designate certain characteristics of the securities.
With the top ten holdings, the number in the circle is the security's rank among
the top ten.
(1) Top ten holding
o Non-income producing security
= All or a portion of this security is held as collateral for open futures
contracts
@ All or a portion of this security is on loan
COST VALUE
HOLDINGS BY CATEGORY ($x1,000) ($x1,000)
- --------------------------------------------------------------------------------
98.7% COMMON STOCK 482,220 540,259
1.6% SHORT-TERM
INVESTMENT 8,649 8,649
0.1% U.S. TREASURY
OBLIGATIONS 339 339
- --------------------------------------------------------------------------------
100.4% TOTAL INVESTMENTS 491,208 549,247
3.5% COLLATERAL INVESTED FOR
SECURITIES ON LOAN 18,941 18,941
(3.9)% OTHER ASSETS AND
LIABILITIES, NET (21,354)
- --------------------------------------------------------------------------------
100.0% TOTAL NET ASSETS 546,834
VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
COMMON STOCK 98.7% of net assets
AUTOMOBILES & COMPONENTS 0.6%
-------------------------------------------------------------------------
@ Ford Motor Co. 385,300 3,206
BANKS 4.8%
-------------------------------------------------------------------------
Comerica, Inc. 72,000 4,160
(6) UnionBanCal Corp. 322,600 22,092
-----------
26,252
CAPITAL GOODS 10.6%
-------------------------------------------------------------------------
=(2) The Boeing Co. 401,200 25,934
= Emerson Electric Co. 88,800 6,176
=(10) Lockheed Martin Corp. 300,700 18,210
Northrop Grumman Corp. 83,000 4,453
= Raytheon Co. 80,000 2,956
-----------
57,729
COMMERCIAL SERVICES & SUPPLIES 0.4%
-------------------------------------------------------------------------
Equifax, Inc. 70,000 2,413
CONSUMER DURABLES & APPAREL 1.2%
-------------------------------------------------------------------------
Black & Decker Corp. 24,900 2,045
Nike, Inc., Class B 32,900 2,765
The Stanley Works 35,000 1,678
-----------
6,488
DIVERSIFIED FINANCIALS 12.0%
-------------------------------------------------------------------------
(1) American Express Co. 552,000 27,473
o AmeriCredit Corp. 87,000 1,944
(8) Franklin Resources, Inc. 227,600 20,113
= Moody's Corp. 54,800 2,919
=o Northern Trust Corp. 17,500 938
Principal Financial Group,
Inc. 243,600 12,090
-----------
65,477
ENERGY 7.2%
-------------------------------------------------------------------------
Burlington Resources, Inc. 90,500 6,536
@ ChevronTexaco Corp. 130,000 7,419
(3) Exxon Mobil Corp. 424,600 23,837
o Pride International, Inc. 65,000 1,825
-----------
39,617
FOOD & STAPLES RETAILING 0.8%
-------------------------------------------------------------------------
Supervalu, Inc. 145,000 4,557
FOOD BEVERAGE & TOBACCO 4.4%
-------------------------------------------------------------------------
(5) The Coca-Cola Co. 540,500 23,123
Kellogg Co. 26,700 1,179
-----------
24,302
See financial notes. 43
SCHWAB CORE EQUITY FUND
PORTFOLIO HOLDINGS continued
VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
HEALTH CARE EQUIPMENT & SERVICES 8.7%
-------------------------------------------------------------------------
= Aetna, Inc. 51,200 4,534
AmerisourceBergen Corp. 10,000 763
Baxter International, Inc. 5,000 191
Becton Dickinson & Co. 122,300 6,207
CIGNA Corp. 39,500 4,577
o Coventry Health Care, Inc. 54,775 2,957
McKesson Corp. 110,000 4,997
o Pacificare Health Systems,
Inc. 51,400 4,233
PerkinElmer, Inc. 63,000 1,391
@ UnitedHealth Group, Inc. 216,828 12,552
o WellPoint, Inc. 68,000 5,078
-----------
47,480
HOTELS RESTAURANTS & LEISURE 1.2%
-------------------------------------------------------------------------
Hilton Hotels Corp. 346,500 6,739
INSURANCE 8.6%
-------------------------------------------------------------------------
= AFLAC, Inc. 169,900 8,118
=o Allmerica Financial Corp. 14,000 533
= AON Corp. 48,000 1,625
@ Chubb Corp. 33,400 3,105
o CNA Financial Corp. 109,500 3,372
= Loews Corp. 48,500 4,510
=o Metlife, Inc. 366,000 18,084
= Nationwide Financial Services, Inc.,
Class A 10,000 404
Prudential Financial, Inc. 43,500 3,166
W.R. Berkley Corp. 92,000 4,020
-----------
46,937
MATERIALS 0.6%
-------------------------------------------------------------------------
Monsanto Co. 50,000 3,150
Nucor Corp. 6,500 389
-----------
3,539
MEDIA 0.8%
-------------------------------------------------------------------------
= Time Warner, Inc. 150,000 2,674
Viacom, Inc., Class B 50,000 1,549
-----------
4,223
PHARMACEUTICALS & BIOTECHNOLOGY 6.3%
-------------------------------------------------------------------------
= Applied Biosystems Group --
Applera Corp. 32,500 789
= Johnson & Johnson 253,100 15,849
o King Pharmaceuticals, Inc. 630,000 9,721
o Kos Pharmaceuticals, Inc. 23,000 1,380
Pfizer, Inc. 310,000 6,739
-----------
34,478
RETAILING 2.4%
-------------------------------------------------------------------------
J.C. Penney Co., Inc. Holding
Co. 255,000 13,056
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT 5.2%
-------------------------------------------------------------------------
(4) Intel Corp. 1,005,000 23,618
National Semiconductor
Corp. 182,500 4,130
Texas Instruments, Inc. 22,000 628
-----------
28,376
SOFTWARE & SERVICES 5.6%
-------------------------------------------------------------------------
= Autodesk, Inc. 169,000 7,627
=o BMC Software, Inc. 87,000 1,704
=o Checkfree Corp. 16,000 680
=o Citrix Systems, Inc. 26,500 731
@ Computer Associates International,
Inc. 56,100 1,569
o Compuware Corp. 155,000 1,254
= Electronic Data Systems
Corp. 80,200 1,869
o McAfee, Inc. 150,500 4,520
= Microsoft Corp. 85,000 2,184
o Oracle Corp. 213,500 2,707
The Reynolds & Reynolds Co.,
Class A 65,000 1,725
=o Sybase, Inc. 62,200 1,384
=o Synopsys, Inc. 152,500 2,890
-----------
30,844
TECHNOLOGY HARDWARE & EQUIPMENT 9.2%
-------------------------------------------------------------------------
o Apple Computer, Inc. 111,800 6,438
o Arrow Electronics, Inc. 77,000 2,272
(7) Hewlett-Packard Co. 776,500 21,773
= International Business Machines
Corp. 10,000 819
44 See financial notes.
SCHWAB CORE EQUITY FUND
VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
Motorola, Inc. 336,900 7,466
o NCR Corp. 126,000 3,808
=o Xerox Corp. 551,700 7,487
-----------
50,063
TELECOMMUNICATION SERVICES 1.7%
-------------------------------------------------------------------------
AT&T Corp. 58,020 1,148
@ BellSouth Corp. 81,500 2,121
@ SBC Communications, Inc. 112,200 2,676
Verizon Communications, Inc. 112,300 3,538
-----------
9,483
TRANSPORTATION 4.7%
-------------------------------------------------------------------------
= CNF, Inc. 113,500 6,386
(9) CSX Corp. 416,500 19,080
-----------
25,466
UTILITIES 1.7%
-------------------------------------------------------------------------
o The AES Corp. 170,400 2,708
American Electric Power Co.,
Inc. 6,000 228
= Duke Energy Corp. 9,000 238
= Edison International 36,800 1,610
FirstEnergy Corp. 100,000 4,750
-----------
9,534
SHORT-TERM INVESTMENT
1.6% of net assets
Provident Institutional
TempFund 8,649,050 8,649
SECURITY FACE AMOUNT VALUE
RATE, MATURITY DATE ($ x 1,000) ($ x 1,000)
U.S. TREASURY OBLIGATIONS
0.1% of net assets
= U.S. Treasury Bill
3.35%-3.48%, 12/15/05 340 339
END OF INVESTMENTS.
COLLATERAL INVESTED FOR SECURITIES ON LOAN
3.5% of net assets
COMMERCIAL PAPER & OTHER CORPORATE
OBLIGATIONS 2.2%
-------------------------------------------------------------------------
Skandinav Enskilda Bank
3.94%, 11/17/05 12,147 12,147
SECURITY AND NUMBER OF SHARES
SHORT-TERM INVESTMENTS 1.3%
-------------------------------------------------------------------------
Institutional Money Market
Trust 3,405,146 3,405
SECURITY FACE AMOUNT
RATE, MATURITY DATE ($ x 1,000)
National City Bank,
Time Deposit
3.98%, 11/01/05 2,945 2,945
Nordea Bank, Time Deposit
4.03%, 11/01/05 222 222
Rabobank, Time Deposit
4.03%, 11/01/05 222 222
-----------
6,794
END OF COLLATERAL INVESTED FOR SECURITIES ON LOAN.
In addition to the above, the fund held the following at 10/31/05. All numbers x
$1,000 except number of contracts.
FUTURES CONTRACTS
NUMBER OF CONTRACT UNREALIZED
CONTRACTS VALUE LOSSES
S&P 500 Index, e-mini, Long
Expires 12/18/05 100 6,049 (32)
See financial notes. 45
SCHWAB CORE EQUITY FUND
Statement of
ASSETS AND LIABILITIES
As of October 31, 2005. All numbers x 1,000 except NAV.
ASSETS
- --------------------------------------------------------------------------------
Investments, at value
(including $18,588 of securities on loan) $549,247 a
Collateral invested for securities on loan 18,941
Receivables:
Fund shares sold 3,591
Interest 25
Dividends 238
Investments sold 4,986
Due from brokers for futures 51
Income from securities on loan 6
Prepaid expenses + 25
---------
TOTAL ASSETS 577,110
LIABILITIES
- --------------------------------------------------------------------------------
Collateral invested for securities on loan 18,941
Payables:
Fund shares redeemed 323
Investments bought 10,905
Investment adviser and administrator fees 13
Transfer agent and shareholder service fees 11
Accrued expenses + 83
---------
TOTAL LIABILITIES 30,276
NET ASSETS
- --------------------------------------------------------------------------------
TOTAL ASSETS 577,110
TOTAL LIABILITIES - 30,276
---------
NET ASSETS $546,834
NET ASSETS BY SOURCE
Capital received from investors 490,455
Net investment income not yet distributed 2,244
Net realized capital losses (3,872) b
Net unrealized capital gains 58,007 b
NET ASSET VALUE (NAV)
SHARES
NET ASSETS / OUTSTANDING = NAV
$546,834 34,590 $15.81
Unless stated, all numbers x 1,000.
a The fund paid $491,208 for these securities.
Not counting short-term obligations and government securities, the fund's
security transactions during the period were:
Purchases $416,789
Sales/maturities $178,134
b These derive from investments and futures.
FEDERAL TAX DATA
- -----------------------------------------------
PORTFOLIO COST $491,255
NET UNREALIZED GAINS AND LOSSES:
Gains $69,299
Losses + (11,307)
------------
$57,992
NET UNDISTRIBUTED EARNINGS:
Ordinary income $2,244
Long-term capital gains $--
CAPITAL LOSSES UTILIZED $14,568
UNUSED CAPITAL LOSSES:
Expires 10/31 of: Loss amount
2011 $3,857
46 See financial notes.
SCHWAB CORE EQUITY FUND
Statement of
OPERATIONS
For November 1, 2004 through October 31, 2005. All numbers x 1,000.
INVESTMENT INCOME
- --------------------------------------------------------------------------------
Dividends $6,090
Interest 178
Securities on loan + 26
-----------
TOTAL INVESTMENT INCOME 6,294
NET REALIZED GAINS AND LOSSES
- --------------------------------------------------------------------------------
Net realized gains on investments 14,357
Net realized gains on futures contracts + 353
-----------
NET REALIZED GAINS 14,710
NET UNREALIZED GAINS AND LOSSES
- --------------------------------------------------------------------------------
Net unrealized gains on investments 28,324
Net unrealized losses on futures contracts + (58)
-----------
NET UNREALIZED GAINS 28,266
EXPENSES
- --------------------------------------------------------------------------------
Investment adviser and administrator fees 2,018 a
Transfer agent and shareholder service fees 935 b
Trustees' fees 8 c
Custodian fees 38
Portfolio accounting fees 48
Professional fees 28
Registration fees 51
Shareholder reports 50
Other expenses + 6
-----------
Total expenses 3,182
Expense reduction - 377 d
-----------
NET EXPENSES 2,805
INCREASE IN NET ASSETS FROM OPERATIONS
- --------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME 6,294
NET EXPENSES - 2,805
-----------
NET INVESTMENT INCOME 3,489
NET REALIZED GAINS 14,710 e
NET UNREALIZED GAINS + 28,266 e
-----------
INCREASE IN NET ASSETS FROM OPERATIONS $46,465
Unless stated, all numbers x 1,000.
a Calculated as a percentage of average daily net assets: 0.54% of the first
$500 million and 0.49% of assets beyond that. These fees are paid to Charles
Schwab Investment Management, Inc. (CSIM).
b Calculated as a percentage of average daily net assets: for transfer agent
services, 0.05% of the fund's assets; for shareholder services, 0.20% of the
fund's assets. These fees are paid to Charles Schwab & Co., Inc. (Schwab).
c For the fund's independent trustees only.
d This reduction was made by the investment adviser (CSIM). It reflects a
guarantee by CSIM and the transfer agent and shareholder service agent
(Schwab) to limit the net operating expenses of this fund through February 27,
2006, to 0.75% of average daily net assets. This limit excludes interest,
taxes and certain non-routine expenses.
e These add up to a net gain on investments of $42,976.
See financial notes. 47
SCHWAB CORE EQUITY FUND
Statements of
CHANGES IN NET ASSETS
For the current and prior report periods. All numbers x 1,000.
OPERATIONS
- --------------------------------------------------------------------------------
11/1/04-10/31/05 11/1/03-10/31/04
Net investment income $3,489 $2,298
Net realized gains 14,710 27,990
Net unrealized gains or losses + 28,266 (7,414)
-------------------------------------------
INCREASE IN NET ASSETS
FROM OPERATIONS 46,465 22,874
DISTRIBUTIONS PAID
- --------------------------------------------------------------------------------
Dividends from net investment income $3,112 $2,074 a,b
TRANSACTIONS IN FUND SHARES
- --------------------------------------------------------------------------------
11/1/04-10/31/05 11/1/03-10/31/04
SHARES VALUE SHARES VALUE
Shares sold 19,737 $304,359 4,444 $59,997
Shares reinvested 184 2,745 144 1,891
Shares redeemed + (4,354) (66,406) (4,213) (56,963) c
-------------------------------------------
NET TRANSACTIONS
IN FUND SHARES 15,567 $240,698 375 $4,925
SHARES OUTSTANDING AND NET ASSETS
- --------------------------------------------------------------------------------
11/1/04-10/31/05 11/1/03-10/31/04
SHARES NET ASSETS SHARES NET ASSETS
Beginning of period 19,023 $262,783 18,648 $237,058
Total increase + 15,567 284,051 375 25,725 d
-------------------------------------------
END OF PERIOD 34,590 $546,834 19,023 $262,783 e
Unless stated, all numbers x 1,000.
a UNAUDITED
For corporations, 100% of the fund's dividends for the report period qualify
for the dividends-received deduction.
The fund designates $3,112 of the dividend distribution for the fiscal year
ended 10/31/05 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 2006 via IRS Form 1099 of the amounts for use in preparing
their 2005 income tax return.
b The tax-basis components of distributions paid are:
CURRENT PERIOD
Ordinary income $3,112
Long-term capital gains $--
PRIOR PERIOD
Ordinary income $2,074
Long-term capital gains $--
c For shares purchased after 4/29/05 and held less than 30 days, the fund
charges 2.00% redemption fee.
CURRENT PERIOD $17
Dollar amounts are net of the redemption fee proceeds.
d Figures for shares represent shares sold plus shares reinvested, minus shares
redeemed. Figures for net assets represent the changes in net assets from
operations plus the changes in value from transactions in fund shares, minus
distributions paid.
e Includes distributable net investment income in the amount of $2,244 and
$1,867 at the end of the current period and prior period, respectively.
Percent of fund shares owned by other Schwab Funds(R) as of the end of the
current period:
SCHWAB TARGET FUNDS
Schwab Target 2010 Fund 0.6%
Schwab Target 2020 Fund 0.6%
Schwab Target 2030 Fund 0.4%
Schwab Target 2040 Fund 0.2%
48 See financial notes.
SCHWAB DIVIDEND EQUITY FUND(TM)
FINANCIAL STATEMENTS
FINANCIAL HIGHLIGHTS
11/1/04- 11/1/03- 9/2/03 1-
INVESTOR SHARES 10/31/05 10/31/04 10/31/03
- ------------------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA ($)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of period 12.06 10.60 10.00
---------------------------------------------------------------------
Income from investment operations:
Net investment income 0.26 0.29 0.05
Net realized and unrealized gains 0.93 1.49 0.55
---------------------------------------------------------------------
Total income from investment operations 1.19 1.78 0.60
Less distributions:
Dividends from net investment income (0.26) (0.32) --
Distributions from net realized gains (0.19) -- --
---------------------------------------------------------------------
Total distributions (0.45) (0.32) --
---------------------------------------------------------------------
Net asset value at end of period 12.80 12.06 10.60
---------------------------------------------------------------------
Total return (%) 9.98 17.00 6.00 2
RATIOS/SUPPLEMENTAL DATA (%)
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net operating expenses 1.07 0.65 --
Gross operating expenses 1.09 1.19 1.34 3
Net investment income 2.17 2.71 3.41 3
Portfolio turnover rate 26 39 2 2
Net assets, end of period ($ x 1,000,000) 528 267 94
1 Commencement of operations.
2 Not annualized.
3 Annualized.
See financial notes. 49
SCHWAB DIVIDEND EQUITY FUND
FINANCIAL HIGHLIGHTS
11/1/04- 11/1/03- 9/2/03 1-
SELECT SHARES 10/31/05 10/31/04 10/31/03
- ------------------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA ($)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of period 12.06 10.60 10.00
---------------------------------------------------------------------
Income from investment operations:
Net investment income 0.28 0.31 0.05
Net realized and unrealized gains 0.93 1.48 0.55
---------------------------------------------------------------------
Total income from investment operations 1.21 1.79 0.60
Less distributions:
Dividends from net investment income (0.28) (0.33) --
Distributions from net realized gains (0.19) -- --
---------------------------------------------------------------------
Total distributions (0.47) (0.33) --
---------------------------------------------------------------------
Net asset value at end of period 12.80 12.06 10.60
---------------------------------------------------------------------
Total return (%) 10.17 17.07 6.00 2
RATIOS/SUPPLEMENTAL DATA (%)
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net operating expenses 0.92 0.54 --
Gross operating expenses 0.94 1.04 1.19 3
Net investment income 2.32 2.83 3.41 3
Portfolio turnover rate 26 39 2 2
Net assets, end of period ($ x 1,000,000) 509 252 111
1 Commencement of operations.
2 Not annualized.
3 Annualized.
50 See financial notes.
SCHWAB DIVIDEND EQUITY FUND
PORTFOLIO HOLDINGS as of October 31, 2005
This section shows all the securities in the fund's portfolio by industry
classification and their value, as of the report date.
The fund files its complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. The fund's Form N-Q is
available on the SEC's website at http://www.sec.gov and may be reviewed and
copied at the SEC's Public Reference Room in Washington, D.C. Call
1-800-SEC-0330 for information on the operation of the Public Reference Room.
The schedule of portfolio holdings filed on the fund's most recent Form N-Q is
available by visiting Schwab's website at www.schwab.com/schwabfunds.
We use the symbols below to designate certain characteristics of the securities.
With the top ten holdings, the number in the circle is the security's rank among
the top ten.
(1) Top ten holding
o Non-income producing security
= All or a portion of this security is held as collateral for open futures
contracts
@ All or a portion of this security is on loan
COST VALUE
HOLDINGS BY CATEGORY ($x1,000) ($x1,000)
- --------------------------------------------------------------------------------
99.3% COMMON STOCK 958,749 1,029,934
0.3% SHORT-TERM
INVESTMENT 3,095 3,095
0.0% U.S. TREASURY
OBLIGATION 254 254
- --------------------------------------------------------------------------------
99.6% TOTAL INVESTMENTS 962,098 1,033,283
0.0% COLLATERAL INVESTED FOR
SECURITIES ON LOAN 142 142
0.4% OTHER ASSETS AND
LIABILITIES, NET 3,664
- --------------------------------------------------------------------------------
100.0% TOTAL NET ASSETS 1,037,089
VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
COMMON STOCK 99.3% of net assets
AUTOMOBILES & COMPONENTS 0.6%
-------------------------------------------------------------------------
Ford Motor Co. 765,200 6,366
BANKS 12.9%
-------------------------------------------------------------------------
AmSouth Bancorp. 247,900 6,255
= Bank of America Corp. 280,400 12,265
Comerica, Inc. 212,500 12,278
Huntington Bancshares, Inc. 228,000 5,303
KeyCorp, Inc. 367,500 11,848
National City Corp. 356,400 11,487
Peoples Bank-Bridgeport 202,500 6,520
(4) PNC Financial Services Group,
Inc. 233,400 14,170
SunTrust Banks, Inc. 158,487 11,487
= U.S. Bancorp 449,300 13,290
UnionBanCal Corp. 114,000 7,807
Wachovia Corp. 255,700 12,918
Wells Fargo & Co. 139,200 8,380
-----------
134,008
CAPITAL GOODS 11.1%
-------------------------------------------------------------------------
3M Co. 158,200 12,020
= The Boeing Co. 190,000 12,282
Emerson Electric Co. 194,300 13,514
@ GATX Corp. 220,000 8,221
Goodrich Corp. 275,000 9,919
Harsco Corp. 87,200 5,603
Lockheed Martin Corp. 205,000 12,415
Masco Corp. 150,000 4,275
Northrop Grumman Corp. 125,000 6,706
Raytheon Co. 292,000 10,789
= Rockwell Automation, Inc. 156,600 8,323
Textron, Inc. 156,000 11,238
-----------
115,305
COMMERCIAL SERVICES & SUPPLIES 1.8%
-------------------------------------------------------------------------
Pitney Bowes, Inc. 150,700 6,341
R.R. Donnelley & Sons Co. 290,000 10,156
o The ServiceMaster Co. 167,800 2,111
-----------
18,608
CONSUMER DURABLES & APPAREL 3.3%
-------------------------------------------------------------------------
Fortune Brands, Inc. 108,500 8,243
Newell Rubbermaid, Inc. 467,600 10,750
The Stanley Works 153,000 7,333
VF Corp. 142,900 7,467
-----------
33,793
See financial notes. 51
SCHWAB DIVIDEND EQUITY FUND
PORTFOLIO HOLDINGS continued
VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
DIVERSIFIED FINANCIALS 4.3%
-------------------------------------------------------------------------
The Bank of New York Co.,
Inc. 150,000 4,693
Citigroup, Inc. 100,000 4,578
=(6) JPMorgan Chase & Co. 375,584 13,754
Mellon Financial Corp. 408,900 12,958
SLM Corp. 160,000 8,885
-----------
44,868
ENERGY 5.5%
-------------------------------------------------------------------------
(1) ChevronTexaco Corp. 292,756 16,708
(3) ConocoPhillips 218,600 14,292
Exxon Mobil Corp. 225,800 12,676
(7) Marathon Oil Corp. 228,400 13,741
-----------
57,417
FOOD BEVERAGE & TOBACCO 8.7%
-------------------------------------------------------------------------
(10) Altria Group, Inc. 180,300 13,531
The Coca-Cola Co. 311,000 13,305
General Mills, Inc. 225,000 10,858
H.J. Heinz Co. 206,500 7,331
Hershey Foods Corp. 17,000 966
(2) Kellogg Co. 323,900 14,307
PepsiCo, Inc. 140,000 8,271
Reynolds American, Inc. 153,000 13,005
= UST, Inc. 200,500 8,299
-----------
89,873
HEALTH CARE EQUIPMENT & SERVICES 2.3%
-------------------------------------------------------------------------
Becton Dickinson & Co. 179,000 9,084
HCA, Inc. 190,000 9,156
PerkinElmer, Inc. 250,500 5,529
-----------
23,769
HOUSEHOLD & PERSONAL PRODUCTS 3.5%
-------------------------------------------------------------------------
Clorox Co. 151,500 8,199
Colgate-Palmolive Co. 150,000 7,944
Kimberly-Clark Corp. 191,000 10,856
Procter & Gamble Co. 168,950 9,460
-----------
36,459
INSURANCE 8.0%
-------------------------------------------------------------------------
The Allstate Corp. 193,200 10,199
AON Corp. 371,250 12,567
Chubb Corp. 138,000 12,830
Fidelity National Financial,
Inc. 135,000 5,057
Jefferson-Pilot Corp. 125,000 6,860
Lincoln National Corp. 254,200 12,865
Mercury General Corp. 82,100 4,963
Safeco Corp. 64,200 3,576
(5) The St. Paul Travelers Cos.,
Inc. 308,000 13,869
-----------
82,786
MATERIALS 4.4%
-------------------------------------------------------------------------
The Dow Chemical Co. 212,700 9,754
MeadWestvaco Corp. 254,000 6,660
PPG Industries, Inc. 145,500 8,726
Rohm & Haas Co. 219,000 9,533
Weyerhaeuser Co. 167,000 10,578
-----------
45,251
MEDIA 0.8%
-------------------------------------------------------------------------
The McGraw-Hill Cos., Inc. 180,000 8,809
PHARMACEUTICALS & BIOTECHNOLOGY 4.4%
-------------------------------------------------------------------------
Abbott Laboratories 165,000 7,103
Johnson & Johnson 207,000 12,962
Merck & Co., Inc. 404,700 11,421
Pfizer, Inc. 483,000 10,500
Wyeth 80,000 3,565
-----------
45,551
RETAILING 0.5%
-------------------------------------------------------------------------
Genuine Parts Co. 121,000 5,369
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT 1.1%
-------------------------------------------------------------------------
= Intel Corp. 484,000 11,374
SOFTWARE & SERVICES 2.8%
-------------------------------------------------------------------------
Automatic Data Processing,
Inc. 80,500 3,756
Electronic Data Systems
Corp. 380,000 8,858
Microsoft Corp. 510,000 13,107
The Reynolds & Reynolds Co.,
Class A 115,000 3,052
-----------
28,773
52 See financial notes.
SCHWAB DIVIDEND EQUITY FUND
VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
TECHNOLOGY HARDWARE & EQUIPMENT 4.4%
-------------------------------------------------------------------------
Harris Corp. 120,000 4,932
(8) Hewlett-Packard Co. 490,000 13,740
International Business Machines
Corp. 160,000 13,101
(9) Motorola, Inc. 615,000 13,628
-----------
45,401
TELECOMMUNICATION SERVICES 6.2%
-------------------------------------------------------------------------
= Alltel Corp. 194,800 12,050
AT&T Corp. 415,100 8,211
BellSouth Corp. 451,600 11,751
Citizens Communications Co. 535,000 6,549
SBC Communications, Inc. 331,500 7,906
Sprint Corp. (FON Group) 295,800 6,895
Verizon Communications, Inc. 337,300 10,628
-----------
63,990
UTILITIES 12.7%
-------------------------------------------------------------------------
American Electric Power Co.,
Inc. 336,000 12,755
Centerpoint Energy, Inc. 447,500 5,925
Consolidated Edison, Inc. 183,100 8,331
Constellation Energy Group,
Inc. 196,700 10,779
Duke Energy Corp. 435,814 11,540
Edison International 304,000 13,303
Entergy Corp. 168,000 11,881
Exelon Corp. 171,400 8,918
FirstEnergy Corp. 249,100 11,832
National Fuel Gas Co. 139,300 4,199
Pinnacle West Capital Corp. 148,000 6,180
PPL Corp. 250,000 7,835
TECO Energy, Inc. 225,000 3,892
TXU Corp. 125,000 12,594
Xcel Energy, Inc. 120,000 2,200
-----------
132,164
SECURITY FACE AMOUNT
RATE, MATURITY DATE ($ x 1,000)
SHORT-TERM INVESTMENT
0.3% of net assets
Wachovia Bank, Grand Cayman
Time Deposit
3.48%, 11/01/05 3,095 3,095
U.S. TREASURY OBLIGATION
0.0% of net assets
= U.S. Treasury Bill
3.35%, 12/15/05 255 254
END OF INVESTMENTS.
SECURITY AND NUMBER OF SHARES
COLLATERAL INVESTED FOR SECURITIES ON LOAN
0.0% of net assets
SHORT-TERM INVESTMENT 0.0%
-------------------------------------------------------------------------
Securities Lending Investments
Fund 141,740 142
END OF COLLATERAL INVESTED FOR SECURITIES ON LOAN.
In addition to the above, the fund held the following at 10/31/05. All numbers x
$1,000 except number of contracts.
FUTURES CONTRACTS
NUMBER OF CONTRACT UNREALIZED
CONTRACTS VALUE LOSSES
S&P 500 Index, e-mini, Long
expires 12/18/05 40 2,420 (58)
See financial notes. 53
SCHWAB DIVIDEND EQUITY FUND
Statement of
ASSETS AND LIABILITIES
As of October 31, 2005. All numbers x 1,000 except NAV.
ASSETS
- --------------------------------------------------------------------------------
Investments, at value
(including $142 of securities on loan) $1,033,283 a
Collateral invested for securities on loan 142
Receivables:
Fund shares sold 2,494
Dividends 1,655
Investments sold 9,418
Due from brokers for futures 20
Income from securities on loan 1
Prepaid expenses + 50
------------
TOTAL ASSETS 1,047,063
LIABILITIES
- --------------------------------------------------------------------------------
Collateral invested for securities on loan 142
Payables:
Fund shares redeemed 889
Investments bought 8,743
Investment adviser and administrator fees 57
Transfer agent and shareholder service fees 15
Accrued expenses + 128
------------
TOTAL LIABILITIES 9,974
NET ASSETS
- --------------------------------------------------------------------------------
TOTAL ASSETS 1,047,063
TOTAL LIABILITIES - 9,974
------------
NET ASSETS $1,037,089
NET ASSETS BY SOURCE
Capital received from investors 950,687
Net investment income not yet distributed 1,911
Net realized capital gains 13,364 b
Net unrealized capital gains 71,127 b
NET ASSET VALUE (NAV) BY SHARE CLASS
SHARES
SHARE CLASS NET ASSETS / OUTSTANDING = NAV
Investor Shares $527,642 41,235 $12.80
Select Shares $509,447 39,813 $12.80
Unless stated, all numbers x 1,000.
a The fund paid $962,098 for these securities.
Not counting short-term obligations and government securities, the fund's
security transactions during the period were:
Purchases $685,487
Sales/maturities $210,175
The fund's total security transactions with other Schwab Funds(R) during the
period were $3,702.
b These derive from investments and futures.
FEDERAL TAX DATA
---------------------------------------------
PORTFOLIO COST $962,098
NET UNREALIZED GAINS AND LOSSES:
Gains $87,200
Losses + (16,015)
------------
$71,185
NET UNDISTRIBUTED EARNINGS:
Ordinary income $1,911
Long-term capital gains $13,306
54 See financial notes.
SCHWAB DIVIDEND EQUITY FUND
Statement of
OPERATIONS
For November 1, 2004 through October 31, 2005. All numbers x 1,000.
INVESTMENT INCOME
- --------------------------------------------------------------------------------
Dividends $26,625
Interest 233
Securities on loan + 2
----------
TOTAL INVESTMENT INCOME 26,860
NET REALIZED GAINS AND LOSSES
- --------------------------------------------------------------------------------
Net realized gains on investments sold 13,305
Net realized gains on futures contracts + 59
----------
NET REALIZED GAINS 13,364
NET UNREALIZED GAINS AND LOSSES
- --------------------------------------------------------------------------------
Net unrealized gains on investments 29,658
Net unrealized losses on futures contracts + (58)
----------
NET UNREALIZED GAINS 29,600
EXPENSES
- --------------------------------------------------------------------------------
Investment adviser and administrator fees 6,570 a
Transfer agent and shareholder service fees:
Investor Shares 1,073 b
Select Shares 401 b
Trustees' fees 10 c
Custodian fees 41
Portfolio accounting fees 122
Professional fees 35
Registration fees 124
Shareholder reports 72
Other expenses + 10
----------
Total expenses 8,458
Expense reduction - 155 d
----------
NET EXPENSES 8,303
INCREASE IN NET ASSETS FROM OPERATIONS
- --------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME 26,860
NET EXPENSES - 8,303
----------
NET INVESTMENT INCOME 18,557
NET REALIZED GAINS 13,364 e
NET UNREALIZED GAINS + 29,600 e
----------
INCREASE IN NET ASSETS FROM OPERATIONS $61,521
Unless stated, all numbers x 1,000.
a Calculated as a percentage of average daily net assets: 0.775% of the first
$500 million; 0.77% of the next $500 million; and 0.76% of assets beyond that.
These fees are paid to Charles Schwab Investment Management, Inc. (CSIM).
Prior to February 28, 2005, these fees were calculated as 0.85% of average
daily net assets.
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). This reduction
reflects a guarantee by CSIM and Schwab to limit the annual net operating
expenses of this fund through February 27, 2006 as follows:
% OF AVERAGE
SHARE CLASS DAILY NET ASSETS
--------------------------------------------
Investor Shares 1.10
Select Shares 0.95
These limits exclude interest, taxes and certain non-routine expenses.
e These add up to a net gain on investments of $42,964.
See financial notes. 55
SCHWAB DIVIDEND EQUITY FUND
Statements of
CHANGES IN NET ASSETS
For the current and prior report periods. All numbers x 1,000.
OPERATIONS
- --------------------------------------------------------------------------------
11/1/04-10/31/05 11/1/03-10/31/04
Net investment income $18,557 $10,630
Net realized gains 13,364 9,619
Net unrealized gains + 29,600 31,897
---------------------------------------
INCREASE IN NET ASSETS
FROM OPERATIONS 61,521 52,146
DISTRIBUTIONS PAID
- --------------------------------------------------------------------------------
DIVIDENDS FROM NET INVESTMENT INCOME
Investor Shares 8,840 5,107
Select Shares + 8,874 5,389
---------------------------------------
TOTAL DIVIDENDS FROM NET
INVESTMENT INCOME 17,714 10,496
DISTRIBUTIONS FROM NET REALIZED GAINS
Investor Shares 4,838 --
Select Shares + 4,386 --
---------------------------------------
TOTAL DISTRIBUTIONS FROM NET
REALIZED GAINS 9,224 --
TOTAL DISTRIBUTIONS $26,938 $10,496 a,b
TRANSACTIONS IN FUND SHARES
- --------------------------------------------------------------------------------
11/1/04-10/31/05 11/1/03-10/31/04
SHARES VALUE SHARES VALUE
SHARES SOLD
Investor Shares 27,892 $355,147 16,485 $189,992
Select Shares + 24,348 310,884 13,314 153,084
--------------------------------------------------
TOTAL SHARES SOLD 52,240 $666,031 29,799 $343,076
SHARES REINVESTED
Investor Shares 854 $10,806 331 $3,809
Select Shares + 731 9,263 307 3,531
--------------------------------------------------
TOTAL SHARES REINVESTED 1,585 $20,069 638 $7,340
SHARES REDEEMED
Investor Shares (9,697) ($124,160) (3,492) ($40,556)
Select Shares + (6,148) (78,680) (3,202) (37,066)
--------------------------------------------------
TOTAL SHARES REDEEMED (15,845) ($202,840) (6,694) ($77,622) c
NET TRANSACTIONS IN FUND
SHARES 37,980 $483,260 23,743 $272,794
SHARES OUTSTANDING AND NET ASSETS
- --------------------------------------------------------------------------------
11/1/04-10/31/05 11/1/03-10/31/04
SHARES NET ASSETS SHARES NET ASSETS
Beginning of period 43,068 $519,246 19,325 $204,802
Total increase + 37,980 517,843 23,743 314,444
--------------------------------------------------
END OF PERIOD 81,048 $1,037,089 43,068 $519,246 d
Unless stated, all numbers x 1,000.
a UNAUDITED
For corporations, 88% of the fund's dividends for the report period qualify
for the dividends-received deduction.
The fund designates $23,020 of the dividend distribution for the fiscal year
ended 10/31/05 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 2006 via IRS Form 1099 of the amounts for use in preparing
their 2005 income tax return.
b The tax-basis components of distributions paid are:
CURRENT PRIOR
PERIOD PERIOD
Ordinary
income $26,230 $10,496
Long-term
capital gains $708 $--
c For shares purchased after 4/29/05 and held less than 30 days, the fund
charges 2.00% redemption fee.
CURRENT
PERIOD
Investor Shares $15
Select Shares + 19
-------
TOTAL $34
Dollar amounts are net of the redemption fee proceeds.
d Includes distributable net investment income in the amount of $1,911 and
$1,068 at the end of the current period and prior period, respectively.
Percent of fund shares owned by other Schwab Funds(R) as of the end of the
current period:
SCHWAB TARGET FUNDS
Schwab Target 2010 Fund 0.2%
Schwab Target 2020 Fund 0.3%
Schwab Target 2030 Fund 0.2%
Schwab Target 2040 Fund 0.1%
Schwab Retirement Income
Fund 0.2%
56 See financial notes.
SCHWAB LARGE-CAP GROWTH FUND(TM)
FINANCIAL STATEMENTS
FINANCIAL HIGHLIGHTS
10/3/05 1-
INVESTOR SHARES 10/31/05
- ------------------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA ($)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of period 10.00
---------------------------------------------------------------------
Income or loss from investment operations:
Net investment loss (0.00) 2
Net realized and unrealized losses (0.27)
---------------------------------------------------------------------
Total loss from investment operations (0.27)
---------------------------------------------------------------------
Net asset value at end of period 9.73
---------------------------------------------------------------------
Total return (%) (2.70) 3
RATIOS/SUPPLEMENTAL DATA (%)
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net operating expenses 1.20 4
Gross operating expenses 1.71 4
Net investment loss (0.61) 4
Portfolio turnover rate 4 3
Net assets, end of period ($ x 1,000,000) 25
1 Commencement of operations.
2 Per share amount was less than $0.01.
3 Not annualized.
4 Annualized.
See financial notes. 57
SCHWAB LARGE-CAP GROWTH FUND
FINANCIAL HIGHLIGHTS
10/3/05 1-
SELECT SHARES 10/31/05
- ------------------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA ($)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of period 10.00
---------------------------------------------------------------------
Income or loss from investment operations:
Net investment loss (0.00) 2
Net realized and unrealized losses (0.27)
---------------------------------------------------------------------
Total loss from investment operations (0.27)
---------------------------------------------------------------------
Net asset value at end of period 9.73
---------------------------------------------------------------------
Total return (%) (2.70) 3
RATIOS/SUPPLEMENTAL DATA (%)
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net operating expenses 0.99 4
Gross operating expenses 1.56 4
Net investment loss (0.40) 4
Portfolio turnover rate 4 3
Net assets, end of period ($ x 1,000,000) 33
1 Commencement of operations.
2 Per share amount was less than $0.01.
3 Not annualized.
4 Annualized.
58 See financial notes.
SCHWAB LARGE-CAP GROWTH FUND
PORTFOLIO HOLDINGS as of October 31, 2005
This section shows all the securities in the fund's portfolio by industry
classification and their value, as of the report date.
The fund files its complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. The fund's Form N-Q is
available on the SEC's website at http://www.sec.gov and may be reviewed and
copied at the SEC's Public Reference Room in Washington, D.C. Call
1-800-SEC-0330 for information on the operation of the Public Reference Room.
The schedule of portfolio holdings filed on the fund's most recent Form N-Q is
available by visiting Schwab's website at www.schwab.com/schwabfunds.
We use the symbols below to designate certain characteristics of the securities.
With the top ten holdings, the number in the circle is the security's rank among
the top ten.
(1) Top ten holding
o Non-income producing security
COST VALUE
HOLDINGS BY CATEGORY ($x1,000) ($x1,000)
- --------------------------------------------------------------------------------
99.4% COMMON STOCK 59,235 58,047
0.7% SHORT-TERM
INVESTMENT 401 401
- --------------------------------------------------------------------------------
100.1% TOTAL INVESTMENTS 59,636 58,448
(0.1)% OTHER ASSETS AND
LIABILITIES, NET (67)
- --------------------------------------------------------------------------------
100.0% TOTAL NET ASSETS 58,381
VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
COMMON STOCK 99.4% of net assets
CAPITAL GOODS 9.3%
-------------------------------------------------------------------------
The Boeing Co. 18,800 1,215
(7) General Dynamics Corp. 15,600 1,815
Lockheed Martin Corp. 16,300 987
Precision Castparts Corp. 14,000 663
Rockwell Collins, Inc. 16,000 733
-----------
5,413
COMMERCIAL SERVICES & SUPPLIES 2.4%
-------------------------------------------------------------------------
Equifax, Inc. 18,000 621
o Monster Worldwide, Inc. 24,000 787
-----------
1,408
CONSUMER DURABLES & APPAREL 2.0%
-------------------------------------------------------------------------
Harman International Industries,
Inc. 8,300 829
The Stanley Works 7,000 335
-----------
1,164
DIVERSIFIED FINANCIALS 7.2%
-------------------------------------------------------------------------
American Express Co. 14,000 697
Capital One Financial Corp. 8,500 649
Federated Investors, Inc.,
Class B 10,000 350
Franklin Resources, Inc. 9,600 848
Moody's Corp. 16,000 852
Northern Trust Corp. 15,000 804
-----------
4,200
ENERGY 6.2%
-------------------------------------------------------------------------
ChevronTexaco Corp. 15,600 890
(4) Exxon Mobil Corp. 35,800 2,010
Helmerich & Payne, Inc. 12,800 709
-----------
3,609
FOOD BEVERAGE & TOBACCO 5.6%
-------------------------------------------------------------------------
Altria Group, Inc. 12,000 901
(10) The Coca-Cola Co. 31,300 1,339
Kellogg Co. 16,000 707
PepsiCo, Inc. 5,900 348
-----------
3,295
HEALTH CARE EQUIPMENT & SERVICES 10.2%
-------------------------------------------------------------------------
Baxter International, Inc. 24,500 937
Becton Dickinson & Co. 15,000 761
o Express Scripts, Inc. 13,500 1,018
o Lincare Holdings, Inc. 17,000 695
(8) UnitedHealth Group, Inc. 26,600 1,540
o WellPoint, Inc. 13,300 993
-----------
5,944
See financial notes. 59
SCHWAB LARGE-CAP GROWTH FUND
PORTFOLIO HOLDINGS continued
VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
HOTELS RESTAURANTS & LEISURE 1.1%
-------------------------------------------------------------------------
Hilton Hotels Corp. 34,000 661
INSURANCE 5.1%
-------------------------------------------------------------------------
AFLAC, Inc. 18,500 884
American International Group, Inc. 19,800 1,283
W.R. Berkley Corp. 18,000 787
-----------
2,954
MATERIALS 1.7%
-------------------------------------------------------------------------
Freeport-McMoran Copper & Gold, Inc.,
Class B 20,000 988
MEDIA 2.1%
-------------------------------------------------------------------------
o Getty Images, Inc. 10,500 872
The McGraw-Hill Cos., Inc. 7,500 367
-----------
1,239
PHARMACEUTICALS & BIOTECHNOLOGY 12.3%
-------------------------------------------------------------------------
o Amgen, Inc. 16,200 1,227
o Barr Pharmaceuticals, Inc. 8,000 460
(1) Johnson & Johnson 41,200 2,580
(3) Pfizer, Inc. 93,100 2,024
Schering-Plough Corp. 44,000 895
-----------
7,186
RETAILING 5.0%
-------------------------------------------------------------------------
o eBay, Inc. 32,100 1,271
J.C. Penney Co., Inc. Holding Co. 15,400 789
o Weight Watchers International,
Inc. 16,100 846
-----------
2,906
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT 7.7%
-------------------------------------------------------------------------
o Broadcom Corp., Class A 18,500 786
(2) Intel Corp. 94,300 2,216
National Semiconductor Corp. 13,000 294
Texas Instruments, Inc. 43,200 1,233
-----------
4,529
SOFTWARE & SERVICES 7.9%
-------------------------------------------------------------------------
Autodesk, Inc. 17,000 767
o Cadence Design Systems, Inc. 41,000 655
o DST Systems, Inc. 13,000 730
o Google, Inc., Class A 2,000 744
o McAfee, Inc. 20,000 601
Microsoft Corp. 43,000 1,105
-----------
4,602
TECHNOLOGY HARDWARE & EQUIPMENT 12.5%
-------------------------------------------------------------------------
Corning, Inc. 51,500 1,035
(6) Hewlett-Packard Co. 66,800 1,873
(5) International Business Machines
Corp. 22,900 1,875
Motorola, Inc. 52,500 1,163
(9) Qualcomm, Inc. 34,400 1,368
-----------
7,314
UTILITIES 1.1%
-------------------------------------------------------------------------
TXU Corp. 6,300 635
SECURITY FACE AMOUNT
RATE, MATURITY DATE ($ x 1,000)
SHORT-TERM INVESTMENT
0.7% of net assets
Wells Fargo, Grand Cayman
Time Deposit
3.48%, 11/01/05 401 401
END OF INVESTMENTS.
60 See financial notes.
SCHWAB LARGE-CAP GROWTH FUND
Statement of
ASSETS AND LIABILITIES
As of October 31, 2005. All numbers x 1,000 except NAV.
ASSETS
- --------------------------------------------------------------------------------
Investments, at value $58,448 a
Receivables:
Fund shares sold 719
Dividends 14
Investments sold 1,290
Prepaid expenses + 19
-----------
TOTAL ASSETS 60,490
LIABILITIES
- --------------------------------------------------------------------------------
Payables:
Fund shares redeemed 32
Investments bought 2,048
Investment adviser and administrator fees 4
Transfer agent and shareholder service fees 1
Accrued expenses + 24
-----------
TOTAL LIABILITIES 2,109
NET ASSETS
- --------------------------------------------------------------------------------
TOTAL ASSETS 60,490
TOTAL LIABILITIES - 2,109
-----------
NET ASSETS $58,381
NET ASSETS BY SOURCE
Capital received from investors 59,740
Net realized capital losses (171)
Net unrealized capital losses (1,188)
NET ASSET VALUE (NAV) BY SHARE CLASS
SHARES
SHARE CLASS NET ASSETS / OUTSTANDING = NAV
Investor Shares $25,447 2,616 $9.73
Select Shares $32,934 3,385 $9.73
Unless stated, all numbers x 1,000.
a The fund paid $59,636 for these securities.
Not counting short-term obligations and government securities, the fund's
security transactions during the period were:
Purchases $61,519
Sales/maturities $2,113
The fund's total security transactions with other Schwab Funds(R) during the
period were $824.
FEDERAL TAX DATA
--------------------------------------------------
PORTFOLIO COST $59,649
NET UNREALIZED GAINS AND LOSSES:
Gains $867
Losses + (2,068)
--------------
$(1,201)
UNUSED CAPITAL LOSSES:
Expires 10/31 of: Loss amount
2013 $158
RECLASSIFICATIONS:
Net investment income
not yet distributed $21
Reclassified as:
Capital received from
investors ($21)
See financial notes. 61
SCHWAB LARGE-CAP GROWTH FUND
Statement of
OPERATIONS
For October 3, 2005 through October 31, 2005. All numbers x 1,000.
INVESTMENT INCOME
- --------------------------------------------------------------------------------
Dividends $14
Interest + 12
---------
TOTAL INVESTMENT INCOME 26
NET REALIZED GAINS AND LOSSES
- --------------------------------------------------------------------------------
Net realized losses on investments sold (171)
NET UNREALIZED GAINS AND LOSSES
- --------------------------------------------------------------------------------
Net unrealized losses on investments (1,188)
EXPENSES
- --------------------------------------------------------------------------------
Investment adviser and administrator fees 38 a
Transfer agent and shareholder service fees
Investor Shares 5 b
Select Shares 2 b
Custodian fees 1
Portfolio accounting fees 2
Professional fees 17
Registration fees 5
Shareholder reports + 1
---------
Total expenses 71
Expense reduction - 24 c
---------
NET EXPENSES 47
DECREASE IN NET ASSETS FROM OPERATIONS
- --------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME 26
NET EXPENSES - 47
---------
NET INVESTMENT LOSS (21)
NET REALIZED LOSSES (171)d
NET UNREALIZED LOSSES + (1,188)d
---------
DECREASE IN NET ASSETS FROM OPERATIONS ($1,380)
Unless stated, all numbers x 1,000.
a Calculated as a percentage of average daily net assets: 0.87% of the first
$500 million; 0.85% of the next $500 million; 0.83% of the next billion; and
0.81% of assets beyond that. These fees are paid to Charles Schwab Investment
Management, Inc. (CSIM).
b Calculated as a percentage of average daily net assets: for transfer agent
services, 0.05% of the fund's assets; for shareholder services, 0.20% and
0.05% of the assets of each respective share class. These fees are paid to
Charles Schwab & Co., Inc. (Schwab).
c Includes $22 from the investment adviser (CSIM) and $2 from the transfer agent
and shareholder service agent (Schwab). These reductions reflect a guarantee
by CSIM and Schwab to limit the net operating expenses of this fund through
February 27, 2007 as follows:
% OF AVERAGE
SHARE CLASS DAILY NET ASSETS
--------------------------------------
Investor Shares 1.20
Select Shares 0.99
These limits exclude interest, taxes and certain non-routine expenses.
d These add up to a net loss on investments of $1,359.
62 See financial notes.
SCHWAB LARGE-CAP GROWTH FUND
Statements of
CHANGES IN NET ASSETS
For the current period only. Because the fund commenced operations on October 3,
2005, it has no prior report period. All numbers x 1,000.
OPERATIONS
- --------------------------------------------------------------------------------
10/3/05-10/31/05
Net investment loss ($21)
Net realized losses (171)
Net unrealized losses + (1,188)
-----------------
DECREASE IN NET ASSETS
FROM OPERATIONS ($1,380)
TRANSACTIONS IN FUND SHARES
- --------------------------------------------------------------------------------
10/3/05-10/31/05
SHARES VALUE
SHARES SOLD
Investor Shares 2,636 $26,231
Select Shares + 3,385 33,718
--------------------
TOTAL SHARES SOLD 6,021 $59,949
SHARES REDEEMED
Investor Shares (20) $(188)
Select Shares + -- --
--------------------
TOTAL SHARES REDEEMED (20) $(188)a
NET TRANSACTIONS IN FUND
SHARES 6,001 $59,761
SHARES OUTSTANDING AND NET ASSETS
- --------------------------------------------------------------------------------
10/3/05-10/31/05
SHARES NET ASSETS
Beginning of period -- $--
Total increase + 6,001 58,381 b
--------------------
END OF PERIOD 6,001 $58,381 c
Unless stated, all numbers x 1,000.
a The fund charges 2.00% of early withdrawal fees on shares redeemed 30 days or
less after the purchase:
CURRENT
PERIOD
Investor Shares $3
Select Shares + --
-------
TOTAL $3
Dollar amounts are net of the redemption fee proceeds.
b Figures for shares represent shares sold plus shares reinvested, minus shares
redeemed. Figures for net assets represent the changes in net assets from
operations plus the changes in value of transactions in fund shares, minus
distributions paid.
c Includes net investment loss in the amount of $--.
See financial notes. 63
SCHWAB SMALL-CAP EQUITY FUND(TM)
FINANCIAL STATEMENTS
FINANCIAL HIGHLIGHTS
11/1/04- 11/1/03- 7/1/03 1-
INVESTOR SHARES 10/31/05 10/31/04 10/31/03
- ------------------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA ($)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of period 14.13 11.81 10.00
---------------------------------------------------------------------
Income or loss from investment operations:
Net investment income or loss 0.01 (0.04) (0.02)
Net realized and unrealized gains 3.12 2.58 1.83
---------------------------------------------------------------------
Total income from investment operations 3.13 2.54 1.81
Less distributions:
Distributions from net realized gains (1.54) (0.22) --
---------------------------------------------------------------------
Net asset value at end of period 15.72 14.13 11.81
---------------------------------------------------------------------
Total return (%) 23.65 21.74 18.10 2
RATIOS/SUPPLEMENTAL DATA (%)
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net operating expenses 1.28 1.30 1.30 3
Gross operating expenses 1.38 1.61 1.73 3
Net investment income or loss 0.11 (0.35) (0.54) 3
Portfolio turnover rate 90 118 39 2
Net assets, end of period ($ x 1,000,000) 170 37 26
1 Commencement of operations.
2 Not annualized.
3 Annualized.
64 See financial notes.
SCHWAB SMALL-CAP EQUITY FUND
11/1/04- 11/1/03- 7/1/03 1-
SELECT SHARES 10/31/05 10/31/04 10/31/03
- ------------------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA ($)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of period 14.16 11.81 10.00
---------------------------------------------------------------------
Income or loss from investment operations:
Net investment income or loss 0.00 4 (0.02) (0.01)
Net realized and unrealized gains 3.16 2.59 1.82
---------------------------------------------------------------------
Total income from investment operations 3.16 2.57 1.81
Less distributions:
Distributions from net realized gains (1.54) (0.22) --
---------------------------------------------------------------------
Net asset value at end of period 15.78 14.16 11.81
---------------------------------------------------------------------
Total return (%) 23.83 22.00 18.10 2
RATIOS/SUPPLEMENTAL DATA(%)
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net operating expenses 1.11 1.12 1.12 3
Gross operating expenses 1.23 1.46 1.58 3
Net investment income or loss 0.09 (0.16) (0.36) 3
Portfolio turnover rate 90 118 39 2
Net assets, end of period ($ x 1,000,000) 80 18 14
1 Commencement of operations.
2 Not annualized.
3 Annualized.
4 Per share amount was less than $0.01.
See financial notes. 65
SCHWAB SMALL-CAP EQUITY FUND
PORTFOLIO HOLDINGS as of October 31, 2005
This section shows all the securities in the fund's portfolio by industry
classification and their value, as of the report date.
The fund files its complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. The fund's Form N-Q is
available on the SEC's website at http://www.sec.gov and may be reviewed and
copied at the SEC's Public Reference Room in Washington, D.C. Call
1-800-SEC-0330 for information on the operation of the Public Reference Room.
The schedule of portfolio holdings filed on the fund's most recent Form N-Q is
available by visiting Schwab's website at www.schwab.com/schwabfunds.
We use the symbols below to designate certain characteristics of the securities.
With the top ten holdings, the number in the circle is the security's rank among
the top ten.
(1) Top ten holding
o Non-income producing security
= All or a portion of this security is held as collateral for open futures
contracts
@ All or a portion of this security is on loan
COST VALUE
HOLDINGS BY CATEGORY ($x1,000) ($x1,000)
- --------------------------------------------------------------------------------
98.4% COMMON STOCK 225,837 246,489
2.8% SHORT-TERM
INVESTMENTS 7,026 7,026
0.1% U.S. TREASURY
OBLIGATION 249 249
- --------------------------------------------------------------------------------
101.3% TOTAL INVESTMENTS 233,112 253,764
6.8% COLLATERAL INVESTED
FOR SECURITIES ON LOAN 17,065 17,065
(8.1)% OTHER ASSETS AND
LIABILITIES, NET (20,231)
- --------------------------------------------------------------------------------
100.0% TOTAL NET ASSETS 250,598
VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
COMMON STOCK 98.4% of net assets
AUTOMOBILES & COMPONENTS 4.8%
-------------------------------------------------------------------------
ArvinMeritor, Inc. 206,600 3,312
@o Goodyear Tire & Rubber Co. 178,400 2,790
o(8) TRW Automotive Holdings
Corp. 222,100 6,008
-----------
12,110
BANKS 4.0%
-------------------------------------------------------------------------
Bancfirst Corp. 11,100 922
(4) Bank of Hawaii Corp. 136,100 6,993
@ Corus Bankshares, Inc. 2,700 148
Federal Agricultural Mortgage Corp.,
Class C 11,900 310
First Indiana Corp. 42,200 1,475
TierOne Corp. 5,700 161
-----------
10,009
BUSINESS SERVICES 0.6%
-------------------------------------------------------------------------
o SYKES Enterprises, Inc. 109,500 1,581
CAPITAL GOODS 9.6%
-------------------------------------------------------------------------
A.O. Smith Corp., Class B 36,900 1,195
o Alleghany Corp. 11,000 3,311
o EMCOR Group, Inc. 56,700 3,458
=o ESCO Technologies, Inc. 22,400 969
=(9) GATX Corp. 157,900 5,901
Teleflex, Inc. 22,900 1,516
o(1) Thomas & Betts Corp. 197,000 7,667
-----------
24,017
COMMERCIAL SERVICES & SUPPLIES 4.2%
-------------------------------------------------------------------------
Administaff, Inc. 101,350 4,289
o CBIZ, Inc. 33,500 193
o Consolidated Graphics, Inc. 12,950 505
Herman Miller, Inc. 125,500 3,440
o Labor Ready, Inc. 22,700 530
Rollins, Inc. 9,800 186
o Sitel Corp. 55,100 166
Steelcase, Inc., Class A 83,900 1,201
-----------
10,510
CONSUMER DURABLES & APPAREL 3.3%
-------------------------------------------------------------------------
American Greetings Corp.,
Class A 156,800 3,959
o Cavco Industries, Inc. 36,000 1,421
= K-Swiss, Inc., Class A 94,000 2,862
-----------
8,242
66 See financial notes.
SCHWAB SMALL-CAP EQUITY FUND
VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
DIVERSIFIED FINANCIALS 3.0%
-------------------------------------------------------------------------
o EZCORP, Inc. 21,400 315
=o(3) Investment Technology Group,
Inc. 219,600 7,139
-----------
7,454
ENERGY 6.1%
-------------------------------------------------------------------------
Cabot Oil & Gas Corp. 63,100 2,889
o CAL Dive International, Inc. 1,220 75
o Giant Industries, Inc. 53,100 3,037
(6) Helmerich & Payne, Inc. 120,600 6,681
o Parker Drilling Co. 46,800 414
o Veritas DGC, Inc. 33,500 1,079
W&T Offshore, Inc. 34,400 1,005
-----------
15,180
FOOD & STAPLES RETAILING 1.9%
-------------------------------------------------------------------------
o 7-Eleven, Inc. 20,300 760
@o Rite Aid Corp. 1,125,200 3,938
-----------
4,698
FOOD BEVERAGE & TOBACCO 4.1%
-------------------------------------------------------------------------
o Boston Beer Co., Inc., Class A 23,700 607
@ Pilgrim's Pride Corp., Class B 108,100 3,403
@(7) Vector Group Ltd. 318,219 6,351
-----------
10,361
HEALTH CARE EQUIPMENT & SERVICES 8.1%
-------------------------------------------------------------------------
o Cutera, Inc. 4,000 109
=o Haemonetics Corp. 81,500 3,949
o Hologic, Inc. 21,100 1,170
o Medcath Corp. 4,500 83
o Odyssey HealthCare, Inc. 39,400 681
o OraSure Technologies, Inc. 16,500 182
=o(2) Sierra Health Services, Inc. 100,000 7,500
@o SurModics, Inc. 40,800 1,612
o Trizetto Group, Inc. 36,340 515
o United Surgical Partners International,
Inc. 88,100 3,158
Vital Signs, Inc. 26,900 1,264
-----------
20,223
HOTELS RESTAURANTS & LEISURE 0.4%
-------------------------------------------------------------------------
Ambassadors Group, Inc. 35,200 915
INSURANCE 8.2%
-------------------------------------------------------------------------
American Financial Group,
Inc. 132,200 4,519
o American Physicians Capital,
Inc. 25,600 1,082
o CNA Surety Corp. 22,600 317
= Delphi Financial Group, Inc.,
Class A 50,050 2,344
Nationwide Financial Services, Inc.,
Class A 111,300 4,496
Ohio Casualty Corp. 23,700 647
Protective Life Corp. 28,700 1,258
Safety Insurance Group, Inc. 43,500 1,636
Selective Insurance Group, Inc. 5,900 324
Stancorp Financial Group, Inc. 3,300 304
Zenith National Insurance
Corp. 78,150 3,518
-----------
20,445
MATERIALS 7.1%
-------------------------------------------------------------------------
Balchem Corp. 23,150 635
=o(5) Crown Holdings, Inc. 429,300 6,963
=o FMC Corp. 94,300 5,134
Quanex Corp. 49,900 2,890
Silgan Holdings, Inc. 68,700 2,210
-----------
17,832
MEDIA 2.3%
-------------------------------------------------------------------------
o Insight Communications Co.,
Class A 9,200 106
(10) John Wiley & Sons,
Class A 140,500 5,507
o Playboy Enterprises, Inc.,
Class B 15,900 241
-----------
5,854
PHARMACEUTICALS & BIOTECHNOLOGY 4.0%
-------------------------------------------------------------------------
o Albany Molecular Research,
Inc. 109,700 1,470
Alpharma, Inc., Class A 158,200 3,938
o Celera Genomics Group -- Applera
Corp. 75,100 892
See financial notes. 67
SCHWAB SMALL-CAP EQUITY FUND
PORTFOLIO HOLDINGS continued
VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
CNS, Inc. 67,900 1,770
o Kendle International, Inc. 64,400 1,551
o Kos Pharmaceuticals, Inc. 2,300 138
o Regeneron Pharmaceuticals,
Inc. 32,400 405
-----------
10,164
REAL ESTATE 0.2%
-------------------------------------------------------------------------
Capital Automotive Real Estate
Investment Trust 3,000 116
Essex Property Trust, Inc. 1,500 135
Kilroy Realty Corp. 2,000 112
New Century Financial Corp. 3,000 93
Shurgard Storage Centers, Inc.,
Class A 3,200 180
-----------
636
RETAILING 3.8%
-------------------------------------------------------------------------
The Buckle, Inc. 43,600 1,606
The Cato Corp., Class A 73,050 1,460
o Charming Shoppes, Inc. 188,300 2,109
=o Payless Shoesource, Inc. 181,300 3,330
o Wilsons The Leather Expert 205,800 1,035
-----------
9,540
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT 3.4%
-------------------------------------------------------------------------
o Agere Systems, Inc. 22,340 232
o Cirrus Logic, Inc. 114,900 754
o Cymer, Inc. 68,100 2,373
o DSP Group, Inc. 39,700 976
o LSI Logic Corp. 201,400 1,633
o Micrel, Inc. 4,400 44
o ON Semiconductor Corp. 303,100 1,407
o Triquint Semiconductor, Inc. 289,600 1,216
-----------
8,635
SOFTWARE & SERVICES 10.5%
-------------------------------------------------------------------------
o Advent Software, Inc. 15,700 482
o CSG Systems International,
Inc. 151,300 3,557
=o Earthlink, Inc. 473,200 5,210
Global Payments, Inc. 45,400 1,945
o Intrado, Inc. 44,600 863
o Parametric Technology Corp. 99,200 646
o Progress Software Corp. 77,891 2,425
The Reynolds & Reynolds Co.,
Class A 134,800 3,578
o SonicWALL, Inc. 93,000 647
o SPSS, Inc. 76,100 1,735
o Sybase, Inc. 4,700 105
o Synopsys, Inc. 185,500 3,515
United Online, Inc. 113,400 1,521
-----------
26,229
TECHNOLOGY HARDWARE & EQUIPMENT 4.3%
-------------------------------------------------------------------------
= Agilysys, Inc. 100,000 1,494
AVX Corp. 54,200 671
o Brightpoint, Inc. 21,200 457
o Coherent, Inc. 38,200 1,131
o Emulex Corp. 80,700 1,494
Imation Corp. 119,900 5,133
o PAR Technology Corp. 12,700 310
o Staktek Holdings, Inc. 5,000 17
-----------
10,707
TELECOMMUNICATION SERVICES 2.0%
-------------------------------------------------------------------------
= Commonwealth Telephone Enterprises,
Inc. 100,300 3,600
CT Communications, Inc. 30,900 350
North Pittsburgh Systems, Inc. 10,700 215
@o Talk America Holdings, Inc. 87,500 843
-----------
5,008
TRANSPORTATION 2.0%
-------------------------------------------------------------------------
@o AMR Corp. 111,700 1,509
CNF, Inc. 27,000 1,519
@o Continental Airlines, Inc.,
Class B 105,600 1,368
o Landstar Systems, Inc. 14,000 539
-----------
4,935
UTILITIES 0.5%
-------------------------------------------------------------------------
Allete, Inc. 3,800 167
Westar Energy, Inc. 46,900 1,037
-----------
1,204
68 See financial notes.
SCHWAB SMALL-CAP EQUITY FUND
SECURITY FACE AMOUNT VALUE
RATE, MATURITY DATE ($ x 1,000) ($ x 1,000)
SHORT-TERM INVESTMENTS
2.8% of net assets
Brown Brothers Harriman, Grand
Cayman Time Deposit
3.48%, 11/01/05 26 26
Wachovia Bank, Grand Cayman
Time Deposit
3.48%, 11/01/05 7,000 7,000
-----------
7,026
U.S. TREASURY OBLIGATION
0.1% of net assets
= U.S. Treasury Bill
3.35%, 12/15/05 250 249
END OF INVESTMENTS.
SECURITY AND NUMBER OF SHARES
COLLATERAL INVESTED FOR SECURITIES ON LOAN
6.8% of net assets
SHORT-TERM INVESTMENT 6.8%
-------------------------------------------------------------------------
Securities Lending Investments
Fund 17,064,955 17,065
END OF COLLATERAL INVESTED FOR SECURITIES ON LOAN.
In addition to the above, the fund held the following at 10/31/05. All numbers x
$1,000 except number of contracts.
FUTURES CONTRACTS
NUMBER OF CONTRACT UNREALIZED
CONTRACTS VALUE LOSSES
Russell 2000 Index, e-mini, Long
expires 12/17/05 33 2,142 (69)
Russell 2000 Index, Long
expires 12/17/05 4 1,298 (42)
---------
(111)
See financial notes. 69
SCHWAB SMALL-CAP EQUITY FUND
Statement of
ASSETS AND LIABILITIES
As of October 31, 2005. All numbers x 1,000 except NAV.
ASSETS
- --------------------------------------------------------------------------------
Investments, at value (including $16,909 of securities on loan) $253,764 a
Collateral invested for securities on loan 17,065
Receivables:
Fund shares sold 2,152
Interest 1
Dividends 29
Investments sold 6,591
Due from brokers for futures 74
Securities on loan 15
Prepaid expenses + 21
---------
TOTAL ASSETS 279,712
LIABILITIES
- --------------------------------------------------------------------------------
Collateral invested for securities on loan 17,065
Payables:
Fund shares redeemed 255
Investments bought 11,716
Investment adviser and administrator fees 16
Transfer agent and shareholder service fees 4
Accrued expenses + 58
---------
TOTAL LIABILITIES 29,114
NET ASSETS
- --------------------------------------------------------------------------------
TOTAL ASSETS 279,712
TOTAL LIABILITIES - 29,114
---------
NET ASSETS $250,598
NET ASSETS BY SOURCE
Capital received from investors 221,723
Net investment income not yet distributed 135
Net realized capital gains 8,199 b
Net unrealized capital gains 20,541 b
NET ASSET VALUE (NAV) BY SHARE CLASS
SHARES
SHARE CLASS NET ASSETS / OUTSTANDING = NAV
Investor Shares $ 170,416 10,842 $15.72
Select Shares $ 80,182 5,081 $15.78
Unless stated, all numbers x 1,000.
a The fund paid $233,112 for these securities.
Not counting short-term obligations and government securities, the fund's
security transactions during the period were:
Purchases $287,168
Sales/maturities $116,354
The fund's total security transactions with other Schwab Funds(R) during the
period were $5,561.
b These derive from investments and futures.
FEDERAL TAX DATA
----------------------------------------------
PORTFOLIO COST $233,112
NET UNREALIZED GAINS AND LOSSES:
Gains $26,862
Losses + (6,210)
----------
$20,652
NET UNDISTRIBUTED EARNINGS:
Ordinary income $1,708
Long-term capital gains $6,515
70 See financial notes.
SCHWAB SMALL-CAP EQUITY FUND
Statement of
OPERATIONS
For November 1, 2004 through October 31, 2005. All numbers x 1,000.
INVESTMENT INCOME
- --------------------------------------------------------------------------------
Dividends $1,548
Interest 104
Securities on loan + 80
----------
TOTAL INVESTMENT INCOME 1,732
NET REALIZED GAINS AND LOSSES
- --------------------------------------------------------------------------------
Net realized gains on investments sold 8,255
Net realized losses on futures contracts + (13)
----------
NET REALIZED GAINS 8,242
NET UNREALIZED GAINS AND LOSSES
- --------------------------------------------------------------------------------
Net unrealized gains on investments 14,014
Net unrealized losses on futures contracts + (155)
----------
NET UNREALIZED GAINS 13,859
EXPENSES
- --------------------------------------------------------------------------------
Investment adviser and administrator fees 1,281 a
Transfer agent and shareholder service fees:
Investor Shares 229 b
Select Shares 38 b
Trustees' fees 6 c
Custodian fees 47
Portfolio accounting fees 32
Professional fees 33
Registration fees 53
Shareholder reports 14
Other expenses + 4
----------
Total expenses 1,737
Expense reduction - 140 d
----------
NET EXPENSES 1,597
INCREASE IN NET ASSETS FROM OPERATIONS
- --------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME 1,732
NET EXPENSES - 1,597
----------
NET INVESTMENT INCOME 135
NET REALIZED GAINS 8,242 e
NET UNREALIZED GAINS + 13,859 e
----------
INCREASE IN NET ASSETS FROM OPERATIONS $22,236
Unless stated, all numbers x 1,000.
a Calculated as a percentage of average daily net assets: 0.975% of the first
$500 million; 0.93% of the next $500 million; and 0.91% of assets beyond that.
These fees are paid to Charles Schwab Investment Management, Inc. (CSIM).
Prior to February 28, 2005, these fees were calculated as 1.05% of average
daily net assets.
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 $130 from the investment adviser (CSIM) and $10 from the transfer
agent and shareholder service agent (Schwab). These reductions reflect a
guarantee by CSIM and Schwab to limit the net operating expenses of this fund
through February 27, 2006, as follows:
% OF AVERAGE
SHARE CLASS DAILY NET ASSETS
---------------------------------------------
Investor Shares 1.30
Select Shares 1.12
These limits exclude interest, taxes and certain non-routine expenses.
e These add up to a net gain on investments of $22,101.
See financial notes. 71
SCHWAB SMALL-CAP EQUITY FUND
Statements of
CHANGES IN NET ASSETS
For the current and prior report periods. All numbers x 1,000.
OPERATIONS
- --------------------------------------------------------------------------------
11/1/04-10/31/05 11/1/03-10/31/04
Net investment income or loss $135 $(143)
Net realized gains 8,242 7,183
Net unrealized gains + 13,859 2,253
-------------------------------------
INCREASE IN NET ASSETS
FROM OPERATIONS 22,236 9,293
DISTRIBUTIONS PAID
- --------------------------------------------------------------------------------
DISTRIBUTIONS FROM NET REALIZED GAINS
Investor Shares 4,802 499
Select Shares + 2,252 266
-------------------------------------
TOTAL DISTRIBUTIONS FROM NET
REALIZED GAINS $7,054 $765 a,b
TRANSACTIONS IN FUND SHARES
- --------------------------------------------------------------------------------
11/1/04-10/31/05 11/1/03-10/31/04
SHARES VALUE SHARES VALUE
SHARES SOLD
Investor Shares 9,837 $146,160 1,153 $15,053
Select Shares + 4,714 71,745 301 3,944
--------------------------------------------
TOTAL SHARES SOLD 14,551 $217,905 1,454 $18,997
SHARES REINVESTED
Investor Shares 313 $4,324 37 $453
Select Shares + 118 1,635 17 204
--------------------------------------------
TOTAL SHARES REINVESTED 431 $5,959 54 $657
SHARES REDEEMED
Investor Shares (1,902) $(27,944) (763) $(10,029)
Select Shares + (1,055) (15,623) (221) (2,885)
--------------------------------------------
TOTAL SHARES REDEEMED (2,957) $(43,567) (984) $(12,914) c
NET TRANSACTIONS IN FUND SHARES 12,025 $180,297 524 $6,740
SHARES OUTSTANDING AND NET ASSETS
- --------------------------------------------------------------------------------
11/1/04-10/31/05 11/1/03-10/31/04
SHARES NET ASSETS SHARES NET ASSETS
Beginning of period 3,898 $55,119 3,374 $39,851
Total increase + 12,025 195,479 524 15,268
--------------------------------------------
END OF PERIOD 15,923 $250,598 3,898 $55,119 d
Unless stated, all numbers x 1,000.
a UNAUDITED
For corporations, 9% of the fund's dividends for the report period qualify for
the dividends received deduction.
The fund designates $447 of the dividend distribution for the fiscal year
ended 10/31/05 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 2006 via IRS Form 1099 of the amounts for use in preparing
their 2005 income tax return.
b The tax-basis components of distributions paid are:
CURRENT PERIOD
Ordinary income $4,863
Long-term capital gains $2,191
PRIOR PERIOD
Ordinary income $642
Long-term capital gains $123
c For shares purchased after 4/29/05 and held less than 30 days, the fund
charges 2.00% redemption fee.
CURRENT
PERIOD
Investor Shares $14
Select Shares + 16
-------
TOTAL $30
Dollar amounts are net of the redemption fee proceeds.
d Includes distributable net investment income in the amount of $135 and $-- at
the end of the current period and prior period, respectively.
Percent of fund shares owned by other Schwab Funds(R) as of the end of the
current period:
SCHWAB TARGET FUNDS
Schwab Target 2010 Fund 0.2%
Schwab Target 2020 Fund 0.2%
Schwab Target 2030 Fund 0.1%
Schwab Target 2040 Fund 0.1%
72 See financial notes.
SCHWAB HEDGED EQUITY FUND(TM)
FINANCIAL STATEMENTS
FINANCIAL HIGHLIGHTS
3/1/05 1-
INVESTOR SHARES 10/31/05
- ------------------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA ($)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of period 13.51
---------------------------------------------------------------------
Income from investment operations:
Net investment income 0.03
Net realized and unrealized gains 0.91
---------------------------------------------------------------------
Total income from investment operations 0.94
---------------------------------------------------------------------
Net asset value at end of period 14.45
---------------------------------------------------------------------
Total return (%) 6.96 2
RATIOS/SUPPLEMENTAL DATA (%)
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net operating expenses (including dividend
expense on short sales) 2.32 3
Net operating expenses (excluding dividend
expense on short sales) 2.05 3,4
Gross operating expenses 2.35 3
Net investment income 0.56 3
Portfolio turnover rate 87 2
Net assets, end of period ($ x 1,000,000) 33
1 Commencement of operations.
2 Not annualized.
3 Annualized.
4 The ratio of net operating expenses would have been 2.00% if interest expense
had not been included.
See financial notes. 73
SCHWAB HEDGED EQUITY FUND
FINANCIAL HIGHLIGHTS
11/1/04- 11/1/03- 11/1/02- 9/3/02 1-
SELECT SHARES 10/31/05 10/31/04 10/31/03 10/31/02
- ------------------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA ($)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of period 13.01 11.53 9.84 10.00
---------------------------------------------------------------------
Income or loss from investment operations:
Net investment income or loss 0.04 (0.09) (0.09) (0.01)
Net realized and unrealized gains or losses 2.05 1.57 1.78 (0.15)
---------------------------------------------------------------------
Total income or loss from investment operations 2.09 1.48 1.69 (0.16)
---------------------------------------------------------------------
Less distributions:
Distributions from net realized gains (0.64) -- -- --
---------------------------------------------------------------------
Net asset value at end of period 14.46 13.01 11.53 9.84
---------------------------------------------------------------------
Total return (%) 16.52 12.84 17.17 (1.60) 2
RATIOS/SUPPLEMENTAL DATA (%)
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net operating expenses (including dividend
expense on short sales) 2.26 2.43 2.37 2.39 3
Net operating expenses (excluding dividend
expense on short sales) 1.92 4 2.10 5 2.00 2.00 3
Gross operating expenses 2.39 2.71 2.77 3.33 3
Net investment income or loss 0.55 (0.86) (0.90) (0.79) 3
Portfolio turnover rate 87 99 114 68 2
Net assets, end of period ($ x 1,000,000) 229 68 44 32
1 Commencement of operations.
2 Not annualized.
3 Annualized.
4 The ratio of net operating expenses would have been 1.82% if interest expense
had not been included.
5 The ratio of net operating expenses would have been 2.00% if interest expense
had not been included.
74 See financial notes.
SCHWAB HEDGED EQUITY FUND
PORTFOLIO HOLDINGS as of October 31, 2005
This section shows all the securities in the fund's portfolio by industry
classification and their value, as of the report date.
The fund files its complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. The fund's Form N-Q is
available on the SEC'S website at http://www.sec.gov and may be reviewed and
copied at the SEC'S Public Reference Room in Washington, D.C. Call
1-800-SEC-0330 for information on the operation of the Public Reference Room.
The schedule of portfolio holdings filed on the fund's most recent Form N-Q is
available by visiting Schwab's website at www.schwab.com/schwabfunds.
We use the symbol below to designate certain characteristics of the security.
(1) Top five long holdings/top five short positions
o Non-income producing security
@ All or a portion of this security is held as collateral for short sales
COST/PROCEEDS VALUE
HOLDINGS BY CATEGORY ($x1,000) ($x1,000)
- --------------------------------------------------------------------------------
100.8% COMMON STOCK 249,539 264,277
5.0% SHORT-TERM
INVESTMENTS 13,206 13,206
- --------------------------------------------------------------------------------
105.8% TOTAL INVESTMENTS 262,745 277,483
(33.8)% SHORT SALES (92,277) (88,656)
28.0% OTHER ASSETS AND
LIABILITIES 73,522
- --------------------------------------------------------------------------------
100.0% TOTAL NET ASSETS 262,349
VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
COMMON STOCK 100.8% of net assets
AUTOMOBILE PRODUCTS / MOTOR VEHICLES 1.3%
-------------------------------------------------------------------------
Smith (A.O.) Corp., Class B 103,300 3,345
AUTOMOBILES & COMPONENTS 1.5%
-------------------------------------------------------------------------
@ Arvin Meritor, Inc. 7,300 117
Ford Motor Co. 191,600 1,594
o TRW Automotive Holdings Corp. 81,500 2,205
-----------
3,916
BANKS 3.3%
-------------------------------------------------------------------------
@ Bank of Hawaii Corp. 22,600 1,161
@ Comerica, Inc. 61,600 3,559
@ UnionBanCal Corp. 58,600 4,013
-----------
8,733
BUSINESS MACHINES & SOFTWARE 3.1%
-------------------------------------------------------------------------
o@ BMC Software, Inc. 17,300 339
@(5) Hewlett Packard Co. 281,000 7,879
-----------
8,218
BUSINESS SERVICES 0.5%
-------------------------------------------------------------------------
Global Payments, Inc. 9,000 386
Reynolds & Reynolds Co., Class A 34,900 926
-----------
1,312
CAPITAL GOODS 3.3%
-------------------------------------------------------------------------
Emerson Electric Co. 2,100 146
@ Lockheed Martin Corp. 93,600 5,668
Raytheon Co. 13,100 484
Textron, Inc. 10,900 785
@ The Boeing Co. 12,900 834
o Thomas & Betts Corp. 15,000 584
-----------
8,501
COMMERCIAL SERVICES & SUPPLIES 1.0%
-------------------------------------------------------------------------
Administaff, Inc. 60,900 2,577
CONSUMER DURABLES & APPAREL 6.1%
-------------------------------------------------------------------------
American Greetings Corp.,
Class A 199,900 5,048
Black & Decker Corp. 5,300 435
K-Swiss, Inc., Class A 600 18
Newell Rubbermaid, Inc. 269,700 6,200
@ The Stanley Works 91,000 4,362
-----------
16,063
DIVERSIFIED FINANCIALS 3.6%
-------------------------------------------------------------------------
American Express Co. 5,600 279
o@ Americredit Co. 86,800 1,940
See financial notes. 75
SCHWAB HEDGED EQUITY FUND
PORTFOLIO HOLDINGS continued
VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
o Ameriprise Financial, Inc. 1,120 42
o Ameritrade Holding Corp. 66,500 1,398
Franklin Resources, Inc. 5,300 468
Jefferies Group, Inc. 98,000 3,186
Mellon Financial Corp. 70,200 2,225
-----------
9,538
ELECTRONICS 2.4%
-------------------------------------------------------------------------
o Broadcom Corp., Class A 45,800 1,945
@ Motorola, Inc. 137,100 3,038
National Semiconductor Corp. 35,900 812
o ON Semiconductor Corp, 75,200 349
@ Texas Instruments, Inc. 5,700 163
-----------
6,307
ENERGY 4.6%
-------------------------------------------------------------------------
@ Burlington Resources, Inc. 47,700 3,445
@ ChevronTexaco Corp. 51,100 2,916
Devon Energy Corp. 2,600 157
@ Exxon Mobil Corp. 96,500 5,418
Valero Energy Corp. 1,600 168
-----------
12,104
ENERGY: RAW MATERIALS 1.8%
-------------------------------------------------------------------------
@ Helmerich & Payne, Inc. 84,300 4,670
FOOD & AGRICULTURE 0.7%
-------------------------------------------------------------------------
Pilgrim Pride Corp. 56,700 1,785
FOOD & STAPLES RETAILING 2.5%
-------------------------------------------------------------------------
o Rite Aid Corp. 578,100 2,023
@ Supervalu, Inc. 141,200 4,438
-----------
6,461
FOOD BEVERAGE & TOBACCO 3.7%
-------------------------------------------------------------------------
@ Coca-Cola Co. 124,100 5,309
Kellogg Co. 16,300 720
@ PepsiAmericas, Inc. 113,900 2,656
Vector Group Ltd. 51,682 1,032
-----------
9,717
HEALTH CARE EQUIPMENT & SERVICES 3.5%
-------------------------------------------------------------------------
Aetna, Inc. 12,200 1,080
Bausch & Lomb, Inc. 6,200 460
Becton Dickinson & Co. 32,200 1,634
Dade Behring, Inc. 44,600 1,606
o Haemonetics Corp. 16,300 790
o Humana, Inc. 4,600 204
o Sierra Health Services, Inc. 8,900 667
United Healthcare Corp. 9,600 556
o Wellchoice, Inc. 2,400 182
o Wellpoint, Inc. 26,300 1,964
-----------
9,143
HEALTHCARE / DRUGS & MEDICINE 7.1%
-------------------------------------------------------------------------
Alpharma, Inc. 18,500 461
o Applera Corp. -- Celera Genomics
Group 55,300 657
Baxter International, Inc. 78,900 3,016
Cardinal Health, Inc. 5,000 313
o Express Scripts, Inc. 19,100 1,440
o@ King Pharmaceuticals, Inc. 369,500 5,701
McKesson Corp. 153,800 6,987
-----------
18,575
INSURANCE 0.1%
-------------------------------------------------------------------------
Protective Life Corp. 8,100 355
INSURANCE 12.2%
-------------------------------------------------------------------------
AFLAC, Inc. 30,100 1,438
o Allmerica Financial Corp. 7,900 301
American Financial Group, Inc. 30,400 1,039
@(3) AON Corp. 243,900 8,256
@ Cigna Corp. 41,000 4,751
o CNA Financial Corp. 8,500 262
Genworth Financial Inc., Class A 2,400 76
(4) Loews Corp. 87,000 8,089
Metlife, Inc. 8,700 430
Nationwide Financial Services, Inc. 40,200 1,624
Prudential Financial, Inc. 33,000 2,402
StanCorp. Financial Group, Inc. 3,200 295
@ W.R. Berkley Corp. 71,175 3,110
-----------
32,073
76 See financial notes.
SCHWAB HEDGED EQUITY FUND
VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
MATERIALS 5.0%
-------------------------------------------------------------------------
o(1) Crown Holdings, Inc. 533,200 8,648
o FMC Corp. 19,100 1,040
@ Martin Marietta Materials, Inc. 29,700 2,344
Monsanto Co. 15,100 951
-----------
12,983
MEDIA 1.7%
-------------------------------------------------------------------------
o Getty Images, Inc. 7,100 589
John Wiley & Sons, Inc. 101,200 3,967
-----------
4,556
OIL: DOMESTIC 4.1%
-------------------------------------------------------------------------
(2) Kerr-McGee Corp. 99,500 8,462
o Pride International, Inc. 84,900 2,383
-----------
10,845
OPTICAL & PHOTO 0.4%
-------------------------------------------------------------------------
Imation Corp. 22,500 963
PHARMACEUTICALS & BIOTECHNOLOGY 5.2%
-------------------------------------------------------------------------
Amerisource Bergen Corp. 77,300 5,896
@ Applied Biosystems Group 94,600 2,296
@ Johnson & Johnson, Inc. 58,500 3,663
Merck & Co., Inc. 60,300 1,702
-----------
13,557
PRODUCER GOODS & MANUFACTURING 1.1%
-------------------------------------------------------------------------
@ Herman Miller, Inc. 79,400 2,176
o Micrel, Inc. 8,100 81
Precision Castparts Corp. 13,600 644
-----------
2,901
REAL ESTATE 0.6%
-------------------------------------------------------------------------
o CB Richard Ellis 30,900 1,510
RETAILING 3.4%
-------------------------------------------------------------------------
American Eagle Outfitters, Inc. 13,000 306
@ J.C. Penny Co., Inc. 93,900 4,808
@ Nordstrom, Inc. 34,800 1,206
o@ Payless Shoesource, Inc. 142,400 2,616
-----------
8,936
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT 2.2%
-------------------------------------------------------------------------
o Agere Systems, Inc., Class B 16,570 173
@ Intel Corp. 196,600 4,620
o@ LSI Logic Corp. 128,500 1,042
-----------
5,835
SOFTWARE & SERVICES 4.4%
-------------------------------------------------------------------------
o Alliance Data Sysems Corp. 3,000 107
Autodesk, Inc. 16,262 734
o Bea Systems, Inc. 24,000 212
o CheckFree Corp. 19,800 842
o Citrix Systems, Inc. 21,716 599
o Computer Sciences Corp. 9,100 466
o@ Earthlink, Inc. 327,200 3,602
Electronic Data Systems Corp. 19,400 452
Fair, Isaac & Co., Inc. 18,400 768
o McAfee, Inc. 16,800 505
o Sybase, Inc. 31,500 701
o@ Synopsys, Inc. 119,900 2,272
o United Online, Inc. 21,944 294
-----------
11,554
STEEL 1.0%
-------------------------------------------------------------------------
o Nucor Corp. 44,800 2,681
TECHNOLOGY HARDWARE & EQUIPMENT 1.2%
-------------------------------------------------------------------------
o Agilent Technologies, Inc. 33,100 1,060
o Apple Computer, Inc. 23,800 1,371
o NCR Corp. 19,400 586
Scientific Atlanta, Inc. 4,600 163
-----------
3,180
TELECOMMUNICATION SERVICES 0.7%
-------------------------------------------------------------------------
@ Commonwealth Telephone
Enterprises, Inc. 46,472 1,668
o Qwest Communication
International, Inc. 29,400 128
-----------
1,796
TELEPHONE 0.1%
-------------------------------------------------------------------------
o Crown Castle International Corp. 9,800 240
See financial notes. 77
SCHWAB HEDGED EQUITY FUND
PORTFOLIO HOLDINGS continued
VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
TRANSPORTATION 2.1%
-------------------------------------------------------------------------
CNF, Inc. 15,600 878
@ CSX Corp. 85,000 3,894
Norfolk Southern Corp. 18,400 739
-----------
5,511
TRAVEL & RECREATION 1.5%
-------------------------------------------------------------------------
@ Hilton Hotels Corp. 202,000 3,929
UTILITIES 3.8%
-------------------------------------------------------------------------
o Allegheny Power System, Inc. 54,600 1,543
Duke Energy Corp. 51,300 1,359
@ FirstEnergy Corp. 125,900 5,980
PPL Corp. 32,700 1,025
-----------
9,907
SHORT-TERM INVESTMENTS 5.0% of net assets
OTHER INVESTMENT COMPANIES 5.0%
-------------------------------------------------------------------------
Provident Institutional
Funds -- TempFund 13,205,916 13,206
END OF INVESTMENTS.
VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
SHORT SALES 33.8% of net assets
AUTOMOBILES & COMPONENTS 0.1%
-------------------------------------------------------------------------
American Axle & Manufacturing
Holdings, Inc. 5,200 113
BANKS 1.6%
-------------------------------------------------------------------------
(4) Accredited Home Lenders
Holding Co. 113,700 4,109
BUSINESS SERVICES 1.0%
-------------------------------------------------------------------------
Take Two Interactive Software, Inc. 132,900 2,744
CAPITAL GOODS 1.2%
-------------------------------------------------------------------------
Bucyrus International, Inc. 70,800 2,942
UAP Holding Corp. 14,500 277
-----------
3,219
CONSTRUCTION 1.3%
-------------------------------------------------------------------------
Hovnanian Enterprises, Inc. 73,500 3,307
CONSUMER DURABLES & APPAREL 0.1%
-------------------------------------------------------------------------
Fossil, Inc. 15,800 247
CONSUMER SERVICES 1.9%
-------------------------------------------------------------------------
Life Time Fitness, Inc. 52,600 1,954
WMS Industries, Inc. 3,300 83
Wynn Resorts Ltd. 60,700 2,833
-----------
4,870
DRUGS 0.2%
-------------------------------------------------------------------------
IMClone Systems, Inc. 17,000 590
ENERGY 5.8%
-------------------------------------------------------------------------
ATP Oil & Gas Corp. 69,700 2,212
Delta Petroleum Corp. 221,900 3,914
Encore Acquisition Co. 46,050 1,580
James River Coal Co. 29,800 1,274
Quicksilver Resources, Inc. 72,700 2,816
78 See financial notes.
SCHWAB HEDGED EQUITY FUND
VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
Syntroleum Corp. 91,400 654
Whiting Petroleum Corp. 66,100 2,680
-----------
15,130
FOOD & AGRICULTURE 0.2%
-------------------------------------------------------------------------
Smithfield Foods, Inc. 16,000 473
FOOD & STAPLES RETAILING 1.5%
-------------------------------------------------------------------------
Sanderson Farms, Inc. 33,300 1,149
United Natural Foods, Inc. 95,122 2,674
-----------
3,823
FOOD BEVERAGE & TOBACCO 1.7%
-------------------------------------------------------------------------
Molson Coors Brewing Co. 41,200 2,542
Universal Corp. 51,500 1,928
-----------
4,470
HEALTHCARE / DRUGS & MEDICINE 0.1%
-------------------------------------------------------------------------
Advanced Medical Optics 2,700 96
Centene Corp. 13,300 268
-----------
364
MATERIALS 0.1%
-------------------------------------------------------------------------
GrafTech International Ltd. 63,000 309
NON-DURABLES & ENTERTAINMENT 0.6%
-------------------------------------------------------------------------
CBRL Group, Inc. 21,800 756
Red Robin Gourmet Burgers, Inc. 15,300 738
-----------
1,494
NON-FERROUS METALS 1.5%
-------------------------------------------------------------------------
(5) Titanium Metals Corp. 85,500 4,036
PHARMACEUTICALS & BIOTECHNOLOGY 6.2%
-------------------------------------------------------------------------
Amylin Pharmaceuticals, Inc. 32,100 1,079
Encysive Pharmaceuticals, Inc. 142,800 1,499
Intermagnetics General Corp. 5,800 166
(3) Martek Biosciences Corp. 136,984 4,229
MGI Pharmaceuticals, Inc. 48,421 908
North American Biology, Inc. 44,100 567
(1) Par Pharmaceutical Cos., Inc. 194,000 5,021
Perrigo Co. 218,700 2,924
-----------
16,393
RETAIL 1.8%
-------------------------------------------------------------------------
Hot Topic, Inc. 6,300 94
Pep Boys-Manny Moe & Jack, Inc. 127,800 1,764
Pier 1 Imports, Inc. 209,500 2,162
Wal-Mart Stores, Inc. 16,400 776
-----------
4,796
RETAILING 2.8%
-------------------------------------------------------------------------
Cabela, Inc. 75,200 1,233
Dick's Sporting Goods, Inc. 26,600 796
Family Dollar Stores, Inc. 8,400 186
Finish Line, Inc. 8,400 131
GSI Commerce, Inc. 177,200 2,832
New York & Co., Inc. 49,200 664
Sears Holdings Corp. 11,900 1,431
-----------
7,273
SOFTWARE & SERVICES 0.8%
-------------------------------------------------------------------------
Henry Jack and Associates, Inc. 43,600 784
Midway Games, Inc. 74,600 1,394
-----------
2,178
STEEL 0.2%
-------------------------------------------------------------------------
Oregon Steel Mills, Inc. 21,700 551
TRUCKING & FREIGHT 1.8%
-------------------------------------------------------------------------
Knight Transportation, Inc. 13,500 367
(2) Werner Enterprises, Inc. 240,700 4,313
-----------
4,680
UTILITIES 1.3%
-------------------------------------------------------------------------
MGE Energy, Inc. 14,700 522
New Jersey Resources Corp. 68,700 2,965
-----------
3,487
END OF SHORT SALE POSITIONS.
See financial notes. 79
SCHWAB HEDGED EQUITY FUND
Statement of
ASSETS AND LIABILITIES
As of October 31, 2005. All numbers x 1,000 except NAV.
ASSETS
- --------------------------------------------------------------------------------
Investments, at value $277,483 a
Deposits with broker for short sales 78,219
Receivables:
Fund shares sold 3,401
Interest 159
Dividends 124
Investments sold 5,370
Investments sold short 8,644
Prepaid expenses + 38
-----------
TOTAL ASSETS 373,438
LIABILITIES
- --------------------------------------------------------------------------------
Securities sold short, at value 88,656 b
Payables:
Fund shares redeemed 87
Dividends on short sales 49
Investments bought 20,913
Covered short sales 1,292
Investment adviser and administrator fees 37
Accrued expenses + 55
-----------
TOTAL LIABILITIES 111,089
NET ASSETS
- --------------------------------------------------------------------------------
TOTAL ASSETS 373,438
TOTAL LIABILITIES - 111,089
-----------
NET ASSETS $262,349
NET ASSETS BY SOURCE
Capital received from investors 235,553
Net investment not yet distributed 743
Net realized capital gains 7,694 c
Net unrealized capital gains 18,359 c
NET ASSET VALUE (NAV) BY SHARE CLASS
SHARES
SHARE CLASS NET ASSETS / OUTSTANDING = NAV
Investor Shares $33,470 2,316 $14.45
Select Shares $228,879 15,828 $14.46
Unless stated, all numbers x 1,000.
a The fund paid $262,745 for these securities.
Not counting short-term obligations and government securities, the fund's
security transactions during the period were:
Purchases $298,092
Sales/maturities $118,676
b The proceeds for securities sold short is $92,277.
c These derive from investments and short sales.
FEDERAL TAX DATA
----------------------------------------------
PORTFOLIO COST $262,809
NET UNREALIZED GAINS AND LOSSES:
Gains $20,358
Losses + (5,684)
-----------
$14,674
NET UNDISTRIBUTED EARNINGS:
Ordinary income $1,428
Long-term capital gains $7,073
80 See financial notes.
SCHWAB HEDGED EQUITY FUND
Statement of
OPERATIONS
For November 1, 2004 through October 31, 2005. All numbers x 1,000.
INVESTMENT INCOME
- --------------------------------------------------------------------------------
Dividends $2,736 a
Interest + 1,068
-----------
TOTAL INVESTMENT INCOME 3,804
NET REALIZED GAINS AND LOSSES
- --------------------------------------------------------------------------------
Net realized gains on investments 12,378
Net realized losses on short sales (4,557)
Net realized gains on future contracts + 99
-----------
NET REALIZED GAINS 7,920
NET UNREALIZED GAINS AND LOSSES
- --------------------------------------------------------------------------------
Net unrealized gains on investments 5,518
Net unrealized gains on short sales + 3,712
-----------
NET UNREALIZED GAINS 9,230
EXPENSES
- --------------------------------------------------------------------------------
Investment adviser and administrator fees 2,285 b
Transfer agent and shareholder service fees:
Investor Shares 26 c
Select Shares 165 c
Trustees' fees 6 d
Custodian and portfolio accounting fees 79
Professional fees 44
Registration fees 26
Shareholder reports 3
Interest expense 134
Other expenses + 7
-----------
Total expenses before short sales 2,775
Dividends on short sales 448
Expense reduction + (162)e
-----------
NET EXPENSES 3,061
INCREASE IN NET ASSETS FROM OPERATIONS
- --------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME 3,804
NET EXPENSES - 3,061
-----------
NET INVESTMENT INCOME 743
NET REALIZED GAINS 7,920 f
NET UNREALIZED GAINS + 9,230 f
-----------
INCREASE IN NET ASSETS FROM OPERATIONS $17,893
Unless stated, all numbers x 1,000.
a Net of $1 foreign withholding tax.
b Calculated as a percentage of average daily net assets: 1.675% of the first
$500 million, 1.65% of the next $500 million, and 1.63% over $1 billion. These
fees are paid to Charles Schwab Investment Management, Inc. (CSIM).
Prior to February 28, 2005, these fees were calculated as 1.75% of average
daily net assets.
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 $88 from the investment adviser (CSIM) and $74 from the transfer
agent and shareholder service agent (Schwab). CSIM and Schwab have guaranteed
through February 27, 2006 to limit the annual net operating expenses.
% OF AVERAGE
SHARE CLASS DAILY NET ASSETS
---------------------------------------------
Investor Shares 2.00%
Select Shares 1.77%
This limit excludes interest, taxes and certain non-routine expenses.
f These add up to a net gain on investments of $17,150.
See financial notes. 81
SCHWAB HEDGED EQUITY FUND
Statement of
CHANGES IN NET ASSETS
For the current and prior report periods. All numbers x 1,000.
OPERATIONS
- --------------------------------------------------------------------------------
11/1/04-10/31/05 11/1/03-10/31/04
Net investment income or loss 743 ($455)
Net realized gains 7,920 4,186
Net unrealized gains + 9,230 2,597
-----------------------------------
INCREASE IN NET ASSETS
FROM OPERATIONS 17,893 6,328
DISTRIBUTIONS PAID
- --------------------------------------------------------------------------------
DISTRIBUTIONS FROM NET REALIZED GAINS
Investor Shares -- --
Select Shares + 3,789 --
-----------------------------------
$3,789 $-- a
TRANSACTIONS IN FUND SHARES b
- --------------------------------------------------------------------------------
11/1/04-10/31/05 11/1/03-10/31/04
SHARES VALUE SHARES VALUE
SHARES SOLD
Investor Shares 2,530 $35,429 -- $--
Select Shares + 11,743 163,791 2,509 31,194
--------------------------------------------
TOTAL SHARES SOLD 14,273 $199,220 2,509 $31,194
SHARES REINVESTED
Investor Shares -- $-- -- $--
Select Shares + 255 3,389 -- --
--------------------------------------------
TOTAL SHARES REINVESTED 255 $3,389 -- $--
SHARES REDEEMED
Investor Shares (214) ($3,027) -- $--
Select Shares + (1,421) (19,628) (1,073) (13,199)
--------------------------------------------
TOTAL SHARES REDEEMED (1,635) ($22,655) (1,073) ($13,199) c
NET TRANSACTIONS IN
FUND SHARES 12,893 $179,954 1,436 $17,995
SHARES OUTSTANDING AND NET ASSETS
- --------------------------------------------------------------------------------
11/1/04-10/31/05 11/1/03-10/31/04
SHARES NET ASSETS SHARES NET ASSETS
Beginning of period 5,251 $68,291 3,815 $43,968
Total increase + 12,893 194,058 1,436 24,323 d
--------------------------------------------
END OF PERIOD 18,144 262,349 5,251 $68,291 e
Unless stated, all numbers x 1,000.
a The tax-basis components of distributions paid are:
CURRENT PERIOD
Ordinary income $--
Long-term capital gains $3,789
PRIOR PERIOD
Ordinary income $--
Long-term capital gains $--
b The fund started offering Investor Shares on March 1, 2005 and the fund shares
in existence prior to March 1, 2005 were designated as Select Shares.
c For shares purchased on or before 4/29/05 and held less than 180 days, the
fund charges 1.50% redemption fee. For shares purchased after 4/29/05 and held
less than 30 days, the fund charges 2.00% redemption fee.
CURRENT PERIOD
Investor Shares $3
Select Shares + $40
------
TOTAL $43
PRIOR PERIOD
Select Shares $41
Dollar amounts are net of the redemption proceeds.
d Figures for shares represent shares sold plus shares reinvested, minus shares
redeemed. Figures for net assets represent the changes in net assets from
operations plus the changes in value of transactions in fund shares, minus
distributions paid.
e Includes distributable net investment income in the amount of $743 and $-- at
the end of the current period and prior period, respectively.
82 See financial notes.
SCHWAB FINANCIAL SERVICES FUND(TM)
FINANCIAL STATEMENTS
FINANCIAL HIGHLIGHTS
11/1/04- 11/1/03- 11/1/02- 11/1/01- 11/1/00-
10/31/05 10/31/04 10/31/03 10/31/02 10/31/01
- ------------------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA ($)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of period 13.12 11.77 9.44 9.75 11.86
---------------------------------------------------------------------
Income or loss from investment operations:
Net investment income 0.12 0.08 0.11 0.12 0.09
Net realized and unrealized gains or losses 2.21 1.37 2.37 (0.28) (1.76)
---------------------------------------------------------------------
Total income or loss from investment operations 2.33 1.45 2.48 (0.16) (1.67)
Less distributions:
Dividends from net investment income (0.09) (0.10) (0.15) (0.09) (0.06)
Distributions from net realized gains (0.94) -- -- (0.06) (0.38)
---------------------------------------------------------------------
Total distributions (1.03) (0.10) (0.15) (0.15) (0.44)
---------------------------------------------------------------------
Net asset value at end of period 14.42 13.12 11.77 9.44 9.75
---------------------------------------------------------------------
Total return (%) 18.62 12.39 26.68 (1.78) (14.51)
RATIOS/SUPPLEMENTAL DATA (%)
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net operating expenses 1.07 1.05 1.04 1 0.89 0.89
Gross operating expenses 1.15 1.25 1.49 1.32 1.23
Net investment income 1.01 0.62 1.05 1.20 0.75
Portfolio turnover rate 74 85 181 131 151
Net assets, end of period ($ x 1,000,000) 29 20 18 17 21
1 The ratio of net operating expenses would have been 1.03% if interest expense
had not been included.
See financial notes. 83
SCHWAB FINANCIAL SERVICES FUND
PORTFOLIO HOLDINGS as of October 31, 2005
This section shows all the securities in the fund's portfolio by industry
classification and their value, as of the report date.
The fund files its complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. The fund's Form N-Q is
available on the SEC'S website at http://www.sec.gov and may be reviewed and
copied at the SEC'S Public Reference Room in Washington, D.C. Call
1-800-SEC-0330 for information on the operation of the Public Reference Room.
The schedule of portfolio holdings filed on the fund's most recent Form N-Q is
available by visiting Schwab's website at www.schwab.com/schwabfunds.
We use the symbol below to designate certain characteristics of the security.
(1) Top ten holdings
o Non-income producing security
@ All or a portion of this security is held as collateral for short sales
COST VALUE
HOLDINGS BY CATEGORY ($x1,000) ($x1,000)
- --------------------------------------------------------------------------------
98.3% COMMON STOCK 24,101 28,117
0.9% SHORT-TERM
INVESTMENT 271 271
- --------------------------------------------------------------------------------
99.2% TOTAL INVESTMENTS 24,372 28,388
0.4% COLLATERAL INVESTED FOR
SECURITIES ON LOAN 118 118
0.4% OTHER ASSETS AND
LIABILITIES, NET 101
- --------------------------------------------------------------------------------
100.0% TOTAL NET ASSETS 28,607
VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
COMMON STOCK 98.3% of net assets
BANKS 29.6%
-------------------------------------------------------------------------
(9) Bank of Hawaii Corp. 25,800 1,326
City National Corp. 15,100 1,108
(1) Comerica, Inc. 29,000 1,676
Commerce Bancshares, Inc. 6,700 356
Countrywide Financial Corp. 14,498 460
First Indiana Corp. 1,000 35
(10) KeyCorp, Inc. 40,400 1,302
M&T Bank Corp. 3,800 409
PNC Financial Services Group,
Inc. 6,700 407
(4) UnionBanCal Corp. 20,300 1,390
-----------
8,469
DIVERSIFIED FINANCIALS 37.5%
-------------------------------------------------------------------------
American Express Co. 24,700 1,229
o AmeriCredit Corp. 24,800 554
o Ameriprise Financial, Inc. 4,940 184
@o Ameritrade Holding Corp. 5,900 124
Capital One Financial Corp. 10,200 779
CIT Group, Inc. 3,000 137
o E*TRADE Financial Corp. 38,600 716
(8) Franklin Resources, Inc. 15,100 1,335
o Investment Technology Group,
Inc. 33,500 1,089
Mellon Financial Corp. 32,900 1,043
Moody's Corp. 4,600 245
Morgan Stanley 7,500 408
(7) Northern Trust Corp. 25,100 1,345
(2) Principal Financial Group,
Inc. 31,300 1,554
-----------
10,742
INSURANCE 28.9%
-------------------------------------------------------------------------
(6) AFLAC, Inc. 28,200 1,347
American Financial Group, Inc. 700 24
o American Physicians Capital, Inc. 5,500 233
AON Corp. 6,000 203
Chubb Corp. 12,700 1,181
o CNA Financial Corp. 9,400 289
Delphi Financial Group, Inc.,
Class A 3,900 183
Lincoln National Corp. 9,900 501
Loews Corp. 1,800 167
o(3) Metlife, Inc. 29,100 1,438
Nationwide Financial Services, Inc.,
Class A 9,900 400
(5) Prudential Financial, Inc. 18,700 1,361
84 See financial notes.
SCHWAB FINANCIAL SERVICES FUND
VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
Safeco Corp. 800 45
The St. Paul Travelers Cos., Inc. 7,400 333
W.R. Berkley Corp. 12,750 557
-----------
8,262
REAL ESTATE 2.3%
-------------------------------------------------------------------------
o CB Richard Ellis Group, Inc.,
Class A 6,800 332
o Trammell Crow Co. 12,200 312
-----------
644
SECURITY FACE AMOUNT
RATE, MATURITY DATE ($ x 1,000)
SHORT-TERM INVESTMENT
0.9% of net assets
Wachovia Bank, Grand Cayman
Time Deposit
3.48%,11/01/05 271 271
END OF INVESTMENTS.
COLLATERAL INVESTED FOR SECURITIES ON LOAN
0.4% of net assets
SHORT-TERM INVESTMENT 0.4%
-------------------------------------------------------------------------
Securities Lending Investments
Fund 117,705 118
END OF COLLATERAL INVESTED FOR SECURITIES ON LOAN.
See financial notes. 85
SCHWAB FINANCIAL SERVICES FUND
Statement of
ASSETS AND LIABILITIES
As of October 31, 2005. All numbers x 1,000 except NAV.
ASSETS
- --------------------------------------------------------------------------------
Investments, at value
(including $118 of securities on loan) $28,388 a
Collateral invested for securities on loan 118
Receivables:
Fund shares sold 141
Dividends 14
Investments sold 562
Prepaid expenses + 3
-----------
TOTAL ASSETS 29,226
LIABILITIES
- --------------------------------------------------------------------------------
Collateral invested for securities on loan 118
Payables:
Fund shares redeemed 18
Investments bought 457
Investment adviser and administrator fees 1
Transfer agent and shareholder service fees 1
Accrued expenses + 24
-----------
TOTAL LIABILITIES 619
NET ASSETS
- --------------------------------------------------------------------------------
TOTAL ASSETS 29,226
TOTAL LIABILITIES - 619
-----------
NET ASSETS $28,607
NET ASSETS BY SOURCE
Capital received from investors 22,844
Net investment income not yet distributed 172
Net realized capital gains 1,575
Net unrealized capital gains 4,016
NET ASSET VALUE (NAV)
SHARES
NET ASSETS / OUTSTANDING = NAV
$28,607 1,984 $14.42
Unless stated, all numbers x 1,000.
a The fund paid $24,372 for these securities.
Not counting short-term obligations and government securities, the fund's
security transactions during the period were:
Purchases $21,398
Sales/maturities $16,363
FEDERAL TAX DATA
------------------------------------------------
PORTFOLIO COST $24,377
NET UNREALIZED GAINS AND LOSSES:
Gains $4,204
Losses + (193)
----------
$4,011
NET UNDISTRIBUTED EARNINGS:
Ordinary income $525
Long-term capital gains $1,227
86 See financial notes.
SCHWAB FINANCIAL SERVICES FUND
Statement of
OPERATIONS
For November 1, 2004 through October 31, 2005. All numbers x 1,000.
INVESTMENT INCOME
- --------------------------------------------------------------------------------
Dividends $455
Interest 3
Securities on loan + 1
---------
TOTAL INVESTMENT INCOME 459
NET REALIZED GAINS AND LOSSES
- --------------------------------------------------------------------------------
Net realized gains on investments sold 1,583
NET UNREALIZED GAINS AND LOSSES
- --------------------------------------------------------------------------------
Net unrealized gains on investments 1,980
EXPENSES
- --------------------------------------------------------------------------------
Investment adviser and administrator fees 119 a
Transfer agent and shareholder service fees 55 b
Trustees' fees 4 c
Custodian fees 26
Portfolio accounting fees 3
Professional fees 27
Registration fees 15
Shareholder reports 2
Other expenses + 3
---------
Total expenses 254
Expense reduction - 19 d
---------
NET EXPENSES 235
INCREASE IN NET ASSETS FROM OPERATIONS
- --------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME 459
NET EXPENSES - 235
---------
NET INVESTMENT INCOME 224
NET REALIZED GAINS 1,583 e
NET UNREALIZED GAINS + 1,980 e
---------
INCREASE IN NET ASSETS FROM OPERATIONS $3,787
Unless stated, all numbers x 1,000.
a Calculated as a percentage of average daily net assets: 0.54% of the first
$500 million; 0.515% of the next $500 million; and 0.49% of assets beyond
that. These fees are paid to Charles Schwab Investment Management, Inc.
(CSIM).
Prior to February 28, 2005, these fees were calculated as 0.54% of average
daily net assets.
b Calculated as a percentage of average daily net assets: for transfer agent
services, 0.05% of the fund's assets; for shareholder services, 0.20% of the
fund's assets. These fees are paid to Charles Schwab & Co., Inc. (Schwab).
c For the fund's independent trustees only.
d This reduction was made by the investment adviser (CSIM). It reflects a
guarantee by CSIM and the transfer agent and shareholder service agent
(Schwab) to limit the net operating expenses of this fund through February 27,
2006, to 1.10% of average daily net assets. This limit excludes interest,
taxes and certain non-routine expenses.
e These add up to a net gain on investments of $3,563.
See financial notes. 87
SCHWAB FINANCIAL SERVICES FUND
Statements of
CHANGES IN NET ASSETS
For the current and prior report periods. All numbers x 1,000.
OPERATIONS
- --------------------------------------------------------------------------------
11/1/04-10/31/05 11/1/03-10/31/04
Net investment income $224 $123
Net realized gains 1,583 2,314
Net unrealized gains or losses + 1,980 (253)
-----------------------------------
INCREASE IN NET ASSETS
FROM OPERATIONS 3,787 2,184
DISTRIBUTIONS PAID
- --------------------------------------------------------------------------------
Dividends from net investment income 139 158
Distributions from net realized gains + 1,403 --
-----------------------------------
TOTAL DIVIDENDS AND DISTRIBUTIONS PAID $1,542 $158 a,b
TRANSACTIONS IN FUND SHARES
- --------------------------------------------------------------------------------
11/1/04-10/31/05 11/1/03-10/31/04
SHARES VALUE SHARES VALUE
Shares sold 885 $11,993 369 $4,651
Shares reinvested 103 1,356 12 142
Shares redeemed + (495) (6,547) (457) (5,709) c
----------------------------------------
NET TRANSACTIONS
IN FUND SHARES 493 $6,802 (76) ($916)
SHARES OUTSTANDING AND NET ASSETS
- --------------------------------------------------------------------------------
11/1/04-10/31/05 11/1/03-10/31/04
SHARES NET ASSETS SHARES NET ASSETS
Beginning of period 1,491 $19,560 1,567 $18,450
Total increase or
decrease + 493 9,047 (76) 1,110 d
-----------------------------------------
END OF PERIOD 1,984 $28,607 1,491 $19,560 e
Unless stated, all numbers x 1,000.
a UNAUDITED
For corporations, 91% of the fund's dividends for the report period qualify
for the dividends-received deduction.
The fund designates $139 of the dividend distribution for the fiscal year
ended 10/31/05 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 2006 via IRS Form 1099 of the amounts for use in preparing
their 2005 income tax return.
b The tax-basis components of distributions paid are:
CURRENT PRIOR
PERIOD PERIOD
Ordinary
income $139 $158
Long-term
capital gains $1,403 $--
c For shares purchased on or before 4/29/05 and held less than 180 days, the
fund charges 0.75% redemption fee. For shares purchased after 4/29/05 and held
less than 30 days, the fund charges 2.00% redemption fee.
CURRENT PERIOD $7
PRIOR PERIOD $5
Dollar amounts are net of the redemption fee proceeds.
d Figures for shares represent shares sold plus shares reinvested, minus shares
redeemed. Figures for net assets represent the changes in net assets from
operations plus the changes in value from transactions in fund shares, minus
distributions paid.
e Includes distributable net investment income in the amount of $172 and $87 at
the end of the current period and prior period, respectively.
88 See financial notes.
SCHWAB HEALTH CARE FUND(TM)
FINANCIAL STATEMENTS
FINANCIAL HIGHLIGHTS
11/1/04- 11/1/03- 11/1/02- 11/1/01- 11/1/00-
10/31/05 10/31/04 10/31/03 10/31/02 10/31/01
- ------------------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA ($)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of period 10.78 8.43 7.12 9.00 10.27
---------------------------------------------------------------------
Income or loss from investment operations:
Net investment income or loss (0.02) (0.06) 0.01 0.03 0.00 1
Net realized and unrealized gains or losses 3.27 2.41 1.33 (1.90) (1.10)
---------------------------------------------------------------------
Total income or loss from investment operations 3.25 2.35 1.34 (1.87) (1.10)
Less distributions:
Dividends from net investment income -- -- (0.03) (0.01) (0.00) 1
Distributions from net realized gains -- -- -- -- (0.17)
---------------------------------------------------------------------
Total distributions -- -- (0.03) (0.01) (0.17)
---------------------------------------------------------------------
Net asset value at end of period 14.03 10.78 8.43 7.12 9.00
---------------------------------------------------------------------
Total return (%) 30.15 27.88 18.96 (20.84) (10.94)
RATIOS/SUPPLEMENTAL DATA (%)
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net operating expenses 0.89 1.04 1.04 0.89 0.89
Gross operating expenses 0.89 1.07 1.34 1.18 1.17
Net investment income or loss (0.28) (0.73) 0.13 0.25 0.06
Portfolio turnover rate 42 105 200 99 92
Net assets, end of period ($ x 1,000,000) 397 54 25 21 32
1 Per share amount was less than $0.01.
See financial notes. 89
SCHWAB HEALTH CARE FUND
PORTFOLIO HOLDINGS as of October 31, 2005
This section shows all the securities in the fund's portfolio by industry
classification and their value, as of the report date.
The fund files its complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. The fund's Form N-Q is
available on the SEC's website at http://www.sec.gov and may be reviewed and
copied at the SEC's Public Reference Room in Washington, D.C. Call
1-800-SEC-0330 for information on the operation of the Public Reference Room.
The schedule of portfolio holdings filed on the fund's most recent Form N-Q is
available by visiting Schwab's website at www.schwab.com/schwabfunds.
We use the symbols below to designate certain characteristics of the securities.
With the top ten holdings, the number in the circle is the security's rank among
the top ten.
(1) Top ten holding
o Non-income producing security
@ All or a portion of this security is on loan
COST VALUE
HOLDINGS BY CATEGORY ($x1,000) ($x1,000)
- --------------------------------------------------------------------------------
99.3% COMMON STOCK 353,749 393,925
0.6% SHORT-TERM
INVESTMENT 2,493 2,493
0.0% RIGHTS -- --
- --------------------------------------------------------------------------------
99.9% TOTAL INVESTMENTS 356,242 396,418
2.4% COLLATERAL INVESTED
FOR SECURITIES ON LOAN 9,451 9,451
(2.3)% OTHER ASSETS AND
LIABILITIES, NET (9,013)
- --------------------------------------------------------------------------------
100.0% TOTAL NET ASSETS 396,856
VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
COMMON STOCK 99.3% of net assets
HEALTH CARE EQUIPMENT & SERVICES 67.8%
-------------------------------------------------------------------------
Aetna, Inc. 136,800 12,115
(2) AmerisourceBergen Corp. 210,000 16,017
Bausch & Lomb, Inc. 168,000 12,464
(5) Baxter International, Inc. 401,100 15,334
(9) Becton Dickinson & Co. 269,600 13,682
(7) Cardinal Health, Inc. 234,000 14,627
o Caremark Rx, Inc. 218,500 11,449
@o Cerner Corp. 97,000 8,192
(4) CIGNA Corp. 134,500 15,585
o Coventry Health Care, Inc. 201,600 10,884
Dade Behring Holdings, Inc. 150,000 5,402
o DaVita, Inc. 27,025 1,329
o(1) Express Scripts, Inc. 218,700 16,492
o Haemonetics Corp. 112,300 5,441
o Humana, Inc. 201,600 8,949
o Lincare Holdings, Inc. 203,300 8,305
(3) McKesson Corp. 349,200 15,864
o Medco Health Solutions, Inc. 72,000 4,068
o Pacificare Health Systems, Inc. 116,700 9,611
PerkinElmer, Inc. 200,000 4,414
o Sierra Health Services, Inc. 136,900 10,268
@o SurModics, Inc. 43,000 1,699
o Tenet Healthcare Corp. 317,000 2,669
o Thermo Electron Corp. 93,600 2,826
o Trizetto Group, Inc. 100,500 1,424
o United Surgical Partners International,
Inc. 70,100 2,513
(6) UnitedHealth Group, Inc. 255,400 14,785
o WellChoice, Inc. 131,000 9,910
o WellPoint, Inc. 171,300 12,793
-----------
269,111
PHARMACEUTICALS & BIOTECHNOLOGY 31.5%
-------------------------------------------------------------------------
o Albany Molecular Research, Inc. 140,000 1,876
Alpharma, Inc., Class A 385,700 9,600
o Amgen, Inc. 56,000 4,243
Applied Biosystems Group --
Applera Corp. 403,800 9,800
o Celera Genomics Group -- Applera
Corp. 80,000 950
CNS, Inc. 117,717 3,069
o Endo Pharmaceutical Holdings,
Inc. 103,200 2,778
o Gene Logic, Inc. 130,800 495
o Invitrogen Corp. 90,200 5,736
(10) Johnson & Johnson 217,600 13,626
o Kendle International, Inc. 100,000 2,408
o King Pharmaceuticals, Inc. 638,000 9,844
90 See financial notes.
SCHWAB HEALTH CARE FUND
VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
o Kos Pharmaceuticals, Inc. 123,500 7,410
Merck & Co., Inc. 314,000 8,861
(8) Pfizer, Inc. 631,700 13,733
Schering-Plough Corp. 621,500 12,641
o Techne Corp. 77,500 4,202
Wyeth 303,900 13,542
-----------
124,814
RIGHTS
0.0% of net assets
PHARMACEUTICALS & BIOTECHNOLOGY 0.0%
-------------------------------------------------------------------------
o OSI Pharmaceuticals, Inc.
expires 06/12/08 458 --
SECURITY FACE AMOUNT
RATE, MATURITY DATE ($ x 1,000)
SHORT-TERM INVESTMENT
0.6% of net assets
Wachovia Bank, Grand Cayman
Time Deposit
3.48%, 11/01/05 2,493 2,493
END OF INVESTMENTS.
VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
COLLATERAL INVESTED FOR SECURITIES ON LOAN
2.4% of net assets
SHORT-TERM INVESTMENT 2.4%
-------------------------------------------------------------------------
Securities Lending Investments
Fund 9,450,902 9,451
END OF COLLATERAL INVESTED FOR SECURITIES ON LOAN.
See financial notes. 91
SCHWAB HEALTH CARE FUND
Statement of
ASSETS AND LIABILITIES
As of October 31, 2005. All numbers x 1,000 except NAV.
ASSETS
- --------------------------------------------------------------------------------
Investments, at value (including $9,304 of securities on loan) $396,418 a
Collateral invested for securities on loan 9,451
Receivables:
Fund shares sold 3,278
Dividends 77
Investments sold 7,099
Income from securities on loan 18
Prepaid expenses + 20
------------
TOTAL ASSETS 416,361
LIABILITIES
- --------------------------------------------------------------------------------
Collateral invested for securities on loan 9,451
Payables:
Fund shares redeemed 181
Investments bought 9,774
Investment adviser and administrator fees 17
Transfer agent and shareholder service fees 8
Accrued expenses + 74
------------
TOTAL LIABILITIES 19,505
NET ASSETS
- --------------------------------------------------------------------------------
TOTAL ASSETS 416,361
TOTAL LIABILITIES - 19,505
------------
NET ASSETS $396,856
NET ASSETS BY SOURCE
Capital received from investors 361,074
Net realized capital losses (4,394)
Net unrealized capital gains 40,176
NET ASSET VALUE (NAV)
SHARES
NET ASSETS / OUTSTANDING = NAV
$396,856 28,286 $14.03
Unless stated, all numbers x 1,000.
a The fund paid $356,242 for these securities.
Not counting short-term obligations and government securities, the fund's
security transactions during the period were:
Purchases $386,046
Sales/maturities $80,009
FEDERAL TAX DATA
------------------------------------------------
PORTFOLIO COST $356,382
NET UNREALIZED GAINS AND LOSSES:
Gains $51,705
Losses + (11,669)
------------
$40,036
CAPITAL LOSSES UTILIZED $273
UNUSED CAPITAL LOSSES:
Expires 10/31 of: Loss amount
2010 $617
2011 + 3,637
-----------
$4,254
RECLASSIFICATIONS:
Net investment income
not yet distributed $536
Reclassified:
Capital received from investors $(536)
92 See financial notes.
SCHWAB HEALTH CARE FUND
Statement of
OPERATIONS
For November 1, 2004 through October 31, 2005. All numbers x 1,000.
INVESTMENT INCOME
- --------------------------------------------------------------------------------
Dividends $937
Interest 111
Securities on loan + 96
-----------
TOTAL INVESTMENT INCOME 1,144
NET REALIZED GAINS AND LOSSES
- --------------------------------------------------------------------------------
Net realized gains on investments sold 134
Net realized gains on futures contracts + 183
-----------
NET REALIZED GAINS 317
NET UNREALIZED GAINS AND LOSSES
- --------------------------------------------------------------------------------
Net unrealized gains on investments 33,870
EXPENSES
- --------------------------------------------------------------------------------
Investment adviser and administrator fees 1,019 a
Transfer agent and shareholder service fees 472 b
Trustees' fees 5 c
Custodian fees 32
Portfolio accounting fees 24
Professional fees 27
Registration fees 61
Shareholder reports 37
Other expenses + 3
-----------
TOTAL EXPENSES 1,680 d
INCREASE IN NET ASSETS FROM OPERATIONS
- --------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME 1,144
NET EXPENSES - 1,680
-----------
NET INVESTMENT LOSS (536)
NET REALIZED GAINS 317 e
NET UNREALIZED GAINS + 33,870 e
-----------
INCREASE IN NET ASSETS FROM OPERATIONS $33,651
Unless stated, all numbers x 1,000.
a Calculated as a percentage of average daily net assets: 0.54% of the first
$500 million; 0.515% of the next $500 million; and 0.49% of assets beyond
that. These fees are paid to Charles Schwab Investment Management, Inc.
(CSIM).
Prior to February 28, 2005, these fees were calculated as 0.54% of average
daily net assets.
b Calculated as a percentage of average daily net assets: for transfer agent
services, 0.05% of the fund's assets; for shareholder services, 0.20% of the
fund's assets. These fees are paid to Charles Schwab & Co., Inc. (Schwab).
c For the fund's independent trustees only.
d CSIM and Schwab have guaranteed that the annual net operating expense
(excluding interest, taxes and certain non-routine expenses) will not exceed
1.10% of the fund's average daily net assets through February 27, 2006.
e These add up to a net gain on investments of $34,187.
See financial notes. 93
SCHWAB HEALTH CARE FUND
Statements of
CHANGES IN NET ASSETS
For the current and prior report periods. All numbers x 1,000.
OPERATIONS
- --------------------------------------------------------------------------------
11/1/04-10/31/05 11/1/03-10/31/04
Net investment loss ($536) ($303)
Net realized gains 317 4,394
Net unrealized gains + 33,870 3,441
-------------------------------------
INCREASE IN NET ASSETS FROM OPERATIONS $33,651 $7,532
TRANSACTIONS IN FUND SHARES
- --------------------------------------------------------------------------------
11/1/04-10/31/05 11/1/03-10/31/04
SHARES VALUE SHARES VALUE
Shares sold 25,580 $339,672 3,244 $33,738
Shares redeemed + (2,299) (30,399) (1,206) (12,342)a
--------------------------------------------
NET TRANSACTIONS IN FUND SHARES 23,281 $309,273 2,038 $21,396
SHARES OUTSTANDING AND NET ASSETS
- --------------------------------------------------------------------------------
11/1/04-10/31/05 11/1/03-10/31/04
SHARES NET ASSETS SHARES NET ASSETS
Beginning of period 5,005 $53,932 2,967 $25,004
Total increase + 23,281 342,924 2,038 28,928 b
--------------------------------------------
End of period 28,286 $396,856 5,005 $53,932 c
Unless stated, all numbers x 1,000.
a For shares purchased on or before 4/29/05 and held less than 180 days, the
fund charges 0.75% redemption fee. For shares purchased after 4/29/05 and held
less than 30 days, the fund charges 2.00% redemption fee.
CURRENT PERIOD $121
PRIOR PERIOD $41
Dollar amounts are net of the redemption proceeds.
b Figures for shares represent shares sold plus shares reinvested, minus shares
redeemed. Figures for net assets represent the changes in net assets from
operations plus the changes in value of transactions in fund shares, minus
distributions paid.
c Includes net investment loss in the amount of $-- and $-- at the end of the
current period and prior period, respectively.
94 See financial notes.
SCHWAB TECHNOLOGY FUND(TM)
FINANCIAL STATEMENTS
FINANCIAL HIGHLIGHTS
11/1/04- 11/1/03- 11/1/02- 11/1/01- 11/1/00-
10/31/05 10/31/04 10/31/03 10/31/02 10/31/01
- ------------------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA ($)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of period 4.42 4.32 2.90 3.86 8.52
---------------------------------------------------------------------
Income or loss from investment operations:
Net investment loss (0.01) (0.04) (0.02) (0.02) (0.03)
Net realized and unrealized gains or losses 0.47 0.14 1.44 (0.94) (4.63)
---------------------------------------------------------------------
Total income or loss from investment operations 0.46 0.10 1.42 (0.96) (4.66)
---------------------------------------------------------------------
Net asset value at end of period 4.88 4.42 4.32 2.90 3.86
---------------------------------------------------------------------
Total return (%) 10.41 2.31 48.97 (24.87) (54.69)
RATIOS/SUPPLEMENTAL DATA (%)
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net operating expenses 0.97 1.02 1 1.04 0.89 0.89
Gross operating expenses 0.97 1.02 1.25 1.15 1.16
Net investment loss (0.23) (0.78) (0.65) (0.57) (0.65)
Portfolio turnover rate 89 109 165 117 120
Net assets, end of period ($ x 1,000,000) 53 49 43 26 39
1 The ratio of net operating expenses would have been 1.01% if interest expense
had not been included.
See financial notes. 95
SCHWAB TECHNOLOGY FUND
PORTFOLIO HOLDINGS as of October 31, 2005
This section shows all the securities in the fund's portfolio by industry
classification and their value, as of the report date.
The fund files its complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. The fund's Form N-Q is
available on the SEC's website at http://www.sec.gov and may be reviewed and
copied at the SEC's Public Reference Room in Washington, D.C. Call
1-800-SEC-0330 for information on the operation of the Public Reference Room.
The schedule of portfolio holdings filed on the fund's most recent Form N-Q is
available by visiting Schwab's website at www.schwab.com/schwabfunds.
We use the symbols below to designate certain characteristics of the securities.
With the top ten holdings, the number in the circle is the security's rank among
the top ten.
(1) Top ten holding
o Non-income producing security
@ All or a portion of this security is on loan
COST VALUE
HOLDINGS BY CATEGORY ($x1,000) ($x1,000)
- --------------------------------------------------------------------------------
99.4% COMMON STOCK 46,096 52,939
0.7% SHORT-TERM
INVESTMENT 375 375
- --------------------------------------------------------------------------------
100.1% TOTAL INVESTMENTS 46,471 53,314
2.8% COLLATERAL INVESTED
FOR SECURITIES ON LOAN 1,490 1,490
(2.9)% OTHER ASSETS AND
LIABILITIES, NET (1,540)
- --------------------------------------------------------------------------------
100.0% TOTAL NET ASSETS 53,264
VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
COMMON STOCK 99.4% of net assets
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT 20.9%
-------------------------------------------------------------------------
o Agere Systems, Inc. 32,630 339
(8) Applied Materials, Inc. 101,300 1,659
o Broadcom Corp., Class A 7,800 331
(4) Intel Corp. 146,960 3,454
o LSI Logic Corp. 81,200 659
o Micrel, Inc. 15,600 156
National Semiconductor Corp. 41,000 928
o ON Semiconductor Corp. 90,100 418
(5) Texas Instruments, Inc. 111,600 3,186
-----------
11,130
SOFTWARE & SERVICES 38.5%
-------------------------------------------------------------------------
o Alliance Data Systems Corp. 8,400 299
(7) Autodesk, Inc. 41,600 1,877
o BEA Systems, Inc. 4,600 41
o BMC Software, Inc. 43,000 842
o Cadence Design Systems, Inc. 70,300 1,123
o Checkfree Corp. 33,100 1,407
o Citrix Systems, Inc. 39,800 1,097
o Computer Sciences Corp. 15,600 800
o DST Systems, Inc. 18,100 1,016
o Earthlink, Inc. 113,100 1,245
Electronic Data Systems Corp. 45,900 1,070
Global Payments, Inc. 6,200 266
o McAfee, Inc. 26,100 784
o(6) Oracle Corp. 217,000 2,752
o Parametric Technology Corp. 95,900 624
o(9) Progress Software Corp. 52,800 1,644
The Reynolds & Reynolds Co.,
Class A 32,800 871
o Sybase, Inc. 48,900 1,088
o Synopsys, Inc. 33,000 625
United Online, Inc. 79,000 1,059
-----------
20,530
TECHNOLOGY HARDWARE & EQUIPMENT 40.0%
-------------------------------------------------------------------------
o Agilent Technologies, Inc. 28,400 909
@o(10) Apple Computer, Inc.28,200 1,624
o Arrow Electronics, Inc. 44,400 1,310
AVX Corp. 33,000 409
o Electronics for Imaging 800 20
Harris Corp. 11,900 489
(2) Hewlett-Packard Co. 136,100 3,816
Imation Corp. 23,600 1,010
(1) International Business Machines
Corp. 53,000 4,340
(3) Motorola, Inc. 171,900 3,809
96 See financial notes.
SCHWAB TECHNOLOGY FUND
VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
o NCR Corp. 46,200 1,396
Qualcomm, Inc. 14,900 592
Scientific-Atlanta, Inc. 32,800 1,163
o Solectron Corp. 23,000 81
o Tellabs, Inc. 32,500 311
-----------
21,279
SECURITY FACE AMOUNT
RATE, MATURITY DATE ($ x 1,000)
SHORT-TERM INVESTMENT
0.7% of net assets
Wachovia Bank, Grand Cayman
Time Deposit
3.48%, 11/01/05 375 375
END OF INVESTMENTS.
COLLATERAL INVESTED FOR SECURITIES ON LOAN
2.8% of net assets
SHORT-TERM INVESTMENT 2.8%
-------------------------------------------------------------------------
Securities Lending Investments
Fund 1,489,524 1,490
END OF COLLATERAL INVESTED FOR SECURITIES ON LOAN.
See financial notes. 97
SCHWAB TECHNOLOGY FUND
Statement of
ASSETS AND LIABILITIES
As of October 31, 2005. All numbers x 1,000 except NAV.
ASSETS
- --------------------------------------------------------------------------------
Investments, at value
(including $1,543 of securities on loan) $53,314 a
Collateral invested for securities on loan 1,490
Receivables:
Fund shares sold 206
Dividends 3
Investments sold 736
Prepaid expenses + 4
---------
TOTAL ASSETS 55,753
LIABILITIES
- --------------------------------------------------------------------------------
Collateral invested for securities on loan 1,490
Payables:
Fund shares redeemed 19
Investments bought 949
Investment adviser and administrator fees 2
Transfer agent and shareholder service fees 1
Accrued expenses + 28
---------
TOTAL LIABILITIES 2,489
NET ASSETS
- --------------------------------------------------------------------------------
TOTAL ASSETS 55,753
TOTAL LIABILITIES - 2,489
---------
NET ASSETS $53,264
NET ASSETS BY SOURCE
Capital received from investors 85,298
Net realized capital losses (38,877)
Net unrealized capital gains 6,843
SHARES
NET ASSETS / OUTSTANDING = NAV
$53,264 10,923 $4.88
Unless stated, all numbers x 1,000.
a The fund paid $46,471 for these securities.
Not counting short-term obligations and government securities, the fund's
security transactions during the period were:
Purchases $43,484
Sales/maturities $44,568
FEDERAL TAX DATA
------------------------------------------------
PORTFOLIO COST $46,477
NET UNREALIZED GAINS AND LOSSES:
Gains $8,257
Losses + (1,420)
------------
$6,837
CAPITAL LOSSES UTILIZED $2,249
UNUSED CAPITAL LOSSES:
Expires 10/31 of: Loss amount
2009 $14,027
2010 18,148
2011 + 6,696
------------
$38,871
RECLASSIFICATIONS:
Net investment income
not yet distributed $111
Reclassified as:
Capital received from investors $(111)
98 See financial notes.
SCHWAB TECHNOLOGY FUND
Statement of
OPERATIONS
For November 1, 2004 through October 31, 2005. All numbers x 1,000.
INVESTMENT INCOME
- --------------------------------------------------------------------------------
Dividends $357
Interest + 6
--------
TOTAL INVESTMENT INCOME 363
NET REALIZED GAINS AND LOSSES
- --------------------------------------------------------------------------------
Net realized gains on investments sold 2,352
Net realized gains on futures contracts + 2
--------
NET REALIZED GAINS 2,354
NET UNREALIZED GAINS AND LOSSES
- --------------------------------------------------------------------------------
Net unrealized gains on investments 2,534
EXPENSES
- --------------------------------------------------------------------------------
Investment adviser and administrator fees 263 a
Transfer agent and shareholder service fees 122 b
Trustees' fees 5 c
Custodian fees 27
Portfolio accounting fees 6
Professional fees 27
Registration fees 15
Shareholder reports 4
Interest expense 2
Other expenses + 3
--------
TOTAL EXPENSES 474 d
INCREASE IN NET ASSETS FROM OPERATIONS
- --------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME 363
NET EXPENSES - 474
--------
NET INVESTMENT LOSS (111)
NET REALIZED GAINS 2,354 e
NET UNREALIZED GAINS + 2,534 e
--------
INCREASE IN NET ASSETS FROM OPERATIONS $4,777
Unless stated, all numbers x 1,000.
a Calculated as a percentage of average daily net assets: 0.54% of the first
$500 million; 0.515% of the next $500 million; and 0.49% of assets beyond
that. These fees are paid to Charles Schwab Investment Management, Inc.
(CSIM).
Prior to February 28, 2005, these fees were calculated as 0.54% of average
daily net assets.
b Calculated as a percentage of average daily net assets: for transfer agent
services, 0.05% of the fund's assets; for shareholder services, 0.20% of the
fund's assets. These fees are paid to Charles Schwab & Co., Inc. (Schwab).
c For the fund's independent trustees only.
d CSIM and Schwab have guaranteed that the annual net operating expenses
(excluding interest, taxes and certain non-routine expenses) will not exceed
1.10% of the fund's average daily net assets through February 27, 2006.
e These add up to a net gain on investments of $4,888.
See financial notes. 99
SCHWAB TECHNOLOGY FUND
Statements of
CHANGES IN NET ASSETS
For the current and prior report periods. All numbers x 1,000.
OPERATIONS
- --------------------------------------------------------------------------------
11/1/04-10/31/05 11/1/03-10/31/04
Net investment loss $(111) $(405)
Net realized gains 2,354 2,569
Net unrealized gains or losses + 2,534 (2,375)
-------------------------------------
INCREASE OR DECREASE IN NET ASSETS
FROM OPERATIONS $4,777 $(211)
TRANSACTIONS IN FUND SHARES
- --------------------------------------------------------------------------------
11/1/04-10/31/05 11/1/03-10/31/04
SHARES VALUE SHARES VALUE
Shares sold 3,726 $17,658 4,936 $23,679
Shares redeemed + (3,904) (18,286) (3,798) (17,389) a
-------------------------------------------------
NET TRANSACTIONS
IN FUND SHARES (178) $(628) 1,138 $6,290
SHARES OUTSTANDING AND NET ASSETS
- --------------------------------------------------------------------------------
11/1/04-10/31/05 11/1/03-10/31/04
SHARES NET ASSETS SHARES NET ASSETS
Beginning of period 11,101 $49,115 9,963 $43,036
Total increase or
decrease + (178) 4,149 1,138 6,079 b
-------------------------------------------------
END OF PERIOD 10,923 $53,264 11,101 $49,115 c
Unless stated, all numbers x 1,000.
a For shares purchased on or before 4/29/05 and held less than 180 days, the
fund charges 0.75% redemption fee. For shares purchased after 4/29/05 and held
less than 30 days, the fund charges 2.00% redemption fee.
CURRENT PERIOD $10
PRIOR PERIOD $44
Dollar amounts are net of the redemption proceeds.
b Figures for shares represent shares sold plus shares reinvested, minus shares
redeemed. Figures for net assets represent the changes in net assets from
operations plus the changes in value of transactions in fund shares, minus
distributions paid.
c Includes net investment loss in the amount of $-- and $-- at the end of the
current period and prior period, respectively.
100 See financial notes.
SCHWAB ACTIVE EQUITY FUNDS
FINANCIAL NOTES
BUSINESS STRUCTURE OF THE FUNDS
EACH OF THE FUNDS DISCUSSED IN THIS REPORT IS A SERIES OF SCHWAB CAPITAL TRUST,
A NO-LOAD, OPEN-END MANAGEMENT INVESTMENT COMPANY. The company is organized as a
Massachusetts business trust and is registered under the Investment Company Act
of 1940, as amended. The sidebar shows the funds in this report and their trust.
SCHWAB PREMIER EQUITY FUND, SCHWAB DIVIDEND EQUITY FUND, SCHWAB LARGE-CAP GROWTH
FUND, SCHWAB SMALL-CAP EQUITY FUND AND SCHWAB HEDGED EQUITY FUND OFFER TWO SHARE
CLASSES: Investor Shares and Select Shares. Shares of each class represent
interest in the same portfolio, but each class has different expenses and
investment minimums. Schwab Core Equity Fund, Schwab Financial Services Fund,
Schwab Health Care Fund and Schwab Technology Fund each offer one share class.
Shares are bought and sold at net asset value (NAV), which is the price for all
outstanding shares. Each share has a par value of 1/1,000 of a cent, and the
trust may issue as many shares as necessary.
The Schwab Premier Equity Fund and the Schwab Large-Cap Growth Fund commenced
operations on March 21, 2005 and October 3, 2005, respectively. The Schwab
Hedged Equity Fund started offering Investor Shares on March 1, 2005 and the
fund shares in existence prior to March 1, 2005 were designated as Select
Shares.
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
THE TRUST AND ITS FUNDS
This list shows all of the funds included in Schwab Capital Trust. The funds
discussed in this report are highlighted.
SCHWAB CAPITAL TRUST organized May 7, 1993
Schwab S&P 500 Index Fund
Schwab Institutional Select 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 PREMIER EQUITY FUND
SCHWAB CORE EQUITY FUND
SCHWAB DIVIDEND EQUITY FUND
SCHWAB LARGE-CAP GROWTH FUND
SCHWAB SMALL-CAP EQUITY FUND
SCHWAB HEDGED EQUITY FUND
SCHWAB FINANCIAL SERVICES FUND
SCHWAB HEALTH CARE FUND
SCHWAB TECHNOLOGY FUND
Schwab Target 2010 Fund
Schwab Target 2020 Fund
Schwab Target 2030 Fund
Schwab Target 2040 Fund
Schwab Retirement Income Fund
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SCHWAB ACTIVE EQUITY FUNDS
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 ("due to/from broker").
THE FUNDS MAY INVEST IN FORWARD CURRENCY CONTRACTS IN CONNECTION WITH THE
PURCHASE AND SALE OF PORTFOLIO SECURITIES TO MINIMIZE THE UNCERTAINTY OF CHANGES
IN FUTURE EXCHANGE RATES. "Forwards," as they are known, are contracts to buy
and sell a currency at a set price on a future date. Forwards are similar to
futures except that they are not publicly traded, but are agreements directly
between two parties.
As with futures, forwards involve certain risks that are not fully reflected in
the fund's financials. If counter-parties to the contracts are unable to meet
the terms of the contracts or if the value of the foreign currency changes
unfavorably, the fund could sustain a loss.
THE SCHWAB HEDGED EQUITY FUND MAY SELL SECURITIES SHORT (SELL SECURITIES IT DOES
NOT OWN). When it does so, the fund also places assets worth at least 100% of
the value of the short securities into a segregated account, as collateral. If
the market value of the short securities subsequently falls, the fund can
realize a gain by closing the position. However, if the value rises, the fund
typically would have to add to its collateral or close out its short position at
a loss. The potential for losses associated with short positions is much greater
than the original value of the securities sold short and may exceed amounts
recorded in the Statements of Assets and Liabilities.
THE FUNDS MAY 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. If the value of the collateral falls below 100%, it will be adjusted
the following day.
THE FUNDS PAY FEES TO AFFILIATES OF THE INVESTMENT ADVISER FOR VARIOUS SERVICES.
Through their trust, the funds have agreements with Charles Schwab Investment
Management, Inc. (CSIM) to provide investment advisory and administrative
services and with Charles Schwab & Co., Inc. (Schwab) to provide transfer agent
and shareholder services.
Although these agreements specify certain fees for these services, CSIM and
Schwab have made additional agreements with the funds that may limit the total
expenses charged. The rates and limitations for these fees vary from fund to
fund, and are described in each fund's Statement of Operations.
THE FUNDS MAY ENGAGE IN CERTAIN TRANSACTIONS INVOLVING RELATED PARTIES. For
instance, the funds may let other Schwab Funds(R) buy and sell fund shares,
particularly Schwab Target Funds, which seek to provide investors with allocated
portfolios of other Schwab Funds and Laudus Funds.
The funds may make direct transactions with certain other Schwab Funds(R) when
practical. When one fund is seeking to sell a security that another is seeking
to buy, an interfund transaction can allow both funds to benefit by reducing
transaction costs. This practice is
102
SCHWAB ACTIVE EQUITY FUNDS
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 Schwab Funds. 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 Schwab Funds(R).
TRUSTEES MAY INCLUDE PEOPLE WHO ARE OFFICERS AND/OR DIRECTORS OF THE INVESTMENT
ADVISER OR SCHWAB. Federal securities law limits the percentage of such
"interested persons" who may serve on a trust's board, and the trust was in
compliance with these limitations throughout the report period. The trust did
not pay any of these persons for their service as trustees, but it did pay
non-interested persons (independent trustees), as noted in each fund's Statement
of Operations.
THE FUNDS MAY BORROW MONEY FROM BANKS AND CUSTODIANS. The funds may obtain
temporary bank loans through the trusts to which they belong, to use for meeting
shareholder redemptions or for extraordinary or emergency purposes. The Schwab
Funds have custodian overdraft facilities and line of credit arrangements of
$150 million and $100 million with PNC Bank, N.A. and Bank of America, N.A.,
respectively. The funds pay interest on the amounts they borrow at rates that
are negotiated periodically.
AMOUNT WEIGHTED
OUTSTANDING AVERAGE AVERAGE
AT 10/31/05 BORROWING* INTEREST
FUND ($ x 1,000) ($ x 1,000) RATE* (%)
- --------------------------------------------------------------------------------
SCHWAB PREMIER
EQUITY FUND -- 310 4.23
- --------------------------------------------------------------------------------
SCHWAB DIVIDEND
EQUITY FUND -- 14 3.72
- --------------------------------------------------------------------------------
SCHWAB SMALL-CAP
EQUITY FUND -- 262 3.05
- --------------------------------------------------------------------------------
SCHWAB FINANCIAL
SERVICES FUND -- 55 3.12
- --------------------------------------------------------------------------------
SCHWAB TECHNOLOGY
FUND -- 160 2.96
- --------------------------------------------------------------------------------
* Based on the number of days for which the borrowing is outstanding.
THE FUNDS INTEND TO MEET FEDERAL INCOME AND EXCISE TAX REQUIREMENTS FOR
REGULATED INVESTMENT COMPANIES. Accordingly, the funds distribute substantially
all of their net investment income and net realized capital gains (if any) to
their respective shareholders each year. As long as a fund meets the tax
requirements, it is not required to pay federal income tax. The net investment
income and net realized capital gains and losses may differ for financial
statement and tax purposes primarily due to differing treatments for net
operating losses and losses on wash sales.
UNDER THE FUNDS' ORGANIZATIONAL DOCUMENTS, ITS OFFICERS AND TRUSTEES ARE
INDEMNIFIED AGAINST CERTAIN LIABILITY ARISING OUT OF THE PERFORMANCE OF THEIR
DUTIES TO THE FUNDS. In addition, in the normal course of business the funds
enter into contracts with their vendors and others that provide general
indemnifications. The funds' maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the funds.
However, based on experience, the funds expect the risk of loss to be remote.
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.
103
SCHWAB ACTIVE EQUITY FUNDS
- - SECURITIES FOR WHICH NO MARKET QUOTATIONS ARE READILY AVAILABLE or when a
significant event has occurred between the time of the security's last close
and the time that a fund calculates net asset value: valued at fair value, as
determined in good faith by the fund's investment adviser using guidelines
adopted by the fund's Board of Trustees and the Pricing Committee. Some of the
more common reasons that may necessitate that a security be valued at fair
value include: the security's trading has been halted or suspended; the
security has been de-listed from a national exchange; the security's primary
trading market is temporarily closed at a time when under normal conditions it
would be open; or the security's primary pricing source is not able or willing
to provide a price.
- - FUTURES AND FORWARDS: open contracts are valued at their settlement prices as
of the close of their exchanges (for futures) or at a market value based on
that day's exchange rates (for forwards). When a fund closes out a futures or
forwards position, it calculates the difference between the value of the
position at the beginning and at the end, and records a realized gain or loss
accordingly.
- - SHORT-TERM SECURITIES (60 DAYS OR LESS TO MATURITY): valued at amortized cost.
- - MUTUAL FUNDS: valued at their respective net asset values as determined by
those funds, in accordance with the 1940 Act.
SCHWAB HEDGED EQUITY FUND SELLS SECURITIES SHORT, it records the proceeds
received as an asset and the obligation to buy back the securities as a
liability. At the time a short sale is initiated, the asset and the liability
are of equal value and effectively cancel each other out. Subsequently, the fund
values the liability side of the transaction according to the market price of
the securities sold short, and values the asset side according to the value of
the proceeds. When the fund closes out a short position (buys the security), it
records the outcome as a realized gain or loss. Interest accrued on securities
sold short is recorded as an expense on the fund's records.
SECURITY TRANSACTIONS are recorded as of the date the order to buy or sell the
security is executed.
DIVIDENDS AND DISTRIBUTIONS FROM PORTFOLIO SECURITIES are recorded on the date
they are effective (the ex-dividend date), although the funds record certain
foreign security dividends on the day they learn of the ex-dividend date.
INCOME FROM INTEREST AND THE ACCRETION OF DISCOUNT is recorded as it accrues.
REALIZED GAINS AND LOSSES from security transactions are based on the identified
costs of the securities involved.
ASSETS AND LIABILITIES DENOMINATED IN FOREIGN CURRENCIES are reported in U.S.
dollars. For assets and liabilities held on a given date, the dollar value is
based on market exchange rates in effect on that date. Transactions involving
foreign currencies, including purchases, sales, income receipts and expense
payments, are calculated using exchange rates in effect on the transaction date.
EXPENSES that are specific to a fund are charged directly to that fund. Expenses
that are common to all funds within a trust generally are allocated among the
funds in proportion to their average daily net assets.
FOR FUNDS OFFERING MULTIPLE SHARE CLASSES, all of the realized and unrealized
gains or losses and net investment income, other than class specific expenses,
are allocated daily to each class in proportion to its average daily net assets.
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.
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SCHWAB ACTIVE EQUITY FUNDS
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.
105
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF:
Schwab Premier Equity Fund
Schwab Core Equity Fund
Schwab Dividend Equity Fund
Schwab Large-Cap Growth Fund
Schwab Small-Cap Equity Fund
Schwab Hedged Equity Fund
Schwab Financial Services Fund
Schwab Health Care Fund
Schwab Technology Fund
In our opinion, the accompanying statements of assets and liabilities, including
the portfolio holdings, and the related statements of operations and of changes
in net assets and the financial highlights present fairly, in all material
respects, the financial position of Schwab Premier Equity Fund, Schwab Core
Equity Fund, Schwab Dividend Equity Fund, Schwab Large-Cap Growth Fund, Schwab
Small-Cap Equity Fund, Schwab Hedged Equity Fund, Schwab Financial Services
Fund, Schwab Health Care Fund, and Schwab Technology Fund, (nine of the
portfolios constituting Schwab Capital Trust, hereafter referred to as the
"Funds") at October 31, 2005, the results of each of their operations for the
year then ended, and the changes in each of their net assets and the financial
highlights for each of the periods presented, in conformity with accounting
principles generally accepted in the United States of America. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Funds' management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with the
standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management,and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at October 31, 2005 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
PRICEWATERHOUSECOOPERS LLP
San Francisco, California
December 16, 2005
106
INVESTMENT ADVISORY AGREEMENT APPROVAL
The Investment Company Act of 1940 (the "1940 Act") requires that initial
approval of, as well as the continuation of, a fund's investment advisory
agreement must be specifically approved (1) by the vote of the trustees or by a
vote of the shareholders of the fund, and (2) by the vote of a majority of the
trustees who are not parties to the investment advisory agreement or "interested
persons" of any party (the "Independent Trustees"), cast in person at a meeting
called for the purpose of voting on such approval. In connection with such
approvals, the fund's trustees must request and evaluate, and the investment
adviser is required to furnish, such information as may be reasonably necessary
to evaluate the terms of the advisory agreement. In addition, the Securities and
Exchange Commission (the "SEC") takes the position that, as part of their
fiduciary duties with respect to fund fees, fund boards are required to evaluate
the material factors applicable to a decision to approve an investment advisory
agreement.
Consistent with these responsibilities, the Board of Trustees (the "Board")
calls and holds one or more meetings each year that are dedicated, in whole or
in part, to considering whether to renew the investment advisory agreement
between Schwab Capital Trust (the "Trust") and CSIM (the "Agreement") with
respect to existing funds in the Trust operating as of December 31 of the
previous year, including the Schwab Core Equity Fund, the Schwab Dividend Equity
Fund, the Schwab Small-Cap Equity Fund, the Schwab Hedged Equity Fund, the
Schwab Financial Services Fund, the Schwab Health Care Fund, and the Schwab
Technology Fund, and to review certain other agreements pursuant to which CSIM
provides investment advisory services to certain other registered investment
companies. In preparation for the meeting(s), the Board requests and reviews a
wide variety of materials provided by CSIM, including information about CSIM's
affiliates, personnel and operations. The Board also receives extensive data
provided by third parties. This information is in addition to the detailed
information about the funds that the Board reviews during the course of each
year, including information that relates to fund operations and fund
performance. The trustees also receive memoranda from counsel regarding the
responsibilities of trustees for the approval of investment advisory contracts.
In addition, the Independent Trustees receive advice from their counsel, meet in
executive session outside the presence of fund management and participate in
question and answer sessions with representatives of CSIM.
At the May 24, 2005 meeting of the Board, the trustees, including a majority of
the Independent Trustees, approved the renewal of the Agreement with respect to
the funds for an additional one year period. The Board's approval of the
Agreement was based on consideration and evaluation of a variety of specific
factors discussed at that meeting and at prior meetings, including:
1. the nature, extent and quality of the services provided to the funds
under the Agreement, including the resources of CSIM and its affiliates
dedicated to the funds;
2. each fund's investment performance and how it compared to that of certain
other comparable mutual funds;
3. each fund's expenses and how those expenses compared to those of certain
other comparable mutual funds;
4. the profitability of CSIM and its affiliates, including Charles Schwab & Co.,
Inc. ("Schwab"), with respect to each fund, including both direct and
indirect benefits accruing to CSIM and its affiliates; and
5. the extent to which economies of scale would be realized as the funds grow
and whether fee levels in the Agreement with respect to the funds reflect
those economies of scale for the benefit of fund investors.
107
NATURE, EXTENT AND QUALITY OF SERVICES. The Board considered the nature, extent
and quality of the services provided by CSIM to the funds and the resources of
CSIM and its affiliates dedicated to the funds. In this regard, the trustees
evaluated,among other things, CSIM's personnel, experience, track record and
compliance program. The trustees also considered the fact that Schwab's
extensive branch network, Internet access, investment and research tools,
telephone services, and array of account features benefit the funds. The
trustees also considered Schwab's excellent reputation as a full service
brokerage firm and its overall financial condition. Finally, the trustees
considered that the vast majority of the funds' investors are also brokerage
clients of Schwab, and that CSIM and its affiliates are uniquely positioned to
provide services and support to the funds and such shareholders. Following such
evaluation, the Board concluded, within the context of its full deliberations,
that the nature, extent and quality of services provided by CSIM to the funds
and the resources of CSIM and its affiliates dedicated to the funds supported
renewal of the Agreement with respect to the funds.
FUND PERFORMANCE. The Board considered fund performance in determining whether
to renew the Agreement with respect to the funds. Specifically, the trustees
considered each fund's performance relative to a peer group of other mutual
funds and appropriate indices/benchmarks, in light of total return, yield and
market trends. As part of this review, the trustees considered the composition
of the peer group, selection criteria and the reputation of the third party who
prepared the peer group analysis. In evaluating the performance of each fund,
the trustees considered both market risk and shareholder risk expectations for
such fund. Following such evaluation, the Board concluded, within the context of
its full deliberations, that the performance of the funds supported renewal of
the Agreement with respect to the funds.
FUND EXPENSES. With respect to the funds' expenses, the trustees considered the
rate of compensation called for by the Agreement, and each fund's net operating
expense ratio, in each case, in comparison to those of other comparable mutual
funds, such peer groups and comparisons having been selected and calculated by
an independent third party. The trustees considered the effects of CSIM's and
Schwab's voluntary waiver of management and other fees to prevent total fund
expenses from exceeding a specified cap. The trustees also considered fees
charged by CSIM to other mutual funds and to other types of accounts, such as
wrap accounts, but, with respect to such other types of accounts, accorded less
weight to such comparisons due to the unique legal, regulatory, compliance and
operating features of mutual funds as compared to these other types of accounts.
Following such evaluation, the Board concluded, within the context of its full
deliberations, that the expenses of the funds are reasonable and supported
renewal of the Agreement.
PROFITABILITY. With regard to profitability, the trustees considered the
compensation flowing to CSIM and its affiliates, directly or indirectly. In this
connection, the trustees reviewed management's profitability analyses, together
with certain commentary thereon from an independent accounting firm. The
trustees also considered any other benefits derived by CSIM from its
relationship with the funds, such as whether, by virtue of its management of the
funds, CSIM obtains investment information or other research resources that aid
it in providing advisory services to other clients. The trustees considered
whether the varied levels of compensation and profitability under the Agreement
with respect to the funds and other service agreements were rea-
108
sonable and justified in light of the quality of all services rendered to each
fund by CSIM and its affiliates. Based on this evaluation, the Board concluded,
within the context of its full deliberations, that the profitability of CSIM is
reasonable and supported renewal of the Agreement with respect to the funds.
ECONOMIES OF SCALE. The trustees considered the existence of any economies of
scale and whether those are passed along to a fund's shareholders through a
graduated investment advisory fee schedule or other means, including any fee
waivers by CSIM and its affiliates. In this regard, and consistent with their
consideration of fund expenses, the trustees considered that CSIM and Schwab
have previously committed resources to minimize the effects on shareholders of
diseconomies of scale during periods when fund assets were relatively small
through their contractual expense waivers. For example, such diseconomies of
scale may particularly affect newer funds or funds with investment strategies
that are from time to time out of favor, but shareholders may benefit from the
continued availability of such funds at subsidized expense levels. The trustees
also considered CSIM's agreement to contractual investment advisory fee
schedules which include lower fees at higher graduated asset levels. Based on
this evaluation, the Board concluded, within the context of its full
deliberations, that the funds obtain reasonable benefit from economies of scale.
In the course of their deliberations, the trustees did not identify any
particular information or factor that was all-important or controlling. Based on
the trustees' deliberation and their evaluation of the information described
above, the Board, including all of the Independent Trustees, unanimously
approved the continuation of the Agreement with respect to the funds and
concluded that the compensation under the Agreement with respect to the funds is
fair and reasonable in light of such services and expenses and such other
matters as the trustees have considered to be relevant in the exercise of their
reasonable judgment.
In addition, at the May 24, 2005 meeting of the Board, the trustees, including a
majority of the Independent Trustees, approved the creation of the new Schwab
Large-Cap Growth Fund (the "Large-Cap Growth Fund") and approved the amendment
of the Agreement to appoint CSIM as investment adviser to the Large-Cap Growth
Fund. This approval was based on consideration and evaluation of a variety of
specific factors discussed at that meeting and at prior meetings, including:
1. the nature, extent and quality of the services to be provided to the
Large-Cap Growth Fund under the Agreement, including the resources of CSIM
and its affiliates to be dedicated to the Large-Cap Growth Fund;
2. CSIM's investment performance with respect to other funds using related
investment techniques and how it compared to that of other comparable mutual
funds;
3. the Large-Cap Growth Fund's anticipated expenses and how those expenses
compared to those of other comparable mutual funds;
4. the profitability of CSIM and its affiliates, including Schwab, with respect
to other funds using similar investment strategies, including both direct and
indirect benefits accruing to CSIM and its affiliates; and
5. the extent to which economies of scale might be realized as the Large-Cap
Growth Fund grows and whether fee levels relating to the Large-Cap Growth
Fund in the Agreement reflect those economies of scale for the benefit of
the Large-Cap Growth Fund's investors.
109
NATURE, EXTENT AND QUALITY OF SERVICES. The Board considered the nature, extent
and quality of the services provided by CSIM to the Schwab Funds and the
resources of CSIM and its affiliates dedicated to such funds. In this regard,
the trustees evaluated, among other things, CSIM's personnel, experience, track
record and compliance program. The trustees also considered the fact that
Schwab's extensive branch network, Internet access, investment and research
tools, telephone services, and array of account features benefit the funds. The
trustees also considered Schwab's excellent reputation as a full service firm
and its overall financial condition. The Board considered how these factors
could apply to the Large-Cap Growth Fund under the terms of the Agreement.
Following such evaluation, the Board concluded that, within the context of its
full deliberations, the nature, extent and quality of services to be provided by
CSIM to the Large-Cap Growth Fund and the resources of CSIM and its affiliates
to be dedicated to the Large-Cap Growth Fund supported approval of the Agreement
with respect to the Large-Cap Growth Fund.
FUND PERFORMANCE. The Board considered performance of Schwab Funds using related
investment techniques in determining whether to renew the agreements with
respect to such funds. Specifically, the trustees considered each existing
fund's performance relative to its peer group and appropriate indices/
benchmarks, in light of total return, yield and market trends. As part of that
review, the trustees considered the composition of the peer group, selection
criteria and the reputation of the third party who prepared the analysis. In
evaluating the performance of each existing SchwabFund, the trustees considered
both risk and shareholder risk expectations for such fund. The Board also
considered how these factors could apply to the Large-Cap Growth Fund under the
terms of the Agreement. Following such evaluation, the Board concluded that,
within the context of its full deliberations, the performance of the existing
Schwab Funds using related investment techniques and performance of CSIM
supported approval of the Agreement with respect to the Large-Cap Growth Fund.
FUND EXPENSES. With respect to the Large-Cap Growth Fund's expenses, the
trustees considered the rate of compensation with respect to the Large-Cap
Growth Fund called for by the Agreement, and the Large-Cap Growth Fund's net
operating expense ratio in comparison to those of other comparable mutual funds.
The trustees also considered information about average expense ratios of
comparable mutual funds in the Large-Cap Growth Fund's expected peer group.
Finally, the trustees considered the effects of CSIM's and Schwab's voluntary
waiver of management and other fees to prevent total Large-Cap Growth Fund
expenses from exceeding a specified cap for at least one year and that CSIM,
through the waiver, will maintain the Large-Cap Growth Fund's net operating
expenses at competitive levels for its distribution channels. Following such
evaluation, the Board concluded that, within the context of its full
deliberations, the expenses of the Large-Cap Growth Fund are reasonable and
supported approval of the Agreement with respect to the Large-Cap Growth Fund.
PROFITABILITY. With regard to profitability, the trustees considered the
compensation flowing to CSIM and its affiliates, directly or indirectly. The
trustees also considered any other benefits derived by CSIM from its
relationship with the existing Schwab Funds, such as investment information or
other research resources. In determining profitability of CSIM and its
affiliates, the trustees have reviewed management's profitability analyses with
the assistance of independent accountants. The trustees considered whether the
varied levels of
110
compensation and profitability under the Agreement and other service agreements
were reasonable and justified in light of the quality of all services rendered
to each existing fund by CSIM and its affiliates. The Board also considered how
these factors could apply to the Large-Cap Growth Fund. However, because the
Large-Cap Growth Fund had no operating history at the time of the Board's
deliberations, the Board did not reach a specific conclusion with respect to the
profitability of CSIM and its affiliates under the Agreement with respect to the
Large-Cap Growth Fund.
ECONOMIES OF SCALE. The trustees considered the possible existence of any
economies of scale and whether those will be passed along to the Large-Cap
Growth Fund's shareholders through a graduated investment advisory fee schedule
or other means, including any fee waivers by CSIM and its affiliates. In this
regard, and consistent with their consideration of the Large-Cap Growth Fund
expenses, the trustees considered that CSIM and Schwab historically have
committed, and in the future may commit, resources to minimize the effects on
shareholders of diseconomies of scale during periods when the Large-Cap Growth
Fund assets are relatively small through their expense waiver agreement. The
trustees noted that such diseconomies of scale may particularly affect newer
funds, such as the Large-Cap Growth Fund, or funds with investment strategies
that are currently out of favor, but shareholders may benefit from the continued
availability of such funds at subsidized expense levels. The Trustees also
considered CSIM's agreement to contractual investment advisory fee schedules
which include lower fees at higher graduated asset levels. Based on this
evaluation, the Board concluded that, within the context of its full
deliberations, the Large-Cap Growth Fund should obtain reasonable benefit from
economies of scale.
In the course of their deliberations, the trustees did not identify any
particular information or factor that was all-important or controlling. Based on
the trustees' deliberation and their evaluation of the information described
above, the Board, including all of the Independent Trustees, unanimously
approved the Agreement to reflect the addition of the Large-Cap Growth Fund and
concluded that the compensation with respect to the Large-Cap Growth Fund under
the Agreement is fair and reasonable in light of such services and expenses and
such other matters as the trustees have considered to be relevant in the
exercise of their reasonable judgment.
111
TRUSTEES AND OFFICERS
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 Schwab Funds(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 56 Schwab Funds 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.
INDEPENDENT TRUSTEES
NAME AND
YEAR OF BIRTH TRUSTEE SINCE MAIN OCCUPATIONS AND OTHER DIRECTORSHIPS AND AFFILIATIONS
- ------------------------------------------------------------------------------------------------------------------------------------
MARIANN BYERWALTER 2000 (all trusts). Chairman, JDN Corp. Advisory LLC (real estate); Trustee, Stanford
1960 University, America First Cos., Omaha, NE (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; Director,
Pacific Life Insurance Company (insurance); Trustee, Laudus Trust
and Laudus Variable Insurance Trust. 2 Until 2001: Stanford University,
Special Advisor to the President. From 1996-2001: Stanford
University, Vice President of Business Affairs, Chief Financial Officer.
- ------------------------------------------------------------------------------------------------------------------------------------
DONALD F. DORWARD Family of Funds, 1989; Chief Executive Officer, Dorward & Associates (corporate management,
1931 Investments, 1991; marketing and communications consulting). Until 1999: Executive
Capital Trust, 1993; Vice President, Managing Director, Grey Advertising San Francisco.
Annuity Portfolios,1994. Until 1996: President, Chief Executive Officer, Allen & Dorward
Advertising.
1 The Schwab Funds 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 This includes 10 series of the Laudus Trust and the sole series of the Laudus
Variable Insurance Trust.
112
INDEPENDENT TRUSTEES continued
NAME AND
YEAR OF BIRTH TRUSTEE SINCE MAIN OCCUPATIONS AND OTHER DIRECTORSHIPS AND AFFILIATIONS
- ------------------------------------------------------------------------------------------------------------------------------------
WILLIAM A. HASLER 2000 (all trusts). Until February 2004, Co-Chief Executive Officer, Aphton Corporation
1941 (bio-pharmaceuticals). Prior to August 1998, Dean of the Haas
School of Business, University of California, Berkeley (higher education).
Director, Aphton Corporation (bio-pharmaceuticals), Mission West
Properties (commercial real estate), Stratex Networks (network
equipment), TOUSA (home building), Genitope Corp. (bio-pharma-
ceuticals), Pacific Stock & Option Exchange; Non-Executive Chairman,
Solectron Corporation (manufacturing); Trustee, Laudus Trust and
Laudus Variable Insurance Trust. 3
- ------------------------------------------------------------------------------------------------------------------------------------
ROBERT G. HOLMES Family of Funds, 1989; Chairman, Chief Executive Officer, Director, Semloh Financial, Inc.
1931 Investments, 1991; (international financial services and investment advisory firm).
Capital Trust, 1993;
Annuity Portfolios,1994.
- ------------------------------------------------------------------------------------------------------------------------------------
GERALD B. SMITH 2000 (all trusts). Since 1990, Chairman and Chief Executive Officer and founder of
1950 Smith Graham & Co. (investment advisors).
Director, Cooper Industries (electrical products, tools and hardware),
Chairman, Texas Southern University Foundation; Executive Committee & Board
Member, MD Anderson Cancer Center; Chairman of the audit committee of
Northern Border Partners, M.L.P. (energy).
- ------------------------------------------------------------------------------------------------------------------------------------
DONALD R. STEPHENS Family of Funds, 1989; Managing Partner, D.R. Stephens & Co. (investments). Until 1996:
1938 Investments, 1991; Chairman, Chief Executive Officer, North American Trust (real estate
Capital Trust, 1993; investment trust).
Annuity Portfolios, 1994.
- ------------------------------------------------------------------------------------------------------------------------------------
MICHAEL W. WILSEY Family of Funds, 1989; Chairman, Chief Executive Officer, Wilsey Bennett, Inc. (real estate
1943 Investments, 1991; investment and management, and other investments).
Capital Trust, 1993;
Annuity Portfolios, 1994.
3 This includes 10 series of the Laudus Trust and the sole series of the Laudus
Variable Insurance Trust.
113
INTERESTED TRUSTEES
NAME AND TRUST POSITION(S);
YEAR OF BIRTH TRUSTEE SINCE MAIN OCCUPATIONS AND OTHER DIRECTORSHIPS AND AFFILIATIONS
- ------------------------------------------------------------------------------------------------------------------------------------
CHARLES R. SCHWAB 4 Chairman, Trustee: Chairman, Chief Executive Officer and Director, The Charles Schwab
1937 Family of Funds, 1989; Corporation, Charles Schwab & Co., Inc.; Chairman and Director,
Investments, 1991; Charles Schwab Investment Management, Inc., Charles Schwab Bank,
Capital Trust, 1993; National Association; Chairman and Chief Executive Officer, Schwab
Annuity Portfolios, 1994. (SI) Holdings Inc. I, Schwab International Holdings, Inc.; Chief Executive
Officer and Director, Schwab Holdings, Inc.; Director, U.S. Trust
Company, National Association, U.S. Trust Corporation, United States
Trust Company of New York. Until 5/03, Co-Chief Executive Officer,
The Charles Schwab Corporation.
Trustee, Charles and Helen Schwab Foundation; Chairman, All Kinds of
Minds Institute (education), Stanford University; Chairman and Director,
Charles Schwab Foundation; Chairman of the Finance Committee, San Francisco
Museum of Modern Art.
- ------------------------------------------------------------------------------------------------------------------------------------
RANDALL W. MERK 4 Trustee, 2005 Executive Vice President and President, Asset Management Products
1954 (all trusts). & Services Enterprise, Charles Schwab & Co., Inc.; Director, Charles
Schwab Asset Management (Ireland) Limited. From 9/02 to 7/04,
Mr. Merk was President and Chief Executive Officer, Charles Schwab
Investment Management, Inc. and Executive Vice President, Charles
Schwab & Co., Inc. Prior to 9/02, Mr. Merk was President and Chief
Investment Officer, American Century Investment Management, and
Director, American Century Companies, Inc. (6/01 to 8/02); Chief
Investment Officer, Fixed, American Century Companies, Inc. (1/97
to 6/01).
OFFICERS OF THE TRUST
NAME AND
YEAR OF BIRTH TRUST OFFICE(S) HELD MAIN OCCUPATIONS AND OTHER DIRECTORSHIPS AND AFFILIATIONS
- ------------------------------------------------------------------------------------------------------------------------------------
EVELYN DILSAVER President, Chief Executive Vice President, President, Director, Charles Schwab
1955 Executive Officer Investment Management, Inc. Vice President, Laudus Trust and
(all trusts). Laudus Variable Insurance Trust. Until 7/04: Senior Vice President
for Development and Distribution, Asset Management Products
& Services Enterprise. Until 6/03: Executive Vice President, Chief
Financial Officer, Chief Administrative Officer, U.S. Trust.
- ------------------------------------------------------------------------------------------------------------------------------------
STEPHEN B. WARD Senior Vice President, Senior Vice President, Chief Investment Officer, Director, Charles
1955 Chief Investment Schwab Investment Management, Inc.; Chief Investment Officer, The
Officer (all trusts). Charles Schwab Trust Co.
4 In addition to their positions with the investment adviser and the
distributor, Messrs. Schwab and Merk also own stock of the Charles Schwab
Corporation.
114
OFFICERS OF THE TRUST continued
NAME AND
YEAR OF BIRTH TRUST OFFICE(S) HELD MAIN OCCUPATIONS AND OTHER DIRECTORSHIPS AND AFFILIATIONS
- ------------------------------------------------------------------------------------------------------------------------------------
KIMON DAIFOTIS Senior Vice President, Senior Vice President and Chief Investment Officer, Fixed Income,
1959 Chief Investment Charles Schwab Investment Management, Inc. Until 6/04: Vice
Officer (all trusts). President, Charles Schwab Investment Management, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
JEFFREY MORTIMER Senior Vice President, Senior Vice President, Chief Investment Officer, Equities, Charles
1963 Chief Investment Schwab Investment Management, Inc.; Vice President, Chief
Officer (all trusts). Investment Officer, Laudus Trust and Laudus Variable Insurance
Trust. Until 5/04: Vice President, Charles Schwab Investment
Management, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
RANDALL FILLMORE Chief Compliance Senior Vice President, Institutional Compliance and Chief Compliance
1960 Officer (all trusts). Officer, Charles Schwab Investment Management, Inc.; Chief
Compliance Officer, Laudus Trust and Laudus Variable Insurance
Trust. Until 9/03: Vice President, Charles Schwab & Co., Inc. and
Charles Schwab Investment Management, Inc. Until 2002: Vice
President, Internal Audit, Charles Schwab & Co., Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
KOJI E. FELTON Secretary (all trusts). Senior Vice President, Chief Counsel and Corporate Secretary, Charles
1961 Schwab Investment Management, Inc.; Senior Vice President and
Deputy General Counsel, Charles Schwab & Co., Inc. Prior to 6/98,
Branch Chief in Enforcement at U.S. Securities and Exchange
Commission in San Francisco.
- ------------------------------------------------------------------------------------------------------------------------------------
GEORGE PEREIRA Treasurer, Principal Senior Vice President and Chief Financial Officer, Charles Schwab
1964 Financial Officer Investment Management, Inc.; Director, Charles Schwab Asset
(all trusts) Management (Ireland) Limited. From 12/99 to 11/04, Senior Vice
President, Financial Reporting, Charles Schwab & Co., Inc.
115
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.
The industry/sector classification of the funds' portfolio holdings uses the
Global Industry Classification Standard (GICS) which was developed by and is the
exclusive property of Morgan Stanley Capital International Inc. and Standard &
Poor's. GICS is a service mark of MSCI and S&P and has been licensed for use by
Charles Schwab & Co., Inc.
116
Schwab Funds(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 Schwab Funds.
Whether you're an experienced investor or just starting out, Schwab Funds 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 Schwab Fund. 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 Schwab Funds at:
P.O. Box 3812
Englewood, CO
80155-3812
When selling or exchanging shares, be sure to include the signatures of at least
one of the persons whose name is on the account.
PROXY VOTING POLICIES, PROCEDURES AND RESULTS
A description of the proxy voting policies and procedures used to determine how
to vote proxies on behalf of the funds is available without charge, upon
request, by visiting Schwab's website at www.schwab.com/schwabfunds, the SEC's
website at http://www.sec.gov, or by contacting Schwab Funds 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 website 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 SCHWAB FUNDS FAMILY(R)
STOCK FUNDS
Schwab Institutional Select(R) S&P 500 Fund
Schwab S&P 500 Index Fund
Schwab 1000 Index(R) Fund
Schwab Small-Cap Index Fund(R)
Schwab Total Stock Market Index Fund(R)
Schwab International Index Fund(R)
Schwab Premier Equity Fund(TM)
Schwab Core Equity Fund(TM)
Schwab Dividend Equity Fund(TM)
Schwab Large-Cap Growth Fund(TM)
Schwab Small-Cap Equity Fund(TM)
Schwab Hedged Equity Fund(TM)
Schwab Financial Services Fund(TM)
Schwab Health Care Fund(TM)
Schwab Technology Fund(TM)
ASSET ALLOCATION FUNDS
Schwab MarketTrack All Equity Portfolio(TM)
Schwab MarketTrack Growth Portfolio(TM)
Schwab MarketTrack Balanced Portfolio(TM)
Schwab MarketTrack Conservative Portfolio(TM)
Schwab Target 2010 Fund
Schwab Target 2020 Fund
Schwab Target 2030 Fund
Schwab Target 2040 Fund
Schwab Retirement Income Fund
BOND FUNDS
Schwab YieldPlus Fund(R)
Schwab Short-Term Bond Market Fund(TM)
Schwab Total Bond Market Fund(TM)
Schwab GNMA Fund(TM)
Schwab Tax-Free YieldPlus Fund(TM)
Schwab Short/Intermediate Tax-Free Bond Fund(TM)
Schwab Long-Term Tax-Free Bond Fund(TM)
Schwab California Tax-Free YieldPlus 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 eligible 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
Schwab Funds(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) 2005 Charles Schwab & Co., Inc. All rights reserved.
Member SIPC
Printed on recycled paper.
MFR26298-02
SCHWAB INSTITUTIONAL SELECT(R)
S&P 500 FUND
ANNUAL REPORT
October 31, 2005
[CHARLES SCHWAB LOGO]
A fund which seeks high total return by tracking the performance of the S&P
500(R) Index.
IN THIS REPORT
Management's Discussion ............................................. 2
Performance ......................................................... 6
Fund Facts .......................................................... 7
Fund Expenses ....................................................... 8
Financial Statements ................................................ 9
Financial Notes ..................................................... 22
Investment Advisory Agreement Approval .............................. 26
Trustees and Officers ............................................... 29
Glossary ............................................................ 33
Fund investment adviser: Charles Schwab Investment Management, Inc. (CSIM).
Distributor and transfer agent: Charles Schwab & Co., Inc. (Schwab).
The industry/sector classification of the funds' portfolio holdings uses the
Global Industry Classification Standard (GICS) which was developed by and is the
exclusive property of Morgan Stanley Capital International Inc. and Standard &
Poor's. GICS is a service mark of MSCI and S&P and has been licensed for use by
Charles Schwab & Co., Inc.
[PHOTO OF CHARLES SCHWAB]
Charles Schwab
Chairman
Investors should consider carefully information contained in the prospectus,
including investment objectives, risks, charges and expenses. You can request a
prospectus by calling Schwab at 1-800-435-4000. Please read the prospectus
carefully before investing.
Performance data quoted represents past performance and does not indicate future
results. Current performance may be lower or higher. Investment value will
fluctuate, and shares, when redeemed, may be worth more or less than original
cost. Small-cap funds are subject to greater volatility than those in other
asset categories.
FROM THE CHAIRMAN
Dear Shareholder,
I founded Schwab over thirty years ago to be a home for serious investors. That
mission continues to guide us today as we constantly innovate on behalf of our
clients. By continuing to provide the highest quality products and services--at
a great price--we remain true to our heritage.
I take particular pride in the Schwab Funds(R). Founded over 15 years ago, they
have now grown to include more than 50 funds with over $140 billion in assets as
of this report date. With a variety of investment strategies, Schwab Funds
provide a range of innovative investment choices that can serve as a foundation
for your asset allocation plan. We've continued to expand our product offering
over the past year, as Schwab Funds President Evelyn Dilsaver explains in more
detail on the following page.
Schwab Funds is managed by Charles Schwab Investment Management, Inc., one of
the largest mutual fund managers in the U.S. Our portfolio managers share a
passion for market analysis and use some of the most sophisticated financial
models available. I am proud of their depth of experience, which reflects an
average tenure of more than 15 years in the investment industry. Furthermore, I
am impressed with the commitment that our managers bring to the stewardship of
the funds, for you, their shareholders.
This commitment and experience is evident in our funds' performance. I'm
especially pleased to highlight the strong performance of the Schwab Small-Cap
Equity Fund which ranked in the top 2% of its category for the one-year period
ended October 31, 2005. 1
In closing, I want to thank you for investing with us. We strive every day to
warrant the trust you have placed in us; that will never change.
Sincerely,
/s/ Charles Schwab
1 Source: Lipper Small Cap Core Funds. For the one-year period, rankings were:
Select Shares #11 and Investor Shares #12 out of 604 funds. Numbers assume
reinvestment of dividends and capital gains over each time period. Lipper,
Inc. rankings are based on average total returns not including sales charges.
MANAGEMENT'S DISCUSSION for the year ended October 31, 2005
[PHOTO OF EVELYN DILSAVER]
EVELYN DILSAVER is President and CEO of Charles Schwab Investment Management,
Inc. and is president of the fund covered in this report. She joined the firm in
1992 and has held a variety of executive positions at Schwab.
Dear Shareholder,
I'm pleased to bring you the annual report for the Schwab Institutional Select
S&P 500 Fund for the one-year period ended October 31, 2005.
With their market-tracking performance, broad diversification and lower costs,
index funds can complement a portfolio of actively managed funds. For example,
the Schwab 1000 Index Fund includes the stocks of the largest 1,000 publicly
traded companies in the United States. This fund has delivered strong results
and is a tax-efficient investment that can serve as the core stock portion of an
asset allocation strategy.
We continue to develop and manage Schwab Funds to help you achieve your goals
and to provide an uncomplicated way to build a well-diversified portfolio. In
terms of development, Schwab Funds launched seven new funds in 2005. Among the
new funds is the Schwab Large-Cap Growth Fund, which commenced operations on
October 3, 2005. This fund seeks capital appreciation by selecting companies
with market capitalizations greater than $5 billion and is actively managed by a
team of investment professionals that understands how a disciplined investment
strategy can help achieve competitive returns.
I speak for all of Schwab Funds when I say we want Schwab to be the place where
investors can find useful, quality financial products and services to help them
succeed.
Thank you for investing in Schwab Funds.
Sincerely,
/s/ Evelyn Dilsaver
Investors should consider carefully information contained in the prospectus,
including investment objectives, risks, charges and expenses. You can request a
prospectus by calling Schwab at 1-800-435-4000. Please read the prospectus
carefully before investing.
Investment value will fluctuate, and shares, when redeemed, may be worth more or
less than original cost.
2 Schwab Institutional Select S&P 500 Fund
[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 the fund. Prior to joining the firm in October 1997, he worked for more than
eight years in asset management.
[PHOTO OF LARRY MANO]
LARRY MANO, vice president and senior portfolio manager of the investment
adviser, is responsible for the day-to-day co-management of the fund. Prior to
joining the firm in 1998, he worked for 20 years in equity management.
THE INVESTMENT ENVIRONMENT AND THE FUND
Despite a turbulent year in the news, the markets remained in a steady growth
mode and ended the one-year report period with positive results. Oil prices hit
all-time highs and the Federal Reserve continued to raise short-term interest
rates to curb inflationary pressures, raising the Fed Funds Target eight
consecutive times in the one-year report period. The moves had a limited impact
on overall economic growth, due primarily to the record-low level of interest
rates from which the increases began.
Despite concerns of high energy prices, which remained a significant headwind
for economic performance throughout the period, corporate earnings remained
strong throughout the year. Additionally, with the unemployment rate hovering
around 5% and GDP growth around 3.6%, job and income growth remained positive
and investors remained optimistic. Productivity gains and more restrictive
monetary policy kept a lid on core inflation. The productivity gains, coupled
with foreign investors buying large amounts of U.S. government securities,
helped contain increases in long-term interest rates. These conditions caused
the dollar to rally, which took pressure off the price of imported goods.
The big news for the past few months was the impact of Hurricanes Katrina and
Rita. The devastation caused by these storms was particularly heavy with respect
to the energy infrastructure in the South. Oil prices rose sharply in the
aftermath of the hurricanes, with crude oil peaking above $71 per barrel in
early September. However, a quick action by the federal government to release
Strategic Petroleum Reserves and soften oil demand led to a subsequent decline
off that peak. While the full economic effect of the hurricanes was unknown at
the end of the report period, the damage appears to be limited to the regions in
the hurricanes' path and to the energy infrastructures in the area.
Another significant event that occurred during the report period was the
appointment of Ben Bernanke to succeed Alan Greenspan as Chairman of the Federal
Reserve Board. Although he has not yet been confirmed into office, Bernanke's
experience on the Federal Open Market Committee and his expertise in monetary
economics has eased the concerns of the markets and caused investors to expect a
smooth transition.
Source of Sector Classification: S&P and MSCI.
Schwab Institutional Select S&P 500 Fund 3
MANAGEMENT'S DISCUSSION continued
[PHOTO OF TOM BROWN]
TOM BROWN, an associate portfolio manager of the investment adviser, is
responsible for day-to-day co-management of the equity portions of the fund. He
joined Schwab in 1995, became a trader in 1999, and was named to his current
position in 2004.
Despite tragic hurricanes, rising interest rates, and soaring energy prices, the
funds and their respective benchmarks held up well. The S&P 500 Index 1 posted
gains of 8.72% for the one-year period ending on October 31, 2005 while the
Russell 2000 Index also displayed a positive return of 12.08%. As improving
fundamentals and attractive valuations have strengthened investor interest in
emerging markets, the MSCI EAFE (Morgan Stanley Capital International, Inc.
Europe, Australasia, and Far East) Index also had an impressive return of 18.09%
for the one-year report period.
Although bonds did not fare nearly as well as equities this period, performance
was still positive, up by 1.13%, as measured by the Lehman Brothers U.S.
Aggregate Bond Index. This differential is not unusual, given that we were in
the midst of an economic recovery during the period. When the economy is strong
and job growth is robust, investors expect to see inflation, which generally
leads to higher interest rates and ultimately brings down prices for bonds. In
summary, the markets have seen quite a few events with the potential to diminish
investor confidence, but as of the end of the period, significant negative
impacts had not materialized.
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.
8.72% S&P 500(R) INDEX: measures U.S. large-cap stocks
12.08% RUSSELL 2000(R) INDEX: measures U.S. small-cap stocks
18.09% MSCI-EAFE(R) INDEX: measures (in U.S. dollars) large-cap stocks in
Europe, Australasia and the Far East
1.13% LEHMAN BROTHERS U.S. AGGREGATE BOND INDEX: measures the U.S. bond
market
[LINE GRAPH]
LEHMAN
BROTHERS RUSSELL
U.S. AGGREGATE S&P 500(R) 2000(R) MSCI-EAFE(R)
BOND INDEX INDEX INDEX INDEX
31-Oct-04 0.00 0.00 0.00 0.00
07-Nov-04 -0.52 3.21 3.53 3.71
14-Nov-04 -0.49 4.88 6.60 4.81
21-Nov-04 -0.40 3.69 5.15 5.92
28-Nov-04 -0.47 4.81 8.21 6.96
05-Dec-04 -0.38 5.62 10.13 8.68
12-Dec-04 0.13 5.37 8.44 5.79
19-Dec-04 -0.05 5.95 10.16 7.36
26-Dec-04 0.02 7.40 11.44 10.52
02-Jan-05 0.12 7.59 11.89 11.52
09-Jan-05 -0.09 5.35 5.32 8.50
16-Jan-05 0.27 5.22 6.07 8.74
23-Jan-05 0.68 3.75 4.98 7.81
30-Jan-05 0.70 4.08 5.33 8.68
06-Feb-05 1.05 6.95 9.55 10.43
13-Feb-05 1.03 7.23 9.11 11.16
20-Feb-05 0.51 6.94 8.33 12.75
27-Feb-05 0.47 7.86 9.63 13.40
06-Mar-05 0.44 8.86 10.92 15.44
13-Mar-05 -0.43 6.96 7.84 15.54
20-Mar-05 -0.34 6.04 7.13 14.06
27-Mar-05 -0.79 4.42 5.88 11.43
03-Apr-05 -0.16 4.59 5.31 11.55
10-Apr-05 -0.28 5.37 5.20 12.02
17-Apr-05 0.55 1.95 0.06 10.11
24-Apr-05 0.78 2.81 1.57 10.36
01-May-05 0.98 3.28 -0.15 8.71
08-May-05 0.79 4.60 2.83 10.65
15-May-05 1.27 3.14 0.36 8.08
22-May-05 1.34 6.33 5.10 8.34
29-May-05 1.73 7.22 6.42 9.41
05-Jun-05 2.23 7.01 7.02 9.48
12-Jun-05 1.96 7.23 8.07 9.40
19-Jun-05 1.94 8.95 11.20 11.36
26-Jun-05 2.67 6.70 8.83 10.42
03-Jul-05 2.25 7.01 11.08 9.74
10-Jul-05 2.07 8.60 14.40 9.31
17-Jul-05 1.96 10.06 14.69 11.35
24-Jul-05 1.84 10.59 17.12 12.34
31-Jul-05 1.70 10.68 17.49 13.59
07-Aug-05 1.25 10.02 14.58 14.44
14-Aug-05 1.94 10.44 14.14 18.32
21-Aug-05 2.10 9.54 12.85 16.11
28-Aug-05 2.25 8.24 12.20 16.21
04-Sep-05 3.04 9.47 14.77 19.45
11-Sep-05 2.68 11.60 17.33 20.67
18-Sep-05 2.20 11.33 16.32 20.04
25-Sep-05 2.28 9.32 13.47 18.92
02-Oct-05 1.94 10.56 15.67 21.65
09-Oct-05 1.89 7.66 11.63 19.16
16-Oct-05 1.35 6.84 9.71 18.26
23-Oct-05 1.86 6.22 9.65 15.53
30-Oct-05 1.09 7.95 10.12 16.68
31-Oct-05 1.13 8.72 12.08 18.09
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.
Source of Sector Classification: S&P and MSCI.
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.
4 Schwab Institutional Select S&P 500 Fund
PERFORMANCE AT A GLANCE
Total return for the 12 months ended 10/31/05
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE DOES
NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL
FLUCTUATE SO THAT AN INVESTOR'S SHARES MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN PERFORMANCE DATA
QUOTED. TO OBTAIN PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH END,
PLEASE VISIT WWW.SCHWAB.COM/SCHWABFUNDS.
SCHWAB INSTITUTIONAL SELECT(R)
S&P 500 FUND ................... 8.64%
Benchmark ...................... 8.72%
Performance Details ............ page 6
THE SCHWAB INSTITUTIONAL SELECT S&P 500 FUND ended the one-year report period up
8.64%, closely tracking its benchmark, the S&P 500 Index, which was up 8.72%.
The fund in this report is an index fund and is designed to track the
performance of the S&P 500 stock market index. Bear in mind that the fund's
return, unlike the index, includes the impact of operating expenses.
Most of the fund's appreciation occurred during the second and third quarter of
2005. Within this fund, the best performing sectors were Utilities and Energy.
With the price of crude oil increasing during the period, energy-related stocks
were the overall top performers in the fund. Specifically, Exxon Mobil Corp. and
Altria Group, Inc. were among the fund's best performing stocks. On the
downside, Telecommunication Services and Consumer Discretionary were the worst
performing industries and detracted from overall fund returns. Companies such as
Pfizer, Inc., Wal-Mart Stores, Inc., and Fannie Mae were among the worst
performers.
Source of Sector Classification: S&P and MSCI. 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 fund's 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.
Nothing in this report represents a recommendation of a security by the
investment adviser. Manager views and portfolio holdings may have changed since
the report date.
Schwab Institutional Select S&P 500 Fund 5
SCHWAB INSTITUTIONAL SELECT(R) S&P 500 FUND
PERFORMANCE as of 10/31/05
PRE- AND POST-TAX AVERAGE ANNUAL TOTAL RETURNS 1, 2
This bar chart compares pre-tax performance of the fund with its benchmark and
Morningstar category. The table below the chart shows two types of after-tax
returns.
[BAR CHART]
FUND
Ticker Benchmark: Fund Category:
Symbol: S&P 500(R) MORNINGSTAR
ISLCX INDEX LARGE-CAP BLEND
1 YEAR 8.64% 8.72% 9.53%
5 YEARS -1.82% -1.73% -1.41%
SINCE INCEPTION: 2/1/99 0.54% 0.65% 1.18%
1 YEAR 5 YEARS SINCE INCEPTION
FUND FUND FUND
Ticker Fund Category: Ticker Fund Category: Ticker Fund Category:
Symbol: MORNINGSTAR Symbol: MORNINGSTAR Symbol: MORNINGSTAR
TOTAL RETURNS AFTER TAX ISLCX LARGE-CAP BLEND ISLCX LARGE-CAP BLEND ISLCX LARGE-CAP BLEND
- ------------------------------------------------------------------------------------------------------------------------------------
PRE-LIQUIDATION (still own shares) 8.38% 7.38% -2.22% -2.22% 0.19% n/a
- ------------------------------------------------------------------------------------------------------------------------------------
POST-LIQUIDATION (shares were sold) 5.94% 5.25% -1.74% -1.62% 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 compared with a similar investment in its benchmark.
$10,374 FUND
$10,453 S&P 500(R) INDEX
[LINE GRAPH]
S&P 500(R)
FUND INDEX
01-Feb-99 $10,000 $10,000
28-Feb-99 $9,680 $9,689
31-Mar-99 $10,070 $10,077
30-Apr-99 $10,460 $10,467
31-May-99 $10,200 $10,220
30-Jun-99 $10,770 $10,787
31-Jul-99 $10,440 $10,450
31-Aug-99 $10,380 $10,398
30-Sep-99 $10,100 $10,113
31-Oct-99 $10,740 $10,753
30-Nov-99 $10,950 $10,972
31-Dec-99 $11,602 $11,618
31-Jan-00 $11,016 $11,035
29-Feb-00 $10,804 $10,826
31-Mar-00 $11,864 $11,885
30-Apr-00 $11,501 $11,527
31-May-00 $11,259 $11,291
30-Jun-00 $11,541 $11,569
31-Jul-00 $11,360 $11,389
31-Aug-00 $12,066 $12,096
30-Sep-00 $11,420 $11,458
31-Oct-00 $11,370 $11,410
30-Nov-00 $10,481 $10,510
31-Dec-00 $10,534 $10,562
31-Jan-01 $10,901 $10,937
28-Feb-01 $9,911 $9,939
31-Mar-01 $9,278 $9,309
30-Apr-01 $10,003 $10,033
31-May-01 $10,064 $10,100
30-Jun-01 $9,819 $9,854
31-Jul-01 $9,717 $9,758
31-Aug-01 $9,115 $9,147
30-Sep-01 $8,380 $8,408
31-Oct-01 $8,533 $8,569
30-Nov-01 $9,187 $9,226
31-Dec-01 $9,264 $9,307
31-Jan-02 $9,130 $9,171
28-Feb-02 $8,954 $8,994
31-Mar-02 $9,295 $9,332
30-Apr-02 $8,726 $8,767
31-May-02 $8,664 $8,702
30-Jun-02 $8,044 $8,082
31-Jul-02 $7,424 $7,453
31-Aug-02 $7,465 $7,501
30-Sep-02 $6,659 $6,686
31-Oct-02 $7,238 $7,274
30-Nov-02 $7,672 $7,702
31-Dec-02 $7,217 $7,250
31-Jan-03 $7,028 $7,060
28-Feb-03 $6,922 $6,954
31-Mar-03 $6,986 $7,022
30-Apr-03 $7,564 $7,601
31-May-03 $7,953 $8,001
30-Jun-03 $8,059 $8,104
31-Jul-03 $8,195 $8,246
31-Aug-03 $8,353 $8,407
30-Sep-03 $8,269 $8,318
31-Oct-03 $8,732 $8,789
30-Nov-03 $8,806 $8,866
31-Dec-03 $9,272 $9,331
31-Jan-04 $9,432 $9,502
29-Feb-04 $9,570 $9,634
31-Mar-04 $9,421 $9,489
30-Apr-04 $9,272 $9,340
31-May-04 $9,400 $9,468
30-Jun-04 $9,581 $9,651
31-Jul-04 $9,261 $9,332
31-Aug-04 $9,304 $9,369
30-Sep-04 $9,400 $9,471
31-Oct-04 $9,549 $9,615
30-Nov-04 $9,933 $10,005
31-Dec-04 $10,265 $10,345
31-Jan-05 $10,016 $10,093
28-Feb-05 $10,233 $10,305
31-Mar-05 $10,049 $10,122
30-Apr-05 $9,864 $9,930
31-May-05 $10,168 $10,246
30-Jun-05 $10,189 $10,260
31-Jul-05 $10,558 $10,642
31-Aug-05 $10,460 $10,545
30-Sep-05 $10,547 $10,630
31-Oct-05 $10,374 $10,453
All figures on this page assume dividends and distributions were reinvested.
Index figures do not include trading and management costs, which would lower
performance. Indices are unmanaged, and you cannot invest in them directly.
1 The pre-tax total return and the graph do not reflect the deduction of taxes
that a shareholder would pay on fund distributions or the redemption of fund
shares. After-tax returns are calculated using the highest historical
individual federal marginal income tax rates in effect as of 10/31/05 and do
not reflect the impact of state and local taxes or the alternative minimum
tax. Actual returns depend on an investor's situation and may differ from
those shown. After-tax returns may not be relevant to investors who hold their
fund shares through tax-deferred arrangements. Pre-liquidation after-tax
returns reflect the tax effects of purchases and sales of securities within
the fund portfolios and assume investors continue to hold fund shares at the
end of the measurement periods. Post-liquidation figures assume investors sold
fund shares at the end of the measurement periods and reflect both the effects
of taxable distributions and any taxable gains or losses realized upon the
sale of shares. Source for category information: Morningstar, Inc.
2 Fund expenses have been partially absorbed by CSIM and Schwab. Without these
reductions, the fund's returns would have been lower.
6 Schwab Institutional Select S&P 500 Fund
SCHWAB INSTITUTIONAL SELECT S&P 500 FUND
FUND FACTS as of 10/31/05
STYLE ASSESSMENT 1
[GRAPHIC]
INVESTMENT STYLE
MARKET CAP Value Blend Growth
Large / / /X/ / /
Medium / / / / / /
Small / / / / / /
STATISTICS
NUMBER OF HOLDINGS 504
- -------------------------------------------------------------------------------
WEIGHTED AVERAGE MARKET CAP ($ x 1,000,000) $88,366
- -------------------------------------------------------------------------------
PRICE/EARNINGS RATIO (P/E) 18.0
- -------------------------------------------------------------------------------
PRICE/BOOK RATIO (P/B) 2.8
- -------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 3%
- -------------------------------------------------------------------------------
MINIMUM INITIAL INVESTMENT 2 $75,000
- -------------------------------------------------------------------------------
TOP HOLDINGS 3
SECURITY % OF
NET ASSETS
- -------------------------------------------------------------------------------
(1) GENERAL ELECTRIC CO. 3.2%
- -------------------------------------------------------------------------------
(2) EXXON MOBIL CORP. 3.2%
- -------------------------------------------------------------------------------
(3) MICROSOFT CORP. 2.2%
- -------------------------------------------------------------------------------
(4) CITIGROUP, INC. 2.1%
- -------------------------------------------------------------------------------
(5) PROCTER & GAMBLE CO. 1.7%
- -------------------------------------------------------------------------------
(6) JOHNSON & JOHNSON 1.7%
- -------------------------------------------------------------------------------
(7) BANK OF AMERICA CORP. 1.6%
- -------------------------------------------------------------------------------
(8) AMERICAN INTERNATIONAL GROUP, INC. 1.5%
- -------------------------------------------------------------------------------
(9) PFIZER, INC. 1.4%
- -------------------------------------------------------------------------------
(10) ALTRIA GROUP, INC. 1.4%
- -------------------------------------------------------------------------------
TOTAL 20.0%
SECTOR WEIGHTINGS % of Investments
This chart shows the fund's sector composition as of the report date. A sector
is a portion of the overall stock market that is made up of industries whose
business components share similar characteristics.
[PIE CHART]
20.8% FINANCIALS
15.0% INFORMATION TECHNOLOGY
13.0% HEALTH CARE
11.1% INDUSTRIALS
10.6% CONSUMER DISCRETIONARY
9.7% CONSUMER STAPLES
9.3% ENERGY
3.4% UTILITIES
3.0% TELECOMMUNICATION SERVICES
2.9% MATERIAL
1.2% OTHER
Portfolio holdings may have changed since the report date.
Source of Sector Classification: S&P and MSCI.
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 10/31/05, which may have changed since then, and is not a
precise indication of risk or performance--past, present, or future.
2 Please see prospectus for further detail and eligibility requirements.
3 This list is not a recommendation of any security by the investment adviser.
Schwab Institutional Select S&P 500 Fund 7
FUND EXPENSES (unaudited)
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, 2005 and held
through October 31, 2005.
ACTUAL RETURN lines in the table below provide information about actual account
values and actual expenses. You may use this information, together with the
amount you invested, to estimate the expenses that you paid over the period. To
do so, simply divide your account value by $1,000 (for example, an $8,600
account value / $1,000 = 8.6), then multiply the result by the number given for
your fund under the heading entitled "Expenses Paid During Period."
HYPOTHETICAL RETURN lines in the table below provide information about
hypothetical account values and hypothetical expenses based on a fund's actual
expense ratio and an assumed return of 5% per year before expenses. Because the
return used is not an actual return, it may not be used to estimate the actual
ending account value or expenses you paid for the period.
You may use this information to compare the ongoing costs of investing in the
fund and other funds. To do so, compare this 5% hypothetical example with the 5%
hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only, and do not reflect any transactional costs, such as
redemption fees. If these transactional costs were included, your costs would
have been higher.
ENDING
BEGINNING ACCOUNT VALUE EXPENSES
EXPENSE RATIO 1 ACCOUNT VALUE (Net of Expenses) PAID DURING PERIOD 2
(Annualized) at 5/1/05 at 10/31/05 5/1/05-10/31/05
- -------------------------------------------------------------------------------------------------------------------------
SCHWAB INSTITUTIONAL SELECT(R)
S&P 500 FUND
Actual Return 0.10% $1,000 $1,051.60 $0.52
Hypothetical 5% Return 0.10% $1,000 $1,024.70 $0.51
1 Based on the most recent six-month expense ratio; may differ from the expense
ratio provided in Financial Highlights.
2 Expenses for each fund are equal to its annualized expense ratio, multiplied
by the average account value over the period, multiplied by 184 days of the
period, and divided by 365 days of the fiscal year.
8 Schwab Institutional Select S&P 500 Fund
SCHWAB INSTITUTIONAL SELECT(R)
S&P 500 FUND
FINANCIAL STATEMENTS
FINANCIAL HIGHLIGHTS
11/1/04- 11/1/03- 11/1/02- 11/1/01- 11/1/00-
10/31/05 10/31/04 10/31/03 10/31/02 10/31/01
- ------------------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA ($)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of period 8.95 8.30 7.00 8.36 11.26
-----------------------------------------------------------------------------
Income or loss from investment operations:
Net investment income 0.15 0.13 0.12 0.12 0.12
Net realized and unrealized gains or losses 0.62 0.64 1.30 (1.37) (2.91)
-----------------------------------------------------------------------------
Total income or loss from investment operations 0.77 0.77 1.42 (1.25) (2.79)
Less distributions:
Dividends from net investment income (0.15) (0.12) (0.12) (0.11) (0.11)
-----------------------------------------------------------------------------
Total distributions (0.15) (0.12) (0.12) (0.11) (0.11)
-----------------------------------------------------------------------------
Net asset value at end of period 9.57 8.95 8.30 7.00 8.36
-----------------------------------------------------------------------------
Total return (%) 8.64 9.36 20.65 (15.18) (24.95)
RATIOS/SUPPLEMENTAL DATA (%)
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net operating expenses 0.10 0.15 0.15 0.15 0.15
Gross operating expenses 0.33 0.35 0.36 0.37 0.37
Net investment income 1.82 1.56 1.65 1.38 1.14
Portfolio turnover rate 3 3 4 12 13
Net assets, end of period ($ x 1,000,000) 1,246 348 272 203 261
See financial notes. 9
SCHWAB INSTITUTIONAL SELECT S&P 500 FUND
PORTFOLIO HOLDINGS as of October 31, 2005
This section shows all the securities in the fund's portfolio by industry
classification and their value, as of the report date.
The fund files its complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. The fund's Form N-Q is
available on the SEC's website at http://www.sec.gov and may be reviewed and
copied at the SEC's Public Reference Room in Washington, D.C. Call
1-800-SEC-0330 for information on the operation of the Public Reference Room.
The schedule of portfolio holdings filed on the fund's most recent Form N-Q is
available by visiting Schwab's website at www.schwab.com/schwabfunds.
We use the symbols below to designate certain characteristics of the securities.
With the top ten holdings, the number in the circle is the security's rank among
the top ten.
(1) Top ten holding
o Non-income producing security
= All or a portion of this security is held as collateral for open futures
contracts
/ Issuer is 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)
- --------------------------------------------------------------------------------
98.6% COMMON STOCK 1,209,759 1,227,996
1.0% SHORT-TERM
INVESTMENT 12,222 12,222
0.2% U.S. TREASURY
OBLIGATIONS 2,863 2,862
0.0% WARRANTS -- 8
- --------------------------------------------------------------------------------
99.8% TOTAL INVESTMENTS 1,224,844 1,243,088
3.8% COLLATERAL INVESTED
FOR SECURITIES ON LOAN 47,258 47,258
(3.6)% OTHER ASSETS AND
LIABILITIES, NET (44,221)
- --------------------------------------------------------------------------------
100.0% TOTAL NET ASSETS 1,246,125
VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
--------------------------------------------------------------------------
COMMON STOCK 98.6% of net assets
AUTOMOBILES & COMPONENTS 0.6%
--------------------------------------------------------------------------
Cooper Tire & Rubber Co. 4,835 66
Dana Corp. 15,581 117
Ford Motor Co. 217,171 1,807
@ General Motors Corp. 61,643 1,689
@o Goodyear Tire & Rubber Co. 21,774 341
Harley-Davidson, Inc. 29,867 1,479
Johnson Controls, Inc. 21,642 1,473
Visteon Corp. 17,660 147
-----------
7,119
BANKS 7.2%
--------------------------------------------------------------------------
AmSouth Bancorp. 40,318 1,017
@(7) Bank of America Corp. 455,047 19,904
BB&T Corp. 60,697 2,570
Comerica, Inc. 19,177 1,108
Compass Bancshares, Inc. 14,612 712
Countrywide Financial Corp. 64,002 2,033
Fannie Mae 109,692 5,213
Fifth Third Bancorp 60,589 2,434
First Horizon National Corp. 13,331 516
Freddie Mac 78,275 4,802
@ Golden West Financial Corp. 28,064 1,648
@ Huntington Bancshares, Inc. 27,140 631
KeyCorp, Inc. 48,784 1,573
M&T Bank Corp. 10,548 1,135
@ Marshall & Ilsley Corp. 23,168 995
MGIC Investment Corp. 10,904 646
National City Corp. 64,578 2,081
North Fork Bancorp., Inc. 51,999 1,318
PNC Financial Services Group,
Inc. 33,251 2,019
Regions Financial Corp. 50,508 1,644
Sovereign Bancorp, Inc. 39,709 856
SunTrust Banks, Inc. 39,776 2,883
Synovus Financial Corp. 35,857 985
U.S. Bancorp 204,997 6,064
Wachovia Corp. 176,615 8,923
Washington Mutual, Inc. 108,197 4,285
10 See financial notes.
SCHWAB INSTITUTIONAL SELECT S&P 500 FUND
VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
Wells Fargo & Co. 187,000 11,257
Zions Bancorp. 9,628 707
-----------
89,959
CAPITAL GOODS 8.6%
--------------------------------------------------------------------------
3M Co. 85,910 6,527
American Power Conversion Corp. 19,723 422
American Standard Cos., Inc. 20,582 783
The Boeing Co. 92,885 6,004
Caterpillar, Inc. 74,441 3,915
Cooper Industries Ltd., Class A 9,948 705
Cummins, Inc. 4,741 405
@ Danaher Corp. 29,904 1,558
Deere & Co. 26,885 1,631
Dover Corp. 23,332 910
Eaton Corp. 16,435 967
Emerson Electric Co. 47,404 3,297
Fluor Corp. 9,510 605
General Dynamics Corp. 23,190 2,697
=(1) General Electric Co. 1,193,526 40,472
Goodrich Corp. 15,867 572
Honeywell International, Inc. 96,603 3,304
Illinois Tool Works, Inc. 29,477 2,498
Ingersoll-Rand Co., Class A 36,904 1,395
ITT Industries, Inc. 10,691 1,086
L-3 Communications Holdings, Inc. 13,677 1,064
Lockheed Martin Corp. 43,814 2,653
Masco Corp. 47,332 1,349
o Navistar International Corp. 6,882 189
Northrop Grumman Corp. 41,639 2,234
Paccar, Inc. 18,990 1,330
Pall Corp. 13,659 357
Parker Hannifin Corp. 13,831 867
Raytheon Co. 53,018 1,959
Rockwell Automation, Inc. 21,184 1,126
Rockwell Collins, Inc. 20,329 932
Textron, Inc. 15,334 1,105
Tyco International Ltd. 227,305 5,999
United Technologies Corp. 111,465 5,716
W.W. Grainger, Inc. 8,891 596
-----------
107,229
COMMERCIAL SERVICES & SUPPLIES 0.9%
--------------------------------------------------------------------------
o ACCO Brands Corp. 3,478 85
o Allied Waste Industries, Inc. 20,673 168
o Apollo Group, Inc., Class A 15,836 998
Avery Dennison Corp. 10,941 620
Cendant Corp. 115,206 2,007
Cintas Corp. 14,571 591
Equifax, Inc. 15,474 533
H&R Block, Inc. 36,134 898
o Monster Worldwide, Inc. 14,582 478
Pitney Bowes, Inc. 25,108 1,057
R.R. Donnelley & Sons Co. 24,705 865
Robert Half International, Inc. 19,838 732
Waste Management, Inc. 61,904 1,827
-----------
10,859
CONSUMER DURABLES & APPAREL 1.3%
--------------------------------------------------------------------------
Black & Decker Corp. 10,243 841
Brunswick Corp. 10,580 403
Centex Corp. 14,018 902
o Coach, Inc. 43,976 1,415
D.R. Horton, Inc. 29,593 908
@ Eastman Kodak Co. 30,716 673
Fortune Brands, Inc. 15,600 1,185
Hasbro, Inc. 21,544 406
Jones Apparel Group, Inc. 12,655 345
KB Home 8,278 541
Leggett & Platt, Inc. 20,296 407
Lennar Corp., Class A 14,900 828
Liz Claiborne, Inc. 11,848 417
Mattel, Inc. 43,987 649
Maytag Corp. 8,365 144
Newell Rubbermaid, Inc. 32,014 736
Nike, Inc., Class B 24,742 2,080
Pulte Homes, Inc. 23,648 894
Reebok International Ltd. 5,905 337
Snap-On, Inc. 6,076 219
@ The Stanley Works 8,830 423
VF Corp. 10,675 558
Whirlpool Corp. 7,208 566
-----------
15,877
See financial notes. 11
SCHWAB INSTITUTIONAL SELECT S&P 500 FUND
PORTFOLIO HOLDINGS continued
VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
DIVERSIFIED FINANCIALS 8.1%
--------------------------------------------------------------------------
American Express Co. 140,574 6,996
o Ameriprise Financial, Inc. 27,554 1,026
= The Bank of New York Co., Inc. 87,812 2,748
The Bear Stearns Cos., Inc. 12,738 1,348
Capital One Financial Corp. 32,656 2,493
/ The Charles Schwab Corp. 120,050 1,825
CIT Group, Inc. 22,918 1,048
=(4) Citigroup, Inc. 580,162 26,560
o E*TRADE Financial Corp. 47,197 875
Federated Investors, Inc., Class B 9,880 346
Franklin Resources, Inc. 21,364 1,888
Goldman Sachs Group, Inc. 51,265 6,478
Janus Capital Group, Inc. 23,873 419
JPMorgan Chase & Co. 397,846 14,569
Lehman Brothers Holdings, Inc. 30,146 3,608
MBNA Corp. 141,295 3,613
Mellon Financial Corp. 47,565 1,507
Merrill Lynch & Co., Inc. 104,917 6,792
Moody's Corp. 30,004 1,598
Morgan Stanley 122,486 6,664
Northern Trust Corp. 22,091 1,184
Principal Financial Group, Inc. 31,995 1,588
SLM Corp. 46,892 2,604
State Street Corp. 36,080 1,993
T. Rowe Price Group, Inc. 13,588 890
-----------
100,660
ENERGY 9.3%
--------------------------------------------------------------------------
Amerada Hess Corp. 9,338 1,168
Anadarko Petroleum Corp. 26,685 2,421
Apache Corp. 36,397 2,323
Baker Hughes, Inc. 38,476 2,115
BJ Services Co. 37,452 1,301
Burlington Resources, Inc. 42,926 3,100
ChevronTexaco Corp. 255,042 14,555
ConocoPhillips 155,878 10,191
Devon Energy Corp. 51,507 3,110
El Paso Corp. 72,589 861
EOG Resources, Inc. 26,646 1,806
=(2) Exxon Mobil Corp. 714,084 40,089
Halliburton Co. 57,065 3,373
Kerr-McGee Corp. 13,156 1,119
Kinder Morgan, Inc. 10,477 952
Marathon Oil Corp. 41,324 2,486
Murphy Oil Corp. 18,000 843
o Nabors Industries Ltd. 17,536 1,204
o National-Oilwell Varco, Inc. 18,809 1,175
Noble Corp. 14,824 954
Occidental Petroleum Corp. 44,325 3,496
Rowan Cos., Inc. 13,021 430
@ Schlumberger Ltd. 66,053 5,996
Sunoco, Inc. 15,610 1,163
o Transocean, Inc. 37,185 2,138
Valero Energy Corp. 34,524 3,633
o Weatherford International Ltd. 13,216 827
Williams Cos., Inc. 64,287 1,434
XTO Energy, Inc. 39,329 1,709
-----------
115,972
FOOD & STAPLES RETAILING 2.4%
--------------------------------------------------------------------------
Albertson's, Inc. 39,382 989
Costco Wholesale Corp. 54,506 2,636
CVS Corp. 88,230 2,154
o Kroger Co. 82,258 1,637
Safeway, Inc. 50,409 1,172
Supervalu, Inc. 16,200 509
Sysco Corp. 68,917 2,199
= Wal-Mart Stores, Inc. 277,944 13,150
Walgreen Co. 111,338 5,058
-----------
29,504
FOOD BEVERAGE & TOBACCO 4.9%
--------------------------------------------------------------------------
=(10) Altria Group, Inc. 235,047 17,640
Anheuser-Busch Cos., Inc. 84,602 3,491
Archer-Daniels-Midland Co. 76,572 1,866
Brown-Forman Corp., Class B 9,572 606
Campbell Soup Co. 20,442 595
The Coca-Cola Co. 244,709 10,469
Coca-Cola Enterprises, Inc. 38,204 722
ConAgra Foods, Inc. 56,401 1,312
o Constellation Brands, Inc., Class A 20,852 491
12 See financial notes.
SCHWAB INSTITUTIONAL SELECT S&P 500 FUND
VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
--------------------------------------------------------------------------
General Mills, Inc. 40,221 1,941
H.J. Heinz Co. 38,123 1,353
Hershey Foods Corp. 20,786 1,181
Kellogg Co. 37,678 1,664
McCormick & Co., Inc. 14,714 446
Molson Coors Brewing Co.,
Class B 6,288 388
The Pepsi Bottling Group, Inc. 20,642 587
PepsiCo, Inc. 189,109 11,173
@ Reynolds American, Inc. 9,148 778
Sara Lee Corp. 85,714 1,530
Tyson Foods, Inc., Class A 29,700 529
UST, Inc. 17,722 733
Wm. Wrigley Jr. Co. 19,727 1,371
-----------
60,866
HEALTH CARE EQUIPMENT & SERVICES 5.1%
--------------------------------------------------------------------------
Aetna, Inc. 32,756 2,901
AmerisourceBergen Corp. 12,026 917
Bausch & Lomb, Inc. 6,352 471
Baxter International, Inc. 70,264 2,686
Becton Dickinson & Co. 28,496 1,446
Biomet, Inc. 27,430 955
o Boston Scientific Corp. 64,602 1,623
C.R. Bard, Inc. 12,297 767
Cardinal Health, Inc. 48,078 3,005
o Caremark Rx, Inc. 50,760 2,660
CIGNA Corp. 14,619 1,694
o Coventry Health Care, Inc. 18,450 996
o Express Scripts, Inc. 17,097 1,289
o Fisher Scientific International, Inc. 13,124 742
Guidant Corp. 37,073 2,336
HCA, Inc. 49,548 2,388
Health Management
Associates, Inc., Class A 26,389 565
o Hospira, Inc. 19,087 761
o Humana, Inc. 19,169 851
IMS Health, Inc. 24,258 564
o Laboratory Corp. of
America Holdings 15,299 738
Manor Care, Inc. 7,997 298
McKesson Corp. 36,539 1,660
o Medco Health Solutions, Inc. 34,203 1,932
Medtronic, Inc. 137,159 7,771
o Millipore Corp. 6,299 386
o Patterson Cos., Inc. 9,630 398
PerkinElmer, Inc. 15,885 351
Quest Diagnostics 19,830 926
o St. Jude Medical, Inc. 41,368 1,989
Stryker Corp. 31,950 1,312
o Tenet Healthcare Corp. 50,180 423
o Thermo Electron Corp. 17,692 534
UnitedHealth Group, Inc. 143,051 8,281
o Waters Corp. 12,776 462
o WellPoint, Inc. 68,839 5,141
o Zimmer Holdings, Inc. 27,431 1,749
-----------
63,968
HOTELS RESTAURANTS & LEISURE 1.4%
--------------------------------------------------------------------------
Carnival Corp. 47,625 2,366
Darden Restaurants, Inc. 15,526 503
Harrah's Entertainment, Inc. 19,882 1,202
Hilton Hotels Corp. 41,358 804
International Game Technology 37,483 993
Marriott International, Inc.,
Class A 19,388 1,156
McDonald's Corp. 140,376 4,436
o Starbucks Corp. 84,930 2,402
Starwood Hotels & Resorts
Worldwide, Inc. 23,492 1,373
Wendy's International, Inc. 12,297 574
Yum! Brands, Inc. 32,983 1,678
-----------
17,487
HOUSEHOLD & PERSONAL PRODUCTS 2.4%
--------------------------------------------------------------------------
Alberto-Culver Co., Class B 7,698 334
Avon Products, Inc. 51,431 1,388
Clorox Co. 16,787 909
Colgate-Palmolive Co. 56,938 3,015
Kimberly-Clark Corp. 53,483 3,040
(5) Procter & Gamble Co. 389,066 21,784
-----------
30,470
See financial notes. 13
SCHWAB INSTITUTIONAL SELECT S&P 500 FUND
PORTFOLIO HOLDINGS continued
VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
INSURANCE 4.7%
--------------------------------------------------------------------------
ACE Ltd. 35,352 1,842
= AFLAC, Inc. 56,652 2,707
= The Allstate Corp. 73,900 3,901
AMBAC Financial Group, Inc. 11,620 824
(8) American International
Group, Inc. 293,902 19,045
AON Corp. 36,441 1,233
Chubb Corp. 22,477 2,090
Cincinnati Financial Corp. 17,860 760
Hartford Financial Services
Group, Inc. 33,784 2,694
Jefferson-Pilot Corp. 14,533 798
Lincoln National Corp. 19,875 1,006
Loews Corp. 17,246 1,603
Marsh & McLennan Cos., Inc. 58,025 1,691
MBIA, Inc. 14,779 861
=o Metlife, Inc. 85,022 4,201
The Progressive Corp. 21,629 2,505
Prudential Financial, Inc. 57,718 4,201
Safeco Corp. 14,573 812
The St. Paul Travelers Cos., Inc. 76,062 3,425
Torchmark Corp. 12,278 649
@ UnumProvident Corp. 31,903 647
XL Capital Ltd., Class A 15,259 977
-----------
58,472
MATERIALS 2.9%
--------------------------------------------------------------------------
Air Products & Chemicals, Inc. 24,232 1,387
Alcoa, Inc. 95,047 2,309
Allegheny Technologies, Inc. 9,728 279
Ashland, Inc. 7,400 396
Ball Corp. 12,062 475
= Bemis Co. 11,310 299
The Dow Chemical Co. 104,716 4,802
E.I. du Pont de Nemours
& Co. 108,560 4,526
Eastman Chemical Co. 8,730 461
Ecolab, Inc. 20,857 690
Engelhard Corp. 12,655 344
Freeport-McMoran Copper
& Gold, Inc., Class B 20,384 1,007
Georgia-Pacific Corp. 28,371 923
o Hercules, Inc. 11,769 131
International Flavors &
Fragrances, Inc. 9,567 316
International Paper Co. 53,511 1,561
Louisiana-Pacific Corp. 13,578 338
MeadWestvaco Corp. 21,669 568
Monsanto Co. 30,789 1,940
Newmont Mining Corp. 48,679 2,074
@ Nucor Corp. 17,402 1,042
o Pactiv Corp. 15,714 310
Phelps Dodge Corp. 10,859 1,308
PPG Industries, Inc. 18,769 1,126
Praxair, Inc. 37,117 1,834
Rohm & Haas Co. 20,838 907
o Sealed Air Corp. 9,141 460
Sigma-Aldrich Corp. 7,582 483
Temple-Inland, Inc. 13,588 500
United States Steel Corp. 12,511 457
Vulcan Materials Co. 12,091 786
Weyerhaeuser Co. 27,520 1,743
-----------
35,782
MEDIA 3.4%
--------------------------------------------------------------------------
@ Clear Channel Communications,
Inc. 55,788 1,697
=o Comcast Corp., Class A 248,924 6,928
@ Dow Jones & Co., Inc. 6,435 218
Gannett Co., Inc. 27,075 1,697
o Interpublic Group of Cos., Inc. 45,233 467
Knight-Ridder, Inc. 7,235 386
The McGraw-Hill Cos., Inc. 42,318 2,071
Meredith Corp. 4,693 234
@ New York Times Co., Class A 15,945 434
o News Corp, Inc., Class A 271,296 3,866
Omnicom Group, Inc. 20,061 1,664
Time Warner, Inc. 525,606 9,372
Tribune Co. 29,227 921
o Univision Communications,
Inc., Class A 25,381 663
Viacom, Inc., Class B 180,065 5,577
The Walt Disney Co. 225,819 5,503
-----------
41,698
14 See financial notes.
SCHWAB INSTITUTIONAL SELECT S&P 500 FUND
VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
PHARMACEUTICALS & BIOTECHNOLOGY 7.8%
--------------------------------------------------------------------------
= Abbott Laboratories 172,193 7,413
Allergan, Inc. 14,872 1,328
=o Amgen, Inc. 138,623 10,502
Applied Biosystems
Group -- Applera Corp. 23,122 561
o Biogen Idec, Inc. 37,570 1,526
Bristol-Myers Squibb Co. 216,661 4,587
o Chiron Corp. 12,070 533
Eli Lilly & Co. 125,602 6,254
o Forest Laboratories, Inc. 37,145 1,408
o Genzyme Corp. 29,073 2,102
o Gilead Sciences, Inc. 51,175 2,418
(6) Johnson & Johnson 336,892 21,096
o King Pharmaceuticals, Inc. 29,058 448
o Medimmune, Inc. 26,512 927
Merck & Co., Inc. 248,656 7,017
Mylan Laboratories, Inc. 27,778 534
=(9) Pfizer, Inc. 827,904 17,999
Schering-Plough Corp. 166,202 3,381
o Watson Pharmaceuticals, Inc. 12,111 419
Wyeth 151,892 6,768
-----------
97,221
REAL ESTATE 0.7%
--------------------------------------------------------------------------
Apartment Investment &
Management Co., Class A 10,023 385
Archstone-Smith Trust 23,634 959
Equity Office Properties Trust 46,071 1,419
Equity Residential 33,265 1,306
Plum Creek Timber Co., Inc. 20,218 787
ProLogis 27,195 1,169
Public Storage, Inc. 9,100 602
Simon Property Group, Inc. 20,453 1,465
Vornado Realty Trust 13,000 1,053
-----------
9,145
RETAILING 3.8%
--------------------------------------------------------------------------
o Autonation, Inc. 24,240 482
o AutoZone, Inc. 5,813 470
@o Bed, Bath & Beyond, Inc. 34,163 1,384
Best Buy Co., Inc. 45,850 2,029
o Big Lots, Inc. 11,962 139
Circuit City Stores, Inc. 18,626 331
Dillards, Inc., Class A 5,656 117
Dollar General Corp. 32,405 630
o eBay, Inc. 131,817 5,220
Family Dollar Stores, Inc. 17,564 389
Federated Department Stores,
Inc. 29,821 1,830
The Gap, Inc. 81,609 1,410
Genuine Parts Co. 20,152 894
@ Home Depot, Inc. 233,707 9,591
J.C. Penney Co., Inc. Holding
Co. 28,593 1,464
o Kohl's Corp. 35,698 1,718
Limited Brands, Inc. 38,388 768
Lowe's Cos., Inc. 84,205 5,117
@ Nordstrom, Inc. 26,266 910
o Office Depot, Inc. 37,040 1,020
OfficeMax, Inc. 6,920 194
o RadioShack Corp. 14,815 328
o Sears Holdings Corp. 11,104 1,335
The Sherwin-Williams Co. 13,279 565
Staples, Inc. 82,557 1,877
Target Corp. 96,291 5,363
Tiffany & Co. 15,760 621
TJX Cos., Inc. 51,271 1,104
-----------
47,300
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT 3.0%
--------------------------------------------------------------------------
o Advanced Micro Devices, Inc. 43,089 1,001
o Altera Corp. 43,312 721
Analog Devices, Inc. 41,252 1,435
Applied Materials, Inc. 182,786 2,994
o Applied Micro Circuits Corp. 29,823 73
o Broadcom Corp., Class A 31,880 1,354
o Freescale Semiconductor,
Inc., Class B 43,786 1,046
Intel Corp. 690,051 16,216
KLA-Tencor Corp. 21,435 992
Linear Technology Corp. 34,439 1,144
o LSI Logic Corp. 46,905 380
Maxim Integrated Products, Inc. 35,773 1,241
o Micron Technology, Inc. 71,069 923
See financial notes. 15
SCHWAB INSTITUTIONAL SELECT S&P 500 FUND
PORTFOLIO HOLDINGS continued
VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
National Semiconductor Corp. 39,522 894
o Novellus Systems, Inc. 14,503 317
o Nvidia Corp. 18,485 620
o PMC -- Sierra, Inc. 19,027 135
o Teradyne, Inc. 21,341 289
Texas Instruments, Inc. 182,039 5,197
Xilinx, Inc. 38,199 915
-----------
37,887
SOFTWARE & SERVICES 5.2%
--------------------------------------------------------------------------
Adobe Systems, Inc. 53,360 1,721
o Affiliated Computer Services,
Inc., Class A 13,570 734
Autodesk, Inc. 26,163 1,181
Automatic Data Processing, Inc. 63,561 2,966
o BMC Software, Inc. 24,239 475
o Citrix Systems, Inc. 20,216 557
Computer Associates
International, Inc. 57,558 1,610
o Computer Sciences Corp. 21,233 1,088
o Compuware Corp. 46,935 380
o Convergys Corp. 14,914 242
o Electronic Arts, Inc. 33,390 1,899
Electronic Data Systems Corp. 59,201 1,380
First Data Corp. 84,833 3,432
o Fiserv, Inc. 21,665 946
o Intuit, Inc. 20,267 931
o Mercury Interactive Corp. 9,156 319
=(3) Microsoft Corp. 1,043,397 26,815
@o Novell, Inc. 46,766 356
o Oracle Corp. 476,531 6,043
o Parametric Technology Corp. 34,886 227
Paychex, Inc. 38,701 1,500
Sabre Holdings Corp., Class A 13,600 266
Siebel Systems, Inc. 56,335 583
o Symantec Corp. 133,679 3,188
o Unisys Corp. 35,101 179
o Yahoo! Inc. 138,174 5,108
-----------
64,126
TECHNOLOGY HARDWARE & EQUIPMENT 6.8%
--------------------------------------------------------------------------
o ADC Telecommunications, Inc. 12,647 221
o Agilent Technologies, Inc. 56,000 1,793
o Andrew Corp. 17,135 182
o Apple Computer, Inc. 93,442 5,381
o Avaya, Inc. 51,675 595
o CIENA Corp. 75,816 180
o Cisco Systems, Inc. 709,702 12,384
o Comverse Technology, Inc. 23,615 593
o Corning, Inc. 169,373 3,403
o Dell, Inc. 263,564 8,402
o EMC Corp. 272,301 3,801
@o Gateway, Inc. 19,033 54
Hewlett-Packard Co. 322,807 9,051
International Business
Machines Corp. 180,729 14,798
o Jabil Circuit, Inc. 19,634 586
o JDS Uniphase Corp. 179,546 377
o Lexmark International, Inc.,
Class A 12,586 523
@o Lucent Technologies, Inc. 505,303 1,440
Molex, Inc. 18,247 462
Motorola, Inc. 279,624 6,196
o NCR Corp. 21,708 656
@o Network Appliance, Inc. 39,858 1,090
o QLogic Corp. 9,584 289
Qualcomm, Inc. 184,652 7,342
o Sanmina -- SCI Corp. 55,323 202
Scientific-Atlanta, Inc. 17,907 635
o Solectron Corp. 116,359 411
o Sun Microsystems, Inc. 370,889 1,484
Symbol Technologies, Inc. 25,521 212
Tektronix, Inc. 9,117 209
o Tellabs, Inc. 52,900 506
@o Xerox Corp. 104,402 1,417
-----------
84,875
TELECOMMUNICATION SERVICES 3.0%
--------------------------------------------------------------------------
Alltel Corp. 42,837 2,650
AT&T Corp. 90,128 1,783
16 See financial notes.
SCHWAB INSTITUTIONAL SELECT S&P 500 FUND
VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
BellSouth Corp. 206,021 5,361
CenturyTel, Inc. 14,338 469
Citizens Communications Co. 37,138 454
o Qwest Communications
International, Inc. 178,255 777
SBC Communications, Inc. 371,118 8,851
Sprint Corp. (FON Group) 329,427 7,679
Verizon Communications, Inc. 313,171 9,868
-----------
37,892
TRANSPORTATION 1.7%
--------------------------------------------------------------------------
Burlington Northern Santa Fe
Corp. 41,017 2,546
CSX Corp. 24,936 1,142
FedEx Corp. 32,939 3,028
Norfolk Southern Corp. 47,539 1,911
Ryder Systems, Inc. 6,730 267
Southwest Airlines Co. 76,364 1,223
Union Pacific Corp. 28,661 1,983
United Parcel Service,
Inc., Class B 125,051 9,121
-----------
21,221
UTILITIES 3.4%
--------------------------------------------------------------------------
o The AES Corp. 75,566 1,201
o Allegheny Energy, Inc. 19,144 541
Ameren Corp. 23,589 1,241
American Electric Power Co., Inc. 44,677 1,696
@o Calpine Corp. 56,767 135
Centerpoint Energy, Inc. 33,944 449
Cinergy Corp. 21,683 865
o CMS Energy Corp. 26,365 393
@ Consolidated Edison, Inc. 27,438 1,248
Constellation Energy Group, Inc. 19,365 1,061
Dominion Resources, Inc. 37,649 2,864
DTE Energy Co. 19,024 822
Duke Energy Corp. 104,502 2,767
@o Dynegy, Inc., Class A 34,677 154
Edison International 38,554 1,687
Entergy Corp. 23,573 1,667
Exelon Corp. 75,290 3,917
FirstEnergy Corp. 38,764 1,841
FPL Group, Inc. 43,585 1,877
KeySpan Corp. 18,499 640
Nicor, Inc. 5,711 224
NiSource, Inc. 29,263 692
Peoples Energy Corp. 4,000 149
PG&E Corp. 41,359 1,505
Pinnacle West Capital Corp. 11,724 490
PPL Corp. 43,320 1,358
Progress Energy, Inc. 27,106 1,182
Public Service Enterprise
Group, Inc. 26,893 1,691
Sempra Energy 28,248 1,251
The Southern Co. 81,041 2,836
TECO Energy, Inc. 24,885 431
TXU Corp. 27,090 2,729
Xcel Energy, Inc. 43,833 803
-----------
42,407
WARRANTS
0.0% of net assets
TECHNOLOGY HARDWARE & EQUIPMENT 0.0%
--------------------------------------------------------------------------
o Lucent Technologies, Inc.
Expires 12/10/07 11,390 8
SECURITY FACE AMOUNT
RATE, MATURITY DATE ($ x 1,000)
SHORT-TERM INVESTMENT
1.0% of net assets
Wachovia Bank, Grand
Cayman Time Deposit
3.48%, 11/01/05 12,222 12,222
U.S. TREASURY OBLIGATIONS
0.2% of net assets
= U.S. Treasury Bills
3.35%-3.47%, 12/15/05 2,875 2,862
END OF INVESTMENTS.
See financial notes. 17
SCHWAB INSTITUTIONAL SELECT S&P 500 FUND
VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
COLLATERAL INVESTED FOR SECURITIES ON LOAN
3.8% of net assets
SHORT-TERM INVESTMENT 3.8%
--------------------------------------------------------------------------
Securities Lending
Investments Fund 47,258,038 47,258
END OF COLLATERAL INVESTED FOR SECURITIES ON LOAN.
In addition to the above, the fund held the following at 10/31/05. All numbers x
$1,000 except number of contracts.
FUTURES CONTRACTS
Number of Contract Unrealized
Contracts Value Losses
S&P 500 Index e-mini, Long
Expires 12/16/05 257 15,546 (96)
18 See financial notes.
SCHWAB INSTITUTIONAL SELECT S&P 500 FUND
Statement of
ASSETS AND LIABILITIES
As of October 31, 2005. All numbers x 1,000 except NAV.
ASSETS
- --------------------------------------------------------------------------------
Investments, at value (including $46,290
of securities on loan) $1,243,088 a
Collateral invested for securities on loan 47,258
Receivables:
Fund shares sold 2,206
Interest 1
Dividends 1,108
Due from brokers for futures 83
Reimbursement from transfer agent
and shareholder service agent 8
Income from securities on loan 4
Prepaid expenses + 16
--------------
TOTAL ASSETS 1,293,772
LIABILITIES
- --------------------------------------------------------------------------------
Collateral invested for securities on loan 47,258
Payables:
Fund shares redeemed 256
Interest expense 1
Accrued expenses + 132
--------------
TOTAL LIABILITIES 47,647
NET ASSETS
- --------------------------------------------------------------------------------
TOTAL ASSETS 1,293,772
TOTAL LIABILITIES - 47,647
--------------
NET ASSETS $1,246,125
NET ASSETS BY SOURCE
Capital received from investors 1,266,858
Net investment income not yet distributed 13,237
Net realized capital losses (52,118) b
Net unrealized capital gains 18,148 b
NET ASSET VALUE (NAV)
SHARES
NET ASSETS / OUTSTANDING = NAV
$1,246,125 130,210 $9.57
Unless stated, all numbers x 1,000.
a The fund paid $1,224,844 for these securities.
Not counting short-term obligations and government securities, the fund's
security transactions during the period were:
Purchases $893,551
Sales/maturities $27,257
The fund's total security transactions with other Schwab Funds(R) during the
period were $488,507.
b These derive from investments and futures.
FEDERAL TAX DATA
- ----------------------------------------------------
PORTFOLIO COST $1,230,896
NET UNREALIZED GAINS AND LOSSES:
Gains $124,970
Losses + (112,778)
---------------
$12,192
NET UNDISTRIBUTED EARNINGS:
Ordinary income $13,237
Long-term capital gains $--
CAPITAL LOSSES UTILIZED $1,133
UNUSED CAPITAL LOSSES:
Expires 10/31 of: Loss amount
2009 $16,907
2010 27,646
2011 + 1,609
---------------
$46,162
See financial notes. 19
SCHWAB INSTITUTIONAL SELECT S&P 500 FUND
Statement of
OPERATIONS
For November 1, 2004 through October 31, 2005. All numbers x 1,000.
INVESTMENT INCOME
- --------------------------------------------------------------------------------
Dividends $15,654
Interest 669
Securities on loan + 65
-----------
TOTAL INVESTMENT INCOME 16,388
NET REALIZED GAINS AND LOSSES
- --------------------------------------------------------------------------------
Net realized losses on investments (3,290)
Net realized gains on futures contracts + 2,664
-----------
NET REALIZED LOSSES (626)
NET UNREALIZED GAINS AND LOSSES
- --------------------------------------------------------------------------------
Net unrealized gains on investments 24,636
Net unrealized losses on futures contracts + (309)
-----------
NET UNREALIZED GAINS 24,327
EXPENSES
- --------------------------------------------------------------------------------
Investment adviser and administrator fees 1,516 a
Transfer agent and shareholder service fees 852 b
Trustees' fees 10 c
Custodian fees 87
Portfolio accounting fees 109
Professional fees 29
Registration fees 133
Shareholder reports 41
Interest expense 1
Other expenses + 24
-----------
Total expenses 2,802
Expense reduction - 1,949 d
-----------
NET EXPENSES 853
INCREASE IN NET ASSETS FROM OPERATIONS
- --------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME 16,388
NET EXPENSES - 853
-----------
NET INVESTMENT INCOME 15,535
NET REALIZED LOSSES (626) e
NET UNREALIZED GAINS + 24,327 e
-----------
INCREASE IN NET ASSETS FROM OPERATIONS $39,236
Unless stated, all numbers x 1,000.
a Calculated as a percentage of average daily net assets: 0.18% of the first $1
billion and 0.15% of assets beyond that. These fees are paid to Charles Schwab
Investment Management, Inc. (CSIM).
b Calculated as a percentage of average daily net assets: for transfer agent
services, 0.05% of the fund's assets; for shareholder services, 0.05% of the
fund's assets. These fees are paid to Charles Schwab & Co., Inc. (Schwab).
c For the fund's independent trustees only.
d Includes $1,516 from the investment adviser (CSIM) and $433 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 27, 2006, to 0.10% of average daily net assets. This limit
excludes interest, taxes and certain non-routine expenses.
e These add up to a net gain on investments of $23,701.
20 See financial notes.
SCHWAB INSTITUTIONAL SELECT S&P 500 FUND
Statements of
CHANGES IN NET ASSETS
For the current and prior report periods. All numbers x 1,000.
OPERATIONS
- --------------------------------------------------------------------------------
11/1/04-10/31/05 11/1/03-10/31/04
Net investment income $15,535 $4,771
Net realized losses (626) (46)
Net unrealized gains + 24,327 21,386
-------------------------------------
INCREASE IN NET ASSETS FROM OPERATIONS 39,236 26,111
DISTRIBUTIONS PAID
- --------------------------------------------------------------------------------
Dividends from net investment income $6,241 $3,944 a,b
TRANSACTIONS IN FUND SHARES
- --------------------------------------------------------------------------------
11/1/04-10/31/05 11/1/03-10/31/04
SHARES VALUE SHARES VALUE
Shares sold 102,956 $975,330 13,048 $114,347 c
Shares reinvested 537 4,985 371 3,113
Shares redeemed + (12,169) (115,050) (7,241) (63,271) d
------------------------------------------------
NET TRANSACTIONS
IN FUND SHARES 91,324 $865,265 6,178 $54,189
SHARES OUTSTANDING AND NET ASSETS
- --------------------------------------------------------------------------------
11/1/04-10/31/05 11/1/03-10/31/04
SHARES NET ASSETS SHARES NET ASSETS
Beginning of period 38,886 $347,865 32,708 $271,509
Total increase + 91,324 898,260 6,178 76,356
------------------------------------------------
END OF PERIOD 130,210 $1,246,125 38,886 $347,865 e
Unless stated, all numbers x 1,000.
a UNAUDITED
For corporations, 99% of the fund's dividends for the report period qualify
for the dividends-received deduction.
The fund designates $6,241 of the dividend distribution for the fiscal year
ended 10/31/05 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 2006 via IRS Form 1099 of the amounts for use in preparing
their 2005 income tax return.
b The tax-basis components of distributions paid are:
CURRENT PERIOD
Ordinary income $6,241
Long-term capital gains $--
PRIOR PERIOD
Ordinary income $3,944
Long-term capital gains $--
c For current period, includes subscriptions by other Schwab Funds(R) as
follows:
SCHWAB MARKETTRACK PORTFOLIOS:
SHARES VALUE
All Equity Portfolio 21,804 $206,923
Growth Portfolio 15,500 $147,092
Balanced Portfolio 8,066 $76,546
d For shares purchased on or before 4/29/05 and held less than 180 days, the
fund charges 0.75% redemption fee. For shares purchased after 4/29/05 and held
less than 30 days, the fund charges 2.00% redemption fee.
CURRENT PERIOD $40
PRIOR PERIOD $15
Dollar amounts are net of the redemption proceeds.
e Includes distributable net investment income in the amount of $13,237 and
$3,943 at the end of the current period and prior period, respectively.
Percent of Fund shares owned by other Schwab Funds(R) as of the end of the
current period:
SCHWAB MARKETTRACK PORTFOLIOS:
All Equity Portfolio 16.8%
Growth Portfolio 12.5%
Balanced Portfolio 6.8%
See financial notes. 21
SCHWAB INSTITUTIONAL SELECT S&P 500 FUND
FINANCIAL NOTES
BUSINESS STRUCTURE OF THE FUNDS
THE FUND DISCUSSED IN THIS REPORT IS A SERIES OF SCHWAB CAPITAL TRUST, A
NO-LOAD, OPEN-END MANAGEMENT INVESTMENT COMPANY. The company is organized as a
Massachusetts business trust and is registered under the Investment Company Act
of 1940, as amended. The sidebar shows the fund in this report and its trust.
THE FUND OFFERS ONE SHARE CLASS. Shares are bought and sold at net asset value
(NAV), which is the price for all outstanding shares. Each share has a par value
of 1/1,000 of a cent, and the trust may issue as many shares as necessary.
FUND OPERATIONS
Most of the fund's investments are described earlier in this report. However,
there are certain other fund operations and policies that may affect the fund's
financials, as described below. Other policies concerning the fund's business
operations also are described here.
THE FUND PAYS DIVIDENDS from net investment income and makes distributions from
net capital gains once a year.
THE FUND MAY INVEST IN FUTURES CONTRACTS. Futures contracts involve certain
risks because they can be very sensitive to market movements.
One risk is that the price of a futures contract may not move in perfect
correlation with the price of the underlying securities. Another risk is that,
at certain times, it may be impossible for the fund to close out a position in a
futures contract, due to a difference in trading hours or to market conditions
that may reduce the liquidity for a futures contract or its underlying
securities. The potential for losses associated with futures contracts may
exceed amounts recorded in the Statement of Assets and Liabilities.
Because futures carry inherent risks, the fund must give the broker a deposit of
cash and/or securities (the "initial margin") whenever it enters into a futures
contract. The amount of the deposit may vary from one contract to another, but
it is generally a percentage of the contract amount.
Futures are traded publicly on exchanges, and their market value changes daily.
The fund records the change in market value of futures, and also the change in
the amount of margin deposit required ("due to/from broker").
THE TRUST AND ITS FUNDS
This list shows all of the funds included in Schwab Capital Trust. The fund
discussed in this report is highlighted.
SCHWAB CAPITAL TRUST organized May 7, 1993
Schwab S&P 500 Index Fund
SCHWAB INSTITUTIONAL SELECT 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 Premier Equity Fund
Schwab Core Equity Fund
Schwab Dividend Equity Fund
Schwab Large-Cap Growth Fund
Schwab Small-Cap Equity Fund
Schwab Hedged Equity Fund
Schwab Financial Services Fund
Schwab Health Care Fund
Schwab Technology Fund
Schwab Target 2010 Fund
Schwab Target 2020 Fund
Schwab Target 2030 Fund
Schwab Target 2040 Fund
Schwab Retirement Income Fund
22
SCHWAB INSTITUTIONAL SELECT S&P 500 FUND
THE FUND MAY LOAN SECURITIES TO CERTAIN BROKERS, DEALERS AND OTHER FINANCIAL
INSTITUTIONS WHO PAY THE FUND NEGOTIATED FEES. The fund receives 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. If the value of the collateral falls below 100%, it will be adjusted
the following day.
THE FUND PAYS FEES TO AFFILIATES OF THE INVESTMENT ADVISER FOR VARIOUS SERVICES.
Through its trust, the fund has agreements with Charles Schwab Investment
Management, Inc. (CSIM) to provide investment advisory and administrative
services and with Charles Schwab & Co., Inc. (Schwab) to provide transfer agent
and shareholder services.
Although these agreements specify certain fees for these services, CSIM and
Schwab have made additional agreements with the fund that may limit the total
expenses charged. The rates and limitations for these fees are described in the
fund's Statement of Operations.
THE FUND MAY ENGAGE IN CERTAIN TRANSACTIONS INVOLVING RELATED PARTIES. For
instance, the fund may own shares of The Charles Schwab Corporation because that
company is included in its index.
The fund may make direct transactions with certain other Schwab Funds(R) when
practical. When one fund is seeking to sell a security that another is seeking
to buy, an interfund transaction can allow both funds to benefit by reducing
transaction costs. This practice is limited to funds that share the same
investment adviser, trustees and officers.
Pursuant to an exemptive order issued by the SEC, the fund may enter into
interfund borrowing and lending transactions within the Schwab Funds(R). All
loans are for temporary or emergency purposes only. The interest rate charged on
the loan is the average of the overnight repurchase agreement rate and the
short-term bank loan rate. The interfund lending facility is subject to the
oversight and periodic review of the Board of Trustees of the Schwab Funds(R).
TRUSTEES MAY INCLUDE PEOPLE WHO ARE OFFICERS AND/OR DIRECTORS OF THE INVESTMENT
ADVISER OR SCHWAB. Federal securities law limits the percentage of such
"interested persons" who may serve on a trust's board, and the trust was in
compliance with these limitations throughout the report period. The trust did
not pay any of these persons for their service as trustees, but they did pay the
non-interested persons (independent trustees), as noted in the fund's Statement
of Operations.
THE FUND MAY BORROW MONEY FROM BANKS AND CUSTODIANS. The fund may obtain
temporary bank loans through the trust to which they belong, to use for meeting
shareholder redemptions or for extraordinary or emergency purposes. The Schwab
Funds have custodian overdraft facilities and line of credit arrangements of
$150 million and $100 million with PNC Bank, N.A. and Bank of America, N.A.,
respectively. The fund pays interest on the amounts it borrows at rates that are
negotiated periodically.
AMOUNT WEIGHTED
OUTSTANDING AVERAGE AVERAGE
AT 10/31/05 BORROWING* INTEREST
FUND ($ x 1,000) ($ x 1,000) RATE* (%)
- --------------------------------------------------------------------------------
SCHWAB INSTITUTIONAL
SELECT S&P 500
FUND -- 781 3.91
- --------------------------------------------------------------------------------
* Based on the number of days for which the borrowing is outstanding.
THE FUND INTENDS TO MEET FEDERAL INCOME AND EXCISE TAX REQUIREMENTS FOR
REGULATED INVESTMENT COMPANIES. Accordingly, the fund distributes substantially
all of its net investment income and net realized capital gains (if any) to its
respective shareholders each year. As long as the fund meets the tax
requirements, it is not required to pay federal income tax. The net investment
income and net realized capital gains and losses may differ for financial
statement and tax purposes primarily due to differing treatments of losses on
wash sales.
23
SCHWAB INSTITUTIONAL SELECT S&P 500 FUND
UNDER THE FUND'S ORGANIZATIONAL DOCUMENTS, ITS OFFICERS AND TRUSTEES ARE
INDEMNIFIED AGAINST CERTAIN LIABILITY ARISING OUT OF THE PERFORMANCE OF THEIR
DUTIES TO THE FUND. In addition, in the normal course of business the fund
enters into contracts with its vendors and others that provide general
indemnifications. The fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the fund.
However, based on experience, the fund expects the risk of loss to be remote.
ACCOUNTING POLICIES
The following are the main policies the fund uses in preparing its financial
statements.
THE FUND VALUES THE SECURITIES IN ITS PORTFOLIO EVERY BUSINESS DAY. The fund
uses 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 the fund calculates net asset value: valued at fair value,
as determined in good faith by the fund's investment adviser using guidelines
adopted by the fund's Board of Trustees and the Pricing Committee. Some of the
more common reasons that may necessitate that a security be valued at fair
value include: the security's trading has been halted or suspended; the
security has been de-listed from a national exchange; the security's primary
trading market is temporarily closed at a time when under normal conditions it
would be open; or the security's primary pricing source is not able or willing
to provide a price.
- - FUTURES: open contracts are valued at their settlement prices as of the close
of their exchanges. When the fund closes out a futures 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 fund records 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.
EXPENSES that are specific to the fund are charged directly to the 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.
THE FUND MAINTAINS ITS OWN ACCOUNT FOR PURPOSES OF HOLDING ASSETS AND
ACCOUNTING, and is considered a separate entity for tax purposes. Within its
account, the 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.
24
REPORT OF REGISTERED INDEPENDENT PUBLIC ACCOUNTING FIRM
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF:
Schwab Institutional Select S&P 500 Fund
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio holdings, and the related statement of operations and of changes
in net assets and the financial highlights present fairly, in all material
respects, the financial position of Schwab Institutional Select S&P 500 Fund
(one of the portfolios constituting Schwab Capital Trust, hereafter referred to
as the "Fund") at October 31, 2005, the results of operations for the year then
ended, the changes in 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
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our audit of these
financial statements in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audit, which included confirmation of securities at October
31, 2005 by correspondence with the custodian and brokers, provides a reasonable
basis for our opinion.
PRICEWATERHOUSECOOPERS LLP
San Francisco, CA
December 16, 2005
25
INVESTMENT ADVISORY AGREEMENT APPROVAL
The Investment Company Act of 1940 (the "1940 Act") requires that initial
approval of, as well as the continuation of, a fund's investment advisory
agreement must be specifically approved (1) by the vote of the trustees or by a
vote of the shareholders of the fund, and (2) by the vote of a majority of the
trustees who are not parties to the investment advisory agreement or "interested
persons" of any party (the "Independent Trustees"), cast in person at a meeting
called for the purpose of voting on such approval. In connection with such
approvals, the fund's trustees must request and evaluate, and the investment
adviser is required to furnish, such information as may be reasonably necessary
to evaluate the terms of the advisory agreement. In addition, the Securities and
Exchange Commission (the "SEC") takes the position that, as part of their
fiduciary duties with respect to fund fees, fund boards are required to evaluate
the material factors applicable to a decision to approve an investment advisory
agreement.
Consistent with these responsibilities, the Board of Trustees (the "Board")
calls and holds one or more meetings each year that are dedicated, in whole or
in part, to considering whether to renew the investment advisory agreement
between Schwab Capital Trust (the "Trust") and CSIM (the "Agreement") with
respect to existing funds in the Trust, operating as of December 31 of the
previous year, including the Schwab Institutional Select S&P 500 Fund, and to
review certain other agreements pursuant to which CSIM provides investment
advisory services to certain other registered investment companies. In
preparation for the meeting(s), the Board requests and reviews a wide variety of
materials provided by CSIM, including information about CSIM's affiliates,
personnel and operations. The Board also receives extensive data provided by
third parties. This information is in addition to the detailed information about
the funds that the Board reviews during the course of each year, including
information that relates to fund operations and fund performance. The trustees
also receive memoranda from counsel regarding the responsibilities of trustees
for the approval of investment advisory contracts. In addition, the Independent
Trustees receive advice from their counsel, meet in executive session outside
the presence of fund management and participate in question and answer sessions
with representatives of CSIM.
At the May 24, 2005 meeting of the Board, the trustees, including a majority of
the Independent Trustees, approved the renewal of the Agreement for an
additional one year period. The Board's approval of the Agreement was based on
consideration and evaluation of a variety of specific factors discussed at that
meeting and at prior meetings, including:
1. the nature, extent and quality of the services provided to the funds under
the Agreement, including the resources of CSIM and its affiliates dedicated
to the funds;
2. each fund's investment performance and how it compared to that of certain
other comparable mutual funds;
3. each fund's expenses and how those expenses compared to those of certain
other comparable mutual funds;
4. the profitability of CSIM and its affiliates, including Charles Schwab & Co.,
Inc. ("Schwab"), with respect to each fund, including both direct and
indirect benefits accruing to CSIM and its affiliates; and
5. the extent to which economies of scale would be realized as the funds grow
and whether fee levels in the Agreement reflect those economies of scale for
the benefit of fund investors.
26
NATURE, EXTENT AND QUALITY OF SERVICES. The Board considered the nature, extent
and quality of the services provided by CSIM to the funds and the resources of
CSIM and its affiliates dedicated to the funds. In this regard, the trustees
evaluated, among other things, CSIM's personnel, experience, track record and
compliance program. The trustees also considered the fact that Schwab's
extensive branch network, Internet access, investment and research tools,
telephone services, and array of account features benefit the funds. The
trustees also considered Schwab's excellent reputation as a full service
brokerage firm and its overall financial condition. Finally, the trustees
considered that the vast majority of the funds' investors are also brokerage
clients of Schwab, and that CSIM and its affiliates are uniquely positioned to
provide services and support to the funds and such shareholders. Following such
evaluation, the Board concluded, within the context of its full deliberations,
that the nature, extent and quality of services provided by CSIM to the funds
and the resources of CSIM and its affiliates dedicated to the funds supported
renewal of the Agreement.
FUND PERFORMANCE. The Board considered fund performance in determining whether
to renew the Agreement. Specifically, the trustees considered each fund's
performance relative to a peer group of other mutual funds and appropriate
indices/benchmarks, in light of total return, yield and market trends. As part
of this review, the trustees considered the composition of the peer group,
selection criteria and the reputation of the third party who prepared the peer
group analysis. In evaluating the performance of each fund, the trustees
considered both market risk and shareholder risk expectations for such fund.
Following such evaluation, the Board concluded, within the context of its full
deliberations, that the performance of the funds supported renewal of the
Agreement.
FUND EXPENSES. With respect to the funds' expenses, the trustees considered the
rate of compensation called for by the Agreement, and each fund's net operating
expense ratio, in each case, in comparison to those of other comparable mutual
funds, such peer groups and comparisons having been selected and calculated by
an independent third party. The trustees considered the effects of CSIM's and
Schwab's voluntary waiver of management and other fees to prevent total fund
expenses from exceeding a specified cap. The trustees also considered fees
charged by CSIM to other mutual funds and to other types of accounts, such as
wrap accounts and offshore funds, but, with respect to such other types of
accounts, accorded less weight to such comparisons due to the unique legal,
regulatory, compliance and operating features of mutual funds as compared to
these other types of accounts. Following such evaluation, the Board concluded,
within the context of its full deliberations, that the expenses of the funds are
reasonable and supported renewal of the Agreement.
PROFITABILITY. With regard to profitability, the trustees considered the
compensation flowing to CSIM and its affiliates, directly or indirectly. In this
connection, the trustees reviewed management's profitability analyses, together
with certain commentary thereon from an independent accounting firm. The
trustees also considered any other benefits derived by CSIM from its
relationship with the funds, such as whether, by virtue of its management of the
funds, CSIM obtains investment information or other research resources that aid
it in providing advisory services to other clients. The trustees considered
whether the varied levels of compensation and profitability under the Agreement
and other service agreements were reasonable and
27
justified in light of the quality of all services rendered to each fund by CSIM
and its affiliates. Based on this evaluation, the Board concluded, within the
context of its full deliberations, that the profitability of CSIM is reasonable
and supported renewal of the Agreement.
ECONOMIES OF SCALE. The trustees considered the existence of any economies of
scale and whether those are passed along to a fund's shareholders through a
graduated investment advisory fee schedule or other means, including any fee
waivers by CSIM and its affiliates. In this regard, and consistent with their
consideration of fund expenses, the trustees considered that CSIM and Schwab
have previously committed resources to minimize the effects on shareholders of
diseconomies of scale during periods when fund assets were relatively small
through their contractual expense waivers. For example, such diseconomies of
scale may particularly affect newer funds or funds with investment strategies
that are from time to time out of favor, but shareholders may benefit from the
continued availability of such funds at subsidized expense levels. The trustees
also considered CSIM's agreement to contractual investment advisory fee
schedules which include lower fees at higher graduated asset levels. Based on
this evaluation, the Board concluded, within the context of its full
deliberations, that the funds obtain reasonable benefit from economies of scale.
In the course of their deliberations, the trustees did not identify any
particular information or factor that was all-important or controlling. Based on
the trustees' deliberation and their evaluation of the information described
above, the Board, including all of the Independent Trustees, unanimously
approved the continuation of the Agreement and concluded that the compensation
under the Agreement is fair and reasonable in light of such services and
expenses and such other matters as the trustees have considered to be relevant
in the exercise of their reasonable judgment.
28
TRUSTEES AND OFFICERS
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 Schwab Funds(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 56 Schwab Funds 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.
INDEPENDENT TRUSTEES
NAME AND
YEAR OF BIRTH TRUSTEE SINCE MAIN OCCUPATIONS AND OTHER DIRECTORSHIPS AND AFFILIATIONS
- ------------------------------------------------------------------------------------------------------------------------------------
MARIANN BYERWALTER 2000 (all trusts). Chairman, JDN Corp. Advisory LLC (real estate); Trustee, Stanford University,
1960 America First Cos., Omaha, NE (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; Director, Pacific Life Insurance Company (insurance); Trustee, Laudus
Trust and Laudus Variable Insurance Trust. 2 Until 2001: Stanford University,
Special Advisor to the President. From 1996-2001: Stanford University, Vice
President of Business Affairs, Chief Financial Officer.
- ------------------------------------------------------------------------------------------------------------------------------------
DONALD F. DORWARD Family of Funds, 1989; Chief Executive Officer, Dorward & Associates (corporate management, marketing
1931 Investments, 1991; and communications consulting). Until 1999: Executive Vice President, Managing
Capital Trust, 1993; Director, Grey Advertising San Francisco. Until 1996: President, Chief Executive
Annuity Portfolios, 1994. Officer, Allen & Dorward Advertising.
1 The Schwab Funds 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 This includes 10 series of the Laudus Trust and the sole series of the Laudus
Variable Insurance Trust.
29
INDEPENDENT TRUSTEES continued
NAME AND
YEAR OF BIRTH TRUSTEE SINCE MAIN OCCUPATIONS AND OTHER DIRECTORSHIPS AND AFFILIATIONS
- ------------------------------------------------------------------------------------------------------------------------------------
WILLIAM A. HASLER 2000 (all trusts). Until February 2004, Co-Chief Executive Officer, Aphton Corporation
1941 (bio-pharmaceuticals). Prior to August 1998, Dean of the Haas School of Business,
University of California, Berkeley (higher education).
Director, Aphton Corporation (bio-pharmaceuticals), Mission West Properties
(commercial real estate), Stratex Networks (network equipment), TOUSA (home
building), Genitope Corp. (bio-pharmaceuticals), Pacific Stock & Option Exchange;
Non-Executive Chairman, Solectron Corporation (manufacturing); Trustee, Laudus
Trust and Laudus Variable Insurance Trust. 3
- ------------------------------------------------------------------------------------------------------------------------------------
ROBERT G. HOLMES Family of Funds, 1989; Chairman, Chief Executive Officer, Director, Semloh Financial, Inc.
1931 Investments, 1991; (international financial services and investment advisory firm).
Capital Trust, 1993;
Annuity Portfolios, 1994.
- ------------------------------------------------------------------------------------------------------------------------------------
GERALD B. SMITH 2000 (all trusts). Since 1990, Chairman and Chief Executive Officer and founder of Smith Graham &
1950 Co. (investment advisors).
Director, Cooper Industries (electrical products, tools and hardware), Chairman,
Texas Southern University Foundation; Executive Committee & Board Member,
MD Anderson Cancer Center; Chairman of the audit committee of Northern Border
Partners, M.L.P. (energy).
- ------------------------------------------------------------------------------------------------------------------------------------
DONALD R. STEPHENS Family of Funds, 1989; Managing Partner, D.R. Stephens & Co. (investments). Until 1996: Chairman, Chief
1938 Investments, 1991; Executive Officer, North American Trust (real estate investment trust).
Capital Trust, 1993;
Annuity Portfolios, 1994.
- ------------------------------------------------------------------------------------------------------------------------------------
MICHAEL W. WILSEY Family of Funds, 1989; Chairman, Chief Executive Officer, Wilsey Bennett, Inc. (real estate investment
1943 Investments, 1991; and management, and other investments).
Capital Trust, 1993;
Annuity Portfolios, 1994.
3 This includes 10 series of the Laudus Trust and the sole series of the Laudus
Variable Insurance Trust.
30
INTERESTED TRUSTEES
NAME AND TRUST POSITION(S);
YEAR OF BIRTH TRUSTEE SINCE MAIN OCCUPATIONS AND OTHER DIRECTORSHIPS AND AFFILIATIONS
- ------------------------------------------------------------------------------------------------------------------------------------
CHARLES R. SCHWAB 4 Chairman, Trustee: Chairman, Chief Executive Officer and Director, The Charles Schwab Corporation,
1937 Family of Funds, 1989; Charles Schwab & Co., Inc.; Chairman and Director, Charles Schwab Investment
Investments, 1991; Management, Inc., Charles Schwab Bank, National Association; Chairman and Chief
Capital Trust, 1993; Executive Officer, Schwab (SI) Holdings Inc. I, Schwab International Holdings,
Annuity Portfolios, 1994. Inc.; Chief Executive Officer and Director, Schwab Holdings, Inc.; Director, U.S.
Trust Company, National Association, U.S. Trust Corporation, United States Trust
Company of New York. Until 5/03, Co-Chief Executive Officer, The Charles Schwab
Corporation.
Trustee, Charles and Helen Schwab Foundation; Chairman, All Kinds of Minds
Institute (education), Stanford University; Chairman and Director, Charles
Schwab Foundation; Chairman of the Finance Committee, San Francisco Museum of
Modern Art.
- ------------------------------------------------------------------------------------------------------------------------------------
RANDALL W. MERK 4 Trustee, 2005 Executive Vice President and President, Asset Management Products & Services
1954 (all trusts). Enterprise, Charles Schwab & Co., Inc.; Director, Charles Schwab Asset Management
(Ireland) Limited. From 9/02 to 7/04, Mr. Merk was President and Chief Executive
Officer, Charles Schwab Investment Management, Inc. and Executive Vice President,
Charles Schwab & Co., Inc. Prior to 9/02, Mr. Merk was President and Chief
Investment Officer, American Century Investment Management, and Director,
American Century Companies, Inc. (6/01 to 8/02); Chief Investment Officer, Fixed,
American Century Companies, Inc. (1/97 to 6/01).
- ------------------------------------------------------------------------------------------------------------------------------------
OFFICERS OF THE TRUST
NAME AND
YEAR OF BIRTH TRUST OFFICE(S) HELD MAIN OCCUPATIONS AND OTHER DIRECTORSHIPS AND AFFILIATIONS
- ------------------------------------------------------------------------------------------------------------------------------------
EVELYN DILSAVER President, Chief Executive Vice President, President, Director, Charles Schwab Investment
1955 Executive Officer Management, Inc. Vice President, Laudus Trust and Laudus Variable Insurance
(all trusts). Trust. Until 7/04: Senior Vice President for Development and Distribution, Asset
Management Products & Services Enterprise. Until 6/03: Executive Vice President,
Chief Financial Officer, Chief Administrative Officer, U.S. Trust.
- ------------------------------------------------------------------------------------------------------------------------------------
STEPHEN B. WARD Senior Vice President, Senior Vice President, Chief Investment Officer, Director, Charles Schwab
1955 Chief Investment Investment Management, Inc.; Chief Investment Officer, The Charles Schwab Trust
Officer (all trusts). Co.
4 In addition to their positions with the investment adviser and the
distributor, Messrs. Schwab and Merk also own stock of the Charles Schwab
Corporation.
31
OFFICERS OF THE TRUST continued
NAME AND
YEAR OF BIRTH TRUST OFFICE(S) HELD MAIN OCCUPATIONS AND OTHER DIRECTORSHIPS AND AFFILIATIONS
- ------------------------------------------------------------------------------------------------------------------------------------
KIMON DAIFOTIS Senior Vice President, Senior Vice President and Chief Investment Officer, Fixed Income, Charles Schwab
1959 Chief Investment Investment Management, Inc. Until 6/04: Vice President, Charles Schwab Investment
Officer (all trusts). Management, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
JEFFREY MORTIMER Senior Vice President, Senior Vice President, Chief Investment Officer, Equities, Charles Schwab
1963 Chief Investment Investment Management, Inc.; Vice President, Chief Investment Officer, Laudus
Officer (all trusts). Trust and Laudus Variable Insurance Trust. Until 5/04: Vice President, Charles
Schwab Investment Management, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
RANDALL FILLMORE Chief Compliance Senior Vice President, Institutional Compliance and Chief Compliance Officer,
1960 Officer (all trusts). Charles Schwab Investment Management, Inc.; Chief Compliance Officer, Laudus
Trust and Laudus Variable Insurance Trust. Until 9/03: Vice President, Charles
Schwab & Co., Inc. and Charles Schwab Investment Management, Inc. Until 2002:
Vice President, Internal Audit, Charles Schwab & Co., Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
KOJI E. FELTON Secretary (all trusts). Senior Vice President, Chief Counsel and Corporate Secretary, Charles Schwab
1961 Investment Management, Inc.; Senior Vice President and Deputy General Counsel,
Charles Schwab & Co., Inc. Prior to 6/98, Branch Chief in Enforcement at U.S.
Securities and Exchange Commission in San Francisco.
- ------------------------------------------------------------------------------------------------------------------------------------
GEORGE PEREIRA Treasurer, Principal Senior Vice President and Chief Financial Officer, Charles Schwab Investment
1964 Financial Officer Management, Inc.; Director, Charles Schwab Asset Management (Ireland) Limited.
(all trusts) From 12/99 to 11/04, Senior Vice President, Financial Reporting, Charles Schwab &
Co., Inc.
32
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.
The industry/sector classification of the funds' portfolio holdings uses the
Global Industry Classification Standard (GICS) which was developed by and is the
exclusive property of Morgan Stanley Capital International Inc. and Standard &
Poor's. GICS is a service mark of MSCI and S&P and has been licensed for use by
Charles Schwab & Co., Inc.
33
NOTES
NOTES
NOTES
Schwab Funds(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 Schwab Funds.
Whether you're an experienced investor or just starting out, Schwab Funds 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 Schwab Fund. 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 Schwab Funds at:
P.O. Box 3812
Englewood, CO
80155-3812
When selling or exchanging shares, be sure to include the signatures of at least
one of the persons whose name is on the account.
PROXY VOTING POLICIES, PROCEDURES AND RESULTS
A description of the proxy voting policies and procedures used to determine how
to vote proxies on behalf of the funds is available without charge, upon
request, by visiting Schwab's website at www.schwab.com/schwabfunds, the SEC's
website at http://www.sec.gov, or by contacting Schwab Funds 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 website 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 SCHWAB FUNDS FAMILY(R)
STOCK FUNDS
Schwab Institutional Select(R) S&P 500 Fund
Schwab S&P 500 Index Fund
Schwab 1000 Index(R) Fund
Schwab Small-Cap Index Fund(R)
Schwab Total Stock Market Index Fund(R)
Schwab International Index Fund(R)
Schwab Premier Equity Fund(TM)
Schwab Core Equity Fund(TM)
Schwab Dividend Equity Fund(TM)
Schwab Large-Cap Growth Fund(TM)
Schwab Small-Cap Equity Fund(TM)
Schwab Hedged Equity Fund(TM)
Schwab Financial Services Fund(TM)
Schwab Health Care Fund(TM)
Schwab Technology Fund(TM)
ASSET ALLOCATION FUNDS
Schwab MarketTrack All Equity Portfolio(TM)
Schwab MarketTrack Growth Portfolio(TM)
Schwab MarketTrack Balanced Portfolio(TM)
Schwab MarketTrack Conservative Portfolio(TM)
Schwab Target 2010 Fund
Schwab Target 2020 Fund
Schwab Target 2030 Fund
Schwab Target 2040 Fund
Schwab Retirement Income Fund
BOND FUNDS
Schwab YieldPlus Fund(R)
Schwab Short-Term Bond Market Fund(TM)
Schwab Total Bond Market Fund(TM)
Schwab GNMA Fund(TM)
Schwab Tax-Free YieldPlus Fund(TM)
Schwab Short/Intermediate Tax-Free Bond Fund(TM)
Schwab Long-Term Tax-Free Bond Fund(TM)
Schwab California Tax-Free YieldPlus 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 eligible 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
Schwab Funds(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) 2005 Charles Schwab & Co., Inc. All rights reserved.
Member SIPC
Printed on recycled paper.
MFR14310-06
SCHWAB MARKETTRACK PORTFOLIOS(R)
ANNUAL REPORT
October 31, 2005
Schwab MarketTrack
All Equity Portfolio(TM)
Schwab MarketTrack
Growth Portfolio(TM)
Schwab MarketTrack
Balanced Portfolio(TM)
Schwab MarketTrack
Conservative Portfolio(TM)
[CHARLES SCHWAB LOGO]
Four portfolios that combine the power of indexing with the benefits of asset
allocation.
IN THIS REPORT
Management's Discussion ............................................ 2
Performance and Fund Facts
Schwab MarketTrack All Equity Portfolio(TM) ... 7
Schwab MarketTrack Growth Portfolio(TM) ....... 9
Schwab MarketTrack Balanced Portfolio(TM) ..... 11
Schwab MarketTrack Conservative Portfolio(TM) . 13
Fund Expenses ...................................................... 15
Financial Statements
Schwab MarketTrack All Equity Portfolio(TM) ... 16
Schwab MarketTrack Growth Portfolio(TM) ....... 21
Schwab MarketTrack Balanced Portfolio(TM) ..... 33
Schwab MarketTrack Conservative Portfolio(TM) . 45
Financial Notes .................................................... 57
Investment Advisory Agreement Approval ............................. 62
Trustees and Officers .............................................. 65
Glossary ........................................................... 69
Fund investment adviser: Charles Schwab Investment Management, Inc. (CSIM).
Distributor and transfer agent: Charles Schwab & Co., Inc. (Schwab).
The industry/sector classification of the funds' portfolio holdings uses the
Global Industry Classification Standard (GICS) which was developed by and is the
exclusive property of Morgan Stanley Capital International Inc. and Standard &
Poor's. GICS is a service mark of MSCI and S&P and has been licensed for use by
Charles Schwab & Co., Inc.
[PHOTO OF CHARLES SCHWAB]
Charles Schwab
Chairman
Investors should consider carefully information contained in the prospectus,
including investment objectives, risks, charges and expenses. You can request a
prospectus by calling Schwab at 1-800-435-4000. Please read the prospectus
carefully before investing.
Performance data quoted represents past performance and does not indicate future
results. Current performance may be lower or higher. Investment value will
fluctuate, and shares, when redeemed, may be worth more or less than original
cost. Small-cap funds are subject to greater volatility than those in other
asset categories.
FROM THE CHAIRMAN
Dear Shareholder,
I founded Schwab over thirty years ago to be a home for serious investors. That
mission continues to guide us today as we constantly innovate on behalf of our
clients. By continuing to provide the highest quality products and services--at
a great price--we remain true to our heritage.
I take particular pride in the Schwab Funds. Founded over 15 years ago, they
have now grown to include more than 50 funds with over $140 billion in assets as
of this report date. With a variety of investment strategies, Schwab Funds
provide a range of innovative investment choices that can serve as a foundation
for your asset allocation plan. We've continued to expand our product offering
over the past year, as Schwab Funds President Evelyn Dilsaver explains in more
detail on the following page.
Schwab Funds is managed by Charles Schwab Investment Management, Inc., one of
the largest mutual fund managers in the U.S. Our portfolio managers share a
passion for market analysis and use some of the most sophisticated financial
models available. I am proud of their depth of experience, which reflects an
average tenure of more than 15 years in the investment industry. Furthermore, I
am impressed with the commitment that our managers bring to the stewardship of
the funds, for you, their shareholders.
This commitment and experience is evident in our funds' performance. I'm
especially pleased to highlight the strong performance of the Schwab Small-Cap
Equity Fund which ranked in the top 2% of its category for the one-year period
ended October 31, 2005. 1
In closing, I want to thank you for investing with us. We strive every day to
warrant the trust you have placed in us; that will never change.
Sincerely,
/s/ Charles Schwab
1 Source: Lipper Small Cap Core Funds. For the one-year period, rankings were:
Select Shares #11 and Investor Shares #12 out of 604 funds. Numbers assume
reinvestment of dividends and capital gains over each time period. Lipper,
Inc. rankings are based on average total returns not including sales charges.
MANAGEMENT'S DISCUSSION for the year ended October 31, 2005
[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'm pleased to bring you the annual report for the Schwab MarketTrack Portfolios
for the one-year period ended October 31, 2005. The Schwab Market Track
Portfolios are part of our suite of asset allocation funds and provide the
performance potential of indexing with the risk management of asset allocation.
Research has shown that asset allocation can be the most important factor in
determining overall portfolio performance--more important than which
securities you choose or when you decide to buy and sell them. Asset allocation
funds, such as the Schwab MarketTrack Portfolios, offer investors a convenient
way to manage their entire portfolio in one investment. What's more, combining
investment across management styles or asset classes can help balance risk while
seeking to provide competitive returns.
We continue to develop and manage Schwab Funds to help you achieve your goals
and to provide an uncomplicated way to build a well-diversified portfolio.
During this report period, we added to our suite of actively managed funds with
the launch of the Schwab Large-Cap Growth Fund, which commenced operations on
October 3, 2005. This fund seeks capital appreciation by selecting companies
with market capitalizations greater than $5 billion and is actively managed by a
team of investment professionals that understands how a disciplined investment
strategy can help achieve competitive returns.
I speak for all of Schwab Funds when I say we want Schwab to be the place where
investors can find useful, quality financial products and services to help them
succeed.
Thank you for investing in Schwab Funds.
Sincerely,
/s/ Evelyn Dilsaver
Investors should consider carefully information contained in the prospectus,
including investment objectives, risks, charges and expenses. You can request a
prospectus by calling Schwab at 1-800-435-4000. Please read the prospectus
carefully before investing.
2 Schwab MarketTrack Portfolios
[PHOTO OF LARRY MANO]
LARRY MANO, vice president and senior portfolio manager of the investment
adviser, is responsible for the overall management of the funds. Prior to
joining the firm in 1998, he worked for 20 years in equity management.
[PHOTO OF TOM BROWN]
TOM BROWN, an associate portfolio manager of the investment adviser, is
responsible for the day-to-day management of the equity portions of the funds.
He joined Schwab in 1995, became a trader in 1999, and was named to his current
position in 2004.
[PHOTO OF MATTHEW HASTINGS]
MATTHEW HASTINGS, CFA, a vice president and senior portfolio manager, has
day-to-day co-management responsibility for the funds. He joined the firm in
1999 and has worked in fixed income and asset management since 1996.
THE INVESTMENT ENVIRONMENT AND THE FUNDS
Despite a turbulent year in the news, the markets remained in a steady growth
mode and ended the one-year report period with positive results. Oil prices hit
all-time highs and the Federal Reserve continued to raise short-term interest
rates to curb inflationary pressures, raising the Fed Funds Target eight
consecutive times in the one-year report period. The moves had a limited impact
on overall economic growth, due primarily to the record-low level of interest
rates from which the increases began.
Despite concerns of high energy prices, which remained a significant headwind
for economic performance throughout the period, corporate earnings remained
strong throughout the year. Additionally, with the unemployment rate hovering
around 5% and GDP growth around 3.6%, job and income growth remained positive
and investors remained optimistic. Productivity gains and more restrictive
monetary policy kept a lid on core inflation. The productivity gains, coupled
with foreign investors buying large amounts of U.S. government securities,
helped contain increases in long-term interest rates. These conditions caused
the dollar to rally, which took pressure off the price of imported goods.
The big news for the past few months was the impact of Hurricanes Katrina and
Rita. The devastation caused by these storms was particularly heavy with respect
to the energy infrastructure in the South. Oil prices rose sharply in the
aftermath of the hurricanes, with crude oil peaking above $71 per barrel in
early September. However, a quick action by the federal government to release
Strategic Petroleum Reserves and soften oil demand led to a subsequent decline
off that peak. While the full economic effect of the hurricanes was unknown at
the end of the report period, the damage appears to be limited to the regions in
the hurricanes' path and to the energy infrastructures in the area.
Another significant event that occurred during the report period was the
appointment of Ben Bernanke to succeed Alan Greenspan as Chairman of the Federal
Reserve Board. Although he has not yet been confirmed into office, Bernanke's
experience on the Federal Open Market Committee and his expertise in monetary
economics has eased the concerns of the markets and caused investors to expect a
smooth transition.
Source of Sector Classification: S&P and MSCI.
Schwab MarketTrack Portfolios 3
MANAGEMENT'S DISCUSSION continued
[PHOTO OF STEVEN HUNG]
STEVEN HUNG, a director and portfolio manager of the investment adviser, has
day-to-day co-responsibility for the management of the funds. He joined the firm
in 1998, and has worked in fixed-income asset management since 1999.
Despite tragic hurricanes, rising interest rates, and soaring energy prices, the
funds and their respective benchmarks held up well. The S&P 500 Index 1 posted
gains of 8.72% for the one-year period ending on October 31, 2005 while the
Russell 2000 Index also displayed a positive return of 12.08%. As improving
fundamentals and attractive valuations have strengthened investor interest in
emerging markets, the MSCI EAFE (Morgan Stanley Capital International, Inc.
Europe, Australasia, and Far East) Index also had an impressive return of 18.09%
for the one-year report period.
Although bonds did not fare nearly as well as equities this period, performance
was still positive, up by 1.13%, as measured by the Lehman Brothers U.S.
Aggregate Bond Index. This differential is not unusual, given that we were in
the midst of an economic recovery during the period. When the economy is strong
and job growth is robust, investors expect to see inflation, which generally
leads to higher interest rates and ultimately brings down prices for bonds. In
summary, the markets have seen quite a few events with the potential to diminish
investor confidence, but as of the end of the period, significant negative
impacts had not materialized.
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.
8.72% S&P 500(R) INDEX: measures U.S. large-cap stocks
12.08% RUSSELL 2000(R) INDEX: measures U.S. small-cap stocks
18.09% MSCI-EAFE(R) INDEX: measures (in U.S. dollars) large-cap stocks in
Europe, Australasia and the Far East
1.13% LEHMAN BROTHERS U.S. AGGREGATE BOND INDEX: measures the U.S. bond market
2.69% THREE-MONTH U.S. TREASURY BILLS (T-BILLS): measures short-term U.S.
Treasury obligations
[LINE GRAPH]
THREE-MONTH U.S. LEHMAN BROTHERS
TREASURY BILLS U.S. AGGREGATE S&P 500(R) RUSSELL 2000(R) MSCI-EAFE(R)
(T-BILLS) BOND INDEX INDEX INDEX INDEX
31-Oct-04 0.00 0.00 0.00 0.00 0.00
07-Nov-04 0.01 -0.52 3.21 3.53 3.71
14-Nov-04 0.05 -0.49 4.88 6.60 4.81
21-Nov-04 0.09 -0.40 3.69 5.15 5.92
28-Nov-04 0.12 -0.47 4.81 8.21 6.96
05-Dec-04 0.16 -0.38 5.62 10.13 8.68
12-Dec-04 0.19 0.13 5.37 8.44 5.79
19-Dec-04 0.25 -0.05 5.95 10.16 7.36
26-Dec-04 0.29 0.02 7.40 11.44 10.52
02-Jan-05 0.33 0.12 7.59 11.89 11.52
09-Jan-05 0.36 -0.09 5.35 5.32 8.50
16-Jan-05 0.40 0.27 5.22 6.07 8.74
23-Jan-05 0.45 0.68 3.75 4.98 7.81
30-Jan-05 0.48 0.70 4.08 5.33 8.68
06-Feb-05 0.53 1.05 6.95 9.55 10.43
13-Feb-05 0.57 1.03 7.23 9.11 11.16
20-Feb-05 0.61 0.51 6.94 8.33 12.75
27-Feb-05 0.65 0.47 7.86 9.63 13.40
06-Mar-05 0.70 0.44 8.86 10.92 15.44
13-Mar-05 0.75 -0.43 6.96 7.84 15.54
20-Mar-05 0.79 -0.34 6.04 7.13 14.06
27-Mar-05 0.84 -0.79 4.42 5.88 11.43
03-Apr-05 0.90 -0.16 4.59 5.31 11.55
10-Apr-05 0.96 -0.28 5.37 5.20 12.02
17-Apr-05 1.01 0.55 1.95 0.06 10.11
24-Apr-05 1.06 0.78 2.81 1.57 10.36
01-May-05 1.12 0.98 3.28 -0.15 8.71
08-May-05 1.18 0.79 4.60 2.83 10.65
15-May-05 1.24 1.27 3.14 0.36 8.08
22-May-05 1.29 1.34 6.33 5.10 8.34
29-May-05 1.33 1.73 7.22 6.42 9.41
05-Jun-05 1.39 2.23 7.01 7.02 9.48
12-Jun-05 1.44 1.96 7.23 8.07 9.40
19-Jun-05 1.50 1.94 8.95 11.20 11.36
26-Jun-05 1.55 2.67 6.70 8.83 10.42
03-Jul-05 1.59 2.25 7.01 11.08 9.74
10-Jul-05 1.66 2.07 8.60 14.40 9.31
17-Jul-05 1.71 1.96 10.06 14.69 11.35
24-Jul-05 1.76 1.84 10.59 17.12 12.34
31-Jul-05 1.84 1.70 10.68 17.49 13.59
07-Aug-05 1.88 1.25 10.02 14.58 14.44
14-Aug-05 1.94 1.94 10.44 14.14 18.32
21-Aug-05 2.01 2.10 9.54 12.85 16.11
28-Aug-05 2.07 2.25 8.24 12.20 16.21
04-Sep-05 2.15 3.04 9.47 14.77 19.45
11-Sep-05 2.21 2.68 11.60 17.33 20.67
18-Sep-05 2.28 2.20 11.33 16.32 20.04
25-Sep-05 2.36 2.28 9.32 13.47 18.92
02-Oct-05 2.42 1.94 10.56 15.67 21.65
09-Oct-05 2.48 1.89 7.66 11.63 19.16
16-Oct-05 2.53 1.35 6.84 9.71 18.26
23-Oct-05 2.61 1.86 6.22 9.65 15.53
30-Oct-05 2.66 1.09 7.95 10.12 16.68
31-Oct-05 2.69 1.13 8.72 12.08 18.09
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.
Source of Sector Classification: S&P and MSCI.
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.
4 Schwab MarketTrack Portfolios
PERFORMANCE AT A GLANCE
Total return for the 12 months ended 10/31/05
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE DOES
NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL
FLUCTUATE SO THAT AN INVESTOR'S SHARES MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN PERFORMANCE DATA
QUOTED. TO OBTAIN PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH END,
PLEASE VISIT WWW.SCHWAB.COM/SCHWABFUNDS.
SCHWAB MARKETTRACK
ALL EQUITY PORTFOLIO(TM) ....... 11.81%
Benchmark ...................... 13.13%
Performance Details ............ page 7
SCHWAB MARKETTRACK
GROWTH PORTFOLIO(TM) ........... 9.48%
Benchmark ...................... 10.86%
Performance Details ............ page 9
SCHWAB MARKETTRACK
BALANCED PORTFOLIO(TM) ......... 7.41%
Benchmark ...................... 8.08%
Performance Details ............ page 11
SCHWAB MARKETTRACK
CONSERVATIVE PORTFOLIO(TM) ..... 5.24%
Benchmark ...................... 5.70%
Performance Details ............ page 13
THE MARKETTRACK PORTFOLIOS INCORPORATE A MIX OF DIFFERENT ASSET CLASSES.
Accordingly, their returns over a given period will reflect a blend of the
returns of those asset classes, and will depend on their relative weightings
within each portfolio. By spreading their exposure over various asset classes,
the MarketTrack Portfolios are designed to provide more stable returns while
seeking to reduce risk over various market cycles.
THE SCHWAB MARKET TRACK ALL EQUITY PORTFOLIO was up 11.81% for the period
compared to a 13.13% return for its benchmark, the All Equity Composite Index.
This portfolio invests in different segments of the stock market including
large-cap, small-cap and international, so its performance reflects a blend of
those segments' returns. Unlike the other MarketTrack Portfolios, this fund does
not have a defined allocation to fixed income. For the one-year report period,
the fund's allocations to international and small-cap segments helped
performance as those segments' performances, as measured respectively by the
MSCI EAFE and Russell 2000 Index, outperformed that of large-cap domestic
equities as measured by the S&P 500.
THE SCHWAB MARKETTRACK GROWTH PORTFOLIO was up 9.48%, compared to a 10.86%
return for its benchmark, the Growth Composite Index. The portfolio has an 80%
target stock allocation that is divided amongst large-cap, small-cap, and
international stocks. The 20% allocation to fixed income is designed to reduce
volatility and risk over the long term. In this report period, due to strong
equity markets and increased interest in emerging markets, the fund benefited
from its emphasis on equities.
THE SCHWAB MARKETTRACK BALANCED PORTFOLIO returned 7.41%, compared to a 8.08%
return for its benchmark, the Balanced Composite Index. With a 60% target
allocation to equities, the Balanced Portfolio's allocation is weighted toward
stock investments, but also includes substantial bond investments in seeking to
add income and reduce volatility. While
Source of Sector Classification: S&P and MSCI. All portfolio and index figures
on this page assume dividends and distributions were reinvested. Index figures
do not include trading and management costs, which would lower performance.
Indices are unmanaged, and you cannot invest in them directly.
Expenses may be partially absorbed by CSIM and Schwab. Without these reductions,
the portfolios' total returns would have been lower. Performance does not
reflect the deduction of taxes that a shareholder would pay on portfolio
distributions or on the redemption of portfolio shares. Small-company stocks are
subject to greater volatility than other asset categories. Foreign securities
can involve risks such as political and economic instability and currency risk.
Schwab MarketTrack Portfolios 5
MANAGEMENT'S DISCUSSION continued
the equity segments led performance for the report period, bonds also
contributed positive returns, as tracked by the Lehman Brothers U.S. Aggregate
Bond Index.
THE SCHWAB MARKETTRACK CONSERVATIVE PORTFOLIO was up 5.24% compared to a 5.70%
return for its benchmark, the Conservative Composite. With a target allocation
of 55% to bonds and 40% to stocks, this portfolio is designed to seek income
with more growth potential than an all-bond portfolio. Although the bond markets
did not see much of a rally this period, the portfolio benefited from its
exposure to the various segments of the equity market.
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 MarketTrack Portfolios
SCHWAB MARKETTRACK ALL EQUITY PORTFOLIO(TM)
PERFORMANCE as of 10/31/05
AVERAGE ANNUAL TOTAL RETURNS 1, 2
This chart compares performance of the portfolio with a benchmark and the
portfolio's Morningstar category.
[BAR CHART]
Benchmark: Fund Category:
PORTFOLIO ALL EQUITY MORNINGSTAR
Ticker Symbol: SWEGX COMPOSITE INDEX LARGE-CAP BLEND
1 YEAR 11.81% 13.13% 9.53%
5 YEARS 0.64% 1.81% -1.41%
3 SINCE INCEPTION: 5/19/98 3.22% 3 4.63% 4 2.42% 3
4 SINCE: 6/1/98
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE DOES
NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL
FLUCTUATE SO THAT AN INVESTOR'S SHARES MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN PERFORMANCE DATA
QUOTED. TO OBTAIN PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH END,
PLEASE VISIT WWW.SCHWAB.COM/SCHWABFUNDS.
PERFORMANCE OF A HYPOTHETICAL $10,000 INVESTMENT 2
This graph shows performance since inception of a hypothetical $10,000
investment in the portfolio, compared with a similar investment in a benchmark
and an additional index.
$12,670 PORTFOLIO
$13,994 ALL EQUITY COMPOSITE INDEX
$12,072 S&P 500(R) INDEX
[LINE GRAPH]
ALL EQUITY S&P 500(R)
PORTFOLIO COMPOSITE INDEX INDEX
19-May-98 $10,000 $10,000
31-May-98 $9,850 $10,000 $9,751
30-Jun-98 $10,050 $10,101 $10,147
31-Jul-98 $9,810 $9,879 $10,039
31-Aug-98 $8,330 $8,317 $8,590
30-Sep-98 $8,610 $8,558 $9,140
31-Oct-98 $9,280 $9,120 $9,883
30-Nov-98 $9,800 $9,636 $10,482
31-Dec-98 $10,303 $10,146 $11,086
31-Jan-99 $10,483 $10,315 $11,549
28-Feb-99 $10,041 $9,895 $11,190
31-Mar-99 $10,383 $10,207 $11,638
30-Apr-99 $10,896 $10,747 $12,088
31-May-99 $10,664 $10,602 $11,803
30-Jun-99 $11,197 $11,170 $12,458
31-Jul-99 $11,137 $11,095 $12,069
31-Aug-99 $11,056 $10,973 $12,009
30-Sep-99 $11,006 $10,854 $11,680
31-Oct-99 $11,539 $11,258 $12,419
30-Nov-99 $11,971 $11,815 $12,672
31-Dec-99 $12,885 $12,889 $13,418
31-Jan-00 $12,162 $12,368 $12,744
29-Feb-00 $12,498 $12,978 $12,503
31-Mar-00 $13,159 $13,516 $13,726
30-Apr-00 $12,610 $12,933 $13,313
31-May-00 $12,223 $12,580 $13,040
30-Jun-00 $12,752 $13,106 $13,362
31-Jul-00 $12,386 $12,839 $13,154
31-Aug-00 $13,098 $13,582 $13,971
30-Sep-00 $12,477 $13,068 $13,233
31-Oct-00 $12,274 $12,793 $13,177
30-Nov-00 $11,378 $11,888 $12,139
31-Dec-00 $11,736 $12,435 $12,198
31-Jan-01 $11,996 $12,720 $12,632
28-Feb-01 $10,967 $11,779 $11,480
31-Mar-01 $10,302 $11,035 $10,752
30-Apr-01 $11,081 $11,869 $11,587
31-May-01 $11,061 $11,897 $11,665
30-Jun-01 $10,925 $11,711 $11,381
31-Jul-01 $10,655 $11,451 $11,270
31-Aug-01 $10,187 $10,976 $10,564
30-Sep-01 $9,179 $9,839 $9,711
31-Oct-01 $9,418 $10,157 $9,896
30-Nov-01 $10,000 $10,791 $10,655
31-Dec-01 $10,205 $11,068 $10,749
31-Jan-02 $9,887 $10,819 $10,592
28-Feb-02 $9,728 $10,676 $10,388
31-Mar-02 $10,258 $11,248 $10,778
30-Apr-02 $9,972 $11,023 $10,125
31-May-02 $9,855 $10,900 $10,050
30-Jun-02 $9,293 $10,264 $9,335
31-Jul-02 $8,380 $9,243 $8,607
31-Aug-02 $8,402 $9,260 $8,663
30-Sep-02 $7,585 $8,378 $7,722
31-Oct-02 $8,062 $8,837 $8,401
30-Nov-02 $8,529 $9,336 $8,896
31-Dec-02 $8,118 $8,900 $8,374
31-Jan-03 $7,817 $8,632 $8,154
28-Feb-03 $7,645 $8,429 $8,032
31-Mar-03 $7,656 $8,428 $8,110
30-Apr-03 $8,355 $9,138 $8,778
31-May-03 $8,925 $9,752 $9,241
30-Jun-03 $9,075 $9,919 $9,359
31-Jul-03 $9,323 $10,200 $9,524
31-Aug-03 $9,559 $10,499 $9,710
30-Sep-03 $9,538 $10,457 $9,607
31-Oct-03 $10,140 $11,123 $10,150
30-Nov-03 $10,333 $11,347 $10,240
31-Dec-03 $10,875 $11,886 $10,776
31-Jan-04 $11,071 $12,142 $10,975
29-Feb-04 $11,223 $12,328 $11,127
31-Mar-04 $11,136 $12,293 $10,959
30-Apr-04 $10,854 $11,946 $10,787
31-May-04 $10,973 $12,045 $10,935
30-Jun-04 $11,255 $12,344 $11,147
31-Jul-04 $10,810 $11,820 $10,778
31-Aug-04 $10,799 $11,800 $10,821
30-Sep-04 $11,081 $12,129 $10,938
31-Oct-04 $11,331 $12,371 $11,105
30-Nov-04 $11,982 $13,091 $11,555
31-Dec-04 $12,395 $13,567 $11,948
31-Jan-05 $12,055 $13,229 $11,656
28-Feb-05 $12,373 $13,596 $11,901
31-Mar-05 $12,110 $13,294 $11,691
30-Apr-05 $11,759 $12,876 $11,468
31-May-05 $12,110 $13,274 $11,833
30-Jun-05 $12,264 $13,481 $11,850
31-Jul-05 $12,768 $14,060 $12,290
31-Aug-05 $12,790 $14,101 $12,179
30-Sep-05 $12,966 $14,350 $12,277
31-Oct-05 $12,670 $13,994 $12,072
All figures on this page assume dividends and distributions were reinvested.
Index figures do not include trading and management costs, which would lower
performance. Indices are unmanaged, and you cannot invest in them directly.
1 Portfolio expenses have been partially absorbed by CSIM and Schwab. Without
these reductions, the portfolio's returns would have been lower. These returns
do not reflect the deduction of taxes that a shareholder would pay on
portfolio distributions or the redemption of portfolio shares.
2 The All Equity Composite Index is composed of Morningstar category averages
and is calculated using the following portion allocations: 45% large-cap
stocks, 25% small-cap stocks and 30% foreign stocks. Source: Morningstar, Inc.
Schwab MarketTrack Portfolios 7
SCHWAB MARKETTRACK ALL EQUITY PORTFOLIO
FUND FACTS as of 10/31/05
STYLE ASSESSMENT 1
[GRAPHIC]
INVESTMENT STYLE
Value Blend Growth
MARKET CAP
Large / / /X/ / /
Medium / / / / / /
Small / / / / / /
STATISTICS
NUMBER OF HOLDINGS 4
- --------------------------------------------------------------------------------
WEIGHTED AVERAGE MARKET CAP ($ x 1,000,000) $58,588
- --------------------------------------------------------------------------------
PRICE/EARNINGS RATIO (P/E) 20.6
- --------------------------------------------------------------------------------
PRICE/BOOK RATIO (P/B) 2.5
- --------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 49%
- --------------------------------------------------------------------------------
MINIMUM INITIAL INVESTMENT 2 $1,000
($500 for retirement, education and custodial accounts)
- --------------------------------------------------------------------------------
TOP HOLDINGS 3
% OF
SECURITY NET ASSETS
- --------------------------------------------------------------------------------
(1) SCHWAB INSTITUTIONAL SELECT(R) S&P 500 FUND 45.1%
- --------------------------------------------------------------------------------
(2) SCHWAB INTERNATIONAL INDEX FUND(R), Select Shares(R) 29.8%
- --------------------------------------------------------------------------------
(3) SCHWAB SMALL-CAP INDEX FUND(R), Select Shares 25.1%
- --------------------------------------------------------------------------------
TOTAL 100.0%
ASSET CLASS WEIGHTINGS % of Investments
This chart shows the portfolio's asset class composition as of the report date.
[PIE CHART]
45.1% LARGE-CAP STOCKS
29.8% INTERNATIONAL STOCKS
25.1% SMALL-CAP STOCKS
Portfolio holdings may have changed since the report date.
Source of Sector Classification: S&P and MSCI.
1 Source: Morningstar, Inc. This style assessment is the result of evaluating
the portfolio based on a ten-factor model for value and growth
characteristics. The portfolio's market capitalization placement is determined
by the geometric mean of its holdings' market capitalizations. The assessment
reflects the portfolio's holdings as of 10/31/05, which may have changed since
then, and is not a precise indication of risk or performance--past, present,
or future.
2 Please see prospectus for further detail and eligibility requirements.
3 This list is not a recommendation of any security by the investment adviser.
8 Schwab MarketTrack Portfolios
SCHWAB MARKETTRACK GROWTH PORTFOLIO(TM)
PERFORMANCE as of 10/31/05
AVERAGE ANNUAL TOTAL RETURNS 1, 2
This chart compares performance of the portfolio with a benchmark and the
portfolio's Morningstar category.
[BAR CHART]
Fund
Benchmark: Category:
PORTFOLIO GROWTH COMPOSITE MORNINGSTAR
Ticker Symbol: SWHGX INDEX LARGE-CAP BLEND
1 YEAR 9.48% 10.86% 9.53%
5 YEARS 1.62% 2.66% -1.41%
3 SINCE INCEPTION: 11/20/95 7.66% 3 9.90% 4 7.82% 3
4 SINCE: 12/1/95
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE DOES
NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL
FLUCTUATE SO THAT AN INVESTOR'S SHARES MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN PERFORMANCE DATA
QUOTED. TO OBTAIN PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH END,
PLEASE VISIT WWW.SCHWAB.COM/SCHWABFUNDS.
PERFORMANCE OF A HYPOTHETICAL $10,000 INVESTMENT 2
This graph shows performance since inception of a hypothetical $10,000
investment in the portfolio, compared with a similar investment in a benchmark
and two additional indices.
$20,868 PORTFOLIO
$25,515 GROWTH COMPOSITE INDEX
$23,643 S&P 500(R) INDEX
$18,328 LEHMAN BROTHERS U.S. AGGREGATE BOND INDEX
[LINE GRAPH]
LEHMAN BROTHERS
GROWTH S&P 500(R) U.S. AGGREGATE
PORTFOLIO COMPOSITE INDEX INDEX BOND INDEX
20-Nov-95 $10,000 $10,000 $10,000
30-Nov-95 $10,080 $10,000 $10,104 $10,076
31-Dec-95 $10,292 $10,480 $10,299 $10,217
31-Jan-96 $10,442 $10,646 $10,649 $10,285
29-Feb-96 $10,533 $10,776 $10,748 $10,106
31-Mar-96 $10,623 $10,908 $10,852 $10,035
30-Apr-96 $10,803 $10,866 $11,011 $9,979
31-May-96 $10,954 $11,645 $11,294 $9,959
30-Jun-96 $10,934 $12,330 $11,337 $10,092
31-Jul-96 $10,523 $12,502 $10,836 $10,120
31-Aug-96 $10,733 $12,682 $11,064 $10,102
30-Sep-96 $11,184 $12,967 $11,686 $10,278
31-Oct-96 $11,324 $13,008 $12,009 $10,506
30-Nov-96 $11,896 $13,626 $12,917 $10,686
31-Dec-96 $11,784 $13,868 $12,661 $10,587
31-Jan-97 $12,008 $14,191 $13,451 $10,620
28-Feb-97 $12,028 $14,176 $13,557 $10,646
31-Mar-97 $11,692 $13,843 $13,001 $10,528
30-Apr-97 $12,038 $14,076 $13,776 $10,686
31-May-97 $12,793 $14,933 $14,614 $10,787
30-Jun-97 $13,313 $15,512 $15,268 $10,916
31-Jul-97 $14,087 $16,318 $16,482 $11,210
31-Aug-97 $13,618 $15,863 $15,559 $11,115
30-Sep-97 $14,301 $16,670 $16,410 $11,280
31-Oct-97 $13,853 $16,055 $15,862 $11,443
30-Nov-97 $14,098 $16,153 $16,597 $11,496
31-Dec-97 $14,259 $16,328 $16,882 $11,612
31-Jan-98 $14,410 $16,445 $17,070 $11,761
28-Feb-98 $15,220 $17,373 $18,300 $11,751
31-Mar-98 $15,738 $18,047 $19,237 $11,791
30-Apr-98 $15,846 $18,226 $19,432 $11,852
31-May-98 $15,576 $17,934 $19,097 $11,965
30-Jun-98 $15,868 $18,097 $19,873 $12,067
31-Jul-98 $15,555 $17,793 $19,662 $12,092
31-Aug-98 $13,729 $15,573 $16,823 $12,289
30-Sep-98 $14,194 $15,973 $17,901 $12,577
31-Oct-98 $15,080 $16,796 $19,357 $12,510
30-Nov-98 $15,760 $17,576 $20,530 $12,581
31-Dec-98 $16,422 $18,327 $21,712 $12,619
31-Jan-99 $16,718 $18,589 $22,620 $12,709
28-Feb-99 $16,103 $17,937 $21,916 $12,486
31-Mar-99 $16,576 $18,411 $22,793 $12,555
30-Apr-99 $17,224 $19,203 $23,675 $12,595
31-May-99 $16,916 $18,965 $23,116 $12,484
30-Jun-99 $17,586 $19,770 $24,399 $12,444
31-Jul-99 $17,465 $19,668 $23,638 $12,392
31-Aug-99 $17,355 $19,497 $23,520 $12,386
30-Sep-99 $17,290 $19,368 $22,875 $12,530
31-Oct-99 $17,982 $19,949 $24,323 $12,576
30-Nov-99 $18,520 $20,755 $24,817 $12,575
31-Dec-99 $19,602 $22,268 $26,279 $12,514
31-Jan-00 $18,730 $21,537 $24,960 $12,473
29-Feb-00 $19,155 $22,437 $24,487 $12,624
31-Mar-00 $20,049 $23,212 $26,882 $12,791
30-Apr-00 $19,389 $22,386 $26,073 $12,754
31-May-00 $18,931 $21,891 $25,539 $12,747
30-Jun-00 $19,635 $22,702 $26,169 $13,012
31-Jul-00 $19,233 $22,358 $25,761 $13,131
31-Aug-00 $20,206 $23,431 $27,361 $13,321
30-Sep-00 $19,456 $22,745 $25,917 $13,405
31-Oct-00 $19,255 $22,371 $25,808 $13,493
30-Nov-00 $18,148 $21,167 $23,774 $13,715
31-Dec-00 $18,660 $22,014 $23,891 $13,970
31-Jan-01 $19,052 $22,475 $24,739 $14,198
28-Feb-01 $17,758 $21,182 $22,483 $14,321
31-Mar-01 $16,938 $20,127 $21,057 $14,393
30-Apr-01 $17,955 $21,330 $22,693 $14,332
31-May-01 $18,001 $21,386 $22,845 $14,418
30-Jun-01 $17,851 $21,129 $22,290 $14,473
31-Jul-01 $17,574 $20,827 $22,072 $14,797
31-Aug-01 $16,973 $20,177 $20,690 $14,967
30-Sep-01 $15,667 $18,527 $19,018 $15,141
31-Oct-01 $16,037 $19,059 $19,382 $15,457
30-Nov-01 $16,823 $19,970 $20,868 $15,244
31-Dec-01 $17,086 $20,362 $21,052 $15,147
31-Jan-02 $16,706 $20,010 $20,744 $15,269
28-Feb-02 $16,492 $19,830 $20,344 $15,417
31-Mar-02 $17,157 $20,635 $21,109 $15,161
30-Apr-02 $16,753 $20,369 $19,830 $15,456
31-May-02 $16,623 $20,218 $19,683 $15,587
30-Jun-02 $15,863 $19,290 $18,282 $15,723
31-Jul-02 $14,652 $17,770 $16,858 $15,913
31-Aug-02 $14,747 $17,841 $16,967 $16,182
30-Sep-02 $13,619 $16,516 $15,123 $16,444
31-Oct-02 $14,307 $17,223 $16,454 $16,368
30-Nov-02 $14,984 $18,009 $17,423 $16,363
31-Dec-02 $14,440 $17,395 $16,400 $16,702
31-Jan-03 $14,030 $16,979 $15,970 $16,717
28-Feb-03 $13,825 $16,694 $15,731 $16,948
31-Mar-03 $13,849 $16,689 $15,883 $16,934
30-Apr-03 $14,863 $17,844 $17,192 $17,075
31-May-03 $15,720 $18,855 $18,098 $17,392
30-Jun-03 $15,913 $19,114 $18,330 $17,358
31-Jul-03 $16,167 $19,454 $18,652 $16,774
31-Aug-03 $16,517 $19,929 $19,016 $16,885
30-Sep-03 $16,529 $19,952 $18,815 $17,332
31-Oct-03 $17,338 $20,947 $19,879 $17,171
30-Nov-03 $17,616 $21,296 $20,054 $17,212
31-Dec-03 $18,352 $22,145 $21,105 $17,388
31-Jan-04 $18,645 $22,552 $21,494 $17,527
29-Feb-04 $18,866 $22,862 $21,792 $17,716
31-Mar-04 $18,780 $22,839 $21,463 $17,849
30-Apr-04 $18,327 $22,240 $21,126 $17,385
31-May-04 $18,486 $22,368 $21,416 $17,316
30-Jun-04 $18,878 $22,827 $21,831 $17,414
31-Jul-04 $18,303 $22,087 $21,109 $17,587
31-Aug-04 $18,352 $22,118 $21,193 $17,923
30-Sep-04 $18,731 $22,623 $21,422 $17,971
31-Oct-04 $19,062 $23,016 $21,750 $18,122
30-Nov-04 $19,906 $24,073 $22,631 $17,977
31-Dec-04 $20,483 $24,810 $23,400 $18,142
31-Jan-05 $20,049 $24,336 $22,829 $18,257
28-Feb-05 $20,446 $24,870 $23,308 $18,149
31-Mar-05 $20,086 $24,404 $22,896 $18,056
30-Apr-05 $19,664 $23,834 $22,461 $18,300
31-May-05 $20,198 $24,451 $23,175 $18,498
30-Jun-05 $20,396 $24,781 $23,208 $18,600
31-Jul-05 $21,054 $25,608 $24,071 $18,430
31-Aug-05 $21,079 $25,725 $23,852 $18,666
30-Sep-05 $21,278 $26,062 $24,045 $18,474
31-Oct-05 $20,868 $25,515 $23,643 $18,328
All figures on this page assume dividends and distributions were reinvested.
Index figures do not include trading and management costs, which would lower
performance. Indices are unmanaged, and you cannot invest in them directly.
1 Portfolio expenses have been partially absorbed by CSIM and Schwab. Without
these reductions, the portfolio's returns would have been lower. These returns
do not reflect the deduction of taxes that a shareholder would pay on
portfolio distributions or the redemption of portfolio shares.
2 The Growth Composite Index is composed of Morningstar category averages and
cash equivalents as represented by the 90-day T-bill and is calculated using
the following portfolio allocations: 40% large-cap stocks, 20% small-cap
stocks, 20% foreign stocks, 15% bonds and 5% cash. Source: Morningstar, Inc.
Schwab MarketTrack Portfolios 9
SCHWAB MARKETTRACK GROWTH PORTFOLIO
FUND FACTS as of 10/31/05
STYLE ASSESSMENT 1
[GRAPH]
INVESTMENT STYLE
Value Blend Growth
MARKET CAP
Large / / /X/ / /
Medium / / / / / /
Small / / / / / /
STATISTICS
NUMBER OF HOLDINGS 517
- --------------------------------------------------------------------------------
WEIGHTED AVERAGE MARKET CAP ($ x 1,000,000) $59,922
- --------------------------------------------------------------------------------
PRICE/EARNINGS RATIO (P/E) 20.6
- --------------------------------------------------------------------------------
PRICE/BOOK RATIO (P/B) 2.6
- --------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 33%
- --------------------------------------------------------------------------------
MINIMUM INITIAL INVESTMENT 2 $1,000
($500 for retirement, education and custodial accounts)
- --------------------------------------------------------------------------------
TOP HOLDINGS 3
% OF
SECURITY NET ASSETS
- --------------------------------------------------------------------------------
(1) SCHWAB INSTITIUTIONAL SELECT(R) S&P 500 FUND 23.8%
- --------------------------------------------------------------------------------
(2) SCHWAB SMALL-CAP INDEX FUND(R), Select Shares(R) 20.2%
- --------------------------------------------------------------------------------
(3) SCHWAB INTERNATIONAL INDEX FUND(R), Select Shares 20.1%
- --------------------------------------------------------------------------------
(4) SCHWAB TOTAL BOND MARKET FUND(TM) 14.7%
- --------------------------------------------------------------------------------
(5) SCHWAB VALUE ADVANTAGE MONEY FUND(R), Institutional Shares 4.7%
- --------------------------------------------------------------------------------
(6) GENERAL ELECTRIC CO. 0.5%
- --------------------------------------------------------------------------------
(7) EXXON MOBIL CORP. 0.5%
- --------------------------------------------------------------------------------
(8) MICROSOFT CORP. 0.4%
- --------------------------------------------------------------------------------
(9) CITIGROUP, INC. 0.4%
- --------------------------------------------------------------------------------
(10) PROCTER & GAMBLE CO. 0.3%
- --------------------------------------------------------------------------------
TOTAL 85.6%
ASSET CLASS WEIGHTINGS % of Investments
This chart shows the portfolio's asset class composition as of the report date.
[PIE CHART]
40.2% LARGE-CAP STOCKS
20.2% SMALL-CAP STOCKS
20.1% INTERNATIONAL STOCKS
14.7% BONDS
4.8% SHORT-TERM INVESTMENTS
Portfolio holdings may have changed since the report date.
Source of Sector Classification: S&P and MSCI.
1 Source: Morningstar, Inc. This style assessment is the result of evaluating
the portfolio based on a ten-factor model for value and growth
characteristics. The portfolio's market capitalization placement is determined
by the geometric mean of its holdings' market capitalizations. The assessment
reflects the portfolio's holdings as of 10/31/05, 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 MarketTrack Portfolios
SCHWAB MARKETTRACK BALANCED PORTFOLIO(TM)
PERFORMANCE as of 10/31/05
AVERAGE ANNUAL TOTAL RETURNS 1, 2
This chart compares performance of the portfolio with a benchmark and the
portfolio's Morningstar category.
[BAR CHART]
Benchmark: Fund Category:
PORTFOLIO BALANCED MORNINGSTAR
Ticker Symbol: SWBGX COMPOSITE INDEX MODERATE ALLOCATION
1 YEAR 7.41% 8.08% 7.62%
5 YEARS 2.77% 3.45% 2.00%
3 SINCE INCEPTION: 11/20/95 7.24% 3 8.87% 4 7.24% 3
4 SINCE 12/1/95
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE DOES
NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL
FLUCTUATE SO THAT AN INVESTOR'S SHARES MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN PERFORMANCE DATA
QUOTED. TO OBTAIN PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH END,
PLEASE VISIT WWW.SCHWAB.COM/SCHWABFUNDS.
PERFORMANCE OF A HYPOTHETICAL $10,000 INVESTMENT 2
This graph shows performance since inception of a hypothetical $10,000
investment in the portfolio, compared with a similar investment in a benchmark
and two additional indices.
$20,058 PORTFOLIO
$23,240 BALANCED COMPOSITE INDEX
$23,643 S&P 500(R) INDEX
$18,328 LEHMAN BROTHERS U.S. AGGREGATE BOND INDEX
[LINE GRAPH]
LEHMAN BROTHERS
BALANCED S&P 500(R) U.S. AGGREGATE
PORTFOLIO COMPOSITE INDEX INDEX BOND INDEX
20-Nov-95 $10,000 $10,000 $10,000
30-Nov-95 $10,080 $10,000 $10,104 $10,076
31-Dec-95 $10,270 $10,379 $10,299 $10,217
31-Jan-96 $10,390 $10,519 $10,649 $10,285
29-Feb-96 $10,410 $10,575 $10,748 $10,106
31-Mar-96 $10,460 $10,652 $10,852 $10,035
30-Apr-96 $10,581 $10,630 $11,011 $9,979
31-May-96 $10,691 $11,225 $11,294 $9,959
30-Jun-96 $10,711 $11,775 $11,337 $10,092
31-Jul-96 $10,410 $11,892 $10,836 $10,120
31-Aug-96 $10,551 $11,924 $11,064 $10,102
30-Sep-96 $10,912 $12,141 $11,686 $10,278
31-Oct-96 $11,082 $12,232 $12,009 $10,506
30-Nov-96 $11,534 $12,643 $12,917 $10,686
31-Dec-96 $11,415 $12,818 $12,661 $10,587
31-Jan-97 $11,589 $13,073 $13,451 $10,620
28-Feb-97 $11,589 $13,065 $13,557 $10,646
31-Mar-97 $11,334 $12,780 $13,001 $10,528
30-Apr-97 $11,620 $12,999 $13,776 $10,686
31-May-97 $12,183 $13,625 $14,614 $10,787
30-Jun-97 $12,593 $14,057 $15,268 $10,916
31-Jul-97 $13,217 $14,722 $16,482 $11,210
31-Aug-97 $12,849 $14,401 $15,559 $11,115
30-Sep-97 $13,391 $14,996 $16,410 $11,280
31-Oct-97 $13,125 $14,648 $15,862 $11,443
30-Nov-97 $13,309 $14,746 $16,597 $11,496
31-Dec-97 $13,443 $14,902 $16,882 $11,612
31-Jan-98 $13,582 $15,016 $17,070 $11,761
28-Feb-98 $14,149 $15,650 $18,300 $11,751
31-Mar-98 $14,523 $16,118 $19,237 $11,791
30-Apr-98 $14,608 $16,251 $19,432 $11,852
31-May-98 $14,448 $16,078 $19,097 $11,965
30-Jun-98 $14,672 $16,239 $19,873 $12,067
31-Jul-98 $14,469 $16,021 $19,662 $12,092
31-Aug-98 $13,262 $14,560 $16,823 $12,289
30-Sep-98 $13,668 $14,966 $17,901 $12,577
31-Oct-98 $14,309 $15,513 $19,357 $12,510
30-Nov-98 $14,800 $16,081 $20,530 $12,581
31-Dec-98 $15,281 $16,632 $21,712 $12,619
31-Jan-99 $15,523 $16,850 $22,620 $12,709
28-Feb-99 $15,028 $16,328 $21,916 $12,486
31-Mar-99 $15,369 $16,682 $22,793 $12,555
30-Apr-99 $15,820 $17,235 $23,675 $12,595
31-May-99 $15,567 $17,046 $23,116 $12,484
30-Jun-99 $16,018 $17,574 $24,399 $12,444
31-Jul-99 $15,930 $17,458 $23,638 $12,392
31-Aug-99 $15,842 $17,323 $23,520 $12,386
30-Sep-99 $15,853 $17,260 $22,875 $12,530
31-Oct-99 $16,337 $17,664 $24,323 $12,576
30-Nov-99 $16,711 $18,175 $24,817 $12,575
31-Dec-99 $17,420 $19,117 $26,279 $12,514
31-Jan-00 $16,823 $18,642 $24,960 $12,473
29-Feb-00 $17,150 $19,236 $24,487 $12,624
31-Mar-00 $17,815 $19,838 $26,882 $12,791
30-Apr-00 $17,353 $19,305 $26,073 $12,754
31-May-00 $17,037 $18,981 $25,539 $12,747
30-Jun-00 $17,601 $19,588 $26,169 $13,012
31-Jul-00 $17,364 $19,423 $25,761 $13,131
31-Aug-00 $18,085 $20,224 $27,361 $13,321
30-Sep-00 $17,612 $19,829 $25,917 $13,405
31-Oct-00 $17,499 $19,619 $25,808 $13,493
30-Nov-00 $16,812 $18,873 $23,774 $13,715
31-Dec-00 $17,241 $19,524 $23,891 $13,970
31-Jan-01 $17,569 $19,924 $24,739 $14,198
28-Feb-01 $16,713 $19,108 $22,483 $14,321
31-Mar-01 $16,162 $18,423 $21,057 $14,393
30-Apr-01 $16,877 $19,233 $22,693 $14,332
31-May-01 $16,936 $19,325 $22,845 $14,418
30-Jun-01 $16,842 $19,175 $22,290 $14,473
31-Jul-01 $16,748 $19,081 $22,072 $14,797
31-Aug-01 $16,350 $18,662 $20,690 $14,967
30-Sep-01 $15,447 $17,563 $19,018 $15,141
31-Oct-01 $15,798 $18,018 $19,382 $15,457
30-Nov-01 $16,314 $18,635 $20,868 $15,244
31-Dec-01 $16,483 $18,879 $21,052 $15,147
31-Jan-02 $16,239 $18,682 $20,744 $15,269
28-Feb-02 $16,105 $18,573 $20,344 $15,417
31-Mar-02 $16,519 $19,063 $21,109 $15,161
30-Apr-02 $16,288 $18,918 $19,830 $15,456
31-May-02 $16,227 $18,836 $19,683 $15,587
30-Jun-02 $15,691 $18,176 $18,282 $15,723
31-Jul-02 $14,838 $17,140 $16,858 $15,913
31-Aug-02 $14,972 $17,266 $16,967 $16,182
30-Sep-02 $14,156 $16,362 $15,123 $16,444
31-Oct-02 $14,680 $16,877 $16,454 $16,368
30-Nov-02 $15,204 $17,476 $17,423 $16,363
31-Dec-02 $14,860 $17,100 $16,400 $16,702
31-Jan-03 $14,548 $16,813 $15,970 $16,717
28-Feb-03 $14,436 $16,663 $15,731 $16,948
31-Mar-03 $14,473 $16,677 $15,883 $16,934
30-Apr-03 $15,284 $17,577 $17,192 $17,075
31-May-03 $16,008 $18,405 $18,098 $17,392
30-Jun-03 $16,145 $18,585 $18,330 $17,358
31-Jul-03 $16,207 $18,687 $18,652 $16,774
31-Aug-03 $16,494 $19,055 $19,016 $16,885
30-Sep-03 $16,619 $19,167 $18,815 $17,332
31-Oct-03 $17,193 $19,847 $19,879 $17,171
30-Nov-03 $17,393 $20,103 $20,054 $17,212
31-Dec-03 $17,986 $20,732 $21,105 $17,388
31-Jan-04 $18,215 $21,058 $21,494 $17,527
29-Feb-04 $18,419 $21,316 $21,792 $17,716
31-Mar-04 $18,393 $21,324 $21,463 $17,849
30-Apr-04 $17,960 $20,789 $21,126 $17,385
31-May-04 $18,062 $20,861 $21,416 $17,316
30-Jun-04 $18,381 $21,206 $21,831 $17,414
31-Jul-04 $17,986 $20,731 $21,109 $17,587
31-Aug-04 $18,113 $20,834 $21,193 $17,923
30-Sep-04 $18,393 $21,199 $21,422 $17,971
31-Oct-04 $18,674 $21,502 $21,750 $18,122
30-Nov-04 $19,260 $22,196 $22,631 $17,977
31-Dec-04 $19,720 $22,748 $23,400 $18,142
31-Jan-05 $19,435 $22,442 $22,829 $18,257
28-Feb-05 $19,707 $22,768 $23,308 $18,149
31-Mar-05 $19,422 $22,423 $22,896 $18,056
30-Apr-05 $19,176 $22,090 $22,461 $18,300
31-May-05 $19,604 $22,596 $23,175 $18,498
30-Jun-05 $19,772 $22,847 $23,208 $18,600
31-Jul-05 $20,213 $23,382 $24,071 $18,430
31-Aug-05 $20,291 $23,491 $23,852 $18,666
30-Sep-05 $20,382 $23,644 $24,045 $18,474
31-Oct-05 $20,058 $23,240 $23,643 $18,328
All figures on this page assume dividends and distributions were reinvested.
Index figures do not include trading and management costs, which would lower
performance. Indices are unmanaged, and you cannot invest in them directly.
1 Portfolio expenses have been partially absorbed by CSIM and Schwab. Without
these reductions, the portfolio's returns would have been lower. These returns
do not reflect the deduction of taxes that a shareholder would pay on
portfolio distributions or the redemption of portfolio shares.
2 The Balanced Composite Index is composed of Morningstar category averages and
cash equivalents as represented by the 90-day T-bill and is calculated using
the following portfolio allocations: 30% large-cap stocks, 15% small-caps
stocks, 15% foreign stocks, 35% bonds and 5% cash. Source: Morningstar, Inc.
Schwab MarketTrack Portfolios 11
SCHWAB MARKETTRACK BALANCED
FUND FACTS as of 10/31/05
TOP HOLDINGS 1
% OF
SECURITY NET ASSETS
- --------------------------------------------------------------------------------
(1) SCHWAB TOTAL BOND MARKET FUND(TM) 34.6%
- --------------------------------------------------------------------------------
(2) SCHWAB INSTITUTIONAL SELECT(R) S&P 500 FUND 16.3%
- --------------------------------------------------------------------------------
(3) SCHWAB SMALL-CAP INDEX FUND(R), Select Shares(R) 15.2%
- --------------------------------------------------------------------------------
(4) SCHWAB INTERNATIONAL INDEX FUND(R), Select Shares 15.1%
- --------------------------------------------------------------------------------
(5) SCHWAB VALUE ADVANTAGE MONEY FUND(R), Institutional Shares 4.5%
- --------------------------------------------------------------------------------
(6) GENERAL ELECTRIC CO. 0.5%
- --------------------------------------------------------------------------------
(7) EXXON MOBIL CORP. 0.5%
- --------------------------------------------------------------------------------
(8) MICROSOFT CORP. 0.3%
- --------------------------------------------------------------------------------
(9) CITIGROUP, INC. 0.3%
- --------------------------------------------------------------------------------
(10) PROCTER & GAMBLE CO. 0.2%
- --------------------------------------------------------------------------------
TOTAL 87.5%
STATISTICS
NUMBER OF HOLDINGS 516
- --------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 25%
- --------------------------------------------------------------------------------
MINIMUM INITIAL INVESTMENT 2 $1,000
($500 for retirement, education and custodial accounts)
- --------------------------------------------------------------------------------
ASSET CLASS WEIGHTINGS % of Investments
This chart shows the portfolio's asset class composition as of the report date.
[PIE CHART]
34.5% BONDS
30.3% LARGE-CAP STOCKS
15.2% SMALL-CAP STOCKS
15.1% INTERNATIONAL STOCKS
4.9% SHORT-TERM INVESTMENTS
Portfolio holdings may have changed since the report date.
Source of Sector Classification: S&P and MSCI.
1 This list is not a recommendation of any security by the investment adviser.
2 Please see prospectus for further detail and eligibility requirements.
12 Schwab MarketTrack Portfolios
SCHWAB MARKETTRACK CONSERVATIVE PORTFOLIO(TM)
PERFORMANCE as of 10/31/05
AVERAGE ANNUAL TOTAL RETURNS 1, 2
This chart compares performance of the portfolio with a benchmark and the
portfolio's Morningstar category.
[BAR CHART]
Fund Category:
Benchmark: MORNINGSTAR
CONSERVATIVE CONSERVATIVE
PORTFOLIO COMPOSITE INDEX ALLOCATION
Ticker Symbol: SWCGX
1 YEAR 5.24% 5.70% 3.78%
5 YEARS 3.80% 4.26% 3.23%
3 SINCE INCEPTION: 11/20/95 6.67% 3 7.68% 4 6.33% 3
4 SINCE: 12/1/95
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE DOES
NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL
FLUCTUATE SO THAT AN INVESTOR'S SHARES MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN PERFORMANCE DATA
QUOTED. TO OBTAIN PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH END,
PLEASE VISIT WWW.SCHWAB.COM/SCHWABFUNDS.
PERFORMANCE OF A HYPOTHETICAL $10,000 INVESTMENT 2
This graph shows performance since inception of a hypothetical $10,000
investment in the portfolio, compared with a similar investment in a benchmark
and two additional indices.
$19,027 PORTFOLIO
$20,847 CONSERVATIVE COMPOSITE INDEX
$23,643 S&P 500(R) INDEX
$18,328 LEHMAN BROTHERS U.S. AGGREGATE BOND INDEX
[LINE GRAPH]
LEHMAN BROTHERS
CONSERVATIVE S&P 500(R) U.S. AGGREGATE
PORTFOLIO COMPOSITE INDEX INDEX BOND INDEX
20-Nov-95 $10,000 $10,000 $10,000
30-Nov-95 $10,080 $10,000 $10,104 $10,076
31-Dec-95 $10,237 $10,285 $10,299 $10,217
31-Jan-96 $10,337 $10,397 $10,649 $10,285
29-Feb-96 $10,297 $10,375 $10,748 $10,106
31-Mar-96 $10,287 $10,403 $10,852 $10,035
30-Apr-96 $10,337 $10,388 $11,011 $9,979
31-May-96 $10,378 $10,812 $11,294 $9,959
30-Jun-96 $10,439 $11,231 $11,337 $10,092
31-Jul-96 $10,256 $11,302 $10,836 $10,120
31-Aug-96 $10,337 $11,206 $11,064 $10,102
30-Sep-96 $10,643 $11,364 $11,686 $10,278
31-Oct-96 $10,818 $11,515 $12,009 $10,506
30-Nov-96 $11,179 $11,745 $12,917 $10,686
31-Dec-96 $11,070 $11,865 $12,661 $10,587
31-Jan-97 $11,174 $12,033 $13,451 $10,620
28-Feb-97 $11,184 $12,040 $13,557 $10,646
31-Mar-97 $10,965 $11,823 $13,001 $10,528
30-Apr-97 $11,206 $12,009 $13,776 $10,686
31-May-97 $11,604 $12,430 $14,614 $10,787
30-Jun-97 $11,896 $12,741 $15,268 $10,916
31-Jul-97 $12,413 $13,254 $16,482 $11,210
31-Aug-97 $12,160 $13,022 $15,559 $11,115
30-Sep-97 $12,540 $13,442 $16,410 $11,280
31-Oct-97 $12,455 $13,286 $15,862 $11,443
30-Nov-97 $12,603 $13,361 $16,597 $11,496
31-Dec-97 $12,698 $13,495 $16,882 $11,612
31-Jan-98 $12,829 $13,618 $17,070 $11,761
28-Feb-98 $13,189 $13,998 $18,300 $11,751
31-Mar-98 $13,418 $14,294 $19,237 $11,791
30-Apr-98 $13,484 $14,394 $19,432 $11,852
31-May-98 $13,431 $14,335 $19,097 $11,965
30-Jun-98 $13,595 $14,465 $19,873 $12,067
31-Jul-98 $13,484 $14,344 $19,662 $12,092
31-Aug-98 $12,774 $13,519 $16,823 $12,289
30-Sep-98 $13,139 $13,864 $17,901 $12,577
31-Oct-98 $13,530 $14,165 $19,357 $12,510
30-Nov-98 $13,843 $14,542 $20,530 $12,581
31-Dec-98 $14,166 $14,893 $21,712 $12,619
31-Jan-99 $14,348 $15,055 $22,620 $12,709
28-Feb-99 $13,950 $14,656 $21,916 $12,486
31-Mar-99 $14,200 $14,903 $22,793 $12,555
30-Apr-99 $14,475 $15,249 $23,675 $12,595
31-May-99 $14,269 $15,087 $23,116 $12,484
30-Jun-99 $14,521 $15,380 $24,399 $12,444
31-Jul-99 $14,452 $15,297 $23,638 $12,392
31-Aug-99 $14,395 $15,209 $23,520 $12,386
30-Sep-99 $14,464 $15,222 $22,875 $12,530
31-Oct-99 $14,766 $15,468 $24,323 $12,576
30-Nov-99 $14,986 $15,772 $24,817 $12,575
31-Dec-99 $15,398 $16,299 $26,279 $12,514
31-Jan-00 $15,022 $16,011 $24,960 $12,473
29-Feb-00 $15,269 $16,405 $24,487 $12,624
31-Mar-00 $15,738 $16,811 $26,882 $12,791
30-Apr-00 $15,442 $16,477 $26,073 $12,754
31-May-00 $15,229 $16,279 $25,539 $12,747
30-Jun-00 $15,667 $16,734 $26,169 $13,012
31-Jul-00 $15,584 $16,683 $25,761 $13,131
31-Aug-00 $16,085 $17,212 $27,361 $13,321
30-Sep-00 $15,835 $17,025 $25,917 $13,405
31-Oct-00 $15,787 $16,920 $25,808 $13,493
30-Nov-00 $15,462 $16,570 $23,774 $13,715
31-Dec-00 $15,815 $17,054 $23,891 $13,970
31-Jan-01 $16,087 $17,382 $24,739 $14,198
28-Feb-01 $15,594 $16,960 $22,483 $14,321
31-Mar-01 $15,297 $16,578 $21,057 $14,393
30-Apr-01 $15,732 $17,038 $22,693 $14,332
31-May-01 $15,807 $17,126 $22,845 $14,418
30-Jun-01 $15,770 $17,055 $22,290 $14,473
31-Jul-01 $15,820 $17,123 $22,072 $14,797
31-Aug-01 $15,632 $16,931 $20,690 $14,967
30-Sep-01 $15,107 $16,306 $19,018 $15,141
31-Oct-01 $15,410 $16,684 $19,382 $15,457
30-Nov-01 $15,675 $17,000 $20,868 $15,244
31-Dec-01 $15,759 $17,113 $21,052 $15,147
31-Jan-02 $15,643 $17,028 $20,744 $15,269
28-Feb-02 $15,592 $17,006 $20,344 $15,417
31-Mar-02 $15,759 $17,219 $21,109 $15,161
30-Apr-02 $15,682 $17,224 $19,830 $15,456
31-May-02 $15,695 $17,219 $19,683 $15,587
30-Jun-02 $15,384 $16,831 $18,282 $15,723
31-Jul-02 $14,875 $16,222 $16,858 $15,913
31-Aug-02 $15,045 $16,389 $16,967 $16,182
30-Sep-02 $14,575 $15,886 $15,123 $16,444
31-Oct-02 $14,903 $16,189 $16,454 $16,368
30-Nov-02 $15,243 $16,590 $17,423 $16,363
31-Dec-02 $15,125 $16,459 $16,400 $16,702
31-Jan-03 $14,926 $16,285 $15,970 $16,717
28-Feb-03 $14,913 $16,261 $15,731 $16,948
31-Mar-03 $14,939 $16,269 $15,883 $16,934
30-Apr-03 $15,539 $16,911 $17,192 $17,075
31-May-03 $16,113 $17,546 $18,098 $17,392
30-Jun-03 $16,193 $17,655 $18,330 $17,358
31-Jul-03 $16,059 $17,538 $18,652 $16,774
31-Aug-03 $16,286 $17,802 $19,016 $16,885
30-Sep-03 $16,501 $18,021 $18,815 $17,332
31-Oct-03 $16,837 $18,403 $19,879 $17,171
30-Nov-03 $16,971 $18,579 $20,054 $17,212
31-Dec-03 $17,402 $19,026 $21,105 $17,388
31-Jan-04 $17,593 $19,272 $21,494 $17,527
29-Feb-04 $17,785 $19,486 $21,792 $17,716
31-Mar-04 $17,802 $19,535 $21,463 $17,849
30-Apr-04 $17,390 $19,059 $21,126 $17,385
31-May-04 $17,431 $19,071 $21,416 $17,316
30-Jun-04 $17,674 $19,309 $21,831 $17,414
31-Jul-04 $17,467 $19,077 $21,109 $17,587
31-Aug-04 $17,660 $19,245 $21,193 $17,923
30-Sep-04 $17,858 $19,489 $21,422 $17,971
31-Oct-04 $18,079 $19,723 $21,750 $18,122
30-Nov-04 $18,411 $20,109 $22,631 $17,977
31-Dec-04 $18,759 $20,501 $23,400 $18,142
31-Jan-05 $18,620 $20,346 $22,829 $18,257
28-Feb-05 $18,745 $20,517 $23,308 $18,149
31-Mar-05 $18,551 $20,268 $22,896 $18,056
30-Apr-05 $18,467 $20,139 $22,461 $18,300
31-May-05 $18,790 $20,506 $23,175 $18,498
30-Jun-05 $18,934 $20,694 $23,208 $18,600
31-Jul-05 $19,160 $20,970 $24,071 $18,430
31-Aug-05 $19,287 $21,111 $23,852 $18,666
30-Sep-05 $19,297 $21,139 $24,045 $18,474
31-Oct-05 $19,027 $20,847 $23,643 $18,328
All figures on this page assume dividends and distributions were reinvested.
Index figures do not include trading and management costs, which would lower
performance. Indices are unmanaged, and you cannot invest in them directly.
1 Portfolio expenses have been partially absorbed by CSIM and Schwab. Without
these reductions, the portfolio's returns would have been lower. These returns
do not reflect the deduction of taxes that a shareholder would pay on
portfolio distributions or the redemption of portfolio shares.
2 The Conservative Composite Index is composed of Morningstar category averages
and cash equivalents as represented by the 90-day T-bill and is calculated
using the following portfolio allocations: 20% large-cap stocks, 10% small-cap
stocks, 10% foreign stocks, 55% bonds and 5% cash. Source: Morningstar, Inc.
Schwab MarketTrack Portfolios 13
SCHWAB MARKETTRACK CONSERVATIVE PORTFOLIO
FUND FACTS as of 10/31/05
TOP HOLDINGS 1
% OF
SECURITY NET ASSETS
- --------------------------------------------------------------------------------
(1) SCHWAB TOTAL BOND MARKET FUND(TM) 54.7%
- --------------------------------------------------------------------------------
(2) SCHWAB S&P 500 INDEX FUND, Select Shares 14.6%
- --------------------------------------------------------------------------------
(3) SCHWAB INTERNATIONAL INDEX FUND(R),
Select Shares(R) 10.1%
- --------------------------------------------------------------------------------
(4) SCHWAB SMALL-CAP INDEX FUND(R), Select Shares 10.1%
- --------------------------------------------------------------------------------
(5) SCHWAB VALUE ADVANTAGE MONEY FUND(R),
Institutional Shares 4.3%
- --------------------------------------------------------------------------------
(6) GENERAL ELECTRIC CO. 0.2%
- --------------------------------------------------------------------------------
(7) EXXON MOBIL CORP. 0.2%
- --------------------------------------------------------------------------------
(8) MICROSOFT CORP. 0.1%
- --------------------------------------------------------------------------------
(9) CITIGROUP, INC. 0.1%
- --------------------------------------------------------------------------------
(10) PROCTER & GAMBLE CO. 0.1%
- --------------------------------------------------------------------------------
TOTAL 94.5%
STATISTICS
NUMBER OF HOLDINGS 516
- --------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 9%
- --------------------------------------------------------------------------------
MINIMUM INITIAL INVESTMENT 2 $1,000
($500 for retirement, education and custodial accounts)
- --------------------------------------------------------------------------------
ASSET CLASS WEIGHTINGS % of Investments
This chart shows the portfolio's asset class composition as of the report date.
[PIE CHART]
54.8% BONDS
20.3% LARGE-CAP STOCKS
10.1% INTERNATIONAL STOCKS
10.1% SMALL-CAP STOCKS
4.7% SHORT-TERM INVESTMENTS
Portfolio holdings may have changed since the report date.
Source of Sector Classification: S&P and MSCI.
1 This list is not a recommendation of any security by the investment adviser.
2 Please see prospectus for further detail and eligibility requirements.
14 Schwab MarketTrack Portfolios
FUND EXPENSES (unaudited)
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, 2005 and held
through October 31, 2005.
ACTUAL RETURN lines in the table below provide information about actual account
values and actual expenses. You may use this information, together with the
amount you invested, to estimate the expenses that you paid over the period. To
do so, simply divide your account value by $1,000 (for example, an $8,600
account value / $1,000 = 8.6), then multiply the result by the number given for
your fund under the heading entitled "Expenses Paid During Period."
HYPOTHETICAL RETURN lines in the table below provide information about
hypothetical account values and hypothetical expenses based on a fund's actual
expense ratio and an assumed return of 5% per year before expenses. Because the
return used is not an actual return, it may not be used to estimate the actual
ending account value or expenses you paid for the period.
You may use this information to compare the ongoing costs of investing in the
fund and other funds. To do so, compare this 5% hypothetical example with the 5%
hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only, and do not reflect any transactional costs, such as
redemption fees. If these transactional costs were included, your costs would
have been higher.
ENDING
BEGINNING ACCOUNT VALUE EXPENSES
EXPENSE RATIO 1 ACCOUNT VALUE (Net of Expenses) PAID DURING PERIOD 2
(Annualized) at 5/1/05 at 10/31/05 5/1/05-10/31/05
- -------------------------------------------------------------------------------------------------------
SCHWAB MARKETTRACK
ALL EQUITY PORTFOLIO(TM)
Actual Return 0.50% $1,000 $1,077.40 $2.62
Hypothetical 5% Return 0.50% $1,000 $1,022.68 $2.55
- -------------------------------------------------------------------------------------------------------
SCHWAB MARKETTRACK
GROWTH PORTFOLIO(TM)
Actual Return 0.50% $1,000 $1,061.20 $2.60
Hypothetical 5% Return 0.50% $1,000 $1,022.68 $2.55
- -------------------------------------------------------------------------------------------------------
SCHWAB MARKETTRACK
BALANCED PORTFOLIO(TM)
Actual Return 0.50% $1,000 $1,046.00 $2.58
Hypothetical 5% Return 0.50% $1,000 $1,022.68 $2.55
- -------------------------------------------------------------------------------------------------------
SCHWAB MARKETTRACK
CONSERVATIVE PORTFOLIO(TM)
Actual Return 0.50% $1,000 $1,030.30 $2.56
Hypothetical 5% Return 0.50% $1,000 $1,022.68 $2.55
1 Based on the most recent six-month expense ratio; may differ from the expense
ratio provided in Financial Highlights; does not include expenses of
underlying funds in which the portfolios invest.
2 Expenses for each fund are equal to its annualized expense ratio, multiplied
by the average account value over the period, multiplied by 184 days of the
period, and divided by 365 days of the fiscal year.
Schwab MarketTrack Portfolios 15
SCHWAB MARKETTRACK ALL EQUITY PORTFOLIO(TM)
FINANCIAL STATEMENTS
FINANCIAL HIGHLIGHTS
11/1/04- 11/1/03- 11/1/02- 11/1/01- 11/1/00-
10/31/05 10/31/04 10/31/03 10/31/02 10/31/01
- -------------------------------------------------------------------------------------------------------------
PER-SHARE DATA ($)
- -------------------------------------------------------------------------------------------------------------
Net asset value at beginning of period 10.44 9.43 7.60 9.06 12.06
----------------------------------------------------------
Income or loss from investment operations:
Net investment income 0.12 0.08 0.09 0.05 0.22
Net realized and unrealized gains or losses 1.11 1.02 1.85 (1.32) (2.99)
----------------------------------------------------------
Total income or loss from investment operations 1.23 1.10 1.94 (1.27) (2.77)
Less distributions:
Dividends from net investment income (0.12) (0.09) (0.09) (0.05) (0.22)
Distributions from net realized gains -- -- (0.02) (0.14) (0.01)
----------------------------------------------------------
Total distributions (0.12) (0.09) (0.11) (0.19) (0.23)
----------------------------------------------------------
Net asset value at end of period 11.55 10.44 9.43 7.60 9.06
----------------------------------------------------------
Total return (%) 11.81 11.75 25.77 (14.40) (23.27)
RATIOS/SUPPLEMENTAL DATA (%)
- -------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net operating expenses 1 0.50 0.50 0.50 0.50 0.50
Gross operating expenses 1 0.75 0.76 0.76 0.77 0.77
Net investment income 1.07 0.83 1.10 0.58 1.93
Portfolio turnover rate 49 7 10 15 5
Net assets, end of period ($ x 1,000,000) 463 450 427 353 405
1 The expenses incurred by underlying funds in which the portfolio invests are
not included in this ratio. The income received by the portfolio from
underlying funds is reduced by those expenses.
16 See financial notes.
SCHWAB MARKETTRACK ALL EQUITY PORTFOLIO
PORTFOLIO HOLDINGS as of October 31, 2005
This section shows all the securities in the fund's portfolio and their value,
as of the report date.
The fund files its complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. The fund's Form N-Q is
available on the SEC's website at http://www.sec.gov and may be reviewed and
copied at the SEC's Public Reference Room in Washington, D.C. Call
1-800-SEC-0330 for information on the operation of the Public Reference Room.
The schedule of portfolio holdings filed on the fund's most recent Form N-Q is
available by visiting Schwab's website at www.schwab.com/schwabfunds.
We use the symbols below to designate certain characteristics of the securities.
With the top holdings, the number in the circle is the security's rank among the
top holdings.
(1) Top holding
/ Issuer is affiliated with the fund's adviser
COST VALUE
HOLDINGS BY CATEGORY ($x1,000) ($x1,000)
- --------------------------------------------------------------------------------
100.0% OTHER INVESTMENT
COMPANIES 415,633 462,941
0.0% SHORT-TERM
INVESTMENT 160 160
- --------------------------------------------------------------------------------
100.0% TOTAL INVESTMENTS 415,793 463,101
0.0% OTHER ASSETS AND
LIABILITIES, NET (221)
- --------------------------------------------------------------------------------
100.0% TOTAL NET ASSETS 462,880
VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
OTHER INVESTMENT COMPANIES
100.0% of net assets
/(1) Schwab Institutional Select
S&P 500 Fund 21,825,334 208,868
/(2) Schwab International Index
Fund, Select Shares 8,076,326 138,024
/(3) Schwab Small-Cap Index Fund,
Select Shares 5,190,003 116,049
-----------
462,941
SECURITY FACE AMOUNT
RATE, MATURITY DATE ($ x 1,000)
SHORT-TERM INVESTMENT
0.00% of net assets
Wachovia Bank, Grand Cayman
Time Deposit
3.48%, 11/01/05 160 160
END OF INVESTMENTS.
See financial notes. 17
SCHWAB MARKETTRACK ALL EQUITY PORTFOLIO
Statement of
ASSETS AND LIABILITIES
As of October 31, 2005. All numbers x 1,000 except NAV.
ASSETS
- --------------------------------------------------------------------------------
Investments in affiliated underlying funds, at value $462,941 a
Investments, at value 160 a
Receivables:
Fund shares sold 231
Prepaid expenses + 10
------------
TOTAL ASSETS 463,342
LIABILITIES
- --------------------------------------------------------------------------------
Payables:
Fund shares redeemed 377
Interest expense 1
Investment adviser and administrator fees 7
Transfer agent and shareholder service fees 9
Accrued expenses + 68
------------
TOTAL LIABILITIES 462
NET ASSETS
- --------------------------------------------------------------------------------
TOTAL ASSETS 463,342
TOTAL LIABILITIES - 462
------------
NET ASSETS $462,880
NET ASSETS BY SOURCE
Capital received from investors 455,632
Distributions in excess of net investment income (1,913)
Net realized capital losses (38,147) b
Net unrealized capital gains 47,308 b
NET ASSET VALUE (NAV)
SHARES
NET ASSETS / OUTSTANDING = NAV
$462,880 40,064 $11.55
Unless stated, all numbers x 1,000.
a The fund paid $415,793 for these securities.
Not counting short-term obligations and government securities and securities
related to in-kind transactions, the fund's investment transactions during the
period were:
Purchases $227,694
Sales/maturities $261,622
The fund's total security transactions (including the in-kind redemptions)
with other Schwab Funds(R) during the period were $413,846.
Percent of fund shares of other Schwab Funds owned at the end of the report
period:
SCHWAB EQUITY INDEX FUNDS
Small-Cap Index Fund 7.2%
International Index Fund 10.1%
SCHWAB INSTITUTIONAL SELECT FUNDS
Institutional Select
S&P 500 Fund 16.8%
b These derive from investments and futures
FEDERAL TAX DATA
--------------------------------------------
PORTFOLIO COST $428,337
NET UNREALIZED GAINS AND LOSSES:
Gains $ 46,180
Losses + (11,416)
-----------
$ 34,764
RECLASSIFICATIONS:
Net investment income
not yet distributed $3
Reclassified as:
Capital received from
investors $(3)
AS OF DECEMBER 31, 2004:
NET UNDISTRIBUTED EARNINGS:
Ordinary income $--
Long-term capital gains $--
UNUSED CAPITAL LOSSES:
Expires 12/31 of: Loss amount:
2010 $11,058
2011 13,010
2012 + 6,944
-----------
$31,012
18 See financial notes.
SCHWAB MARKETTRACK ALL EQUITY PORTFOLIO
Statement of
OPERATIONS
For November 1, 2004 through October 31, 2005. All numbers x 1,000.
INVESTMENT INCOME
- --------------------------------------------------------------------------------
Dividends received from affiliated underlying funds $7,347
Interest + 50
-----------
TOTAL INVESTMENT INCOME 7,397
NET REALIZED GAINS AND LOSSES
- --------------------------------------------------------------------------------
Net realized gains on sales of affiliated underlying funds 5 a
Net realized losses on futures contracts + (109)
-----------
NET REALIZED LOSSES (104)
NET UNREALIZED GAINS AND LOSSES
- --------------------------------------------------------------------------------
Net unrealized gains on affiliated underlying funds 47,634
Net unrealized losses on futures contracts + (6)
-----------
NET UNREALIZED GAINS 47,628
EXPENSES
- --------------------------------------------------------------------------------
Investment adviser and administrator fees 2,072 b
Transfer agent and shareholder service fees 1,177 c
Trustees' fees 8 d
Custodian fees 29
Portfolio accounting fees 61
Professional fees 31
Registration fees 26
Shareholder reports 94
Interest expense 1
Other expenses + 40
-----------
Total expenses 3,539
Expense reduction - 1,183 e
-----------
NET EXPENSES 2,356
INCREASE IN NET ASSETS FROM OPERATIONS
- --------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME 7,397
NET EXPENSES - 2,356
-----------
NET INVESTMENT INCOME 5,041
NET REALIZED LOSSES (104) f
NET UNREALIZED GAINS + 47,628 f
-----------
INCREASE IN NET ASSETS FROM OPERATIONS $52,565
Unless stated, all numbers x 1,000.
a Includes losses of $2,512 associated with redemption-in-kind from the Schwab
S&P 500 Index Fund.
b Calculated as a percentage of average daily net assets: 0.44% of the first
$500 million and 0.39% of assets beyond that. These fees are paid to Charles
Schwab Investment Management, Inc. (CSIM).
c Calculated as a percentage of average daily net assets: for transfer agent
services, 0.05% of the fund's assets; for shareholder services, 0.20% of the
fund's assets. These fees are paid to Charles Schwab & Co., Inc. (Schwab).
d For the fund's independent trustees only.
e This reduction was made by the investment adviser (CSIM). It reflects a
guarantee by CSIM and the transfer agent and shareholder service agent
(Schwab) to limit the net operating expenses of this fund through February 27,
2006, to 0.50% of average daily net assets. This limit excludes interest,
taxes and certain non-routine expenses.
f These add up to a net gain on investments of $47,524.
See financial notes. 19
SCHWAB MARKETTRACK ALL EQUITY PORTFOLIO
Statements of
CHANGES IN NET ASSETS
For the current and prior report periods. All numbers x 1,000
OPERATIONS
- --------------------------------------------------------------------------------
11/1/04-10/31/05 11/1/03-10/31/04
Net investment income $5,041 $3,780
Net realized losses (104) (5,316)
Net unrealized gains + 47,628 50,766
--------------------------------------
INCREASE IN NET ASSETS FROM OPERATIONS 52,565 49,230
DISTRIBUTIONS PAID
- --------------------------------------------------------------------------------
Dividends from net investment income $5,060 $4,156 a,b
TRANSACTIONS IN FUND SHARES
- ---------------------------------------------------------------------------------
11/1/04-10/31/05 11/1/03-10/31/04
SHARES VALUE SHARES VALUE
Shares sold 5,741 $64,017 6,823 $68,910
Shares reinvested 437 4,835 409 4,002
Shares redeemed + (9,253) (103,675) (9,423) (95,049) c
--------------------------------------------------
NET TRANSACTIONS IN
FUND SHARES (3,075) ($34,823) (2,191) ($22,137)
SHARES OUTSTANDING AND NET ASSETS
- ---------------------------------------------------------------------------------
11/1/04-10/31/05 11/1/03-10/31/04
SHARES NET ASSETS SHARES NET ASSETS
Beginning of period 43,139 $450,198 45,330 $427,261
Total increase or
decrease + (3,075) 12,682 (2,191) 22,937 d
-------------------------------------------------
END OF PERIOD 40,064 $462,880 43,139 $450,198 e
Unless stated, all numbers x 1,000.
a UNAUDITED
For corporations, 100% of the fund's dividends for the report period qualify
for the dividends-received deduction.
The fund designates $5,060 of the dividend distribution for the fiscal year
ended 10/31/05 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 2006 via IRS Form 1099 of the amounts for use in preparing
their 2005 income tax return.
b The tax-basis components of distributions paid are:
CURRENT PERIOD
Ordinary income $5,060
Long-term capital gains $--
PRIOR PERIOD
Ordinary income $4,156
Long-term capital gains $--
c For shares purchased after
4/29/05 and held less than 30
days, the fund charges 2.00%
redemption fee.
CURRENT PERIOD $8
Dollar amounts are net of the redemption fee proceeds.
d Figures for shares represent shares sold plus shares reinvested, minus shares
redeemed. Figures for net assets represent the changes in net assets from
operations plus the changes in value of transactions in fund shares, minus
distributions paid.
e Includes distributions in excess of net investment income in the amount of
$1,913 and $1,897 at the end of the current period and the prior period,
respectively.
20 See financial notes.
Schwab MarketTrack Growth Portfolio (TM)
FINANCIAL STATEMENTS
FINANCIAL HIGHLIGHTS
11/1/04- 11/1/03- 11/1/02- 11/1/01- 11/1/00-
10/31/05 10/31/04 10/31/03 10/31/02 10/31/01
- -------------------------------------------------------------------------------------------------------------
PER-SHARE DATA ($)
- -------------------------------------------------------------------------------------------------------------
Net asset value at beginning of period 15.57 14.36 12.05 13.88 17.22
----------------------------------------------------------
Income or loss from investment operations:
Net investment income 0.27 0.21 0.18 0.19 0.41
Net realized and unrealized gains or losses 1.20 1.21 2.33 (1.62) (3.22)
----------------------------------------------------------
Total income or loss from investment operations 1.47 1.42 2.51 (1.43) (2.81)
Less distributions:
Dividends from net investment income (0.23) (0.21) (0.20) (0.24) (0.44)
Distributions from net realized gains -- -- -- (0.16) (0.09)
----------------------------------------------------------
Total distributions (0.23) (0.21) (0.20) (0.40) (0.53)
----------------------------------------------------------
Net asset value at end of period 16.81 15.57 14.36 12.05 13.88
----------------------------------------------------------
Total return (%) 9.48 9.94 21.18 (10.78) (16.71)
RATIOS/SUPPLEMENTAL DATA (%)
- -------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net operating expenses 1 0.50 0.50 0.50 0.50 0.50
Gross operating expenses 1 0.72 0.73 0.74 0.75 0.74
Net investment income 1.58 1.35 1.48 1.35 2.58
Portfolio turnover rate 33 9 9 21 10
Net assets, end of period ($ x 1,000,000) 657 614 578 510 511
1 The expenses incurred by underlying funds in which the portfolio invests are
not included in this ratio. The income received by the portfolio from
underlying funds is reduced by those expenses.
See financial notes. 21
SCHWAB MARKETTRACK GROWTH PORTFOLIO
PORTFOLIO HOLDINGS as of October 31, 2005
This section shows all the securities in the fund's portfolio by industry
classification and their value, as of the report date.
The fund files its complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. The fund's Form N-Q is
available on the SEC's website at http://www.sec.gov and may be reviewed and
copied at the SEC's Public Reference Room in Washington, D.C. Call
1-800-SEC-0330 for information on the operation of the Public Reference Room.
The schedule of portfolio holdings filed on the fund's most recent Form N-Q is
available by visiting Schwab's website at www.schwab.com/schwabfunds.
We use the symbols below to designate certain characteristics of the securities.
With the top ten holdings, the number in the circle is the security's rank among
the top ten.
(1) Top ten holding
o Non-income producing security
/ Issuer is affiliated with the fund's adviser
COST VALUE
HOLDINGS BY CATEGORY ($x1,000) ($x1,000)
- --------------------------------------------------------------------------------
83.6% OTHER INVESTMENT
COMPANIES 472,573 549,011
16.4% COMMON STOCK 70,027 107,856
0.0% SHORT-TERM
INVESTMENT 172 172
- --------------------------------------------------------------------------------
100.0% TOTAL INVESTMENTS 542,772 657,039
0.0% OTHER ASSETS AND
LIABILITIES, NET 82
- --------------------------------------------------------------------------------
100.0% TOTAL NET ASSETS 657,121
VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
COMMON STOCK 16.4% of net assets
AUTOMOBILES & COMPONENTS 0.1%
--------------------------------------------------------------------------
Cooper Tire & Rubber Co. 700 9
Dana Corp. 1,578 12
Ford Motor Co. 18,103 151
General Motors Corp. 5,425 149
o Goodyear Tire & Rubber Co. 1,600 25
Harley-Davidson, Inc. 3,000 149
Johnson Controls, Inc. 1,800 122
Visteon Corp. 1,558 13
-----------
630
BANKS 1.2%
--------------------------------------------------------------------------
AmSouth Bancorp. 3,300 83
Bank of America Corp. 39,824 1,742
BB&T Corp. 5,300 224
Comerica, Inc. 1,700 98
Compass Bancshares, Inc. 1,200 58
Countrywide Financial Corp. 5,298 168
Fannie Mae 9,400 447
Fifth Third Bancorp 5,369 216
First Horizon National Corp. 1,200 46
Freddie Mac 6,600 405
Golden West Financial Corp. 2,800 164
Huntington Bancshares, Inc. 2,262 53
KeyCorp, Inc. 4,400 142
M&T Bank Corp. 998 107
Marshall & Ilsley Corp. 2,056 88
MGIC Investment Corp. 900 53
National City Corp. 6,100 197
North Fork Bancorp., Inc. 4,500 114
PNC Financial Services Group, Inc. 2,800 170
Regions Financial Corp. 4,542 148
Sovereign Bancorp, Inc. 3,700 80
SunTrust Banks, Inc. 3,500 254
Synovus Financial Corp. 2,750 76
U.S. Bancorp 17,972 532
Wachovia Corp. 15,610 789
Washington Mutual, Inc. 9,843 390
Wells Fargo & Co. 16,615 1,000
Zions Bancorp. 900 66
-----------
7,910
CAPITAL GOODS 1.4%
--------------------------------------------------------------------------
3M Co. 7,600 578
American Power Conversion Corp. 1,725 37
American Standard Cos., Inc. 2,100 80
The Boeing Co. 8,078 522
Caterpillar, Inc. 6,600 347
22 See financial notes.
SCHWAB MARKETTRACK GROWTH PORTFOLIO
VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
Cooper Industries Ltd., Class A 900 64
Crane Co. 300 9
Cummins, Inc. 400 34
Danaher Corp. 2,800 146
Deere & Co. 2,300 140
Dover Corp. 2,000 78
Eaton Corp. 1,400 82
Emerson Electric Co. 4,000 278
Fluor Corp. 800 51
General Dynamics Corp. 2,000 233
(6) General Electric Co. 105,200 3,567
Goodrich Corp. 1,100 40
Honeywell International, Inc. 8,437 289
Illinois Tool Works, Inc. 2,100 178
Ingersoll-Rand Co., Class A 3,300 125
ITT Industries, Inc. 900 91
L-3 Communications Holdings, Inc. 1,100 86
Lockheed Martin Corp. 3,900 236
Masco Corp. 4,500 128
o Navistar International Corp. 700 19
Northrop Grumman Corp. 3,592 193
Paccar, Inc. 1,575 110
Pall Corp. 1,000 26
Parker Hannifin Corp. 1,150 72
o Power-One, Inc. 400 2
Raytheon Co. 4,500 166
Rockwell Automation, Inc. 1,900 101
Rockwell Collins, Inc. 1,900 87
Textron, Inc. 1,500 108
o Thomas & Betts Corp. 281 11
Tyco International Ltd. 19,803 523
United Technologies Corp. 10,000 513
W.W. Grainger, Inc. 900 60
-----------
9,410
COMMERCIAL SERVICES & SUPPLIES 0.2%
--------------------------------------------------------------------------
o ACCO Brands Corp. 329 8
o Allied Waste Industries, Inc. 3,100 25
o Apollo Group, Inc., Class A 1,700 107
Avery Dennison Corp. 1,200 68
Cendant Corp. 10,332 180
Cintas Corp. 1,638 67
Deluxe Corp. 700 23
Equifax, Inc. 1,200 41
H&R Block, Inc. 3,400 85
o Monster Worldwide, Inc. 954 31
o PHH Corp. 476 13
Pitney Bowes, Inc. 2,300 97
R.R. Donnelley & Sons Co. 2,100 74
Robert Half International, Inc. 1,700 63
Waste Management, Inc. 5,517 163
-----------
1,045
CONSUMER DURABLES & APPAREL 0.2%
--------------------------------------------------------------------------
Black & Decker Corp. 900 74
Brunswick Corp. 900 34
Centex Corp. 1,200 77
o Coach, Inc. 3,600 116
D.R. Horton, Inc. 2,660 82
Eastman Kodak Co. 3,100 68
Fortune Brands, Inc. 1,400 106
Hasbro, Inc. 1,650 31
Jones Apparel Group, Inc. 1,200 33
KB Home 800 52
Leggett & Platt, Inc. 2,000 40
Lennar Corp., Class A 1,300 72
Liz Claiborne, Inc. 1,200 42
Mattel, Inc. 4,150 61
Maytag Corp. 900 15
Newell Rubbermaid, Inc. 2,745 63
Nike, Inc., Class B 2,300 193
Pulte Homes, Inc. 2,400 91
Reebok International Ltd. 500 29
Snap-On, Inc. 600 22
The Stanley Works 600 29
VF Corp. 1,200 63
Whirlpool Corp. 800 63
-----------
1,456
DIVERSIFIED FINANCIALS 1.4%
--------------------------------------------------------------------------
American Express Co. 12,300 612
o Ameriprise Financial, Inc. 2,300 86
The Bank of New York Co., Inc. 7,300 228
The Bear Stearns Cos., Inc. 1,082 114
Capital One Financial Corp. 2,900 221
/ The Charles Schwab Corp. 11,242 171
See financial notes. 23
SCHWAB MARKETTRACK GROWTH PORTFOLIO
PORTFOLIO HOLDINGS continued
VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
CIT Group, Inc. 2,000 91
(9) Citigroup, Inc. 51,292 2,348
o E*TRADE Financial Corp. 3,500 65
Federated Investors, Inc., Class B 1,100 39
Franklin Resources, Inc. 1,500 133
Goldman Sachs Group, Inc. 4,379 553
Janus Capital Group, Inc. 2,200 39
JPMorgan Chase & Co. 34,915 1,279
Lehman Brothers Holdings, Inc. 2,600 311
MBNA Corp. 12,550 321
Mellon Financial Corp. 4,100 130
Merrill Lynch & Co., Inc. 9,400 609
Moody's Corp. 3,000 160
Morgan Stanley 10,900 593
Northern Trust Corp. 2,200 118
Principal Financial Group, Inc. 3,065 152
SLM Corp. 4,110 228
State Street Corp. 3,300 182
T. Rowe Price Group, Inc. 1,200 79
-----------
8,862
ENERGY 1.5%
--------------------------------------------------------------------------
Amerada Hess Corp. 840 105
Anadarko Petroleum Corp. 2,418 219
Apache Corp. 3,308 211
Baker Hughes, Inc. 3,360 185
BJ Services Co. 3,000 104
Burlington Resources, Inc. 3,810 275
ChevronTexaco Corp. 22,235 1,269
ConocoPhillips 13,692 895
Devon Energy Corp. 4,600 278
El Paso Corp. 6,306 75
EOG Resources, Inc. 2,256 153
(7) Exxon Mobil Corp. 62,398 3,503
Halliburton Co. 4,958 293
Kerr-McGee Corp. 1,041 89
Kinder Morgan, Inc. 1,107 101
Marathon Oil Corp. 3,589 216
Murphy Oil Corp. 1,600 75
o Nabors Industries Ltd. 1,400 96
o National-Oilwell Varco, Inc. 1,600 100
Noble Corp. 1,300 84
Occidental Petroleum Corp. 3,900 308
Rowan Cos., Inc. 1,100 36
Schlumberger Ltd. 5,700 517
Sunoco, Inc. 1,400 104
o Transocean, Inc. 2,945 169
Valero Energy Corp. 3,000 316
o Weatherford International Ltd. 1,360 85
Williams Cos., Inc. 5,000 111
XTO Energy, Inc. 3,333 145
-----------
10,117
FOOD & STAPLES RETAILING 0.4%
--------------------------------------------------------------------------
Albertson's, Inc. 3,538 89
Costco Wholesale Corp. 4,400 213
CVS Corp. 7,800 190
o Kroger Co. 7,200 143
Safeway, Inc. 4,200 98
Supervalu, Inc. 1,400 44
Sysco Corp. 6,200 198
Wal-Mart Stores, Inc. 24,800 1,173
Walgreen Co. 9,900 450
o Winn-Dixie Stores, Inc. 1,500 1
-----------
2,599
FOOD BEVERAGE & TOBACCO 0.8%
--------------------------------------------------------------------------
Altria Group, Inc. 20,300 1,524
Anheuser-Busch Cos., Inc. 7,800 322
Archer-Daniels-Midland Co. 6,532 159
Brown-Forman Corp., Class B 904 57
Campbell Soup Co. 1,800 52
The Coca-Cola Co. 20,600 881
Coca-Cola Enterprises, Inc. 4,000 76
ConAgra Foods, Inc. 4,900 114
o Constellation Brands, Inc., Class A 1,920 45
General Mills, Inc. 3,576 173
H.J. Heinz Co. 3,400 121
Hershey Foods Corp. 2,400 136
Kellogg Co. 2,500 110
McCormick & Co., Inc. 1,400 42
Molson Coors Brewing Co., Class B 800 49
The Pepsi Bottling Group, Inc. 1,932 55
PepsiCo, Inc. 16,460 973
Reynolds American, Inc. 1,142 97
Sara Lee Corp. 7,600 136
24 See financial notes.
SCHWAB MARKETTRACK GROWTH PORTFOLIO
VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
Tyson Foods, Inc., Class A 2,500 45
UST, Inc. 1,600 66
Wm. Wrigley Jr. Co. 1,900 132
-----------
5,365
HEALTH CARE EQUIPMENT & SERVICES 0.8%
--------------------------------------------------------------------------
Aetna, Inc. 2,848 252
AmerisourceBergen Corp. 1,000 76
Bausch & Lomb, Inc. 600 45
Baxter International, Inc. 6,100 233
Becton Dickinson & Co. 2,600 132
Biomet, Inc. 2,475 86
o Boston Scientific Corp. 5,848 147
C.R. Bard, Inc. 1,000 62
Cardinal Health, Inc. 4,100 256
o Caremark Rx, Inc. 4,470 234
CIGNA Corp. 1,400 162
o Coventry Health Care, Inc. 1,650 89
o Express Scripts, Inc. 1,600 121
o Fisher Scientific International, Inc. 1,115 63
Guidant Corp. 3,000 189
HCA, Inc. 4,000 193
Health Management Associates, Inc.,
Class A 2,400 51
o Hospira, Inc. 1,530 61
o Humana, Inc. 1,400 62
IMS Health, Inc. 2,300 53
o Laboratory Corp. of America
Holdings 1,300 63
Manor Care, Inc. 1,100 41
McKesson Corp. 2,654 121
o Medco Health Solutions, Inc. 2,641 149
Medtronic, Inc. 11,800 669
o Millipore Corp. 400 25
o Patterson Cos., Inc. 1,300 54
PerkinElmer, Inc. 1,000 22
Quest Diagnostics 1,802 84
o St. Jude Medical, Inc. 3,500 168
Stryker Corp. 2,884 119
o Tenet Healthcare Corp. 4,650 39
o Thermo Electron Corp. 1,300 39
UnitedHealth Group, Inc. 12,600 729
o Waters Corp. 1,300 47
o WellPoint, Inc. 5,902 441
o Zimmer Holdings, Inc. 2,300 147
-----------
5,524
HOTELS RESTAURANTS & LEISURE 0.2%
--------------------------------------------------------------------------
Carnival Corp. 4,300 213
Darden Restaurants, Inc. 1,800 58
Harrah's Entertainment, Inc. 1,780 108
Hilton Hotels Corp. 3,600 70
International Game Technology 3,400 90
Marriott International, Inc., Class A 1,950 116
McDonald's Corp. 12,400 392
o Starbucks Corp. 7,920 224
Starwood Hotels & Resorts
Worldwide, Inc. 1,900 111
Wendy's International, Inc. 1,000 47
Yum! Brands, Inc. 3,120 159
-----------
1,588
HOUSEHOLD & PERSONAL PRODUCTS 0.4%
--------------------------------------------------------------------------
Alberto-Culver Co., Class B 900 39
Avon Products, Inc. 4,800 129
Clorox Co. 1,500 81
Colgate-Palmolive Co. 5,300 281
Kimberly-Clark Corp. 4,960 282
(10) Procter & Gamble Co. 33,717 1,888
-----------
2,700
INSURANCE 0.8%
--------------------------------------------------------------------------
ACE Ltd. 2,500 130
AFLAC, Inc. 5,200 248
The Allstate Corp. 6,700 354
AMBAC Financial Group, Inc. 1,015 72
American International Group, Inc. 25,551 1,656
AON Corp. 2,625 89
Chubb Corp. 1,900 177
Cincinnati Financial Corp. 1,984 84
Hartford Financial Services
Group, Inc. 2,900 231
Jefferson-Pilot Corp. 1,412 77
Lincoln National Corp. 1,900 96
Loews Corp. 1,600 149
Marsh & McLennan Cos., Inc. 5,200 152
MBIA, Inc. 1,350 79
See financial notes. 25
SCHWAB MARKETTRACK GROWTH PORTFOLIO
PORTFOLIO HOLDINGS continued
VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
o Metlife, Inc. 7,310 361
The Progressive Corp. 2,100 243
Prudential Financial, Inc. 5,200 379
Safeco Corp. 1,100 61
The St. Paul Travelers Cos., Inc. 6,453 291
Torchmark Corp. 1,100 58
UnumProvident Corp. 2,349 48
XL Capital Ltd., Class A 1,300 83
-----------
5,118
MATERIALS 0.5%
--------------------------------------------------------------------------
Air Products & Chemicals, Inc. 2,300 132
Alcoa, Inc. 8,472 206
Allegheny Technologies, Inc. 735 21
Ashland, Inc. 800 43
Ball Corp. 800 32
Bemis Co. 1,000 26
Chemtura Corp. 1,333 14
The Dow Chemical Co. 9,394 431
E.I. du Pont de Nemours & Co. 9,592 400
Eastman Chemical Co. 800 42
Ecolab, Inc. 2,200 73
Engelhard Corp. 1,300 35
Freeport-McMoran Copper & Gold, Inc.,
Class B 1,700 84
Georgia-Pacific Corp. 2,228 72
o Hercules, Inc. 900 10
International Flavors & Fragrances,
Inc. 1,100 36
International Paper Co. 4,846 141
Louisiana-Pacific Corp. 600 15
MeadWestvaco Corp. 1,970 52
Monsanto Co. 2,493 157
Neenah Paper, Inc. 150 4
Newmont Mining Corp. 4,201 179
Nucor Corp. 1,800 108
o Pactiv Corp. 1,500 30
Phelps Dodge Corp. 910 110
PPG Industries, Inc. 1,700 102
Praxair, Inc. 3,200 158
Rohm & Haas Co. 2,205 96
o Sealed Air Corp. 882 44
Sigma-Aldrich Corp. 600 38
Temple-Inland, Inc. 1,200 44
United States Steel Corp. 900 33
Vulcan Materials Co. 800 52
Weyerhaeuser Co. 2,300 146
Worthington Industries, Inc. 900 18
-----------
3,184
MEDIA 0.6%
--------------------------------------------------------------------------
Clear Channel Communications, Inc. 5,217 159
o Comcast Corp., Class A 21,843 608
Dow Jones & Co., Inc. 800 27
Gannett Co., Inc. 2,500 157
o Interpublic Group of Cos., Inc. 3,700 38
Knight-Ridder, Inc. 900 48
The McGraw-Hill Cos., Inc. 3,800 186
Meredith Corp. 500 25
New York Times Co., Class A 1,400 38
o News Corp, Inc., Class A 24,300 346
Omnicom Group, Inc. 1,800 149
Time Warner, Inc. 45,150 805
Tribune Co. 3,100 98
o Univision Communications, Inc.,
Class A 3,104 81
Viacom, Inc., Class B 15,811 490
The Walt Disney Co. 20,119 490
-----------
3,745
PHARMACEUTICALS & BIOTECHNOLOGY 1.3%
--------------------------------------------------------------------------
Abbott Laboratories 15,300 659
Allergan, Inc. 1,300 116
o Amgen, Inc. 12,138 920
Applied Biosystems Group --
Applera Corp. 2,000 48
o Biogen Idec, Inc. 3,125 127
Bristol-Myers Squibb Co. 19,000 402
o Chiron Corp. 1,800 79
Eli Lilly & Co. 10,900 543
o Forest Laboratories, Inc. 3,400 129
o Genzyme Corp. 2,400 173
o Gilead Sciences, Inc. 4,300 203
Johnson & Johnson 29,254 1,832
o King Pharmaceuticals, Inc. 2,133 33
o Medimmune, Inc. 2,400 84
26 See financial notes.
SCHWAB MARKETTRACK GROWTH PORTFOLIO
VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
Merck & Co., Inc. 21,600 610
Mylan Laboratories, Inc. 2,600 50
Pfizer, Inc. 73,476 1,597
Schering-Plough Corp. 14,100 287
o Watson Pharmaceuticals, Inc. 1,000 35
Wyeth 13,100 584
-----------
8,511
REAL ESTATE 0.1%
--------------------------------------------------------------------------
Apartment Investment & Management Co.,
Class A 900 35
Archstone-Smith Trust 1,900 77
Equity Office Properties Trust 3,900 120
Equity Residential 2,600 102
Plum Creek Timber Co., Inc. 1,700 66
ProLogis 1,700 73
Public Storage, Inc. 800 53
Simon Property Group, Inc. 2,200 158
Vornado Realty Trust 1,200 97
-----------
781
RETAILING 0.7%
--------------------------------------------------------------------------
o Autonation, Inc. 2,190 44
o AutoZone, Inc. 800 65
o Bed, Bath & Beyond, Inc. 2,800 113
Best Buy Co., Inc. 4,505 199
o Big Lots, Inc. 1,100 13
Circuit City Stores, Inc. 2,000 36
Dillards, Inc., Class A 500 10
Dollar General Corp. 3,303 64
o eBay, Inc. 11,036 437
Family Dollar Stores, Inc. 1,700 38
Federated Department Stores, Inc. 2,572 158
The Gap, Inc. 7,200 124
Genuine Parts Co. 1,800 80
Home Depot, Inc. 21,040 863
J.C. Penney Co., Inc. Holding Co. 2,800 143
o Kohl's Corp. 3,200 154
Limited Brands, Inc. 3,738 75
Lowe's Cos., Inc. 7,600 462
Nordstrom, Inc. 2,600 90
o Office Depot, Inc. 3,300 91
OfficeMax, Inc. 700 20
o RadioShack Corp. 1,900 42
o Sears Holdings Corp. 1,000 120
The Sherwin-Williams Co. 1,200 51
Staples, Inc. 7,125 162
Target Corp. 8,800 490
Tiffany & Co. 1,400 55
TJX Cos., Inc. 5,200 112
-----------
4,311
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT 0.5%
--------------------------------------------------------------------------
o Advanced Micro Devices, Inc. 3,840 89
o Altera Corp. 3,680 61
Analog Devices, Inc. 3,400 118
Applied Materials, Inc. 16,200 265
o Applied Micro Circuits Corp. 2,862 7
o Broadcom Corp., Class A 2,900 123
o Freescale Semiconductor, Inc.,
Class B 3,898 93
Intel Corp. 60,530 1,423
KLA-Tencor Corp. 1,800 83
Linear Technology Corp. 3,000 100
o LSI Logic Corp. 3,000 24
Maxim Integrated Products, Inc. 3,100 108
o Micron Technology, Inc. 5,400 70
National Semiconductor Corp. 3,400 77
o Novellus Systems, Inc. 1,325 29
o Nvidia Corp. 1,400 47
o PMC -- Sierra, Inc. 1,600 11
o Teradyne, Inc. 1,700 23
Texas Instruments, Inc. 16,800 480
Xilinx, Inc. 3,200 77
-----------
3,308
SOFTWARE & SERVICES 0.9%
--------------------------------------------------------------------------
Adobe Systems, Inc. 4,800 155
o Affiliated Computer Services, Inc.,
Class A 1,271 69
Autodesk, Inc. 2,400 108
Automatic Data Processing, Inc. 5,700 266
o BMC Software, Inc. 2,400 47
o Citrix Systems, Inc. 1,800 50
Computer Associates International,
Inc. 5,625 157
See financial notes. 27
SCHWAB MARKETTRACK GROWTH PORTFOLIO
PORTFOLIO HOLDINGS continued
VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
o Computer Sciences Corp. 1,680 86
o Compuware Corp. 3,600 29
o Convergys Corp. 1,354 22
o Electronic Arts, Inc. 2,866 163
Electronic Data Systems Corp. 4,600 107
First Data Corp. 7,888 319
o Fiserv, Inc. 1,800 79
o Intuit, Inc. 1,972 91
o Mercury Interactive Corp. 800 28
(8) Microsoft Corp. 91,420 2,349
o Novell, Inc. 3,200 24
o Oracle Corp. 37,448 475
o Parametric Technology Corp. 2,700 18
Paychex, Inc. 3,600 139
Sabre Holdings Corp., Class A 1,283 25
Siebel Systems, Inc. 4,300 44
o Symantec Corp. 11,721 280
o Unisys Corp. 3,100 16
o Yahoo! Inc. 12,600 466
-----------
5,612
TECHNOLOGY HARDWARE & EQUIPMENT 1.1%
--------------------------------------------------------------------------
o ADC Telecommunications, Inc. 857 15
o Agilent Technologies, Inc. 4,437 142
o Andrew Corp. 1,550 16
o Apple Computer, Inc. 8,000 461
o Avaya, Inc. 4,132 48
o CIENA Corp. 3,200 8
o Cisco Systems, Inc. 63,500 1,108
o Comverse Technology, Inc. 1,900 48
o Corning, Inc. 13,900 279
o Dell, Inc. 23,740 757
o EMC Corp. 23,186 324
o Gateway, Inc. 3,100 9
Hewlett-Packard Co. 28,403 796
International Business Machines
Corp. 15,820 1,295
o Jabil Circuit, Inc. 1,998 60
o JDS Uniphase Corp. 12,589 26
o Lexmark International, Inc., Class A 1,300 54
o Lucent Technologies, Inc. 40,092 114
Molex, Inc. 1,875 47
Motorola, Inc. 24,131 535
o NCR Corp. 2,000 60
o Network Appliance, Inc. 3,400 93
o QLogic Corp. 869 26
Qualcomm, Inc. 16,200 644
o Sanmina -- SCI Corp. 5,000 18
Scientific-Atlanta, Inc. 1,600 57
o Solectron Corp. 7,900 28
o Sun Microsystems, Inc. 30,800 123
Symbol Technologies, Inc. 2,031 17
Tektronix, Inc. 900 21
o Tellabs, Inc. 4,000 38
o Xerox Corp. 9,400 128
-----------
7,395
TELECOMMUNICATION SERVICES 0.5%
--------------------------------------------------------------------------
Alltel Corp. 3,730 231
AT&T Corp. 7,358 146
BellSouth Corp. 17,800 463
CenturyTel, Inc. 1,350 44
Citizens Communications Co. 2,576 31
o Qwest Communications International,
Inc. 15,773 69
SBC Communications, Inc. 32,336 771
Sprint Corp. (FON Group) 28,569 666
Verizon Communications, Inc. 27,258 859
-----------
3,280
TRANSPORTATION 0.3%
--------------------------------------------------------------------------
Burlington Northern Santa Fe Corp. 3,800 236
CSX Corp. 2,200 101
o Delta Air Lines, Inc. 1,300 1
FedEx Corp. 2,920 268
Norfolk Southern Corp. 3,600 144
Ryder Systems, Inc. 400 16
Southwest Airlines Co. 7,480 120
Union Pacific Corp. 2,500 173
United Parcel Service, Inc.,
Class B 10,818 789
-----------
1,848
UTILITIES 0.5%
--------------------------------------------------------------------------
o The AES Corp. 6,000 95
o Allegheny Energy, Inc. 1,070 30
Ameren Corp. 1,800 95
28 See financial notes.
SCHWAB MARKETTRACK GROWTH PORTFOLIO
VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
American Electric Power Co., Inc. 3,860 147
o Calpine Corp. 2,700 6
Centerpoint Energy, Inc. 2,949 39
Cinergy Corp. 1,600 64
o CMS Energy Corp. 1,000 15
Consolidated Edison, Inc. 2,100 96
Constellation Energy Group, Inc. 1,700 93
Dominion Resources, Inc. 3,378 257
DTE Energy Co. 1,700 73
Duke Energy Corp. 8,852 234
o Dynegy, Inc., Class A 3,100 14
Edison International 3,200 140
Entergy Corp. 2,100 148
Exelon Corp. 6,524 339
FirstEnergy Corp. 3,195 152
FPL Group, Inc. 3,800 164
KeySpan Corp. 1,300 45
Nicor, Inc. 500 20
NiSource, Inc. 2,646 63
Peoples Energy Corp. 200 7
PG&E Corp. 4,000 146
Pinnacle West Capital Corp. 800 33
PPL Corp. 3,600 113
Progress Energy, Inc. 2,475 108
Public Service Enterprise Group,
Inc. 2,300 145
Sempra Energy 2,103 93
The Southern Co. 7,200 252
TECO Energy, Inc. 1,300 22
TXU Corp. 2,367 238
Xcel Energy, Inc. 3,850 71
-----------
3,557
OTHER INVESTMENT COMPANIES
83.6% of net assets
/(1) Schwab Institutional Select
S&P 500 Fund 16,311,469 156,101
/(3) Schwab International Index Fund,
Select Shares 7,739,797 132,273
/(2) Schwab Small-Cap Index Fund,
Select Shares 5,937,511 132,763
/(4) Schwab Total Bond
Market Fund 9,832,169 96,945
/(5) Schwab Value Advantage Money
Fund, Institutional Shares 30,929,077 30,929
-----------
549,011
SECURITY FACE AMOUNT
RATE, MATURITY DATE ($ x 1,000)
SHORT-TERM INVESTMENT
0.0% of net assets
Wachovia Bank, Grand
Cayman Time Deposit
3.48%, 11/01/05 172 172
END OF INVESTMENTS.
See financial notes. 29
SCHWAB MARKETTRACK GROWTH PORTFOLIO
Statement of
ASSETS AND LIABILITIES
As of October 31, 2005. All numbers x 1,000 except NAV.
ASSETS
- -------------------------------------------------------------------------------
Investments in affiliated underlying funds, at value $549,011 a
Investments, at value 108,028 a
Receivables:
Fund shares sold 329
Dividends 148
Prepaid expenses + 15
-----------
TOTAL ASSETS 657,531
LIABILITIES
- -------------------------------------------------------------------------------
Payables:
Fund shares redeemed 318
Investment adviser and administrator fees 12
Transfer agent and shareholder service fees 13
Accrued expenses + 67
-----------
TOTAL LIABILITIES 410
NET ASSETS
- -------------------------------------------------------------------------------
TOTAL ASSETS 657,531
TOTAL LIABILITIES - 410
-----------
NET ASSETS $657,121
NET ASSETS BY SOURCE
Capital received from investors 549,908
Net investment income not yet distributed 2,892
Net realized capital losses (9,946)b
Net unrealized capital gains 114,267 b
NET ASSET VALUE (NAV)
SHARES
NET ASSETS / OUTSTANDING = NAV
$657,121 39,095 $16.81
Unless stated, all numbers x 1,000.
a The fund paid $542,772 for these securities.
Not counting short-term obligations and government securities and securities
related to in-kind transactions, the fund's investment transactions during the
period were:
Purchases $202,714
Sales/maturities $208,050
The fund's total security transactions (including the in-kind redemptions)
with other Schwab Funds(R) during the period were $294,184.
Percent of fund shares of other Schwab Funds owned at the end of the report
period:
SCHWAB EQUITY INDEX FUNDS
Small-Cap Index Fund 8.2%
International Index Fund 9.6%
SCHWAB BOND FUNDS
Total Bond Market Fund 8.3%
SCHWAB INSTITUTIONAL SELECT FUNDS
Institutional Select
S&P 500 Fund 12.5%
SCHWAB MONEY FUNDS
Value Advantage
Money Fund 0.1%
b These derive from investments and futures
FEDERAL TAX DATA
---------------------------------------------
PORTFOLIO COST $547,537
NET UNREALIZED GAINS AND LOSSES:
Gains $124,051
Losses + (14,549)
-----------
$109,502
NET UNDISTRIBUTED EARNINGS:
Ordinary income $2,892
Long-term capital gains $--
CAPITAL LOSSES UTILIZED $14,695
UNUSED CAPITAL LOSSES:
Expires 10/31 of: Loss amount
2011 $3,172
2012 + 2,009
-----------
$5,181
30 See financial notes.
SCHWAB MARKETTRACK GROWTH PORTFOLIO
Statement of
OPERATIONS
For November 1, 2004 through October 31, 2005. All numbers x 1,000.
INVESTMENT INCOME
- --------------------------------------------------------------------------------
Dividends received from affiliated underlying funds $11,319
Dividends 2,234
Interest + 185
---------
TOTAL INVESTMENT INCOME 13,738
NET REALIZED GAINS AND LOSSES
- --------------------------------------------------------------------------------
Net realized gains on sales of affiliated underlying funds 13,115 a
Net realized gains received from affiliated underlying funds 491
Net realized gains on investments 1,024
Net realized gains on futures contracts + 91
---------
NET REALIZED GAINS 14,721
NET UNREALIZED GAINS AND LOSSES
- --------------------------------------------------------------------------------
Net unrealized gains on affiliated underlying funds 27,495
Net unrealized gains on investments + 5,606
---------
NET UNREALIZED GAINS 33,101
EXPENSES
- --------------------------------------------------------------------------------
Investment adviser and administrator fees 2,826 b
Transfer agent and shareholder service fees 1,651 c
Trustees' fees 10 d
Custodian fees 36
Portfolio accounting fees 85
Professional fees 31
Registration fees 26
Shareholder reports 76
Other expenses + 44
---------
Total expenses 4,785
Expense reduction - 1,482 e
---------
NET EXPENSES 3,303
INCREASE IN NET ASSETS FROM OPERATIONS
- --------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME 13,738
NET EXPENSES - 3,303
---------
NET INVESTMENT INCOME 10,435
NET REALIZED GAINS 14,721 f
NET UNREALIZED GAINS + 33,101 f
---------
INCREASE IN NET ASSETS FROM OPERATIONS $58,257
Unless stated, all numbers x 1,000.
a Includes gains of $9,333 associated with redemption-in-kind from the Schwab
S&P 500 Index Fund.
b Calculated as a percentage of average daily net assets: 0.44% of the first
$500 million and 0.39% of assets beyond that. These fees are paid to Charles
Schwab Investment Management, Inc. (CSIM).
c Calculated as a percentage of average daily net assets: for transfer agent
services, 0.05% of the fund's assets; for shareholder services, 0.20% of the
fund's assets. These fees are paid to Charles Schwab & Co., Inc. (Schwab).
d For the fund's independent trustees only.
e This reduction was made by the investment adviser (CSIM). It reflects a
guarantee by CSIM and the transfer agent and shareholder service agent
(Schwab) to limit the net operating expenses of this fund through February 27,
2006, to 0.50% of average daily net assets. This limit excludes interest,
taxes and certain non-routine expenses.
f These add up to a net gain on investments of $47,822.
See financial notes. 31
SCHWAB MARKETTRACK GROWTH PORTFOLIO
Statements of
CHANGES IN NET ASSETS
For the current and prior report periods. All numbers x 1,000
OPERATIONS
- --------------------------------------------------------------------------------
11/1/04-10/31/05 11/1/03-10/31/04
Net investment income $10,435 $8,245
Net realized gains or losses 14,721 (711)
Net unrealized gains + 33,101 48,907
------------------------------------
INCREASE IN NET ASSETS FROM OPERATIONS 58,257 56,441
DISTRIBUTIONS PAID
- --------------------------------------------------------------------------------
Dividends from net investment income $9,037 $8,251 a,b
TRANSACTIONS IN FUND SHARES
- --------------------------------------------------------------------------------
11/1/04-10/31/05 11/1/03-10/31/04
SHARES VALUE SHARES VALUE
Shares sold 6,796 $111,249 6,342 $95,944
Shares reinvested 541 8,784 547 8,044
Shares redeemed + (7,663) (125,960) (7,686) (116,063) c
---------------------------------------------
NET TRANSACTIONS IN
FUND SHARES (326) ($5,927) (797) ($12,075)
SHARES OUTSTANDING AND NET ASSETS
- --------------------------------------------------------------------------------
11/1/04-10/31/05 11/1/03-10/31/04
SHARES NET ASSETS SHARES NET ASSETS
Beginning of period 39,421 $613,828 40,218 $577,713
Total increase or
decrease + (326) 43,293 (797) 36,115 d
----------------------------------------------
END OF PERIOD 39,095 $657,121 39,421 $613,828 e
Unless stated, all numbers x 1,000.
a UNAUDITED
For corporations, 54% of the fund's dividends for the report period qualify
for the dividends-received deduction.
The fund designates $7,628 of the dividend distribution for the fiscal year
ended 10/31/05 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 2006 via IRS Form 1099 of the amounts for use in preparing
their 2005 income tax return.
b The tax-basis components of distributions paid are:
CURRENT PERIOD
Ordinary income $9,037
Long-term capital gains $--
PRIOR PERIOD
Ordinary income $8,251
Long-term capital gains $--
c For shares purchased after
4/29/05 and held less than 30
days, the fund charges 2.00%
redemption fee.
CURRENT PERIOD $10
Dollar amounts are net of the redemption fee proceeds.
d Figures for shares represent shares sold plus shares reinvested, minus shares
redeemed. Figures for net assets represent the changes in net assets from
operations plus the changes in value of transactions in fund shares, minus
distributions paid.
e Includes distributable net investment income in the amount of $2,892 and
$1,494 at the end of the current period and prior period, respectively.
32 See financial notes.
SCHWAB MARKETTRACK BALANCED PORTFOLIO(TM)
FINANCIAL STATEMENTS
FINANCIAL HIGHLIGHTS
11/1/04 11/1/03- 11/1/02- 11/1/01- 11/1/00-
10/31/05 10/31/04 10/31/03 10/31/02 10/31/01
- ---------------------------------------------------------------------------------------------------
PER-SHARE DATA ($)
- ---------------------------------------------------------------------------------------------------
Net asset value at beginning of period 14.66 13.78 12.05 13.47 15.53
------------------------------------------------
Income or loss from investment operations:
Net investment income 0.34 0.29 0.25 0.32 0.45
Net realized and unrealized gains or losses 0.74 0.88 1.77 (1.22) (1.92)
------------------------------------------------
Total income or loss from investment operations 1.08 1.17 2.02 (0.90) (1.47)
Less distributions:
Dividends from net investment income (0.28) (0.29) (0.29) (0.40) (0.49)
Distributions from net realized gains -- -- -- (0.12) (0.10)
------------------------------------------------
Total distributions (0.28) (0.29) (0.29) (0.52) (0.59)
------------------------------------------------
Net asset value at end of period 15.46 14.66 13.78 12.05 13.47
------------------------------------------------
Total return (%) 7.41 8.61 17.12 (7.08) (9.72)
RATIOS/SUPPLEMENTAL DATA (%)
- ---------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net operating expenses 1 0.50 0.50 0.50 0.50 0.50
Gross operating expenses 1 0.73 0.74 0.74 0.74 0.74
Net investment income 2.20 2.03 1.98 2.35 3.31
Portfolio turnover rate 25 11 17 31 21
Net assets, end of period ($ x 1,000,000) 519 541 516 462 497
1 The expenses incurred by underlying funds in which the portfolio invests are
not included in this ratio.
The income received by the portfolio from underlying funds is reduced by those
expenses.
See financial notes. 33
SCHWAB MARKETTRACK BALANCED PORTFOLIO
PORTFOLIO HOLDINGS as of October 31, 2005
This section shows all the securities in the fund's portfolio by industry
classification and their value, as of the report date.
The fund files its complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. The fund's Form N-Q is
available on the SEC's website at http://www.sec.gov and may be reviewed and
copied at the SEC's Public Reference Room in Washington, D.C. Call
1-800-SEC-0330 for information on the operation of the Public Reference Room.
The schedule of portfolio holdings filed on the fund's most recent Form N-Q is
available by visiting Schwab's website at www.schwab.com/schwabfunds.
We use the symbols below to designate certain characteristics of the securities.
With the top ten holdings, the number in the circle is the security's rank among
the top ten.
(1) Top ten holding
o Non-income producing security
/ Issuer is affiliated with the fund's adviser
COST VALUE
HOLDINGS BY CATEGORY ($x1,000) ($x1,000)
- --------------------------------------------------------------------------------
85.7% OTHER INVESTMENT
COMPANIES 394,969 444,699
13.9% COMMON STOCK 47,380 72,214
0.4% SHORT-TERM
INVESTMENT 1,945 1,945
- --------------------------------------------------------------------------------
100.0% TOTAL INVESTMENTS 444,294 518,858
0.0% OTHER ASSETS AND
LIABILITIES, NET 230
- --------------------------------------------------------------------------------
100.0% TOTAL NET ASSETS 519,088
VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
COMMON STOCK 13.9% of net assets
AUTOMOBILES & COMPONENTS 0.1%
---------------------------------------------------------------------------
Cooper Tire & Rubber Co. 400 5
Dana Corp. 1,085 8
Ford Motor Co. 12,185 101
General Motors Corp. 3,650 100
o Goodyear Tire & Rubber Co. 1,000 16
Harley-Davidson, Inc. 2,000 99
Johnson Controls, Inc. 1,200 82
Visteon Corp. 1,047 9
-----------
420
BANKS 1.0%
---------------------------------------------------------------------------
AmSouth Bancorp. 2,600 66
Bank of America Corp. 26,286 1,150
BB&T Corp. 3,600 152
Comerica, Inc. 1,100 64
Compass Bancshares, Inc. 800 39
Countrywide Financial Corp. 3,498 111
Fannie Mae 6,300 299
Fifth Third Bancorp 3,658 147
First Horizon National Corp. 800 31
Freddie Mac 4,500 276
Golden West Financial Corp. 2,000 117
Huntington Bancshares, Inc. 1,597 37
KeyCorp, Inc. 2,600 84
M&T Bank Corp. 500 54
Marshall & Ilsley Corp. 1,344 58
MGIC Investment Corp. 700 42
National City Corp. 4,100 132
North Fork Bancorp., Inc. 3,000 76
PNC Financial Services Group, Inc. 1,900 115
Regions Financial Corp. 3,078 100
Sovereign Bancorp, Inc. 1,800 39
SunTrust Banks, Inc. 2,300 167
Synovus Financial Corp. 1,900 52
U.S. Bancorp 12,554 371
Wachovia Corp. 10,494 530
Washington Mutual, Inc. 6,634 263
Wells Fargo & Co. 11,235 676
Zions Bancorp. 600 44
-----------
5,292
CAPITAL GOODS 1.2%
---------------------------------------------------------------------------
3M Co. 5,000 380
American Power Conversion Corp. 1,175 25
American Standard Cos., Inc. 1,500 57
The Boeing Co. 5,484 354
Caterpillar, Inc. 4,600 242
34 See financial notes.
SCHWAB MARKETTRACK BALANCED PORTFOLIO
VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
Cooper Industries Ltd., Class A 600 43
Crane Co. 200 6
Cummins, Inc. 300 26
Danaher Corp. 2,000 104
Deere & Co. 1,500 91
Dover Corp. 1,400 55
Eaton Corp. 1,000 59
Emerson Electric Co. 2,800 195
Fluor Corp. 500 32
General Dynamics Corp. 1,300 151
(6) General Electric Co. 70,660 2,396
Goodrich Corp. 700 25
Honeywell International, Inc. 5,700 195
Illinois Tool Works, Inc. 1,400 119
Ingersoll-Rand Co., Class A 2,200 83
ITT Industries, Inc. 600 61
L-3 Communications Holdings, Inc. 700 54
Lockheed Martin Corp. 2,400 145
Masco Corp. 3,000 86
o Navistar International Corp. 400 11
Northrop Grumman Corp. 2,256 121
Paccar, Inc. 1,050 74
Pall Corp. 800 21
Parker Hannifin Corp. 700 44
o Power-One, Inc. 240 1
Raytheon Co. 2,600 96
Rockwell Automation, Inc. 1,200 64
Rockwell Collins, Inc. 1,200 55
Textron, Inc. 1,000 72
o Thomas & Betts Corp. 231 9
Tyco International Ltd. 12,949 342
United Technologies Corp. 6,600 338
W.W. Grainger, Inc. 600 40
-----------
6,272
COMMERCIAL SERVICES & SUPPLIES 0.1%
---------------------------------------------------------------------------
o ACCO Brands Corp. 235 6
o Allied Waste Industries, Inc. 2,100 17
o Apollo Group, Inc., Class A 1,100 69
Avery Dennison Corp. 700 40
Cendant Corp. 6,415 112
Cintas Corp. 1,102 45
Deluxe Corp. 500 17
Equifax, Inc. 900 31
H&R Block, Inc. 2,400 60
o Monster Worldwide, Inc. 666 22
o PHH Corp. 320 9
Pitney Bowes, Inc. 1,600 67
R.R. Donnelley & Sons Co. 1,400 49
Robert Half International, Inc. 1,200 44
Waste Management, Inc. 3,712 109
-----------
697
CONSUMER DURABLES & APPAREL 0.2%
---------------------------------------------------------------------------
Black & Decker Corp. 600 49
Brunswick Corp. 600 23
Centex Corp. 800 52
o Coach, Inc. 2,400 77
D.R. Horton, Inc. 1,790 55
Eastman Kodak Co. 2,000 44
Fortune Brands, Inc. 1,000 76
Hasbro, Inc. 1,275 24
Jones Apparel Group, Inc. 800 22
KB Home 600 39
Leggett & Platt, Inc. 1,300 26
Lennar Corp., Class A 900 50
Liz Claiborne, Inc. 800 28
Mattel, Inc. 2,825 42
Maytag Corp. 600 10
Newell Rubbermaid, Inc. 1,872 43
Nike, Inc., Class B 1,300 109
Pulte Homes, Inc. 1,600 60
Reebok International Ltd. 300 17
Snap-On, Inc. 350 13
The Stanley Works 600 29
VF Corp. 800 42
Whirlpool Corp. 500 39
-----------
969
DIVERSIFIED FINANCIALS 1.1%
---------------------------------------------------------------------------
American Express Co. 8,310 414
o Ameriprise Financial, Inc. 1,542 57
The Bank of New York Co., Inc. 4,900 153
The Bear Stearns Cos., Inc. 602 64
Capital One Financial Corp. 1,900 145
/ The Charles Schwab Corp. 6,883 105
See financial notes. 35
SCHWAB MARKETTRACK BALANCED PORTFOLIO
PORTFOLIO HOLDINGS continued
VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
CIT Group, Inc. 1,300 59
(9) Citigroup, Inc. 34,266 1,569
o E*TRADE Financial Corp. 2,400 45
Federated Investors, Inc., Class B 700 25
Franklin Resources, Inc. 1,010 89
Goldman Sachs Group, Inc. 3,079 389
Janus Capital Group, Inc. 1,400 25
JPMorgan Chase & Co. 23,413 857
Lehman Brothers Holdings, Inc. 1,800 215
MBNA Corp. 8,268 211
Mellon Financial Corp. 2,800 89
Merrill Lynch & Co., Inc. 6,300 408
Moody's Corp. 2,000 107
Morgan Stanley 7,010 381
Northern Trust Corp. 1,400 75
Principal Financial Group, Inc. 2,329 116
SLM Corp. 3,000 167
State Street Corp. 2,200 121
T. Rowe Price Group, Inc. 800 52
-----------
5,938
ENERGY 1.3%
---------------------------------------------------------------------------
Amerada Hess Corp. 600 75
Anadarko Petroleum Corp. 1,510 137
Apache Corp. 2,048 131
Baker Hughes, Inc. 2,250 124
BJ Services Co. 2,000 70
Burlington Resources, Inc. 2,520 182
ChevronTexaco Corp. 14,727 840
ConocoPhillips 9,168 599
Devon Energy Corp. 3,000 181
El Paso Corp. 3,222 38
EOG Resources, Inc. 1,518 103
(7) Exxon Mobil Corp. 42,010 2,358
Halliburton Co. 3,374 199
Kerr-McGee Corp. 812 69
Kinder Morgan, Inc. 745 68
Marathon Oil Corp. 2,218 133
Murphy Oil Corp. 1,100 52
o Nabors Industries Ltd. 1,000 69
o National-Oilwell Varco, Inc. 1,130 71
Noble Corp. 900 58
Occidental Petroleum Corp. 2,700 213
Rowan Cos., Inc. 600 20
Schlumberger Ltd. 3,900 354
Sunoco, Inc. 900 67
o Transocean, Inc. 2,016 116
Valero Energy Corp. 2,000 210
o Weatherford International Ltd. 910 57
Williams Cos., Inc. 3,000 67
XTO Energy, Inc. 2,266 98
-----------
6,759
FOOD & STAPLES RETAILING 0.3%
---------------------------------------------------------------------------
Albertson's, Inc. 2,671 67
Costco Wholesale Corp. 3,000 145
CVS Corp. 5,200 127
o Kroger Co. 5,300 106
Safeway, Inc. 2,800 65
Supervalu, Inc. 900 28
Sysco Corp. 4,400 140
Wal-Mart Stores, Inc. 16,640 787
Walgreen Co. 6,600 300
o Winn-Dixie Stores, Inc. 1,200 1
-----------
1,766
FOOD BEVERAGE & TOBACCO 0.7%
---------------------------------------------------------------------------
Altria Group, Inc. 13,640 1,024
Anheuser-Busch Cos., Inc. 5,200 215
Archer-Daniels-Midland Co. 4,446 108
Brown-Forman Corp., Class B 804 51
Campbell Soup Co. 1,200 35
The Coca-Cola Co. 13,810 591
Coca-Cola Enterprises, Inc. 2,700 51
ConAgra Foods, Inc. 3,300 77
o Constellation Brands, Inc., Class A 1,290 30
General Mills, Inc. 2,392 116
H.J. Heinz Co. 2,300 82
Hershey Foods Corp. 1,600 91
Kellogg Co. 1,700 75
McCormick & Co., Inc. 900 27
Molson Coors Brewing Co., Class B 200 12
The Pepsi Bottling Group, Inc. 926 26
PepsiCo, Inc. 11,070 654
Reynolds American, Inc. 614 52
Sara Lee Corp. 5,100 91
36 See financial notes.
SCHWAB MARKETTRACK BALANCED PORTFOLIO
VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
Tyson Foods, Inc., Class A 1,700 30
UST, Inc. 1,100 46
Wm. Wrigley Jr. Co. 1,200 83
-----------
3,567
HEALTH CARE EQUIPMENT & SERVICES 0.7%
---------------------------------------------------------------------------
Aetna, Inc. 2,068 183
AmerisourceBergen Corp. 700 53
Bausch & Lomb, Inc. 400 30
Baxter International, Inc. 3,800 145
Becton Dickinson & Co. 1,800 91
Biomet, Inc. 1,575 55
o Boston Scientific Corp. 3,948 99
C.R. Bard, Inc. 600 37
Cardinal Health, Inc. 2,775 173
o Caremark Rx, Inc. 2,988 157
CIGNA Corp. 1,000 116
o Coventry Health Care, Inc. 1,050 57
o Express Scripts, Inc. 1,000 75
o Fisher Scientific International, Inc. 720 41
Guidant Corp. 2,000 126
HCA, Inc. 2,760 133
Health Management Associates, Inc.,
Class A 1,600 34
o Hospira, Inc. 1,020 41
o Humana, Inc. 800 35
IMS Health, Inc. 1,500 35
o Laboratory Corp. of America
Holdings 900 43
Manor Care, Inc. 500 19
McKesson Corp. 1,773 81
o Medco Health Solutions, Inc. 1,784 101
Medtronic, Inc. 7,800 442
o Millipore Corp. 200 12
PerkinElmer, Inc. 600 13
Quest Diagnostics 1,470 69
o St. Jude Medical, Inc. 2,120 102
Stryker Corp. 1,946 80
o Tenet Healthcare Corp. 3,150 26
o Thermo Electron Corp. 900 27
UnitedHealth Group, Inc. 8,400 486
o Waters Corp. 900 33
o WellPoint, Inc. 3,852 288
o Zimmer Holdings, Inc. 1,500 96
-----------
3,634
HOTELS RESTAURANTS & LEISURE 0.2%
---------------------------------------------------------------------------
Carnival Corp. 2,870 142
Darden Restaurants, Inc. 1,350 44
Harrah's Entertainment, Inc. 1,200 72
Hilton Hotels Corp. 2,500 49
International Game Technology 2,100 56
Marriott International, Inc., Class A 1,100 66
McDonald's Corp. 8,100 256
o Starbucks Corp. 4,880 138
Starwood Hotels & Resorts
Worldwide, Inc. 1,200 70
Wendy's International, Inc. 800 37
Yum! Brands, Inc. 2,060 105
-----------
1,035
HOUSEHOLD & PERSONAL PRODUCTS 0.4%
---------------------------------------------------------------------------
Alberto-Culver Co., Class B 600 26
Avon Products, Inc. 3,000 81
Clorox Co. 1,300 70
Colgate-Palmolive Co. 3,600 191
Kimberly-Clark Corp. 3,380 192
(10) Procter & Gamble Co. 22,832 1,279
-----------
1,839
INSURANCE 0.7%
---------------------------------------------------------------------------
ACE Ltd. 1,700 89
AFLAC, Inc. 3,300 158
The Allstate Corp. 4,700 248
AMBAC Financial Group, Inc. 684 48
American International Group,
Inc. 17,342 1,124
AON Corp. 2,025 68
Chubb Corp. 1,200 112
Cincinnati Financial Corp. 1,323 56
Hartford Financial Services
Group, Inc. 1,800 143
Jefferson-Pilot Corp. 1,050 58
Lincoln National Corp. 1,300 66
Loews Corp. 900 84
Marsh & McLennan Cos., Inc. 3,600 105
MBIA, Inc. 1,050 61
See financial notes. 37
SCHWAB MARKETTRACK BALANCED PORTFOLIO
PORTFOLIO HOLDINGS continued
VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
o Metlife, Inc. 4,986 246
The Progressive Corp. 1,500 174
Prudential Financial, Inc. 3,500 255
Safeco Corp. 800 44
The St. Paul Travelers Cos., Inc. 4,241 191
Torchmark Corp. 800 42
UnumProvident Corp. 1,657 34
XL Capital Ltd., Class A 800 51
-----------
3,457
MATERIALS 0.4%
---------------------------------------------------------------------------
Air Products & Chemicals, Inc. 1,500 86
Alcoa, Inc. 5,648 137
Allegheny Technologies, Inc. 492 14
Ashland, Inc. 500 27
Ball Corp. 800 31
Bemis Co. 600 16
Chemtura Corp. 889 10
The Dow Chemical Co. 6,049 277
E.I. du Pont de Nemours & Co. 6,484 270
Eastman Chemical Co. 600 32
Ecolab, Inc. 1,200 40
Engelhard Corp. 800 22
Freeport-McMoran Copper & Gold, Inc.,
Class B 1,100 54
Georgia-Pacific Corp. 1,496 49
o Hercules, Inc. 700 8
International Flavors & Fragrances,
Inc. 800 26
International Paper Co. 3,166 92
Louisiana-Pacific Corp. 700 17
MeadWestvaco Corp. 1,279 34
Monsanto Co. 1,727 109
Neenah Paper, Inc. 102 3
Newmont Mining Corp. 2,754 117
Nucor Corp. 1,200 72
o Pactiv Corp. 1,000 20
Phelps Dodge Corp. 540 65
PPG Industries, Inc. 1,200 72
Praxair, Inc. 2,000 99
Rohm & Haas Co. 1,421 62
o Sealed Air Corp. 621 31
Sigma-Aldrich Corp. 500 32
Temple-Inland, Inc. 800 29
United States Steel Corp. 700 26
Vulcan Materials Co. 700 45
Weyerhaeuser Co. 1,400 89
Worthington Industries, Inc. 300 6
-----------
2,119
MEDIA 0.5%
---------------------------------------------------------------------------
Clear Channel Communications,
Inc. 4,080 124
o Comcast Corp., Class A 14,661 408
Dow Jones & Co., Inc. 600 20
Gannett Co., Inc. 1,700 107
o Interpublic Group of Cos., Inc. 2,500 26
Knight-Ridder, Inc. 600 32
The McGraw-Hill Cos., Inc. 2,400 117
Meredith Corp. 300 15
New York Times Co., Class A 1,100 30
o News Corp, Inc., Class A 16,300 232
Omnicom Group, Inc. 1,200 100
Time Warner, Inc. 30,870 550
Tribune Co. 2,100 66
o Univision Communications, Inc.,
Class A 2,048 54
Viacom, Inc., Class B 10,618 329
The Walt Disney Co. 13,217 322
-----------
2,532
PHARMACEUTICALS & BIOTECHNOLOGY 1.1%
---------------------------------------------------------------------------
Abbott Laboratories 10,200 439
Allergan, Inc. 900 80
o Amgen, Inc. 8,340 632
Applied Biosystems Group --
Applera Corp. 1,400 34
o Biogen Idec, Inc. 2,150 87
Bristol-Myers Squibb Co. 12,800 271
o Chiron Corp. 1,200 53
Eli Lilly & Co. 7,400 369
o Forest Laboratories, Inc. 2,400 91
o Genzyme Corp. 1,700 123
o Gilead Sciences, Inc. 2,980 141
Johnson & Johnson 19,872 1,244
o King Pharmaceuticals, Inc. 1,388 21
o Medimmune, Inc. 1,400 49
38 See financial notes.
SCHWAB MARKETTRACK BALANCED PORTFOLIO
VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
Merck & Co., Inc. 14,500 409
Mylan Laboratories, Inc. 1,700 33
Pfizer, Inc. 49,386 1,074
Schering-Plough Corp. 9,500 193
o Watson Pharmaceuticals, Inc. 600 21
Wyeth 8,800 392
-----------
5,756
REAL ESTATE 0.1%
---------------------------------------------------------------------------
Apartment Investment & Management Co.,
Class A 600 23
Archstone-Smith Trust 1,300 53
Equity Office Properties Trust 2,600 80
Equity Residential 1,700 67
Plum Creek Timber Co., Inc. 1,200 46
ProLogis 1,200 51
Public Storage, Inc. 600 40
Simon Property Group, Inc. 1,450 104
Vornado Realty Trust 800 65
-----------
529
RETAILING 0.6%
---------------------------------------------------------------------------
o Autonation, Inc. 2,000 40
o AutoZone, Inc. 500 40
o Bed, Bath & Beyond, Inc. 1,800 73
Best Buy Co., Inc. 3,150 139
o Big Lots, Inc. 700 8
Circuit City Stores, Inc. 1,400 25
Dillards, Inc., Class A 700 14
Dollar General Corp. 2,202 43
o eBay, Inc. 7,416 294
Family Dollar Stores, Inc. 1,100 24
Federated Department Stores, Inc. 1,754 108
The Gap, Inc. 3,862 67
Genuine Parts Co. 1,150 51
Home Depot, Inc. 14,600 599
J.C. Penney Co., Inc. Holding Co. 1,700 87
o Kohl's Corp. 2,200 106
Limited Brands, Inc. 2,991 60
Lowe's Cos., Inc. 5,000 304
Nordstrom, Inc. 1,800 62
o Office Depot, Inc. 2,500 69
OfficeMax, Inc. 600 17
o RadioShack Corp. 1,300 29
o Sears Holdings Corp. 673 81
The Sherwin-Williams Co. 1,100 47
Staples, Inc. 4,575 104
Target Corp. 5,800 323
Tiffany & Co. 950 37
TJX Cos., Inc. 3,600 78
-----------
2,929
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT 0.4%
---------------------------------------------------------------------------
o Advanced Micro Devices, Inc. 2,040 47
o Altera Corp. 2,546 42
Analog Devices, Inc. 2,300 80
Applied Materials, Inc. 10,900 179
o Applied Micro Circuits Corp. 1,928 5
o Broadcom Corp., Class A 2,000 85
o Freescale Semiconductor, Inc.,
Class B 2,650 63
Intel Corp. 40,660 955
KLA-Tencor Corp. 1,200 56
Linear Technology Corp. 2,000 66
o LSI Logic Corp. 2,000 16
Maxim Integrated Products, Inc. 2,100 73
o Micron Technology, Inc. 3,600 47
National Semiconductor Corp. 2,200 50
o Novellus Systems, Inc. 900 20
o Nvidia Corp. 900 30
o PMC -- Sierra, Inc. 1,100 8
o Teradyne, Inc. 1,100 15
Texas Instruments, Inc. 11,300 323
Xilinx, Inc. 2,100 50
-----------
2,210
SOFTWARE & SERVICES 0.7%
---------------------------------------------------------------------------
Adobe Systems, Inc. 3,200 103
o Affiliated Computer Services, Inc.,
Class A 465 25
Autodesk, Inc. 1,600 72
Automatic Data Processing, Inc. 3,900 182
o BMC Software, Inc. 1,600 31
o Citrix Systems, Inc. 1,200 33
Computer Associates International,
Inc. 3,825 107
See financial notes. 39
SCHWAB MARKETTRACK BALANCED PORTFOLIO
PORTFOLIO HOLDINGS continued
VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
o Computer Sciences Corp. 1,090 56
o Compuware Corp. 2,400 19
o Convergys Corp. 869 14
o Electronic Arts, Inc. 1,792 102
Electronic Data Systems Corp. 3,100 72
First Data Corp. 5,704 231
o Fiserv, Inc. 1,200 52
o Intuit, Inc. 1,327 61
o Mercury Interactive Corp. 500 17
(8) Microsoft Corp. 61,390 1,578
o Novell, Inc. 2,200 17
o Oracle Corp. 25,130 319
o Parametric Technology Corp. 1,800 12
Paychex, Inc. 2,475 96
Sabre Holdings Corp., Class A 922 18
Siebel Systems, Inc. 3,000 31
o Symantec Corp. 8,018 191
o Unisys Corp. 2,100 11
o Yahoo! Inc. 8,400 311
-----------
3,761
TECHNOLOGY HARDWARE & EQUIPMENT 1.0%
---------------------------------------------------------------------------
o ADC Telecommunications, Inc. 714 12
o Agilent Technologies, Inc. 2,917 93
o Andrew Corp. 1,025 11
o Apple Computer, Inc. 5,430 313
o Avaya, Inc. 2,775 32
o CIENA Corp. 2,100 5
o Cisco Systems, Inc. 42,100 735
o Comverse Technology, Inc. 1,000 25
o Corning, Inc. 9,550 192
o Dell, Inc. 16,500 526
o EMC Corp. 15,562 217
o Gateway, Inc. 2,100 6
Hewlett-Packard Co. 19,724 553
International Business Machines
Corp. 10,800 884
o Jabil Circuit, Inc. 1,341 40
o JDS Uniphase Corp. 8,464 18
o Lexmark International, Inc., Class A 800 33
o Lucent Technologies, Inc. 26,905 77
Molex, Inc. 1,250 32
Motorola, Inc. 16,150 358
o NCR Corp. 1,200 36
o Network Appliance, Inc. 2,000 55
o QLogic Corp. 585 18
Qualcomm, Inc. 10,760 428
o Sanmina -- SCI Corp. 3,400 12
Scientific-Atlanta, Inc. 1,000 35
o Solectron Corp. 5,300 19
o Sun Microsystems, Inc. 20,800 83
Symbol Technologies, Inc. 1,366 11
Tektronix, Inc. 500 11
o Tellabs, Inc. 2,700 26
o Xerox Corp. 5,200 71
-----------
4,967
TELECOMMUNICATION SERVICES 0.4%
---------------------------------------------------------------------------
Alltel Corp. 2,510 155
AT&T Corp. 4,941 98
BellSouth Corp. 11,900 310
CenturyTel, Inc. 900 29
Citizens Communications Co. 1,732 21
o Qwest Communications International,
Inc. 10,622 46
SBC Communications, Inc. 21,788 520
Sprint Corp. (FON Group) 18,876 440
Verizon Communications, Inc. 17,836 562
-----------
2,181
TRANSPORTATION 0.2%
---------------------------------------------------------------------------
Burlington Northern Santa Fe
Corp. 2,500 155
CSX Corp. 1,500 69
o Delta Air Lines, Inc. 900 1
FedEx Corp. 1,960 180
Norfolk Southern Corp. 2,500 100
Ryder Systems, Inc. 400 16
Southwest Airlines Co. 5,137 82
Union Pacific Corp. 1,700 118
United Parcel Service, Inc., Class B 7,385 539
-----------
1,260
UTILITIES 0.5%
---------------------------------------------------------------------------
o The AES Corp. 3,200 51
o Allegheny Energy, Inc. 720 20
Ameren Corp. 1,200 63
40 See financial notes.
SCHWAB MARKETTRACK BALANCED PORTFOLIO
VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
American Electric Power Co., Inc. 2,580 98
o Calpine Corp. 1,800 4
Centerpoint Energy, Inc. 1,924 26
Cinergy Corp. 1,000 40
o CMS Energy Corp. 700 10
Consolidated Edison, Inc. 1,500 68
Constellation Energy Group, Inc. 1,000 55
Dominion Resources, Inc. 2,167 165
DTE Energy Co. 1,000 43
Duke Energy Corp. 5,952 158
o Dynegy, Inc., Class A 2,100 9
Edison International 2,200 96
Entergy Corp. 1,500 106
Exelon Corp. 4,324 225
FirstEnergy Corp. 2,030 96
FPL Group, Inc. 2,600 112
KeySpan Corp. 900 31
Nicor, Inc. 300 12
NiSource, Inc. 1,651 39
Peoples Energy Corp. 200 8
PG&E Corp. 2,700 98
Pinnacle West Capital Corp. 600 25
PPL Corp. 2,000 63
Progress Energy, Inc. 1,593 70
Public Service Enterprise
Group, Inc. 1,500 94
Sempra Energy 1,360 60
The Southern Co. 4,500 158
TECO Energy, Inc. 900 16
TXU Corp. 1,582 159
Xcel Energy, Inc. 2,585 47
-----------
2,325
OTHER INVESTMENT COMPANIES
85.7% of net assets
/(2) Schwab Institutional Select
S&P 500 Fund 8,862,123 84,810
/(4) Schwab International Index Fund,
Select Shares 4,575,148 78,189
/(3) Schwab Small-Cap Index Fund,
Select Shares 3,523,331 78,782
/(1) Schwab Total Bond
Market Fund 18,219,874 179,648
/(5) Schwab Value Advantage Money Fund,
Institutional Shares 23,269,573 23,270
-----------
444,699
SECURITY FACE AMOUNT
RATE, MATURITY DATE ($ x 1,000)
SHORT-TERM INVESTMENT
0.4% of net assets
Wachovia Bank, Grand
Cayman Time Deposit
3.48%, 11/01/05 1,945 1,945
END OF INVESTMENTS.
See financial notes. 41
SCHWAB MARKETTRACK BALANCED PORTFOLIO
Statement of
ASSETS AND LIABILITIES
As of October 31, 2005. All numbers x 1,000 except NAV.
ASSETS
- ------------------------------------------------------------------------------
Investments in affiliated underlying funds, at value $444,699 a
Investments, at value 74,159 a
Receivables:
Fund shares sold 350
Dividends 104
Prepaid expenses + 13
------------
TOTAL ASSETS 519,325
LIABILITIES
- ------------------------------------------------------------------------------
Payables:
Fund shares redeemed 158
Investment adviser and administrator fees 9
Transfer agent and shareholder service fees 11
Accrued expenses + 59
------------
TOTAL LIABILITIES 237
NET ASSETS
- ------------------------------------------------------------------------------
TOTAL ASSETS 519,325
TOTAL LIABILITIES - 237
------------
NET ASSETS $519,088
NET ASSETS BY SOURCE
Capital received from investors 440,180
Net investment income not yet distributed 5,501
Net realized capital losses (1,157) b
Net unrealized capital gains 74,564 b
NET ASSET VALUE (NAV)
SHARES
NET ASSETS / OUTSTANDING = NAV
$519,088 33,582 $ 15.46
Unless stated, all numbers x 1,000.
a The fund paid $444,294 for these securities.
Not counting short-term obligations and government securities and securities
related to in-kind transactions, the fund's investment transactions during
the period were:
Purchases $124,524
Sales/maturities $172,168
The fund's total security transactions (including the in-kind redemptions)
with other Schwab Funds(R) during the period were $153,092.
Percent of fund shares of other Schwab Funds owned at the end of the report
period:
SCHWAB EQUITY INDEX FUNDS
Small-Cap Index Fund 4.9%
International Index Fund 5.7%
SCHWAB BOND FUNDS
Total Bond Market Fund 15.3%
SCHWAB INSTITUTIONAL SELECT FUNDS
Institutional Select
S&P 500 Fund 6.8%
SCHWAB MONEY FUNDS
Value Advantage
Money Fund 0.1%
b These derive from investments and futures.
FEDERAL TAX DATA
-----------------------------------------------------
PORTFOLIO COST $446,941
NET UNREALIZED GAINS AND LOSSES:
Gains $80,847
Losses + (8,930)
------------
$71,917
NET UNDISTRIBUTED EARNINGS:
Ordinary income $5,501
Long-term capital gains $1,490
CAPITAL LOSSES UTILIZED $11,299
42 See financial notes.
SCHWAB MARKETTRACK BALANCED PORTFOLIO
Statement of
OPERATIONS
For November 1, 2004 through October 31, 2005. All numbers x 1,000.
INVESTMENT INCOME
- -------------------------------------------------------------------------------
Dividends received from affiliated underlying funds $12,842
Dividends 1,499
Interest + 153
----------
TOTAL INVESTMENT INCOME 14,494
NET REALIZED GAINS AND LOSSES
- -------------------------------------------------------------------------------
Net realized gains on sales of affiliated underlying funds 15,436 a
Net realized gains received from affiliated underlying funds 979
Net realized gains on investments 711
Net realized gains on futures contracts + 121
----------
NET REALIZED GAINS 17,247
NET UNREALIZED GAINS AND LOSSES
- -------------------------------------------------------------------------------
Net unrealized gains on affiliated underlying funds 6,403
Net unrealized gains on investments + 3,716
----------
NET UNREALIZED GAINS 10,119
EXPENSES
- -------------------------------------------------------------------------------
Investment adviser and administrator fees 2,343 b
Transfer agent and shareholder service fees 1,342 c
Trustees' fees 9 d
Custodian fees 32
Portfolio accounting fees 69
Professional fees 31
Registration fees 23
Shareholder reports 45
Other expenses + 42
----------
Total expenses 3,936
Expense reduction - 1,252 e
----------
NET EXPENSES 2,684
INCREASE IN NET ASSETS FROM OPERATIONS
- -------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME 14,494
NET EXPENSES - 2,684
----------
NET INVESTMENT INCOME 11,810
NET REALIZED GAINS 17,247 f
NET UNREALIZED GAINS + 10,119 f
----------
INCREASE IN NET ASSETS FROM OPERATIONS $39,176
Unless stated, all numbers x 1,000.
a Includes gains of $8,121 associated with redemption-in-kind from the Schwab
S&P 500 Index Fund.
b Calculated as a percentage of average daily net assets: 0.44% of the first
$500 million and 0.39% of assets beyond that. These fees are paid to Charles
Schwab Investment Management, Inc. (CSIM).
c Calculated as a percentage of average daily net assets: for transfer agent
services, 0.05% of the fund's assets; for shareholder services, 0.20% of the
fund's assets. These fees are paid to Charles Schwab & Co., Inc. (Schwab).
d For the fund's independent trustees only.
e This reduction was made by the investment adviser (CSIM). It reflects a
guarantee by CSIM and the transfer agent and shareholder service agent
(Schwab) to limit the net operating expenses of this fund through February 27,
2006, to 0.50% of average daily net assets. This limit excludes interest,
taxes and certain non-routine expenses.
f These add up to a net gain on investments of $27,366.
See financial notes. 43
SCHWAB MARKETTRACK BALANCED PORTFOLIO
Statements of
CHANGES IN NET ASSETS
For the current and prior report periods. All numbers x 1,000
OPERATIONS
- ------------------------------------------------------------------------------
11/1/04-10/31/05 11/1/03-10/31/04
Net investment income $11,810 $10,785
Net realized gains 17,247 3,467
Net unrealized gains + 10,119 29,584
--------------------------------------
INCREASE IN NET ASSETS FROM OPERATIONS $39,176 43,836
DISTRIBUTIONS PAID
- ------------------------------------------------------------------------------
Dividends from net investment income $10,162 $10,771 a,b
TRANSACTIONS IN FUND SHARES
- ------------------------------------------------------------------------------
11/1/04-10/31/05 11/1/03-10/31/04
SHARES VALUE SHARES VALUE
Shares sold 5,057 $76,535 7,160 $101,953
Shares reinvested 651 9,764 746 10,391
Shares redeemed + (9,036) (137,415) (8,474) (120,586) c
----------------------------------------------
NET TRANSACTIONS IN
FUND SHARES (3,328) ($51,116) (568) ($8,242)
SHARES OUTSTANDING AND NET ASSETS
- ------------------------------------------------------------------------------
11/1/04-10/31/05 11/1/03-10/31/04
SHARES NET ASSETS SHARES NET ASSETS
Beginning of period 36,910 $541,190 37,478 $516,367
Total increase or decrease + (3,328) (22,102) (568) 24,823 d
----------------------------------------------
END OF PERIOD 33,582 $519,088 36,910 $541,190 e
Unless stated, all numbers x 1,000.
a UNAUDITED
For corporations, 39% of the fund's dividends for the report period qualify
for the dividends-received deduction.
The fund designates $4,906 of the dividend distribution for the fiscal year
ended 10/31/05 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 2006 via IRS Form 1099 of the amounts for use in preparing
their 2005 income tax return.
b The tax-basis components of distributions paid are:
CURRENT PERIOD
Ordinary income $10,162
Long-term capital gains $--
PRIOR PERIOD
Ordinary income $10,771
Long-term capital gains $--
c For shares purchased after 4/29/05 and held less than 30 days, the fund
charges 2.00% redemption fee.
CURRENT PERIOD $5
Dollar amounts are net of the redemption fee proceeds.
d Figures for shares represent shares sold plus shares reinvested, minus shares
redeemed. Figures for net assets represent the changes in net assets from
operations plus the changes in value of transactions in fund shares, minus
distributions paid.
e Includes distributable net investment income in the amount of $5,501 and
$3,853 at the end of the current period and prior period, respectively.
44 See financial notes.
SCHWAB MARKETTRACK CONSERVATIVE PORTFOLIO(TM)
FINANCIAL STATEMENTS
FINANCIAL HIGHLIGHTS
11/1/04- 11/1/03- 11/1/02- 11/1/01- 11/1/00-
10/31/05 10/31/04 10/31/03 10/31/02 10/31/01
- -----------------------------------------------------------------------------------------------------
PER-SHARE DATA ($)
- -----------------------------------------------------------------------------------------------------
Net asset value at beginning of period 13.09 12.53 11.37 12.22 13.12
----------------------------------------------------
Income or loss from investment operations:
Net investment income 0.36 0.34 0.29 0.40 0.49
Net realized and unrealized gains or losses 0.32 0.57 1.16 (0.78) (0.80)
----------------------------------------------------
Total income or loss from investment
operations 0.68 0.91 1.45 (0.38) (0.31)
Less distributions:
Dividends from net investment income (0.35) (0.35) (0.29) (0.41) (0.50)
Distributions from net realized gains -- -- -- (0.06) (0.09)
----------------------------------------------------
Total distributions (0.35) (0.35) (0.29) (0.47) (0.59)
----------------------------------------------------
Net asset value at end of period 13.42 13.09 12.53 11.37 12.22
----------------------------------------------------
Total return (%) 5.24 7.38 12.98 (3.29) (2.39)
RATIOS/SUPPLEMENTAL DATA (%)
- -----------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net operating expenses 1 0.50 0.50 0.50 0.50 0.50
Gross operating expenses 1 0.75 0.75 0.75 0.76 0.77
Net investment income 2.67 2.70 2.44 3.17 3.85
Portfolio turnover rate 9 10 17 32 15
Net assets, end of period ($ x 1,000,000) 300 290 289 263 211
1 The expenses incurred by underlying funds in which the portfolio invests are
not included in this ratio. The income received by the portfolio from
underlying funds is reduced by those expenses.
See financial notes. 45
SCHWAB MARKETTRACK CONSERVATIVE PORTFOLIO
PORTFOLIO HOLDINGS as of October 31, 2005
This section shows all the securities in the fund's portfolio by industry
classification and their value, as of the report date.
The fund files its complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. The fund's Form N-Q is
available on the SEC's website at http://www.sec.gov and may be reviewed and
copied at the SEC's Public Reference Room in Washington, D.C. Call
1-800-SEC-0330 for information on the operation of the Public Reference Room.
The schedule of portfolio holdings filed on the fund's most recent Form N-Q is
available by visiting Schwab's website at www.schwab.com/schwabfunds.
We use the symbols below to designate certain characteristics of the securities.
With the top ten holdings, the number in the circle is the security's rank among
the top ten.
(1) Top ten holding
o Non-income producing security
/ Issuer is affiliated with the fund's adviser
COST VALUE
HOLDINGS BY CATEGORY ($x1,000) ($x1,000)
- --------------------------------------------------------------------------------
93.7% OTHER INVESTMENT
COMPANIES 254,490 281,602
5.7% COMMON STOCK 12,280 16,978
0.4% SHORT-TERM
INVESTMENT 1,338 1,338
- --------------------------------------------------------------------------------
99.8% TOTAL INVESTMENTS 268,108 299,918
0.2% OTHER ASSETS AND
LIABILITIES, NET 453
- --------------------------------------------------------------------------------
100.0% TOTAL NET ASSETS 300,371
VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
COMMON STOCK 5.7% of net assets
AUTOMOBILES & COMPONENTS 0.0%
---------------------------------------------------------------------------
Cooper Tire & Rubber Co. 100 1
Dana Corp. 292 2
Ford Motor Co. 2,921 24
General Motors Corp. 825 23
o Goodyear Tire & Rubber Co. 300 5
Harley-Davidson, Inc. 500 25
Johnson Controls, Inc. 300 20
Visteon Corp. 248 2
-----------
102
BANKS 0.4%
---------------------------------------------------------------------------
AmSouth Bancorp. 600 15
Bank of America Corp. 6,162 270
BB&T Corp. 850 36
Comerica, Inc. 300 17
Compass Bancshares, Inc. 190 9
Countrywide Financial Corp. 798 25
Fannie Mae 1,475 70
Fifth Third Bancorp 867 35
First Horizon National Corp. 200 8
Freddie Mac 1,000 61
Golden West Financial Corp. 500 29
Huntington Bancshares, Inc. 423 10
KeyCorp, Inc. 700 23
M&T Bank Corp. 199 21
Marshall & Ilsley Corp. 322 14
MGIC Investment Corp. 150 9
National City Corp. 950 31
North Fork Bancorp., Inc. 750 19
PNC Financial Services Group, Inc. 400 24
Regions Financial Corp. 670 22
Sovereign Bancorp, Inc. 400 9
SunTrust Banks, Inc. 500 36
Synovus Financial Corp. 400 11
U.S. Bancorp 2,922 87
Wachovia Corp. 2,445 124
Washington Mutual, Inc. 1,491 59
Wells Fargo & Co. 2,560 154
Zions Bancorp. 100 7
-----------
1,235
CAPITAL GOODS 0.5%
---------------------------------------------------------------------------
3M Co. 1,200 91
American Power Conversion Corp. 225 5
American Standard Cos., Inc. 300 11
The Boeing Co. 1,246 81
Caterpillar, Inc. 1,100 58
Cooper Industries Ltd., Class A 150 11
46 See financial notes.
SCHWAB MARKETTRACK CONSERVATIVE PORTFOLIO
VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
Crane Co. 150 5
Cummins, Inc. 100 8
Danaher Corp. 500 26
Deere & Co. 400 24
Dover Corp. 300 12
Eaton Corp. 200 12
Emerson Electric Co. 650 45
Fluor Corp. 100 6
General Dynamics Corp. 300 35
(6) General Electric Co. 16,490 559
Goodrich Corp. 200 7
Honeywell International, Inc. 1,275 44
Illinois Tool Works, Inc. 350 30
Ingersoll-Rand Co., Class A 500 19
ITT Industries, Inc. 150 15
L-3 Communications Holdings, Inc. 200 16
Lockheed Martin Corp. 700 42
Masco Corp. 700 20
o Navistar International Corp. 100 3
Northrop Grumman Corp. 514 28
Paccar, Inc. 300 21
Pall Corp. 200 5
Parker Hannifin Corp. 150 9
o Power-One, Inc. 57 --
Raytheon Co. 600 22
Rockwell Automation, Inc. 300 16
Rockwell Collins, Inc. 300 14
Textron, Inc. 200 14
o Thomas & Betts Corp. 100 4
Tyco International Ltd. 3,013 79
United Technologies Corp. 1,600 82
W.W. Grainger, Inc. 100 7
-----------
1,486
COMMERCIAL SERVICES & SUPPLIES 0.1%
---------------------------------------------------------------------------
o ACCO Brands Corp. 47 1
o Allied Waste Industries, Inc. 500 4
o Apollo Group, Inc., Class A 250 16
Avery Dennison Corp. 200 11
Cendant Corp. 1,459 25
Cintas Corp. 260 11
Deluxe Corp. 100 3
Equifax, Inc. 200 7
H&R Block, Inc. 600 15
o Monster Worldwide, Inc. 191 6
o PHH Corp. 72 2
Pitney Bowes, Inc. 400 17
R.R. Donnelley & Sons Co. 300 11
Robert Half International, Inc. 300 11
Waste Management, Inc. 907 27
-----------
167
CONSUMER DURABLES & APPAREL 0.1%
---------------------------------------------------------------------------
Black & Decker Corp. 100 8
Brunswick Corp. 100 4
Centex Corp. 200 13
o Coach, Inc. 600 19
D.R. Horton, Inc. 420 13
Eastman Kodak Co. 500 11
Fortune Brands, Inc. 200 15
Hasbro, Inc. 325 6
Jones Apparel Group, Inc. 200 5
KB Home 200 13
Leggett & Platt, Inc. 300 6
Lennar Corp., Class A 200 11
Liz Claiborne, Inc. 200 7
Mattel, Inc. 650 10
Maytag Corp. 100 2
Newell Rubbermaid, Inc. 436 10
Nike, Inc., Class B 300 25
Pulte Homes, Inc. 400 15
Reebok International Ltd. 100 6
Snap-On, Inc. 100 4
The Stanley Works 100 5
VF Corp. 200 10
Whirlpool Corp. 100 8
-----------
226
DIVERSIFIED FINANCIALS 0.5%
---------------------------------------------------------------------------
American Express Co. 1,820 91
o Ameriprise Financial, Inc. 364 14
The Bank of New York Co., Inc. 1,200 38
The Bear Stearns Cos., Inc. 145 15
Capital One Financial Corp. 450 34
See financial notes. 47
SCHWAB MARKETTRACK CONSERVATIVE PORTFOLIO
PORTFOLIO HOLDINGS continued
VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
/ The Charles Schwab Corp. 2,125 32
CIT Group, Inc. 300 14
(9) Citigroup, Inc. 8,082 370
o E*TRADE Financial Corp. 600 11
Federated Investors, Inc., Class B 200 7
Franklin Resources, Inc. 200 18
Goldman Sachs Group, Inc. 728 92
Janus Capital Group, Inc. 400 7
JPMorgan Chase & Co. 5,352 196
Lehman Brothers Holdings, Inc. 400 48
MBNA Corp. 1,957 50
Mellon Financial Corp. 700 22
Merrill Lynch & Co., Inc. 1,500 97
Moody's Corp. 400 21
Morgan Stanley 1,630 89
Northern Trust Corp. 300 16
Principal Financial Group, Inc. 550 27
SLM Corp. 650 36
State Street Corp. 500 28
T. Rowe Price Group, Inc. 200 13
-----------
1,386
ENERGY 0.5%
---------------------------------------------------------------------------
Amerada Hess Corp. 100 13
Anadarko Petroleum Corp. 367 33
Apache Corp. 462 30
Baker Hughes, Inc. 470 26
BJ Services Co. 400 14
Burlington Resources, Inc. 600 43
ChevronTexaco Corp. 3,520 201
ConocoPhillips 2,164 142
Devon Energy Corp. 700 42
El Paso Corp. 769 9
EOG Resources, Inc. 360 24
(7) Exxon Mobil Corp. 9,918 557
Halliburton Co. 714 42
Kerr-McGee Corp. 123 10
Kinder Morgan, Inc. 176 16
Marathon Oil Corp. 523 31
Murphy Oil Corp. 300 14
o Nabors Industries Ltd. 200 14
o National-Oilwell Varco, Inc. 270 17
Noble Corp. 200 13
Occidental Petroleum Corp. 600 47
Rowan Cos., Inc. 100 3
Schlumberger Ltd. 900 82
Sunoco, Inc. 200 15
o Transocean, Inc. 474 27
Valero Energy Corp. 500 53
o Weatherford International Ltd. 220 14
Williams Cos., Inc. 700 16
XTO Energy, Inc. 533 23
-----------
1,571
FOOD & STAPLES RETAILING 0.1%
---------------------------------------------------------------------------
Albertson's, Inc. 652 16
Costco Wholesale Corp. 700 34
CVS Corp. 1,200 29
o Kroger Co. 1,200 24
Safeway, Inc. 650 15
Supervalu, Inc. 200 6
Sysco Corp. 1,000 32
Wal-Mart Stores, Inc. 3,900 185
Walgreen Co. 1,600 73
o Winn-Dixie Stores, Inc. 300 --
-----------
414
FOOD BEVERAGE & TOBACCO 0.3%
---------------------------------------------------------------------------
Altria Group, Inc. 3,220 242
Anheuser-Busch Cos., Inc. 1,200 49
Archer-Daniels-Midland Co. 1,014 25
Brown-Forman Corp., Class B 150 9
Campbell Soup Co. 300 9
The Coca-Cola Co. 3,220 138
Coca-Cola Enterprises, Inc. 700 13
ConAgra Foods, Inc. 800 19
o Constellation Brands, Inc., Class A 300 7
General Mills, Inc. 582 28
H.J. Heinz Co. 600 21
Hershey Foods Corp. 400 23
Kellogg Co. 400 18
McCormick & Co., Inc. 200 6
Molson Coors Brewing Co., Class B 50 3
The Pepsi Bottling Group, Inc. 350 10
48 See financial notes.
SCHWAB MARKETTRACK CONSERVATIVE PORTFOLIO
VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
PepsiCo, Inc. 2,560 151
Reynolds American, Inc. 137 12
Sara Lee Corp. 1,200 21
Tyson Foods, Inc., Class A 400 7
UST, Inc. 300 12
Wm. Wrigley Jr. Co. 300 21
-----------
844
HEALTH CARE EQUIPMENT & SERVICES 0.3%
---------------------------------------------------------------------------
Aetna, Inc. 444 39
AmerisourceBergen Corp. 200 15
Bausch & Lomb, Inc. 100 7
Baxter International, Inc. 900 34
Becton Dickinson & Co. 400 20
Biomet, Inc. 450 16
o Boston Scientific Corp. 1,268 32
C.R. Bard, Inc. 200 13
Cardinal Health, Inc. 650 41
o Caremark Rx, Inc. 581 30
CIGNA Corp. 200 23
o Coventry Health Care, Inc. 300 16
o Express Scripts, Inc. 200 15
o Fisher Scientific International, Inc. 163 9
Guidant Corp. 500 32
HCA, Inc. 800 39
Health Management Associates, Inc.,
Class A 400 9
o Hospira, Inc. 240 10
o Humana, Inc. 200 9
IMS Health, Inc. 350 8
o Laboratory Corp. of America
Holdings 200 10
Manor Care, Inc. 100 4
McKesson Corp. 422 19
o Medco Health Solutions, Inc. 422 24
Medtronic, Inc. 1,800 102
o Millipore Corp. 100 6
PerkinElmer, Inc. 200 4
Quest Diagnostics 278 13
o St. Jude Medical, Inc. 500 24
Stryker Corp. 602 25
o Tenet Healthcare Corp. 750 6
o Thermo Electron Corp. 200 6
UnitedHealth Group, Inc. 2,000 116
o Waters Corp. 200 7
o WellPoint, Inc. 900 67
o Zimmer Holdings, Inc. 350 22
-----------
872
HOTELS RESTAURANTS & LEISURE 0.1%
---------------------------------------------------------------------------
Carnival Corp. 820 41
Darden Restaurants, Inc. 300 10
Harrah's Entertainment, Inc. 200 12
Hilton Hotels Corp. 600 12
International Game Technology 556 15
Marriott International, Inc., Class A 300 18
McDonald's Corp. 2,000 63
o Starbucks Corp. 1,120 32
Starwood Hotels & Resorts
Worldwide, Inc. 300 17
Wendy's International, Inc. 200 9
Yum! Brands, Inc. 480 24
-----------
253
HOUSEHOLD & PERSONAL PRODUCTS 0.1%
---------------------------------------------------------------------------
Alberto-Culver Co., Class B 150 7
Avon Products, Inc. 700 19
Clorox Co. 300 16
Colgate-Palmolive Co.800 42
Kimberly-Clark Corp. 756 43
(10) Procter & Gamble Co. 5,362 300
-----------
427
INSURANCE 0.3%
---------------------------------------------------------------------------
ACE Ltd. 400 21
AFLAC, Inc. 800 38
The Allstate Corp. 1,100 58
AMBAC Financial Group, Inc. 162 12
American International
Group, Inc. 3,979 258
AON Corp. 475 16
Chubb Corp. 300 28
Cincinnati Financial Corp. 330 14
Hartford Financial Services
Group, Inc. 425 34
Jefferson-Pilot Corp. 225 12
Lincoln National Corp. 300 15
Loews Corp. 300 28
See financial notes. 49
SCHWAB MARKETTRACK CONSERVATIVE PORTFOLIO
PORTFOLIO HOLDINGS continued
VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
Marsh & McLennan Cos., Inc. 800 23
MBIA, Inc. 200 12
o Metlife, Inc. 1,178 58
The Progressive Corp. 350 41
Prudential Financial, Inc. 800 58
Safeco Corp. 200 11
The St. Paul Travelers Cos., Inc. 1,006 45
Torchmark Corp. 200 11
UnumProvident Corp. 346 7
XL Capital Ltd., Class A 200 13
-----------
813
MATERIALS 0.2%
---------------------------------------------------------------------------
Air Products & Chemicals, Inc. 300 17
Alcoa, Inc. 1,312 32
Allegheny Technologies, Inc. 146 4
Ashland, Inc. 100 5
Ball Corp. 200 8
Bemis Co. 200 5
Chemtura Corp. 222 2
The Dow Chemical Co. 1,372 63
E.I. du Pont de Nemours & Co. 1,525 64
Eastman Chemical Co. 100 5
Ecolab, Inc. 400 13
Engelhard Corp. 200 6
Freeport-McMoran Copper & Gold, Inc.,
Class B 300 15
Georgia-Pacific Corp. 379 12
o Hercules, Inc. 200 2
International Flavors & Fragrances,
Inc. 200 7
International Paper Co. 739 22
Louisiana-Pacific Corp. 100 3
MeadWestvaco Corp. 294 8
Monsanto Co. 332 21
Neenah Paper, Inc. 22 1
Newmont Mining Corp. 643 27
Nucor Corp. 200 12
o Pactiv Corp. 300 6
Phelps Dodge Corp. 135 16
PPG Industries, Inc. 250 15
Praxair, Inc. 500 25
Rohm & Haas Co. 373 16
o Sealed Air Corp. 153 8
Sigma-Aldrich Corp. 100 6
Temple-Inland, Inc. 200 7
United States Steel Corp. 100 4
Vulcan Materials Co. 200 13
Weyerhaeuser Co. 350 22
Worthington Industries, Inc. 100 2
-----------
494
MEDIA 0.2%
---------------------------------------------------------------------------
Clear Channel Communications, Inc. 967 30
o Comcast Corp., Class A 3,463 96
Dow Jones & Co., Inc. 100 3
Gannett Co., Inc. 400 25
o Interpublic Group of Cos., Inc. 600 6
Knight-Ridder, Inc. 100 5
The McGraw-Hill Cos., Inc. 600 29
Meredith Corp. 100 5
New York Times Co., Class A 200 6
o News Corp, Inc., Class A 3,880 55
Omnicom Group, Inc. 300 25
Time Warner, Inc. 7,280 130
Tribune Co. 500 16
o Univision Communications, Inc.,
Class A 519 14
Viacom, Inc., Class B 2,660 82
The Walt Disney Co. 3,077 75
-----------
602
PHARMACEUTICALS & BIOTECHNOLOGY 0.4%
---------------------------------------------------------------------------
Abbott Laboratories 2,400 103
Allergan, Inc. 200 18
o Amgen, Inc. 1,952 148
Applied Biosystems Group --
Applera Corp. 300 7
o Biogen Idec, Inc. 480 19
Bristol-Myers Squibb Co. 3,000 64
o Chiron Corp. 300 13
Eli Lilly & Co. 1,725 86
o Forest Laboratories, Inc. 550 21
o Genzyme Corp. 325 23
o Gilead Sciences, Inc. 650 31
Johnson & Johnson 4,622 289
50 See financial notes.
SCHWAB MARKETTRACK CONSERVATIVE PORTFOLIO
VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
o King Pharmaceuticals, Inc. 366 6
o Medimmune, Inc. 400 14
Merck & Co., Inc. 3,400 96
Mylan Laboratories, Inc. 400 8
Pfizer, Inc. 11,557 251
Schering-Plough Corp. 2,300 47
o Watson Pharmaceuticals, Inc. 200 7
Wyeth 2,000 89
-----------
1,340
REAL ESTATE 0.0%
---------------------------------------------------------------------------
Apartment Investment & Management Co.,
Class A 100 4
Archstone-Smith Trust 300 12
Equity Office Properties Trust 600 18
Equity Residential 400 16
Plum Creek Timber Co., Inc. 300 12
ProLogis 300 13
Public Storage, Inc. 100 7
Simon Property Group, Inc. 300 21
Vornado Realty Trust 200 16
-----------
119
RETAILING 0.2%
---------------------------------------------------------------------------
o Autonation, Inc. 500 10
o AutoZone, Inc. 150 12
o Bed, Bath & Beyond, Inc. 400 16
Best Buy Co., Inc. 675 30
o Big Lots, Inc. 200 2
Circuit City Stores, Inc. 300 5
Dillards, Inc., Class A 200 4
Dollar General Corp. 515 10
o eBay, Inc. 1,708 68
Family Dollar Stores, Inc. 300 7
Federated Department Stores, Inc. 455 28
The Gap, Inc. 1,362 24
Genuine Parts Co. 250 11
Home Depot, Inc. 3,450 142
J.C. Penney Co., Inc. Holding Co. 400 20
o Kohl's Corp. 500 24
Limited Brands, Inc. 739 15
Lowe's Cos., Inc. 1,200 73
Nordstrom, Inc. 400 14
o Office Depot, Inc. 600 16
OfficeMax, Inc. 100 3
o RadioShack Corp. 300 7
o Sears Holdings Corp. 154 18
The Sherwin-Williams Co. 200 8
Staples, Inc. 1,125 26
Target Corp. 1,400 78
Tiffany & Co. 250 10
TJX Cos., Inc. 800 17
-----------
698
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT 0.2%
---------------------------------------------------------------------------
o Advanced Micro Devices, Inc. 560 13
o Altera Corp. 510 8
Analog Devices, Inc. 600 21
Applied Materials, Inc. 2,600 43
o Applied Micro Circuits Corp. 455 1
o Broadcom Corp., Class A 492 21
o Freescale Semiconductor, Inc.,
Class B 404 10
Intel Corp. 9,800 230
KLA-Tencor Corp. 300 14
Linear Technology Corp. 500 17
o LSI Logic Corp. 500 4
Maxim Integrated Products, Inc. 500 17
o Micron Technology, Inc. 900 12
National Semiconductor Corp. 600 13
o Novellus Systems, Inc. 250 5
o Nvidia Corp. 200 7
o PMC -- Sierra, Inc. 300 2
o Teradyne, Inc. 300 4
Texas Instruments, Inc. 2,700 77
Xilinx, Inc. 500 12
-----------
531
SOFTWARE & SERVICES 0.3%
---------------------------------------------------------------------------
Adobe Systems, Inc. 800 26
o Affiliated Computer Services, Inc.,
Class A 203 11
Autodesk, Inc. 400 18
Automatic Data Processing, Inc. 900 42
o BMC Software, Inc. 400 8
See financial notes. 51
SCHWAB MARKETTRACK CONSERVATIVE PORTFOLIO
PORTFOLIO HOLDINGS continued
VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
o Citrix Systems, Inc. 300 8
Computer Associates International,
Inc. 850 24
o Computer Sciences Corp. 258 13
o Compuware Corp. 600 5
o Convergys Corp. 174 3
o Electronic Arts, Inc. 424 24
Electronic Data Systems Corp. 700 16
First Data Corp. 1,392 56
o Fiserv, Inc. 300 13
o Intuit, Inc. 313 14
o Mercury Interactive Corp. 100 4
(8) Microsoft Corp. 14,420 371
o Novell, Inc. 500 4
o Oracle Corp. 5,870 74
o Parametric Technology Corp. 500 3
Paychex, Inc. 525 20
Sabre Holdings Corp., Class A 244 5
Siebel Systems, Inc. 600 6
o Symantec Corp. 1,678 40
o Unisys Corp. 500 3
o Yahoo! Inc. 2,000 74
-----------
885
TECHNOLOGY HARDWARE & EQUIPMENT 0.4%
---------------------------------------------------------------------------
o ADC Telecommunications, Inc. 142 2
o Agilent Technologies, Inc. 710 23
o Andrew Corp. 100 1
o Apple Computer, Inc. 1,200 69
o Avaya, Inc. 618 7
o CIENA Corp. 500 1
o Cisco Systems, Inc. 9,930 173
o Comverse Technology, Inc. 300 8
o Corning, Inc. 2,250 45
o Dell, Inc. 3,850 123
o EMC Corp. 3,650 51
o Gateway, Inc. 500 1
Hewlett-Packard Co. 4,703 132
International Business Machines
Corp. 2,500 205
o Jabil Circuit, Inc. 322 10
o JDS Uniphase Corp. 2,010 4
o Lexmark International, Inc., Class A 200 8
o Lucent Technologies, Inc. 7,019 20
Molex, Inc. 250 6
Motorola, Inc. 3,666 81
o NCR Corp. 400 12
o Network Appliance, Inc. 500 14
o QLogic Corp. 138 4
Qualcomm, Inc. 2,400 95
o Sanmina -- SCI Corp. 800 3
Scientific-Atlanta, Inc. 200 7
o Solectron Corp. 1,000 4
o Sun Microsystems, Inc. 5,000 20
Symbol Technologies, Inc. 322 3
Tektronix, Inc. 200 5
o Tellabs, Inc. 600 6
o Xerox Corp. 1,200 16
-----------
1,159
TELECOMMUNICATION SERVICES 0.2%
---------------------------------------------------------------------------
Alltel Corp. 500 31
AT&T Corp. 1,181 23
BellSouth Corp. 2,750 72
CenturyTel, Inc. 250 8
Citizens Communications Co. 410 5
o Qwest Communications International,
Inc. 2,524 11
SBC Communications, Inc. 5,025 120
Sprint Corp. (FON Group) 4,454 104
Verizon Communications, Inc. 4,188 132
-----------
506
TRANSPORTATION 0.1%
---------------------------------------------------------------------------
Burlington Northern Santa Fe Corp. 600 37
CSX Corp. 300 14
o Delta Air Lines, Inc. 200 --
FedEx Corp. 460 42
Norfolk Southern Corp. 600 24
Ryder Systems, Inc. 100 4
Southwest Airlines Co. 1,218 20
Union Pacific Corp. 400 28
52 See financial notes.
SCHWAB MARKETTRACK CONSERVATIVE PORTFOLIO
VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
United Parcel Service, Inc.,
Class B 1,712 125
-----------
294
UTILITIES 0.2%
---------------------------------------------------------------------------
o The AES Corp. 800 13
o Allegheny Energy, Inc. 170 5
Ameren Corp. 300 16
American Electric Power Co.,
Inc. 580 22
o Calpine Corp. 400 1
Centerpoint Energy, Inc. 474 6
Cinergy Corp. 300 12
o CMS Energy Corp. 200 3
Consolidated Edison, Inc. 300 14
Constellation Energy Group, Inc. 200 11
Dominion Resources, Inc. 515 39
DTE Energy Co. 200 9
Duke Energy Corp. 1,408 37
o Dynegy, Inc., Class A 500 2
Edison International 500 22
Entergy Corp. 350 25
Exelon Corp. 1,024 53
FirstEnergy Corp. 533 25
FPL Group, Inc. 600 26
KeySpan Corp. 200 7
Nicor, Inc. 100 4
NiSource, Inc. 376 9
Peoples Energy Corp. 100 4
PG&E Corp. 600 22
Pinnacle West Capital Corp. 100 4
PPL Corp. 600 19
Progress Energy, Inc. 354 15
Public Service Enterprise Group, Inc. 400 25
Sempra Energy 297 13
The Southern Co. 1,100 39
TECO Energy, Inc. 200 3
TXU Corp. 400 40
Xcel Energy, Inc. 510 9
-----------
554
OTHER INVESTMENT COMPANIES
93.7% of net assets
/(3) Schwab International Index Fund,
Select Shares 1,771,585 30,277
/(2) Schwab S&P 500 Index Fund,
Select Shares 2,318,367 43,771
/(4) Schwab Small-Cap Index Fund,
Select Shares 1,353,756 30,270
/(1) Schwab Total Bond
Market Fund 16,675,876 164,424
/(5) Schwab Value Advantage Money Fund,
Institutional Shares 12,860,362 12,860
-----------
281,602
SECURITY FACE AMOUNT
RATE, MATURITY DATE ($ x 1,000)
SHORT-TERM INVESTMENT
0.4% of net assets
Wachovia Bank, Grand
Cayman Time Deposit
3.48%, 11/01/05 1,338 1,338
END OF INVESTMENTS.
See financial notes. 53
SCHWAB MARKETTRACK CONSERVATIVE PORTFOLIO
Statement of
ASSETS AND LIABILITIES
As of October 31, 2005. All numbers x 1,000 except NAV.
ASSETS
- -------------------------------------------------------------------------------
Investments in affiliated underlying funds, at value $281,602 a
Investments, at value 18,316 a
Receivables:
Fund shares sold 544
Dividends 36
Prepaid expenses + 10
------------
TOTAL ASSETS 300,508
LIABILITIES
- -------------------------------------------------------------------------------
Payables:
Fund shares redeemed 77
Investment adviser and administrator fees 5
Transfer agent and shareholder service fees 6
Accrued expenses + 49
------------
TOTAL LIABILITIES 137
NET ASSETS
- -------------------------------------------------------------------------------
TOTAL ASSETS 300,508
TOTAL LIABILITIES - 137
------------
NET ASSETS $300,371
NET ASSETS BY SOURCE
Capital received from investors 268,888
Net investment income not yet distributed 601
Net realized capital losses (928)
Net unrealized capital gains 31,810
NET ASSET VALUE (NAV)
SHARES
NET ASSETS / OUTSTANDING = NAV
$300,371 22,379 $13.42
Unless stated, all numbers x 1,000.
a The fund paid $268,108 for these securities.
Not counting short-term obligations and government securities, the fund's
security transactions during the period were:
Purchases $27,470
Sales/maturities $25,134
Percent of fund shares of other Schwab funds owned at the end of the report
period:
SCHWAB EQUITY INDEX FUNDS
S&P 500 Index Fund 0.6%
Small-Cap Index Fund 1.9%
International Index Fund 2.2%
SCHWAB BOND FUNDS
Total Bond Market Fund 14.0%
SCHWAB MONEY FUNDS
Value Advantage
Money Fund Less than 0.1%
FEDERAL TAX DATA
-----------------------------------------
PORTFOLIO COST $269,238
NET UNREALIZED GAINS AND LOSSES:
Gains $34,753
Losses + (4,073)
-----------
$30,680
NET UNDISTRIBUTED EARNINGS:
Ordinary income $601
Long-term capital gains $202
CAPITAL LOSSES UTILIZED $2,047
54 See financial notes.
SCHWAB MARKETTRACK CONSERVATIVE PORTFOLIO
Statement of
OPERATIONS
For November 1, 2004 through October 31, 2005. All numbers x 1,000.
INVESTMENT INCOME
- -------------------------------------------------------------------------------
Dividends received from affiliated funds $9,201
Dividends 354
Interest + 38
----------
TOTAL INVESTMENT INCOME 9,593
NET REALIZED GAINS AND LOSSES
- -------------------------------------------------------------------------------
Net realized gains on sales of affiliated underlying funds 1,370
Net realized gains received from affiliated underlying funds 826
Net realized gains on investments + 102
----------
NET REALIZED GAINS 2,298
NET UNREALIZED GAINS AND LOSSES
- -------------------------------------------------------------------------------
Net unrealized gains on affiliated underlying funds 3,945
Net unrealized gains on investments + 927
----------
NET UNREALIZED GAINS 4,872
EXPENSES
- -------------------------------------------------------------------------------
Investment adviser and administrator fees 1,330 a
Transfer agent and shareholder service fees 756 b
Trustees' fees 7 c
Custodian fees 15
Portfolio accounting fees 39
Professional fees 31
Registration fees 18
Shareholder reports 18
Other expenses + 40
----------
Total expenses 2,254
Expense reduction - 742 d
----------
NET EXPENSES 1,512
INCREASE IN NET ASSETS FROM OPERATIONS
- -------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME 9,593
NET EXPENSES - 1,512
----------
NET INVESTMENT INCOME 8,081
NET REALIZED GAINS 2,298 e
NET UNREALIZED GAINS + 4,872 e
----------
INCREASE IN NET ASSETS FROM OPERATIONS $15,251
Unless stated, all numbers x 1,000.
a Calculated as a percentage of average daily net assets: 0.44% of the first
$500 million and 0.39% of assets beyond that. These fees are paid to Charles
Schwab Investment Management, Inc. (CSIM).
b Calculated as a percentage of average daily net assets: for transfer agent
services, 0.05% of the fund's assets; for shareholder services, 0.20% of the
fund's assets. These fees are paid to Charles Schwab & Co., Inc. (Schwab).
c For the fund's independent trustees only.
d This reduction was made by the investment adviser (CSIM). It reflects a
guarantee by CSIM and the transfer agent and shareholder service agent
(Schwab) to limit the net operating expenses of this fund through February 27,
2006, to 0.50% of average daily net assets. This limit excludes interest,
taxes and certain non-routine expenses.
e These add up to a net gain on investments of $7,170.
See financial notes. 55
SCHWAB MARKETTRACK CONSERVATIVE PORTFOLIO
Statements of
CHANGES IN NET ASSETS
For the current and prior report periods. All numbers x 1,000
OPERATIONS
- ------------------------------------------------------------------------------
11/1/04-10/31/05 11/1/03-10/31/04
Net investment income $8,081 $7,916
Net realized gains 2,298 3,273
Net unrealized gains + 4,872 9,568
-------------------------------------
INCREASE IN NET ASSETS FROM
OPERATIONS 15,251 20,757
DISTRIBUTIONS PAID
- ------------------------------------------------------------------------------
Dividends from net investment income $7,852 $8,047 a,b
TRANSACTIONS IN FUND SHARES
- ------------------------------------------------------------------------------
11/1/04-10/31/05 11/1/03-10/31/04
SHARES VALUE SHARES VALUE
Shares sold 4,139 $55,417 3,721 $47,654
Shares reinvested 560 7,474 602 7,647
Shares redeemed + (4,489) (60,077) (5,185) (66,455) c
--------------------------------------------------
NET TRANSACTIONS IN
FUND SHARES 210 $2,814 (862) ($11,154)
SHARES OUTSTANDING AND NET ASSETS
- ------------------------------------------------------------------------------
11/1/04-10/31/05 11/1/03-10/31/04
SHARES NET ASSETS SHARES NET ASSETS
Beginning of period 22,169 $290,158 23,031 $288,602
Total increase
or decrease + 210 10,213 (862) 1,556 d
--------------------------------------------------
END OF PERIOD 22,379 $300,371 22,169 $290,158 e
Unless stated, all numbers x 1,000.
UNAUDITED
a For corporations, 16% of the fund's dividends for the report period qualify
for the dividends-received deduction.
The fund designates $1,730 of the dividend distribution for the fiscal year
ended 10/31/05 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 2006 via IRS Form 1099 of the amounts for use in preparing
their 2005 income tax return.
b The tax-basis components of distributions paid are:
CURRENT PERIOD
Ordinary income $7,852
Long-term capital gains $--
PRIOR PERIOD
Ordinary income $8,047
Long-term capital gains $--
c For shares purchased after 4/29/05 and held less than 30 days, the fund
charges 2.00% redemption fee.
CURRENT PERIOD $3
Dollar amounts are net of the redemption fee proceeds.
d Figures for shares represent shares sold plus shares reinvested, minus shares
redeemed. Figures for net assets represent the changes in net assets from
operations plus the changes in value of transactions in fund shares, minus
distributions paid.
e Includes distributable net investment income in the amount of $601 and $372 at
the end of the current period and prior period, respectively.
56 See financial notes.
SCHWAB MARKETTRACK PORTFOLIOS
FINANCIAL NOTES
BUSINESS STRUCTURE OF THE FUNDS
EACH OF THE FUNDS DISCUSSED IN THIS REPORT IS A SERIES OF SCHWAB CAPITAL TRUST,
A NO-LOAD, OPEN-END MANAGEMENT INVESTMENT COMPANY. The company is organized as a
Massachusetts business trust and is registered under the Investment Company Act
of 1940, as amended. The sidebar shows the funds in this report and their trust.
THE FUNDS OFFER ONE SHARE CLASS. Shares are bought and sold at net asset value
(NAV), which is the price for all outstanding shares. Each share has a par value
of 1/1,000 of a cent, and the trust may issue as many shares as necessary.
FUND OPERATIONS
Most of the funds' investments are described in the fund-by-fund sections
earlier in this report. However, there are certain other fund operations and
policies that may affect a fund's financials, as described below. Other policies
concerning the funds' business operations also are described here.
THE FUNDS PAY DIVIDENDS from net investment income and make distributions from
net capital gains once a year, except for the Conservative Portfolio, which
makes income distributions quarterly.
THE FUNDS MAY INVEST IN FUTURES CONTRACTS. Futures contracts involve certain
risks because they can be very sensitive to market movements.
One risk is that the price of a futures contract may not move in perfect
correlation with the price of the underlying securities. Another risk is that,
at certain times, it may be impossible for a fund to close out a position in a
futures contract, due to a difference in trading hours or to market conditions
that may reduce the liquidity for a futures contract or its underlying
securities. The potential for losses associated with futures contracts may
exceed amounts recorded in the Statement of Assets and Liabilities.
Because futures carry inherent risks, a fund must give the broker a deposit of
cash and/or securities (the "initial margin") whenever it enters into a futures
contract. The amount of the deposit may vary from one contract to another, but
it is generally a percentage of the contract amount.
Futures are traded publicly on exchanges, and their market value changes daily.
A fund records the change in market value of futures, and also the change in the
amount of margin deposit required ("due to/from broker").
THE TRUST AND ITS FUNDS
This list shows all of the funds included in Schwab Capital Trust. The funds
discussed in this report are highlighted.
SCHWAB CAPITAL TRUST organized May 7, 1993
Schwab S&P 500 Index Fund
Schwab Institutional Select 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 Premier Equity Fund
Schwab Core Equity Fund
Schwab Dividend Equity Fund
Schwab Large-Cap Growth Fund
Schwab Small-Cap Equity Fund
Schwab Hedged Equity Fund
Schwab Financial Services Fund
Schwab Health Care Fund
Schwab Technology Fund
Schwab Target 2010 Fund
Schwab Target 2020 Fund
Schwab Target 2030 Fund
Schwab Target 2040 Fund
Schwab Retirement Income Fund
57
SCHWAB MARKETTRACK PORTFOLIOS
THE FUNDS PAY FEES TO AFFILIATES OF THE INVESTMENT ADVISER FOR VARIOUS SERVICES.
Through their trust, the funds have agreements with Charles Schwab Investment
Management, Inc. (CSIM) to provide investment advisory and administrative
services and with Charles Schwab & Co., Inc. (Schwab) to provide transfer agent
and shareholder services.
Although these agreements specify certain fees for these services, CSIM and
Schwab have made additional agreements with the funds that may limit the total
expenses charged. The rates and limitations for these fees vary from fund to
fund, and are described in each fund's Statement of Operations.
THE FUNDS MAY ENGAGE IN CERTAIN TRANSACTIONS INVOLVING RELATED PARTIES. For
instance, a fund may own shares of The Charles Schwab Corporation if that
company is included in its index.
Pursuant to an exemptive order issued by the SEC, the funds may invest in other
related funds. The percentages of fund shares of other related funds owned are
shown in each fund's Statement of Assets and Liabilities.
The funds may make direct transactions with certain other Schwab Funds(R) when
practical. When one fund is seeking to sell a security that another is seeking
to buy, an interfund transaction can allow both funds to benefit by reducing
transaction costs. This practice is limited to funds that share the same
investment adviser, trustees and officers.
Pursuant to an exemptive order issued by the SEC, the funds may enter into
interfund borrowing and lending transactions within the Schwab Funds(R). All
loans are for temporary or emergency purposes only. The interest rate charged on
the loan is the average of the overnight repurchase agreement rate and the
short-term bank loan rate. The interfund lending facility is subject to the
oversight and periodic review of the Board of Trustees of the Schwab Funds(R).
TRUSTEES MAY INCLUDE PEOPLE WHO ARE OFFICERS AND/OR DIRECTORS OF THE INVESTMENT
ADVISER OR SCHWAB. Federal securities law limits the percentage of such
"interested persons" who may serve on a trust's board, and the trust was in
compliance with these limitations throughout the report period. The trust did
not pay any of these persons for their service as trustees, but it did pay
non-interested persons (independent trustees), as noted in each fund's Statement
of Operations.
THE FUNDS MAY BORROW MONEY FROM BANKS AND CUSTODIANS. The funds may obtain
temporary bank loans through the trusts to which they belong, to use for meeting
shareholder redemptions or for extraordinary or emergency purposes. The Schwab
Funds have custodian overdraft facilities and line of credit arrangements of
$150 million and $100 million with PNC Bank, N.A. and Bank of America, N.A.,
respectively. The funds pay interest on the amounts they borrow at rates that
are negotiated periodically.
AMOUNT WEIGHTED
OUTSTANDING AVERAGE AVERAGE
AT 10/31/05 BORROWING* INTEREST
FUND ($ x 1,000) ($ x 1,000) RATE*(%)
- --------------------------------------------------------------------------------
MARKETTRACK
ALL EQUITY PORTFOLIO -- 330 4.03
- --------------------------------------------------------------------------------
MARKETTRACK
GROWTH PORTFOLIO -- 328 3.90
- --------------------------------------------------------------------------------
MARKETTRACK
BALANCED PORTFOLIO -- 405 2.97
- --------------------------------------------------------------------------------
MARKETTRACK
CONSERVATIVE PORTFOLIO -- 218 3.45
- --------------------------------------------------------------------------------
* 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
58
SCHWAB MARKETTRACK PORTFOLIOS
is not required to pay federal income tax. The net investment income and net
realized capital gains and losses may differ for financial statement and tax
purposes primarily due to differing treatments of losses on wash sales.
UNDER THE FUNDS' ORGANIZATIONAL DOCUMENTS, ITS OFFICERS AND TRUSTEES ARE
INDEMNIFIED AGAINST CERTAIN LIABILITY ARISING OUT OF THE PERFORMANCE OF THEIR
DUTIES TO THE FUNDS. In addition, in the normal course of business the funds
enter into contracts with their vendors and others that provide general
indemnifications. The funds' maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the funds.
However, based on experience, the funds expect the risk of loss to be remote.
ACCOUNTING POLICIES
The following are the main policies the funds use in preparing their financial
statements.
THE FUNDS VALUE THE SECURITIES IN THEIR PORTFOLIOS EVERY BUSINESS DAY. The funds
use the following policies to value various types of securities:
- - SECURITIES TRADED ON AN EXCHANGE OR OVER-THE-COUNTER: valued at the closing
value for the day, or, on days when no closing value has been reported,
halfway between the most recent bid and asked quotes. Securities that are
primarily traded on foreign exchanges are valued at the closing values of
such securities on their respective exchanges with these values then
translated into U.S. dollars at the current exchange rate.
- - SECURITIES FOR WHICH NO MARKET QUOTATIONS ARE READILY AVAILABLE or when a
significant event has occurred between the time of the security's last close
and the time that a fund calculates net asset value: valued at fair value, as
determined in good faith by the fund's investment adviser using guidelines
adopted by the fund's Board of Trustees and the Pricing Committee. Some of
the more common reasons that may necessitate that a security be valued at
fair value include: the security's trading has been halted or suspended; the
security has been de-listed from a national exchange; the security's primary
trading market is temporarily closed at a time when under normal conditions
it would be open; or the security's primary pricing source is not able or
willing to provide a price.
- - FUTURES AND FORWARDS: open contracts are valued at their settlement prices as
of the close of their exchanges (for futures) or at a market value based on
that day's exchange rates (for forwards). When a fund closes out a futures or
forwards position, it calculates the difference between the value of the
position at the beginning and at the end, and records a realized gain or loss
accordingly.
- - UNDERLYING FUNDS: Valued at their respective net asset values as determined
by those funds, in accordance with the Investment Company Act of 1940.
- - 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.
59
SCHWAB MARKETTRACK PORTFOLIOS
ASSETS AND LIABILITIES DENOMINATED IN FOREIGN CURRENCIES are reported in U.S.
dollars. For assets and liabilities held on a given date, the dollar value is
based on market exchange rates in effect on that date. Transactions involving
foreign currencies, including purchases, sales, income receipts and expense
payments, are calculated using exchange rates in effect on the transaction date.
EXPENSES that are specific to a fund are charged directly to that fund. Expenses
that are common to all funds within a trust generally are allocated among the
funds in proportion to their average daily net assets.
EACH FUND MAINTAINS ITS OWN ACCOUNT FOR PURPOSES OF HOLDING ASSETS AND
ACCOUNTING, and is considered a separate entity for tax purposes. Within its
account, each fund also keeps certain assets in segregated accounts, as may be
required by securities law.
THE ACCOUNTING POLICIES DESCRIBED ABOVE CONFORM WITH ACCOUNTING PRINCIPLES
GENERALLY ACCEPTED IN THE UNITED STATES OF AMERICA. Notwithstanding this,
shareholders should understand that in order to follow these principles, fund
management has to make estimates and assumptions that affect the information
reported in the financial statements. It's possible that once the results are
known, they may turn out to be different from these estimates.
60
SCHWAB MARKETTRACK PORTFOLIOS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF:
Schwab MarketTrack All Equity Portfolio(TM)
Schwab MarketTrack Growth Portfolio(TM)
Schwab MarketTrack Balanced Portfolio(TM)
Schwab MarketTrack Conservative Portfolio(TM)
In our opinion, the accompanying statements of assets and liabilities, including
the portfolio holdings, and the related statements of operations and of changes
in net assets and the financial highlights present fairly, in all material
respects, the financial position of Schwab MarketTrack All Equity Portfolio,
Schwab MarketTrack Growth Portfolio, Schwab MarketTrack Balanced Portfolio, and
Schwab MarketTrack Conservative Portfolio (constituting four funds of Schwab
Capital Trust, hereafter referred to as the "Funds") at October 31, 2005, the
results of each of their operations for the year then ended, 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, 2005 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
PRICEWATERHOUSECOOPERS LLP
San Francisco, California
December 16, 2005
61
INVESTMENT ADVISORY AGREEMENT APPROVAL
The Investment Company Act of 1940 (the "1940 Act") requires that initial
approval of, as well as the continuation of, a fund's investment advisory
agreement must be specifically approved (1) by the vote of the trustees or by a
vote of the shareholders of the fund, and (2) by the vote of a majority of the
trustees who are not parties to the investment advisory agreement or "interested
persons" of any party (the "Independent Trustees"), cast in person at a meeting
called for the purpose of voting on such approval. In connection with such
approvals, the fund's trustees must request and evaluate, and the investment
adviser is required to furnish, such information as may be reasonably necessary
to evaluate the terms of the advisory agreement. In addition, the Securities and
Exchange Commission (the "SEC") takes the position that, as part of their
fiduciary duties with respect to fund fees, fund boards are required to evaluate
the material factors applicable to a decision to approve an investment advisory
agreement.
Consistent with these responsibilities, the Board of Trustees (the "Board")
calls and holds one or more meetings each year that are dedicated, in whole or
in part, to considering whether to renew the investment advisory agreement
between Schwab Capital Trust (the "Trust") and CSIM (the "Agreement") with
respect to existing funds in the Trust, operating as of December 31 of the
previous year, including the Schwab MarketTrack All Equity Portfolio, the Schwab
MarketTrack Growth Portfolio, the Schwab MarketTrack Balanced Portfolio and the
Schwab MarketTrack Conservative Portfolio, and to review certain other
agreements pursuant to which CSIM provides investment advisory services to
certain other registered investment companies. In preparation for the
meeting(s), the Board requests and reviews a wide variety of materials provided
by CSIM, including information about CSIM's affiliates, personnel and
operations. The Board also receives extensive data provided by third parties.
This information is in addition to the detailed information about the funds that
the Board reviews during the course of each year, including information that
relates to fund operations and fund performance. The trustees also receive
memoranda from counsel regarding the responsibilities of trustees for the
approval of investment advisory contracts. In addition, the Independent Trustees
receive advice from their counsel, meet in executive session outside the
presence of fund management and participate in question and answer sessions with
representatives of CSIM.
At the May 24, 2005 meeting of the Board, the trustees, including a majority of
the Independent Trustees, approved the renewal of the Agreement for an
additional one year period. The Board's approval of the Agreement was based on
consideration and evaluation of a variety of specific factors discussed at that
meeting and at prior meetings, including:
1. the nature, extent and quality of the services provided to the funds under
the Agreement, including the resources of CSIM and its affiliates dedicated
to the funds;
2. each fund's investment performance and how it compared to that of certain
other comparable mutual funds;
3. each fund's expenses and how those expenses compared to those of certain
other comparable mutual funds;
4. the profitability of CSIM and its affiliates, including Charles Schwab & Co.,
Inc. ("Schwab"), with respect to each fund, including both direct and
indirect benefits accruing to CSIM and its affiliates; and
5. the extent to which economies of scale would be realized as the funds grow
and whether fee levels in the Agreement reflect those economies of scale for
the benefit of fund investors.
62
NATURE, EXTENT AND QUALITY OF SERVICES. The Board considered the nature, extent
and quality of the services provided by CSIM to the funds and the resources of
CSIM and its affiliates dedicated to the funds. In this regard, the trustees
evaluated, among other things, CSIM's personnel, experience, track record and
compliance program. The trustees also considered the fact that Schwab's
extensive branch network, Internet access, investment and research tools,
telephone services, and array of account features benefit the funds. The
trustees also considered Schwab's excellent reputation as a full service
brokerage firm and its overall financial condition. Finally, the trustees
considered that the vast majority of the funds' investors are also brokerage
clients of Schwab, and that CSIM and its affiliates are uniquely positioned to
provide services and support to the funds and such shareholders. Following such
evaluation, the Board concluded, within the context of its full deliberations,
that the nature, extent and quality of services provided by CSIM to the funds
and the resources of CSIM and its affiliates dedicated to the funds supported
renewal of the Agreement.
FUND PERFORMANCE. The Board considered fund performance in determining whether
to renew the Agreement. Specifically, the trustees considered each fund's
performance relative to a peer group of other mutual funds and appropriate
indices/benchmarks, in light of total return, yield and market trends. As part
of this review, the trustees considered the composition of the peer group,
selection criteria and the reputation of the third party who prepared the peer
group analysis. In evaluating the performance of each fund, the trustees
considered both market risk and shareholder risk expectations for such fund.
Following such evaluation, the Board concluded, within the context of its full
deliberations, that the performance of the funds supported renewal of the
Agreement.
FUND EXPENSES. With respect to the funds' expenses, the trustees considered the
rate of compensation called for by the Agreement, and each fund's net operating
expense ratio, in each case, in comparison to those of other comparable mutual
funds, such peer groups and comparisons having been selected and calculated by
an independent third party. The trustees considered the effects of CSIM's and
Schwab's voluntary waiver of management and other fees to prevent total fund
expenses from exceeding a specified cap. The trustees also considered fees
charged by CSIM to other mutual funds and to other types of accounts, such as
wrap accounts and offshore funds, but, with respect to such other types of
accounts, accorded less weight to such comparisons due to the unique legal,
regulatory, compliance and operating features of mutual funds as compared to
these other types of accounts. Following such evaluation, the Board concluded,
within the context of its full deliberations, that the expenses of the funds are
reasonable and supported renewal of the Agreement.
PROFITABILITY. With regard to profitability, the trustees considered the
compensation flowing to CSIM and its affiliates, directly or indirectly. In this
connection, the trustees reviewed management's profitability analyses, together
with certain commentary thereon from an independent accounting firm. The
trustees also considered any other benefits derived by CSIM from its
relationship with the funds, such as whether, by virtue of its management of the
funds, CSIM obtains investment information or other research resources that aid
it in providing advisory services to other clients. The trustees considered
whether the varied levels of compensation and profitability under the Agreement
63
and other service agreements were reasonable and justified in light of the
quality of all services rendered to each fund by CSIM and its affiliates. Based
on this evaluation, the Board concluded, within the context of its full
deliberations, that the profitability of CSIM is reasonable and supported
renewal of the Agreement.
ECONOMIES OF SCALE. The trustees considered the existence of any economies of
scale and whether those are passed along to a fund's shareholders through a
graduated investment advisory fee schedule or other means, including any fee
waivers by CSIM and its affiliates. In this regard, and consistent with their
consideration of fund expenses, the trustees considered that CSIM and Schwab
have previously committed resources to minimize the effects on shareholders of
diseconomies of scale during periods when fund assets were relatively small
through their contractual expense waivers. For example, such diseconomies of
scale may particularly affect newer funds or funds with investment strategies
that are from time to time out of favor, but shareholders may benefit from the
continued availability of such funds at subsidized expense levels. The trustees
also considered CSIM's agreement to contractual investment advisory fee
schedules which include lower fees at higher graduated asset levels. Based on
this evaluation, the Board concluded, within the context of its full
deliberations, that the funds obtain reasonable benefit from economies of scale.
In the course of their deliberations, the trustees did not identify any
particular information or factor that was all-important or controlling. Based on
the trustees' deliberation and their evaluation of the information described
above, the Board, including all of the Independent Trustees, unanimously
approved the continuation of the Agreement and concluded that the compensation
under the Agreement is fair and reasonable in light of such services and
expenses and such other matters as the trustees have considered to be relevant
in the exercise of their reasonable judgment.
64
TRUSTEES AND OFFICERS
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 Schwab Funds(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 56 Schwab Funds 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.
INDEPENDENT TRUSTEES
NAME AND
YEAR OF BIRTH TRUSTEE SINCE MAIN OCCUPATIONS AND OTHER DIRECTORSHIPS AND AFFILIATIONS
- ----------------------------------------------------------------------------------------------------------------------------------
MARIANN BYERWALTER 2000 (all trusts). Chairman, JDN Corp. Advisory LLC (real estate); Trustee, Stanford University,
1960 America First Cos., Omaha, NE (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; Director, Pacific Life Insurance Company (insurance); Trustee, Laudus
Trust and Laudus Variable Insurance Trust. 2 Until 2001: Stanford University,
Special Advisor to the President. From 1996-2001: Stanford University, Vice
President of Business Affairs, Chief Financial Officer.
- ----------------------------------------------------------------------------------------------------------------------------------
DONALD F. DORWARD Family of Funds, 1989; Chief Executive Officer, Dorward & Associates (corporate management, marketing
1931 Investments, 1991; and communications consulting). Until 1999: Executive Vice President, Managing
Capital Trust, 1993; Director, Grey Advertising San Francisco. Until 1996: President, Chief Executive
Annuity Portfolios,1994. Officer, Allen & Dorward Advertising.
1 The Schwab Funds 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 This includes 10 series of the Laudus Trust and the sole series of the Laudus
Variable Insurance Trust.
65
INDEPENDENT TRUSTEES continued
NAME AND
YEAR OF BIRTH TRUSTEE SINCE MAIN OCCUPATIONS AND OTHER DIRECTORSHIPS AND AFFILIATIONS
- ------------------------------------------------------------------------------------------------------------------------------------
WILLIAM A. HASLER 2000 (all trusts). Until February 2004 , Co-Chief Executive Officer, Aphton Corporation
1941 (bio-pharmaceuticals). Prior to August 1998, Dean of the Haas School of Business,
University of California, Berkeley (higher education).
Director, Aphton Corporation (bio-pharmaceuticals), Mission West Properties
(commercial real estate), Stratex Networks (network equipment), TOUSA (home
building), Genitope Corp. (bio-pharmaceuticals), Pacific Stock & Option Exchange;
Non-Executive Chairman, Solectron Corporation (manufacturing); Trustee, Laudus Trust
and Laudus Variable Insurance Trust. 3
- ------------------------------------------------------------------------------------------------------------------------------------
ROBERT G. HOLMES Family of Funds, 1989; Chairman, Chief Executive Officer, Director, Semloh Financial, Inc. (international
1931 Investments, 1991; financial services and investment advisory firm).
Capital Trust, 1993;
Annuity Portfolios, 1994.
- ------------------------------------------------------------------------------------------------------------------------------------
GERALD B. SMITH 2000 (all trusts). Since 1990, Chairman and Chief Executive Officer and founder of Smith Graham & Co.
1950 (investment advisors).
Director, Cooper Industries (electrical products, tools and hardware), Chairman,
Texas Southern University Foundation; Executive Committee & Board Member, MD
Anderson Cancer Center; Chairman of the audit committee of Northern Border
Partners, M.L.P. (energy).
- ------------------------------------------------------------------------------------------------------------------------------------
DONALD R. STEPHENS Family of Funds, 1989; Managing Partner, D.R. Stephens & Co. (investments). Until 1996: Chairman, Chief
1938 Investments, 1991; Executive Officer, North American Trust (real estate investment trust).
Capital Trust, 1993;
Annuity Portfolios, 1994.
- ------------------------------------------------------------------------------------------------------------------------------------
MICHAEL W. WILSEY Family of Funds, 1989; Chairman, Chief Executive Officer, Wilsey Bennett, Inc. (real estate investment
1943 Investments, 1991; and management, and other investments).
Capital Trust, 1993;
Annuity Portfolios, 1994.
3 This includes 10 series of the Laudus Trust and the sole series of the Laudus
Variable Insurance Trust.
66
INTERESTED TRUSTEES
NAME AND TRUST POSITION(S);
YEAR OF BIRTH TRUSTEE SINCE MAIN OCCUPATIONS AND OTHER DIRECTORSHIPS AND AFFILIATIONS
- ----------------------------------------------------------------------------------------------------------------------------------
CHARLES R. SCHWAB 4 Chairman, Trustee: Chairman, Chief Executive Officer and Director, The Charles Schwab Corporation,
1937 Family of Funds, 1989; Charles Schwab & Co., Inc.; Chairman and Director, Charles Schwab Investment
Investments, 1991; Management, Inc. Charles Schwab Bank, National Association; Chairman and Chief
Capital Trust, 1993; Executive Officer, Schwab (SI) Holdings Inc. I, Schwab International Holdings,
Annuity Portfolios, Inc.; Chief Executive Officer and Director, Schwab Holdings, Inc.; Director,
1994. U.S. Trust Company, National Association, U.S. Trust Corporation, United States
Trust Company of New York. Until 5/03, Co-Chief Executive Officer, The Charles
Schwab Corporation.
Trustee, Charles and Helen Schwab Foundation; Chairman, All Kinds of Minds
Institute (education), Stanford University; Chairman and Director, Charles
Schwab Foundation; Chairman of the Finance Committee, San Francisco Museum of
Modern Art.
- ----------------------------------------------------------------------------------------------------------------------------------
RANDALL W. MERK 4 Trustee, 2005 Executive Vice President and President, Asset Management Products & Services
1954 (all trusts). Enterprise, Charles Schwab & Co., Inc.; Director, Charles Schwab Asset
Management (Ireland) Limited. From 9/02 to 7/04, Mr. Merk was President and
Chief Executive Officer, Charles Schwab Investment Management, Inc. and
Executive Vice President, Charles Schwab & Co., Inc. Prior to 9/02, Mr. Merk
was President and Chief Investment Officer, American Century Investment
Management, and Director, American Century Companies, Inc. (6/01 to 8/02);
Chief Investment Officer, Fixed, American Century Companies, Inc. (1/97 to 6/01).
OFFICERS OF THE TRUST
NAME AND
YEAR OF BIRTH TRUST OFFICE(S) HELD MAIN OCCUPATIONS AND OTHER DIRECTORSHIPS AND AFFILIATIONS
- ----------------------------------------------------------------------------------------------------------------------------------
EVELYN DILSAVER President, Chief Executive Vice President, President, Director, Charles Schwab Investment
1955 Executive Officer Management, Inc. Vice President, Laudus Trust and Laudus Variable Insurance
(all trusts). Trust. Until 7/04: Senior Vice President for Development and Distribution,
Asset Management Products & Services Enterprise. Until 6/03: Executive Vice
President, Chief Financial Officer, Chief Administrative Officer, U.S. Trust.
- ----------------------------------------------------------------------------------------------------------------------------------
STEPHEN B. WARD Senior Vice President, Senior Vice President, Chief Investment Officer, Director, Charles Schwab
1955 Chief Investment Investment Management, Inc.; Chief Investment Officer, The Charles Schwab Trust Co.
Officer (all trusts).
4 In addition to their positions with the investment adviser and the
distributor, Messrs. Schwab and Merk also own stock of the Charles Schwab
Corporation.
67
OFFICERS OF THE TRUST continued
NAME AND
YEAR OF BIRTH TRUST OFFICE(S) HELD MAIN OCCUPATIONS AND OTHER DIRECTORSHIPS AND AFFILIATIONS
- ----------------------------------------------------------------------------------------------------------------------------------
KIMON DAIFOTIS Senior Vice President, Senior Vice President and Chief Investment Officer, Fixed Income, Charles
1959 Chief Investment Schwab Investment Management, Inc. Until 6/04: Vice President, Charles Schwab
Officer (all trusts). Investment Management, Inc.
- ----------------------------------------------------------------------------------------------------------------------------------
JEFFREY MORTIMER Senior Vice President, Senior Vice President, Chief Investment Officer, Equities, Charles Schwab
1963 Chief Investment Investment Management, Inc.; Vice President, Chief Investment Officer, Laudus Trust
Officer (all trusts). and Laudus Variable Insurance Trust. Until 5/04: Vice President, Charles Schwab
Investment Management, Inc.
- ----------------------------------------------------------------------------------------------------------------------------------
RANDALL FILLMORE Chief Compliance Senior Vice President, Institutional Compliance and Chief Compliance Officer,
1960 Officer (all trusts). Charles Schwab Investment Management, Inc.; Chief Compliance Officer, Laudus Trust
and Laudus Variable Insurance Trust. Until 9/03: Vice President, Charles Schwab &
Co., Inc. and Charles Schwab Investment Management, Inc. Until 2002: Vice President,
Internal Audit, Charles Schwab & Co., Inc.
- ----------------------------------------------------------------------------------------------------------------------------------
KOJI E. FELTON Secretary (all Senior Vice President, Chief Counsel and Corporate Secretary, Charles Schwab
1961 trusts). Investment Management, Inc.; Senior Vice President and Deputy General Counsel,
Charles Schwab & Co., Inc. Prior to 6/98, Branch Chief in Enforcement at U.S.
Securities and Exchange Commission in San Francisco.
- ----------------------------------------------------------------------------------------------------------------------------------
GEORGE PEREIRA Treasurer, Principal Senior Vice President and Chief Financial Officer, Charles Schwab Investment
1964 Financial Officer Management, Inc.; Director, Charles Schwab Asset Management (Ireland) Limited.
(all trusts) From 12/99 to 11/04, Senior Vice President, Financial Reporting, Charles Schwab &
Co., Inc.
68
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.
The industry/sector classification of the funds' portfolio holdings uses the
Global Industry Classification Standard (GICS) which was developed by and is the
exclusive property of Morgan Stanley Capital International Inc. and Standard &
Poor's. GICS is a service mark of MSCI and S&P and has been licensed for use by
Charles Schwab & Co., Inc.
69
NOTES
NOTES
NOTES
Schwab Funds(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 Schwab Funds.
Whether you're an experienced investor or just starting out, Schwab Funds 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 Schwab Fund. 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 Schwab Funds at:
P.O. Box 3812
Englewood,CO
80155-3812
When selling or exchanging shares, be sure to include the signatures of at least
one of the persons whose name is on the account.
PROXY VOTING POLICIES, PROCEDURES AND RESULTS
A description of the proxy voting policies and procedures used to determine how
to vote proxies on behalf of the funds is available without charge, upon
request, by visiting Schwab's website at www.schwab.com/schwabfunds, the SEC's
website at http://www.sec.gov, or by contacting Schwab Funds 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 website 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 SCHWAB FUNDS FAMILY(R)
STOCK FUNDS
Schwab Institutional Select(R) S&P 500 Fund
Schwab S&P 500 Index Fund
Schwab 1000 Index(R) Fund
Schwab Small-Cap Index Fund(R)
Schwab Total Stock Market Index Fund(R)
Schwab International Index Fund(R)
Schwab Premier Equity Fund(TM)
Schwab Core Equity Fund(TM)
Schwab Dividend Equity Fund(TM)
Schwab Large-Cap Growth Fund(TM)
Schwab Small-Cap Equity Fund(TM)
Schwab Hedged Equity Fund(TM)
Schwab Financial Services Fund(TM)
Schwab Health Care Fund(TM)
Schwab Technology Fund(TM)
ASSET ALLOCATION FUNDS
Schwab MarketTrack All Equity Portfolio(TM)
Schwab MarketTrack Growth Portfolio(TM)
Schwab MarketTrack Balanced Portfolio(TM)
Schwab MarketTrack Conservative Portfolio(TM)
Schwab Target 2010 Fund
Schwab Target 2020 Fund
Schwab Target 2030 Fund
Schwab Target 2040 Fund
Schwab Retirement Income Fund
BOND FUNDS
Schwab YieldPlus Fund(R)
Schwab Short-Term Bond Market Fund(TM)
Schwab Total Bond Market Fund(TM)
Schwab GNMA Fund(TM)
Schwab Tax-Free YieldPlus Fund(TM)
Schwab Short/Intermediate Tax-Free Bond Fund(TM)
Schwab Long-Term Tax-Free Bond Fund(TM)
Schwab California Tax-Free YieldPlus 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 eligible 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
Schwab Funds(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) 2005 Charles Schwab & Co., Inc. All rights reserved.
Member SIPC
Printed on recycled paper.
MFR13813-08
ANNUAL REPORT [LAUDUS FUNDS LOGO]
October 31, 2005
COMMAND PERFORMANCE(TM)
LAUDUS MARKETMASTERS FUNDS(TM)
Laudus U.S. MarketMasters Fund(TM)
Laudus Balanced MarketMasters Fund(TM)
Laudus Small-Cap MarketMasters Fund(TM)
Laudus International MarketMasters Fund(TM)
Four distinct Funds, each combining the expertise of leading
investment managers with Schwab's overall supervision.
IN THIS REPORT
Management's Discussion ................................................. 1
Performance and Fund Facts
Laudus U.S. MarketMasters Fund(TM) ............................ 6
Laudus Balanced MarketMasters Fund(TM) ........................ 9
Laudus Small-Cap MarketMasters Fund(TM) ....................... 12
Laudus International MarketMasters Fund(TM) ................... 15
Fund Expenses ........................................................... 18
Financial Statements
Laudus U.S. MarketMasters Fund(TM) ............................ 20
Laudus Balanced MarketMasters Fund(TM) ........................ 29
Laudus Small-Cap MarketMasters Fund(TM) ....................... 45
Laudus International MarketMasters Fund(TM) ................... 55
Financial Notes ......................................................... 69
Investment Advisory and
Sub-Advisory Agreement Approval ......................................... 76
Trustees and Officers ................................................... 80
Glossary ................................................................ 84
- --------------------------------------------------------------------------------
Select Shares(R) are available for the MarketMasters Funds(TM)
The Laudus MarketMasters Funds offer Select Shares, a share class that carries
lower expenses than Investor Shares(TM) in exchange for higher investment
minimums. Select Shares are available for initial purchases of $50,000 or more
of a single fund in a single account and for shareholders who add to their
existing Investor Share position, bringing the value to or above $50,000. We
encourage shareholders to review their portfolio to see if they are eligible to
exchange into Select Shares. If you believe you are eligible, you should contact
Schwab or your broker dealer to perform a tax-free interclass exchange into
Select Shares.
To learn more, please see the Funds' prospectus at WWW.LAUDUS.COM. Or, call
1.800.435.4000 to order a prospectus or to speak with a representative.
The Laudus Group of Funds includes the Laudus Rosenberg Funds, which are part of
the Laudus Trust and distributed by ALPS Distributor, Inc., and the Laudus
MarketMasters Funds, which are part of the Schwab Capital Trust and distributed
by Charles Schwab & Co., Inc. Charles Schwab & Co., Inc. (member SIPC) serves as
dealer for the Laudus Funds.
The industry/sector classification of the funds' portfolio holdings uses the
Global Industry Classification Standard (GICS) which was developed by and is the
exclusive property of Morgan Stanley Capital International Inc. and Standard &
Poor's. GICS is a service mark of MSCI and S&P and has been licensed for use by
Charles Schwab & Co., Inc.
MANAGEMENT'S DISCUSSION for the year ended October 31, 2005
[PHOTO OF EVELYN DILSAVER]
EVELYN DILSAVER is President and CEO of Charles Schwab Investment Management,
Inc. (CSIM). She joined the firm in 1992 and has held a variety of executive
positions at Schwab.
[PHOTO OF JANA D. THOMPSON]
JANA D. THOMPSON is President and CEO of Laudus Funds. Prior to joining Charles
Schwab & Co., Inc. in 2000, she enjoyed a 16-year career in asset management and
client services.
Dear Shareholder,
We're pleased to bring you the annual report for the Laudus MarketMasters Funds
for the one-year period ended October 31, 2005. Despite the volatility in equity
markets, these funds all enjoyed positive returns and all but one outperformed
their respective benchmarks.
As part of the Laudus Funds Group, the Laudus MarketMasters Funds provide
individual investors access to the proven expertise of an extraordinary line-up
of portfolio managers and the ongoing oversight of Charles Schwab Investment
Management, Inc. (CSIM). Each fund is managed by sub-advisors carefully selected
by CSIM on the basis of their constant performance records, industry leadership
and innovation.
These funds take advantage of the strengths of their sub-advisors by bringing
together a variety of investment styles under a disciplined approach. We would
like to specifically highlight the Laudus International MarketMasters Fund. The
Fund assets grew to over $1 billion, and it delivered top decile performance in
its category for the one-year period ended October 31, 2005. 1 We are proud of
the fund's record and its success among its peers.
We continue to search for ways to offer you more choices and tremendous value.
Your trust is very important to us and we at Laudus Funds will do all we can to
maintain that trust. Thank you for investing with us.
Sincerely,
/s/ Evelyn Dilsaver
/s/ Jana D. Thompson
Performance data quoted represents past performance and does not indicate
future results. Visit Schwab.com for month-end performance information.
Current performance may be lower or higher. Investment value will fluctuate,
and shares, when redeemed, may be worth more or less than original cost.
1 Source: Lipper International Multi-Cap Growth Funds. Rankings for the Investor
and Select Share for the one-year period were, respectively, #14 and #13 out
of 180 funds; for the three-year period, Investor Shares ranked #5 out of 155
funds; and for the five-year period, Investor Shares ranked #17 out of 109
funds. Lipper, Inc. rankings are based on average annual total returns not
including sales charges.
Laudus MarketMasters Funds 1
MANAGEMENT'S DISCUSSION continued
[PHOTO OF JEFFREY MORTIMER AND KIMBERLY FORMON]
JEFFREY MORTIMER, CFA, senior vice president and chief investment officer,
equities, of the investment adviser, has overall responsibility for the
management of the Funds. Prior to joining the firm in 1997, he worked for nine
years in asset allocation and manager selection.
KIMBERLY FORMON, CFA, a director and portfolio manager of the investment
adviser, co-manages the Funds. Prior to joining the firm in 1999, she worked for
10 years in equity and fixed-income analysis.
THE INVESTMENT ENVIRONMENT AND THE FUNDS
Despite a turbulent year in the news, the markets remained in a steady growth
mode and ended the one-year report period with positive results. Oil prices hit
all-time highs and the Federal Reserve continued to raise short-term interest
rates to curb inflationary pressures, raising the Fed Funds Target eight
consecutive times in the one-year report period. The moves had a limited impact
on overall economic growth, due primarily to the record-low level of interest
rates from which the increases began.
Despite concerns of high energy prices, which remained a significant headwind
for economic performance throughout the period, corporate earnings remained
strong throughout the year. Additionally, with the unemployment rate hovering
around 5% and GDP growth around 3.6%, job and income growth remained positive
and investors remained optimistic. Productivity gains and more restrictive
monetary policy kept a lid on core inflation. The productivity gains, coupled
with foreign investors buying large amounts of U.S. government securities,
helped contain increases in long-term interest rates. These conditions caused
the dollar to rally, which took pressure off the price of imported goods.
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.
8.72% S&P 500(R) INDEX: measures U.S. large-cap stocks
12.08% RUSSELL 2000(R) INDEX: measures U.S. small-cap stocks
18.09% MSCI-EAFE(R) INDEX: measures (in U.S. dollars) large-cap stocks in
Europe, Australasia and the Far East
1.13% LEHMAN BROTHERS U.S. AGGREGATE BOND INDEX: measures the U.S. bond market
[LINE GRAPH]
LEHMAN BROTHERS RUSSELL MSCI-
U.S. AGGREGATE S&P 500(R) 2000(R) EAFE(R)
BOND INDEX INDEX INDEX INDEX
31-Oct-04 0.00 0.00 0.00 0.00
07-Nov-04 -0.52 3.21 3.53 3.71
14-Nov-04 -0.49 4.88 6.60 4.81
21-Nov-04 -0.40 3.69 5.15 5.92
28-Nov-04 -0.47 4.81 8.21 6.96
05-Dec-04 -0.38 5.62 10.13 8.68
12-Dec-04 0.13 5.37 8.44 5.79
19-Dec-04 -0.05 5.95 10.16 7.36
26-Dec-04 0.02 7.40 11.44 10.52
02-Jan-05 0.12 7.59 11.89 11.52
09-Jan-05 -0.09 5.35 5.32 8.50
16-Jan-05 0.27 5.22 6.07 8.74
23-Jan-05 0.68 3.75 4.98 7.81
30-Jan-05 0.70 4.08 5.33 8.68
06-Feb-05 1.05 6.95 9.55 10.43
13-Feb-05 1.03 7.23 9.11 11.16
20-Feb-05 0.51 6.94 8.33 12.75
27-Feb-05 0.47 7.86 9.63 13.40
06-Mar-05 0.44 8.86 10.92 15.44
13-Mar-05 -0.43 6.96 7.84 15.54
20-Mar-05 -0.34 6.04 7.13 14.06
27-Mar-05 -0.79 4.42 5.88 11.43
03-Apr-05 -0.16 4.59 5.31 11.55
10-Apr-05 -0.28 5.37 5.20 12.02
17-Apr-05 0.55 1.95 0.06 10.11
24-Apr-05 0.78 2.81 1.57 10.36
01-May-05 0.98 3.28 -0.15 8.71
08-May-05 0.79 4.60 2.83 10.65
15-May-05 1.27 3.14 0.36 8.08
22-May-05 1.34 6.33 5.10 8.34
29-May-05 1.73 7.22 6.42 9.41
05-Jun-05 2.23 7.01 7.02 9.48
12-Jun-05 1.96 7.23 8.07 9.40
19-Jun-05 1.94 8.95 11.20 11.36
26-Jun-05 2.67 6.70 8.83 10.42
03-Jul-05 2.25 7.01 11.08 9.74
10-Jul-05 2.07 8.60 14.40 9.31
17-Jul-05 1.96 10.06 14.69 11.35
24-Jul-05 1.84 10.59 17.12 12.34
31-Jul-05 1.70 10.68 17.49 13.59
07-Aug-05 1.25 10.02 14.58 14.44
14-Aug-05 1.94 10.44 14.14 18.32
21-Aug-05 2.10 9.54 12.85 16.11
28-Aug-05 2.25 8.24 12.20 16.21
04-Sep-05 3.04 9.47 14.77 19.45
11-Sep-05 2.68 11.60 17.33 20.67
18-Sep-05 2.20 11.33 16.32 20.04
25-Sep-05 2.28 9.32 13.47 18.92
02-Oct-05 1.94 10.56 15.67 21.65
09-Oct-05 1.89 7.66 11.63 19.16
16-Oct-05 1.35 6.84 9.71 18.26
23-Oct-05 1.86 6.22 9.65 15.53
30-Oct-05 1.09 7.95 10.12 16.68
31-Oct-05 1.13 8.72 12.08 18.09
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.
Source of Sector Classification: S&P and MSCI.
2 Laudus MarketMasters Funds
The big news for the past few months was the impact of Hurricanes Katrina and
Rita. The devastation caused by these storms was particularly heavy with respect
to the energy infrastructure in the South. Oil prices rose sharply in the
aftermath of the hurricanes, with crude oil peaking above $71 per barrel in
early September. However, a quick action by the federal government to release
Strategic Petroleum Reserves and soften oil demand led to a subsequent decline
off that peak. While the full economic effect of the hurricanes was unknown at
the end of the report period, the damage appears to be limited to the regions in
the hurricanes' path and to the energy infrastructures in the area.
Another significant event that occurred during the report period was the
appointment of Ben Bernanke to succeed Alan Greenspan as Chairman of the Federal
Reserve Board. Although he has not yet been confirmed into office, Bernanke's
experience on the Federal Open Market Committee and his expertise in monetary
economics has eased the concerns of the markets and caused investors to expect a
smooth transition.
Despite tragic hurricanes, rising interest rates, and soaring energy prices, the
funds and their respective benchmarks held up well. The S&P 500 Index 1 posted
gains of 8.72% for the one-year period ending on October 31, 2005 while the
Russell 2000 Index also displayed a positive return of 12.08%. As improving
fundamentals and attractive valuations have strengthened investor interest in
emerging markets, the MSCI EAFE (Morgan Stanley Capital International, Inc.
Europe, Australasia, and Far East) Index also had an impressive return of 18.09%
for the one-year report period.
Although bonds did not fare nearly as well as equities this period, performance
was still positive, up by 1.13%, as measured by the Lehman Brothers U.S.
Aggregate Bond Index. This differential is not unusual, given that we were in
the midst of an economic recovery during the period. When the economy is strong
and job growth is robust, investors expect to see inflation, which generally
leads to higher interest rates and ultimately brings down prices for bonds. In
summary, the markets have seen quite a few events with the potential to diminish
investor confidence, but as of the end of the period, significant negative
impacts had not materialized.
Source of Sector Classification: S&P and MSCI.
Laudus MarketMasters Funds 3
MANAGEMENT'S DISCUSSION continued
PERFORMANCE AT A GLANCE
Total return for the 12 months ended 10/31/05
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE DOES
NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL
FLUCTUATE SO THAT AN INVESTOR'S SHARES MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN PERFORMANCE DATA
QUOTED. TO OBTAIN MORE CURRENT PERFORMANCE INFORMATION, PLEASE VISIT
WWW.SCHWAB.COM/MARKETMASTERS.
LAUDUS U.S.
MARKETMASTERS FUND(TM)
Investor Shares ........................... 9.32%
Select Shares(R) ........................... 9.50%
Benchmark .................................. 8.72%
Fund Category 1 ............................ 9.53%
Performance Details ........................ pages 6-7
LAUDUS BALANCED
MARKETMASTERS FUND(TM)
Investor Shares .......................... 8.92%
Select Shares ............................. 9.11%
Benchmark ................................. 5.73%
Fund Category 1 ........................... 7.62%
Performance Details ....................... pages 9-10
LAUDUS SMALL-CAP
MARKETMASTERS FUND(TM)
Investor Shares .......................... 9.85%
Select Shares ............................ 10.01%
Benchmark ................................ 12.08%
Fund Category 1 .......................... 13.72%
Performance Details ...................... pages 12-13
LAUDUS INTERNATIONAL
MARKETMASTERS FUND(TM)
Investor Shares .......................... 23.75%
Select Shares ............................ 23.90%
Benchmark ................................ 18.09%
Fund Category 1 .......................... 17.27%
Performance Details ...................... pages 15-16
THE LAUDUS U.S. MARKETMASTERS FUND returned 9.32% versus its benchmark, the S&P
500 Index, which was up 8.72% for the one-year period. Thornburg Investment
Management, Inc., with a large-cap blend focus, had a positive impact on the
fund, as a result of having the largest allocation of fund assets coupled with
its outperformance versus the S&P 500 Index. Gardner Lewis Asset Management
Limited Partnership, whose focus is growth, nearly matched the Russell 1000
Growth Index but was a slight drag on fund performance as value was favored over
growth during this period. Harris Associates Limited Partnership, the fund's
large cap value manager, fell short of outperforming the Russell 1000 Value
Index as a result of poor sector allocation, namely to Consumer Discretionary
and Energy. TCW Investment Management Company's underperformance relative to the
Russell Mid-Cap Index was largely driven by weak stock selection in Health Care,
Information Technology and Consumer Discretionary sectors.
THE LAUDUS BALANCED MARKETMASTERS FUND returned 8.92%, outperforming the
Balanced Blended Index (60/40 S&P500/Lehman Aggregate), which returned 5.73%.
The fund was overweight in stocks for the one-year period, as we believed stocks
would have the potential for higher returns. This overweight helped the fund's
performance. TCW Investment Management Company, whose focus is on large-cap
value stocks, performed particularly well due to positive stock selection in
almost all sectors. Gardner Lewis Asset Management Limited Partnership came in
slightly ahead of the Russell 1000 Growth Index, but hurt fund performance
slightly as value continued to outperform growth. Although Janus Capital
Management LLC / Perkins, Wolf, McDonnell and Company, LLC, who focuses on
mid-cap stocks, underperformed its Russell Mid-Cap Value benchmark, the firm
still added to performance as mid-cap stocks performed better than large- or
small-cap stocks over the one-year period. On the fixed-income side, PIMCO
(Pacific Investment Management Company LLC) outperformed the Lehman Brothers
U.S. Aggregate Bond Index for the one-year period.
Source of Sector Classification: S&P and MSCI. All Fund and index figures on
this page assume dividends and distributions were reinvested. Index figures do
not include trading and management costs, which would lower performance. Indices
are unmanaged, and you cannot invest in them directly.
Expenses may be partially absorbed by CSIM and Schwab. Without these reductions,
the Funds' total returns would have been lower. Performance does not reflect the
deduction of taxes that a shareholder would pay on Fund distributions or on the
redemption of Fund shares.
Small-company stocks are subject to greater volatility than other asset
categories. Foreign securities can involve risks such as political and economic
instability and currency risk. These risks may be greater in emerging markets.
1 Source for category information: Morningstar, Inc.
4 Laudus MarketMasters Funds
THE LAUDUS SMALL-CAP MARKETMASTERS FUND was up 9.85% for the one-year period,
underperforming its benchmark, the Russell 2000 Index, which returned 12.08%.
The outperformance by two of the sub-advisors relative to their respective
benchmarks was not enough to overcome the results of weak stock and sector
selection in the other two sub-advisors. Notably, Veredus Asset Management LLC
outperformed its Russell 2000 Growth benchmark as did Tocqueville Asset
Management Company who outperformed its Russell 2000 benchmark. Strong selection
was the driver of outperformance for both managers. On the other hand, weak
stock and sector selection detracted from the performance of TAMRO Capital
Partners, LLC and TCW Investment Management Company, which underperformed their
respective Russell 2000 Value and Russell Mid-Cap Value benchmarks. This
underperformance detracted from the fund's performance as the two value indices'
returns beat Russell 2000 and Russell Growth index returns for the one-year
period.
THE LAUDUS INTERNATIONAL MARKETMASTERS FUND was up 23.75% for the one-year
period, outperforming its benchmark, the MSCI EAFE, which was up 18.09%. All
four sub-advisors performed well during this period, with American Century
Global Investment Management, Inc. (American Century) as a positive outlier.
American Century returned 42.85% for the one-year versus 18.12% for the MSCI
EAFE Index. This outperformance can be attributed to solid stock selection in
eight out of the ten sectors. Robust stock selection was a continuing theme in
the other sub-advisors for this Fund. Artisan Partners Limited Partnership and
Harris Associates Limited Partnership's outperformance were also driven by stock
selection, specifically within the Financials sector. William Blair & Company
LLC was also helped by solid stock selection in Consumer Discretionary,
Financials, Health Care and Information Technology.
Source of Sector Classification: S&P and MSCI.
Small-company stocks are subject to greater volatility than other asset
categories. Foreign securities can involve risks such as political and economic
instability and currency risk. These risks may be greater in emerging markets.
Nothing in this report represents a recommendation of a security by the
investment adviser. Manager views and portfolio holdings may have changed since
the report date.
Laudus MarketMasters Funds 5
LAUDUS U.S. MARKETMASTERS FUND(TM)
INVESTOR SHARES PERFORMANCE as of 10/31/05
AVERAGE ANNUAL TOTAL RETURNS 1, 2
This chart compares performance of the Fund with a benchmark and the Fund's
Morningstar category.
[BAR CHART]
Fund:
INVESTOR SHARES Fund Category:
Ticker Symbol: Benchmark: MORNINGSTAR
SWOGX S&P 500(R) INDEX LARGE-CAP BLEND
1 YEAR 9.32% 8.72% 9.53%
5 YEARS -0.94% -1.73% -1.41%
SINCE INCEPTION: 11/18/96 5.94% 7.30% 6.37%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE DOES
NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL
FLUCTUATE SO THAT AN INVESTOR'S SHARES MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN PERFORMANCE DATA
QUOTED. TO OBTAIN PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH END,
PLEASE VISIT WWW.SCHWAB.COM/MARKETMASTERS.
PERFORMANCE OF A HYPOTHETICAL $10,000 INVESTMENT 1
This graph shows performance since inception of a hypothetical $10,000
investment in the Fund, compared with a similar investment in a benchmark.
$16,766 INVESTOR SHARES
$18,801 S&P 500(R) INDEX
[LINE GRAPH]
INVESTOR SHARES S&P 500(R) INDEX
18-Nov-96 $10,000 $10,000
30-Nov-96 $10,120 $10,271
31-Dec-96 $10,077 $10,068
31-Jan-97 $10,371 $10,696
28-Feb-97 $10,310 $10,780
31-Mar-97 $10,016 $10,338
30-Apr-97 $10,229 $10,955
31-May-97 $10,848 $11,621
30-Jun-97 $11,274 $12,141
31-Jul-97 $11,841 $13,106
31-Aug-97 $11,547 $12,372
30-Sep-97 $12,145 $13,049
31-Oct-97 $11,760 $12,613
30-Nov-97 $11,750 $13,197
31-Dec-97 $11,927 $13,424
31-Jan-98 $11,959 $13,573
28-Feb-98 $12,622 $14,552
31-Mar-98 $13,146 $15,297
30-Apr-98 $13,242 $15,452
31-May-98 $13,135 $15,186
30-Jun-98 $13,306 $15,802
31-Jul-98 $13,135 $15,635
31-Aug-98 $11,639 $13,377
30-Sep-98 $11,745 $14,235
31-Oct-98 $12,216 $15,392
30-Nov-98 $12,814 $16,325
31-Dec-98 $13,734 $17,265
31-Jan-99 $14,255 $17,987
28-Feb-99 $13,712 $17,427
31-Mar-99 $14,266 $18,124
30-Apr-99 $14,830 $18,826
31-May-99 $14,487 $18,381
30-Jun-99 $15,118 $19,402
31-Jul-99 $14,919 $18,796
31-Aug-99 $14,896 $18,702
30-Sep-99 $14,819 $18,190
31-Oct-99 $15,560 $19,341
30-Nov-99 $16,557 $19,734
31-Dec-99 $18,630 $20,897
31-Jan-00 $17,808 $19,848
29-Feb-00 $19,681 $19,472
31-Mar-00 $19,516 $21,376
30-Apr-00 $18,086 $20,733
31-May-00 $17,289 $20,308
30-Jun-00 $18,263 $20,809
31-Jul-00 $17,922 $20,485
31-Aug-00 $18,997 $21,757
30-Sep-00 $18,213 $20,608
31-Oct-00 $17,580 $20,522
30-Nov-00 $16,099 $18,905
31-Dec-00 $16,401 $18,997
31-Jan-01 $16,873 $19,672
28-Feb-01 $15,516 $17,878
31-Mar-01 $14,690 $16,744
30-Apr-01 $15,855 $18,045
31-May-01 $15,782 $18,166
30-Jun-01 $15,634 $17,725
31-Jul-01 $15,206 $17,551
31-Aug-01 $14,557 $16,452
30-Sep-01 $13,186 $15,123
31-Oct-01 $13,569 $15,412
30-Nov-01 $14,602 $16,594
31-Dec-01 $14,979 $16,740
31-Jan-02 $14,696 $16,496
28-Feb-02 $14,324 $16,177
31-Mar-02 $14,801 $16,785
30-Apr-02 $14,146 $15,768
31-May-02 $13,848 $15,652
30-Jun-02 $12,716 $14,537
31-Jul-02 $11,495 $13,405
31-Aug-02 $11,570 $13,492
30-Sep-02 $10,453 $12,025
31-Oct-02 $11,138 $13,084
30-Nov-02 $12,135 $13,854
31-Dec-02 $11,316 $13,041
31-Jan-03 $11,123 $12,699
28-Feb-03 $10,959 $12,509
31-Mar-03 $11,093 $12,630
30-Apr-03 $12,254 $13,671
31-May-03 $13,252 $14,391
30-Jun-03 $13,475 $14,575
31-Jul-03 $13,773 $14,832
31-Aug-03 $14,250 $15,121
30-Sep-03 $13,878 $14,961
31-Oct-03 $14,801 $15,808
30-Nov-03 $15,128 $15,947
31-Dec-03 $15,679 $16,782
31-Jan-04 $16,007 $17,091
29-Feb-04 $16,185 $17,329
31-Mar-04 $15,992 $17,067
30-Apr-04 $15,471 $16,799
31-May-04 $15,694 $17,029
30-Jun-04 $15,858 $17,360
31-Jul-04 $14,920 $16,785
31-Aug-04 $14,696 $16,852
30-Sep-04 $14,920 $17,034
31-Oct-04 $15,337 $17,295
30-Nov-04 $15,977 $17,995
31-Dec-04 $16,573 $18,607
31-Jan-05 $16,156 $18,153
28-Feb-05 $16,424 $18,534
31-Mar-05 $16,290 $18,206
30-Apr-05 $15,739 $17,860
31-May-05 $16,409 $18,428
30-Jun-05 $16,528 $18,454
31-Jul-05 $17,138 $19,141
31-Aug-05 $17,019 $18,966
30-Sep-05 $17,138 $19,120
31-Oct-05 $16,766 $18,801
All figures on this page assume dividends and distributions were reinvested.
Index figures do not include trading and management costs, which would lower
performance. Indices are unmanaged, and you cannot invest in them directly.
Because the Fund was originally an asset allocation Fund with a multi-fund
strategy, its performance prior to June 3, 2002 does not reflect the current
strategy and may have been different if it did.
1 Fund expenses have been partially absorbed by CSIM and Schwab. Without these
reductions, the Fund's returns would have been lower. These returns do not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption of Fund shares.
2 Source for category information: Morningstar, Inc.
6 Laudus MarketMasters Funds
LAUDUS U.S. MARKETMASTERS FUND
SELECT SHARES(R) PERFORMANCE as of 10/31/05
TOTAL RETURNS 1, 2
This chart compares performance of the Fund's Select Shares with its benchmark
and Morningstar category.
[BAR CHART]
Fund:
SELECT SHARES Fund Category:
Ticker Symbol: Benchmark: MORNINGSTAR
SWMGX S&P 500(R) INDEX LARGE-CAP BLEND
1 YEAR 9.50% 8.72% 9.53%
SINCE INCEPTION: 6/4/04 5.91% 7.51% 7.72%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE DOES
NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL
FLUCTUATE SO THAT AN INVESTOR'S SHARES MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN PERFORMANCE DATA
QUOTED. TO OBTAIN PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH END,
PLEASE VISIT WWW.SCHWAB.COM/MARKETMASTERS.
PERFORMANCE OF A HYPOTHETICAL $50,000 INVESTMENT 1
This graph shows performance since inception of a hypothetical $50,000
investment (the minimum investment for this share class) in the Fund's Select
Shares, compared with a similar investment in its benchmark.
$54,225 SELECT SHARES
$55,384 S&P 500(R) INDEX
[LINE GRAPH]
SELECT SHARES S&P 500(R) INDEX
4-Jun-04 $50,000 $50,000
30-Jun-04 $51,150 $51,139
31-Jul-04 $48,130 $49,446
31-Aug-04 $47,455 $49,644
30-Sep-04 $48,175 $50,180
31-Oct-04 $49,520 $50,948
30-Nov-04 $51,585 $53,012
31-Dec-04 $53,505 $54,814
31-Jan-05 $52,205 $53,477
28-Feb-05 $53,025 $54,600
31-Mar-05 $52,640 $53,633
30-Apr-05 $50,865 $52,614
31-May-05 $53,025 $54,287
30-Jun-05 $53,405 $54,363
31-Jul-05 $55,375 $56,386
31-Aug-05 $55,040 $55,872
30-Sep-05 $55,375 $56,325
31-Oct-05 $54,225 $55,384
All figures on this page assume dividends and distributions were reinvested.
Index figures do not include trading and management costs, which would lower
performance. Indices are unmanaged, and you cannot invest in them directly.
1 Fund expenses have been partially absorbed by CSIM and Schwab. Without
these reductions, the Fund's returns would have been lower. These returns
do not reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption of Fund shares.
2 Source for category information: Morningstar, Inc.
Laudus MarketMasters Funds 7
LAUDUS U.S. MARKETMASTERS FUND
FUND FACTS as of 10/31/05
STYLE ASSESSMENT 1
[GRAPHIC]
INVESTMENT STYLE
Value Blend Growth
MARKET CAP
Large / / /X/ / /
Medium / / / / / /
Small / / / / / /
STATISTICS
NUMBER OF HOLDINGS 159
- --------------------------------------------------------------------------------
WEIGHTED AVERAGE MARKET CAP ($ x 1,000,000) $45,449
- --------------------------------------------------------------------------------
PRICE/EARNINGS RATIO (P/E) 24.9
- --------------------------------------------------------------------------------
PRICE/BOOK RATIO (P/B) 2.5
- --------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 83%
- --------------------------------------------------------------------------------
MINIMUM INITIAL INVESTMENT 2
Investor Shares $2,500
($1,000 for retirement, education and custodial accounts)
Select Shares $50,000
- --------------------------------------------------------------------------------
INVESTMENT MANAGERS AND ALLOCATIONS
% OF
INVESTMENT MANAGER INVESTMENT STYLE NET ASSETS
- --------------------------------------------------------------------------------
GARDNER LEWIS Large-Cap Growth 26.8%
ASSET MANAGEMENT L.P. 3
- --------------------------------------------------------------------------------
HARRIS ASSOCIATES L.P. Mid/Large-Cap 19.5%
Value
- --------------------------------------------------------------------------------
TCW INVESTMENT Small/Mid-Cap 20.3%
MANAGEMENT COMPANY Blend
- --------------------------------------------------------------------------------
THORNBURG INVESTMENT Large-Cap Blend 33.1%
MANAGEMENT, INC.
- --------------------------------------------------------------------------------
TOP HOLDINGS 4
% OF
SECURITY NET ASSETS
- --------------------------------------------------------------------------------
(1) TIME WARNER, INC. 2.1%
- --------------------------------------------------------------------------------
(2) THE GOLDMAN SACHS GROUP, INC. 2.0%
- --------------------------------------------------------------------------------
(3) CAREMARK RX, INC. 1.7%
- --------------------------------------------------------------------------------
(4) NII HOLDINGS, INC. 1.5%
- --------------------------------------------------------------------------------
(5) GOOGLE, INC. 1.5%
- --------------------------------------------------------------------------------
(6) TARGET CORP. 1.5%
- --------------------------------------------------------------------------------
(7) COMCAST CORP., Class A 1.4%
- --------------------------------------------------------------------------------
(8) COCA-COLA CO. 1.4%
- --------------------------------------------------------------------------------
(9) NATIONAL SEMICONDUCTOR CORP. 1.4%
- --------------------------------------------------------------------------------
(10) CENDANT CORP. 1.3%
- --------------------------------------------------------------------------------
TOTAL 15.8%
SECTOR WEIGHTINGS % of Investments
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]
19.8% CONSUMER DISCRETIONARY
19.4% INFORMATION TECHNOLOGY
17.7% FINANCIALS
14.6% HEALTH CARE
8.6% INDUSTRIALS
5.4% CONSUMER STAPLES
5.3% ENERGY
3.6% TELECOMMUNICATION SERVICES
2.3% MATERIALS
0.9% UTILITIES
2.4% OTHER
Portfolio holdings may have changed since the report date. Source of Sector
Classification: S&P and MSCI.
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 10/31/05, 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 Gardner Lewis replaced Eagle Asset Management as of December 27, 2004.
4 This list is not a recommendation of any security by the investment adviser.
8 Laudus MarketMasters Funds
LAUDUS BALANCED MARKETMASTERS FUND(TM)
INVESTOR SHARES PERFORMANCE as of 10/31/05
AVERAGE ANNUAL TOTAL RETURNS 1, 2
This chart compares performance of the Fund with a benchmark and the Fund's
Morningstar category.
[BAR CHART]
Fund: Benchmark: Fund Category:
INVESTOR SHARES BALANCED MORNINGSTAR
Ticker Symbol: BLENDED MODERATE
SWOBX INDEX ALLOCATION
1 YEAR 8.92% 5.73% 7.62%
5 YEARS 2.94% 1.77% 2.00%
SINCE INCEPTION: 11/18/96 7.42% 7.27% 6.23%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE DOES
NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL
FLUCTUATE SO THAT AN INVESTOR'S SHARES MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN PERFORMANCE DATA
QUOTED. TO OBTAIN PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH END,
PLEASE VISIT WWW.SCHWAB.COM/MARKETMASTERS.
PERFORMANCE OF A HYPOTHETICAL $10,000 INVESTMENT 1
This graph shows performance since inception of a hypothetical $10,000
investment in the Fund, compared with a similar investment in a benchmark and
two additional indices.
$18,985 INVESTOR SHARES
$18,745 BALANCED BLENDED INDEX
$18,801 S&P 500(R) INDEX
$17,273 LEHMAN BROTHERS U.S. AGGREGATE BOND INDEX
[LINE GRAPH]
BALANCED LEHMAN BROTHERS
INVESTOR BLENDED S&P 500(R) U.S. AGGREGATE
SHARES INDEX INDEX BOND INDEX
18-Nov-96 $10,000 $10,000 $10,000 $10,000
30-Nov-96 $10,100 $10,191 $10,271 $10,071
31-Dec-96 $10,059 $10,032 $10,068 $9,977
31-Jan-97 $10,322 $10,420 $10,696 $10,008
28-Feb-97 $10,271 $10,480 $10,780 $10,033
31-Mar-97 $10,018 $10,175 $10,338 $9,922
30-Apr-97 $10,200 $10,600 $10,955 $10,071
31-May-97 $10,676 $11,027 $11,621 $10,166
30-Jun-97 $11,041 $11,376 $12,141 $10,287
31-Jul-97 $11,517 $12,042 $13,106 $10,565
31-Aug-97 $11,284 $11,596 $12,372 $10,475
30-Sep-97 $11,770 $12,046 $13,049 $10,630
31-Oct-97 $11,527 $11,874 $12,613 $10,784
30-Nov-97 $11,558 $12,226 $13,197 $10,834
31-Dec-97 $11,719 $12,401 $13,424 $10,943
31-Jan-98 $11,762 $12,547 $13,573 $11,084
28-Feb-98 $12,251 $13,086 $14,552 $11,075
31-Mar-98 $12,634 $13,506 $15,297 $11,112
30-Apr-98 $12,688 $13,616 $15,452 $11,170
31-May-98 $12,613 $13,527 $15,186 $11,276
30-Jun-98 $12,783 $13,903 $15,802 $11,372
31-Jul-98 $12,677 $13,826 $15,635 $11,396
31-Aug-98 $11,581 $12,718 $13,377 $11,582
30-Sep-98 $11,740 $13,326 $14,235 $11,853
31-Oct-98 $12,092 $13,948 $15,392 $11,790
30-Nov-98 $12,560 $14,487 $16,325 $11,857
31-Dec-98 $13,311 $15,005 $17,265 $11,893
31-Jan-99 $13,693 $15,424 $17,987 $11,977
28-Feb-99 $13,224 $15,028 $17,427 $11,768
31-Mar-99 $13,650 $15,422 $18,124 $11,832
30-Apr-99 $14,130 $15,800 $18,826 $11,870
31-May-99 $13,868 $15,521 $18,381 $11,766
30-Jun-99 $14,326 $16,018 $19,402 $11,728
31-Jul-99 $14,141 $15,691 $18,796 $11,679
31-Aug-99 $14,119 $15,641 $18,702 $11,673
30-Sep-99 $14,119 $15,456 $18,190 $11,808
31-Oct-99 $14,664 $16,066 $19,341 $11,852
30-Nov-99 $15,341 $16,261 $19,734 $11,851
31-Dec-99 $16,742 $16,805 $20,897 $11,794
31-Jan-00 $16,155 $16,276 $19,848 $11,755
29-Feb-00 $17,353 $16,170 $19,472 $11,897
31-Mar-00 $17,390 $17,204 $21,376 $12,054
30-Apr-00 $16,534 $16,874 $20,733 $12,019
31-May-00 $16,033 $16,663 $20,308 $12,013
30-Jun-00 $16,705 $17,048 $20,809 $12,263
31-Jul-00 $16,498 $16,951 $20,485 $12,375
31-Aug-00 $17,341 $17,681 $21,757 $12,554
30-Sep-00 $16,815 $17,165 $20,608 $12,633
31-Oct-00 $16,424 $17,167 $20,522 $12,717
30-Nov-00 $15,508 $16,468 $18,905 $12,925
31-Dec-00 $15,879 $16,639 $18,997 $13,166
31-Jan-01 $16,326 $17,102 $19,672 $13,380
28-Feb-01 $15,502 $16,226 $17,878 $13,497
31-Mar-01 $14,887 $15,641 $16,744 $13,564
30-Apr-01 $15,669 $16,344 $18,045 $13,507
31-May-01 $15,683 $16,449 $18,166 $13,588
30-Jun-01 $15,530 $16,234 $17,725 $13,640
31-Jul-01 $16,748 $16,284 $17,551 $13,945
31-Aug-01 $14,873 $15,747 $16,452 $14,106
30-Sep-01 $13,826 $15,057 $15,123 $14,269
31-Oct-01 $14,133 $15,355 $15,412 $14,568
30-Nov-01 $14,859 $15,977 $16,594 $14,367
31-Dec-01 $15,090 $16,021 $16,740 $14,275
31-Jan-02 $14,933 $15,932 $16,496 $14,390
28-Feb-02 $14,733 $15,810 $16,177 $14,530
31-Mar-02 $15,133 $16,061 $16,785 $14,289
30-Apr-02 $14,919 $15,602 $15,768 $14,566
31-May-02 $14,776 $15,586 $15,652 $14,690
30-Jun-02 $14,219 $14,974 $14,537 $14,817
31-Jul-02 $13,534 $14,347 $13,405 $14,997
31-Aug-02 $13,734 $14,500 $13,492 $15,250
30-Sep-02 $12,963 $13,648 $12,025 $15,497
31-Oct-02 $13,348 $14,343 $13,084 $15,426
30-Nov-02 $13,891 $14,849 $13,854 $15,421
31-Dec-02 $13,659 $14,449 $13,041 $15,741
31-Jan-03 $13,572 $14,227 $12,699 $15,755
28-Feb-03 $13,528 $14,177 $12,509 $15,972
31-Mar-03 $13,557 $14,255 $12,630 $15,959
30-Apr-03 $14,210 $15,007 $13,671 $16,092
31-May-03 $14,906 $15,593 $14,391 $16,391
30-Jun-03 $15,051 $15,701 $14,575 $16,358
31-Jul-03 $15,065 $15,656 $14,832 $15,809
31-Aug-03 $15,428 $15,880 $15,121 $15,913
30-Sep-03 $15,486 $15,947 $14,961 $16,335
31-Oct-03 $16,051 $16,430 $15,808 $16,183
30-Nov-03 $16,327 $16,532 $15,947 $16,222
31-Dec-03 $16,829 $17,119 $16,782 $16,387
31-Jan-04 $17,107 $17,363 $17,091 $16,518
29-Feb-04 $17,386 $17,583 $17,329 $16,697
31-Mar-04 $17,371 $17,476 $17,067 $16,822
30-Apr-04 $16,814 $17,130 $16,799 $16,384
31-May-04 $16,961 $17,243 $17,029 $16,319
30-Jun-04 $17,239 $17,483 $17,360 $16,412
31-Jul-04 $16,755 $17,205 $16,785 $16,574
31-Aug-04 $16,814 $17,378 $16,852 $16,891
30-Sep-04 $17,166 $17,510 $17,034 $16,937
31-Oct-04 $17,430 $17,729 $17,295 $17,079
30-Nov-04 $18,105 $18,103 $17,995 $16,942
31-Dec-04 $18,586 $18,539 $18,607 $17,098
31-Jan-05 $18,202 $18,314 $18,153 $17,206
28-Feb-05 $18,527 $18,502 $18,534 $17,104
31-Mar-05 $18,482 $18,268 $18,206 $17,017
30-Apr-05 $18,157 $18,158 $17,860 $17,247
31-May-05 $18,675 $18,583 $18,428 $17,433
30-Jun-05 $18,852 $18,640 $18,454 $17,529
31-Jul-05 $19,310 $18,988 $19,141 $17,369
31-Aug-05 $19,310 $18,981 $18,966 $17,592
30-Sep-05 $19,354 $18,995 $19,120 $17,411
31-Oct-05 $18,985 $18,745 $18,801 $17,273
All figures on this page assume dividends and distributions were reinvested.
Index figures do not include trading and management costs, which would lower
performance. Indices are unmanaged, and you cannot invest in them directly.
Because the Fund originally used a different asset allocation strategy and a
multi-fund strategy, its performance prior to June 3, 2002 does not reflect
the current strategy and may have been different if it did.
1 Fund expenses have been partially absorbed by CSIM and Schwab. Without these
reductions, the Fund's returns would have been lower. These returns do not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption of Fund shares. The Balanced Blended Index is
composed of 60% S&P 500(R) Index and 40% Lehman Brothers U.S. Aggregate Bond
Index.
2 Source for category information: Morningstar, Inc.
Laudus MarketMasters Funds 9
LAUDUS BALANCED MARKETMASTERS FUND
SELECT SHARES(R) PERFORMANCE as of 10/31/05
TOTAL RETURNS 1, 2
This chart compares performance of the Fund's Select Shares with its benchmark
and Morningstar category.
[BAR CHART]
Fund: Fund Category:
SELECT SHARES Benchmark: MORNINGSTAR
Ticker Symbol: BALANCED MODERATE
SWMBX BLENDED INDEX ALLOCATION
1 YEAR 9.11% 5.73% 7.62%
SINCE INCEPTION: 6/3/04 8.44% 6.01% 7.13%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE DOES
NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL
FLUCTUATE SO THAT AN INVESTOR'S SHARES MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN PERFORMANCE DATA
QUOTED. TO OBTAIN PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH END,
PLEASE VISIT WWW.SCHWAB.COM/MARKETMASTERS.
PERFORMANCE OF A HYPOTHETICAL $50,000 INVESTMENT 1
This graph shows performance since inception of a hypothetical $50,000
investment (the minimum investment for this share class) in the Fund's Select
Shares, compared with a similar investment in its benchmark.
$56,065 SELECT SHARES
$54,296 BALANCED BLENDED INDEX
$54,975 S&P 500(R) INDEX
$53,110 LEHMAN BROTHERS U.S. AGGREGATE BOND INDEX
[LINE GRAPH]
BALANCED LEHMAN BROTHERS
SELECT BLENDED S&P 500(R) U.S. AGGREGATE
SHARES INDEX INDEX BOND INDEX
03-Jun-04 $50,000 $50,000 $50,000 $50,000
30-Jun-04 $50,780 $50,642 $50,761 $50,463
31-Jul-04 $49,395 $49,836 $49,081 $50,962
31-Aug-04 $49,570 $50,337 $49,277 $51,936
30-Sep-04 $50,605 $50,717 $49,809 $52,076
31-Oct-04 $51,385 $51,353 $50,571 $52,513
30-Nov-04 $53,415 $52,437 $52,619 $52,093
31-Dec-04 $54,805 $53,699 $54,408 $52,573
31-Jan-05 $53,715 $53,049 $53,081 $52,904
28-Feb-05 $54,670 $53,592 $54,195 $52,592
31-Mar-05 $54,540 $52,913 $53,236 $52,323
30-Apr-05 $53,585 $52,596 $52,225 $53,030
31-May-05 $55,150 $53,827 $53,885 $53,602
30-Jun-05 $55,675 $53,990 $53,961 $53,897
31-Jul-05 $56,980 $54,999 $55,968 $53,407
31-Aug-05 $57,025 $54,980 $55,459 $54,090
30-Sep-05 $57,155 $55,021 $55,908 $53,533
31-Oct-05 $56,065 $54,296 $54,975 $53,110
All figures on this page assume dividends and distributions were reinvested.
Index figures do not include trading and management costs, which would lower
performance. Indices are unmanaged, and you cannot invest in them directly.
1 Fund expenses have been partially absorbed by CSIM and Schwab. Without these
reductions, the Fund's returns would have been lower. These returns do not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption of Fund shares. The Balanced Blended Index is
composed of 60% S&P 500(R) Index and 40% Lehman Brothers U.S. Aggregate Bond
Index.
2 Source for category information: Morningstar, Inc.
10 Laudus MarketMasters Funds
LAUDUS BALANCED MARKETMASTERS FUND
FUND FACTS as of 10/31/05
TOP HOLDINGS 1
% OF
SECURITY NET ASSETS
- --------------------------------------------------------------------------------
(1) FANNIE MAE 5.50%, 09/01/34 3.5%
- --------------------------------------------------------------------------------
(2) FANNIE MAE 5.50%, 11/01/34 2.0%
- --------------------------------------------------------------------------------
(3) U.S.TREASURY NOTE 3.50%, 02/15/10 1.7%
- --------------------------------------------------------------------------------
(4) FANNIE MAE 6.00%, 04/01/35 1.7%
- --------------------------------------------------------------------------------
(5) CONOCO PHILLIPS 1.5%
- --------------------------------------------------------------------------------
(6) UK TREASURY GILT 4.75%, 06/07/10 1.4%
- --------------------------------------------------------------------------------
(7) U.S.TREASURY NOTE 4.00%, 06/15/09 1.4%
- --------------------------------------------------------------------------------
(8) FANNIE MAE 5.50%, 02/01/35 1.4%
- --------------------------------------------------------------------------------
(9) HEWLETT PACKARD CO. 1.4%
- --------------------------------------------------------------------------------
(10) FANNIE MAE 5.50%, 04/01/35 1.4%
- --------------------------------------------------------------------------------
TOTAL 17.4%
STATISTICS
NUMBER OF LONG HOLDINGS 308
- --------------------------------------------------------------------------------
NUMBER OF SHORT POSITIONS 6
- --------------------------------------------------------------------------------
WEIGHTED AVERAGE MARKET CAP ($ x 1,000,000) $32,452
- --------------------------------------------------------------------------------
PRICE/EARNINGS RATIO (P/E) 25.8
- --------------------------------------------------------------------------------
PRICE/BOOK RATIO (P/B) 2.1
- --------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 283%
- --------------------------------------------------------------------------------
MINIMUM INITIAL INVESTMENT 2
Investor Shares $2,500
($1,000 for retirement, education and custodial accounts)
Select Shares $50,000
- --------------------------------------------------------------------------------
INVESTMENT MANAGERS AND ALLOCATIONS
% OF
INVESTMENT MANAGER INVESTMENT STYLE NET ASSETS
- --------------------------------------------------------------------------------
TCW INVESTMENT Large-Cap Value 33.5%
MANAGEMENT COMPANY 3
- --------------------------------------------------------------------------------
GARDNER LEWIS Large-Cap Growth 17.7%
ASSET MANAGEMENT L.P. 4
- --------------------------------------------------------------------------------
JANUS CAPITAL Mid-Cap Value 18.0%
MANAGEMENT LLC/
PERKINS, WOLF,
MCDONNELL AND
COMPANY, LLC
- --------------------------------------------------------------------------------
PACIFIC INVESTMENT Total Return 30.3%
MANAGEMENT Fixed-Income
COMPANY LLC
- --------------------------------------------------------------------------------
SECTOR WEIGHTINGS % of Equity Securities
This chart shows the Fund's sector composition as of the report date. A sector
is a portion of the overall stock market that is made up of industries whose
business components share similar characteristics.
[PIE CHART]
17.8% FINANCIALS
17.5% CONSUMER DISCRETIONARY
16.3% INFORMATION TECHNOLOGY
14.5% HEALTH CARE
9.8% INDUSTRIALS
6.5% ENERGY
5.7% CONSUMER STAPLES
2.9% TELECOMMUNICATION SERVICES
2.8% MATERIALS
2.1% UTILITIES
4.1% OTHER
Portfolio holdings may have changed since the report date.
Source of Sector Classification: S&P and MSCI.
1 This list is not a recommendation of any security by the investment adviser.
2 Please see prospectus for further detail and eligibility requirements.
3 TCW Investment Management replaced Aronson+Johnson+Ortiz as of November 1,
2004.
4 Gardner Lewis replaced Eagle Asset Management as of December 27, 2004.
Laudus MarketMasters Funds 11
LAUDUS SMALL-CAP MARKETMASTERS FUND(TM)
INVESTOR SHARES PERFORMANCE as of 10/31/05
AVERAGE ANNUAL TOTAL RETURNS 1, 2
This chart compares performance of the Fund with a benchmark and the Fund's
Morningstar category.
[BAR CHART]
Fund: Fund Category:
INVESTOR SHARES Benchmark: MORNINGSTAR
Ticker Symbol: RUSSELL 2000(R) SMALL-CAP
SWOSX INDEX BLEND
1 YEAR 9.85% 12.08% 13.72%
5 YEARS 4.27% 6.74% 9.75%
SINCE INCEPTION: 9/16/97 6.11% 6.15% 7.99%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE DOES
NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL
FLUCTUATE SO THAT AN INVESTOR'S SHARES MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN PERFORMANCE DATA
QUOTED. TO OBTAIN PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH END,
PLEASE VISIT WWW.SCHWAB.COM/MARKETMASTERS.
PERFORMANCE OF A HYPOTHETICAL $10,000 INVESTMENT 1
This graph shows performance since inception of a hypothetical $10,000
investment in the Fund, compared with a similar investment in a benchmark.
$16,201 INVESTOR SHARES
$16,256 RUSSELL 2000(R) INDEX
[LINE GRAPH]
INVESTOR SHARES RUSSELL 2000(R)
INDEX
09/16/97 $10,000 $10,000
09/30/97 $10,260 $10,319
10/31/97 $9,930 $9,866
11/30/97 $9,770 $9,802
12/31/97 $9,886 $9,973
01/31/98 $9,701 $9,816
02/28/98 $10,277 $10,541
03/31/98 $10,781 $10,976
04/30/98 $10,832 $11,036
05/31/98 $10,359 $10,441
06/30/98 $10,411 $10,463
07/31/98 $9,896 $9,615
08/31/98 $8,271 $7,748
09/30/98 $8,435 $8,355
10/31/98 $8,754 $8,696
11/30/98 $9,238 $9,151
12/31/98 $9,946 $9,718
01/31/99 $10,101 $9,847
02/28/99 $9,563 $9,049
03/31/99 $10,029 $9,191
04/30/99 $10,773 $10,014
05/31/99 $10,752 $10,160
06/30/99 $11,311 $10,620
07/31/99 $11,228 $10,329
08/31/99 $10,938 $9,946
09/30/99 $10,990 $9,948
10/31/99 $11,414 $9,989
11/30/99 $12,272 $10,586
12/31/99 $13,714 $11,784
01/31/00 $13,339 $11,594
02/29/00 $15,171 $13,508
03/31/00 $14,496 $12,618
04/30/00 $13,178 $11,859
05/31/00 $12,482 $11,167
06/30/00 $14,003 $12,141
07/31/00 $13,478 $11,750
08/31/00 $14,924 $12,647
09/30/00 $14,164 $12,275
10/31/00 $13,146 $11,727
11/30/00 $11,325 $10,523
12/31/00 $12,156 $11,427
01/31/01 $12,795 $12,022
02/28/01 $11,698 $11,233
03/31/01 $10,879 $10,684
04/30/01 $11,927 $11,520
05/31/01 $12,325 $11,803
06/30/01 $12,674 $12,210
07/31/01 $12,168 $11,550
08/31/01 $11,590 $11,177
09/30/01 $10,012 $9,672
10/31/01 $10,518 $10,238
11/30/01 $11,421 $11,030
12/31/01 $12,144 $11,711
01/31/02 $11,951 $11,589
02/28/02 $11,612 $11,272
03/31/02 $12,520 $12,178
04/30/02 $12,471 $12,289
05/31/02 $12,060 $11,743
06/30/02 $11,164 $11,161
07/31/02 $9,469 $9,475
08/31/02 $9,323 $9,452
09/30/02 $8,476 $8,773
10/31/02 $8,694 $9,055
11/30/02 $9,481 $9,862
12/31/02 $8,997 $9,313
01/31/03 $8,864 $9,055
02/28/03 $8,585 $8,782
03/31/03 $8,573 $8,895
04/30/03 $9,384 $9,738
05/31/03 $10,668 $10,783
06/30/03 $10,946 $10,978
07/31/03 $11,600 $11,665
08/31/03 $12,314 $12,200
09/30/03 $12,193 $11,974
10/31/03 $13,416 $12,980
11/30/03 $13,913 $13,441
12/31/03 $14,276 $13,714
01/31/04 $14,942 $14,309
02/29/04 $15,075 $14,437
03/31/04 $15,075 $14,572
04/30/04 $14,143 $13,829
05/31/04 $14,458 $14,048
06/30/04 $15,075 $14,640
07/31/04 $14,046 $13,655
08/31/04 $13,719 $13,585
09/30/04 $14,470 $14,222
10/31/04 $14,748 $14,502
11/30/04 $15,826 $15,760
12/31/04 $16,468 $16,226
01/31/05 $16,020 $15,549
02/28/05 $16,504 $15,812
03/31/05 $15,705 $15,360
04/30/05 $14,603 $14,480
05/31/05 $15,475 $15,428
06/30/05 $15,959 $16,024
07/31/05 $16,879 $17,040
08/31/05 $16,577 $16,725
09/30/05 $16,661 $16,776
10/31/05 $16,201 $16,256
All figures on this page assume dividends and distributions were reinvested.
Index figures do not include trading and management costs, which would lower
performance. Indices are unmanaged, and you cannot invest in them directly.
Because the Fund originally used a multi-fund strategy, its performance prior
to June 3, 2002 does not reflect the current strategy and may have been
different if it did.
1 Fund expenses have been partially absorbed by CSIM and Schwab. Without these
reductions, the Fund's returns would have been lower. These returns do not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption of Fund shares.
2 Source for category information: Morningstar, Inc.
12 Laudus MarketMasters Funds
LAUDUS SMALL-CAP MARKETMASTERS FUND
SELECT SHARES(R) PERFORMANCE as of 10/31/05
TOTAL RETURNS 1, 2
This chart compares performance of the Fund's Select Shares with its benchmark
and Morningstar category.
[BAR CHART]
Fund: Fund Category:
SELECT SHARES Benchmark: MORNINGSTAR
Ticker Symbol: RUSSELL 2000(R) SMALL-CAP
SWMSX INDEX BLEND
1 YEAR 10.01% 12.08% 13.72%
SINCE INCEPTION: 6/9/04 7.57% 9.68% 11.56%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE DOES
NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL
FLUCTUATE SO THAT AN INVESTOR'S SHARES MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN PERFORMANCE DATA
QUOTED. TO OBTAIN PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH END,
PLEASE VISIT WWW.SCHWAB.COM/MARKETMASTERS.
PERFORMANCE OF A HYPOTHETICAL $50,000 INVESTMENT 1
This graph shows performance since inception of a hypothetical $50,000
investment (the minimum investment for this share class) in the Fund's Select
Shares, compared with a similar investment in its benchmark.
$55,365 SELECT SHARES
$56,886 RUSSELL 2000(R) INDEX
[LINE GRAPH]
SELECT RUSSELL 2000(R)
SHARES INDEX
06/09/04 $50,000 $50,000
06/30/04 $51,445 $51,229
07/31/04 $47,895 $47,781
08/31/04 $46,780 $47,538
09/30/04 $49,380 $49,767
10/31/04 $50,330 $50,748
11/30/04 $54,005 $55,148
12/31/04 $56,235 $56,780
01/31/05 $54,705 $54,412
02/28/05 $56,360 $55,332
03/31/05 $53,635 $53,749
04/30/05 $49,875 $50,669
05/31/05 $52,850 $53,988
06/30/05 $54,540 $56,072
07/31/05 $57,680 $59,627
08/31/05 $56,645 $58,524
09/30/05 $56,935 $58,705
10/31/05 $55,365 $56,886
All figures on this page assume dividends and distributions were reinvested.
Index figures do not include trading and management costs, which would lower
performance. Indices are unmanaged, and you cannot invest in them directly.
1 Fund expenses have been partially absorbed by CSIM and Schwab. Without these
reductions, the Fund's returns would have been lower. These returns do not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption of Fund shares.
2 Source for category information: Morningstar, Inc.
Laudus MarketMasters Funds 13
LAUDUS SMALL-CAP MARKETMASTERS FUND
FUND FACTS as of 10/31/05
STYLE ASSESSMENT 1
[GRAPHIC]
INVESTMENT STYLE
Value Blend Growth
MARKET CAP
Large / / / / / /
Medium / / / / / /
Small / / / / /X/
STATISTICS
NUMBER OF HOLDINGS 211
- --------------------------------------------------------------------------------
WEIGHTED AVERAGE MARKET CAP ($ x 1,000,000) $2,075
- --------------------------------------------------------------------------------
PRICE/EARNINGS RATIO (P/E) 42.7
- --------------------------------------------------------------------------------
PRICE/BOOK RATIO (P/B) 2.3
- --------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 94%
- --------------------------------------------------------------------------------
MINIMUM INITIAL INVESTMENT 2
Investor Shares $2,500
($1,000 for retirement, education and custodial accounts)
Select Shares $50,000
- --------------------------------------------------------------------------------
INVESTMENT MANAGERS AND ALLOCATIONS
% OF
INVESTMENT MANAGER INVESTMENT STYLE NET ASSETS
- --------------------------------------------------------------------------------
TAMRO CAPITAL Small-Cap Value 29.3%
PARTNERS, LLC
- --------------------------------------------------------------------------------
TCW INVESTMENT Small/Mid-Cap 15.4%
MANAGEMENT COMPANY Blend
- --------------------------------------------------------------------------------
TOCQUEVILLE ASSET Small-Cap Blend 8.4%
MANAGEMENT LP
- --------------------------------------------------------------------------------
VEREDUS ASSET Small-Cap Growth 45.0%
MANAGEMENT LLC
- --------------------------------------------------------------------------------
TOP HOLDINGS 3
% OF
SECURITY NET ASSETS
- --------------------------------------------------------------------------------
(1) BEAZER HOMES USA, INC. 1.9%
- --------------------------------------------------------------------------------
(2) THE CHICAGO MERCANTILE EXCHANGE. 1.7%
- --------------------------------------------------------------------------------
(3) AIRTRAN HOLDINGS, INC. 1.5%
- --------------------------------------------------------------------------------
(4) THE SHAW GROUP, INC. 1.5%
- --------------------------------------------------------------------------------
(5) STEELCASE, INC., Class A 1.4%
- --------------------------------------------------------------------------------
(6) MERITAGE CORP. 1.4%
- --------------------------------------------------------------------------------
(7) THE RYLAND GROUP, INC. 1.3%
- --------------------------------------------------------------------------------
(8) UNITED THERAPEUTICS CORP. 1.3%
- --------------------------------------------------------------------------------
(9) URS CORP. '1.2%
- --------------------------------------------------------------------------------
(10) STANDARD PACIFIC CORP. 1.1%
- --------------------------------------------------------------------------------
TOTAL 14.3%
SECTOR WEIGHTINGS % of Investments
This chart shows the Fund's sector composition as of the report date. A sector
is a portion of the overall stock market that is made up of industries whose
business components share similar characteristics.
[PIE CHART]
21.5% CONSUMER DISCRETIONARY
20.8% INFORMATION TECHOLOGY
19.2% INDUSTRIALS
17.4% HEALTH CARE
8.5% FINANCIALS
5.0% ENERGY
2.4% CONSUMER STAPLES
1.6% MATERIALS
3.6% OTHER
Portfolio holdings may have changed since the report date. Source of Sector
Classification: S&P and MSCI.
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 10/31/05, 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.
14 Laudus MarketMasters Funds
LAUDUS INTERNATIONAL MARKETMASTERS FUND(TM)
INVESTOR SHARES PERFORMANCE as of 10/31/05
AVERAGE ANNUAL TOTAL RETURNS 1, 2
This chart compares performance of the Fund's Investor Shares with a benchmark
and the Fund's Morningstar category.
[BAR CHART]
Fund: Fund Category:
INVESTOR SHARES Benchmark: MORNINGSTAR
Ticker Symbol: MSCI EAFE(R) FOREIGN LARGE-CAP
SWOIX INDEX GROWTH
1 YEAR 23.75% 18.09% 17.27%
5 YEARS 5.26% 3.04% -0.52%
SINCE INCEPTION: 10/16/96 10.60% 5.08% 5.31%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE DOES
NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL
FLUCTUATE SO THAT AN INVESTOR'S SHARES MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN PERFORMANCE DATA
QUOTED. TO OBTAIN PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH END,
PLEASE VISIT WWW.SCHWAB.COM/MARKETMASTERS.
PERFORMANCE OF A HYPOTHETICAL $10,000 INVESTMENT 1
This graph shows performance since inception of a hypothetical $10,000
investment in the Fund's Investor Shares, compared with a similar investment in
a benchmark.
$24,878 INVESTOR SHARES
$15,659 MSCI EAFE(R) INDEX
[LINE GRAPH]
INVESTOR MSCI EAFE(R)
SHARES INDEX
16-Oct-96 $10,000 $10,000
31-Oct-96 $9,910 $9,836
30-Nov-96 $10,220 $10,228
31-Dec-96 $10,313 $10,096
31-Jan-97 $10,426 $9,742
28-Feb-97 $10,599 $9,902
31-Mar-97 $10,558 $9,938
30-Apr-97 $10,609 $9,991
31-May-97 $11,209 $10,641
30-Jun-97 $11,697 $11,227
31-Jul-97 $11,962 $11,409
31-Aug-97 $11,199 $10,557
30-Sep-97 $11,830 $11,148
31-Oct-97 $11,046 $10,291
30-Nov-97 $10,894 $10,186
31-Dec-97 $11,016 $10,274
31-Jan-98 $11,146 $10,744
28-Feb-98 $11,925 $11,434
31-Mar-98 $12,670 $11,786
30-Apr-98 $12,952 $11,879
31-May-98 $13,265 $11,821
30-Jun-98 $13,157 $11,911
31-Jul-98 $13,525 $12,031
31-Aug-98 $11,654 $10,540
30-Sep-98 $11,006 $10,217
31-Oct-98 $11,438 $11,281
30-Nov-98 $12,011 $11,859
31-Dec-98 $12,481 $12,327
31-Jan-99 $12,820 $12,290
28-Feb-99 $12,415 $11,998
31-Mar-99 $12,853 $12,498
30-Apr-99 $13,815 $13,004
31-May-99 $13,170 $12,335
30-Jun-99 $14,428 $12,816
31-Jul-99 $14,985 $13,196
31-Aug-99 $15,248 $13,245
30-Sep-99 $15,401 $13,379
31-Oct-99 $16,232 $13,881
30-Nov-99 $18,683 $14,362
31-Dec-99 $21,819 $15,652
31-Jan-00 $21,236 $14,658
29-Feb-00 $24,410 $15,052
31-Mar-00 $23,356 $15,636
30-Apr-00 $21,149 $14,814
31-May-00 $20,120 $14,452
30-Jun-00 $21,100 $15,018
31-Jul-00 $20,554 $14,388
31-Aug-00 $21,249 $14,513
30-Sep-00 $20,120 $13,806
31-Oct-00 $19,253 $13,481
30-Nov-00 $18,050 $12,975
31-Dec-00 $18,672 $13,436
31-Jan-01 $18,893 $13,440
28-Feb-01 $17,883 $12,434
31-Mar-01 $16,680 $11,590
30-Apr-01 $17,538 $12,386
31-May-01 $17,496 $11,928
30-Jun-01 $17,178 $11,438
31-Jul-01 $16,639 $11,240
31-Aug-01 $16,182 $10,979
30-Sep-01 $14,495 $9,867
31-Oct-01 $14,937 $10,120
30-Nov-01 $15,588 $10,493
31-Dec-01 $16,028 $10,555
31-Jan-02 $15,659 $9,994
28-Feb-02 $15,762 $10,064
31-Mar-02 $16,515 $10,609
30-Apr-02 $16,397 $10,679
31-May-02 $16,338 $10,815
30-Jun-02 $15,674 $10,384
31-Jul-02 $14,006 $9,359
31-Aug-02 $13,947 $9,338
30-Sep-02 $12,368 $8,335
31-Oct-02 $12,899 $8,782
30-Nov-02 $13,548 $9,181
31-Dec-02 $13,092 $8,873
31-Jan-03 $12,560 $8,503
28-Feb-03 $12,103 $8,308
31-Mar-03 $11,911 $8,145
30-Apr-03 $13,224 $8,943
31-May-03 $14,184 $9,485
30-Jun-03 $14,700 $9,715
31-Jul-03 $15,291 $9,950
31-Aug-03 $15,925 $10,190
30-Sep-03 $16,368 $10,504
31-Oct-03 $17,638 $11,158
30-Nov-03 $17,756 $11,406
31-Dec-03 $18,845 $12,296
31-Jan-04 $19,423 $12,470
29-Feb-04 $19,837 $12,758
31-Mar-04 $19,896 $12,829
30-Apr-04 $19,497 $12,539
31-May-04 $19,393 $12,582
30-Jun-04 $19,955 $12,858
31-Jul-04 $19,038 $12,440
31-Aug-04 $18,978 $12,494
30-Sep-04 $19,511 $12,821
31-Oct-04 $20,118 $13,258
30-Nov-04 $21,510 $14,163
31-Dec-04 $22,491 $14,785
31-Jan-05 $22,283 $14,514
28-Feb-05 $23,247 $15,141
31-Mar-05 $22,832 $14,761
30-Apr-05 $22,283 $14,414
31-May-05 $22,580 $14,422
30-Jun-05 $22,891 $14,613
31-Jul-05 $24,033 $15,062
31-Aug-05 $24,714 $15,443
30-Sep-05 $25,589 $16,130
31-Oct-05 $24,878 $15,659
All figures on this page assume dividends and distributions were reinvested.
Index figures do not include trading and management costs, which would lower
performance. Indices are unmanaged, and you cannot invest in them directly.
Because the Fund originally used a multi-fund strategy, its performance prior
to June 3, 2002 does not reflect the current strategy and may have been
different if it did.
1 Fund expenses have been partially absorbed by CSIM and Schwab. Without these
reductions, the Fund's returns would have been lower. These returns do not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption of Fund shares.
2 Source for category information: Morningstar, Inc.
Laudus MarketMasters Funds 15
LAUDUS INTERNATIONAL MARKETMASTERS FUND
SELECT SHARES(R) PERFORMANCE as of 10/31/05
TOTAL RETURNS 1, 2
This chart compares performance of the Fund's Select Shares with its benchmark
and Morningstar category.
[BAR CHART]
Fund: Fund Category:
SELECT SHARES Benchmark: MORNINGSTAR
Ticker Symbol: MSCI EAFE(R) FOREIGN LARGE-CAP
SWMIX INDEX GROWTH
1 YEAR 23.90% 18.09% 17.27%
SINCE INCEPTION: 4/2/04 14.33% 12.49% 11.55%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE DOES
NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL
FLUCTUATE SO THAT AN INVESTOR'S SHARES MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN PERFORMANCE DATA
QUOTED. TO OBTAIN PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH END,
PLEASE VISIT WWW.SCHWAB.COM/MARKETMASTERS.
PERFORMANCE OF A HYPOTHETICAL $50,000 INVESTMENT 1
This graph shows performance since inception of a hypothetical $50,000
investment (the minimum investment for this share class) in the Fund's Select
Shares, compared with a similar investment in its benchmark.
$61,815 SELECT SHARES
$60,247 MSCI EAFE(R) INDEX
[LINE GRAPH]
SELECT MSCI EAFE(R)
SHARES INDEX
01-Apr-04 $50,000 $50,000
30-Apr-04 $48,315 $48,243
31-May-04 $48,055 $48,407
30-Jun-04 $49,450 $49,468
31-Jul-04 $47,215 $47,860
31-Aug-04 $47,065 $48,070
30-Sep-04 $48,385 $49,325
31-Oct-04 $49,890 $51,007
30-Nov-04 $53,370 $54,491
31-Dec-04 $55,785 $56,883
31-Jan-05 $55,305 $55,842
28-Feb-05 $57,695 $58,254
31-Mar-05 $56,665 $56,792
30-Apr-05 $55,345 $55,458
31-May-05 $56,040 $55,485
30-Jun-05 $56,850 $56,223
31-Jul-05 $59,680 $57,949
31-Aug-05 $61,375 $59,416
30-Sep-05 $63,580 $62,060
31-Oct-05 $61,815 $60,247
All figures on this page assume dividends and distributions were reinvested.
Index figures do not include trading and management costs, which would lower
performance. Indices are unmanaged, and you cannot invest in them directly.
1 Fund expenses have been partially absorbed by CSIM and Schwab. Without these
reductions, the Fund's returns would have been lower. These returns do not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption of Fund shares.
2 Source for category information: Morningstar, Inc.
16 Laudus MarketMasters Funds
LAUDUS INTERNATIONAL MARKETMASTERS FUND
FUND FACTS as of 10/31/05
TOP HOLDINGS 1
% OF
SECURITY NET ASSETS
- ------------------------------------------------------------------------------
(1) NESTLE SA 1.5%
- ------------------------------------------------------------------------------
(2) GLAXOSMITHKLINE PLC 1.4%
- ------------------------------------------------------------------------------
(3) NOVARTIS AG 1.3%
- ------------------------------------------------------------------------------
(4) BAYERISCHE MOTOREN-WERKE AG 1.2%
- ------------------------------------------------------------------------------
(5) DIAGEO PLC 1.2%
- ------------------------------------------------------------------------------
(6) SK TELECOM CO., LTD. 1.2%
- ------------------------------------------------------------------------------
(7) HONDA MOTOR CO., LTD. 1.2%
- ------------------------------------------------------------------------------
(8) BANQUE NATIONAL DE PARIS 1.1%
- ------------------------------------------------------------------------------
(9) KOOKMIN BANK 1.1%
- ------------------------------------------------------------------------------
(10) TAKADA CHEMICAL INDUSTRIES LTD. 1.0%
- ------------------------------------------------------------------------------
TOTAL 12.2%
INVESTMENT MANAGERS AND ALLOCATIONS
% OF
INVESTMENT MANAGER INVESTMENT STYLE NET ASSETS
- --------------------------------------------------------------------------------
AMERICAN CENTURY International 18.4%
GLOBAL INVESTMENT Small Company
MANAGEMENT, INC.
- --------------------------------------------------------------------------------
ARTISAN PARTNERS International 15.2%
LIMITED PARTNERSHIP Growth
- --------------------------------------------------------------------------------
HARRIS ASSOCIATES L.P. International 38.1%
Value
- --------------------------------------------------------------------------------
WILLIAM BLAIR & International 26.8%
COMPANY, LLC Growth
- --------------------------------------------------------------------------------
STATISTICS
NUMBER OF HOLDINGS 410
- --------------------------------------------------------------------------------
WEIGHTED AVERAGE MARKET CAP ($ x 1,000,000) $27,035
- --------------------------------------------------------------------------------
PRICE/EARNINGS RATIO (P/E) 20.0
- --------------------------------------------------------------------------------
PRICE/BOOK RATIO (P/B) 3.0
- --------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 53%
- --------------------------------------------------------------------------------
MINIMUM INITIAL INVESTMENT 2
Investor Shares $2,500
($1,000 for retirement, education and custodial accounts)
Select Shares $50,000
- --------------------------------------------------------------------------------
SECTOR AND COUNTRY WEIGHTINGS % of Investments
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]
23.2% FINANCIALS
20.9% CONSUMER DISCRETIONARY
10.8% INDUSTRIALS
9.6% CONSUMER STAPLES
9.4% HEALTH CARE
7.0% INFORMATION TECHNOLOGY
4.1% ENERGY
4.1% TELECOMMUNICATION SERVICES
3.8% MATERIALS
0.5% UTILITIES
6.6% OTHER
COUNTRY
[PIE CHART]
18.7% JAPAN
13.8% UNITED KINGDOM
9.4% SWITZERLAND
9.2% FRANCE
8.3% GERMANY
5.2% NETHERLANDS
3.9% SOUTH KOREA
3.0% ITALY
23.9% OTHER COUNTRIES
4.6% CASH & CASH EQUIVALENTS
Portfolio holdings may have changed since the report date.
Source of Sector Classification: S&P and MSCI.
1 This list is not a recommendation of any security by the investment adviser.
2 Please see prospectus for further detail and eligibility requirements.
Laudus MarketMasters Funds 17
FUND EXPENSES (unaudited)
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, 2005 and held
through October 31, 2005.
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 5/1/05 at 10/31/05 5/1/05-10/31/05
- -----------------------------------------------------------------------------------------------------------
LAUDUS U.S. MARKETMASTERS FUND(TM)
Investor Shares
Actual Return 1.25% $1,000 $1,065.30 $6.51
Hypothetical 5% Return 1.25% $1,000 $1,018.90 $6.36
Select Shares(R)
Actual Return 1.07% $1,000 $1,066.00 $5.57
Hypothetical 5% Return 1.07% $1,000 $1,019.81 $5.45
- -----------------------------------------------------------------------------------------------------------
LAUDUS BALANCED
MARKETMASTERS FUND(TM)
Investor Shares
Actual Return 1.10% $1,000 $1,045.60 $5.67
Hypothetical 5% Return 1.10% $1,000 $1,019.66 $5.60
Select Shares
Actual Return 0.95% $1,000 $1,046.30 $4.90
Hypothetical 5% Return 0.95% $1,000 $1,020.42 $4.84
1 Based on the most recent six-month expense ratio; may differ from the expense
ratio provided in Financial Highlights.
2 Expenses for the share class are equal to its annualized expense ratio,
multiplied by the average account value over the period, multiplied by 184
days of the period, and divided by 365 days of the fiscal year.
18 Laudus MarketMasters Funds
FUND EXPENSES continued
ENDING
BEGINNING ACCOUNT VALUE EXPENSES
EXPENSE RATIO 1 ACCOUNT VALUE (Net of Expenses) PAID DURING PERIOD 2
(Annualized) at 5/1/05 at 10/31/05 5/1/05-10/31/05
- -----------------------------------------------------------------------------------------------------------
LAUDUS SMALL-CAP
MARKETMASTERS FUND(TM)
Investor Shares
Actual Return 1.55% $1,000 $1,109.50 $8.24
Hypothetical 5% Return 1.55% $1,000 $1,017.39 $7.88
Select Shares
Actual Return 1.37% $1,000 $1,110.10 $7.29
Hypothetical 5% Return 1.37% $1,000 $1,018.30 $6.97
- -----------------------------------------------------------------------------------------------------------
LAUDUS INTERNATIONAL
MARKETMASTERS FUND(TM)
Investor Shares
Actual Return 1.65% $1,000 $1,116.40 $8.80
Hypothetical 5% Return 1.65% $1,000 $1,016.89 $8.39
Select Shares
Actual Return 1.47% $1,000 $1,116.90 $7.84
Hypothetical 5% Return 1.47% $1,000 $1,017.80 $7.48
1 Based on the most recent six-month expense ratio; may differ from the expense
ratio provided in Financial Highlights.
2 Expenses for the share class are equal to its annualized expense ratio,
multiplied by the average account value over the period, multiplied by 184
days of the period, and divided by days of the fiscal year.
Laudus MarketMasters Funds 19
LAUDUS U.S. MARKETMASTERS FUND(TM)
FINANCIAL STATEMENTS
FINANCIAL HIGHLIGHTS
11/1/04- 11/1/03- 11/1/02- 11/1/01- 11/1/00-
INVESTOR SHARES 10/31/05 10/31/04 10/31/03 10/31/02 10/31/01
- ---------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA ($)
- ---------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of period 10.30 9.94 7.48 9.20 13.89
----------------------------------------------------------------
Income or loss from investment operations:
Net investment income or loss 0.02 (0.03) (0.01) 0.06 0.38
Net realized and unrealized gains or losses 0.94 0.39 2.47 (1.68) (3.21)
----------------------------------------------------------------
Total income or loss from investment operations 0.96 0.36 2.46 (1.62) (2.83)
Less distributions:
Dividends from net investment income -- -- -- (0.10) (0.46)
Distributions from net realized gains -- -- -- -- (1.40)
----------------------------------------------------------------
Total distributions -- -- -- (0.10) (1.86)
----------------------------------------------------------------
Net asset value at end of period 11.26 10.30 9.94 7.48 9.20
----------------------------------------------------------------
Total return (%) 9.32 3.62 32.89 (17.92) (22.81)
RATIOS/SUPPLEMENTAL DATA (%)
- ---------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net operating expenses 1.25 1.25 1.25 0.83 1,2 0.50 2
Gross operating expenses 1.38 1.39 1.42 1.16 2 0.89 2
Net investment income or loss 0.14 (0.25) (0.12) 0.50 3.27
Portfolio turnover rate 83 72 97 390 145
Net assets, end of period ($ x 1,000,000) 150 180 169 129 176
1 The ratio of net operating expenses would have been 0.74% if certain
non-routine expenses (proxy fees) had not been included.
2 Prior to the fund's change in structure on June 3, 2002, the expenses
incurred by underlying funds in which the fund invested were not included in
this ratio.
20 See financial notes.
LAUDUS U.S. MARKETMASTERS FUND
11/1/04- 6/4/04 1-
SELECT SHARES 10/31/05 10/31/04-
- --------------------------------------------------------------------------------
PER-SHARE DATA ($)
- --------------------------------------------------------------------------------
Net asset value at beginning of period 10.32 10.42
-----------------------------
Income or loss from investment operations:
Net investment income or loss 0.02 (0.00) 2
Net realized and unrealized gains or losses 0.96 (0.10)
-----------------------------
Total income or loss from investment operations 0.98 (0.10)
-----------------------------
Net asset value at end of period 11.30 10.32
-----------------------------
Total return (%) 9.50 (0.96) 3
RATIOS/SUPPLEMENTAL DATA (%)
- --------------------------------------------------------------------------------
Ratios to average net assets:
Net operating expenses 1.07 1.07 4
Gross operating expenses 1.33 1.37 4
Net investment income or loss 0.25 (0.08) 4
Portfolio turnover rate 83 72 3
Net assets, end of period ($ x 1,000,000) 2 1
1 Commencement of operations.
2 Per share amount was less than $0.01.
3 Not annualized.
4 Annualized.
See financial notes. 21
LAUDUS U.S. MARKETMASTERS FUND
PORTFOLIO HOLDINGS as of October 31, 2005
This section shows all the securities in the fund's portfolio by industry
classification and their value, as of the report date.
The fund files its complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. The fund's Form N-Q is
available on the SEC'S website at http://www.sec.gov and may be reviewed and
copied at the SEC'S Public Reference Room in Washington, D.C. Call
1-800-SEC-0330 for information on the operation of the Public Reference Room.
The schedule of portfolio holdings filed on the fund's most recent Form N-Q is
available by visiting Schwab's website at www.schwab.com/schwabfunds.
We use the symbol below to designate certain characteristics of the security.
(1) Top ten holding
o Non-income producing security
* American Depositary Receipt
COST VALUE
HOLDINGS BY CATEGORY ($x1,000) ($x1,000)
- --------------------------------------------------------------------------------
95.7% COMMON STOCK 130,770 146,292
2.2% FOREIGN COMMON
STOCK 3,371 3,345
1.9% OTHER INVESTMENTS 2,902 2,902
- --------------------------------------------------------------------------------
99.8% TOTAL INVESTMENTS 137,043 152,539
0.2% OTHER ASSETS AND
LIABILITIES 303
- --------------------------------------------------------------------------------
100.0% TOTAL NET ASSETS 152,842
VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
COMMON STOCK 95.7% of net assets
BANKS 4.3%
--------------------------------------------------------------------------
Bank of America Corp. 31,100 1,360
Commerce Bancorp, Inc. 12,460 380
North Fork Bancorp, Inc. 27,600 699
Peoples Bank 9,005 290
Sovereign Bancorp, Inc. 82,000 1,769
Washington Mutual, Inc. 43,200 1,711
Zions Bancorp. 5,600 411
-----------
6,620
BUSINESS MACHINES & SOFTWARE 1.1%
--------------------------------------------------------------------------
Hewlett Packard Co. 45,000 1,262
o Lexmark International, Inc., Class A 9,740 404
-----------
1,666
BUSINESS SERVICES 0.8%
--------------------------------------------------------------------------
o Symantec Corp. 52,200 1,245
CAPITAL GOODS 5.1%
--------------------------------------------------------------------------
o 3M Co. 10,200 775
o Alliant Techsystems, Inc. 9,600 674
Dover Corp. 18,100 706
o EMCOR Group, Inc. 9,755 595
General Electric Co. 46,400 1,574
Grainger, Inc. 9,600 643
SPX Corp. 10,600 456
Tyco International Ltd. 65,000 1,715
York International Corp. 10,570 593
-----------
7,731
CHEMICAL 1.2%
--------------------------------------------------------------------------
Cytec Industries, Inc. 8,330 344
Dow Chemical Co. 31,100 1,426
-----------
1,770
COMMERCIAL SERVICES & SUPPLIES 1.8%
--------------------------------------------------------------------------
o Apollo Group Inc., Class A 11,600 731
(10) Cendant Corp. 111,700 1,946
o FTI Consulting, Inc. 1,070 29
-----------
2,706
CONSUMER DURABLES & APPAREL 1.3%
--------------------------------------------------------------------------
American Greetings Corp., Class A
42,500 1,073
Jones Apparel Group, Inc. 15,465 422
Leggett & Platt, Inc. 27,950 560
-----------
2,055
22 See financial notes.
LAUDUS U.S. MARKETMASTERS FUND
VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
CONSUMER SERVICES 3.8%
--------------------------------------------------------------------------
Carnival Corp. 19,000 944
McDonald's Corp. 60,000 1,896
o Starwood Hotel & Resorts Worldwide, Inc.
18,800 1,098
Yum! Brands, Inc. 36,000 1,831
-----------
5,769
DIVERSIFIED FINANCIALS 7.8%
--------------------------------------------------------------------------
American Express Co. 25,000 1,244
Bank of New York Co., Inc. 52,200 1,633
Capital One Financial Corp. 16,400 1,252
Citigroup, Inc. 32,300 1,479
JP Morgan Chase & Co. 52,000 1,904
The Chicago Mercantile Exchange 3,720 1,359
(2) The Goldman Sachs Group, Inc. 23,660 2,990
-----------
11,861
ELECTRONICS 2.1%
--------------------------------------------------------------------------
o Avid Technology, Inc. 16,600 817
o LAM Research Corp. 17,000 574
Linear Technology Corp. 6,100 203
o LSI Logic Corp. 60,700 492
o MEMC Electronic Materials, Inc. 32,500 583
Tektronix, Inc. 20,820 478
-----------
3,147
ENERGY 3.3%
--------------------------------------------------------------------------
ChevronTexaco Corp. 29,775 1,699
o Cooper Cameron Corp. 6,800 502
ENSCO International, Inc. 8,100 369
Exxon Mobil Corp. 30,400 1,707
o Transocean, Inc. 14,200 816
-----------
5,093
ENERGY: RAW MATERIALS 0.8%
--------------------------------------------------------------------------
Schlumberger Ltd. 12,400 1,126
o Weatherford International Ltd. 2,500 156
-----------
1,282
FOOD & STAPLES RETAILING 1.0%
--------------------------------------------------------------------------
Costco Cos., Inc. 30,000 1,451
FOOD BEVERAGE & TOBACCO 2.7%
--------------------------------------------------------------------------
(8) Coca-Cola Co. 48,900 2,092
Molson Coors Brewing Co. 8,240 508
The Pepsi Bottling Group, Inc. 55,000 1,564
-----------
4,164
HEALTH CARE EQUIPMENT & SERVICES 9.5%
--------------------------------------------------------------------------
o Baxter International, Inc. 45,000 1,721
Beckman Coulter, Inc. 8,400 414
o Boston Scientific Corp. 18,203 457
o(3) Caremark Rx, Inc. 48,650 2,549
Cigna Corp. 12,300 1,425
o Eclipsys Corp. 46,000 736
o Edwards Lifesciences Corp. 11,000 455
o Fisher Scientific International, Inc.
20,500 1,158
Health Management Associates, Inc.,
Class A 39,900 854
Hillenbrand Industries, Inc. 9,200 424
o St. Jude Medical, Inc. 26,000 1,250
o Tenet Healthcare Corp. 52,200 440
o Thermo Electron Corp. 21,900 661
o Varian, Inc. 20,550 756
o Wellpoint, Inc. 16,700 1,247
-----------
14,547
HEALTHCARE / DRUGS & MEDICINE 1.3%
--------------------------------------------------------------------------
Johnson & Johnson, Inc. 11,750 736
Valeant Pharmaceuticals International
28,450 488
o Zimmer Holdings, Inc. 11,400 727
-----------
1,951
HOUSEHOLD & PERSONAL PRODUCTS 0.7%
--------------------------------------------------------------------------
Colgate-Palmolive Co. 18,900 1,001
HOUSEHOLD PRODUCTS 1.3%
--------------------------------------------------------------------------
Estee Lauder Cos., Inc., Class A 15,800 524
International Flavors & Fragrances, Inc.
13,800 456
Procter & Gamble Co. 18,400 1,030
-----------
2,010
See financial notes. 23
LAUDUS U.S. MARKETMASTERS FUND
PORTFOLIO HOLDINGS continued
VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
INSURANCE 2.5%
--------------------------------------------------------------------------
AFLAC, Inc. 18,700 893
Arthur J. Gallagher & Co. 16,950 499
Assurant, Inc. 21,040 804
MBIA, Inc. 18,999 1,107
Old Republic International Corp. 22,700 588
-----------
3,891
MATERIALS 0.8%
--------------------------------------------------------------------------
Monsanto Co. 20,400 1,285
MEDIA 8.3%
--------------------------------------------------------------------------
o Cablevision Systems New York Group,
Class A 30,000 744
o(7) Comcast Corp., Class A 77,350 2,120
o Directv Group, Inc. 99,111 1,409
Dow Jones & Co., Inc. 10,100 342
o Entercom Communications Corp. 6,150 178
o Liberty Global, Inc., Series C 8,000 190
o Liberty Global. Inc., Class A 8,000 198
o Liberty Media Corp., Class A 183,000 1,459
o Sirius Satellite Radio, Inc. 41,740 260
The Walt Disney Co. 28,500 695
o(1) Time Warner, Inc. 179,200 3,195
o Univision Communications, Inc. 14,165 370
Westwood One, Inc. 15,350 284
o XM Satellite Radio Holdings, Inc. 42,755 1,233
-----------
12,677
MISCELLANEOUS FINANCE 2.0%
--------------------------------------------------------------------------
Freddie Mac 13,900 853
Morgan Stanley 26,000 1,415
Nuveen Investments, Inc., Class A
19,800 801
-----------
3,069
NON-DURABLES & ENTERTAINMENT 0.5%
--------------------------------------------------------------------------
o Electronic Arts, Inc. 14,200 808
OIL: DOMESTIC 0.7%
--------------------------------------------------------------------------
o Murphy Oil Corp. 3,300 154
o National-Oilwell Varco, Inc. 14,100 881
-----------
1,035
PHARMACEUTICALS & BIOTECHNOLOGY 3.3%
--------------------------------------------------------------------------
o Charles River Laboratories, Inc. 9,970 436
* GlaxoSmithKline PLC 17,600 915
o* Novartis AG 17,000 915
o Par Pharmaceutical Cos., Inc. 12,900 334
Pfizer, Inc. 61,000 1,326
* Teva Pharmaceutical Industries Ltd.
28,300 1,079
-----------
5,005
PRODUCER GOODS & MANUFACTURING 0.4%
--------------------------------------------------------------------------
Pentair, Inc. 19,600 637
RETAILING 6.1%
--------------------------------------------------------------------------
o Ann Taylor Stores Corp. 9,000 219
Family Dollar Stores, Inc. 24,900 551
Federated Department Stores, Inc.
12,448 764
o Linens `n Things, Inc. 39,291 988
Officemax, Inc. 24,380 683
(6) Target Corp. 40,750 2,269
The Gap, Inc. 71,000 1,227
o The TJX Max Cos., Inc. 34,700 747
Tiffany & Co. 48,800 1,923
-----------
9,371
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT 4.9%
--------------------------------------------------------------------------
Applied Materials, Inc. 53,600 878
o Cypress Semiconductor Corp. 52,300 711
o Freescale Semiconductor, Inc., Class B
27,700 662
Intersil Holding Corp., Class A 21,800 496
Microchip Technology, Inc. 25,700 775
o Micron Technology, Inc. 23,900 311
(9) National Semiconductor Corp. 92,225 2,087
o Novellus Systems, Inc. 32,750 716
o Teradyne, Inc. 62,350 844
-----------
7,480
SOFTWARE & SERVICES 3.9%
--------------------------------------------------------------------------
Adobe Systems, Inc. 19,700 635
o Bearingpoint, Inc. 101,300 711
o(5) Google, Inc. 6,139 2,284
24 See financial notes.
LAUDUS U.S. MARKETMASTERS FUND
VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
Microsoft Corp. 45,600 1,172
o Oracle Systems Corp. 68,200 865
o Unisys Corp. 46,100 236
-----------
5,903
TECHNOLOGY HARDWARE & EQUIPMENT 6.4%
--------------------------------------------------------------------------
o Andrew Corp. 48,100 511
o Anixter International, Inc. 9,300 345
o Arrow Electronics, Inc. 3,970 117
o Celestica, Inc. 42,470 406
o Cisco Systems, Inc. 81,400 1,420
o Corning, Inc. 42,400 852
Diebold, Inc. 19,880 719
o EMC Corp. 79,100 1,104
o Juniper Networks, Inc. 37,800 882
Motorola, Inc. 77,700 1,722
Qualcomm, Inc. 25,200 1,002
o Vishay Intertechnology, Inc. 67,500 765
-----------
9,845
TELECOMMUNICATION SERVICES 3.3%
--------------------------------------------------------------------------
Alltel Corp. 22,000 1,361
o Crown Castle International Corp. 21,800 534
o Leap Wireless International, Inc. 26,500 875
o(4) NII Holdings, Inc. 27,800 2,305
-----------
5,075
TELEPHONE 0.3%
--------------------------------------------------------------------------
o American Tower Corp. 17,400 415
TRANSPORTATION 1.6%
--------------------------------------------------------------------------
Southwest Airlines, Inc. 72,232 1,156
Union Pacific Corp. 18,700 1,294
-----------
2,450
UTILITIES: ELECTRIC & GAS 0.8%
--------------------------------------------------------------------------
Constellation Energy Group, Inc. 7,500 411
TXU Corp. 8,600 866
-----------
1,277
FOREIGN COMMON STOCK 2.2% of net assets
CROATIA 0.4%
--------------------------------------------------------------------------
Canadian Natural Resources Ltd. 16,800 687
FRANCE 0.7%
--------------------------------------------------------------------------
Sanofi-Aventis 12,700 1,017
UNITED KINGDOM 1.1%
--------------------------------------------------------------------------
Lloyds TSB Group PLC 159,400 1,303
Willis Group Holdings Ltd. 9,100 338
-----------
1,641
OTHER INVESTMENTS 1.9% of net assets
OTHER INVESTMENT COMPANIES 1.9%
--------------------------------------------------------------------------
Provident Institutional Funds--
TempFund 2,901,598 2,902
END OF INVESTMENTS.
See financial notes. 25
LAUDUS U.S. MARKETMASTERS FUND
Statement of
ASSETS AND LIABILITIES
As of October 31, 2005. All numbers x 1,000 except NAV.
ASSETS
- ------------------------------------------------------------------------------
Investments, at value $152,539 a
Receivables:
Fund shares sold 3
Dividends 125
Foreign tax reclaims 6
Investments sold 1,793
Prepaid expenses + 20
------------
TOTAL ASSETS 154,486
LIABILITIES
- ------------------------------------------------------------------------------
Payables:
Fund shares redeemed 35
Investments bought 1,534
Investment adviser and administrator fees 8
Transfer agency and shareholder service fees 3
Trustees fees 1
Accrued expenses + 63
------------
TOTAL LIABILITIES 1,644
NET ASSETS
- ------------------------------------------------------------------------------
TOTAL ASSETS 154,486
TOTAL LIABILITIES - 1,644
------------
NET ASSETS $152,842
NET ASSETS BY SOURCE
Capital received from investors 170,239
Net investment income not yet distributed 206
Net realized capital losses (33,099) b
Net unrealized capital gains 15,496
NET ASSET VALUE (NAV) BY SHARE CLASS
SHARES
SHARE CLASS NET ASSETS / OUTSTANDING = NAV
Investor Shares $150,373 13,353 $11.26
Select Shares $2,469 218 $11.30
Unless stated, all numbers x 1,000.
a The fund paid $137,043 for these securities.
Not counting short-term obligations and government securities, the fund's
security transactions during the period were:
Purchases $134,375
Sales/maturities $174,944
b These derive from investments, foreign currency transactions and futures.
FEDERAL TAX DATA
- -----------------------------------------------------
PORTFOLIO COST $138,044
NET UNREALIZED GAINS AND LOSSES:
Gains $20,237
Losses + (5,742)
-------------
$14,495
NET UNDISTRIBUTED EARNINGS:
Ordinary income $206
Long-term capital gains $--
CAPITAL LOSSES UTILIZED $18,919
UNUSED CAPITAL LOSSES:
Expires 10/31 of: Loss amount:
2010 $31,494
2011 + 604
-------------
$32,098
RECLASSIFICATIONS:
Net investment income
not yet distributed ($23)
RECLASSIFIED AS:
Net realized capital gains $26
Capital received from
investors ($3)
26 See financial notes.
LAUDUS U.S. MARKETMASTERS FUND
Statement of
OPERATIONS
For November 1, 2004 through October 31, 2005. All numbers x 1,000.
INVESTMENT INCOME
- ------------------------------------------------------------------------------
Dividends $2,328 a
Interest + 2
-----------
TOTAL INVESTMENT INCOME 2,330
NET REALIZED GAINS AND LOSSES
- ------------------------------------------------------------------------------
Net realized gains on investments 20,631
Net realized losses of futures contracts (100)
Net realized losses on foreign currency transactions + (23)
-----------
NET REALIZED GAINS 20,508
NET UNREALIZED GAINS AND LOSSES
- ------------------------------------------------------------------------------
Net unrealized losses on investments (4,726)
EXPENSES
- ------------------------------------------------------------------------------
Investment adviser and administrator fees 1,602 b
Transfer agent and shareholder service fees:
Investor Shares 416 c
Select Shares 4 c
Trustees' fees 7 d
Custodian and portfolio accounting fees 142
Professional fees 44
Registration fees 39
Shareholder reports 60
Other expenses + 10
-----------
Total expenses 2,324
Expense reduction - 223 e
-----------
NET EXPENSES 2,101
INCREASE IN NET ASSETS FROM OPERATIONS
- ------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME 2,330
NET EXPENSES - 2,101
-----------
NET INVESTMENT INCOME 229
NET REALIZED GAINS 20,508 f
NET UNREALIZED LOSSES + (4,726) f
-----------
INCREASE IN NET ASSETS FROM OPERATIONS $16,011
Unless stated, all numbers x 1,000.
a Net of $4 foreign withholding tax.
b Calculated as a percentage of average daily net assets: 0.925% of the first
$500 million, 0.920% of the next $500 million, and 0.910% over $1 billion.
These fees are paid to Charles Schwab Investment Management, Inc. (CSIM)
Prior to February 28, 2005, these fees were calculated as 1.00% of average
daily net assets.
c Calculated as a percentage of average daily net assets: for transfer agent
services, 0.05% of the fund's assets; for shareholder services, 0.20% and
0.15% of the assets of each respective share class. These fees are paid to
Charles Schwab & Co., Inc. (Schwab).
d For the fund's independent trustees only.
e Includes $220 from the investment adviser (CSIM) and $3 from the transfer
agent and shareholder service agent (Schwab). CSIM and Schwab has guaranteed
to limit the annual operating expenses through February 28, 2006, as follows:
% OF AVERAGE
SHARE CLASS DAILY NET ASSETS
--------------------------------------
Investor Shares 1.25%
Select Shares 1.07%
This limit excludes interest, taxes and certain non-routine expenses.
f These add up to a net gain on investments of $15,782.
See financial notes. 27
LAUDUS U.S. MARKETMASTERS FUND
Statements of
CHANGES IN NET ASSETS
For the current and prior report periods. All numbers x 1,000.
OPERATIONS
- -------------------------------------------------------------------------------
11/1/04-10/31/05 11/1/03-10/31/04
Net investment income or loss $229 ($469)
Net realized gains 20,508 10,532
Net unrealized losses + (4,726) (5,030)
-------------------------------------
INCREASE IN NET ASSETS FROM OPERATIONS $16,011 $5,033
TRANSACTIONS IN FUND SHARES a
- -------------------------------------------------------------------------------
11/1/04-10/31/05 11/1/03-10/31/04
SHARES VALUE SHARES VALUE
SHARES SOLD
Investor Shares 470 $5,144 4,950 $52,179
Select Shares + 220 2,449 118 1,210
------------------------------------------------
TOTAL SHARES SOLD 690 $7,593 5,068 $53,389
SHARES REDEEMED
Investor Shares (4,578) ($50,431) (4,454) ($46,021)
Select Shares + (119) (1,340) (1) (11)
------------------------------------------------
TOTAL SHARES REDEEMED (4,697) ($51,771) (4,455) ($46,032) b
NET TRANSACTIONS IN
FUND SHARES (4,007) ($44,178) 613 $7,357
SHARES OUTSTANDING AND NET ASSETS
- -------------------------------------------------------------------------------
11/1/04-10/31/05 11/1/03-10/31/04
SHARES NET ASSETS SHARES NET ASSETS
Beginning of period 17,578 $181,009 16,965 $168,619
Total increase or decrease + (4,007) (28,167) 613 12,390 c
------------------------------------------------
END OF PERIOD 13,571 $152,842 17,578 $181,009 d
Unless stated, all numbers x 1,000.
a The fund started offering Select shares on June 4, 2004.
b For shares purchased after 4/29/05 and held less than 30 days, the fund
charges 2.00% redemption fee.
CURRENT PERIOD
Investor Shares $1
Select Shares + $--
---------
TOTAL $1
Dollar amounts are net of the redemption proceeds.
c Figures for shares represent shares sold plus shares reinvested, minus shares
redeemed. Figures for net assets represent the changes in net assets from
operations plus the changes in value of transactions in fund shares, minus
distributions paid.
d Includes distributable net investment income in the amount of $206 and $--
at the end of the current period and prior period respectively.
28 See financial notes.
LAUDUS BALANCED MARKETMASTERS FUND(TM)
FINANCIAL STATEMENTS
FINANCIAL HIGHLIGHTS
11/1/04- 11/1/03- 11/1/02- 11/1/01- 11/1/00-
INVESTOR SHARES 10/31/05 10/31/04 10/31/03 10/31/02 10/31/01
- -----------------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA ($)
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of period 11.88 11.07 9.35 10.12 13.44
----------------------------------------------------------------------------
Income or loss from investment operations:
Net investment income 0.15 0.08 0.12 0.20 0.43
Net realized and unrealized gains or losses 0.91 0.86 1.75 (0.73) (2.12)
----------------------------------------------------------------------------
Total income or loss from investment operations 1.06 0.94 1.87 (0.53) (1.69)
Less distributions:
Dividends from net investment income (0.09) (0.13) (0.15) (0.24) (0.52)
Distributions from net realized gains -- -- -- -- (1.11)
----------------------------------------------------------------------------
Total distributions (0.09) (0.13) (0.15) (0.24) (1.63)
----------------------------------------------------------------------------
Net asset value at end of period 12.85 11.88 11.07 9.35 10.12
----------------------------------------------------------------------------
Total return (%) 8.92 8.59 20.25 (5.55) (13.95)
RATIOS/SUPPLEMENTAL DATA (%)
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net operating expenses 1.10 1.10 1.10 0.76 1,2 0.50 2
Gross operating expenses 1.27 1.32 1.33 1.10 2 0.89 2
Net investment income 1.14 0.68 1.13 1.89 3.67
Portfolio turnover rate 283 242 256 380 95
Net assets, end of period ($ x 1,000,000) 130 130 109 97 118
1 The ratio of net operating expenses would have been 0.72% if certain
non-routine expenses (proxy fees) had not been included.
2 Prior to the fund's change in structure on June 3, 2002, the expenses incurred
by underlying funds in which the fund invested were not included in this
ratio.
See financial notes. 29
LAUDUS BALANCED MARKETMASTERS FUND
11/1/04- 6/3/04 1-
SELECT SHARES 10/31/05 10/31/04
- ------------------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA ($)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of period 11.89 11.57
--------------------------------------------------------------------------
Income or loss from investment operations:
Net investment income 0.15 0.02
Net realized and unrealized gains 0.93 0.30
--------------------------------------------------------------------------
Total income from investment operations 1.08 0.32
--------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.10) --
--------------------------------------------------------------------------
Net asset value at end of period 12.87 11.89
--------------------------------------------------------------------------
Total return (%) 9.11 2.77 2
RATIOS/SUPPLEMENTAL DATA (%)
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net operating expenses 0.95 0.95 3
Gross operating expenses 1.22 1.29 3
Net investment income 1.32 0.73 3
Portfolio turnover rate 283 242 2
Net assets, end of period ($ x 1,000,000) 9 2
1 Commencement of operations.
2 Not annualized.
3 Annualized.
30 See financial notes.
LAUDUS BALANCED MARKETMASTERS FUND
PORTFOLIO HOLDINGS as of October 31, 2005
This section shows all the securities in the fund's portfolio by industry
classification and their value, as of the report date.
The fund files its complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. The fund's Form N-Q is
available on the SEC'S website at http://www.sec.gov and may be reviewed and
copied at the SEC'S Public Reference Room in Washington, D.C. Call
1-800-SEC-0330 for information on the operation of the Public Reference Room.
The schedule of portfolio holdings filed on the fund's most recent Form N-Q is
available by visiting Schwab's website at www.schwab.com/schwabfunds.
We use the symbol below to designate certain characteristics of the security.
(1) Top ten holding
o Non-income producing security
= All or a portion of this security is held as collateral for future
contracts, short sales, swap agreements, delayed-delivery securities and
options written
* American Depositary Receipt
+ Credit-enhanced security
~ Delayed-delivery security
For fixed-rate obligations, the rate shown is the interest rate (the rate
established when the obligation was issued) and the maturity date shown is the
stated legal maturity. For variable-rate obligations, the rate shown is the rate
as of the report date, and the maturity shown is the later of the next interest
rate change or demand date.
COST/PROCEEDS VALUE
HOLDINGS BY CATEGORY ($x1,000) ($x1,000)
- --------------------------------------------------------------------------------
68.0% COMMON STOCK 87,719 94,481
8.7% U.S. GOVERNMENT
SECURITIES 12,264 12,130
1.8% FOREIGN GOVERNMENT
SECURITIES 2,603 2,530
1.8% CORPORATE BONDS 2,466 2,509
1.3% MUNICIPAL BONDS 1,708 1,828
17.4% AGENCY MORTGAGE-
BACKED SECURITIES 24,642 24,132
1.0% NON-AGENCY MORTGAGE-
BACKED SECURITIES 1,377 1,372
0.0% PREFERRED STOCK 1 1
2.2% SHORT-TERM
INVESTMENTS 2,991 2,991
2.3% OTHER INVESTMENTS 3,256 3,256
0.0% OPTIONS 24 16
- --------------------------------------------------------------------------------
104.5% TOTAL INVESTMENTS 139,051 145,246
(6.0)% SHORT SALES (8,429) (8,363)
(0.0)% OPTIONS WRITTEN (23) (15)
1.5% OTHER ASSETS AND
LIABILITIES 2,124
- --------------------------------------------------------------------------------
100.0% TOTAL NET ASSETS 138,992
VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
COMMON STOCK 68.0% of net assets
AUTOMOBILES & COMPONENTS 1.1%
--------------------------------------------------------------------------
= Cooper Tire & Rubber Co. 13,000 178
= Ford Motor Co. 200,000 148
General Motors Corp. 36,200 992
=* Magna International, Inc. 2,800 195
-----------
1,513
BANKS 1.0%
--------------------------------------------------------------------------
= Astoria Financial Corp. 12,450 348
= Compass Bancshares, Inc. 3,600 176
= Independence Community
Bank Corp. 8,200 324
= PNC Financial Services Group 3,600 219
= Provident Financial Services, Inc. 10,000 176
= Valley National Bancorp. 2,100 51
= Washington Federal, Inc. 8,110 186
-----------
1,480
See financial notes. 31
LAUDUS BALANCED MARKETMASTERS FUND
PORTFOLIO HOLDINGS continued
VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
BUSINESS MACHINES & SOFTWARE 0.8%
--------------------------------------------------------------------------
o= Cisco Systems, Inc. 11,300 197
= Diebold, Inc. 2,800 101
o= Sun Microsystems, Inc. 146,400 586
o= Tech Data Corp. 7,300 253
-----------
1,137
BUSINESS SERVICES 0.6%
--------------------------------------------------------------------------
= First Data Corp. 3,200 129
o= Symantec Corp. 31,400 749
-----------
878
CAPITAL GOODS 3.1%
--------------------------------------------------------------------------
o= 3M Co. 6,100 464
= Deere & Co. 2,900 176
* Dover Corp. 2,600 101
= Grainger, Inc. 3,500 235
= Honeywell International, Inc. 29,800 1,019
o= Jacobs Engineering Group, Inc. 3,000 191
= The Boeing Co. 14,400 931
= Tyco International Ltd. 23,900 631
= United Technologies Corp. 11,200 574
-----------
4,322
COMMERCIAL SERVICES & SUPPLIES 1.4%
--------------------------------------------------------------------------
o= Apollo Group Inc., Class A 6,900 436
= Cendant Corp. 35,500 618
= Manpower, Inc. 6,100 276
= Republic Services, Inc., Class A 4,200 149
= The ServiceMaster Co. 16,000 200
= Waste Management, Inc. 8,100 239
-----------
1,918
CONSTRUCTION 0.0%
--------------------------------------------------------------------------
= Standard Pacific Corp. 1,000 39
CONSUMER DURABLES & APPAREL 1.8%
--------------------------------------------------------------------------
= Jones Apparel Group, Inc. 2,800 76
= Mattel, Inc. 79,700 1,176
= Pulte Corp. 5,000 189
=* Sony Corp. 32,300 1,059
-----------
2,500
CONSUMER SERVICES 0.8%
--------------------------------------------------------------------------
=* Fairmont Hotels & Resorts, Inc. 4,600 150
= McDonald's Corp. 5,700 180
o= Starwood Hotel & Resorts
Worldwide, Inc. 11,300 660
= Wendy's International, Inc. 2,900 136
-----------
1,126
CONTAINERS 0.1%
--------------------------------------------------------------------------
= Ball Corp. 2,800 110
DIVERSIFIED FINANCIALS 5.8%
--------------------------------------------------------------------------
= Alliance Capital Management
Holding 11,200 593
= American Express Co. 29,100 1,448
o= Ameriprise Financial, Inc. 2,820 105
= Bank of New York Co., Inc. 4,900 153
= Capital One Financial Corp. 9,800 748
= CIT Group, Inc. 3,500 160
= Federated Investors, Inc. 4,500 158
= JP Morgan Chase & Co. 41,400 1,516
= Mellon Financial Corp. 8,600 273
= Merrill Lynch & Co., Inc. 21,100 1,366
= State Street Corp. 2,700 149
= The Chicago Mercantile Exchange 950 347
= The Goldman Sachs Group, Inc. 6,150 777
= Waddell & Reed Financial, Inc. 11,000 211
-----------
8,004
ELECTRONICS 0.5%
--------------------------------------------------------------------------
o= Andrew Corp. 10,500 111
= Linear Technology Corp. 3,700 123
o= MEMC Electronic Materials, Inc. 19,500 350
o= QLogic Corp. 5,500 166
-----------
750
ENERGY 3.6%
--------------------------------------------------------------------------
= Anadarko Petroleum Corp. 3,100 281
= Apache Corp. 2,300 147
= BJ Services Co. 5,500 191
o= Cimarex Energy Co. 2,700 106
=(5) Conoco Phillips 32,200 2,105
o= Cooper Cameron Corp. 400 30
32 See financial notes.
LAUDUS BALANCED MARKETMASTERS FUND
VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
o= Houston Exploration Co. 300 15
o= Nabors Industries Ltd. 2,200 151
o= Newfield Exploration Co. 8,900 403
= Noble Energy, Inc. 9,272 371
= Patterson Energy, Inc. 3,900 133
= Pioneer Natural Resouces Co. 900 45
o= Precision Drilling Corp. 4,300 198
o= Stone Energy Corp. 3,000 138
o= Transocean, Inc. 8,500 489
= Western Gas Resources, Inc. 4,200 182
-----------
4,985
FOOD & AGRICULTURE 0.4%
--------------------------------------------------------------------------
= Coca-Cola Co. 11,300 483
= Corn Products International, Inc. 4,400 105
-----------
588
FOOD & STAPLES RETAILING 0.3%
--------------------------------------------------------------------------
= CVS Corp. 7,600 186
= Supervalu, Inc. 8,000 251
-----------
437
FOOD BEVERAGE & TOBACCO 2.0%
--------------------------------------------------------------------------
= Brown-Forman Corp., Class B 1,500 95
= Flowers Foods, Inc. 19,950 585
= H.J. Heinz Co. 5,100 181
= J.M. Smucker Co. 3,600 165
= Kraft Foods, Inc., Class A 41,700 1,180
= Molson Coors Brewing Co. 2,000 123
= Tyson Foods, Inc. 27,300 486
-----------
2,815
HEALTH CARE EQUIPMENT & SERVICES 6.0%
--------------------------------------------------------------------------
o= Biomet, Inc. 5,500 192
o= Boston Scientific Corp. 15,302 384
o= Caremark Rx, Inc. 16,200 849
= Cigna Corp. 7,400 857
= HCA, Inc. 32,000 1,542
= Health Management Associates, Inc.,
Class A 9,200 197
o= Henry Schein, Inc. 4,400 174
o= Laboratory Corporation of America
Holdings 5,100 246
o= Lifepoint Hospitals, Inc. 4,000 156
= Manor Care, Inc. 7,700 287
o= Medco Health Solutions, Inc. 22,600 1,277
o= Millipore Corp. 1,000 61
= Omnicare, Inc. 4,500 244
o= St. Jude Medical, Inc. 15,800 760
= Steris Corp. 7,800 178
o= Tenet Healthcare Corp. 114,100 961
-----------
8,365
HEALTHCARE / DRUGS & MEDICINE 1.1%
--------------------------------------------------------------------------
= Beckman Coulter, Inc. 1,900 94
o= Cooper Cos., Inc. 1,400 96
o= Cytyc Corp. 6,500 165
o= Millennium Pharmaceuticals, Inc. 66,100 603
o= Univision Communications, Inc. 6,900 180
o= Zimmer Holdings, Inc. 6,900 440
-----------
1,578
HOUSEHOLD & PERSONAL PRODUCTS 0.6%
--------------------------------------------------------------------------
= Avon Products, Inc. 7,600 205
= Kimberly-Clark Corp. 9,600 546
-----------
751
HOUSEHOLD PRODUCTS 0.7%
--------------------------------------------------------------------------
= Alberto Culver Co., Class B 6,100 265
o= Estee Lauder Cos., Inc., Class A 4,100 136
= Procter & Gamble Co. 11,100 621
-----------
1,022
INSURANCE 0.5%
--------------------------------------------------------------------------
= AFLAC, Inc. 11,200 535
= Arthur J. Gallagher & Co. 5,800 171
-----------
706
INSURANCE 3.6%
--------------------------------------------------------------------------
= Allstate Corp. 18,300 966
= American International
Group, Inc. 15,000 972
o= Berkshire Hathaway, Inc., Class B 156 439
= Chubb Corp. 10,800 1,004
= IPC Holdings Ltd. 7,500 197
= Mercury General Corp. 600 36
= Old Republic International Corp. 16,550 429
See financial notes. 33
LAUDUS BALANCED MARKETMASTERS FUND
PORTFOLIO HOLDINGS continued
VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
= St. Paul Cos., Inc. 21,400 964
-----------
5,007
MATERIALS 2.0%
--------------------------------------------------------------------------
= Air Products & Chemicals, Inc. 2,800 160
= Arch Coal, Inc. 2,300 177
= Lubrizol Corp. 8,000 333
= MeadWestavco Corp. 39,900 1,046
= Monsanto Co. 12,300 775
o= Smurfit-Stone Container Corp. 15,400 163
= Temple-Inland, Inc. 4,000 147
-----------
2,801
MEDIA 5.3%
--------------------------------------------------------------------------
= Clear Channel Communications,
Inc. 33,300 1,013
= Comcast Corp. 32,100 893
o= Comcast Corp., Class A 21,700 595
o= Cox Radio, Inc. 9,700 139
o= Liberty Media Corp., Class A 24,400 194
= McGraw Hill Cos., Inc. 5,700 279
= Omnicom Group, Inc. 2,600 216
= Readers Digest Association, Inc. 31,400 481
=* The Walt Disney Co. 17,100 417
= Time Warner, Inc. 101,450 1,809
= Tribune Co. 23,000 725
= Westwood One, Inc. 7,600 140
o= XM Satellite Radio Holdings, Inc. 17,200 496
-----------
7,397
MISCELLANEOUS FINANCE 0.3%
--------------------------------------------------------------------------
= Fannie Mae 7,800 371
NON-DURABLES & ENTERTAINMENT 0.5%
--------------------------------------------------------------------------
o= Applebee's International, Inc. 6,200 136
o= Electronic Arts, Inc. 8,500 483
-----------
619
OIL: DOMESTIC 0.8%
--------------------------------------------------------------------------
= ChevronTexaco Corp. 1,260 72
= Marathon Oil Corp. 1,700 102
o= Murphy Oil Corp. 4,900 229
o= National-Oilwell Varco, Inc. 8,500 531
o= St. Mary Land & Exploration Co. 5,400 184
-----------
1,118
PHARMACEUTICALS & BIOTECHNOLOGY 3.3%
--------------------------------------------------------------------------
o= Endo Pharmaceutical Holdings,
Inc. 4,800 129
=* GlaxoSmithKline PLC 10,600 551
o= Novartis AG 10,200 549
= Perrigo Co. 12,100 162
=* Teva Pharmaceutical Industries
Ltd. 17,000 648
o= Watson Pharmaceuticals, Inc. 30,500 1,054
= Wyeth 33,600 1,497
-----------
4,590
PRODUCER GOODS & MANUFACTURING 0.1%
--------------------------------------------------------------------------
= Emerson Electric Co. 1,100 77
REAL ESTATE 1.1%
--------------------------------------------------------------------------
= Biomed Property Trust, Inc. 5,000 125
= Equity One, Inc. 5,900 138
= Health Care Property Investors,
Inc. 6,400 163
= Home Properties of New York,
Inc. 5,500 214
= Plum Creek Timber Co., Inc. 6,500 253
= Rayonier, Inc. 8,362 320
= The Macerich Co. 2,510 161
= Trizec Properties, Inc. 9,260 206
-----------
1,580
RETAIL 0.5%
--------------------------------------------------------------------------
= Federated Department Stores,
Inc. 8,888 545
= The Gap, Inc. 6,300 109
-----------
654
RETAILING 2.4%
--------------------------------------------------------------------------
= Genuine Parts Co. 2,700 120
o= Office Depot, Inc. 27,300 752
o= Saks, Inc. 5,900 107
o= Sears Holdings Corp. 8,224 989
= Talbots, Inc. 4,600 120
= Target Corp. 13,600 757
34 See financial notes.
LAUDUS BALANCED MARKETMASTERS FUND
VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
o= The TJX Max Cos., Inc. 20,800 448
-----------
3,293
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT 2.3%
--------------------------------------------------------------------------
o= Advanced Micro Devices, Inc. 45,900 1,066
o= Applied Materials, Inc. 32,900 539
o= Integrated Device Technology,
Inc. 4,600 45
= Intersil Holding Corp., Class A 45,000 1,024
= Microchip Technology, Inc. 15,500 468
-----------
3,142
SOFTWARE & SERVICES 1.6%
--------------------------------------------------------------------------
= Adobe Systems, Inc. 11,800 381
o= Check Point Software Technologies
Ltd. 7,500 168
o= Electronic Data Systems Corp. 36,700 855
o= Google, Inc. 2,000 744
o= Verity, Inc. 6,300 63
-----------
2,211
TECHNOLOGY HARDWARE & EQUIPMENT 5.4%
--------------------------------------------------------------------------
o= Avaya, Inc. 6,300 73
o= Avocent Corp. 3,100 95
o= Corning, Inc. 25,500 512
o= EMC Corp. 47,500 663
o= Flextronics International Ltd. 7,800 72
o= Foundry Networks, Inc. 7,200 86
=(9) Hewlett Packard Co. 68,200 1,912
= International Business Machines
Corp. 14,100 1,155
o= Juniper Networks, Inc. 22,700 530
o= Lucent Technologies, Inc. 220,900 630
= Motorola, Inc. 13,100 290
= Qualcomm, Inc. 15,100 600
o= Solectron Corp. 139,900 494
o= Vishay Intertechnology, Inc. 12,800 145
o= Xerox Corp. 17,100 232
-----------
7,489
TELECOMMUNICATION SERVICES 1.6%
--------------------------------------------------------------------------
= Alltel Corp. 2,900 179
= Century Telephone Enterprises,
Inc. 8,400 275
o= IDT Corp. 8,135 100
o= Qwest Communication International,
Inc. 297,200 1,296
= Suntrust Banks, Inc. 3,678 267
o= Wireless Facilities, Inc. 17,400 116
-----------
2,233
TELEPHONE 0.7%
--------------------------------------------------------------------------
= SBC Communications, Inc. 39,700 947
TRANSPORTATION 2.8%
--------------------------------------------------------------------------
= CNF, Inc. 20,000 1,126
= CSX Corp. 34,800 1,594
= J.B. Hunt Transport Services,
Inc. 14,500 282
o= Kansas City Southern Industries,
Inc. 7,500 166
= Laidlaw International, Inc. 12,000 273
o= Norfolk Southern Corp. 1,900 76
= Union Pacific Corp. 3,200 221
= Werner Enterprises, Inc. 7,200 129
-----------
3,867
UTILITIES 1.1%
--------------------------------------------------------------------------
= American Electric Power Co.,
Inc. 25,500 968
= Constellation Energy Group, Inc. 4,500 247
= DPL, Inc. 12,500 322
-----------
1,537
UTILITIES: ELECTRIC & GAS 0.4%
--------------------------------------------------------------------------
= TXU Corp. 5,200 524
SECURITY FACE AMOUNT VALUE
RATE, MATURITY DATE ($ x 1,000) ($ x 1,000)
U.S. GOVERNMENT SECURITIES 8.7% of net assets
U.S. Treasury Bond
9.13%, 05/15/18 100 141
9.00%, 11/15/18 125 176
~ 8.13%, 08/15/19 1,300 1,737
6.25%, 08/15/23 300 350
6.88%, 08/15/25 250 315
= 6.00%, 02/15/26 1,100 1,265
See financial notes. 35
LAUDUS BALANCED MARKETMASTERS FUND
PORTFOLIO HOLDINGS continued
SECURITY FACE AMOUNT VALUE
RATE, MATURITY DATE ($ x 1,000) ($ x 1,000)
= 6.63%, 02/15/27 1,000 1,238
U.S. Treasury Inflation-Protected Security
0.88%, 04/15/10 100 100
= 1.63%, 01/15/15 300 299
U.S. Treasury Note
3.75%, 05/15/08 600 591
=~(7) 4.00%, 06/15/09 2,000 1,971
3.63%, 01/15/10 100 97
~(3) 3.50%, 02/15/10 2,500 2,407
4.00%, 02/15/14 200 192
4.25%, 08/15/14 200 195
4.25%, 11/15/14 900 878
U.S. Treasury Stripped Bond
0.00%, 11/15/16 300 178
-----------
12,130
FOREIGN GOVERNMENT SECURITIES
1.8% of net assets
UK Treasury Gilt
(6) 4.75%, 06/07/10 1,100 1,981
4.75%, 09/07/15 300 549
-----------
2,530
CORPORATE BONDS 1.8% of net assets
FIXED-RATE OBLIGATIONS 1.3%
--------------------------------------------------------------------------
DaimlerChrysler NA Holding
6.40%, 05/15/06 200 202
= El Paso Corp.
7.80%, 08/01/31 100 100
Federal Republic of Brazil
4.31%, 04/15/09 206 204
11.00%, 08/17/40 200 240
Series EI
4.25%, 04/15/06 16 16
General Motors Corp.
8.38%, 07/15/33 350 261
= Harrahs Operating Co., Inc.
5.63%, 06/01/15 500 481
= Republic of Panama
9.38%, 01/16/23 250 305
-----------
1,809
VARIABLE-RATE OBLIGATIONS 0.5%
--------------------------------------------------------------------------
= DaimlerChrysler NA Holding
4.03%, 05/15/06 400 400
HSBC Bank USA
3.51%, 12/21/05 250 250
TXU Energy Co, L.L.C. 144A
4.92%, 01/17/06 50 50
-----------
700
MUNICIPAL BONDS 1.3% of net assets
REVENUE BONDS 1.3%
--------------------------------------------------------------------------
= Golden State, California
Securitization Corp.
Revenue Bond, Series 2003-A-1
6.25%, 06/01/33 250 275
=+ Massachusetts State Water
Resource Authority
General Revenue Bond, Series 2002J
5.00%, 08/01/32 250 256
= Tobacco Settlement Financing
Corp. of Rhode Island
Revenue Bond, Series 2002A
6.25%, 06/01/42 500 530
=+ Triborough, New York Bridge &
Tunnel Authority
Revenue Bond, Series 2002B
5.00%, 11/15/32 750 767
-----------
1,828
AGENCY MORTGAGE-BACKED SECURITIES
17.4% of net assets
COLLATERALIZED MORTGAGE OBLIGATIONS 0.7%
--------------------------------------------------------------------------
FIXED-RATE OBLIGATIONS 0.0%
Fannie Mae
Series 2003-3 Class PA
4.50%, 08/25/09 1 1
VARIABLE-RATE OBLIGATIONS 0.7%
Freddie Mac Structured
Series T-61 Class 1A1
3.90%, 11/01/05 923 927
-----------
928
U.S. GOVERNMENT AGENCY MORTGAGES 16.7%
--------------------------------------------------------------------------
Fannie Mae
4.00%, 11/01/18 to
10/01/20 2,875 2,728
4.50%, 07/01/33 to
09/01/35 1,845 1,725
36 See financial notes.
LAUDUS BALANCED MARKETMASTERS FUND
SECURITY FACE AMOUNT VALUE
RATE, MATURITY DATE ($ x 1,000) ($ x 1,000)
=(1) 5.50%, 09/01/34 4,900 4,839
=(2) 5.50%, 11/01/34 2,823 2,788
~ 5.50%, 11/15/34 550 543
5.50%, 02/01/34 to
09/01/35 3,762 3,717
(8) 5.50%, 02/01/35 1,951 1,926
(10) 5.50%, 04/01/35 1,928 1,903
6.00%, 04/01/16 to
03/01/18 58 59
(4) 6.00%, 04/01/35 2,318 2,340
Fannie Mae ARM
4.80%, 09/01/31 25 25
~ Fannie Mae ARM TBA
0.08%, 11/22/35 200 202
Freddie Mac
6.00%, 09/01/22 209 213
Freddie Mac ARM
4.41%, 09/01/35 198 196
-----------
23,204
NON-AGENCY MORTGAGE-BACKED SECURITIES
1.0% of net assets
FIXED-RATE OBLIGATIONS 0.1%
--------------------------------------------------------------------------
Bank of America Mortgage
Securities
Series 2004-2 Class 5A1
6.50%, 10/25/19 123 125
Residential Funding Mortgage
Security I
Series-S9 Class A1
6.50%, 03/25/32 67 68
-----------
193
VARIABLE-RATE OBLIGATIONS 0.9%
--------------------------------------------------------------------------
Bear Stearns Adjustable Rate
Mortgage Trust
Series 2002-11 Class 1A1
5.63%, 11/01/05 77 77
Series 2002-5 Class 6A
5.94%, 11/01/05 30 30
Series 2002-9 Class 2A
5.26%, 11/01/05 46 46
Series 2005-4 Class 23A2
5.45%, 11/01/05 175 175
Fannie Mae Grantor Trust
Series 2005-T3 Class A1A
4.08%, 11/25/05 162 162
Quest Trust, 144A
Series 2004-X2 Class A1
4.60%, 11/25/05 67 67
Structured Asset Securities
Corp.
Series 2002-13 Class 2A1
4.54%, 11/25/05 23 23
= Washington Mutual
Series 2003-R1 Class A1
4.31%, 11/25/05 599 599
-----------
1,179
VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
PREFERRED STOCK 0.0% of net assets
MISCELLANEOUS 0.0%
--------------------------------------------------------------------------
Fannie Mae Preferred 10 1
SECURITY FACE AMOUNT VALUE
RATE, MATURITY DATE ($ x 1,000) ($ x 1,000)
SHORT-TERM INVESTMENTS 2.2% of net assets
U.S. GOVERNMENT SECURITIES 0.1%
--------------------------------------------------------------------------
U.S. Treasury Bill
= 3.36%, 12/01/05 20 20
= 3.38%, 12/15/05 20 20
= 3.43%, 12/15/05 85 85
-----------
125
COMMERCIAL PAPER & OTHER CORPORATE
OBLIGATIONS 2.1%
--------------------------------------------------------------------------
Barclays US Funding Corp.
4.17%, 02/24/06 1,100 1,085
Nordea North America
4.08%, 01/20/06 500 495
4.09%, 01/20/06 700 694
UBS Finance, Inc.
4.16%, 02/28/06 600 592
-----------
2,866
See financial notes. 37
LAUDUS BALANCED MARKETMASTERS FUND
PORTFOLIO HOLDINGS continued
VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
OTHER INVESTMENTS 2.3% of net assets
OTHER INVESTMENT COMPANIES 2.3%
--------------------------------------------------------------------------
= Provident Institutional Funds--
TempCash 186,605 187
= Provident Institutional Funds--
TempFund 3,068,758 3,069
-----------
3,256
NUMBER OF VALUE
SECURITY DESCRIPTION CONTRACTS ($ x 1,000)
OPTIONS 0.0% of net assets
CALL OPTIONS 0.0%
--------------------------------------------------------------------------
3 Month LIBOR Futures,
Strike Price 4.25,
Expires 10/19/06 110 2
3 Month LIBOR Futures,
Strike Price 4.50,
Expires 10/04/06 210 6
3 Month LIBOR Futures,
Strike Price 4.50,
Expires 10/18/06 210 7
-----------
15
PUT OPTIONS 0.0%
--------------------------------------------------------------------------
90 Day Euro Dollar Futures,
Strike Price 92.50,
Expires 03/13/06 35 --*
90 Day Euro Dollar Futures,
Strike Price 93.75,
Expires 12/19/05 50 1
90 Day LIBOR Futures,
Strike Price 94.375,
Expires 12/21/05 10 --*
-----------
1
END OF INVESTMENTS.
SECURITY FACE AMOUNT VALUE
RATE, MATURITY DATE ($ x 1,000) ($ x 1,000)
SHORT SALES 6.0% of net assets
U.S. GOVERNMENT AGENCY MORTGAGES 1.2%
--------------------------------------------------------------------------
~ Fannie Mae TBA
6.00%, 11/14/05 1,600 1,614
U.S. GOVERNMENT SECURITIES 4.9%
--------------------------------------------------------------------------
~ U.S Treasury Note
4.38%, 05/15/07 500 500
6.00%, 08/15/09 400 421
4.00%, 11/15/12 1,100 1,066
3.63%, 05/15/13 3,200 3,024
4.13%, 05/15/15 1,800 1,738
-----------
6,749
NUMBER OF VALUE
SECURITY DESCRIPTION CONTRACTS ($ x 1,000)
OPTIONS WRITTEN 0.0% of net assets
CALL OPTIONS 0.0%
--------------------------------------------------------------------------
3 Month LIBOR Futures,
Strike Price 4.31,
Expires 10/19/06 50 (2)
3 Month LIBOR Futures,
Strike Price 4.54,
Expires 10/04/06 90 (6)
3 Month LIBOR Futures,
Strike Price 4.56,
Expires 10/18/06 90 (7)
-----------
(15)
END OF SHORT SALES AND OPTIONS WRITTEN.
*Amounts stated as "--" are less than $1.
38 See financial notes.
LAUDUS BALANCED MARKETMASTERS FUND
In addition to the above, the fund held the following at 10/31/05. All numbers x
1,000 except number of futures contracts.
SWAP AGREEMENTS
Notional Unrealized
Amount Gains/(Losses)
INTEREST RATE SWAPS (Foreign) (USD)
BRITISH POUNDS
Receive fixed rate payments of
6 month LIBOR, Pay variable rate
payments of 5.00%, expires 09/15/10,
Citibank 100 --*
Receive fixed rate payments of
6 month LIBOR, Pay variable rate
payments of 5.00%, expires 09/15/10,
Barclays Bank 600 (5)
EUROPEAN EURO
Receive variable rate payments of
6 month LIBOR, Pay fixed rate
payments of 4.00%, expires 12/15/14,
Merrill Lynch 1,200 7
JAPANESE YEN
Receive variable rate payments of
6 month LIBOR, Pay fixed rate
payments of 1.5%, expires 06/15/15,
Merrill Lynch 20,000 1
Receive fixed rate payments of
6 month LIBOR, Pay variable rate
payments of 1.5%, expires 06/15/15,
Barclays Bank 10,000 1
U.S. DOLLARS
Receive fixed rate payments of
3 month LIBOR, Pay variable rate
payments of 4.00%, expires 12/15/10,
Greenwich Capital 5,300 (152)
Receive variable rate payments of
3 month LIBOR, Pay fixed rate
payments of 5.00%, expires 12/15/15,
JP Morgan Chase 1,000 56
Receive variable rate payments of
3 month LIBOR, Pay fixed rate
payments of 6.00%, expires 12/15/24,
UBS AG 200 3
CREDIT DEFAULT SWAPS
U.S. DOLLARS
GMAC Rate 1.90%,
expires 09/20/06, Lehman Brothers, Inc. 500 --*
Eli Lilly & Co. Rate 0.16%,
expires 12/20/08, Barclays Bank PLC 100 --*
*Amounts stated as "--" are less than $1.
See financial notes. 39
LAUDUS BALANCED MARKETMASTERS FUND
All numbers x 1,000 except number of futures contracts.
SWAP AGREEMENTS (CONTINUED)
Notional Unrealized
Amount Gains/(Losses)
Johnson & Johnson, Inc. Rate 0.11%,
expires 12/20/08, Lehman Brothers, Inc. 100 --*
Eaton Corp. Rate 0.28%,
expires 12/20/08, Citibank N.A. 100 --*
Whirlpool Corp. Rate 0.29%,
expires 12/20/08, Lehman Brothers, Inc. 100 --*
Home Depot, Inc. Rate 0.12%,
expires 12/20/08, Lehman Brothers, Inc. 100 --*
Fedex Corp. Rate 0.29%,
expires 12/20/08, Citibank N.A. 100 --*
Allstate Corp. Rate 0.26%,
expires 12/20/08, Morgan Stanley 100 --*
Wal-mart Stores, Inc. Rate 0.14%,
expires 12/20/08, Citibank N.A. 200 --*
Ingersoll-Rand Co. Ltd. Rate 0.32%,
expires 12/20/08, Merrill Lynch 100 (1)
Emerson Electric Co. Rate 0.21%,
expires 12/20/08, Morgan Stanley 100 --*
Autozone, Inc. Rate 0.35%,
expires 12/20/08, UBS AG 200 1
Radioshack Corp. Rate 0.35%,
expires 12/20/08, Lehman Brothers, Inc. 100 1
Masco Corp. Rate 0.30%,
expires 12/20/08, Lehman Brothers, Inc. 100 --*
People's Republic of China Rate 0.40%,
expires 06/20/09, Lehman Brothers, Inc. 200 (2)
Turkey Rate 2.70%,
expires 09/20/10, Morgan Stanley 100 (3)
DJ CDX Rate 0.40%,
expires 06/20/10, Barclays Bank PLC 1,700 5
---------------
(88)
FUTURES CONTRACTS
Number of Contract Unrealized
Contracts Value Gains/(Losses)
90 Day Eurodollar, Long
expires 12/19/05 1 239 (2)
90 Day Eurodollar, Long
expires 03/13/06 76 18,100 (35)
5 Year, Long
U.S. Treasury Note,
expires 12/20/05 60 6,353 (116)
*Amounts stated as "--" are less than $1.
40 See financial notes.
LAUDUS BALANCED MARKETMASTERS FUND
All numbers x 1,000 except number of futures contracts.
FUTURES CONTRACTS (CONTINUED)
Number of Contract Unrealized
Contracts Value Gains/(Losses)
10 Year, Short
U.S. Treasury Note,
expires 12/20/05 (23) 2,494 24
10 Year, Short
Euro-Bund,
expires 12/08/05 (6) 866 7
UK Gilt, Long
expires 12/28/05 2 398 (6)
--------------
(128)
FORWARD FOREIGN CURRENCY CONTRACTS
Amount of Amount of
Currency to Currency to Currency to Currency to Unrealized
Expiration Date be Received be Received be Delivered be Delivered Gains/(Losses)
11/08/05 European Euro 72 U.S. Dollars 87 --*
11/08/05 U.S. Dollars 30 European Euro 25 --*
11/21/05 U.S. Dollars 2,625 British Pounds 1,493 (16)
12/01/05 Japanese Yen 116,200 U.S. Dollars 1,022 (21)
01/26/06 Singapore Dollars 28 U.S. Dollars 17 (1)
01/26/06 South Korean Won 34,900 U.S. Dollars 34 (1)
02/02/06 Chilean Pesos 1,898 U.S. Dollars 3 --*
02/13/06 Russian Ruble 257 U.S. Dollars 9 --*
02/22/06 Chilean Pesos 16,625 U.S. Dollars 31 --*
02/22/06 Brazilian Real 54 U.S. Dollars 22 1
02/22/06 Peruvian New Sol 35 U.S. Dollars 11 --*
02/24/06 Singapore Dollars 16 U.S. Dollars 10 --*
02/24/06 South Korean Won 10,500 U.S. Dollars 10 --*
02/24/06 Polish Zloty 33 U.S. Dollars 10 --*
02/24/06 Taiwanese Dollars 300 U.S. Dollars 9 --*
02/28/06 Mexican Pesos 179 U.S. Dollars 16 --*
03/02/06 Slovakian Koruna 331 U.S. Dollars 10 --*
03/13/06 Peruvian New Sol 63 U.S. Dollars 19 (1)
03/20/06 Indian Rupee 1,362 U.S. Dollars 31 (1)
03/20/06 Singapore Dollars 16 U.S. Dollars 10 --*
03/21/06 South Korean Won 10,700 U.S. Dollars 10 --*
03/21/06 Taiwanese Dollars 300 U.S. Dollars 9 --*
03/22/06 Russian Ruble 276 U.S. Dollars 10 --*
03/27/06 Polish Zloty 34 U.S. Dollars 11 --*
03/27/06 Slovakian Koruna 603 U.S. Dollars 19 (1)
--------------
(41)
*Amounts stated as "--" are less than $1.
See financial notes. 41
LAUDUS BALANCED MARKETMASTERS FUND
Statement of
ASSETS AND LIABILITIES
As of October 31, 2005. All numbers x 1,000 except NAV.
ASSETS
- --------------------------------------------------------------------------------
Investments, at value $145,246 a
Foreign currency 45 b
Receivables:
Fund shares sold 131
Dividends 64
Interest 397
Due from brokers for futures 1
Investments sold 882
Investments sold short 10,087
Unrealized gains on forward foreign currency contracts 1
Prepaid expenses + 18
-----------
TOTAL ASSETS 156,872
LIABILITIES
- --------------------------------------------------------------------------------
Securities sold short, at value 8,363 c
Options written, at value 15 d
Swap agreements, at fair value 287 e
Payables:
Fund shares redeemed 97
Investments bought 7,363
Due to brokers for futures 2
Covered short sales 1,643
Investment adviser and administrator fees 7
Transfer agency and shareholder service fees 3
Trustee fees 1
Withholding taxes on foreign dividends 2
Unrealized losses on forward foreign currency contracts 42
Accrued expenses + 55
-----------
TOTAL LIABILITIES 17,880
NET ASSETS
- --------------------------------------------------------------------------------
TOTAL ASSETS 156,872
TOTAL LIABILITIES - 17,880
-----------
NET ASSETS $138,992
NET ASSETS BY SOURCE
Capital received from investors 127,985
Net investment income not yet distributed 1,187
Net realized capital gains 3,808 f
Net unrealized capital gains 6,012 f
NET ASSET VALUE (NAV) BY SHARE CLASS
SHARES
SHARE CLASS NET ASSETS / OUTSTANDING = NAV
Investor Shares $129,795 10,101 $12.85
Select Shares $9,197 714 $12.87
All numbers x 1,000 except number of written option contracts.
a The fund paid $139,051 for these securities.
Includes certain restricted but deemed liquid 144A securities worth $117 or
0.1% of the fund's total net assets.
Not counting short-term obligations and government securities, the fund's
security transactions during the period were:
Purchases $139,038
Sales/maturities $140,306
The fund's long-term government security transactions were:
Purchases $245,901
Sales/maturities $231,804
b The fund paid $43 for this currency.
c The proceeds for securities sold short is $8,429.
d OPTIONS NUMBER PREMIUMS
WRITTEN OF CONTRACTS RECEIVED
--------------- ------------- ---------
Beginning of
period 982 $219
Options written 314 50
Options closed (373) (78)
Options (693) (168)
expired
Options
exercised + -- --
------------------------
End of period 230 $23
e The fund received $199 to enter into these swap agreements.
f These derive from investments, short sales, options, foreign currency
transactions, futures and swap agreements.
FEDERAL TAX DATA
- -------------------------------------------------
PORTFOLIO COST $139,357
NET UNREALIZED GAINS AND LOSSES:
Gains $11,261
Losses + (5,372)
-----------
$5,889
NET UNDISTRIBUTED EARNINGS:
Ordinary income $1,124
Long-term capital gains $4,013
CAPITAL LOSSES UTILIZED $9,521
RECLASSIFICATIONS:
Net investment income
not yet distributed $55
RECLASSIFIED AS:
Net realized capital losses ($55)
42 See financial notes.
LAUDUS BALANCED MARKETMASTERS FUND
Statement of
OPERATIONS
For November 1, 2004 through October 31, 2005. All numbers x 1,000.
INVESTMENT INCOME
- ---------------------------------------------------------------------------------
Dividends $1,457 a
Interest + 1,653
-----------
TOTAL INVESTMENT INCOME 3,110
NET REALIZED GAINS AND LOSSES
- --------------------------------------------------------------------------------
Net realized gains on investments 14,032
Net realized gains on short sales 21
Net realized gains on foreign currency transactions 56
Net realized gains on option contracts 104
Net realized gains on futures contracts 132
Net realized gains on swap agreements + 132
-----------
NET REALIZED GAINS 14,477
NET UNREALIZED GAINS AND LOSSES
- ---------------------------------------------------------------------------------
Net unrealized losses on investments (3,982)
Net unrealized gains on short sales 150
Net unrealized gains on foreign currency transactions 52
Net unrealized losses on option contracts (8)
Net unrealized losses on futures contracts (349)
Net unrealized losses on swap agreements + (219)
-----------
NET UNREALIZED LOSSES (4,356)
EXPENSES
- ---------------------------------------------------------------------------------
Investment adviser and administrator fees 1,111 b
Transfer agent and shareholder service fees:
Investor shares 335 c
Select shares 10 c
Trustees' fees 7 d
Custodian and portfolio accounting fees 187
Professional fees 43
Registration fees 35
Shareholder reports 31
Other expenses + 8
-----------
Total expenses 1,767
Expense reduction - 245 e
-----------
NET EXPENSES 1,522
INCREASE IN NET ASSETS FROM OPERATIONS
- ---------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME 3,110
NET EXPENSES - 1,522
-----------
NET INVESTMENT INCOME 1,588
NET REALIZED GAINS 14,477 f
NET UNREALIZED LOSSES + (4,356) f
-----------
INCREASE IN NET ASSETS FROM OPERATIONS $11,709
Unless stated, all numbers x 1,000.
a Net of $3 foreign withholding tax.
b Calculated as a percentage of average daily net assets: 0.775% of the first
$500 million, 0.75% of the next $500 million, and 0.725% over $1 billion.
These fees are paid to Charles Schwab Investment Management, Inc. (CSIM)
Prior to February 28, 2005, these fees were calculated as 0.85% of average
daily net assets.
c Calculated as a percentage of average daily net assets: for transfer agent
services, 0.05% of the fund's assets; for shareholder services, 0.20% and
0.15% of the assets of each respective share class. These fees are paid to
Charles Schwab & Co., Inc. (Schwab).
d For the fund's independent trustees only.
e Includes $240 from the investment adviser (CSIM) and $5 from the transfer
agent and shareholder service agent (Schwab). CSIM and Schwab has guaranteed
to limit the annual operating expenses through February 28, 2006, as follows:
% OF AVERAGE
SHARE CLASS DAILY NET ASSETS
-----------------------------------
Investor Shares 1.10%
Select Shares 0.95%
This limit excludes interest, taxes and certain non-routine expenses.
f These add up to a net gain on investments of $10,121.
See financial notes. 43
LAUDUS BALANCED MARKETMASTERS FUND
Statements of
CHANGES IN NET ASSETS
For the current and prior report periods. All numbers x 1,000.
OPERATIONS
- --------------------------------------------------------------------------------
11/1/04-10/31/05 11/1/03-10/31/04
Net investment income $1,588 $852
Net realized gains 14,477 8,042
Net unrealized gains or losses + (4,356) 782
------------------------------------
INCREASE IN NET ASSETS
FROM OPERATIONS 11,709 9,676
DISTRIBUTIONS PAID
- --------------------------------------------------------------------------------
DIVIDENDS FROM NET INVESTMENT INCOME
Investor Shares 947 1,360
Select Shares + 21 --
------------------------------------
TOTAL DIVIDENDS FROM NET INVESTMENT INCOME $968 $1,360 a,b
TRANSACTIONS IN FUND SHARES c
- --------------------------------------------------------------------------------
11/1/04-10/31/05 11/1/03-10/31/04
SHARES VALUE SHARES VALUE
SHARES SOLD
Investor Shares 1,399 $17,588 3,519 $40,718
Select Shares + 679 8,627 169 1,957
------------------------------------------------
TOTAL SHARES SOLD 2,078 $26,215 3,688 $42,675
SHARES REINVESTED
Investor Shares 71 $883 112 $1,274
Select Shares + 2 20 -- --
------------------------------------------------
TOTAL SHARES REINVESTED 73 $903 112 $1,274
SHARES REDEEMED
Investor Shares (2,354) ($29,691) (2,489) ($28,746)
Select Shares + (105) (1,307) (31) (361)
------------------------------------------------
TOTAL SHARES REDEEMED (2,459) ($30,998) (2,520) ($29,107) d
NET TRANSACTIONS IN
FUND SHARES (308) ($3,880) 1,280 $14,842
SHARES OUTSTANDING AND NET ASSETS
- --------------------------------------------------------------------------------
11/1/04-10/31/05 11/1/03-10/31/04
SHARES NET ASSETS SHARES NET ASSETS
Beginning of period 11,123 $132,131 9,843 $108,973
Total increase or decrease + (308) 6,861 1,280 23,158 e
------------------------------------------------
END OF PERIOD 10,815 $138,992 11,123 $132,131 f
Unless stated, all numbers x 1,000.
a UNAUDITED
For corporations, 100% of the fund's dividends for this report period qualify
for the dividends-received deductions.
The fund designates $968 of the dividend distribution for the fiscal year
ended 10/31/05 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 2006 via IRS Form 1099 of the amounts for use in preparing
their 2005 income tax return.
b The tax-basis components of distributions are:
CURRENT PERIOD
Ordinary income $968
Long-term capital gains $--
PRIOR PERIOD
Ordinary income $1,360
Long-term capital gains $1
c The fund started offering Select Shares on June 3, 2004.
d For shares purchased after 4/29/05 and held less than 30 days, the fund
charges 2.00% redemption fee.
CURRENT PERIOD
Investor Shares $1
Select Shares + $--
---------
TOTAL $1
Dollar amounts are net of the redemption proceeds.
e Figures for shares represent shares sold plus shares reinvested, minus shares
redeemed. Figures for net assets represent the changes in net assets from
operations plus the changes in value of transactions in fund shares, minus
distributions paid.
f Includes distributable net investment income in the amount of $1,187 and $512
at the end of the current period and prior period, respectively.
44 See financial notes.
LAUDUS SMALL-CAP MARKETMASTERS FUND(TM)
FINANCIAL STATEMENTS
FINANCIAL HIGHLIGHTS
11/1/04- 11/1/03- 11/1/02- 11/1/01- 11/1/00-
INVESTOR SHARES 10/31/05 10/31/04 10/31/03 10/31/02 10/31/01
- -------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA ($)
- -------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of period 12.18 11.08 7.18 8.73 12.27
------------------------------------------------------------
Income or loss from investment operations:
Net investment income or loss (0.14) (0.14) (0.09) 0.04 0.41
Net realized and unrealized gains or losses 1.34 1.24 3.99 (1.54) (2.68)
------------------------------------------------------------
Total income or loss from investment operations 1.20 1.10 3.90 (1.50) (2.27)
Less distributions:
Dividends from net investment income -- -- (0.00) 1 (0.03) (0.55)
Distributions from net realized gains -- -- -- (0.02) (0.72)
------------------------------------------------------------
Total distributions -- -- -- (0.05) (1.27)
------------------------------------------------------------
Net asset value at end of period 13.38 12.18 11.08 7.18 8.73
------------------------------------------------------------
Total return (%) 9.85 9.93 54.32 (17.34) (19.99)
RATIOS/SUPPLEMENTAL DATA (%)
- -------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net operating expenses 1.55 1.55 1.55 0.93 2,3 0.50 2
Gross operating expenses 1.69 1.77 1.80 1.31 2 0.91 2
Net investment income or loss (0.95) (1.08) (0.98) 0.06 4.17
Portfolio turnover rate 94 140 94 324 172
Net assets, end of period ($ x 1,000,000) 108 129 115 81 111
1 Per-share amount was less than $0.01.
2 Prior to the fund's change in structure on June 3, 2002, the expenses incurred
by underlying funds in which the fund invested were not included in this
ratio.
3 The ratio of net operating expenses would have been 0.84% if certain
non-routine expenses (proxy fees) had not been included.
See financial notes. 45
LAUDUS SMALL-CAP MARKETMASTERS FUND
11/1/04- 6/9/04 1-
SELECT SHARES 10/31/05 10/31/04
- -------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA ($)
- -------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of period 12.19 12.11
-----------------------------------------------------------
Income or loss from investment operations:
Net investment loss (0.11) (0.03)
Net realized and unrealized gains 1.33 0.11
-----------------------------------------------------------
Total income from investment operations 1.22 0.08
-----------------------------------------------------------
Net asset value at end of period 13.41 12.19
-----------------------------------------------------------
Total return (%) 10.01 0.66 2
RATIOS/SUPPLEMENTAL DATA (%)
- -------------------------------------------------------------------------------------------------------------------
Ratio to average net assets:
Net operating expenses 1.37 1.37 3
Gross operating expenses 1.64 1.79 3
Net investment loss (0.75) (0.91) 3
Portfolio turnover rate 94 140 2
Net assets, end of period ($ x 1,000,000) 1 0.32
1 Commencement of operations.
2 Per-share amount was less than $0.01.
3 Annualized.
4 Not annualized.
46 See financial notes.
LAUDUS SMALL-CAP MARKETMASTERS FUND
PORTFOLIO HOLDINGS as of October 31, 2005
This section shows all the securities in the fund's portfolio by industry
classification and their value, as of the report date.
The fund files its complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. The fund's Form N-Q is
available on the SEC'S website at http://www.sec.gov and may be reviewed and
copied at the SEC'S Public Reference Room in Washington, D.C. Call
1-800-SEC-0330 for information on the operation of the Public Reference Room.
The schedule of portfolio holdings filed on the fund's most recent Form N-Q is
available by visiting Schwab's website at www.schwab.com/schwabfunds.
We use the symbol below to designate certain characteristics of the security.
(1) Top ten holding
o Non-income producing security
COST VALUE
HOLDINGS BY CATEGORY ($x1,000) ($x1,000)
- --------------------------------------------------------------------------------
93.2% COMMON STOCK 86,094 101,694
0.7% FOREIGN COMMON STOCK 835 764
0.2% SHORT-TERM INVESTMENTS 199 199
5.3% OTHER INVESTMENTS 5,796 5,796
- --------------------------------------------------------------------------------
99.4% TOTAL INVESTMENTS 92,924 108,453
0.6% OTHER ASSETS AND
LIABILITIES 652
- --------------------------------------------------------------------------------
100.0% TOTAL NET ASSETS 109,105
VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
COMMON STOCK 93.2% of net assets
AIR TRANSPORTATION 3.2%
--------------------------------------------------------------------------
o(3) AirTran Holdings, Inc. 109,800 1,642
o Continental Airlines, Inc. 66,800 865
o Jetblue Airways Corp. 35,400 659
SkyWest, Inc. 12,450 365
-----------
3,531
BANKS 0.9%
--------------------------------------------------------------------------
Commerce Bancorp, Inc. 6,820 208
North Fork Bancorp, Inc. 14,150 358
Peoples Bank 4,905 158
Zions Bancorp. 3,100 228
-----------
952
BUSINESS MACHINES & SOFTWARE 0.3%
--------------------------------------------------------------------------
o Lexmark International, Inc.,
Class A 5,170 215
o Seachange International, Inc. 13,100 82
-----------
297
BUSINESS SERVICES 1.6%
--------------------------------------------------------------------------
o Akamai Technologies, Inc. 24,400 423
o Aquantive, Inc. 42,500 920
o Cross Country Healthcare, Inc. 16,950 308
Mentor Graphics Corp. 11,300 94
-----------
1,745
CAPITAL GOODS 9.5%
--------------------------------------------------------------------------
o 3Com Corp. 168,860 650
o Alliant Techsystems, Inc. 5,500 386
Baldor Electric Co. 35,440 861
o BE Aerospace, Inc. 42,100 763
Bucyrus International, Inc. 3,175 132
o Builders Firstsource, Inc. 32,250 631
Dover Corp. 8,300 324
o EMCOR Group, Inc. 5,250 320
o General Cable Corp. 44,020 715
o Global Power Equipment Group, Inc.
25,375 159
Grainger, Inc. 5,500 368
Granite Construction, Inc. 18,175 620
o Infrasource Services, Inc. 5,975 77
Pall Corp. 5,600 147
SPX Corp. 5,800 250
Teleflex, Inc. 7,950 526
The Manitowoc Co., Inc. 12,190 649
o Trex Company, Inc. 20,870 434
o(9) URS Corp. 31,125 1,258
o Washington Group International, Inc.
15,200 755
York International Corp. 5,990 336
-----------
10,361
See financial notes. 47
LAUDUS SMALL-CAP MARKETMASTERS FUND
PORTFOLIO HOLDINGS continued
VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
CHEMICAL 0.8%
--------------------------------------------------------------------------
o Cabot Microelectronics Corp. 22,410 659
Cytec Industries, Inc. 4,550 188
-----------
847
COMMERCIAL SERVICES & SUPPLIES 4.8%
--------------------------------------------------------------------------
ABM Industries, Inc. 6,800 134
Administaff, Inc. 7,200 305
Bowne & Co., Inc. 15,200 216
o DeVry, Inc. 10,575 239
o Education Management Corp. 20,360 628
Knoll, Inc. 21,975 350
o Portfolio Recovery Associates, Inc.
25,750 1,002
(5) Steelcase, Inc., Class A 109,830 1,573
o Teletech Holdings, Inc. 10,400 108
o TRC Cos., Inc. 14,980 200
o Watson Wyatt & Co., Holdings 20,340 539
-----------
5,294
CONSUMER DURABLES & APPAREL 8.6%
--------------------------------------------------------------------------
(1) Beazer Homes USA, Inc. 36,675 2,125
o Comstock Homebuilding Cos., Class A
1,375 23
Jones Apparel Group, Inc. 8,285 226
La-Z-Boy Chair Co. 43,220 512
Leggett & Platt, Inc. 15,150 303
MDC Holdings, Inc. 14,123 969
o(6) Meritage Corp. 24,950 1,554
(10) Standard Pacific Corp. 31,000 1,196
(7) The Ryland Group, Inc. 21,700 1,460
o Toll Brothers, Inc. 26,300 971
-----------
9,339
CONSUMER SERVICES 3.7%
--------------------------------------------------------------------------
o California Pizza Kitchen, Inc. 25,415 813
o Cosi, Inc. 54,250 475
o O' Charleys, Inc. 41,820 573
o Six Flags, Inc. 101,180 748
o Texas Roadhouse, Inc., Class A 43,500 685
o Vail Resorts, Inc. 21,950 735
-----------
4,029
DIVERSIFIED FINANCIALS 4.5%
--------------------------------------------------------------------------
First Marblehead Corp. (The) 22,490 666
Jefferies Group, Inc. 21,525 914
o Knight Trading Group, Inc.,
Class A 72,130 690
Raymond James Financial, Inc. 22,460 764
(2) The Chicago Mercantile Exchange 5,000 1,826
-----------
4,860
ELECTRONICS 1.5%
--------------------------------------------------------------------------
o Kemet Corp. 32,700 226
o LAM Research Corp. 8,900 300
o LSI Logic Corp. 32,700 265
o RF Micro Devices, Inc. 31,450 165
o Sierra Wireless, Inc. 43,250 477
Tektronix, Inc. 10,985 253
-----------
1,686
ENERGY 4.6%
--------------------------------------------------------------------------
o Cooper Cameron Corp. 3,600 265
o Dresser-Rand Group, Inc. 16,950 368
ENSCO International, Inc. 4,200 191
o Global Industry Ltd. 22,100 281
o Helmerich & Payne, Inc. 14,370 796
o Oceaneering International, Inc. 20,190 972
o Offshore Logistics, Inc. 8,175 278
o Tetra Technologies, Inc. 8,400 235
Tidewater, Inc. 19,720 906
o Whiting Petroleum Corp. 18,490 750
-----------
5,042
ENERGY: RAW MATERIALS 0.1%
--------------------------------------------------------------------------
o Weatherford International Ltd. 1,300 82
FOOD & STAPLES RETAILING 0.4%
--------------------------------------------------------------------------
o Performance Food Group Co. 15,920 439
FOOD BEVERAGE & TOBACCO 1.2%
--------------------------------------------------------------------------
o Hain Celestial Group, Inc. 45,730 883
MGP Ingredients, Inc. 11,700 126
Molson Coors Brewing Co. 4,520 279
-----------
1,288
48 See financial notes.
LAUDUS SMALL-CAP MARKETMASTERS FUND
VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
HEALTH CARE EQUIPMENT & SERVICES 10.4%
--------------------------------------------------------------------------
Analogic Corp. 14,850 695
o Arthrocare Corp. 27,300 1,003
Beckman Coulter, Inc. 4,800 236
o Cholestech Corp. 14,325 123
o Edwards Lifesciences Corp. 6,000 248
o EV3, Inc. 23,050 346
o Foxhollow Technologies, Inc. 24,650 1,117
Hillenbrand Industries, Inc. 5,400 249
o Intuitive Surgical, Inc. 11,175 992
o Kyphon, Inc. 17,300 694
LCA-Vision, Inc. 14,550 611
o Lifecell Corp. 18,975 307
o Neurometric, Inc. 8,900 331
o NuVasive, Inc. 32,050 559
o Pharmaceutical Product Development, Inc.
8,890 511
o Rita Medical Systems, Inc. 35,200 118
o SurModics, Inc. 12,225 483
o Syneron Medical Ltd. 6,550 235
o Synovis Life Technologies, Inc. 10,775 97
o Thermo Electron Corp. 12,300 371
o Thoratec Corp. 49,725 984
o Varian, Inc. 11,550 425
o VCA Antech, Inc. 21,950 566
-----------
11,301
HEALTHCARE / DRUGS & MEDICINE 2.1%
--------------------------------------------------------------------------
o Lifepoint Hospitals, Inc. 27,500 1,075
o ResMed, Inc. 26,250 1,001
Valeant Pharmaceuticals International
15,000 258
-----------
2,334
HOUSEHOLD & PERSONAL PRODUCTS 0.5%
--------------------------------------------------------------------------
o NBTY, Inc. 28,030 561
HOUSEHOLD PRODUCTS 0.5%
--------------------------------------------------------------------------
Estee Lauder Cos., Inc., Class A 8,600 285
International Flavors & Fragrances, Inc.
7,500 248
-----------
533
INSURANCE 0.9%
--------------------------------------------------------------------------
Arthur J. Gallagher & Co. 9,200 271
Assurant, Inc. 11,090 423
Old Republic International Corp. 12,800 332
-----------
1,026
MATERIALS 1.1%
--------------------------------------------------------------------------
o Aleris International, Inc. 18,850 489
Martin Marietta Materials, Inc. 9,340 737
-----------
1,226
MEDIA 2.3%
--------------------------------------------------------------------------
Dow Jones & Co., Inc. 5,500 186
o Emmis Communications Corp. 34,390 673
o Entercom Communications Corp. 3,450 100
o Radio One, Inc., Class D 50,470 596
o Univision Communications, Inc. 7,600 199
o Valassis Communications, Inc. 18,110 566
Westwood One, Inc. 7,800 144
-----------
2,464
OIL: DOMESTIC 0.1%
--------------------------------------------------------------------------
o Murphy Oil Corp. 1,800 84
PHARMACEUTICALS & BIOTECHNOLOGY 3.9%
--------------------------------------------------------------------------
o Adams Respiratory Therapeutics, Inc. 14,800 554
o Andrx Corp. 26,820 415
o Charles River Laboratories, Inc. 5,290 231
o Human Genome Sciences, Inc. 28,590 239
o Momenta Pharmaceuticals, Inc. 17,000 366
o Par Pharmaceutical Cos., Inc. 6,200 160
Perrigo Co. 46,740 625
o Techne Corp. 4,325 234
o (8) United Therapeutics Corp. 19,600 1,448
-----------
4,272
PRODUCER GOODS & MANUFACTURING 1.8%
--------------------------------------------------------------------------
o GrafTech International Ltd. 16,100 79
Pentair, Inc. 10,600 344
o (4) The Shaw Group, Inc. 59,400 1,592
-----------
2,015
See financial notes. 49
LAUDUS SMALL-CAP MARKETMASTERS FUND
PORTFOLIO HOLDINGS continued
VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
RAILROAD & SHIPPING 0.5%
--------------------------------------------------------------------------
o Sharper Image Corp. 48,800 497
REAL ESTATE 1.9%
--------------------------------------------------------------------------
o FelCor Lodging Trust, Inc. 30,920 462
Innkeepers USA Trust 31,940 498
Post Properties, Inc. 14,680 599
Washington Real Estate Investment Trust
19,170 572
-----------
2,131
RETAILING 5.3%
--------------------------------------------------------------------------
o Ann Taylor Stores Corp. 4,800 116
o Coldwater Creek, Inc. 39,650 1,070
o Cost Plus, Inc. 30,950 475
Family Dollar Stores, Inc. 13,500 299
Federated Department Stores, Inc. 6,072 373
o Genesco, Inc. 28,750 1,058
o Guess, Inc. 12,450 338
o Netflix, Inc. 28,650 757
Officemax, Inc. 12,790 358
Tiffany & Co. 7,500 296
o Wetseal, Inc., Class A 132,300 684
-----------
5,824
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT 3.8%
--------------------------------------------------------------------------
o Brooks Automation, Inc. 17,075 200
o Cymer, Inc. 7,650 266
o Cypress Semiconductor Corp. 25,600 348
o Freescale Semiconductor, Inc., Class B
14,900 356
Intersil Holding Corp., Class A 12,200 278
o Kopin Corp. 13,700 77
o Micron Technology, Inc. 13,000 169
National Semiconductor Corp. 19,560 443
o Novellus Systems, Inc. 17,800 389
o Teradyne, Inc. 33,600 455
o Trident Microsystems, Inc. 26,400 799
o Ultratech, Inc. 23,680 326
-----------
4,106
SOFTWARE & SERVICES 7.8%
--------------------------------------------------------------------------
o Agile Software Corp. 30,450 216
o Aspen Technology, Inc. 46,600 282
o Blue Coat Systems, Inc. 11,225 527
o Ciber, Inc. 120,095 766
o Corillian Corp. 13,925 44
Gevity HR, Inc. 12,300 317
Global Payments, Inc. 14,300 613
o Indus International, Inc. 57,575 167
o Informatica Corp. 36,330 432
o Internet Security Systems, Inc. 41,180 1,014
o Keane, Inc. 14,475 164
o Lionbridge Technologies, Inc. 35,600 241
o ManTech International Corp., Class A
28,250 783
Maximus, Inc. 18,290 663
o Micromuse 49,250 353
o MRO Software, Inc. 5,900 97
o Raindance Communications, Inc.
58,750 117
Talx Corp. 17,175 679
o Tibco Software, Inc. 87,110 661
o Tumbleweed Communications Corp.
12,585 43
o Unisys Corp. 25,700 131
o Webmethods, Inc. 27,125 189
-----------
8,499
TECHNOLOGY HARDWARE & EQUIPMENT 4.1%
--------------------------------------------------------------------------
o Andrew Corp. 69,850 742
o Anixter International, Inc. 5,150 191
o Arrow Electronics, Inc. 2,200 65
o Avid Technology, Inc. 8,700 428
o Celestica, Inc. 22,605 216
Cognex Corp. 21,550 616
Diebold, Inc. 10,740 388
o F5 Networks, Inc. 14,550 757
o Powerwave Technologies, Inc. 27,975 314
o Viisage Technology, Inc. 87,690 403
o Vishay Intertechnology, Inc. 35,800 406
-----------
4,526
50 See financial notes.
LAUDUS SMALL-CAP MARKETMASTERS FUND
VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
TRANSPORTATION 0.5%
--------------------------------------------------------------------------
American Commercial Lines, Inc. 17,900 503
FOREIGN COMMON STOCK 0.7% of net assets
ISRAEL 0.5%
--------------------------------------------------------------------------
o ECI Telecom, Ltd. 76,600 582
UNITED KINGDOM 0.2%
--------------------------------------------------------------------------
Willis Group Holdings Ltd. 4,900 182
SECURITY FACE AMOUNT VALUE
RATE, MATURITY DATE ($ x 1,000) ($ x 1,000)
SHORT-TERM INVESTMENTS 0.2% of net assets
U.S. GOVERNMENT SECURITIES 0.2%
--------------------------------------------------------------------------
U.S. Treasury Bill
3.33%, 12/15/05 200 199
VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
OTHER INVESTMENTS 5.3% of net assets
OTHER INVESTMENT COMPANIES 5.3%
--------------------------------------------------------------------------
Provident Institutional Funds--
TempCash 442,718 443
Provident Institutional Funds--
TempFund 5,352,663 5,353
-----------
5,796
END OF INVESTMENTS.
See financial notes. 51
LAUDUS SMALL-CAP MARKETMASTERS FUND
Statement of
ASSETS AND LIABILITIES
As of October 31, 2005. All numbers x 1,000 except NAV.
ASSETS
- --------------------------------------------------------------------------------
Investments, at value $108,453 a
Receivables:
Fund shares sold 28
Dividends 36
Investments sold 2,600
Prepaid expenses + 16
-----------
TOTAL ASSETS 111,133
LIABILITIES
- --------------------------------------------------------------------------------
Payables:
Fund shares redeemed 160
Investments bought 1,792
Investment adviser and administrator fees 9
Transfer agency and shareholder service fees 2
Trustee fee 1
Accrued expenses + 64
-----------
TOTAL LIABILITIES 2,028
NET ASSETS
- --------------------------------------------------------------------------------
TOTAL ASSETS 111,133
TOTAL LIABILITIES - 2,028
-----------
NET ASSETS $109,105
NET ASSETS BY SOURCE
Capital received from investors 85,251
Net investment income not yet distributed 11
Net realized capital gains 8,314 b
Net unrealized capital gains 15,529
NET ASSET VALUE (NAV) BY SHARE CLASS
SHARES
SHARE CLASS NET ASSETS / OUTSTANDING = NAV
Investor Shares $108,284 8,094 $13.38
Select Shares $821 61 $13.41
Unless stated, all numbers x 1,000.
a The fund paid $92,924 for these securities.
Not counting short-term obligations and government securities, the fund's
security transactions during the period were:
Purchases $110,312
Sales/maturities $147,697
b These derive from investments and futures.
FEDERAL TAX DATA
---------------------------------------------------
PORTFOLIO COST $93,518
NET UNREALIZED GAINS AND LOSSES:
Gains $20,226
Losses + (5,291)
----------
$14,935
NET UNDISTRIBUTED EARNINGS:
Ordinary income $11
Long-term capital gains $8,917
CAPITAL LOSSES UTILIZED $787
RECLASSIFICATIONS:
Net investment income
not yet distributed $1,145
RECLASSIFIED AS:
Net realized capital gains $47
Capital received from
investors ($1,192)
52 See financial notes.
LAUDUS SMALL-CAP MARKETMASTERS FUND
Statement of
OPERATIONS
For November 1, 2004 through October 31, 2005. All numbers x 1,000.
INVESTMENT INCOME
- --------------------------------------------------------------------------------
Dividends $735
Interest + 4
----------
TOTAL INVESTMENT INCOME 739
NET REALIZED GAINS AND LOSSES
- --------------------------------------------------------------------------------
Net realized gains on investments 9,175
Net realized gains on futures contracts + 262
----------
NET REALIZED GAINS 9,437
NET UNREALIZED GAINS AND LOSSES
- --------------------------------------------------------------------------------
Net unrealized gains on investments 3,833
EXPENSES
- --------------------------------------------------------------------------------
Investment adviser and administrator fees 1,490 a
Transfer agent and shareholder service fees:
Investor shares 304 b
Select shares 2 b
Trustees' fees 6 c
Custodian and portfolio accounting fees 140
Professional fees 48
Registration fees 33
Shareholder reports 42
Other expenses + 8
----------
Total expenses 2,073
Expense reduction - 175 d
----------
NET EXPENSES 1,898
DECREASE IN NET ASSETS FROM OPERATIONS
- --------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME 739
NET EXPENSES - 1,898
----------
NET INVESTMENT LOSS (1,159)
NET REALIZED GAINS 9,437 e
NET UNREALIZED GAINS + 3,833 e
----------
INCREASE IN NET ASSETS FROM OPERATIONS 12,111
Unless stated, all numbers x 1,000.
a Calculated as a percentage of average daily net assets: 1.17% of the first
$500 million, 1.13% of the next $500 million and 1.07% over $1 billion. These
fees are paid to Charles Schwab Investment Management, Inc. (CSIM)
Prior to February 28, 2005, these fees were calculated as 1.30% of average
daily net assets.
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
0.15% 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 $174 from the investment adviser (CSIM) and $1 from the transfer
agent and shareholder service agent (Schwab). CSIM and Schwab has guaranteed
to limit the annual operating expenses through February 28, 2006, as follows:
% OF AVERAGE
SHARE CLASS DAILY NET ASSETS
-------------------------------------
Investor Shares 1.55%
Select Shares 1.37%
This limit excludes interest, taxes and certain non-routine expenses.
e These add up to a net gain on investments of $13,270.
See financial notes. 53
LAUDUS SMALL-CAP MARKETMASTERS FUND
Statements of
CHANGES IN NET ASSETS
For the current and prior report periods. All numbers x 1,000 except footnote.
OPERATIONS
- --------------------------------------------------------------------------------
11/1/04-10/31/05 11/1/03-10/31/04
Net investment loss ($1,159) ($1,436)
Net realized gains 9,437 21,842
Net unrealized gains or losses + 3,833 (9,695)
----------------------------------------
INCREASE IN NET ASSETS
FROM OPERATIONS $12,111 $10,711
TRANSACTIONS IN FUND SHARES a
- --------------------------------------------------------------------------------
11/1/04-10/31/05 11/1/03-10/31/04
SHARES VALUE SHARES VALUE
SHARES SOLD
Investor Shares 351 $4,603 3,329 $40,268
Select Shares + 75 993 28 329
------------------------------------------------
TOTAL SHARES SOLD 426 $5,596 3,357 $40,597
SHARES REDEEMED
Investor Shares (2,867) ($37,600) (3,099) ($36,800)
Select Shares + (40) (541) (2) (16)
------------------------------------------------
TOTAL SHARES REDEEMED (2,907) ($38,141) (3,101) ($36,816) b
NET TRANSACTIONS IN
FUND SHARES (2,481) ($32,545) 256 $3,781
SHARES OUTSTANDING AND NET ASSETS
- --------------------------------------------------------------------------------
11/1/04-10/31/05 11/1/03-10/31/04
SHARES NET ASSETS SHARES NET ASSETS
Beginning of period 10,636 $129,539 10,380 $115,047
Total increase or decrease + (2,481) (20,434) 256 14,492 c
------------------------------------------------
END OF PERIOD 8,155 $109,105 10,636 $129,539 d
Unless stated, all numbers x 1,000.
a The fund started offering Select shares on June 9, 2004.
b For shares purchased after 4/29/05 and held less than 30 days, the fund
charges 2.00% redemption fee.
CURRENT PERIOD
Investor Shares $2
Select Shares + $--
------
TOTAL $2
Dollar amounts are net of the redemption proceeds.
c Figures for shares represent shares sold plus shares reinvested, minus shares
redeemed. Figures for net assets represent the changes in net assets from
operations plus the changes in value of transactions in fund shares, minus
distributions paid.
d Includes distributed net investment income in the amount of $11 and
distributable net investment income of $25 at the end of the current and prior
period, respectively.
54 See financial notes.
LAUDUS INTERNATIONAL MARKETMASTERS FUND(TM)
FINANCIAL STATEMENTS
FINANCIAL HIGHLIGHTS
11/1/04- 11/1/03- 11/1/02- 11/1/01- 11/1/00-
INVESTOR SHARES 10/31/05 10/31/04 10/31/03 10/31/02 10/31/01
- ---------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA ($)
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of period 13.58 11.95 8.74 10.80 15.53
----------------------------------------------------------------
Income or loss from investment operations:
Net investment income 0.06 0.02 0.03 0.10 0.73
Net realized and unrealized gains or losses 3.16 1.65 3.18 (1.43) (3.90)
----------------------------------------------------------------
Total income or loss from investment operations 3.22 1.67 3.21 (1.33) (3.17)
Less distributions:
Dividends from net investment income (0.02) (0.04) (0.00) 1 (0.07) (0.77)
Distributions from net realized gains -- -- -- (0.66) (0.79)
----------------------------------------------------------------
Total distributions (0.02) (0.04) -- (0.73) (1.56)
----------------------------------------------------------------
Net asset value at end of period 16.78 13.58 11.95 8.74 10.80
----------------------------------------------------------------
Total return (%) 23.75 13.98 36.74 (13.65) (22.41)
RATIOS/SUPPLEMENTAL DATA (%)
- ---------------------------------------------------------------------------------------------------------------------------
Ratio to average net assets:
Net operating expenses 1.65 1.65 1.65 0.99 2,3 0.50 3
Gross operating expenses 1.74 1.89 1.92 1.32 3 0.88 3
Net investment income 0.37 0.15 0.33 0.60 5.13
Portfolio turnover rate 53 69 99 158 51
Net assets, end of period ($ x 1,000,000) 794 552 302 206 215
1 The per share amount was less than $0.01.
2 The ratio of net operating expenses would have been 0.93% if certain
non-routine expenses (proxy fees) had not been included.
3 Prior to the fund's change in structure on June 3, 2002, the expenses incurred
by underlying funds in which the fund invested were not included in this
ratio.
See financial notes. 55
LAUDUS INTERNATIONAL MARKETMASTERS FUND
11/1/04- 4/2/04 1-
SELECT SHARES 10/31/05 10/31/04
- ------------------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA ($)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of period 13.61 13.64
----------------------------------------------------------------
Income or loss from investment operations:
Net investment income 0.08 0.02
Net realized and unrealized gains or losses 3.17 (0.05)
----------------------------------------------------------------
Total income or loss from investment operations 3.25 (0.03)
----------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.05) --
----------------------------------------------------------------
Net asset value at end of period 16.81 13.61
----------------------------------------------------------------
Total return (%) 23.90 (0.22) 2
RATIOS/SUPPLEMENTAL DATA (%)
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio to average net assets:
Net operating expenses 1.47 1.47 3
Gross operating expenses 1.68 1.86 3
Net investment income 0.59 0.37 3
Portfolio turnover rate 53 69 2
Net assets, end of period ($ x 1,000,000) 274 81
1 Commencement of operations.
2 Not annualized.
3 Annualized.
56 See financial notes.
LAUDUS INTERNATIONAL MARKETMASTERS FUND
PORTFOLIO HOLDINGS as of October 31, 2005
This section shows all the securities in the fund's portfolio by industry
classification and their value, as of the report date.
The fund files its complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. The fund's Form N-Q is
available on the SEC'S website at http://www.sec.gov and may be reviewed and
copied at the SEC'S Public Reference Room in Washington, D.C. Call
1-800-SEC-0330 for information on the operation of the Public Reference Room.
The schedule of portfolio holdings filed on the fund's most recent Form N-Q is
available by visiting Schwab's website at www.schwab.com/schwabfunds.
We use the symbol below to designate certain characteristics of the security.
(1) Top ten holding
o Non-income producing security
* American Depositary Receipt
= Collateral for future contract
COST VALUE
HOLDINGS BY CATEGORY ($x1,000) ($x1,000)
- --------------------------------------------------------------------------------
94.6% FOREIGN COMMON
STOCK 818,625 1,009,892
0.1% SHORT-TERM
INVESTMENTS 896 896
4.5% OTHER INVESTMENTS 48,278 48,278
- --------------------------------------------------------------------------------
99.2% TOTAL INVESTMENTS 867,799 1,059,066
0.8% OTHER ASSETS AND
LIABILITIES 8,814
- --------------------------------------------------------------------------------
100.0% TOTAL NET ASSETS 1,067,880
VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
FOREIGN COMMON STOCK 94.6% of net assets
AUSTRALIA 2.3%
--------------------------------------------------------------------------
Australia and New Zealand Banking
Group Ltd. 468,000 8,262
BHP Billiton Ltd. 193,200 2,997
Billabong International Ltd. 161,200 1,565
Macquarie Bank Ltd. 64,900 3,151
Publishing & Broadcasting Ltd. 21,456 260
o Raiffeisen International Bank Holdings
43,000 2,708
SFE Corp. 209,654 1,957
Sigma Co., Ltd. 161,200 1,450
Toll Holdings Ltd. 179,400 1,681
-----------
24,031
AUSTRIA 0.4%
--------------------------------------------------------------------------
Andritz AG 17,557 1,595
Erste Bank der Oesterreichischen
Sparkassen AG 48,100 2,503
-----------
4,098
BAHAMAS 0.0%
--------------------------------------------------------------------------
o Steiner Leisure Ltd. 15,349 523
BELGIUM 0.5%
--------------------------------------------------------------------------
EVS Broadcast Equipment SA 16,526 556
Interbrew SA 56,866 2,272
o Option N.V. 36,667 2,320
-----------
5,148
BRAZIL 0.7%
--------------------------------------------------------------------------
Banco Itau SA Preferred 125,000 2,992
o Diagnosticos da America SA 31,100 504
* Gol Linhas Aereas International 25,000 866
o Natura Cosmeticos SA 38,700 1,532
Petrobras Brasileiro SA 95,700 1,369
o* Telesp Celular Participacoes SA 183,258 669
-----------
7,932
CANADA 2.2%
--------------------------------------------------------------------------
= Canadian National Railway Co. 54,300 3,931
Corus Entertainment, Inc. 10,200 269
Encana Corp. 60,400 2,762
Extendicare, Inc., Class A 144,199 2,322
o Gildan Activewear, Inc. 24,000 839
Home Capital Group, Inc., Class B
42,613 1,282
Manulife Financial Corp. 54,400 2,831
o* Nortel Networks Corp. 367,100 1,193
Peyto Energy Trust 56,632 1,248
o Research in Motion Ltd. 34,500 2,121
Ritchie Brothers Auctioneers, Inc. 18,700 767
See financial notes. 57
LAUDUS INTERNATIONAL MARKETMASTERS FUND
PORTFOLIO HOLDINGS continued
VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
o RONA, Inc. 54,100 1,005
Rothmans, Inc. 91,688 1,873
o Shoppers Drug Mart Corp. 21,500 715
-----------
23,158
CAYMAN ISLANDS 0.1%
--------------------------------------------------------------------------
* Ctrip.Com International Ltd. 13,900 800
CHILE 0.4%
--------------------------------------------------------------------------
* Banco Santander Chile SA 26,600 1,039
o* Cencosud SA, 144A 52,700 1,663
S.A.C.I. Falabella SA 646,900 1,593
-----------
4,295
COLOMBIA 0.1%
--------------------------------------------------------------------------
* Bancolombia S.A. Sponsored 44,800 1,062
DENMARK 0.3%
--------------------------------------------------------------------------
Bang Olufsen A/S Class B 15,915 1,523
o Genmab A/S 59,250 1,139
o Vestas Wind System A/S 4,400 95
-----------
2,757
EGYPT 0.1%
--------------------------------------------------------------------------
Orascom Construction Industries 46,705 1,586
FINLAND 0.2%
--------------------------------------------------------------------------
Nokian Renkaat Oyj 163,190 2,543
FRANCE 9.1%
--------------------------------------------------------------------------
o Accor SA 12,772 638
o Alten 35,356 1,030
April Group 48,294 1,701
AXA 50,349 1,458
o AXAlto Holding N.V. 41,130 1,120
(8) Banque National de Paris 160,500 12,174
Carrefour SA 46,235 2,056
Essilor International SA 25,600 2,108
o Eurazeo 13,200 1,283
o GameLoft 82,600 547
o Groupe Steria SCA 42,937 2,199
Hermes International 8,900 1,997
o Iliad SA 17,150 915
Ipsos 7,946 943
o JC Decaux SA 114,318 2,337
Klepierre 7,900 741
L'Oreal 82,000 6,030
Lvmh Moet Hennessy Louis Vutton SA
21,089 1,708
Neopost SA 59,500 5,741
o Nexity Co. 74,694 3,406
o Orpea 24,400 1,316
PagesJaunes SA 57,513 1,482
Pernod-Ricard 10,175 1,780
o Pinault-Printemps-Redoute SA 15,803 1,661
o Pinguely-Haulotte 107,277 1,939
Publicis Groupe SA 270,400 8,943
o Saft Groupe SA 32,407 1,025
Sagem SA 7,350 146
Sanofi-Aventis 109,300 8,757
o= Silicon-On-Insulator Technologies
163,623 2,453
= SR Teleperformance 73,352 2,160
Technip SA 37,200 2,013
o Television Francaise 1 104,000 2,668
Total SA, Class B 5,000 1,258
Vinci SA 27,800 2,174
o Vivendi Universal SA 155,586 4,897
o Wavecom SA 94,060 1,356
o Zodiac SA 23,000 1,254
-----------
97,414
GERMANY 8.2%
--------------------------------------------------------------------------
Allianz AG 17,443 2,460
AWD Holding AG 25,400 681
(4) Bayerische Motoren-Werke AG 305,800 13,302
o Bayerische Vereinsbank AG 71,617 2,002
Bijou Brigitte Modische Accessoires AG
12,323 2,562
Celesio AG 29,520 2,551
o Commerzbank AG 80,500 2,104
o Continental AG 36,200 2,767
o CTS Eventim AG 36,592 995
Deutsche Boerse AG 92,500 8,705
o Deutsche Euroshop AG 21,965 1,158
Deutsche Post AG 86,351 1,930
DIS Deutscher Industrie Service AG
30,145 1,640
E.ON AG 53,003 4,803
GFK AG 19,060 632
58 See financial notes.
LAUDUS INTERNATIONAL MARKETMASTERS FUND
VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
Hannover Rueckversicherung AG
119,500 4,313
o Heidelberger Druckmaschinen AG
11,881 377
Henkel KGaA 90,000 7,221
Hugo Boss AG Preferred 41,231 1,366
o Interhyp AG 10,335 619
o MTU Aero Engines Holdings AG 18,581 540
o Pfleiderer AG 28,581 521
o Porsche AG Preferred 3,650 2,640
o ProsiebenSat. 1 Media AG Preffered
98,647 1,699
Rational AG 10,401 1,166
o RWE AG 9,064 577
o SAP AG 36,300 6,225
o SBS Broadcasting SA 35,075 1,859
Software AG 58,252 2,654
Solarworld AG 13,258 1,801
Stada Arzneimittel AG 26,900 879
o Techem AG 20,378 811
o Vivacon AG 73,924 2,215
o Wincor Nixdorf AG 21,684 1,901
-----------
87,676
GREECE 0.8%
--------------------------------------------------------------------------
Coca-Cola Hellenic Bottling Co., SA
34,500 941
EFG Eurobanck Ergasias 51,300 1,546
Germanos SA 80,700 1,202
o Intralot SA Integrated Lottery 63,928 954
National Bank of Greece SA 63,400 2,474
o Q-Cells AG 200 11
o Siemens AG 20,087 1,493
-----------
8,621
HONG KONG 2.2%
--------------------------------------------------------------------------
Cheung Kong Holdings Ltd. 75,600 790
o China Construction Bank, Class H
1,900,400 576
China Insurance International Holdings
Co., Ltd. 102,000 199
o China Insurance International Holdings
Co., Ltd. 1,509,132 546
o China Mengniu Dairy Co. 902,000 711
China Mobile Ltd. 1,065,500 4,780
o China Paradise Electronics Retail Ltd.
568,954 172
Citic Pacific Ltd. 27,250 71
Cosco Pacific Ltd. 50,000 82
Esprit Holdings Ltd. 252,000 1,785
o Foxconn International Holdings
1,629,000 1,751
o Fu Ji Food & Catering Services 265,000 302
Giordano International Ltd. 1,436,000 826
Li & Fung Ltd. 1,222,000 2,622
Li Ning Co., Ltd. 1,028,000 625
Lifestyle International Holdings Ltd.
239,500 346
MTR Corp., Ltd. 345,200 654
o Pacific Basin Shipping Ltd. 2,742,000 1,268
Ports Design Ltd. 363,500 342
Sung Hung Kai Properties 136,900 1,299
Techtronic Industries Co., Ltd. 1,041,500 2,563
o Vtech Holdings Ltd. 263,000 1,120
-----------
23,430
HUNGARY 0.2%
--------------------------------------------------------------------------
Otp Bank Rt. 44,200 1,597
INDIA 0.6%
--------------------------------------------------------------------------
Associated Cement Cos., Ltd. 86,200 852
o Bharat Forge 513 3
o Bharti Televentures Ltd. 110,700 794
HDFC Bank Ltd. 95,700 1,298
Housing Development Finance Corp., Ltd.
75,300 1,622
o Infosys Technologies Ltd. 25,300 1,419
-----------
5,988
IRELAND 1.6%
--------------------------------------------------------------------------
Anglo Irish Bank Corp. PLC 188,200 2,565
Bank of Ireland 821,000 12,500
Kingspan Group PLC 90,100 1,043
o Paddy Power PLC 51,951 878
o United Drug PLC 152,000 592
-----------
17,578
See financial notes. 59
LAUDUS INTERNATIONAL MARKETMASTERS FUND
PORTFOLIO HOLDINGS continued
VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
ISRAEL 0.2%
--------------------------------------------------------------------------
o* Orbotech Ltd. 25,000 543
Partner Communications Co., Ltd.
168,557 1,386
-----------
1,929
ITALY 2.9%
--------------------------------------------------------------------------
Amplifon SPA 18,563 1,213
Assicurazioni Generali 63,332 1,884
Banco Popolare di Verona e Novara Scrl
139,000 2,566
Credito Emiliano SPA 90,400 954
Eni SPA 73,162 1,958
o Gemina SPA 640,200 1,450
o Luxottica Group SPA 117,800 2,843
Pirelli & C. Real Estate SPA 14,100 772
Recordati SPA 353,547 2,586
o Saipem SPA 281,300 4,026
San Paolo IMI SPA 90,900 1,313
Tod's SPA 33,359 1,908
Unicredito Italiano SPA 1,044,000 5,830
o Valentino Fashion Group SPA 89,783 2,101
-----------
31,404
JAPAN 18.6%
--------------------------------------------------------------------------
ABC-Mart, Inc. 38,000 1,033
o ABC-Mart, Inc., WI 56,000 1,477
o AEON Co., Ltd. 3,900 81
Aeon Credit Service Co., Ltd. 23,100 1,814
Aeon Mall Co., Ltd 35,500 1,508
o Amano Corp. 127,000 2,091
Askul Corp. 14,400 872
o Bridgestone Corp. 39,700 811
o Chiyoda Corp. 85,000 1,468
o Chugai Pharmaceutical Co., Ltd.
258,900 5,669
Credit Saison Co., Ltd. 126,400 5,735
o Daifuku Co., Ltd. 226,000 2,979
Daiwa Securities Group, Inc. 865,500 7,110
en-Japan, Inc. 192 818
Hitachi Koki Co., Ltd. 199,000 2,708
o Hogy Medical Co., Ltd. 28,100 1,534
(7) Honda Motor Co., Ltd. 221,700 12,330
Honeys Co., Ltd. 12,900 671
Hoya Corp. 33,400 1,170
o Hoya Corp., WI 85,200 2,950
Intelligence, Ltd. 733 1,453
ITO EN Ltd. 15,000 722
o J-Oil Mills, Inc. 201,000 856
Japan Tobacco, Inc. 79 1,249
o Jupiter Telecommunications Co., Ltd.
2,668 2,151
o K.K. Davinci Advisors 753 3,551
Kao Corp. 71,000 1,700
o Kennedy-Wilson Japan 221 907
Keyence Corp. 17,500 4,027
Komeri Co., Ltd. 39,200 1,389
Meitec Corp. 120,000 3,878
Mitsubishi Corp. 153,000 2,975
o Mitsubishi Estate Co., Ltd. 46,000 680
Mitsubishi Tokyo Financial Group, Inc.
443 5,568
Mitsui & Co., Ltd. 51,500 632
Mitsui Fudosan Co., Ltd. 24,000 393
Mizuho Financial Group, Inc. 584 3,899
Nabtesco Corp. 279,598 2,345
Nakanishi, Inc. 8,400 1,100
o Neomax Co., Ltd. 31,600 956
Nidec Corp. 22,800 1,338
o Nidec Corp., WI 19,000 1,053
Nitori Co., Ltd. 13,280 1,006
Nitto Denko Corp. 33,400 2,022
NIWS Co., Ltd. 515 560
NTT DoCoMo, Inc. 6,360 10,983
Orix Corp. 44,800 8,400
o Pal Co., Ltd. 25,540 1,597
Park24 Co., Ltd. 46,000 1,087
Point, Inc. 74,240 4,611
Rohm Co., Ltd. 71,000 5,754
o Ryohin Keikaku Co., Ltd. 26,900 1,794
Sega Sammy Holdings, Inc. 64,524 2,322
o Sega Sammy Holdings, Inc., WI 61,424 2,211
Sharp Corp. 425,000 5,836
Shimamura Co., Ltd. 15,400 1,975
Shinsei Bank Ltd. 490,000 2,851
SMC Corp. 10,800 1,437
Sparx Asset Management Co., Ltd. 360 876
60 See financial notes.
LAUDUS INTERNATIONAL MARKETMASTERS FUND
VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
Sumitomo Trust and Banking Co., Ltd.
82,750 704
Sundrug Co., Ltd. 17,600 993
Sysmex Corp. 19,600 780
o Sysmex Corp., WI 23,000 877
(10) Takeda Chemical Industries Ltd.
200,500 10,990
o Takeuchi Mfg. Co., Ltd. 17,300 939
Toagosei Chemical Ltd. 491,000 2,492
Toyo Tire & Rubber Co., Ltd. 364,000 2,067
Tsugami Corp. 230,000 1,481
Tsumura & Co. 136,000 2,961
Uni-Charm Corp. 182,200 8,230
United Arrows Ltd. 22,600 1,205
Urban Corp. 49,200 3,043
Yamada Denki Co., Ltd. 31,500 2,782
o Yoshinoya D&C Co., Ltd. 1,572 2,968
o Zephyr Co., Ltd. 920 3,045
-----------
198,530
MALAYSIA 0.2%
--------------------------------------------------------------------------
o Airasia BHD 1,734,000 736
o Commerce Asset-Holding Berhad
861,500 1,255
Transmile Group Berhad 89,900 255
-----------
2,246
MEXICO 1.5%
--------------------------------------------------------------------------
America Mobil SA de CV 944,500 1,233
o Consorcio ARA SA de CV 155,700 575
o Corporacion Geo SA, Series B 411,100 1,269
o* Desarrolladora Homex SA de CV 32,500 971
* Grupo Aeroportuario del Sureste SA de CV
25,300 822
* Grupo Televisa SA de CV 80,200 5,863
o Urbi Desarrollos Urbanos SA de CV
219,300 1,384
Walmart de Mexico, Series V 825,700 4,019
-----------
16,136
NETHERLANDS 5.2%
--------------------------------------------------------------------------
Aalberts Industries N.V. 31,163 1,516
AKZO Nobel N.V. 224,200 9,691
o AM N.V. 129,699 1,524
o ASM Lithography Holding N.V. 138,303 2,342
o ASML Holding N.V. 24,500 416
o Ballast Nedam N.V. CVA 52,552 2,147
Euronext N.V. 236,000 10,029
Fortis N.V. 161,373 4,594
Heijmans N.V. 41,079 1,856
Heineken Holding N.V. 200,000 5,922
ING Groep N.V. 69,945 2,017
o Kon Philips Electronics N.V. 199,100 5,207
Koninklijke Ten Cate N.V. 12,952 1,363
Ordina Beheer N.V. 132,541 2,234
o= Stork N.V. 66,745 2,482
o TomTom N.V. 55,300 2,130
-----------
55,470
NORWAY 1.9%
--------------------------------------------------------------------------
Acta Holdings ASA 977,361 2,298
o Aker ASA 300 8
o Fred Olsen Energy ASA 85,617 2,352
o Norwegian Air Shuttle ASA 79,067 772
o Petroleum Geo Services ASA 36,487 918
o Songa Offshore ASA 301,293 1,319
Statoil ASA 83,300 1,849
o Stolt Offshores SA 303,179 3,147
o SubSea 7, Inc. 228,464 2,380
o Tandberg Television ASA 158,118 1,969
o TGS Nopec Geophysical Co. ASA 28,758 1,081
o Tomra Systems ASA 282,741 1,932
-----------
20,025
PORTUGAL 0.2%
--------------------------------------------------------------------------
Banco Comercial Portugues SA 805,889 2,039
RUSSIA 0.7%
--------------------------------------------------------------------------
o AFK Sistema, 144A GDR 41,838 937
* Lukoil Holding Co. 79,300 4,373
o* Novatek OAO, 144A 48,900 1,076
o* Pyaterochka Holding N.V. 144A 63,900 1,253
-----------
7,639
SINGAPORE 1.8%
--------------------------------------------------------------------------
Capitaland Ltd. 1,368,000 2,575
= Cosco Investments 3,444,520 4,490
See financial notes. 61
LAUDUS INTERNATIONAL MARKETMASTERS FUND
PORTFOLIO HOLDINGS continued
VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
o Goodpack Ltd. 414,000 448
Hyflux Ltd. 1,045,500 1,850
Jaya Holdings Ltd. 1,232,000 976
Keppel Corp., Ltd. 177,500 1,218
Osim International Ltd. 669,600 612
o Singapore Airlines Ltd. 267,600 1,772
Singapore Telecommunications Ltd.
905,407 1,247
o United Overseas Bank Ltd. 48,200 67
o United Overseas Bank Ltd. 482,000 3,935
-----------
19,190
SOUTH AFRICA 0.5%
--------------------------------------------------------------------------
o Aspen Pharmacare Holdings Ltd.
177,300 819
Edgars Consolidated Stores Ltd.
234,900 1,043
Investec Ltd. 28,011 1,006
MTN Group Ltd. 162,000 1,206
Naspers Ltd. 67,600 976
-----------
5,050
SOUTH KOREA 3.9%
--------------------------------------------------------------------------
Hana Bank 41,450 1,497
Hyundai Motor Co. Ltd. 36,200 2,676
o(9) Kookmin Bank 197,480 11,236
* Kookmin Bank 1,000 58
o Korea Investment Holdings, Co., Ltd.
25,800 667
Korea Tobacco and Ginseng Corp.
152,600 6,249
NHN Corp. 8,200 1,372
Samsung Electronics Co., Ltd. Preferred
3,770 2,007
o Shinhan Financial Group Co., Ltd.
43,640 1,463
o* SK Telecom Co., Ltd. 10,500 212
(6) SK Telecom Co., Ltd. 71,200 12,876
o Ssangyong Motor Co. 169,500 1,327
-----------
41,640
SPAIN 1.3%
--------------------------------------------------------------------------
Banco Bilbao Vizcaya Argentaria SA
104,821 1,849
Banco Santander Central Hispano SA
102,705 1,308
Grupo Ferrovial SA 22,800 1,685
o Inditex SA 121,978 3,612
Prisa-Promotora de Informaciones SA
95,384 1,749
Prosegur Compania de Seguridad SA
71,220 1,741
Tubacex SA 552,948 2,320
-----------
14,264
SWEDEN 1.7%
--------------------------------------------------------------------------
o Capio AB 151,553 2,618
Clas Ohlson AB Class B 50,900 994
Elekta AB, Class B 191,587 2,924
o Ericsson Telefonab LM AB Class B
290,000 950
o* Ericsson Telefonab LM SP 47,200 1,549
HIQ International AB 190,347 927
JM AB 61,049 2,537
Lindex AB 41,612 2,023
o Modern Times Group AB Series B
23,750 910
Unibet Group PLC 80,878 1,690
o Wm-Data AB, Class B 299,206 823
-----------
17,945
SWITZERLAND 9.3%
--------------------------------------------------------------------------
o Actelion Ltd. 12,050 1,355
o Charles Voegele Holding AG 15,662 1,144
o Credit Suisse Group 214,500 9,488
o EFG International 38,900 1,118
o Georg Fischer AG 4,740 1,467
Givaudan AG 11,700 7,540
o Kudelski SA 19,000 674
Lonza Group AG 106,400 6,132
(1) Nestle SA 53,739 16,001
o Nobel Biocare Holding AG 7,197 1,659
(3) Novartis AG 263,874 14,192
Phonak Holding AG 23,300 972
o Roche Holding AG Genusschein 71,417 10,670
Schweizerische Rueckversicherung
10,820 730
Swatch Group AG 65,500 9,086
o Syngenta AG 57,800 6,207
o Synthes, Inc. 1,433 152
62 See financial notes.
LAUDUS INTERNATIONAL MARKETMASTERS FUND
VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
United Bank of Switzerland AG 122,486 10,443
-----------
99,030
TAIWAN 0.9%
--------------------------------------------------------------------------
o Chinatrust Financial Holding Co., Ltd.
1,075,293 837
* Chunghwa Telecom Co., Ltd. 60,300 1,044
Hon Hai Precision Industry Co., Ltd.
627,240 2,717
Largan Precision Co., Ltd. 111,850 1,015
MediaTek, Inc. 238,400 2,063
Novatek Microelectronics Corp., Ltd.
277,302 1,217
o Wistron Corp. 499,000 524
-----------
9,417
TURKEY 0.1%
--------------------------------------------------------------------------
o Turkiye Garanti Bankasi A.S. 522,000 1,561
UNITED KINGDOM 13.7%
--------------------------------------------------------------------------
Aegis Group PLC 1,715,500 3,780
Aggreko PLC 356,927 1,511
o Amino Technologies PLC 75,203 177
o Ark Therapeutics Group PLC 297,014 525
o Ashtead Group PLC 767,264 1,915
Associated British Ports Holdings PLC
746,000 7,235
= BG Group PLC 701,900 6,175
BP PLC 375,000 4,154
= British Sky Broadcasting Group PLC
1,039,940 9,387
Burren Energy PLC 94,800 1,344
Cadbury Schweppes PLC 890,782 8,778
o Cairn Energy PLC 61,500 1,881
Capital Group PLC 293,820 2,029
Carnival PLC 24,242 1,229
(5) Diageo PLC 896,000 13,235
o Enodis PLC 1,515,000 3,412
=(2) GlaxoSmithKline PLC 585,700 15,234
Homeserve PLC 59,313 1,061
o IG Group Holdings PLC 779,359 2,063
Intertek Group 73,500 927
= ITV PLC 1,239,821 2,283
Johnston Press PLC 215,000 1,784
= Kingfisher PLC 792,320 2,974
Lloyds TSB Group PLC 994,000 8,129
Michael Page Group PLC 1,415,600 5,789
o Morgan Crucible Co., PLC 277,955 1,034
Morrison Wm. Supermarkets 468,197 1,356
o NETeller PLC 145,190 1,772
Northgate PLC 42,300 749
Reckitt Benkiser PLC 68,297 2,064
Rotork PLC 102,186 1,035
RTL Group SA 10,160 744
S I G PLC 84,003 1,012
Signet Group PLC 5,365,000 9,659
Smith & Nephew PLC 34,438 291
Standard Chartered PLC 106,100 2,228
= Tesco PLC 1,051,455 5,599
o Trinity Mirror PLC 208,400 2,197
o Ultra Electronics Holdings PLC 120,167 1,872
o Vodafone Group PLC 2,805,000 7,365
o Vt Group PLC 23,800 152
-----------
146,140
The foreign securities were valued at fair value in accordance with board
approved procedures. (See Accounting Policies).
SECURITY FACE AMOUNT VALUE
RATE, MATURITY DATE ($ x 1,000) ($ x 1,000)
SHORT-TERM INVESTMENTS 0.1% of net assets
U.S. GOVERNMENT SECURITIES 0.1%
--------------------------------------------------------------------------
= U.S. Treasury Bill
3.33%, 12/15/05 900 896
VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
OTHER INVESTMENTS 4.5% of net assets
OTHER INVESTMENT COMPANIES 4.5%
--------------------------------------------------------------------------
= Provident Institutional Funds --
TempFund 48,277,919 48,278
END OF INVESTMENTS.
See financial notes. 63
LAUDUS INTERNATIONAL MARKETMASTERS FUND
In addition to the above, the fund held the following at 10/31/05. All numbers x
1,000 except number of futures contracts.
FUTURES CONTRACTS
Number of Contract Unrealized
Contracts Value Gains/(Losses)
S&P 500 Index, Long
expires 12/15/05 27 8,166 107
FORWARD FOREIGN CURRENCY CONTRACTS
Amount of Amount of
Currency to Currency to Currency to Currency to Unrealized
Expiration Date be Received be Received be Delivered be Delivered Gains/(Losses)
11/16/05 Swiss Francs 15,500 U.S. Dollars 12,164 (128)
11/16/05 U.S. Dollars 13,369 Swiss Francs 15,500 1,333
11/17/05 Swiss Francs 4,800 U.S. Dollars 3,706 21
11/17/05 U.S. Dollars 7,757 Swiss Francs 9,000 768
11/22/05 U.S. Dollars 5,738 Swiss Francs 6,600 611
11/28/05 British Pounds 3,300 U.S. Dollars 5,752 85
11/28/05 U.S. Dollars 6,087 British Pounds 3,300 250
12/07/05 U.S. Dollars 6,085 British Pounds 3,200 425
12/07/05 U.S. Dollars 3,936 Swiss Francs 4,400 513
12/09/05 U.S. Dollars 8,014 British Pounds 4,200 586
*02/10/06 British Pounds 4,400 U.S. Dollars 7,733 47
02/10/06 U.S. Dollars 9,181 British Pounds 4,900 516
05/10/06 Swiss Francs 7,600 U.S. Dollars 6,058 (58)
05/10/06 U.S. Dollars 6,478 Swiss Francs 7,600 477
--------------
5,446
* Consists of two separate forward currency contracts.
02/10/06 British Pounds 600 U.S. Dollars 1,046 15
02/10/06 British Pounds 3,800 U.S. Dollars 6,687 32
64 See financial notes.
LAUDUS INTERNATIONAL MARKETMASTERS FUND
All numbers x 1,000
FOREIGN CURRENCY CONTRACTS
Amount of Amount of
Currency to Currency to Currency to Currency to Unrealized
Expiration Date be Received be Received be Delivered be Delivered Gains/(Losses)
11/01/05 British Pounds 384 U.S. Dollars 684 (5)
11/01/05 Canadian Dollars 84 U.S. Dollars 72 -- *
11/01/05 Danish Krones 2,036 U.S. Dollars 330 (3)
11/01/05 European Euro 871 U.S. Dollars 1,056 (11)
11/01/05 Norwegian Krone 1,366 U.S. Dollars 212 (2)
11/01/05 U.S. Dollars 25 British Pounds 14 -- *
11/01/05 U.S. Dollars 114 Danish Krone 700 1
11/01/05 U.S. Dollars 432 Japanese Yen 49,866 4
11/01/05 U.S. Dollars 439 Norwegian Krone 2,826 5
11/01/05 U.S. Dollars 16 Hong Kong Dollars 121 -- *
11/01/05 U.S. Dollars 623 South Korean Won 4,908 7
11/02/05 Australian Dollars 98 U.S. Dollars 74 (1)
11/02/05 Danish Krones 1,637 U.S. Dollars 263 (1)
11/02/05 European Euro 254 U.S. Dollars 306 (2)
11/02/05 Swiss Francs 286 U.S. Dollars 223 (2)
11/02/05 U.S. Dollars 125 British Pounds 70 -- *
11/02/05 U.S. Dollars 108 Danish Krone 665 1
11/02/05 U.S. Dollars 542 European Euro 452 -- *
11/02/05 U.S. Dollars 367 Japanese Yen 42,473 1
11/02/05 U.S. Dollars 209 South Korean Won 1,650 2
11/03/05 European Euro 4 U.S. Dollars 5 -- *
11/03/05 Swedish Krona 6,560 U.S. Dollars 825 (2)
11/03/05 U.S. Dollars 203 Canadian Dollars 240 -- *
11/03/05 U.S. Dollars 399 Swedish Krona 3,180 -- *
11/04/05 U.S. Dollars 911 Japanese Yen 106,048 -- *
11/07/05 Singapore Dollars 92 U.S. Dollars 54 -- *
-----------
(8)
* Amounts stated as "--" are less than $1.
See financial notes. 65
LAUDUS INTERNATIONAL MARKETMASTERS FUND
Statement of
ASSETS AND LIABILITIES
As of October 31, 2005. All numbers x 1,000 except NAV.
ASSETS
- --------------------------------------------------------------------------------
Investments, at value $1,059,066 a
Foreign currency 1,926 b
Receivables:
Fund shares sold 3,915
Dividends 1,464
Due from brokers for futures 68
Foreign tax reclaims 431
Investments sold 5,812
Unrealized appreciation on foreign currency contracts 21
Unrealized appreciation on forward foreign currency contracts 5,632
Prepaid expenses + 46
--------------
TOTAL ASSETS 1,078,381
LIABILITIES
- --------------------------------------------------------------------------------
Payables:
Fund shares redeemed 672
Investments bought 9,304
Investment adviser and administrator fees 108
Transfer agency and shareholder service fees 18
Trustee fees 1
Unrealized depreciation on foreign currency contracts 29
Unrealized depreciation on forward foreign currency contracts 186
Accrued expenses + 183
--------------
TOTAL LIABILITIES 10,501
NET ASSETS
- --------------------------------------------------------------------------------
TOTAL ASSETS 1,078,381
TOTAL LIABILITIES - 10,501
--------------
NET ASSETS $1,067,880
NET ASSETS BY SOURCE
Capital received from investors 898,372
Net investment income not yet distributed 1,223
Net realized capital losses (28,505)c
Net unrealized capital gains 196,790 c
NET ASSET VALUE (NAV) BY SHARE CLASS
SHARES
SHARE CLASS NET ASSETS / OUTSTANDING = NAV
Investor Shares $793,524 47,285 $16.78
Select Shares $274,356 16,319 $16.81
Unless stated, all numbers x 1,000.
a The fund paid $867,799 for these securities.
Includes certain restricted but deemed liquid 144A securities worth $4,929 or
0.5% 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 $676,843
Sales/maturities $433,665
b The fund paid $1,942 for these currencies.
c These derive from investments, foreign currency transactions and futures.
FEDERAL TAX DATA
--------------------------------------------------
PORTFOLIO COST $875,021
NET UNREALIZED GAINS AND LOSSES:
Gains $196,133
Losses + (12,088)
-------------
$184,045
NET UNDISTRIBUTED EARNINGS:
Ordinary income $11,353
Long-term capital gains $--
CAPITAL LOSSES UTILIZED $56,467
UNUSED CAPITAL LOSSES:
Expires 10/31 of: Loss amount:
2010 $22,113
2011 + 3,747
-------------
$25,860
RECLASSIFICATIONS:
Net investment income
not yet distributed ($902)
RECLASSIFIED AS:
Net realized capital gains $902
66 See financial notes.
LAUDUS INTERNATIONAL MARKETMASTERS FUND
Statement of
OPERATIONS
For November 1, 2004 through October 31, 2005. All numbers x 1,000.
INVESTMENT INCOME
- --------------------------------------------------------------------------------
Dividends $17,445 a
Interest + 28
------------
TOTAL INVESTMENT INCOME 17,473
NET REALIZED GAINS AND LOSSES
- --------------------------------------------------------------------------------
Net realized gains on investments 57,962
Net realized losses on foreign currency transactions (1,391)
Net realized gains on futures contracts + 376
------------
NET REALIZED GAINS 56,947
NET UNREALIZED GAINS AND LOSSES
- --------------------------------------------------------------------------------
Net unrealized gains on investments 104,982
Net unrealized gains on foreign currency transactions 5,355
Net unrealized losses on futures contracts + (12)
------------
NET UNREALIZED GAINS 110,325
EXPENSES
- --------------------------------------------------------------------------------
Investment adviser and administrator fees 11,332 b
Transfer agent and shareholder service fees:
Investor Shares 1,716 c
Select Shares 351 c
Trustees' fees 11 d
Custodian and portfolio accounting fees 1,152
Professional fees 57
Registration fees 126
Shareholder reports 130
Other expenses + 10
------------
Total expenses 14,885
Expense reduction - 982 e
------------
NET EXPENSES 13,903
INCREASE IN NET ASSETS FROM OPERATIONS
- --------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME 17,473
NET EXPENSES - 13,903
------------
NET INVESTMENT INCOME 3,570
NET REALIZED GAINS 56,947 f
NET UNREALIZED GAINS + 110,325 f
------------
INCREASE IN NET ASSETS FROM OPERATIONS $170,842
Unless stated, all numbers x 1,000.
a Net of $1,794 foreign withholding tax.
b Calculated as a percentage of average daily net assets: 1.29% of the first
$500 million, 1.275% of the next $500 million, and 1.25% over $1 billion.
These fees are paid to Charles Schwab Investment Management, Inc. (CSIM)
Prior to February 28, 2005, these fees were calculated as 1.40% of average
daily net assets.
c Calculated as a percentage of average daily net assets: for transfer agent
services, 0.05% of the fund's assets; for shareholder services, 0.20% and
0.15% of the assets of each respective share class. These fees are paid to
Charles Schwab & Co., Inc. (Schwab).
d For the fund's independent trustees only.
e Includes $753 from the investment adviser (CSIM) and $229 from the transfer
agent and shareholder service agent (Schwab). CSIM and Schwab has guaranteed
to limit the annual operating expenses through February 28, 2006, as follows:
% OF AVERAGE
SHARE CLASS DAILY NET ASSETS
--------------------------------------
Investor Shares 1.65%
Select Shares 1.47%
This limit excludes interest, taxes and certain non-routine expenses.
f These add up to a net gain on investments of $167,272.
See financial notes. 67
LAUDUS INTERNATIONAL MARKETMASTERS FUND
Statements of
CHANGES IN NET ASSETS
For the current and prior report periods. All numbers x 1,000.
OPERATIONS
- --------------------------------------------------------------------------------
11/1/04-10/31/05 11/1/03-10/31/04
Net investment income $3,570 $789
Net realized gains 56,947 12,953
Net unrealized gains + 110,325 39,625
-----------------------------------
INCREASE IN NET ASSETS FROM OPERATIONS 170,842 53,367
DISTRIBUTIONS PAID
- --------------------------------------------------------------------------------
DIVIDENDS FROM NET INVESTMENT INCOME
Investor Shares 907 1,007
Select Shares + 317 --
-----------------------------------
TOTAL DIVIDENDS FROM NET INVESTMENT INCOME $1,224 $1,007 a
TRANSACTIONS IN FUND SHARES b
- --------------------------------------------------------------------------------
11/1/04-10/31/05 11/1/03-10/31/04
SHARES VALUE SHARES VALUE
SHARES SOLD
Investor Shares 17,457 $271,992 22,257 $290,173
Select Shares + 11,835 185,351 6,216 82,103
----------------------------------------------------
TOTAL SHARES SOLD 29,292 $457,343 28,473 $372,276
SHARES REINVESTED
Investor Shares 58 $837 77 $938
Select Shares + 20 278 -- --
----------------------------------------------------
TOTAL SHARES REINVESTED 78 $1,115 77 $938
SHARES REDEEMED
Investor Shares (10,865) ($169,365) (6,975) ($91,166)
Select Shares + (1,515) (24,118) (237) (3,110)
----------------------------------------------------
TOTAL SHARES REDEEMED (12,380) ($193,483) (7,212) ($94,276)c
NET TRANSACTIONS IN
FUND SHARES 16,990 $264,975 21,338 $278,938
SHARES OUTSTANDING AND NET ASSETS
- --------------------------------------------------------------------------------
11/1/04-10/31/05 11/1/03-10/31/04
SHARES NET ASSETS SHARES NET ASSETS
Beginning of period 46,614 $633,287 25,276 $301,989
Total increase + 16,990 434,593 21,338 331,298 d
----------------------------------------------------
END OF PERIOD 63,604 $1,067,880 46,614 $633,287 e
Unless stated, all numbers x 1,000.
a The tax-basis components of distributions are:
CURRENT PERIOD
Ordinary income $1,224
Long-term capital gains $--
PRIOR PERIOD
Ordinary income $1,007
Long-term capital gains $--
b The fund started offering Select Shares on April 2, 2004.
c For shares purchased on or before 4/29/05 and held less than 180 days, the
fund charges 1.50% redemption fee. For shares purchased after 4/29/05 and held
less than 30 days, the fund charges 2.00% redemption fee.
CURRENT PERIOD
Investor Shares $102
Select Shares + 26
-------
TOTAL $128
PRIOR PERIOD
Investor Shares $129
Select Shares + 24
-------
TOTAL $153
Dollar amounts are net of the redemption fees.
d Figures for shares represent shares sold plus shares reinvested, minus shares
redeemed. Figures for net assets represent the changes in net assets from
operations plus the changes in value of transactions in fund shares, minus
distributions paid.
e Includes distributable net investment income in the amount of $1,223 and
distributions in excess of net investment income in the amount of $221 at the
end of the current period and prior period, respectively.
68 See financial notes.
LAUDUS MARKETMASTERS FUNDS
FINANCIAL NOTES
BUSINESS STRUCTURE OF THE FUNDS
EACH OF THE FUNDS DISCUSSED IN THIS REPORT IS A SERIES OF SCHWAB CAPITAL TRUST,
A NO-LOAD, OPEN-END MANAGEMENT INVESTMENT COMPANY. The company is organized as a
Massachusetts business trust and is registered under the Investment Company Act
of 1940, as amended. The sidebar shows the funds in this report and their trust.
Prior to June 3, 2002, each fund invested in a mix of actively managed mutual
funds. The transition to their multi-manager strategy began on June 3, 2002.
Also, effective November 1, 2004 the Schwab MarketMasters Funds were renamed the
Laudus MarketMasters Funds.
THE TRUST AND ITS FUNDS
This list shows all of the funds included in Schwab Capital Trust. The funds
discussed in this report are highlighted.
SCHWAB CAPITAL TRUST organized May 7, 1993
Schwab S&P 500 Index Fund
Schwab Institutional Select 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 Large-Cap Growth Fund
Schwab Small-Cap Equity Fund
Schwab Hedged Equity Fund
Schwab Premier Equity Fund
Financial Services Fund
Health Care Fund
Technology Fund
Schwab Target 2010 Fund
Schwab Target 2020 Fund
Schwab Target 2030 Fund
Schwab Target 2040 Fund
Schwab Retirement Income Fund
LAUDUS MARKETMASTERS FUNDS OFFER TWO SHARE CLASSES: Investor Shares and Select
Shares. Shares of each class represent interest in the same portfolio, but each
class has different expenses and investment minimums.
Shares are bought and sold at net asset value (NAV), which is the price for all
outstanding shares. Each share has a par value of 1/1,000 of a cent, and the
trust may issue as many shares as necessary.
FUND OPERATIONS
Most of the funds' investments are described in the fund-by-fund sections
earlier in this report. However, there are certain other fund operations and
policies that may affect a fund's financials, as described below. Other policies
concerning the funds' business operations also are described here.
THE FUNDS PAY DIVIDENDS from net investment income and make distributions from
net capital gains once a year.
THE FUNDS MAY BUY SECURITIES ON A DELAYED-DELIVERY BASIS. In these transactions,
the funds agree to buy a security for a stated price, with settlement generally
occurring within two weeks. If the security's value falls before settlement
occurs, the funds could end up paying more for the security than its market
value at the time of settlement. The funds have set aside sufficient securities
as collateral for those securities bought on a delayed-delivery basis.
THE FUNDS MAY INVEST IN FUTURES CONTRACTS. Futures contracts involve certain
risks because they can be very sensitive to market movements.
One risk is that the price of a futures contract may not move in perfect
correlation with the price of the underlying securities. Another risk is that,
at certain times, it may be impossible for the fund to close out a position in a
futures contract, due to a difference in trading hours or to market conditions
that may reduce the liquidity for a futures contract or its underlying
securities.
69
LAUDUS MARKETMASTERS FUNDS
Because futures carry inherent risks, the funds must give the broker a deposit
of cash and/or securities (the "initial margin") whenever they enter into the
futures contract. The amount of the deposit may vary from one contract to
another, but it is generally a percentage of the contract amount. The potential
for losses associated with futures contracts may exceed amounts recorded in the
Statement of Assets and Liabilities.
Futures are traded publicly on exchanges, and their market value changes daily.
The funds record the change in market value of futures, and also the change in
the amount of margin deposit required ("variation margin").
THE FUNDS MAY ALSO SELL SECURITIES SHORT (SELLING SECURITIES THEY DO NOT OWN).
When they do so, the funds also place assets worth at least 100% of the value of
the short securities into segregated accounts, as collateral. If the market
value of the short securities subsequently falls, the funds can realize a gain
by closing the position. However, if the value rises, the funds typically would
have to add to their collateral or close out their short position at a loss. The
potential for losses associated with short positions is much greater than the
original value of the securities sold short and may exceed amounts recorded in
the Statements of Assets and Liabilities.
THE LAUDUS BALANCED MARKETMASTERS FUND AND LAUDUS INTERNATIONAL MARKETMASTERS
FUND INVEST IN FORWARD CURRENCY CONTRACTS IN CONNECTION WITH THE PURCHASE AND
SALE OF PORTFOLIO SECURITIES TO MINIMIZE THE UNCERTAINTY OF CHANGES IN FUTURE
EXCHANGE RATES. "Forwards," as they are known, are contracts to buy and sell a
currency at a set price on a future date. Similar to futures, forwards are
agreements directly between two parties, however forwards are not publicly
traded.
As with futures, forwards involve certain risks that are not fully reflected in
the fund's financials. If counterparties to the contracts are unable to meet
the terms of the contracts or if the value of the foreign currency changes
unfavorably, the fund could sustain a loss.
THE FUNDS MAY ENTER INTO REPURCHASE AGREEMENTS. In a repurchase agreement, a
fund buys a security from another party (usually a financial institution) with
the agreement that it be sold back in the future. The date, price and other
conditions are all specified when the agreement is created.
The funds' repurchase agreements will be fully collateralized by U.S. government
securities. All collateral is held by the funds' custodian (or, with tri-party
agreements, the agent's bank) and is monitored daily to ensure that its market
value is at least equal to the repurchase price under the agreement.
THE FUNDS MAY ENTER INTO SWAP AGREEMENTS. In interest swap, a fund and a
counterparty agree to swap payments that are based on two different rates. The
counterparty is typically a large financial institution, and the terms of the
swap are specified in advance. For example, a fund may agree that for six months
it will pay the counterparty the equivalent of the interest on a given amount
invested at LIBOR (the London Interbank Offered Rate). In exchange, the
counterparty might agree to pay a fund the equivalent of the same amount
invested in a certain bond index during this same six month period.
Swap agreements carry certain risks. Because the net gains or losses stemming
from a swap agreement depend on the movements of one rate relative to another, a
fund could experience unanticipated losses if one or both rates failed to behave
as expected. A fund also could lose money if a counterparty failed to honor the
terms of a swap agreement.
The Credit Swap or "Credit Default Swap" is a bilateral financial contract in
which one counterparty (the Protection Buyer) pays a periodic fee, typically
expressed in basis points on the notional amount, in return for a Contingent
Payment by the Protection Seller following a Credit Event of a Reference Entity.
70
LAUDUS MARKETMASTERS FUNDS
The definitions of a Credit Event and the settlement mechanism used to determine
the Contingent Payment are flexible and determined by negotiation between the
counterparties at the inception of the transaction.
THE FUNDS ARE AUTHORIZED TO WRITE AND PURCHASE PUT AND CALL OPTIONS. The risk in
writing a call option is that a fund gives up the opportunity for profit if the
market price of the security increases. The risk in writing a put option is that
the funds may incur a loss if the market price of the security decreases and the
option is exercised. The risk in purchasing an option is that a fund pays a
premium whether or not the option is exercised. The funds also have the
additional risk of being unable to enter into a closing transaction at an
acceptable price if a liquid secondary market does not exist.
THE FUNDS MAY ENTER INTO "TBA" (TO BE ANNOUNCED) PURCHASE COMMITMENTS TO
PURCHASE SECURITIES FOR A FIXED PRICE AT A FUTURE DATE, TYPICALLY NOT EXCEEDING
45 DAYS. TBAs may be considered securities in themselves, and involve a risk of
loss if the value of the security to be purchased declines prior to settlement
date. This risk is in addition to the risk of decline in a fund's other assets.
THE FUNDS PAY FEES TO AFFILIATES OF THE INVESTMENT ADVISER FOR VARIOUS SERVICES.
Through their trust, the funds have agreements with Charles Schwab Investment
Management, Inc. (CSIM) to provide investment advisory and administrative
services and with Charles Schwab & Co., Inc. (Schwab) to provide transfer agent
and shareholder services.
Although these agreements specify certain fees for these services, CSIM and
Schwab have made additional agreements with the funds that may limit the total
expenses charged. The rates and limitations for these fees vary from fund to
fund, and are described in each fund's Statement of Operations.
The adviser is responsible for compensating each fund's investment managers.
THE FUNDS MAY ENGAGE IN CERTAIN TRANSACTIONS INVOLVING AFFILIATES. Pursuant to
an exemptive order issued by the SEC, the funds may enter into interfund
borrowing and lending transactions within the Schwab Funds. 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 Schwab Funds.
TRUSTEES MAY INCLUDE PEOPLE WHO ARE OFFICERS AND/OR DIRECTORS OF THE INVESTMENT
ADVISER OR SCHWAB. Federal securities law limits the percentage of such
"interested persons" who may serve on a trust's board, and the trust was in
compliance with these limitations throughout the report period. The trust did
not pay any of these persons for their service as trustees, but it did pay
non-interested persons (independent trustees), as noted in each fund's Statement
of Operations.
THE FUNDS MAY BORROW MONEY FROM BANKS AND CUSTODIANS. The funds may obtain
temporary bank loans through the trust to which they belong, to use for meeting
shareholder redemptions or for extraordinary or emergency purposes. The Schwab
Funds have custodian overdraft facilities and line of credit arrangements of
$150 million and $100 million with PNC Bank, N.A. and Bank of America, N.A.,
respectively. The funds pay interest on the amounts they borrow at rates that
are negotiated periodically.
AMOUNT WEIGHTED
OUTSTANDING AVERAGE AVERAGE
AT 10/31/05 BORROWING* INTEREST
FUND ($ x 1,000) ($ x 1,000) RATE* (%)
Laudus U.S.
MarketMasters Fund -- 471 3.34%
- --------------------------------------------------------------------------------
Laudus Balanced
MarketMasters Fund -- 73 4.05%
- --------------------------------------------------------------------------------
Laudus Small-Cap
MarketMasters Fund -- 403 2.80%
- --------------------------------------------------------------------------------
* Based on the number of days for which the borrowing is outstanding.
71
LAUDUS MARKETMASTERS FUNDS
THE FUNDS INTEND TO MEET FEDERAL INCOME AND EXCISE TAX REQUIREMENTS FOR
REGULATED INVESTMENT COMPANIES. Accordingly, the funds distribute substantially
all of their net investment income and net realized capital gains (if any) to
their respective shareholders each year. As long as a fund meets the tax
requirements, it is not required to pay federal income tax. The net investment
income and net realized capital gains and losses may differ for financial
statement and tax purposes primarily due to differing treatments of losses on
wash sales, foreign currency transactions and paydown gains and losses.
UNDER THE FUNDS' ORGANIZATIONAL DOCUMENTS, THE OFFICERS AND TRUSTEES ARE
INDEMNIFIED AGAINST CERTAIN LIABILITY ARISING OUT OF THE PERFORMANCE OF THEIR
DUTIES TO THE FUNDS. In addition, in the normal course of business the funds
enter into contracts with their vendors and others that provide general
indemnifications. The funds' maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the funds.
However, based on experience, the funds expect the risk of loss to be remote.
ACCOUNTING POLICIES
The following are the main policies the funds use in preparing their financial
statements.
THE FUNDS VALUE THE SECURITIES IN THEIR PORTFOLIOS EVERY BUSINESS DAY. The funds
use the following policies to value various types of securities:
- - SECURITIES TRADED ON AN EXCHANGE OR OVER-THE-COUNTER: valued at closing
value for the day, or, on days when no closing value has been reported,
halfway between the most recent bid and asked quotes. Securities that are
primarily traded on foreign exchanges are valued at the closing values of
such securities on their respective exchanges with these values then
translated into U.S. dollars at the current exchange rate.
- - SECURITIES FOR WHICH NO MARKET QUOTATIONS ARE READILY AVAILABLE or when a
significant event has occurred between the time of the security's last
close and the time that a fund calculates net asset value: valued at fair
value, as determined in good faith by the fund's investment adviser using
guidelines adopted by the funds' Board of Trustees and the Pricing
Committee. Some of the more common reasons that may necessitate that a
security be valued at fair value include: the security's trading has been
halted or suspended; the security has been de-listed from a national
exchange; the security's primary trading market is temporarily closed at a
time when under normal conditions it would be open; or the security's
primary pricing source is not able or willing to provide a price.
Also, the foreign securities held by International MarketMasters Fund are
fair valued if a movement in the U.S. market exceeds a specific threshold
that has been established using the guideline adopted by the fund's Board
of Trustees. The fund uses a third party vendor to provide the fair
valuation based on certain factors and methodologies including tracking
valuation correlations between the U.S. market and each non-U.S. security.
- - BONDS AND NOTES: valued at halfway between the most recent bid and asked
quotes or, if such quotes are unavailable, at prices for securities of
comparable maturity, credit quality and type. Valuations for bonds and
notes are provided by an independent bond-pricing service.
- - FUTURES AND FORWARDS: open contracts are valued at their settlement prices
as of the close of their exchanges (for futures) or at a market value
based on that day's exchange rates (for forwards). When a fund closes out
a futures or forwards position, it calculates the difference between the
value of the position at the beginning and at the end, and records a
realized gain or loss accordingly.
72
LAUDUS MARKETMASTERS FUNDS
- - SWAP AGREEMENTS: swaps may be valued based on a model that utilizes market
data, including swap yield curves, to calculate prices. Swaps may also be
valued based on dealer quotes.
- - OPTIONS: open contracts are valued at their last quoted sale price or in
the case of swaptions (options on swaps) at fair value, that varies with
the specific terms of the underlying swap agreement.
- - SHORT-TERM SECURITIES (60 DAYS OR LESS TO MATURITY): valued at amortized
cost.
- - MUTUAL FUNDS: valued at their respective net asset values as determined by
these funds, in accordance with the 1940 Act for a given day.
SECURITY TRANSACTIONS are recorded as of the date the order to buy or sell the
security is executed.
IF A FUND SELLS SECURITIES SHORT, it records the proceeds received as an asset
and the obligation to buy back the securities as a liability. At the time a
short sale is initiated, the asset and the liability are of equal value and
effectively cancel each other out. Subsequently, the fund values the liability
side of the transaction according to the market price of the securities sold
short, and values the asset side according to the value of the proceeds. When
the fund closes out a short position (buys the security), it records the outcome
as a realized gain or loss. Interest accrued or dividends paid on securities
sold short are recorded as an expense on the fund's records.
OPTIONS purchased are recorded as assets and written options are recorded as
liabilities to the extent of premiums paid or received. Each fund will realize a
gain or loss when the option transaction expires or closes. When an option is
exercised, the proceeds on sales for a written call option, the purchase cost
for a written put option or the cost of a security for a purchased put or call
option is adjusted by the amount of the premium received or paid.
SWAP premiums paid are recorded as assets and premiums received are recorded as
liabilities. Each fund begins recording income on swaps based on the effective
date and terms of the swap agreement. Interest is paid to or received from the
counterparty periodically. Realized gains and losses are recognized on interest
rate swaps at the termination or closing of the agreement. Credit Default swaps
record gains or losses when a credit event occurs involving the underlying
entity.
DIVIDENDS AND DISTRIBUTIONS FROM PORTFOLIO SECURITIES are recorded on the date
they are effective (the ex-dividend date), although the funds record certain
foreign security dividends on the day they learn of the ex-dividend date.
INTEREST INCOME is recorded as it accrues. If a fund buys a debt security at a
discount (that is, for less than its face value) or a premium (more than face
value), it amortizes the discount or premium from the current date up to
maturity. The fund then increases (in the case of discounts) or reduces (in the
case of premiums) the income it records from the security. If the security is
callable (meaning that the issuer has the option to pay it off before its
maturity date), then the fund amortizes the premium to the security's call date
and price, rather than the maturity date and price.
REALIZED GAINS AND LOSSES from security transactions are based on the identified
costs of the securities involved. Gains and losses from paydowns on mortgage and
asset backed securities are recorded as adjustments to interest income.
ASSETS AND LIABILITIES DENOMINATED IN FOREIGN CURRENCIES are reported in U.S.
dollars. For assets and liabilities held on a given date, the dollar value is
based on market exchange rates in effect on that date. Transactions involving
foreign currencies, including purchases, sales, income receipts and expense
payments, are calculated using exchange rates in effect on the transaction date.
73
LAUDUS MARKETMASTERS FUNDS
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 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.
74
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF:
Laudus U.S. MarketMasters Fund
Laudus Balanced MarketMasters Fund
Laudus Small-Cap MarketMasters Fund
Laudus International MarketMasters Fund
In our opinion, the accompanying statements of assets and liabilities, including
the portfolio holdings, and the related statements of operations and of changes
in net assets and the financial highlights present fairly, in all material
respects, the financial position of Laudus U.S. MarketMasters Fund, Laudus
Balanced MarketMasters Fund, Laudus Small-Cap MarketMasters Fund, and Laudus
International MarketMasters Fund (four of the portfolios constituting Schwab
Capital Trust, hereafter referred to as the "Funds") at October 31, 2005, the
results of each of their operations for the year then ended, and the changes in
each of their net assets and the financial highlights for each of the periods
presented, in conformity with accounting principles generally accepted in the
United States of America. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Funds' management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included confirmation
of securities at October 31, 2005 by correspondence with the custodian and
brokers, provide a reasonable basis for our opinion.
PRICEWATERHOUSECOOPERS LLP
San Francisco, California
December 16, 2005
75
INVESTMENT ADVISORY AND SUB-ADVISORY AGREEMENT APPROVAL
The Investment Company Act of 1940 (the "1940 Act") requires that initial
approval of, as well as the continuation of, a fund's investment advisory
agreements must be specifically approved (1) by the vote of the trustees or by a
vote of the shareholders of the fund, and (2) by the vote of a majority of the
trustees who are not parties to the investment advisory agreements or
"interested persons" of any party (the "Independent Trustees"), cast in person
at a meeting called for the purpose of voting on such approval. In connection
with such approvals, the fund's trustees must request and evaluate, and the
investment adviser is required to furnish, such information as may be reasonably
necessary to evaluate the terms of the advisory agreements. In addition, the
Securities and Exchange Commission (the "SEC") takes the position that, as part
of their fiduciary duties with respect to fund fees, fund boards are required to
evaluate the material factors applicable to a decision to approve an investment
advisory agreement.
Consistent with these responsibilities, the Board of Trustees (the "Board")
calls and holds one or more meetings each year that are dedicated, in whole or
in part, to considering whether to renew the investment advisory agreements
between Schwab Capital Trust (the "Trust") and CSIM, and the individual
sub-advisory agreements between CSIM and Harris Associates L.P., TCW Investment
Management Company and Thornburg Investment Management, Inc. relating to Laudus
U.S. MarketMasters Fund; CSIM and Janus Capital Management LLC (who in turn has
an agreement with Perkins, Wolf, McDonnell and Company, LLC for investment
services), Pacific Investment Management Company LLC and TCW Investment
Management Company relating to Laudus Balanced MarketMasters Fund; CSIM and
TAMRO Capital Partners, LLC, TCW Investment Management Company, Tocqueville
Asset Management LP and Veredus Asset Management LLC relating to Laudus
Small-Cap MarketMasters Fund; and CSIM and American Century Global Investment
Management, Inc., Artisan Partners Limited Partnership, Harris Associates L.P.
and William Blair & Company, LLC relating to the Laudus International
MarketMasters Fund (collectively, the "Sub-Advisors"). Such investment advisory
and sub-advisory agreements are collectively referred to herein as the
"Agreements".
At these meetings, the trustees also review certain other agreements pursuant to
which CSIM provides investment advisory services to other registered investment
companies. In preparation for the meeting(s), the Board requests and reviews a
wide variety of materials provided by CSIM and the Sub-Advisors, including
information about their affiliates, personnel and operations. The Board also
receives extensive data provided by third parties. This information is in
addition to the detailed information about the funds that the Board reviews
during the course of each year, including information that relates to fund
operations and fund performance. The trustees also receive memoranda from
counsel regarding the responsibilities of trustees for the approval of
investment advisory contracts. In addition, the Independent Trustees receive
advice from independent counsel to the Independent Trustees, meet in executive
session outside the presence of fund management and participate in question and
answer sessions with representatives of CSIM and the Sub-Advisors, as
appropriate. The trustees also discuss with CSIM the funds' operations and
CSIM's ability, consistent with the "manager of managers" structure of each of
the funds to (i) identify and recommend to the trustees sub-advisors for each
fund, (ii) monitor and oversee the performance and investment capabilities of
each sub-advisor, and (iii) recommend the replacement of a sub-advisor when
appropriate.
As part of the renewal process and ongoing oversight of the advisory and
sub-advisory relationships, counsel to the Independent Trustees sent an
information request letter to CSIM and CSIM sent information request letters to
the Sub-Advisors seeking certain relevant information. The responses by CSIM and
the
76
Sub-Advisors were provided to the trustees for their review prior to their
meeting, and the trustees were provided with the opportunity to request any
additional materials from CSIM and the Sub-Advisors.
The trustees received, among other materials and information:
- - descriptions of any significant changes (actual or anticipated) to principal
activities, personnel and services provided to the funds;
- - a copy of CSIM's and the Sub-Advisors' most recent audited or unaudited
financial statements (with the exception of Thornburg Investment Management,
Inc.);
- - a copy of CSIM's and the Sub-Advisors' Form ADV, Parts I and II;
- - summaries of any material past, pending or anticipated litigation or
regulatory proceedings involving CSIM or the Sub-Advisors or their personnel,
including the results of any recent regulatory examination or independent
audit;
- - descriptions of CSIM's and the Sub-Advisors' experience providing portfolio
management services, including the services provided to other clients,
including other registered investment companies;
- - descriptions of the personnel who are assigned primary responsibility for
managing the funds;
- - descriptions of the basis upon which portfolio managers are compensated;
- - discussions regarding CSIM's and the Sub-Advisors' participation in "soft
dollar" arrangements, if any, or other brokerage allocation policies with
respect to fund transactions, including each firm's methodology for obtaining
best execution on fund transactions and their use of affiliated
broker-dealers;
- - descriptions of any actual or potential conflicts of interest anticipated in
managing fund assets;
- - discussions of CSIM's and the Sub-Advisors' compliance programs with regard to
federal regulations and fund requirements;
- - information regarding CSIM's and the Sub-Advisors' codes of ethics and insider
trading policies, including a description of any material changes thereto;
- - descriptions of CSIM's and the Sub-Advisors' affiliation with any
broker-dealer;
- - discussions of any anticipated change in CSIM's and the Sub-Advisors'
controlling persons; and
- - verification of CSIM's and the Sub-Advisors' insurance coverage with regards
to the services provided to the funds.
At the May 24, 2005 meeting of the Board, the trustees, including a majority of
the Independent Trustees, approved the renewal of the Agreements for an
additional one year period. In making such approvals, the trustees considered
the best interests of each Fund separately. In each instance, the Board's
approval of the Agreements was based on consideration and evaluation of the
information and material provided to the Board and a variety of specific factors
discussed at that meeting and at prior meetings, including:
1. the nature, extent and quality of the services provided to the funds under
the Agreements, including the resources of CSIM and its affiliates, and the
Sub-Advisors, dedicated to the funds;
2. each fund's investment performance and how it compared to that of certain
other comparable mutual funds;
3. each fund's expenses and how those expenses compared to those of certain
other comparable mutual funds and other types of accounts;
4. the profitability of CSIM and its affiliates, including Charles Schwab & Co.,
Inc. ("Schwab"), with respect to the funds, including both direct and
indirect
77
benefits accruing to CSIM and its affiliates, as well as the profitability of
the Sub-Advisors; and
5. the extent to which economies of scale would be realized as the funds grow,
and whether fee levels in the Agreements reflect those economies of scale for
the benefit of fund investors.
NATURE, EXTENT AND QUALITY OF SERVICES. The Board considered the nature,
extent and quality of the services provided by CSIM to the funds and the
resources of CSIM and its affiliates dedicated to the funds. In this regard,
the trustees evaluated, among other things, CSIM's personnel, experience,
performance history across various products, and compliance program. The
trustees also considered the fact that Schwab's extensive branch network,
Internet access, investment and research tools, telephone services, and array
of account features benefit the funds. The trustees also considered Schwab's
excellent reputation as a full service brokerage firm and its overall
financial condition. Finally, the trustees considered that the vast majority
of the funds' investors are also brokerage clients of Schwab, and CSIM and
its affiliates are uniquely positioned to provide services and support to the
funds and such shareholders. The Board also considered the nature, extent and
quality of the sub-advisory services provided by the Sub-Advisors to the
funds and the resources each dedicates to the funds. In this regard, the
trustees evaluated, among other things, each Sub-Advisor's personnel,
experience and compliance program. Following such evaluation, the Board
concluded, within the context of its full deliberations, that the nature,
extent and quality of services provided by CSIM and the Sub-Advisors to the
funds and the resources of CSIM and its affiliates dedicated to the funds
supported renewal of the Agreements.
FUND PERFORMANCE. The Board considered fund performance in determining
whether to renew the Agreements. Specifically, the trustees considered each
fund's performance relative to a peer group of other mutual funds and
appropriate indices/benchmarks, in light of total return, yield and market
trends. As part of this review, the trustees considered the composition of
the peer group, selection criteria and the reputation of the third party who
prepared the peer group analysis. In evaluating the performance of each fund,
the trustees considered both market risk and shareholder risk expectations
for such fund and whether, irrespective of relative performance, each
Sub-Advisor's absolute performance was consistent with expectations for such
Sub-Advisor's unique investment methodology. Following such evaluation, the
Board concluded, within the context of its full deliberations, that the
performance of the funds supported renewal of the Agreements.
FUND EXPENSES. With respect to the funds' expenses, the trustees considered
the rate of compensation called for by the Agreements, and each fund's net
operating expense ratio, in each case, in comparison to those of other
comparable mutual funds, such peer groups and comparisons having been
selected and calculated by an independent third party. The trustees
considered the effects of CSIM's and Schwab's voluntary waiver of management
and other fees to prevent total fund expenses from exceeding a specified cap.
The trustees also considered fees charged by CSIM and the Sub-Advisors to
other similarly managed mutual funds, pooled vehicles and other types of
accounts, such as separate accounts and wrap accounts. However, the trustees
accorded less weight to the comparisons to pooled vehicles and other types of
accounts due to the unique legal, regulatory, compliance and operating
features of mutual funds as compared to these other types of investment
vehicles. Following such evaluation, the Board concluded, within the context
of its full deliberations, that the expenses of the funds are reasonable and
supported renewal of the Agreements.
78
PROFITABILITY. With regard to profitability, the trustees considered the
compensation flowing to CSIM and its affiliates, directly or indirectly. In
this connection, the trustees reviewed management's profitability analyses,
together with certain commentary thereon from an independent accounting firm.
The trustees also considered any other benefits derived by CSIM and the
Sub-Advisors from their relationship with the funds, such as whether, by
virtue of their management of the funds, CSIM or any Sub-Advisor obtains
investment information or other research resources that aid it in providing
advisory services to other clients. The trustees considered whether the
varied levels of compensation and profitability under the Agreements and
other service agreements were reasonable and justified in light of the
quality of all services rendered to each fund by CSIM and the Sub-Advisors
and their respective affiliates. The Board also considered the profitability
of the Sub-Advisors with respect to the sub-advisory services they provide to
the funds, although, when doing so, the Board took into account the fact that
the Sub-Advisors are compensated by CSIM, and not by the funds directly, and
such compensation with respect to any Sub-Advisor reflects an arms-length
negotiation between the Sub-Advisor and CSIM. Based on this evaluation, the
Board concluded, within the context of its full deliberations, that the
profitability of CSIM and the Sub-Advisors is reasonable and supported
renewal of the Agreements.
ECONOMIES OF SCALE. The trustees considered the existence of any economies of
scale and whether those are passed along to a fund's shareholders through a
graduated investment advisory fee schedule or other means, including any fee
waivers by CSIM. In this regard, and consistent with their consideration of
fund expenses, the trustees considered that CSIM and Schwab have previously
committed resources to minimize the effects on shareholders of diseconomies
of scale during periods when fund assets were relatively small through their
contractual expense waivers. For example, such diseconomies of scale may
particularly affect newer funds or funds with investment strategies that are
from time to time out of favor, but shareholders may benefit from the
continued availability of such funds at subsidized expense levels. The
trustees also considered CSIM's agreement to contractual investment advisory
fee schedules which include lower fees at higher graduated asset levels.
Based on this evaluation, the Board concluded, within the context of its full
deliberations, that the funds obtain reasonable benefit from economies of
scale.
In the course of their deliberations, the trustees did not identify any
particular information or factor that was all-important or controlling. Based on
the trustees' deliberation and their evaluation of the information described
above, the Board, including all of the Independent Trustees, unanimously
approved the continuation of the Agreements and concluded that the compensation
under the Agreements is fair and reasonable in light of such services and
expenses and such other matters as the trustees have considered to be relevant
in the exercise of their reasonable judgment.
At a meeting of the Board of Trustees held on November 16, 2004, CSIM
recommended and the Board of Trustees, including a majority of the Independent
Trustees, approved a new investment sub-advisory agreement between CSIM and
Gardner Lewis Asset Management, L.P. relating to the Laudus U.S. MarketMasters
Fund and Laudus Balanced MarketMasters Fund. This new sub-advisory agreement was
effective December 27, 2004, and, because the agreement has an initial term of
two years, it was not necessary for the Board to renew the agreement at the May
24, 2005 Board meeting. Accordingly, the sub-advisory agreement between Gardner
Lewis Asset Management, L.P. and CSIM is excluded from the considerations,
evaluations and conclusions set forth above.
79
TRUSTEES AND OFFICERS
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 Schwab Funds(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 56 Schwab Funds 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.
INDEPENDENT TRUSTEES
NAME AND
YEAR OF BIRTH TRUSTEE SINCE MAIN OCCUPATIONS AND OTHER DIRECTORSHIPS AND AFFILIATIONS
- ------------------------------------------------------------------------------------------------------------------------------------
MARIANN BYERWALTER 2000 (all trusts). Chairman, JDN Corp. Advisory LLC (real estate); Trustee, Stanford
1960 University, America First Cos., Omaha, NE (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; Director,
Pacific Life Insurance Company (insurance); Trustee, Laudus Trust
and Laudus Variable Insurance Trust. 2 Until 2001: Stanford University,
Special Advisor to the President. From 1996-2001: Stanford
University, Vice President of Business Affairs, Chief Financial Officer.
- ------------------------------------------------------------------------------------------------------------------------------------
DONALD F. DORWARD Family of Funds, 1989; Chief Executive Officer, Dorward & Associates (corporate management,
1931 Investments, 1991; marketing and communications consulting). Until 1999: Executive
Capital Trust, 1993; Vice President, Managing Director, Grey Advertising San Francisco.
Annuity Portfolios,1994. Until 1996: President, Chief Executive Officer, Allen & Dorward
Advertising.
1 The Schwab Funds 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 This includes 10 series of the Laudus Trust and the sole series of the Laudus
Variable Insurance Trust.
80
INDEPENDENT TRUSTEES continued
NAME AND
YEAR OF BIRTH TRUSTEE SINCE MAIN OCCUPATIONS AND OTHER DIRECTORSHIPS AND AFFILIATIONS
- ------------------------------------------------------------------------------------------------------------------------------------
WILLIAM A. HASLER 2000 (all trusts). Until February 2004, Co-Chief Executive Officer, Aphton Corporation
1941 (bio-pharmaceuticals). Prior to August 1998, Dean of the Haas School of
Business, University of California, Berkeley (higher education).
Director, Aphton Corporation (bio-pharmaceuticals), Mission West Properties
(commercial real estate), Stratex Networks (network equipment), TOUSA (home
building), Genitope Corp. (bio-pharmaceuticals), Pacific Stock & Option
Exchange; Non-Executive Chairman, Solectron Corporation (manufacturing);
Trustee, Laudus Trust and Laudus Variable Insurance Trust. 3
- ------------------------------------------------------------------------------------------------------------------------------------
ROBERT G. HOLMES Family of Funds, 1989; Chairman, Chief Executive Officer, Director, Semloh Financial, Inc.
1931 Investments, 1991; (international financial services and investment advisory firm).
Capital Trust, 1993;
Annuity Portfolios,1994.
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GERALD B. SMITH 2000 (all trusts). Since 1990, Chairman and Chief Executive Officer and founder of Smith Graham &
1950 Co. (investment advisors).
Director, Cooper Industries (electrical products, tools and hardware),
Chairman, Texas Southern University Foundation; Executive Committee & Board
Member, MD Anderson Cancer Center; Chairman of the audit committee of Northern
Border Partners, M.L.P. (energy).
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DONALD R. STEPHENS Family of Funds, 1989; Managing Partner, D.R. Stephens & Co. (investments). Until 1996: Chairman, Chief
1938 Investments, 1991; Executive Officer, North American Trust (real estate investment trust).
Capital Trust, 1993;
Annuity Portfolios, 1994.
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MICHAEL W. WILSEY Family of Funds, 1989; Chairman, Chief Executive Officer, Wilsey Bennett, Inc. (real estate investment
1943 Investments, 1991; and management, and other investments).
Capital Trust, 1993;
Annuity Portfolios, 1994.
3 This includes 10 series of the Laudus Trust and the sole series of the Laudus
Variable Insurance Trust.
81
INTERESTED TRUSTEES
NAME AND TRUST POSITION(S);
YEAR OF BIRTH TRUSTEE SINCE MAIN OCCUPATIONS AND OTHER DIRECTORSHIPS AND AFFILIATIONS
- ------------------------------------------------------------------------------------------------------------------------------------
CHARLES R. SCHWAB 4 Chairman, Trustee: Chairman, Chief Executive Officer and Director, The Charles Schwab Corporation,
1937 Family of Funds, 1989; Charles Schwab & Co., Inc.; Chairman and Director, Charles Schwab Investment
Investments, 1991; Management, Inc., Charles Schwab Bank, National Association; Chairman and Chief
Capital Trust, 1993; Executive Officer, Schwab (SI) Holdings Inc. I, Schwab International Holdings,
Annuity Portfolios, 1994. Inc.; Chief Executive Officer and Director, Schwab Holdings, Inc.; Director,
U.S. Trust Company, National Association, U.S. Trust Corporation, United States
Trust Company of New York. Until 5/03, Co-Chief Executive Officer, The Charles
Schwab Corporation. Trustee, Charles and Helen Schwab Foundation; Chairman, All
Kinds of Minds Institute (education), Stanford University; Chairman and
Director, Charles Schwab Foundation; Chairman of the Finance Committee, San
Francisco Museum of Modern Art.
- ------------------------------------------------------------------------------------------------------------------------------------
RANDALL W. MERK 4 Trustee, 2005 Executive Vice President and President, Asset Management Products & Services
1954 (all trusts). Enterprise, Charles Schwab & Co., Inc.; Director, Charles Schwab Asset
Management (Ireland) Limited. From 9/02 to 7/04, Mr. Merk was President and
Chief Executive Officer, Charles Schwab Investment Management, Inc. and
Executive Vice President, Charles Schwab & Co., Inc. Prior to 9/02, Mr. Merk was
President and Chief Investment Officer, American Century Investment Management,
and Director, American Century Companies, Inc. (6/01 to 8/02); Chief Investment
Officer, Fixed, American Century Companies, Inc. (1/97 to 6/01).
OFFICERS OF THE TRUST
NAME AND
YEAR OF BIRTH TRUST OFFICE(S) HELD MAIN OCCUPATIONS AND OTHER DIRECTORSHIPS AND AFFILIATIONS
- ------------------------------------------------------------------------------------------------------------------------------------
EVELYN DILSAVER President, Chief Executive Vice President, President, Director, Charles Schwab Investment
1955 Executive Officer Management, Inc. Vice President, Laudus Trust and Laudus Variable Insurance
(all trusts). Trust. Until 7/04: Senior Vice President for Development and Distribution, Asset
Management Products & Services Enterprise. Until 6/03: Executive Vice President,
Chief Financial Officer, Chief Administrative Officer, U.S. Trust.
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STEPHEN B. WARD Senior Vice President, Senior Vice President, Chief Investment Officer, Director, Charles Schwab
1955 Chief Investment Investment Management, Inc.; Chief Investment Officer, The Charles Schwab Trust
Officer (all trusts). Co.
4 In addition to their positions with the investment adviser and the
distributor, Messrs. Schwab and Merk also own stock of the Charles Schwab
Corporation.
82
OFFICERS OF THE TRUST continued
NAME AND
YEAR OF BIRTH TRUST OFFICE(S) HELD MAIN OCCUPATIONS AND OTHER DIRECTORSHIPS AND AFFILIATIONS
- ------------------------------------------------------------------------------------------------------------------------------------
KIMON DAIFOTIS Senior Vice President, Senior Vice President and Chief Investment Officer, Fixed Income, Charles Schwab
1959 Chief Investment Investment Management, Inc. Until 6/04: Vice President, Charles Schwab
Officer (all trusts). Investment Management, Inc.
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JEFFREY MORTIMER Senior Vice President, Senior Vice President, Chief Investment Officer, Equities, Charles Schwab
1963 Chief Investment Investment Management, Inc.; Vice President, Chief Investment Officer, Laudus
Officer (all trusts). Trust and Laudus Variable Insurance Trust. Until 5/04: Vice President, Charles
Schwab Investment Management, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
RANDALL FILLMORE Chief Compliance Senior Vice President, Institutional Compliance and Chief Compliance Officer,
1960 Officer (all trusts). Charles Schwab Investment Management, Inc.; Chief Compliance Officer, Laudus
Trust and Laudus Variable Insurance Trust. Until 9/03: Vice President, Charles
Schwab & Co., Inc. and Charles Schwab Investment Management, Inc. Until 2002:
Vice President, Internal Audit, Charles Schwab & Co., Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
KOJI E. FELTON Secretary (all trusts). Senior Vice President, Chief Counsel and Corporate Secretary, Charles Schwab
1961 Investment Management, Inc.; Senior Vice President and Deputy General Counsel,
Charles Schwab & Co., Inc. Prior to 6/98, Branch Chief in Enforcement at U.S.
Securities and Exchange Commission in San Francisco.
- ------------------------------------------------------------------------------------------------------------------------------------
GEORGE PEREIRA Treasurer, Principal Senior Vice President and Chief Financial Officer, Charles Schwab Investment
1964 Financial Officer Management, Inc.; Director, Charles Schwab Asset Management (Ireland) Limited.
(all trusts) From 12/99 to 11/04, Senior Vice President, Financial Reporting, Charles Schwab
& Co., Inc.
83
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.
The industry/sector classification of the funds' portfolio holdings uses the
Global Industry Classification Standard (GICS) which was developed by and is the
exclusive property of Morgan Stanley Capital International Inc. and Standard &
Poor's. GICS is a service mark of MSCI and S&P and has been licensed for use by
Charles Schwab & Co., Inc.
84
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 Schwab Fund. Please read
the prospectus carefully before you invest. This report must be preceded or
accompanied by a current prospectus.
METHODS FOR PLACING ORDERS
The following information outlines how Schwab investors can place orders. If you
are investing through a third-party investment provider, methods for placing
orders may be different.
INTERNET 1
www.schwab.com/
marketmasters
SCHWAB BY PHONE(TM) 2
Use our automated voice service or speak to a representative. Call
1.800.435.4000, day or night (for TDD service, call 1.800.345.2550).
TELEBROKER(R)
Use our automated touch-tone phone service at 1.800.272.4922.
MAIL
Write to Laudus
MarketMasters Funds at:
P.O. Box 3812
Englewood, CO
80155-3812
When selling or exchanging shares, be sure to include the signatures of at least
one of the persons whose name is on the account.
PROXY VOTING POLICIES, PROCEDURES AND RESULTS
A description of the proxy voting policies and procedures used to determine how
to vote proxies on behalf of the funds is available without charge, upon
request, by visiting Schwab's website at www.schwab.com/marketmasters, the SEC's
website at http://www.sec.gov, or by contacting Schwab Funds 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 website at www.schwab.com/schwabfunds or the SEC's
website at http://www.sec.gov.
1 Shares of Sweep Investments(TM) may not be purchased directly over the
Internet.
2 Orders placed in person or through a telephone representative may be subject
to a service fee payable to Schwab.
THE LAUDUS FUNDS(TM)
LAUDUS MARKETMASTERS FUNDS(TM)
Laudus U.S. MarketMasters Fund(TM)
Laudus Balanced MarketMasters Fund(TM)
Laudus Small-Cap MarketMasters Fund(TM)
Laudus International MarketMasters Fund(TM)
LAUDUS ROSENBERG U.S. EQUITY FUNDS
Laudus Rosenberg U.S. Large Capitalization Fund
Laudus Rosenberg U.S. Large Capitalization Growth Fund
Laudus Rosenberg U.S. Discovery Fund
Laudus Rosenberg U.S. Small Capitalization Growth Fund
LAUDUS ROSENBERG EQUITY FUNDS
Laudus Rosenberg International Equity Fund
Laudus Rosenberg International Small Capitalization Fund
Laudus Rosenberg European Fund
LAUDUS ROSENBERG LONG/SHORT FUNDS
Laudus Rosenberg U.S. Large/Mid Capitalization
Long/Short Equity Fund
Laudus Rosenberg Global Long/Short Equity Fund
Laudus Rosenberg Value Long/Short Equity Fund
The Laudus Funds includes the Laudus Rosenberg Funds, which are part of the
Laudus Trust and distributed by Laudus Distributor, Inc.; and the Laudus
MarketMasters Funds, which are part of the Schwab Capital Trust, and distributed
by Charles Schwab & Co., Inc.
[LAUDUS FUNDS LOGO]
FOR MORE INFORMATION ABOUT THE FUNDS:
INVESTMENT ADVISER
Charles Schwab Investment Management, Inc.
101 Montgomery Street, San Francisco, CA 94104
DISTRIBUTOR
Charles Schwab & Co., Inc. (Schwab)
FUNDS
Laudus MarketMasters Funds(TM)
P.O. Box 3812, Englewood, CO 80155-3812
This report is not authorized for distribution to prospective investors unless
preceded or accompanied by a current prospectus.
(C) 2005 Charles Schwab & Co., Inc. All rights reserved. Member SIPC.Printed on
recycled paper. MFR13812-08
SCHWAB TARGET FUNDS
ANNUAL REPORT
October 31, 2005
Schwab Target 2010 Fund
Schwab Target 2020 Fund
Schwab Target 2030 Fund
Schwab Target 2040 Fund
Schwab Retirement Income Fund
[CHARLES SCHWAB LOGO]
A suite of five mutual funds to help keep your retirement investments properly
allocated over your lifetime.
IN THIS REPORT
Management's Discussion ............................................ 2
Performance and Fund Facts
Schwab Target 2010 Fund .................. 7
Schwab Target 2020 Fund .................. 9
Schwab Target 2030 Fund .................. 11
Schwab Target 2040 Fund .................. 13
Schwab Retirement Income Fund ............ 15
Fund Expenses ...................................................... 17
Financial Statements
Schwab Target 2010 Fund .................. 18
Schwab Target 2020 Fund .................. 23
Schwab Target 2030 Fund .................. 28
Schwab Target 2040 Fund .................. 33
Schwab Retirement Income Fund ............ 38
Financial Notes .................................................... 43
Investment Advisory Agreement Approval ............................. 47
Trustees and Officers .............................................. 50
Glossary ........................................................... 54
Fund investment adviser: Charles Schwab Investment Management, Inc. (CSIM).
Distributor and transfer agent: Charles Schwab & Co., Inc. (Schwab).
The industry/sector classification of the funds' portfolio holdings uses the
Global Industry Classification Standard (GICS) which was developed by and is the
exclusive property of Morgan Stanley Capital International Inc. and Standard &
Poor's. GICS is a service mark of MSCI and S&P and has been licensed for use by
Charles Schwab & Co., Inc.
[PHOTO OF CHARLES SCHWAB]
Charles Schwab
Chairman
Investors should consider carefully information contained in the prospectus,
including investment objectives, risks, charges and expenses. You can request a
prospectus by calling Schwab at 1-800-435-4000. Please read the prospectus
carefully before investing.
Performance data quoted represents past performance and does not indicate future
results. Current performance may be lower or higher. Investment value will
fluctuate, and shares, when redeemed, may be worth more or less than original
cost. Small-cap funds are subject to greater volatility than those in other
asset categories.
FROM THE CHAIRMAN
Dear Shareholder,
I founded Schwab over thirty years ago to be a home for serious investors. That
mission continues to guide us today as we constantly innovate on behalf of our
clients. By continuing to provide the highest quality products and services--
at a great price--we remain true to our heritage.
I take particular pride in the Schwab Funds. Founded over 15 years ago, they
have now grown to include more than 50 funds with over $140 billion in assets as
of this report date. With a variety of investment strategies, Schwab Funds
provide a range of innovative investment choices that can serve as a foundation
for your asset allocation plan. We've continued to expand our product offering
over the past year, as Schwab Funds President Evelyn Dilsaver explains in more
detail on the following page.
Schwab Funds is managed by Charles Schwab Investment Management, Inc., one of
the largest mutual fund managers in the U.S. Our portfolio managers share a
passion for market analysis and use some of the most sophisticated financial
models available. I am proud of their depth of experience, which reflects an
average tenure of more than 15 years in the investment industry. Furthermore, I
am impressed with the commitment that our managers bring to the stewardship of
the funds, for you, their shareholders.
This commitment and experience is evident in our funds' performance. I'm
especially pleased to highlight the strong performance of the Schwab Small-Cap
Equity Fund which ranked in the top 2% of its category for the one-year period
ended October 31, 2005. 1
In closing, I want to thank you for investing with us. We strive every day to
warrant the trust you have placed in us; that will never change.
Sincerely,
/s/ Charles Schwab
1 Source: Lipper Small Cap Core Funds. For the one-year period, rankings were:
Select Shares #11 and Investor Shares #12 out of 604 funds. Numbers assume
reinvestment of dividends and capital gains over each time period. Lipper,
Inc. rankings are based on average total returns not including sales charges.
MANAGEMENT'S DISCUSSION for the year ended October 31, 2005
[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'm pleased to bring you the first annual report for the Schwab Target Funds.
The Schwab Target Funds commenced operations on July 1, 2005 and as of the close
of the report period, have grown to over $100 million in assets.
The Schwab Target Funds are part of our suite of asset allocation funds.
Research has shown that asset allocation can be the most important factor in
determining overall portfolio performance--more important than which securities
you choose or when you decide to buy and sell them. Asset allocation funds, such
as the Schwab Target Funds, offer investors a convenient way to manage their
entire portfolio in one investment. What's more, with a single investment in a
Schwab Target Fund, you can avoid a common investment mistake, failing to adjust
your portfolio over time.
We continue to develop and manage Schwab Funds to help you achieve your goals
and to provide an uncomplicated way to build a well-diversified portfolio.
During this report period, we added to our suite of actively managed funds with
the launch of the Schwab Large-Cap Growth Fund, which commenced operations on
October 3, 2005. This fund seeks capital appreciation by selecting companies
with market capitalizations greater than $5 billion and is actively managed by a
team of investment professionals that understands how a disciplined investment
strategy can help achieve competitive returns.
I speak for all of Schwab Funds when I say we want Schwab to be the place where
investors can find useful, quality financial products and services to help them
succeed.
Thank you for investing in Schwab Funds.
Sincerely,
/s/ Evelyn Dilsaver
Investors should consider carefully information contained in the prospectus,
including investment objectives, risks, charges and expenses. You can request a
prospectus by calling Schwab at 1-800-435-4000. Please read the prospectus
carefully before investing.
2 Schwab Target 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 the funds. Prior to joining the firm in October 1997, he worked for more than
eight years in asset management.
[PHOTO OF KIMON DAIFOTIS]
KIMON DAIFOTIS, CFA, senior vice president and chief investment officer,
fixed-income, of the investment adviser, is responsible for the overall
management of the bond and cash portions of the funds. Prior to joining the firm
in September 1997, he worked for more than 20 years in research and asset
management.
THE INVESTMENT ENVIRONMENT AND THE FUNDS
Despite a turbulent year in the news, the markets remained in a steady growth
mode and ended the one-year report period with positive results. Oil prices hit
all-time highs and the Federal Reserve continued to raise short-term interest
rates to curb inflationary pressures, raising the Fed Funds Target eight
consecutive times in the one-year report period. The moves had a limited impact
on overall economic growth, due primarily to the record-low level of interest
rates from which the increases began.
Despite concerns of high energy prices, which remained a significant headwind
for economic performance throughout the period, corporate earnings remained
strong throughout the year. Additionally, with the unemployment rate hovering
around 5% and GDP growth around 3.6%, job and income growth remained positive
and investors remained optimistic. Productivity gains and more restrictive
monetary policy kept a lid on core inflation. The productivity gains, coupled
with foreign investors buying large amounts of U.S. government securities,
helped contain increases in long-term interest rates. These conditions caused
the dollar to rally, which took pressure off the price of imported goods.
The big news for the past few months was the impact of Hurricanes Katrina and
Rita. The devastation caused by these storms was particularly heavy with respect
to the energy infrastructure in the South. Oil prices rose sharply in the
aftermath of the hurricanes, with crude oil peaking above $71 per barrel in
early September. However, a quick action by the federal government to release
Strategic Petroleum Reserves and soften oil demand led to a subsequent decline
off that peak. While the full economic effect of the hurricanes was unknown at
the end of the report period, the damage appears to be limited to the regions in
the hurricanes' path and to the energy infrastructures in the area.
Another significant event that occurred during the report period was the
appointment of Ben Bernanke to succeed Alan Greenspan as Chairman of the Federal
Reserve Board. Although he has not yet been confirmed into office, Bernanke's
experience on the Federal Open Market Committee and his expertise in monetary
economics has eased the concerns of the markets and caused investors to expect a
smooth transition.
Source of Sector Classification: S&P and MSCI.
Schwab Target Funds 3
MANAGEMENT'S DISCUSSION continued
[PHOTO OF TOM BROWN]
TOM BROWN, an associate portfolio manager of the investment adviser, is
responsible for day-to-day co-management of the funds. He joined Schwab in 1995,
became a trader in 1999, and was named to his current position in 2004.
Despite tragic hurricanes, rising interest rates, and soaring energy prices, the
funds and their respective benchmarks held up well. The S&P 500 Index 1 posted
gains of 8.72% for the one-year period ending on October 31, 2005 while the
Russell 2000 Index also displayed a positive return of 12.08%. As improving
fundamentals and attractive valuations have strengthened investor interest in
emerging markets, the MSCI EAFE (Morgan Stanley Capital International, Inc.
Europe, Australasia, and Far East) Index also had an impressive return of 18.09%
for the one-year report period.
Although bonds did not fare nearly as well as equities this period, performance
was still positive, up by 1.13%, as measured by the Lehman Brothers U.S.
Aggregate Bond Index. This differential is not unusual, given that we were in
the midst of an economic recovery during the period. When the economy is strong
and job growth is robust, investors expect to see inflation, which generally
leads to higher interest rates and ultimately brings down prices for bonds. In
summary, the markets have seen quite a few events with the potential to diminish
investor confidence, but as of the end of the period, significant negative
impacts had not materialized.
ASSET CLASS PERFORMANCE COMPARISON % returns for the one-year the report period
ending October 31, 2005
This graph compares the performance of various asset classes during the report
period. Final performance figures for the period are in the key below.
8.72% S&P 500(R) INDEX: measures U.S. large-cap stocks
12.08% RUSSELL 2000(R) INDEX: measures U.S. small-cap stocks
18.09% MSCI-EAFE(R) INDEX: measures (in U.S. dollars) large-cap stocks in
Europe, Australasia and the Far East
1.13% LEHMAN BROTHERS U.S. AGGREGATE BOND INDEX: measures the U.S. bond market
2.69% THREE-MONTH U.S. TREASURY BILLS (T-BILLS): measures short-term U.S.
Treasury obligations
[LINE GRAPH]
THREE-MONTH LEHMAN BROTHERS RUSSELL MSCI
U.S. TREASURY U.S. AGGREGATE S&P 500(R) 2000(R) EAFE(R)
BILLS (T-BILLS) BOND INDEX INDEX INDEX INDEX
31-Oct-04 0.00 0.00 0.00 0.00 0.00
07-Nov-04 0.01 -0.52 3.21 3.53 3.71
14-Nov-04 0.05 -0.49 4.88 6.60 4.81
21-Nov-04 0.09 -0.40 3.69 5.15 5.92
28-Nov-04 0.12 -0.47 4.81 8.21 6.96
05-Dec-04 0.16 -0.38 5.62 10.13 8.68
12-Dec-04 0.19 0.13 5.37 8.44 5.79
19-Dec-04 0.25 -0.05 5.95 10.16 7.36
26-Dec-04 0.29 0.02 7.40 11.44 10.52
02-Jan-05 0.33 0.12 7.59 11.89 11.52
09-Jan-05 0.36 -0.09 5.35 5.32 8.50
16-Jan-05 0.40 0.27 5.22 6.07 8.74
23-Jan-05 0.45 0.68 3.75 4.98 7.81
30-Jan-05 0.48 0.70 4.08 5.33 8.68
06-Feb-05 0.53 1.05 6.95 9.55 10.43
13-Feb-05 0.57 1.03 7.23 9.11 11.16
20-Feb-05 0.61 0.51 6.94 8.33 12.75
27-Feb-05 0.65 0.47 7.86 9.63 13.40
06-Mar-05 0.70 0.44 8.86 10.92 15.44
13-Mar-05 0.75 -0.43 6.96 7.84 15.54
20-Mar-05 0.79 -0.34 6.04 7.13 14.06
27-Mar-05 0.84 -0.79 4.42 5.88 11.43
03-Apr-05 0.90 -0.16 4.59 5.31 11.55
10-Apr-05 0.96 -0.28 5.37 5.20 12.02
17-Apr-05 1.01 0.55 1.95 0.06 10.11
24-Apr-05 1.06 0.78 2.81 1.57 10.36
01-May-05 1.12 0.98 3.28 -0.15 8.71
08-May-05 1.18 0.79 4.60 2.83 10.65
15-May-05 1.24 1.27 3.14 0.36 8.08
22-May-05 1.29 1.34 6.33 5.10 8.34
29-May-05 1.33 1.73 7.22 6.42 9.41
05-Jun-05 1.39 2.23 7.01 7.02 9.48
12-Jun-05 1.44 1.96 7.23 8.07 9.40
19-Jun-05 1.50 1.94 8.95 11.20 11.36
26-Jun-05 1.55 2.67 6.70 8.83 10.42
03-Jul-05 1.59 2.25 7.01 11.08 9.74
10-Jul-05 1.66 2.07 8.60 14.40 9.31
17-Jul-05 1.71 1.96 10.06 14.69 11.35
24-Jul-05 1.76 1.84 10.59 17.12 12.34
31-Jul-05 1.84 1.70 10.68 17.49 13.59
07-Aug-05 1.88 1.25 10.02 14.58 14.44
14-Aug-05 1.94 1.94 10.44 14.14 18.32
21-Aug-05 2.01 2.10 9.54 12.85 16.11
28-Aug-05 2.07 2.25 8.24 12.20 16.21
04-Sep-05 2.15 3.04 9.47 14.77 19.45
11-Sep-05 2.21 2.68 11.60 17.33 20.67
18-Sep-05 2.28 2.20 11.33 16.32 20.04
25-Sep-05 2.36 2.28 9.32 13.47 18.92
02-Oct-05 2.42 1.94 10.56 15.67 21.65
09-Oct-05 2.48 1.89 7.66 11.63 19.16
16-Oct-05 2.53 1.35 6.84 9.71 18.26
23-Oct-05 2.61 1.86 6.22 9.65 15.53
30-Oct-05 2.66 1.09 7.95 10.12 16.68
31-Oct-05 2.69 1.13 8.72 12.08 18.09
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.
Source of Sector Classification: S&P and MSCI.
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.
4 Schwab Target Funds
PERFORMANCE AT A GLANCE
Total return for the period from inception
(7/1/05) through 10/31/05
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 TARGET 2010 FUND 1 ..... 2.40%
Benchmark ..................... 1.69%
Fund Category ................. 1.37%
Performance Details ........... pages 7
SCHWAB TARGET 2020 FUND 1 ..... 2.80%
Benchmark ..................... 2.03%
Fund Category ................. 1.37%
Performance Details ........... pages 9
SCHWAB TARGET 2030 FUND 1 ..... 3.10%
Benchmark ..................... 2.33%
Fund Category ................. 2.15%
Performance Details ........... pages 11
SCHWAB TARGET 2040 FUND 1 ..... 3.60%
Benchmark ..................... 2.68%
Fund Category ................. 2.15%
Performance Details ........... pages 13
SCHWAB RETIREMENT
INCOME FUND 1 ................. 0.16%
Benchmark ..................... 0.28%
Fund Category ................. 0.23%
Performance Details ........... pages 15
The Schwab Target Funds all share the same investment approach: each seeks to
achieve its objective of capturing market returns by investing in a combination
of other Schwab Funds and Laudus Funds. The underlying funds include a
combination of equity, fixed income, and money market mutual funds to meet their
various target asset allocations and investment styles. Furthermore, each of the
four dated funds is rebalanced from a more aggressive to a more conservative
style as it approaches its target retirement year, helping keep your investment
properly allocated over your lifetime.
The Schwab Target Funds produced strong results for their first reporting period
with four funds beating their respective benchmarks and fund categories. All
total returns are for the period since the funds' inception date (July 3, 2005)
through October 31, 2005 and are not annualized.
Performance of the Schwab Target Funds will reflect a blend of the results of
their underlying funds. As shown on the next page, each fund has its own
distinct target portfolio allocation and is designed to accommodate different
investment goals and risk tolerances. Bear in mind that these are intended asset
allocations, but due to the funds moving closer to their target retirement years
and fluctuating market conditions, these allocations will vary over time. The
portfolios of the funds with an earlier target retirement date are more heavily
allocated to fixed income, ultra-short fixed income and money market funds and
represent a more conservative principle of investing.
The Schwab Retirement Income Fund is designed for investors currently in
retirement, and as such, has a majority of its portfolio invested in fixed
income, ultra-short fixed income and money market funds. The fund is intended to
provide monthly income with equity growth potential. Since the fund invests up
to 75% of its assets in fixed income, its return was impacted by the bond
markets' sluggish performance during the report period. The Schwab Retirement
Fund returned 0.16%, tracking its respective benchmark for the period.
Source of Sector Classification: S&P and MSCI. 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.
1 Total return is for 7/1/05 - 10/31/05. Performance results less than one year
are not annualized.
Schwab Target Funds 5
MANAGEMENT'S DISCUSSION continued
Of the four dated funds, the Schwab Target 2010 Fund has the shortest time
horizon and as such, has the lowest percentage of its assets allocated to
equities. The Schwab Target 2010 Fund returned 2.40% for the period, beating its
benchmark and fund category average.
Further along the spectrum, funds with later target retirement dates take a more
aggressive approach in their investment strategy by allocating a higher
percentage of their assets to equity securities. The Schwab Target 2040 Fund,
which is the fund with the latest retirement date, has the highest percentage of
assets allocated to equities. For the report period, the Schwab Target 2040 Fund
returned 3.60% for the period and outperformed its benchmark.
For this report period, the underlying investment funds that produced the best
results were those with an international equity focus, namely Laudus Rosenberg
International Small Capitalization Fund and Laudus MarketMasters International
Fund. Funds with a domestic equity focus also fared well. The fixed income
sector faced challenging market conditions during the brief report period.
Despite those challenges, the Schwab Total Bond Market Fund still outperformed
its respective benchmark for the period.
TARGET ASSET ALLOCATION 1
SCHWAB
RETIREMENT SCHWAB TARGET SCHWAB TARGET SCHWAB TARGET SCHWAB TARGET
ASSET CLASS INCOME FUND 2010 FUND 2020 FUND 2030 FUND 2040 FUND
- -------------------------------------------------------------------------------------------------------------
EQUITY SECURITIES 20% 64% 71% 78% 85%
- -------------------------------------------------------------------------------------------------------------
FIXED-INCOME SECURITIES 50% 34% 27% 20% 13%
- -------------------------------------------------------------------------------------------------------------
ULTRA-SHORT FIXED INCOME SECURITIES 25% 1% 1% 1% 1%
- -------------------------------------------------------------------------------------------------------------
MONEY MARKET FUNDS 5% 1% 1% 1% 1%
- -------------------------------------------------------------------------------------------------------------
1 The actual asset allocation as of the end of the report period is shown in the
Performance and Fund Facts section of this book.
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 Target Funds
SCHWAB TARGET 2010 FUND
PERFORMANCE as of 10/31/05
TOTAL RETURNS 1, 2, 3
This chart compares performance of the fund with a benchmark and the fund's
Morningstar category.
[BAR CHART]
FUND Benchmark: Fund Category:
Ticker Symbol: TARGET 2010 MORNINGSTAR
SWBRX COMPOSITE INDEX MODERATE ALLOCATION
SINCE INCEPTION: 7/1/05 2.40% 1.69% 1.37%
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, 3
This graph shows performance since inception of a hypothetical $10,000
investment in the fund, compared with a similar investment in a benchmark and an
additional index.
$10,240 FUND
$10,169 TARGET 2010 COMPOSITE INDEX
$10,208 DOW JONES WILSHIRE 5000 COMPOSITE INDEX(SM)
$9,854 LEHMAN BROTHERS U.S. AGGREGATE BOND INDEX
[LINE GRAPH]
DOW JONES LEHMAN BROTHERS
TARGET 2010 WILSHIRE 5000 U.S. AGGREGATE
FUND COMPOSITE INDEX COMPOSITE INDEX(SM) BOND INDEX
01-Jul-05 $10,000 $10,000 $10,000 $10,000
31-Jul-05 $10,250 $10,220 $10,419 $9,909
31-Aug-05 $10,310 $10,258 $10,317 $10,036
30-Sep-05 $10,410 $10,330 $10,389 $9,932
31-Oct-05 $10,240 $10,169 $10,208 $9,854
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.
Performance results less than one year are not annualized.
1 Fund expenses have been partially absorbed by CSIM and Schwab. Without these
reductions, the fund's returns would have been lower. These returns do not
reflect the deduction of taxes that a shareholder would pay on fund
distributions or the redemption of fund shares.
2 Source for category information: Morningstar, Inc.
3 The Target 2010 Composite Index is derived using the following portion
allocations: 48% Dow Jones Wilshire 5000 Composite Index, 16% MSCI EAFE Index,
34% Lehman Brothers U.S. Aggregate Bond Index, and 2% Lehman Brothers U.S.
Treasury Bills: 1-3 Months.
Schwab Target Funds 7
SCHWAB TARGET 2010 FUND
FUND FACTS as of 10/31/05
TOP HOLDINGS 1
% OF
SECURITY NET ASSETS
- --------------------------------------------------------------------------------
(1) SCHWAB TOTAL BOND MARKET FUND(TM) 32.2%
- --------------------------------------------------------------------------------
(2) SCHWAB CORE EQUITY FUND(TM) 23.4%
- --------------------------------------------------------------------------------
(3) LAUDUS INTERNATIONAL MARKETMASTERS FUND(TM),
Select Shares(R) 10.2%
- --------------------------------------------------------------------------------
(4) SCHWAB SMALL-CAP EQUITY FUND(TM), Select Shares 6.9%
- --------------------------------------------------------------------------------
(5) LAUDUS ROSENBERG U.S. LARGE CAPITALIZATION
GROWTH FUND, Institutional Shares 6.8%
- --------------------------------------------------------------------------------
(6) SCHWAB DIVIDEND EQUITY FUND(TM), Select Shares 6.7%
- --------------------------------------------------------------------------------
(7) LAUDUS ROSENBERG INTERNATIONAL SMALL
CAPITALIZATION FUND, Institutional Shares 6.1%
- --------------------------------------------------------------------------------
(8) LAUDUS ROSENBERG U.S. DISCOVERY FUND,
Institutional Shares 3.8%
- --------------------------------------------------------------------------------
(9) SCHWAB YIELDPLUS FUND(R), Select Shares 1.0%
- --------------------------------------------------------------------------------
(10) SCHWAB VALUE ADVANTAGE MONEY FUND(R),
Institutional Shares 1.0%
- --------------------------------------------------------------------------------
TOTAL 98.1%
STATISTICS
NUMBER OF HOLDINGS 10
- --------------------------------------------------------------------------------
WEIGHTED AVERAGE MARKET CAP ($ x 1,000,000) $39,248
- --------------------------------------------------------------------------------
PRICE/EARNINGS RATIO (P/E) 19.1
- --------------------------------------------------------------------------------
PRICE/BOOK RATIO (P/B) 2.7
- --------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 0%
- --------------------------------------------------------------------------------
MINIMUM INITIAL INVESTMENT 2 $2,500
($1,000 for custodial accounts)
- --------------------------------------------------------------------------------
ASSET CLASS WEIGHTINGS % of Investments
This chart shows the fund's asset class composition as of the report date.
[PIE CHART]
47.7% EQUITY FUNDS--DOMESTIC
33.1% FIXED-INCOME FUNDS
16.3% EQUITY FUNDS--
INTERNATIONAL
2.9% SHORT-TERM INVESTMENTS
Portfolio holdings may have changed since the report date.
Source of Sector Classification: S&P and MSCI.
1 This list is not a recommendation of any security by the investment adviser.
2 Please see prospectus for further detail and eligibility requirements.
8 Schwab Target Funds
SCHWAB TARGET 2020 FUND
PERFORMANCE as of 10/31/05
TOTAL RETURN 1, 2, 3
This chart compares performance of the fund with a benchmark and the fund's
Morningstar category.
[BAR CHART]
FUND Benchmark: Fund Category:
Ticker Symbol: TARGET 2020 MORNINGSTAR
SWCRX COMPOSITE INDEX MODERATE ALLOCATION
SINCE INCEPTION: 7/1/05 2.80% 2.03% 1.37%
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, 3
This graph shows performance since inception of a hypothetical $10,000
investment in the fund, compared with a similar investment in a benchmark and an
additional index.
$10,280 FUND
$10,203 TARGET 2020 COMPOSITE INDEX
$10,208 DOW JONES WILSHIRE 5000 COMPOSITE INDEX(SM)
$9,854 LEHMAN BROTHERS U.S. AGGREGATE BOND INDEX
[LINE GRAPH]
DOW JONES LEHMAN BROTHERS
TARGET 2020 WILSHIRE 5000 U.S. AGGREGATE
FUND COMPOSITE INDEX COMPOSITE INDEX(SM) BOND INDEX
01-Jul-05 $10,000 $10,000 $10,000 $10,000
31-Jul-05 $10,290 $10,253 $10,419 $9,909
31-Aug-05 $10,350 $10,283 $10,317 $10,036
30-Sep-05 $10,460 $10,375 $10,389 $9,932
31-Oct-05 $10,280 $10,203 $10,208 $9,854
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.
Performance results less than one year are not annualized.
1 Fund expenses have been partially absorbed by CSIM and Schwab. Without these
reductions, the fund's returns would have been lower. These returns do not
reflect the deduction of taxes that a shareholder would pay on fund
distributions or the redemption of fund shares.
2 Source for category information: Morningstar, Inc.
3 The Target 2020 Composite Index is derived using the following portion
allocations: 53% Dow Jones Wilshire 5000 Composite Index, 18% MSCI EAFE Index,
27% Lehman Brothers U.S. Aggregate Bond Index, and 2% Lehman Brothers U.S.
Treasury Bills: 1-3 Months.
Schwab Target Funds 9
SCHWAB TARGET 2020 FUND
FUND FACTS as of 10/31/05
TOP HOLDINGS 1
% OF
SECURITY NET ASSETS
- --------------------------------------------------------------------------------
(1) SCHWAB TOTAL BOND MARKET FUND(TM) 25.6%
- --------------------------------------------------------------------------------
(2) SCHWAB CORE EQUITY FUND(TM) 23.4%
- --------------------------------------------------------------------------------
(3) LAUDUS INTERNATIONAL MARKETMASTERS FUND,
Select Shares(R) 10.1%
- --------------------------------------------------------------------------------
(4) SCHWAB SMALL-CAP EQUITY FUND(TM), Select Shares 8.9%
- --------------------------------------------------------------------------------
(5) LAUDUS ROSENBERG INTERNATIONAL SMALL
CAPITALIZATION FUND, Institutional Shares 8.2%
- --------------------------------------------------------------------------------
(6) LAUDUS ROSENBERG U.S. LARGE CAPITALIZATION
GROWTH FUND, Institutional Shares 7.8%
- --------------------------------------------------------------------------------
(7) SCHWAB DIVIDEND EQUITY FUND(TM), Select Shares 7.7%
- --------------------------------------------------------------------------------
(8) LAUDUS ROSENBERG U.S. DISCOVERY FUND,
Institutional Shares 3.8%
- --------------------------------------------------------------------------------
(9) SCHWAB VALUE ADVANTAGE MONEY FUND(R),
Institutional Shares 1.0%
- --------------------------------------------------------------------------------
(10) SCHWAB YIELDPLUS FUND(R), Select Shares 1.0%
- --------------------------------------------------------------------------------
TOTAL 97.5%
- --------------------------------------------------------------------------------
STATISTICS
NUMBER OF HOLDINGS 10
- --------------------------------------------------------------------------------
WEIGHTED AVERAGE MARKET CAP ($ x 1,000,000) $37,658
- --------------------------------------------------------------------------------
PRICE/EARNINGS RATIO (P/E) 19.2
- --------------------------------------------------------------------------------
PRICE/BOOK RATIO (P/B) 2.7
- --------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 0%
- --------------------------------------------------------------------------------
MINIMUM INITIAL INVESTMENT 2 $2,500
($1,000 for custodial accounts)
- --------------------------------------------------------------------------------
ASSET CLASS WEIGHTINGS % of Investments
This chart shows the fund's asset class composition as of the report date.
[PIE CHART]
51.8% EQUITY FUNDS--DOMESTIC
26.6% FIXED-INCOME FUNDS
18.4% EQUITY FUNDS--INTERNATIONAL
3.2% SHORT-TERM INVESTMENTS
Portfolio holdings may have changed since the report date.
Source of Sector Classification: S&P and MSCI.
1 This list is not a recommendation of any security by the investment adviser.
2 Please see prospectus for further detail and eligibility requirements.
10 Schwab Target Funds
SCHWAB TARGET 2030 FUND
PERFORMANCE as of 10/31/05
TOTAL RETURNS 1, 2, 3
This chart compares performance of the fund with a benchmark and the fund's
Morningstar category.
[BAR CHART]
FUND Benchmark: Fund Category:
Ticker Symbol: TARGET 2030 MORNINGSTAR
SWDRX COMPOSITE INDEX LARGE-CAP BLEND
SINCE INCEPTION 7/1/05 3.10% 2.33% 2.15%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE DOES
NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL
FLUCTUATE SO THAT AN INVESTOR'S SHARES MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN PERFORMANCE DATA
QUOTED. TO OBTAIN PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH END,
PLEASE VISIT WWW.SCHWAB.COM/SCHWABFUNDS.
PERFORMANCE OF A HYPOTHETICAL $10,000 INVESTMENT 2, 3
This graph shows performance since inception of a hypothetical $10,000
investment in the fund, compared with a similar investment in a benchmark and an
additional index.
$10,310 FUND
$10,233 TARGET 2030 COMPOSITE INDEX
$10,208 DOW JONES WILSHIRE 5000 COMPOSITE INDEX(SM)
$9,854 LEHMAN BROTHERS U.S. AGGREGATE BOND INDEX
[LINE GRAPH]
DOW JONES LEHMAN BROTHERS
TARGET 2030 WILSHIRE 5000 U.S. AGGREGATE
FUND COMPOSITE INDEX COMPOSITE INDEX(SM) BOND INDEX
01-Jul-05 $10,000 $10,000 $10,000 $10,000
31-Jul-05 $10,330 $10,288 $10,419 $9,909
31-Aug-05 $10,370 $10,305 $10,317 $10,036
30-Sep-05 $10,500 $10,414 $10,389 $9,932
31-Oct-05 $10,310 $10,233 $10,208 $9,854
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.
Performance results less than one year are not annualized.
1 Fund expenses have been partially absorbed by CSIM and Schwab. Without these
reductions, the fund's returns would have been lower. These returns do not
reflect the deduction of taxes that a shareholder would pay on fund
distributions or the redemption of fund shares.
2 Source for category information: Morningstar, Inc.
3 The Target 2030 Composite Index is derived using the following portion
allocations: 59% Dow Jones Wilshire 5000 Composite Index, 19% MSCI EAFE Index,
20% Lehman Brothers U.S. Aggregate Bond Index, and 2% Lehman Brothers U.S.
Treasury Bills: 1-3 Months.
Schwab Target Funds 11
SCHWAB TARGET 2030 FUND
FUND FACTS as of 10/31/05
TOP HOLDINGS 1
% OF
SECURITY NET ASSETS
- --------------------------------------------------------------------------------
(1) SCHWAB CORE EQUITY FUND(TM) 25.6%
- --------------------------------------------------------------------------------
(2) SCHWAB TOTAL BOND MARKET FUND(TM) 18.5%
- --------------------------------------------------------------------------------
(3) LAUDUS INTERNATIONAL MARKETMASTERS FUND,
Select Shares(R) 10.9%
- --------------------------------------------------------------------------------
(4) SCHWAB SMALL-CAP EQUITY FUND(TM), Select Shares 9.6%
- --------------------------------------------------------------------------------
(5) LAUDUS ROSENBERG U.S. LARGE CAPITALIZATION
GROWTH FUND, Institutional Shares 8.5%
- --------------------------------------------------------------------------------
(6) SCHWAB DIVIDEND EQUITY FUND(TM), Select Shares 8.4%
- --------------------------------------------------------------------------------
(7) LAUDUS ROSENBERG INTERNATIONAL SMALL
CAPITALIZATION FUND, Institutional Shares 6.9%
- --------------------------------------------------------------------------------
(8) LAUDUS ROSENBERG U.S. DISCOVERY FUND,
Institutional Shares 4.7%
- --------------------------------------------------------------------------------
(9) SCHWAB YIELDPLUS FUND(R), Select Shares 1.0%
- --------------------------------------------------------------------------------
(10) SCHWAB VALUE ADVANTAGE MONEY FUND(R),
Institutional Shares 0.9%
- --------------------------------------------------------------------------------
TOTAL 95.0%
- --------------------------------------------------------------------------------
STATISTICS
NUMBER OF HOLDINGS 10
- --------------------------------------------------------------------------------
WEIGHTED AVERAGE MARKET CAP ($ x 1,000,000) $38,468
- --------------------------------------------------------------------------------
PRICE/EARNINGS RATIO (P/E) 19.1
- --------------------------------------------------------------------------------
PRICE/BOOK RATIO (P/B) 2.7
- --------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 0%
- --------------------------------------------------------------------------------
MINIMUM INITIAL INVESTMENT 2 $2,500
($1,000 for custodial accounts)
- --------------------------------------------------------------------------------
ASSET CLASS WEIGHTINGS % of Investments
This chart shows the fund's asset class composition as of the report date.
[PIE CHART]
57.7% EQUITY FUNDS--DOMESTIC
19.7% FIXED-INCOME FUNDS
18.0% EQUITY FUNDS--INTERNATIONAL
4.6% SHORT-TERM INVESTMENTS
Portfolio holdings may have changed since the report date.
Source of Sector Classification: S&P and MSCI.
1 This list is not a recommendation of any security by the investment adviser.
2 Please see prospectus for further detail and eligibility requirements.
12 Schwab Target Funds
SCHWAB TARGET 2040 FUND
PERFORMANCE as of 10/31/05
TOTAL RETURNS 1, 2, 3
This chart compares performance of the fund with a benchmark and the fund's
Morningstar category.
[BAR CHART]
FUND Benchmark: Fund Category:
Ticker Symbol: TARGET 2040 MORNINGSTAR
SWERX COMPOSITE INDEX LARGE-CAP BLEND
SINCE INCEPTION: 7/1/05 3.60% 2.68% 2.15%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE DOES
NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL
FLUCTUATE SO THAT AN INVESTOR'S SHARES MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN PERFORMANCE DATA
QUOTED. TO OBTAIN PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH END,
PLEASE VISIT WWW.SCHWAB.COM/SCHWABFUNDS.
PERFORMANCE OF A HYPOTHETICAL $10,000 INVESTMENT 2, 3
This graph shows performance since inception of a hypothetical $10,000
investment in the fund, compared with a similar investment in a benchmark and an
additional index.
$10,360 FUND
$10,268 TARGET 2040 COMPOSITE INDEX
$10,208 DOW JONES WILSHIRE 5000 COMPOSITE INDEX(SM)
$9,854 LEHMAN BROTHERS U.S. AGGREGATE BOND INDEX
[LINE GRAPH]
DOW JONES LEHMAN BROTHERS
TARGET 2040 WILSHIRE 5000 U.S. AGGREGATE
FUND COMPOSITE INDEX COMPOSITE INDEX(SM) BOND INDEX
01-Jul-05 $10,000 $10,000 $10,000 $10,000
31-Jul-05 $10,370 $10,321 $10,419 $9,909
31-Aug-05 $10,410 $10,329 $10,317 $10,036
30-Sep-05 $10,560 $10,459 $10,389 $9,932
31-Oct-05 $10,360 $10,268 $10,208 $9,854
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.
Performance results less than one year are not annualized.
1 Fund expenses have been partially absorbed by CSIM and Schwab. Without these
reductions, the fund's returns would have been lower. These returns do not
reflect the deduction of taxes that a shareholder would pay on fund
distributions or the redemption of fund shares.
2 Source for category information: Morningstar, Inc.
3 The Target 2040 Composite Index is derived using the following portion
allocations: 64% Dow Jones Wilshire 5000 Composite Index, 21% MSCI EAFE Index,
13% Lehman Brothers U.S. Aggregate Bond Index, and 2% Lehman Brothers U.S.
Treasury Bills: 1-3 Months.
Schwab Target Funds 13
SCHWAB TARGET 2040 FUND
FUND FACTS as of 10/31/05
TOP HOLDINGS 1
% OF
SECURITY NET ASSETS
- --------------------------------------------------------------------------------
(1) SCHWAB CORE EQUITY FUND(TM) 26.8%
- --------------------------------------------------------------------------------
(2) LAUDUS INTERNATIONAL MARKETMASTERS
FUND(TM), Select Shares(R) 12.9%
- --------------------------------------------------------------------------------
(3) SCHWAB TOTAL BOND MARKET FUND(TM) 12.2%
- --------------------------------------------------------------------------------
(4) SCHWAB SMALL-CAP EQUITY FUND(TM), Select Shares 10.7%
- --------------------------------------------------------------------------------
(5) LAUDUS ROSENBERG INTERNATIONAL SMALL
CAPITALIZATION FUND, Institutional Shares 8.9%
- --------------------------------------------------------------------------------
(6) LAUDUS ROSENBERG U.S. LARGE CAPITALIZATION
GROWTH FUND, Institutional Shares 8.6%
- --------------------------------------------------------------------------------
(7) SCHWAB DIVIDEND EQUITY FUND(TM), Select Shares 8.5%
- --------------------------------------------------------------------------------
(8) LAUDUS ROSENBERG U.S. DISCOVERY FUND,
Institutional Shares 5.7%
- --------------------------------------------------------------------------------
(9) SCHWAB VALUE ADVANTAGE MONEY FUND(R),
Institutional Shares 0.9%
- --------------------------------------------------------------------------------
(10) SCHWAB YIELDPLUS FUND(R), Select Shares 0.9%
- --------------------------------------------------------------------------------
TOTAL 96.1%
STATISTICS
NUMBER OF HOLDINGS 10
- --------------------------------------------------------------------------------
WEIGHTED AVERAGE MARKET CAP ($ x 1,000,000) $36,775
- --------------------------------------------------------------------------------
PRICE/EARNINGS RATIO (P/E) 19.2
- --------------------------------------------------------------------------------
PRICE/BOOK RATIO (P/B) 2.7
- --------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 0%
- --------------------------------------------------------------------------------
MINIMUM INITIAL INVESTMENT 2 $2,500
($1,000 for custodial accounts)
- --------------------------------------------------------------------------------
ASSET CLASS WEIGHTINGS % of Investments
This chart shows the fund's asset class composition as of the report date.
[PIE CHART]
60.5% EQUITY FUNDS--DOMESTIC
21.9% EQUITY FUNDS--
INTERNATIONAL
13.2% FIXED-INCOME FUNDS
4.4% SHORT-TERM INVESTMENTS
Portfolio holdings may have changed since the report date.
Source of Sector Classification: S&P and MSCI.
1 This list is not a recommendation of any security by the investment adviser.
2 Please see prospectus for further detail and eligibility requirements.
14 Schwab Target Funds
SCHWAB RETIREMENT INCOME FUND
PERFORMANCE as of 10/31/05
TOTAL RETURNS 1, 2, 3
This chart compares performance of the fund with a benchmark and the fund's
Morningstar category.
[BAR CHART]
Fund Category:
FUND Benchmark: MORNINGSTAR
Ticker Symbol: TARGET INCOME CONSERVATIVE
SWARX COMPOSITE INDEX ALLOCATION
SINCE INCEPTION: 7/1/05 0.16% 0.28% 0.23%
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, 3
This graph shows performance since inception of a hypothetical $10,000
investment in the fund, compared with a similar investment in a benchmark and an
additional index.
$10,016 FUND
$10,028 TARGET INCOME COMPOSITE INDEX
$10,208 DOW JONES WILSHIRE 5000 COMPOSITE INDEX(SM)
$9,854 LEHMAN BROTHERS U.S. AGGREGATE BOND INDEX
[LINE GRAPH]
DOW JONES LEHMAN BROTHERS
TARGET INCOME WILSHIRE 5000 U.S. AGGREGATE
FUND COMPOSITE INDEX COMPOSITE INDEX(SM) BOND INDEX
01-Jul-05 $10,000 $10,000 $10,000 $10,000
31-Jul-05 $10,043 $10,040 $10,419 $9,909
31-Aug-05 $10,108 $10,111 $10,317 $10,036
30-Sep-05 $10,101 $10,101 $10,389 $9,932
31-Oct-05 $10,016 $10,028 $10,208 $9,854
All figures on this page assume dividends and distributions were reinvested.
Index figures do not include trading and management costs, which would lower
performance. Indices are unmanaged, and you cannot invest in them directly.
Performance results less than one year are not annualized.
1 Fund expenses have been partially absorbed by CSIM and Schwab. Without these
reductions, the fund's returns would have been lower. These returns do not
reflect the deduction of taxes that a shareholder would pay on fund
distributions or the redemption of fund shares.
2 Source for category information: Morningstar, Inc.
3 The Target Income Composite Index is derived using the following portion
allocations: 15% Dow Jones Wilshire 5000 Composite Index, 5% MSCI EAFE Index,
50% Lehman Brothers U.S. Aggregate Bond Index, and 30% Lehman Brothers U.S.
Treasury Bills: 1-3 Months.
Schwab Target Funds 15
SCHWAB RETIREMENT INCOME FUND
FUND FACTS as of 10/31/05
TOP HOLDINGS 1
% OF
SECURITY NET ASSETS
- --------------------------------------------------------------------------------
(1) SCHWAB TOTAL BOND MARKET FUND(TM) 47.6%
- --------------------------------------------------------------------------------
(2) SCHWAB YIELDPLUS FUND(R), Select Shares(R) 24.2%
- --------------------------------------------------------------------------------
(3) SCHWAB DIVIDEND EQUITY FUND(TM), Select Shares 16.4%
- --------------------------------------------------------------------------------
(4) SCHWAB VALUE ADVANTAGE MONEY FUND(R),
Institutional Shares 4.8%
- --------------------------------------------------------------------------------
(5) LAUDUS INTERNATIONAL MARKETMASTERS FUND(TM),
Select Shares 3.1%
- --------------------------------------------------------------------------------
TOTAL 96.1%
STATISTICS
NUMBER OF HOLDINGS 6
- --------------------------------------------------------------------------------
WEIGHTED AVERAGE MARKET CAP ($ x 1,000,000) $45,806
- --------------------------------------------------------------------------------
PRICE/EARNINGS RATIO (P/E) 16.5
- --------------------------------------------------------------------------------
PRICE/BOOK RATIO (P/B) 2.6
- --------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 0%
- --------------------------------------------------------------------------------
MINIMUM INITIAL INVESTMENT 2 $2,500
($1,000 for custodial accounts)
- --------------------------------------------------------------------------------
ASSET CLASS WEIGHTINGS % of Investments
This chart shows the fund's asset class composition as of the report date.
[PIE CHART]
73.1% FIXED-INCOME FUNDS
16.7% EQUITY FUNDS--DOMESTIC
7.1% SHORT-TERM INVESTMENTS
3.1% EQUITY FUNDS--
INTERNATIONAL
Portfolio holdings may have changed since the report date.
Source of Sector Classification: S&P and MSCI.
1 This list is not a recommendation of any security by the investment adviser.
2 Please see prospectus for further detail and eligibility requirements.
16 Schwab Target Funds
FUND EXPENSES (unaudited)
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 the period beginning July 1, 2005
(commencement of the funds' operations) and held through October 31, 2005.
ACTUAL RETURN lines in the table below provide information about actual account
values and actual expenses. You may use this information, together with the
amount you invested, to estimate the expenses that you paid over the period. To
do so, simply divide your account value by $1,000 (for example, an $8,600
account value / $1,000 = 8.6), then multiply the result by the number given for
your fund under the heading entitled "Expenses Paid During Period."
HYPOTHETICAL RETURN lines in the table below provide information about
hypothetical account values and hypothetical expenses based on a fund's actual
expense ratio and an assumed return of 5% per year before expenses. Because the
return used is not an actual return, it may not be used to estimate the actual
ending account value or expenses you paid for the period.
You may use this information to compare the ongoing costs of investing in the
fund and other funds. To do so, compare this 5% hypothetical example with the 5%
hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only, and do not reflect any transactional costs, such as
redemption fees. If these transactional costs were included, your costs would
have been higher.
ENDING
BEGINNING ACCOUNT VALUE EXPENSES
EXPENSE RATIO 1 ACCOUNT VALUE (Net of Expenses) PAID DURING PERIOD 2
(Annualized) at 7/1/05 at 10/31/05 7/1/05-10/31/05
- --------------------------------------------------------------------------------------------------------------
SCHWAB TARGET 2010 FUND
Actual Return 0.06% $1,000 $1,024.00 $0.21
Hypothetical 5% Return 0.06% $1,000 $1,016.64 $0.21
- --------------------------------------------------------------------------------------------------------------
SCHWAB TARGET 2020 FUND
Actual Return 0.04% $1,000 $1,028.00 $0.15
Hypothetical 5% Return 0.04% $1,000 $1,016.70 $0.15
- --------------------------------------------------------------------------------------------------------------
SCHWAB TARGET 2030 FUND
Actual Return 0.03% $1,000 $1,031.00 $0.11
Hypothetical 5% Return 0.03% $1,000 $1,016.74 $0.11
- --------------------------------------------------------------------------------------------------------------
SCHWAB TARGET 2040 FUND
Actual Return 0.01% $1,000 $1,036.00 $0.03
Hypothetical 5% Return 0.01% $1,000 $1,016.82 $0.03
- --------------------------------------------------------------------------------------------------------------
SCHWAB RETIREMENT INVESTMENT FUND
Actual Return 0.10% $1,000 $1,001.60 $0.35
Hypothetical 5% Return 0.10% $1,000 $1,016.50 $0.35
- --------------------------------------------------------------------------------------------------------------
1 Based on the most recent six-month expense ratio; may differ from the expense
ratio provided in Financial Highlights; does not include expenses of
underlying funds in which the funds invest.
2 Expenses for each fund are equal to its annualized expense ratio, multiplied
by the average account value over the period, multiplied by 123 days of the
period (from 7/1/05, commencement of operations through 10/31/05), and divided
by 365 days of the fiscal year.
Schwab Target Funds 17
SCHWAB TARGET 2010 FUND
FINANCIAL STATEMENTS
FINANCIAL HIGHLIGHTS
7/1/05 1-
10/31/05
- --------------------------------------------------------------------------------
PER-SHARE DATA ($)
- --------------------------------------------------------------------------------
Net asset value at beginning of period 10.00
------------------------------
Income from investment operations:
Net investment income 0.04
Net realized and unrealized gains 0.20
------------------------------
Total income from investment operations 0.24
------------------------------
Net asset value at end of period 10.24
------------------------------
Total return (%) 2.40 2
RATIOS/SUPPLEMENTAL DATA (%)
- --------------------------------------------------------------------------------
Ratios to average net assets:
Net operating expenses 3 0.06 4
Gross operating expenses 3 0.37 4
Net investment income 1.51 4
Portfolio turnover rate --
Net assets, end of period ($ x 1,000,000) 32
1 Commencement of operations.
2 Not annualized.
3 The expenses incurred by underlying funds in which the portfolio invests are
not included in this ratio. The income received by the portfolio from
underlying funds is reduced by those expenses.
4 Annualized.
18 See financial notes.
SCHWAB TARGET 2010 FUND
PORTFOLIO HOLDINGS as of October 31, 2005
This section shows all the securities in the fund's portfolio and their value,
as of the report date.
The fund files its complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. The fund's Form N-Q is
available on the SEC's website at http://www.sec.gov and may be reviewed and
copied at the SEC's Public Reference Room in Washington, D.C. Call
1-800-SEC-0330 for information on the operation of the Public Reference Room.
The schedule of portfolio holdings filed on the fund's most recent Form N-Q is
available by visiting Schwab's website at www.schwab.com/schwabfunds.
We use the symbols below to designate certain characteristics of the securities.
With the top holdings, the number in the circle is the security's rank among the
top ten.
(1) Top ten holding
/ Issuer is affiliated with the fund's adviser
COST VALUE
HOLDINGS BY CATEGORY ($x1,000) ($x1,000)
- --------------------------------------------------------------------------------
98.1% OTHER INVESTMENT
COMPANIES 30,791 31,146
1.9% SHORT-TERM
INVESTMENT 613 613
- --------------------------------------------------------------------------------
100.0% TOTAL INVESTMENTS 31,404 31,759
0.0% OTHER ASSETS AND
LIABILITIES, NET 5
- --------------------------------------------------------------------------------
100.0% TOTAL NET ASSETS 31,764
VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
OTHER INVESTMENT COMPANIES
98.1% of net assets
EQUITY FUNDS 64.0%
--------------------------------------------------------------------------
/(3) Laudus International MarketMasters
Fund, Select Shares 192,153 3,230
/(7) Laudus Rosenberg International
Small Capitalization Fund,
Institutional Shares 108,079 1,945
/(8) Laudus Rosenberg U.S. Discovery
Fund, Institutional Shares 72,489 1,220
/(5) Laudus Rosenberg U.S. Large
Capitalization Growth Fund,
Institutional Shares 252,657 2,158
/(2) Schwab Core Equity Fund 470,052 7,432
/(6) Schwab Dividend Equity Fund,
Select Shares 166,236 2,128
/(4) Schwab Small-Cap Equity Fund,
Select Shares 139,745 2,205
-----------
20,318
FIXED-INCOME FUNDS 33.1%
--------------------------------------------------------------------------
/(1) Schwab Total Bond Market
Fund 1,036,051 10,216
/(9) Schwab YieldPlus Fund,
Select Shares 31,715 306
-----------
10,522
MONEY FUNDS 1.0%
--------------------------------------------------------------------------
/(10) Schwab Value Advantage Money
Fund, Institutional Shares 305,943 306
SECURITY FACE AMOUNT
RATE, MATURITY DATE ($ x 1,000)
SHORT-TERM INVESTMENT
1.9% of net assets
Wachovia Bank, Grand Cayman
Time Deposit
3.48%, 11/01/05 613 613
END OF INVESTMENTS.
See financial notes. 19
SCHWAB TARGET 2010 FUND
Statement of
ASSETS AND LIABILITIES
As of October 31, 2005. All numbers x 1,000 except NAV.
ASSETS
- --------------------------------------------------------------------------------
Investments in affiliated underlying funds, at value $31,146 a
Investments, at value 613 a
Receivables:
Fund shares sold 54
Prepaid expenses + 26
----------
TOTAL ASSETS 31,839
LIABILITIES
- --------------------------------------------------------------------------------
Payables:
Fund shares redeemed 50
Due to investment adviser 2
Accrued expenses + 23
----------
TOTAL LIABILITIES 75
NET ASSETS
- --------------------------------------------------------------------------------
TOTAL ASSETS 31,839
TOTAL LIABILITIES - 75
----------
NET ASSETS $31,764
NET ASSETS BY SOURCE
Capital received from investors 31,273
Net investment income not yet distributed 136
Net unrealized capital gains 355
NET ASSET VALUE (NAV)
SHARES
NET ASSETS / OUTSTANDING = NAV
$31,764 3,101 $10.24
Unless stated, all numbers x 1,000.
a The fund paid $31,404 for these securities.
Not counting short-term obligations and government securities and securities
related to in-kind transactions, the fund's investment transactions during the
period were:
Purchases $30,448
Sales/maturities $--
Percent of fund shares of other Schwab Funds owned at the end of the report
period:
SCHWAB ACTIVE EQUITY FUNDS
Core Equity Fund 1.4%
Dividend Equity Fund 0.2%
Small-Cap Equity Fund 0.9%
LAUDUS MARKETMASTERS FUNDS
International
MarketMasters Fund 0.3%
LAUDUS ROSENBERG FUNDS
U.S. Large Capitalization
Growth Fund 8.9%
U.S. Discovery Fund 0.2%
International Small
Capitalization Fund 0.2%
SCHWAB BOND FUNDS
Total Bond Market Fund 0.9%
YieldPlus Fund Less than 0.1%
SCHWAB MONEY FUNDS
Value Advantage Money
Fund Less than 0.1%
FEDERAL TAX DATA
-----------------------------------
PORTFOLIO COST $31,404
NET UNREALIZED GAINS AND LOSSES:
Gains $617
Losses + (262)
----------
$355
NET UNDISTRIBUTED EARNINGS:
Ordinary income $136
Long-term capital gains $--
20 See financial notes.
SCHWAB TARGET 2010 FUND
Statement of
OPERATIONS
For July 1, 2005 (commencement of operations) through October 31, 2005.
All numbers x 1,000.
INVESTMENT INCOME
- --------------------------------------------------------------------------------
Dividends received from affiliated underlying funds $138
Interest + 4
-------
TOTAL INVESTMENT INCOME 142
NET UNREALIZED GAINS AND LOSSES
- --------------------------------------------------------------------------------
Net unrealized gains from affiliated underlying funds 355
EXPENSES
- --------------------------------------------------------------------------------
Trustees' fees 1 a
Custodian fees 2
Portfolio accounting fees 1
Professional fees 15
Registration fees 9
Shareholder reports + 6
-------
Total expenses 34
Expense reduction - 28 b
-------
NET EXPENSES 6
INCREASE IN NET ASSETS FROM OPERATIONS
- --------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME 142
NET EXPENSES - 6
-------
NET INVESTMENT INCOME 136
NET UNREALIZED GAINS + 355
-------
INCREASE IN NET ASSETS FROM OPERATIONS $491
Unless stated, all numbers x 1,000.
a For the fund's independent trustees only.
b These reductions reflect a guarantee by Charles Schwab Investment
Management, Inc. (CSIM) and Charles Schwab & Co., Inc. (Schwab) to limit the
net operating expenses of this fund through February 28, 2007, to 0.06% of
average daily net assets. This limit excludes interest, taxes and certain
non-routine expenses.
See financial notes. 21
SCHWAB TARGET 2010 FUND
Statements of
CHANGES IN NET ASSETS
For the current report period only. Because the fund commenced operations on
July 1, 2005, it has no prior report period. All numbers x 1,000.
OPERATIONS
- --------------------------------------------------------------------------------
7/1/05-10/31/05
Net investment income $136
Net unrealized gains + 355
---------------
INCREASE IN NET ASSETS FROM OPERATIONS $491
TRANSACTIONS IN FUND SHARES
- --------------------------------------------------------------------------------
7/1/05-10/31/05
SHARES VALUE
Shares sold 3,174 $32,017
Shares redeemed + (73) (744) a
-------------------------
NET TRANSACTIONS IN FUND SHARES 3,101 $31,273
SHARES OUTSTANDING AND NET ASSETS
- --------------------------------------------------------------------------------
7/1/05-10/31/05
SHARES NET ASSETS
Beginning of period -- $--
Total increase + 3,101 31,764 b
------------------------
END OF PERIOD 3,101 $31,764 c
Unless stated, all numbers x 1,000.
a The fund charges 2.00% of early withdrawal fees on shares redeemed 30 days or
less after the purchase:
CURRENT PERIOD $1
Dollar amounts are net of the redemption fee proceeds.
b Figures for shares represent shares sold plus shares reinvested, minus shares
redeemed. Figures for net assets represent the changes in net assets from
operations plus the changes in value of transactions in fund shares, minus
distributions paid.
c Includes distributable net investment income in the amount of $136 at the end
of the current period.
22 See financial notes.
Schwab Target 2020 Fund
FINANCIAL STATEMENTS
FINANCIAL HIGHLIGHTS
7/1/05 1-
10/31/05
- --------------------------------------------------------------------------------
PER-SHARE DATA ($)
- --------------------------------------------------------------------------------
Net asset value at beginning of period 10.00
-----------------------------------
Income from investment operations:
Net investment income 0.04
Net realized and unrealized gains 0.24
-----------------------------------
Total income from investment operations 0.28
-----------------------------------
Net asset value at end of period 10.28
-----------------------------------
Total return (%) 2.80 2
RATIOS/SUPPLEMENTAL DATA (%)
- --------------------------------------------------------------------------------
Ratios to average net assets:
Net operating expenses 3 0.04 4
Gross operating expenses 3 0.36 4
Net investment income 1.29 4
Portfolio turnover rate --
Net assets, end of period ($ x 1,000,000) 35
1 Commencement of operations.
2 Not annualized.
3 The expenses incurred by underlying funds in which the portfolio invests are
not included in this ratio. The income received by the portfolio from
underlying funds is reduced by those expenses.
4 Annualized.
See financial notes. 23
SCHWAB TARGET 2020 FUND
PORTFOLIO HOLDINGS as of October 31, 2005
This section shows all the securities in the fund's portfolio and their value,
as of the report date.
The fund files its complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. The fund's Form N-Q is
available on the SEC's website at http://www.sec.gov and may be reviewed and
copied at the SEC's Public Reference Room in Washington, D.C. Call
1-800-SEC-0330 for information on the operation of the Public Reference Room.
The schedule of portfolio holdings filed on the fund's most recent Form N-Q is
available by visiting Schwab's website at www.schwab.com/schwabfunds.
We use the symbols below to designate certain characteristics of the
securities. With the top holdings, the number in the circle is the security's
rank among the top ten.
(1) Top ten holding
/ Issuer is affiliated with the fund's adviser
COST VALUE
HOLDINGS BY CATEGORY ($x1,000) ($x1,000)
- --------------------------------------------------------------------------------
97.5% OTHER INVESTMENT
COMPANIES 33,428 33,862
2.2% SHORT-TERM
INVESTMENT 778 778
- --------------------------------------------------------------------------------
99.7% TOTAL INVESTMENTS 34,206 34,640
0.3% OTHER ASSETS AND
LIABILITIES, NET 92
- --------------------------------------------------------------------------------
100.0% TOTAL NET ASSETS 34,732
VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
OTHER INVESTMENT COMPANIES
97.5% of net assets
EQUITY FUNDS 69.9%
--------------------------------------------------------------------------
/(3) Laudus International MarketMasters
Fund, Select Shares 209,683 3,525
/(5) Laudus Rosenberg International
Small Capitalization Fund,
Institutional Shares 157,304 2,831
/(8) Laudus Rosenberg U.S. Discovery
Fund, Institutional Shares 79,287 1,334
/(6) Laudus Rosenberg U.S. Large
Capitalization Growth Fund,
Institutional Shares 315,978 2,698
/(2) Schwab Core Equity Fund 514,134 8,128
/(7) Schwab Dividend Equity Fund,
Select Shares 208,174 2,665
/(4) Schwab Small-Cap Equity Fund,
Select Shares 196,358 3,099
-----------
24,280
FIXED-INCOME FUNDS 26.6%
--------------------------------------------------------------------------
/(1) Schwab Total Bond Market
Fund 903,615 8,910
/(10) Schwab YieldPlus Fund,
Select Shares 34,801 336
-----------
9,246
MONEY FUNDS 1.0%
--------------------------------------------------------------------------
/(9) Schwab Value Advantage Money
Fund, Institutional Shares 335,710 336
SECURITY FACE AMOUNT
RATE, MATURITY DATE ($ x 1,000)
SHORT-TERM INVESTMENT
2.2% of net assets
Wachovia Bank, Grand Cayman
Time Deposit
3.48%, 11/01/05 778 778
END OF INVESTMENTS.
24 See financial notes.
SCHWAB TARGET 2020 FUND
Statement of
ASSETS AND LIABILITIES
As of October 31, 2005. All numbers x 1,000 except NAV.
ASSETS
- --------------------------------------------------------------------------------
Investments in affiliated underlying funds, at value $33,862 a
Investments, at value 778 a
Receivables:
Fund shares sold 102
Dividends 1
Prepaid expenses + 18
----------
TOTAL ASSETS 34,761
LIABILITIES
- --------------------------------------------------------------------------------
Payables:
Fund shares redeemed 3
Due to investment adviser 2
Accrued expenses + 24
----------
TOTAL LIABILITIES 29
NET ASSETS
- --------------------------------------------------------------------------------
TOTAL ASSETS 34,761
TOTAL LIABILITIES - 29
----------
NET ASSETS $34,732
NET ASSETS BY SOURCE
Capital received from investors 34,177
Net investment income not yet distributed 121
Net unrealized capital gains 434
NET ASSET VALUE (NAV)
SHARES
NET ASSETS / OUTSTANDING = NAV
$34,732 3,377 $10.28
Unless stated, all numbers x 1,000.
a The fund paid $34,206 for these securities.
Not counting short-term obligations and government securities and securities
related to in-kind trans- actions, the fund's investment transactions during
the period were:
Purchases $33,061
Sales/maturities $--
Percent of fund shares of other Schwab Funds owned at the end of the report
period:
SCHWAB ACTIVE EQUITY FUNDS
Core Equity Fund 1.5%
Dividend Equity Fund 0.3%
Small-Cap Equity Fund 1.2%
LAUDUS MARKETMASTERS FUNDS
International
MarketMasters Fund 0.3%
LAUDUS ROSENBERG FUNDS
U.S. Large Capitalization
Growth Fund 11.1%
U.S. Discovery Fund 0.2%
International Small
Capitalization Fund 0.3%
SCHWAB BOND FUNDS
Total Bond Market Fund 0.8%
YieldPlus Fund Less than 0.1%
SCHWAB MONEY FUNDS
Value Advantage Money
Fund Less than 0.1%
FEDERAL TAX DATA
-----------------------------------------
PORTFOLIO COST $34,206
NET UNREALIZED GAINS AND LOSSES:
Gains $684
Losses + (250)
----------
$434
NET UNDISTRIBUTED EARNINGS:
Ordinary income $121
Long-term capital gains $--
See financial notes. 25
SCHWAB TARGET 2020 FUND
Statement of
OPERATIONS
For July 1, 2005 (commencement of operations) through October 31, 2005.
All numbers x 1,000.
INVESTMENT INCOME
- --------------------------------------------------------------------------------
Dividends received from affiliated underlying funds $120
Interest + 5
-------
TOTAL INVESTMENT INCOME 125
NET UNREALIZED GAINS AND LOSSES
- --------------------------------------------------------------------------------
Net unrealized gains from affiliated underlying funds 434
EXPENSES
- --------------------------------------------------------------------------------
Trustees' fees 1 a
Custodian fees 1
Portfolio accounting fees 1
Professional fees 16
Registration fees 7
Shareholder reports + 7
-------
Total expenses 33
Expense reduction - 29 b
-------
NET EXPENSES 4
INCREASE IN NET ASSETS FROM OPERATIONS
- --------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME 125
NET EXPENSES - 4
-------
NET INVESTMENT INCOME 121
NET UNREALIZED GAINS + 434
-------
INCREASE IN NET ASSETS FROM OPERATIONS $555
Unless stated, all numbers x 1,000.
a For the fund's independent trustees only.
b These reductions reflect a guarantee by Charles Schwab Investment
Management, Inc. (CSIM) and Charles Schwab & Co., Inc. (Schwab) to limit the
net operating expenses of this fund through February 28, 2007, to 0.04% of
average daily net assets. This limit excludes interest, taxes and certain
non-routine expenses.
26 See financial notes.
SCHWAB TARGET 2020 FUND
Statements of
CHANGES IN NET ASSETS
For the current report period only. Because the fund commenced operations on
July 1, 2005, it has no prior report period. All numbers x 1,000
OPERATIONS
- --------------------------------------------------------------------------------
7/1/05-10/31/05
Net investment income $121
Net unrealized gains + 434
------------------
INCREASE IN NET ASSETS FROM OPERATIONS $555
TRANSACTIONS IN FUND SHARES
- --------------------------------------------------------------------------------
7/1/05-10/31/05
SHARES VALUE
Shares sold 3,422 $34,636
Shares redeemed + (45) (459) a
--------------------
NET TRANSACTIONS IN FUND SHARES 3,377 $34,177
SHARES OUTSTANDING AND NET ASSETS
- --------------------------------------------------------------------------------
7/1/05-10/31/05
SHARES NET ASSETS
Beginning of period -- $--
Total increase + 3,377 34,732 b
--------------------
END OF PERIOD 3,377 $34,732 c
Unless stated, all numbers x 1,000.
a The fund charges 2.00% of early withdrawal fees on shares redeemed 30 days or
less after the purchase:
CURRENT PERIOD $1
Dollar amounts are net of the redemption fee proceeds.
b Figures for shares represent shares sold plus shares reinvested, minus shares
redeemed. Figures for net assets represent the changes in net assets from
operations plus the changes in value of transactions in fund shares, minus
distributions paid.
c Includes distributable net investment income in the amount of $121 at the end
of the current period.
See financial notes. 27
SCHWAB TARGET 2030 FUND
FINANCIAL STATEMENTS
FINANCIAL HIGHLIGHTS
7/1/05 1-
10/31/05
- --------------------------------------------------------------------------------
PER-SHARE DATA ($)
- --------------------------------------------------------------------------------
Net asset value at beginning of period 10.00
----------------------------------
Income from investment operations:
Net investment income 0.03
Net realized and unrealized gains 0.28
----------------------------------
Total income from investment operations 0.31
----------------------------------
Net asset value at end of period 10.31
----------------------------------
Total return (%) 3.10 2
RATIOS/SUPPLEMENTAL DATA (%)
- --------------------------------------------------------------------------------
Ratios to average net assets:
Net operating expenses 3 0.03 4
Gross operating expenses 3 0.58 4
Net investment income 1.05 4
Portfolio turnover rate --
Net assets, end of period ($ x 1,000,000) 19
1 Commencement of operations.
2 Not annualized.
3 The expenses incurred by underlying funds in which the portfolio invests are
not included in this ratio. The income received by the portfolio from
underlying funds is reduced by those expenses.
4 Annualized.
28 See financial notes.
SCHWAB TARGET 2030 FUND
PORTFOLIO HOLDINGS as of October 31, 2005
This section shows all the securities in the fund's portfolio and their value,
as of the report date.
The fund files its complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. The fund's Form N-Q is
available on the SEC's website at http://www.sec.gov and may be reviewed and
copied at the SEC's Public Reference Room in Washington, D.C. Call
1-800-SEC-0330 for information on the operation of the Public Reference Room.
The schedule of portfolio holdings filed on the fund's most recent Form N-Q is
available by visiting Schwab's website at www.schwab.com/schwabfunds.
We use the symbols below to designate certain characteristics of the securities.
With the top holdings, the number in the circle is the security's rank among the
top ten.
(1) Top ten holding
/ Issuer is affiliated with the fund's adviser
COST VALUE
HOLDINGS BY CATEGORY ($x1,000) ($x1,000)
- --------------------------------------------------------------------------------
95.0% OTHER INVESTMENT
COMPANIES 17,848 18,100
3.7% SHORT-TERM
INVESTMENTS 695 695
- --------------------------------------------------------------------------------
98.7% TOTAL INVESTMENTS 18,543 18,795
1.3% OTHER ASSETS AND
LIABILITIES, NET 255
- --------------------------------------------------------------------------------
100.0% TOTAL NET ASSETS 19,050
VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
OTHER INVESTMENT COMPANIES
95.0% of net assets
EQUITY FUNDS 74.6%
--------------------------------------------------------------------------
/(3) Laudus International MarketMasters
Fund, Select Shares 122,893 2,066
/(7) Laudus Rosenberg International
Small Capitalization Fund,
Institutional Shares 73,339 1,320
/(8) Laudus Rosenberg U.S. Discovery
Fund, Institutional Shares 52,881 890
/(5) Laudus Rosenberg U.S. Large
Capitalization Growth Fund,
Institutional Shares 189,774 1,621
/(1) Schwab Core Equity Fund 308,697 4,880
/(6) Schwab Dividend Equity Fund,
Select Shares 125,094 1,601
/(4) Schwab Small-Cap Equity Fund,
Select Shares 116,367 1,836
-----------
14,214
FIXED-INCOME FUNDS 19.5%
--------------------------------------------------------------------------
/(2) Schwab Total Bond Market
Fund 357,702 3,527
/(9) Schwab YieldPlus Fund,
Select Shares 18,590 180
-----------
3,707
MONEY FUNDS 0.9%
--------------------------------------------------------------------------
/(10) Schwab Value Advantage Money
Fund, Institutional Shares 179,344 179
SECURITY FACE AMOUNT
RATE, MATURITY DATE ($ x 1,000)
SHORT-TERM INVESTMENTS
3.7% of net assets
HSBC Bank, USA Grand Cayman
Time Deposit
3.48%, 11/01/05 175 175
Wachovia Bank, Grand Cayman
Time Deposit
3.48%, 11/01/05 520 520
-----------
695
END OF INVESTMENTS.
See financial notes. 29
SCHWAB TARGET 2030 FUND
Statement of
ASSETS AND LIABILITIES
As of October 31, 2005. All numbers x 1,000 except NAV.
ASSETS
- --------------------------------------------------------------------------------
Investments in affiliated underlying funds, at value $18,100 a
Investments, at value 695 a
Receivables:
Fund shares sold 262
Prepaid expenses + 17
----------
TOTAL ASSETS 19,074
LIABILITIES
- --------------------------------------------------------------------------------
Payables:
Due to investment adviser 4
Accrued expenses + 20
----------
TOTAL LIABILITIES 24
NET ASSETS
- --------------------------------------------------------------------------------
TOTAL ASSETS 19,074
TOTAL LIABILITIES - 24
----------
NET ASSETS $19,050
NET ASSETS BY SOURCE
Capital received from investors 18,747
Net investment income not yet distributed 51
Net unrealized capital gains 252
NET ASSET VALUE (NAV)
SHARES
NET ASSETS / OUTSTANDING = NAV
$19,050 1,847 $10.31
Unless stated, all numbers x 1,000.
a The fund paid $18,543 for these securities.
Not counting short-term obligations and government securities and securities
related to in-kind trans- actions, the fund's investment transactions during
the period were:
Purchases $17,657
Sales/maturities $--
Percent of fund shares of other Schwab Funds owned at the end of the report
period:
SCHWAB ACTIVE EQUITY FUNDS
Core Equity Fund 0.9%
Dividend Equity Fund 0.2%
Small-Cap Equity Fund 0.7%
LAUDUS MARKETMASTERS FUNDS
International
MarketMasters Fund 0.2%
LAUDUS ROSENBERG FUNDS
U.S. Large Capitalization
Growth Fund 6.7%
U.S. Discovery Fund 0.1%
International Small
Capitalization Fund 0.1%
SCHWAB BOND FUNDS
Total Bond Market Fund 0.3%
YieldPlus Fund Less than 0.1%
SCHWAB MONEY FUNDS
Value Advantage Money
Fund Less than 0.1%
FEDERAL TAX DATA
---------------------------------------------
PORTFOLIO COST $18,543
NET UNREALIZED GAINS AND LOSSES:
Gains $366
Losses + (114)
---------
$252
NET UNDISTRIBUTED EARNINGS:
Ordinary income $51
Long-term capital gains $--
30 See financial notes.
SCHWAB TARGET 2030 FUND
Statement of
OPERATIONS
For July 1, 2005 (commencement of operations) through October 31, 2005.
All numbers x 1,000.
INVESTMENT INCOME
- --------------------------------------------------------------------------------
Dividends received from affiliated underlying funds $49
Interest + 3
-------
TOTAL INVESTMENT INCOME 52
NET UNREALIZED GAINS AND LOSSES
- --------------------------------------------------------------------------------
Net unrealized gains from affiliated underlying funds 252
EXPENSES
- --------------------------------------------------------------------------------
Trustees' fees 1 a
Custodian fees 1
Portfolio accounting fees 1
Professional fees 15
Registration fees 6
Shareholder reports + 4
-------
Total expenses 28
Expense reduction - 27 b
-------
NET EXPENSES 1
INCREASE IN NET ASSETS FROM OPERATIONS
- --------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME 52
NET EXPENSES - 1
-------
NET INVESTMENT INCOME 51
NET UNREALIZED GAINS + 252
-------
INCREASE IN NET ASSETS FROM OPERATIONS $303
Unless stated, all numbers x 1,000.
a For the fund's independent trustees only.
b These reductions reflect a guarantee by Charles Schwab Investment Management,
Inc. (CSIM) and Charles Schwab & Co., Inc. (Schwab) to limit the net operating
expenses of this fund through February 28, 2007, to 0.03% of average daily net
assets. This limit excludes interest, taxes and certain non-routine expenses.
See financial notes. 31
SCHWAB TARGET 2030 FUND
Statements of
CHANGES IN NET ASSETS
For the current report period only. Because the fund commenced operations on
July 1, 2005, it has no prior period. All numbers x 1,000
OPERATIONS
- --------------------------------------------------------------------------------
7/1/05-10/31/05
Net investment income $51
Net unrealized gains + 252
------------------
INCREASE IN NET ASSETS FROM OPERATIONS $303
TRANSACTIONS IN FUND SHARES
- --------------------------------------------------------------------------------
7/1/05-10/31/05
SHARES VALUE
Shares sold 1,866 $18,936
Shares redeemed + (19) (189) a
NET TRANSACTIONS IN FUND SHARES ------------------------
1,847 $18,747
SHARES OUTSTANDING AND NET ASSETS
- --------------------------------------------------------------------------------
7/1/05-10/31/05
SHARES NET ASSETS
Beginning of period -- $--
Total increase + 1,847 19,050 b
------------------------
END OF PERIOD 1,847 $19,050 c
Unless stated, all numbers x 1,000.
a The fund charges 2.00% of early withdrawal fees on shares redeemed 30 days or
less after the purchase:
CURRENT PERIOD $1
Dollar amounts are net of the redemption fee proceeds.
b Figures for shares represent shares sold plus shares reinvested, minus shares
redeemed. Figures for net assets represent the changes in net assets from
operations plus the changes in value of transactions in fund shares, minus
distributions paid.
c Includes distributable net investment income in the amount of $51 at the end
of the current period.
32 See financial notes.
SCHWAB TARGET 2040 FUND
FINANCIAL STATEMENTS
FINANCIAL HIGHLIGHTS
7/1/05 1-
10/31/05
- --------------------------------------------------------------------------------
PER-SHARE DATA ($)
- --------------------------------------------------------------------------------
Net asset value at beginning of period 10.00
------------------------------
Income from investment operations:
Net investment income 0.02
Net realized and unrealized gains 0.34
------------------------------
Total income from investment operations 0.36
------------------------------
Net asset value at end of period 10.36
------------------------------
Total return (%) 3.60 2
RATIOS/SUPPLEMENTAL DATA (%)
- --------------------------------------------------------------------------------
Ratios to average net assets:
Net operating expenses 3 0.01 4
Gross operating expenses 3 1.10 4
Net investment income 0.80 4
Portfolio turnover rate --
Net assets, end of period ($ x 1,000,000) 9
1 Commencement of operations.
2 Not annualized.
3 The expenses incurred by underlying funds in which the portfolio invests are
not included in this ratio. The income received by the portfolio from
underlying funds is reduced by those expenses.
4 Annualized.
See financial notes. 33
SCHWAB TARGET 2040 FUND
PORTFOLIO HOLDINGS as of October 31, 2005
This section shows all the securities in the fund's portfolio and their value,
as of the report date.
The fund files its complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. The fund's Form N-Q is
available on the SEC's website at http://www.sec.gov and may be reviewed and
copied at the SEC's Public Reference Room in Washington, D.C. Call
1-800-SEC-0330 for information on the operation of the Public Reference Room.
The schedule of portfolio holdings filed on the fund's most recent Form N-Q is
available by visiting Schwab's website at www.schwab.com/schwabfunds.
We use the symbols below to designate certain characteristics of the securities.
With the top holdings, the number in the circle is the security's rank among the
top ten.
(1) Top ten holding
/ Issuer is affiliated with the fund's adviser
COST VALUE
HOLDINGS BY CATEGORY ($x1,000) ($x1,000)
- --------------------------------------------------------------------------------
96.1% OTHER INVESTMENT
COMPANIES 8,535 8,659
3.5% SHORT-TERM
INVESTMENTS 314 314
- --------------------------------------------------------------------------------
99.6% TOTAL INVESTMENTS 8,849 8,973
0.4% OTHER ASSETS AND
LIABILITIES, NET 40
- --------------------------------------------------------------------------------
100.0% TOTAL NET ASSETS 9,013
VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
OTHER INVESTMENT COMPANIES
96.1% of net assets
EQUITY FUNDS 82.0%
--------------------------------------------------------------------------
/(2) Laudus International MarketMasters
Fund, Select Shares 68,885 1,158
/(5) Laudus Rosenberg International
Small Capitalization Fund,
Institutional Shares 44,743 805
/(8) Laudus Rosenberg U.S. Discovery
Fund, Institutional Shares 30,297 510
/(6) Laudus Rosenberg U.S. Large
Capitalization Growth Fund,
Institutional Shares 90,587 774
/(1) Schwab Core Equity Fund 152,873 2,417
/(7) Schwab Dividend Equity Fund,
Select Shares 59,857 766
/(4) Schwab Small-Cap Equity
Fund, Select Shares 60,984 962
-----------
7,392
FIXED-INCOME FUNDS 13.1%
--------------------------------------------------------------------------
/(3) Schwab Total Bond Market
Fund 111,468 1,099
/(10) Schwab YieldPlus Fund,
Select Shares 8,644 84
-----------
1,183
MONEY FUNDS 1.0%
--------------------------------------------------------------------------
/(9) Schwab Value Advantage Money
Fund, Institutional Shares 83,391 84
SECURITY FACE AMOUNT
RATE, MATURITY DATE ($ x 1,000)
SHORT-TERM INVESTMENTS
3.5% of net assets
Brown Brothers Harriman,
Grand Cayman Time Deposit
3.48%, 11/01/05 79 79
Wachovia Bank, Grand
Cayman Time Deposit
3.48%, 11/01/05 235 235
-----------
314
END OF INVESTMENTS.
34 See financial notes.
SCHWAB TARGET 2040 FUND
Statement of
ASSETS AND LIABILITIES
As of October 31, 2005. All numbers x 1,000 except NAV.
ASSETS
- --------------------------------------------------------------------------------
Investments in affiliated underlying funds, at value $8,659 a
Investments, at value 314 a
Receivables:
Fund shares sold 60
Prepaid expenses + 7
---------
TOTAL ASSETS 9,040
LIABILITIES
- --------------------------------------------------------------------------------
Payables:
Fund shares redeemed 2
Due to investment adviser 6
Accrued expenses + 19
---------
TOTAL LIABILITIES 27
NET ASSETS
- --------------------------------------------------------------------------------
TOTAL ASSETS 9,040
TOTAL LIABILITIES - 27
---------
NET ASSETS $9,013
NET ASSETS BY SOURCE
Capital received from investors 8,872
Net investment income not yet distributed 17
Net unrealized capital gains 124
NET ASSET VALUE (NAV)
SHARES
NET ASSETS / OUTSTANDING = NAV
$9,013 870 $10.36
Unless stated, all numbers x 1,000.
a The fund paid $8,849 for these securities.
Not counting short-term obligations and government securities and securities
related to in-kind transactions, the fund's investment transactions during the
period were:
Purchases $8,447
Sales/maturities $--
Percent of fund shares of other Schwab Funds owned at the end of the report
period:
SCHWAB ACTIVE EQUITY FUNDS
Core Equity Fund 0.4%
Dividend Equity Fund 0.1%
Small-Cap Equity Fund 0.4%
LAUDUS MARKETMASTERS FUNDS
International
MarketMasters Fund 0.1%
LAUDUS ROSENBERG FUNDS
U.S. Large Capitalization
Growth Fund 3.2%
U.S. Discovery Fund 0.1%
International Small
Capitalization Fund 0.1%
SCHWAB BOND FUNDS
Total Bond Market Fund 0.1%
YieldPlus Fund Less than 0.1%
SCHWAB MONEY FUNDS
Value Advantage Money
Fund Less than 0.1%
FEDERAL TAX DATA
------------------------------------------
PORTFOLIO COST $8,849
NET UNREALIZED GAINS AND LOSSES:
Gains $176
Losses + (52)
---------
$124
NET UNDISTRIBUTED EARNINGS:
Ordinary income $17
Long-term capital gains $--
See financial notes. 35
SCHWAB TARGET 2040 FUND
Statement of
OPERATIONS
For July 1, 2005 (commencement of operations) through October 31, 2005.
All numbers x 1,000.
INVESTMENT INCOME
- --------------------------------------------------------------------------------
Dividends received from affiliated underlying funds $15
Interest + 2
-------
TOTAL INVESTMENT INCOME 17
NET UNREALIZED GAINS AND LOSSES
- --------------------------------------------------------------------------------
Net unrealized gains from affiliated underlying funds 124
EXPENSES
- --------------------------------------------------------------------------------
Trustees' fees 1 a
Custodian fees 1
Professional fees 16
Registration fees 3
Shareholder reports + 2
-------
Total expenses 23
Expense reduction - 23 b
-------
NET EXPENSES --*
INCREASE IN NET ASSETS FROM OPERATIONS
- --------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME 17
NET EXPENSES - --*
-------
NET INVESTMENT INCOME 17
NET UNREALIZED GAINS + 124
-------
INCREASE IN NET ASSETS FROM OPERATIONS $141
* Amount is less than $1.
Unless stated, all numbers x 1,000.
a For the fund's independent trustees only.
b These reductions reflect a guarantee by Charles Schwab Investment Management,
Inc. (CSIM) and Charles Schwab & Co., Inc. (Schwab) to limit the net operating
expenses of this fund through February 28, 2007, to 0.01% of average daily net
assets. This limit excludes interest, taxes and certain non-routine expenses.
36 See financial notes.
SCHWAB TARGET 2040 FUND
Statements of
CHANGES IN NET ASSETS
For the current report period only. Because the fund commenced operations on
July 1, 2005, it has no prior report period. All numbers x 1,000
OPERATIONS
- --------------------------------------------------------------------------------
7/1/05-10/31/05
Net investment income $17
Net unrealized gains + 124
---------------
INCREASE IN NET ASSETS FROM OPERATIONS $141
TRANSACTIONS IN FUND SHARES
- --------------------------------------------------------------------------------
7/1/05-10/31/05
SHARES VALUE
Shares sold 894 $9,127
Shares redeemed + (24) (255) a
------------------------
NET TRANSACTIONS IN FUND SHARES 870 $8,872
SHARES OUTSTANDING AND NET ASSETS
- --------------------------------------------------------------------------------
7/1/05-10/31/05
SHARES NET ASSETS
Beginning of period -- $--
Total increase + 870 9,013 b
------------------------
END OF PERIOD 870 $9,013 c
Unless stated, all numbers x 1,000.
a The fund charges 2.00% of early withdrawal fees on shares redeemed 30 days or
less after the purchase:
CURRENT PERIOD $--
Dollar amounts are net of the redemption fee proceeds.
b Figures for shares represent shares sold plus shares reinvested, minus shares
redeemed. Figures for net assets represent the changes in net assets from
operations plus the changes in value of transactions in fund shares, minus
distributions paid.
c Includes distributable net investment income in the amount of $17 at the end
of the current period.
See financial notes. 37
SCHWAB RETIREMENT INCOME FUND
FINANCIAL STATEMENTS
FINANCIAL HIGHLIGHTS
7/1/05 1-
10/31/05
- --------------------------------------------------------------------------------
PER-SHARE DATA ($)
- --------------------------------------------------------------------------------
Net asset value at beginning of period 10.00
-----------------------
Income or loss from investment operations:
Net investment income 0.11
Net realized and unrealized losses (0.09)
-----------------------
Total income or loss from investment operations 0.02
Less distributions:
Dividends from net investment income (0.12)
-----------------------
Net asset value at end of period 9.90
-----------------------
Total return (%) 0.16 2
RATIOS/SUPPLEMENTAL DATA (%)
- --------------------------------------------------------------------------------
Ratios to average net assets:
Net operating expenses 3 0.10 4
Gross operating expenses 3 0.64 4
Net investment income 3.40 4
Portfolio turnover rate --
Net assets, end of period ($ x 1,000,000) 14
1 Commencement of operations.
2 Not annualized.
3 The expenses incurred by underlying funds in which the portfolio invests are
not included in this ratio. The income received by the portfolio from
underlying funds is reduced by those expenses.
4 Annualized.
38 See financial notes.
SCHWAB RETIREMENT INCOME FUND
PORTFOLIO HOLDINGS as of October 31, 2005
This section shows all the securities in the fund's portfolio and their value,
as of the report date.
The fund files its complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. The fund's Form N-Q is
available on the SEC's website at http://www.sec.gov and may be reviewed and
copied at the SEC's Public Reference Room in Washington, D.C. Call
1-800-SEC-0330 for information on the operation of the Public Reference Room.
The schedule of portfolio holdings filed on the fund's most recent Form N-Q is
available by visiting Schwab's website at www.schwab.com/schwabfunds.
We use the symbols below to designate certain characteristics of the securities.
With the top holdings, the number in the circle is the security's rank among the
top holdings.
(1) Top holding
/ Issuer is affiliated with the fund's adviser
COST VALUE
HOLDINGS BY CATEGORY ($x1,000) ($x1,000)
- --------------------------------------------------------------------------------
96.1% OTHER INVESTMENT
COMPANIES 13,531 13,414
2.1% SHORT-TERM
INVESTMENT 287 287
- --------------------------------------------------------------------------------
98.2% TOTAL INVESTMENTS 13,818 13,701
1.8% OTHER ASSETS AND
LIABILITIES, NET 256
- --------------------------------------------------------------------------------
100.0% TOTAL NET ASSETS 13,957
VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
OTHER INVESTMENT COMPANIES
96.1% of net assets
EQUITY FUNDS 19.4%
--------------------------------------------------------------------------
/(5) Laudus International MarketMasters
Fund, Select Shares 25,405 427
/(3) Schwab Dividend Equity Fund,
Select Shares 178,570 2,286
-----------
2,713
FIXED-INCOME FUNDS 71.8%
--------------------------------------------------------------------------
/(1) Schwab Total Bond Market
Fund 673,773 6,643
/(2) Schwab YieldPlus Fund,
Select Shares 350,074 3,382
-----------
10,025
MONEY FUNDS 4.9%
--------------------------------------------------------------------------
/(4) Schwab Value Advantage Money
Fund, Institutional Shares 675,449 676
SECURITY FACE AMOUNT
RATE, MATURITY DATE ($ x 1,000)
SHORT-TERM INVESTMENT
2.1% of net assets
Wachovia Bank, Grand Cayman
Time Deposit
3.48%, 11/01/05 287 287
END OF INVESTMENTS.
See financial notes. 39
SCHWAB RETIREMENT INCOME FUND
Statement of
ASSETS AND LIABILITIES
As of October 31, 2005. All numbers x 1,000 except NAV.
ASSETS
- -------------------------------------------------------------------------------
Investments in affiliated underlying funds, at value $13,414 a
Investments, at value 287 a
Receivables:
Fund shares sold 282
Dividends 1
Prepaid expenses + 12
-----------
TOTAL ASSETS 13,996
LIABILITIES
- -------------------------------------------------------------------------------
Payables:
Dividends to shareholders 14
Due to investment adviser 7
Accrued expenses + 18
-----------
TOTAL LIABILITIES 39
NET ASSETS
- -------------------------------------------------------------------------------
TOTAL ASSETS 13,996
TOTAL LIABILITIES - 39
-----------
NET ASSETS $13,957
NET ASSETS BY SOURCE
Capital received from investors 14,074
Net unrealized capital losses (117)
NET ASSET VALUE (NAV)
SHARES
NET ASSETS / OUTSTANDING = NAV
$13,957 1,410 $9.90
Unless stated, all numbers x 1,000.
a The fund paid $13,818 for these securities.
Not counting short-term obligations and government securities, the fund's
investment transactions during the period were:
Purchases $12,823
Sales/maturities $--
Percent of fund shares of other Schwab Funds owned at the end of the report
period:
SCHWAB ACTIVE EQUITY FUNDS
Dividend Equity Fund 0.2%
LAUDUS MARKETMASTERS FUNDS
International
MarketMasters Fund Less than 0.1%
SCHWAB BOND FUNDS
Total Bond Market Fund 0.6%
YieldPlus Fund 0.1%
SCHWAB MONEY FUNDS
Value Advantage Money
Fund Less than 0.1%
FEDERAL TAX DATA
---------------------------------------------
PORTFOLIO COST $13,818
NET UNREALIZED GAINS AND LOSSES:
Gains $34
Losses + (151)
---------
($117)
NET UNDISTRIBUTED EARNINGS:
Ordinary income $--
Long-term capital gains $--
RECLASSIFICATIONS:
Net investment income
not yet distributed $14
Reclassified as:
Capital received from
investors ($14)
40 See financial notes.
SCHWAB RETIREMENT INCOME FUND
Statement of
OPERATIONS
For July 1, 2005 (commencement of operations) through October 31, 2005.
All numbers x 1,000.
INVESTMENT INCOME
- ------------------------------------------------------------------------------
Dividends received from affiliated underlying funds $126
Interest + 2
--------
TOTAL INVESTMENT INCOME 128
NET UNREALIZED GAINS AND LOSSES
- ------------------------------------------------------------------------------
Net unrealized losses from affiliated underlying funds (117)
EXPENSES
- ------------------------------------------------------------------------------
Trustees' fees 1 a
Custodian fees 1
Portfolio accounting fees 1
Professional fees 15
Registration fees 3
Shareholder reports + 2
--------
Total expenses 23
Expense reduction - 19 b
--------
NET EXPENSES 4
INCREASE IN NET ASSETS FROM OPERATIONS
- ------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME 128
NET EXPENSES - 4
--------
NET INVESTMENT INCOME 124
NET UNREALIZED LOSSES + (117)
--------
INCREASE IN NET ASSETS FROM OPERATIONS $7
Unless stated, all numbers x 1,000.
a For the fund's independent trustees only.
b These reductions reflect a guarantee by Charles Schwab Investment Management,
Inc. (CSIM) and Charles Schwab & Co., Inc. (Schwab) to limit the net operating
expenses of this fund through February 28, 2007, to 0.10% of average daily net
assets. This limit excludes interest, taxes and certain non-routine expenses.
See financial notes. 41
SCHWAB RETIREMENT INCOME FUND
Statements of
CHANGES IN NET ASSETS
For the current report period only. Because the fund commenced operations on
July 1, 2005, it has no prior report period. All numbers x 1,000
OPERATIONS
- ------------------------------------------------------------------------------
7/1/05-10/31/05
Net investment income $124
Net unrealized losses + (117)
-------------------
INCREASE IN NET ASSETS FROM OPERATIONS $7
DISTRIBUTIONS PAID
- ------------------------------------------------------------------------------
Dividends from net investment income $138 a,b
TRANSACTIONS IN FUND SHARES
- ------------------------------------------------------------------------------
7/1/05-10/31/05
SHARES VALUE
Shares sold 1,508 $15,066
Shares reinvested 10 99
Shares redeemed + (108) (1,077) c
----------------------
NET TRANSACTIONS IN FUND SHARES 1,410 $14,088
SHARES OUTSTANDING AND NET ASSETS
- ------------------------------------------------------------------------------
7/1/05-10/31/05
SHARES NET ASSETS
Beginning of period -- $--
Total increase + 1,410 13,957 d
----------------------
END OF PERIOD 1,410 $13,957 e
Unless stated, all numbers x 1,000.
a UNAUDITED
For corporations, 0% of the fund's dividends for the report period qualify
for the dividends-received deduction.
The fund designates $8 of the dividend distribution for the fiscal year ended
10/31/05 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 2006 via IRS Form 1099 of the amounts for use in preparing their
2005 income tax return.
b The tax-basis components of distributions paid are:
CURRENT PERIOD
Ordinary income $138
c The fund charges 2.00% of early withdrawal fees on shares redeemed 30 days or
less after the purchase.
d Figures for shares represent shares sold plus shares reinvested, minus shares
redeemed. Figures for net assets represent the changes in net assets from
operations plus the changes in value of transactions in fund shares, minus
distributions paid.
e There was no distributable net investment income at the end of the current
period.
42 See financial notes.
SCHWAB TARGET FUNDS
FINANCIAL NOTES
BUSINESS STRUCTURE OF THE FUNDS
EACH OF THE FUNDS DISCUSSED IN THIS REPORT IS A SERIES OF SCHWAB CAPITAL TRUST,
A NO-LOAD, OPEN-END MANAGEMENT INVESTMENT COMPANY. The company is organized as a
Massachusetts business trust and is registered under the Investment Company Act
of 1940, as amended. The sidebar shows the funds in this report and their trust.
THE FUNDS OFFER ONE SHARE CLASS. Shares are bought and sold at net asset value
(NAV), which is the price for all outstanding shares. Each share has a par value
of 1/1,000 of a cent, and the trust may issue as many shares as necessary.
FUND OPERATIONS
Most of the funds' investments are described in the fund-by-fund sections
earlier in this report. However, there are certain other fund operations and
policies that may affect a fund's financials, as described below. Other policies
concerning the funds' business operations also are described here. For more
information about the underlying funds operations and policies, please refer to
those funds' semiannual and annual reports.
THE FUNDS PAY DIVIDENDS from net investment income and make distributions from
net capital gains once a year, except for the Retirement Income Fund, which
makes income distributions monthly.
THE UNDERLYING FUNDS PAY FEES TO AFFILIATES OF THE INVESTMENT ADVISER FOR
VARIOUS SERVICES. Through their trust, the funds and underlying 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. The funds are
not charged such fees directly. These fees are included in the net asset value
of the underlying funds. CSIM and Schwab have made 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. Pursuant
to an exemptive order issued by the SEC, the funds may invest in other related
funds. The percentages of fund shares of other related funds owned are shown in
each fund's Statement of Assets and Liabilities.
THE TRUST AND ITS FUNDS
This list shows all of the funds included in Schwab Capital Trust. The funds
discussed in this report are highlighted.
SCHWAB CAPITAL TRUST organized May 7, 1993
Schwab S&P 500 Index Fund
Schwab Institutional Select 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 Premier Equity Fund
Schwab Core Equity Fund
Schwab Dividend Equity Fund
Schwab Large-Cap Growth Fund
Schwab Small-Cap Equity Fund
Schwab Hedged Equity Fund
Schwab Financial Services Fund
Schwab Health Care Fund
Schwab Technology Fund
Schwab Target 2010 Fund
SCHWAB TARGET 2020 FUND
SCHWAB TARGET 2030 FUND
SCHWAB TARGET 2040 FUND
SCHWAB RETIREMENT INCOME FUND
43
SCHWAB TARGET FUNDS
Pursuant to an exemptive order issued by the SEC, the funds may enter into
interfund borrowing and lending transactions within the Schwab Funds(R). All
loans are for temporary or emergency purposes only. The interest rate charged on
the loan is the average of the overnight repurchase agreement rate and the
short-term bank loan rate. The interfund lending facility is subject to the
oversight and periodic review of the Board of Trustees of the Schwab Funds(R).
TRUSTEES MAY INCLUDE PEOPLE WHO ARE OFFICERS AND/OR DIRECTORS OF THE INVESTMENT
ADVISER OR SCHWAB. Federal securities law limits the percentage of such
"interested persons" who may serve on a trust's board, and the trust was in
compliance with these limitations throughout the report period. The trust did
not pay any of these persons for their service as trustees, but it did pay
non-interested persons (independent trustees), as noted in each fund's Statement
of Operations.
THE FUNDS MAY BORROW MONEY FROM BANKS AND CUSTODIANS. The funds may obtain
temporary bank loans through the trusts to which they belong, to use for meeting
shareholder redemptions or for extraordinary or emergency purposes. The Schwab
Funds have custodian overdraft facilities and line of credit arrangements of
$150 million and $100 million with PNC Bank, N.A. and Bank of America, N.A.,
respectively. The funds pay interest on the amounts they borrow at rates that
are negotiated periodically.
AMOUNT WEIGHTED
OUTSTANDING AVERAGE AVERAGE
AT 10/31/05 BORROWING* INTEREST
FUND ($ x 1,000) ($ x 1,000) RATE*(%)
- --------------------------------------------------------------------------------
SCHWAB TARGET
2010 FUND -- 133 3.68
- --------------------------------------------------------------------------------
SCHWAB TARGET
2020 FUND -- 111 3.68
- --------------------------------------------------------------------------------
SCHWAB TARGET
2030 FUND -- 67 3.66
- --------------------------------------------------------------------------------
SCHWAB TARGET
2040 FUND -- 47 3.92
- --------------------------------------------------------------------------------
SCHWAB RETIREMENT
INCOME FUND -- 16 3.90
- --------------------------------------------------------------------------------
* 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 losses on
wash sales.
UNDER THE FUNDS' ORGANIZATIONAL DOCUMENTS, ITS OFFICERS AND TRUSTEES ARE
INDEMNIFIED AGAINST CERTAIN LIABILITY ARISING OUT OF THE PERFORMANCE OF THEIR
DUTIES TO THE FUNDS. In addition, in the normal course of business the funds
enter into contracts with their vendors and others that provide general
indemnifications. The funds' maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the funds.
However, based on experience, the funds expect the risk of loss to be remote.
ACCOUNTING POLICIES
The following are the main policies the funds and underlying funds use in
preparing their financial statements.
THE FUNDS VALUE THEIR INVESTMENTS IN UNDERLYING FUNDS EVERY BUSINESS DAY:
- - UNDERLYING FUNDS: Valued at their respective net asset values as determined by
those funds, in accordance with the Investment Company Act of 1940 for a given
day.
- - SHORT-TERM SECURITIES (60 DAYS OR LESS TO MATURITY): valued at amortized cost.
44
SCHWAB TARGET FUNDS
SECURITY TRANSACTIONS are recorded as of the date the order to buy or sell the
security is executed.
DIVIDENDS AND DISTRIBUTIONS FROM PORTFOLIO SECURITIES AND UNDERLYING FUNDS 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.
EXPENSES that are specific to a fund are charged directly to that fund. Expenses
that are common to all funds within a trust generally are allocated among the
funds in proportion to their average daily net assets.
EACH FUND MAINTAINS ITS OWN ACCOUNT FOR PURPOSES OF HOLDING ASSETS AND
ACCOUNTING, and is considered a separate entity for tax purposes. Within its
account, each fund also keeps certain assets in segregated accounts, as may be
required by securities law.
THE ACCOUNTING POLICIES DESCRIBED ABOVE CONFORM WITH ACCOUNTING PRINCIPLES
GENERALLY ACCEPTED IN THE UNITED STATES OF AMERICA. Notwithstanding this,
shareholders should understand that in order to follow these principles, fund
management has to make estimates and assumptions that affect the information
reported in the financial statements. It's possible that once the results are
known, they may turn out to be different from these estimates.
45
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF:
Schwab Target 2010 Fund
Schwab Target 2020 Fund
Schwab Target 2030 Fund
Schwab Target 2040 Fund
Schwab Retirement Income Fund
In our opinion, the accompanying statements of assets and liabilities, including
the portfolio holdings, and the related statements of operations and of changes
in net assets and the financial highlights present fairly, in all material
respects, the financial position of Schwab Target 2010 Fund, Schwab Target 2020
Fund, Schwab Target 2030 Fund, Schwab Target 2040 Fund, and Schwab Retirement
Income Fund (five of the portfolios constituting Schwab Capital Trust, hereafter
referred to as the "Funds") at October 31, 2005, the results of each of their
operations, the changes in each of their net assets and the financial highlights
for the period July 1, 2005 (commencement of operations) through October 31,
2005, 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, 2005 by correspondence with the custodian and
brokers, provide a reasonable basis for our opinion.
PRICEWATERHOUSECOOPERS LLP
San Francisco, California
December 16, 2005
46
INVESTMENT ADVISORY AGREEMENT APPROVAL
The Investment Company Act of 1940 (the "1940 Act") requires that initial
approval of, as well as the continuation of, a fund's investment advisory
agreement must be specifically approved (1) by the vote of the trustees or by a
vote of the shareholders of the fund, and (2) by the vote of a majority of the
trustees who are not parties to the investment advisory agreement or "interested
persons" of any party (the "Independent Trustees"), cast in person at a meeting
called for the purpose of voting on such approval. In connection with such
approvals, the fund's trustees must request and evaluate, and the investment
adviser is required to furnish, such information as may be reasonably necessary
to evaluate the terms of the advisory agreement. In addition, the Securities and
Exchange Commission (the "SEC") takes the position that, as part of their
fiduciary duties with respect to fund fees, fund boards are required to evaluate
the material factors applicable to a decision to approve an investment advisory
agreement.
Consistent with these responsibilities, the Board of Trustees (the "Board")
calls and holds one or more meetings each year that are dedicated, in whole or
in part, to considering whether to renew the investment advisory agreement
between Schwab Capital Trust (the "Trust") and CSIM (the "Agreement") with
respect to existing funds in the Trust operating as of December 31 of the
previous year and to review certain other agreements pursuant to which CSIM
provides investment advisory services to certain other registered investment
companies. In preparation for the meeting(s), the Board requests and reviews a
wide variety of materials provided by CSIM, including information about CSIM's
affiliates, personnel and operations. The Board also receives extensive data
provided by third parties. This information is in addition to the detailed
information about the funds that the Board reviews during the course of each
year, including information that relates to fund operations and fund
performance. The trustees also receive memoranda from counsel regarding the
responsibilities of trustees for the approval of investment advisory contracts.
In addition, the Independent Trustees receive advice from their counsel, meet in
executive session outside the presence of fund management and participate in
question and answer sessions with representatives of CSIM.
During the report period, at the May 24, 2005 meeting of the Board, the
trustees, including a majority of the Independent Trustees, approved renewal of
the Agreement for an additional one year period. As new funds, the Schwab Target
2010 Fund, Schwab Target 2020 Fund, Schwab Target 2030 Fund, Schwab Target 2040
Fund and Schwab Retirement Income Fund (the "Target Funds") were not included in
the Board's consideration of the renewal of the Agreement at the May 24, 2005
meeting. Rather, at the May 4, 2005 meeting of the Board, the trustees,
including a majority of the Independent Trustees, approved the creation of the
Target Funds and approved the amendment of the Agreement to appoint CSIM as
investment adviser to the Target Funds. This approval was based on consideration
and evaluation of a variety of specific factors discussed at that meeting and at
prior meetings, including:
1. the nature, extent and quality of the services to be provided to the Target
Funds under the Agreement, including the resources of CSIM and its affiliates
to be dedicated to the Target Funds;
2. CSIM's investment performance with respect to other funds using related
investment techniques and how it compared to that of other comparable mutual
funds;
3. the Target Funds' anticipated expenses and how those expenses compared to
those of other comparable mutual funds;
47
4. the profitability of CSIM and its affiliates, including Charles Schwab & Co.,
Inc. ("Schwab"), with respect to other funds, including both direct and
indirect benefits accruing to CSIM and its affiliates; and
5. the extent to which economies of scale might be realized as the Target Funds
grow and whether fee levels relating to the Target Funds in the Agreement
reflect those economies of scale for the benefit of each Target Fund's
investors.
NATURE, EXTENT AND QUALITY OF SERVICES. At prior meetings, the Board has
extensively considered the nature, extent and quality of the services
provided by CSIM to the Schwab Funds and the resources of CSIM and its
affiliates dedicated to such funds. In this regard, the trustees have
evaluated, among other things, CSIM's personnel, experience, track record and
compliance program. The trustees have also considered the fact that Schwab's
extensive branch network, Internet access, investment and research tools,
telephone services, and array of account features benefit the funds. The
trustees have also considered Schwab's excellent reputation as a full service
firm and its overall financial condition. At the May 4, 2005 meeting, the
Board considered how these factors could apply to the Target Funds under the
terms of the Agreement. Following such evaluation, the Board concluded that,
within the context of its full deliberations, the nature, extent and quality
of services to be provided by CSIM to the Target Funds and the resources of
CSIM and its affiliates to be dedicated to the Target Funds supported
approval of the Agreement with respect to the Target Funds.
FUND PERFORMANCE. At prior meetings, the Board has considered performance of
the existing Schwab Funds using related investment techniques in determining
whether to renew the Agreements with respect to such funds. Specifically, the
trustees have considered each existing fund's performance relative to its
peer group and appropriate indices/benchmarks, in light of total return,
yield and market trends. As part of that review, the trustees considered the
composition of the peer group, selection criteria and the reputation of the
third party who prepared the analysis. In evaluating the performance of each
existing Schwab Funds, the trustees have considered both risk and shareholder
risk expectations for such fund. At the May 4, 2005 meeting, the Board also
considered how these factors could apply to the Target Funds under the terms
of the Agreement. Following such evaluation, the Board concluded that, within
the context of its full deliberations, the performance of the existing Schwab
Funds using related investment techniques and performance of CSIM supported
approval of the Agreement with respect to the Target Funds.
FUND EXPENSES. At the May 4, 2005 meeting, with respect to the Target Funds'
expenses, the trustees considered the rate of compensation with respect to
the Target Funds called for by the Agreement, and the Target Funds' net
operating expense ratio in comparison to those of other comparable mutual
funds. The trustees also considered information about average expense ratios
of comparable mutual funds in the Target Funds' expected peer groups.
Finally, the trustees considered the effects of CSIM's and Schwab's voluntary
waiver of management and other fees to prevent total fund expenses from
exceeding a specified cap for at least one year and that CSIM, through the
waiver, will maintain the Target Funds' net operating expenses at competitive
levels for its distribution channels. Following such evaluation, the Board
concluded that, within the context of its full deliberations, the expenses of
the Target Funds are reasonable and supported approval of the Agreement with
respect to the Target Funds.
48
PROFITABILITY. With regard to profitability, at prior meetings the trustees
have considered the compensation flowing to CSIM and its affiliates, directly
or indirectly. The trustees have also considered any other benefits derived
by CSIM from its relationship with the existing Schwab Funds, such as
investment information or other research resources. In determining
profitability of CSIM and its affiliates, the trustees have reviewed
management's profitability analyses with the assistance of independent
accountants. The trustees have considered whether the varied levels of
compensation and profitability under the Agreement and other service
agreements were reasonable and justified in light of the quality of all
services rendered to each existing fund by CSIM and its affiliates. The Board
also considered how these factors could apply to the Target Funds. However,
because the Target Funds had no operating history at the time of the Board's
deliberations, the Board did not reach a specific conclusion with respect to
the profitability of CSIM and its affiliates under the Agreement with respect
to the Target Funds.
ECONOMIES OF SCALE. The trustees considered the possible existence of any
economies of scale and whether those will be passed along to the Target
Funds' shareholders through a graduated investment advisory fee schedule or
other means, including any fee waivers by CSIM and its affiliates. In this
regard, and consistent with their consideration of the Target Funds'
expenses, the trustees considered that CSIM and Schwab historically have
committed, and in the future may commit, resources to minimize the effects on
shareholders of diseconomies of scale during periods when the Target Funds'
assets are relatively small through their expense waiver agreement. The
trustees noted that such diseconomies of scale may particularly affect newer
funds, such as the Target Funds, or funds with investment strategies that are
currently out of favor, but shareholders may benefit from the continued
availability of such funds at subsidized expense levels. The trustees also
considered CSIM's agreement to contractual investment advisory fee schedules
which include lower fees at higher graduated asset levels. Based on this
evaluation, the Board concluded that, within the context of its full
deliberations, the Target Funds should obtain reasonable benefit from
economies of scale.
In the course of their deliberations, the trustees did not identify any
particular information or factor that was all-important or controlling. Based on
the trustees' deliberation and their evaluation of the information described
above, the Board, including all of the Independent Trustees, unanimously
approved amending the Agreement to reflect the addition of the Target Funds and
concluded that the compensation with respect to the Target Funds under the
Agreement is fair and reasonable in light of such services and expenses and such
other matters as the trustees have considered to be relevant in the exercise of
their reasonable judgment.
49
TRUSTEES AND OFFICERS
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 Schwab Funds(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 56 Schwab Funds 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.
INDEPENDENT TRUSTEES
NAME AND
YEAR OF BIRTH TRUSTEE SINCE MAIN OCCUPATIONS AND OTHER DIRECTORSHIPS AND AFFILIATIONS
- ----------------------------------------------------------------------------------------------------------------------------
MARIANN BYERWALTER 2000 (all trusts). Chairman, JDN Corp. Advisory LLC (real estate); Trustee, Stanford
1960 University, America First Cos., Omaha, NE (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; Director,
Pacific Life Insurance Company (insurance); Trustee, Laudus Trust
and Laudus Variable Insurance Trust. 2 Until 2001: Stanford
University, Special Advisor to the President. From 1996-2001: Stanford
University, Vice President of Business Affairs, Chief Financial
Officer.
- ----------------------------------------------------------------------------------------------------------------------------
DONALD F. DORWARD Family of Funds, 1989; Chief Executive Officer, Dorward & Associates (corporate management,
1931 Investments, 1991; marketing and communications consulting). Until 1999: Executive
Capital Trust, 1993; Vice President, Managing Director, Grey Advertising San Francisco.
Annuity Portfolios, 1994. Until 1996: President, Chief Executive Officer, Allen & Dorward
Advertising.
1 The Schwab Funds 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 This includes 10 series of the Laudus Trust and the sole series of the Laudus
Variable Insurance Trust.
50
INDEPENDENT TRUSTEES continued
NAME AND
YEAR OF BIRTH TRUSTEE SINCE MAIN OCCUPATIONS AND OTHER DIRECTORSHIPS AND AFFILIATIONS
- ---------------------------------------------------------------------------------------------------------------------------
WILLIAM A. HASLER 2000 (all trusts). Until February 2004, Co-Chief Executive Officer, Aphton Corporation
1941 (bio-pharmaceuticals). Prior to August 1998, Dean of the Haas
School of Business, University of California, Berkeley (higher
education).
Director, Aphton Corporation (bio-pharmaceuticals), Mission West
Properties (commercial real estate), Stratex Networks (network
equipment), TOUSA (home building), Genitope Corp. (bio-pharmaceuticals),
Pacific Stock & Option Exchange; Non-Executive Chairman, Solectron
Corporation (manufacturing); Trustee, Laudus Trust and Laudus
Variable Insurance Trust. 3
- ---------------------------------------------------------------------------------------------------------------------------
ROBERT G. HOLMES Family of Funds, 1989; Chairman, Chief Executive Officer, Director, Semloh Financial, Inc.
1931 Investments, 1991; (international financial services and investment advisory firm).
Capital Trust, 1993;
Annuity Portfolios, 1994.
- ---------------------------------------------------------------------------------------------------------------------------
GERALD B. SMITH 2000 (all trusts). Since 1990, Chairman and Chief Executive Officer and founder of
1950 Smith Graham & Co. (investment advisors).
Director, Cooper Industries (electrical products, tools and hardware),
Chairman, Texas Southern University Foundation; Executive Committee &
Board Member, MD Anderson Cancer Center; Chairman of the audit committee
of Northern Border Partners, M.L.P. (energy).
- ---------------------------------------------------------------------------------------------------------------------------
DONALD R. STEPHENS Family of Funds, 1989; Managing Partner, D.R. Stephens & Co. (investments). Until 1996:
1938 Investments, 1991; Chairman, Chief Executive Officer, North American Trust (real estate
Capital Trust, 1993; investment trust).
Annuity Portfolios, 1994.
- ---------------------------------------------------------------------------------------------------------------------------
MICHAEL W. WILSEY Family of Funds, 1989; Chairman, Chief Executive Officer, Wilsey Bennett, Inc. (real estate
1943 Investments, 1991; investment and management, and other investments).
Capital Trust, 1993;
Annuity Portfolios, 1994.
3 This includes 10 series of the Laudus Trust and the sole series of the Laudus
Variable Insurance Trust.
51
INTERESTED TRUSTEES
NAME AND TRUST POSITION(S);
YEAR OF BIRTH TRUSTEE SINCE MAIN OCCUPATIONS AND OTHER DIRECTORSHIPS AND AFFILIATIONS
- -----------------------------------------------------------------------------------------------------------------------------
CHARLES R. SCHWAB 4 Chairman, Trustee: Chairman, Chief Executive Officer and Director, The Charles Schwab
1937 Family of Funds, 1989; Corporation, Charles Schwab & Co., Inc.; Chairman and Director,
Investments, 1991; Charles Schwab Investment Management, Inc., Charles Schwab Bank,
Capital Trust, 1993; National Association; Chairman and Chief Executive Officer, Schwab
Annuity Portfolios, (SI) Holdings Inc. I, Schwab International Holdings, Inc.; Chief
1994. Executive Officer and Director, Schwab Holdings, Inc.; Director, U.S.
Trust Company, National Association, U.S. Trust Corporation, United
States Trust Company of New York. Until 5/03, Co-Chief Executive Officer,
The Charles Schwab Corporation.
Trustee, Charles and Helen Schwab Foundation; Chairman, All Kinds
of Minds Institute (education), Stanford University; Chairman and
Director, Charles Schwab Foundation; Chairman of the Finance Committee,
San Francisco Museum of Modern Art.
- -----------------------------------------------------------------------------------------------------------------------------
RANDALL W. MERK 4 Trustee, 2005 Executive Vice President and President, Asset Management Products
1954 (all trusts). & Services Enterprise, Charles Schwab & Co., Inc.; Director, Charles
Schwab Asset Management (Ireland) Limited. From 9/02 to 7/04,
Mr. Merk was President and Chief Executive Officer, Charles Schwab
Investment Management, Inc. and Executive Vice President, Charles
Schwab & Co., Inc. Prior to 9/02, Mr. Merk was President and Chief
Investment Officer, American Century Investment Management, and
Director, American Century Companies, Inc. (6/01 to 8/02); Chief
Investment Officer, Fixed, American Century Companies, Inc. (1/97
to 6/01).
OFFICERS OF THE TRUST
NAME AND
YEAR OF BIRTH TRUST OFFICE(S) HELD MAIN OCCUPATIONS AND OTHER DIRECTORSHIPS AND AFFILIATIONS
- -----------------------------------------------------------------------------------------------------------------------------
EVELYN DILSAVER President, Chief Executive Vice President, President, Director, Charles Schwab
1955 Executive Officer Investment Management, Inc. Vice President, Laudus Trust and
(all trusts). Laudus Variable Insurance Trust. Until 7/04: Senior Vice President
for Development and Distribution, Asset Management Products
& Services Enterprise. Until 6/03: Executive Vice President, Chief
Financial Officer, Chief Administrative Officer, U.S. Trust.
- -----------------------------------------------------------------------------------------------------------------------------
STEPHEN B. WARD Senior Vice President, Senior Vice President, Chief Investment Officer, Director, Charles
1955 Chief Investment Schwab Investment Management, Inc.; Chief Investment Officer, The
Officer (all trusts). Charles Schwab Trust Co.
4 In addition to their positions with the investment adviser and the
distributor, Messrs. Schwab and Merk also own stock of the Charles Schwab
Corporation.
52
OFFICERS OF THE TRUST continued
NAME AND
YEAR OF BIRTH TRUST OFFICE(S) HELD MAIN OCCUPATIONS AND OTHER DIRECTORSHIPS AND AFFILIATIONS
- --------------------------------------------------------------------------------------------------------------------------
KIMON DAIFOTIS Senior Vice President, Senior Vice President and Chief Investment Officer, Fixed Income,
1959 Chief Investment Charles Schwab Investment Management, Inc. Until 6/04: Vice
Officer (all trusts). President, Charles Schwab Investment Management, Inc.
- --------------------------------------------------------------------------------------------------------------------------
JEFFREY MORTIMER Senior Vice President, Senior Vice President, Chief Investment Officer, Equities, Charles
1963 Chief Investment Schwab Investment Management, Inc.; Vice President, Chief
Officer (all trusts). Investment Officer, Laudus Trust and Laudus Variable Insurance
Trust. Until 5/04: Vice President, Charles Schwab Investment
Management, Inc.
- --------------------------------------------------------------------------------------------------------------------------
RANDALL FILLMORE Chief Compliance Senior Vice President, Institutional Compliance and Chief Compliance
1960 Officer (all trusts). Officer, Charles Schwab Investment Management, Inc.; Chief
Compliance Officer, Laudus Trust and Laudus Variable Insurance
Trust. Until 9/03: Vice President, Charles Schwab & Co., Inc. and
Charles Schwab Investment Management, Inc. Until 2002: Vice
President, Internal Audit, Charles Schwab & Co., Inc.
- --------------------------------------------------------------------------------------------------------------------------
KOJI E. FELTON Secretary (all Senior Vice President, Chief Counsel and Corporate Secretary,
1961 trusts). Charles Schwab Investment Management, Inc.; Senior Vice President and
Deputy General Counsel, Charles Schwab & Co., Inc. Prior to 6/98,
Branch Chief in Enforcement at U.S. Securities and Exchange
Commission in San Francisco.
- --------------------------------------------------------------------------------------------------------------------------
GEORGE PEREIRA Treasurer, Principal Senior Vice President and Chief Financial Officer, Charles Schwab
1964 Financial Officer Investment Management, Inc.; Director, Charles Schwab Asset
(all trusts) Management (Ireland) Limited. From 12/99 to 11/04, Senior Vice
President, Financial Reporting, Charles Schwab & Co., Inc.
53
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.
The industry/sector classification of the funds' portfolio holdings uses the
Global Industry Classification Standard (GICS) which was developed by and is the
exclusive property of Morgan Stanley Capital International Inc. and Standard &
Poor's. GICS is a service mark of MSCI and S&P and has been licensed for use by
Charles Schwab & Co., Inc.
54
NOTES
NOTES
Schwab Funds(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 Schwab Funds.
Whether you're an experienced investor or just starting out, Schwab Funds 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 Schwab Fund. 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 Schwab Funds at:
P.O. Box 3812
Englewood, CO
80155-3812
When selling or exchanging shares, be sure to include the signatures of at least
one of the persons whose name is on the account.
PROXY VOTING POLICIES, PROCEDURES AND RESULTS
A description of the proxy voting policies and procedures used to determine how
to vote proxies on behalf of the funds is available without charge, upon
request, by visiting Schwab's website at www.schwab.com/schwabfunds, the SEC's
website at http://www.sec.gov, or by contacting Schwab Funds 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 website 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 SCHWAB FUNDS FAMILY(R)
STOCK FUNDS
Schwab Institutional Select(R) S&P 500 Fund
Schwab S&P 500 Index Fund
Schwab 1000 Index(R) Fund
Schwab Small-Cap Index Fund(R)
Schwab Total Stock Market Index Fund(R)
Schwab International Index Fund(R)
Schwab Premier Equity Fund(TM)
Schwab Core Equity Fund(TM)
Schwab Dividend Equity Fund(TM)
Schwab Large-Cap Growth Fund(TM)
Schwab Small-Cap Equity Fund(TM)
Schwab Hedged Equity Fund(TM)
Schwab Financial Services Fund(TM)
Schwab Health Care Fund(TM)
Schwab Technology Fund(TM)
ASSET ALLOCATION FUNDS
Schwab MarketTrack All Equity Portfolio(TM)
Schwab MarketTrack Growth Portfolio(TM)
Schwab MarketTrack Balanced Portfolio(TM)
Schwab MarketTrack Conservative Portfolio(TM)
Schwab Target 2010 Fund
Schwab Target 2020 Fund
Schwab Target 2030 Fund
Schwab Target 2040 Fund
Schwab Retirement Income Fund
BOND FUNDS
Schwab YieldPlus Fund(R)
Schwab Short-Term Bond Market Fund(TM)
Schwab Total Bond Market Fund(TM)
Schwab GNMA Fund(TM)
Schwab Tax-Free YieldPlus Fund(TM)
Schwab Short/Intermediate Tax-Free Bond Fund(TM)
Schwab Long-Term Tax-Free Bond Fund(TM)
Schwab California Tax-Free YieldPlus 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 eligible 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
Schwab Funds(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) 2005 Charles Schwab & Co., Inc. All rights reserved.
Member SIPC
Printed on recycled paper.
MFR33732
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
12(a)(1) of Form N-CSR.
ITEM 3: AUDIT COMMITTEE FINANCIAL EXPERT.
Registrant's Board of Trustees has determined that William Hasler,
Mariann Byerwalter and Donald Stephens, currently serving on its audit
committee, are "audit committee financial experts," as such term is
defined in Item 3 of Form N-CSR. Each of these members of Registrant's
audit committee is "independent" under the standards set forth in Item 3
of Form N-CSR.
The designation of each of Messrs. Hasler and Stephens and Ms.
Byerwalter as an "audit committee financial expert" pursuant to Item 3
of Form N-CSR does not (i) impose upon such individual any duties,
obligations, or liability that are greater than the duties, obligations
and liability imposed upon such individual as a member of Registrant's
audit committee or Board of Trustees in the absence of such designation;
and (ii) affect the duties, obligations or liability of any other member
of Registrant's audit committee or Board of Trustees.
ITEM 4: PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) Below are the aggregate fees billed for each of the last two fiscal years
for professional services rendered by the principal accountant for the audit of
Registrant's annual financial statements or services that are normally provided
by the accountant in connection with statutory and regulatory filings or
engagements.
Audit Fees
2005: $691,778 2004: $603,872
(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:
2005: $140,659 2004: $45,038
Nature of these services: tax provision review and procedures
performed related to Registrant's service provider conversion.
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:
2005: $102,551 2004: $66,633
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:
2005: $12,054 2004: $10,792
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) The percentage of services described in paragraph (c) of this Item that were
approved by the audit committee in 2005 pursuant to paragraph (c)(7)(i)(C) of
Rule 2-01 of Regulation S-X was 10.6% and the dollar amount was $10,901. This
$10,901 equals 1.2% of the total fees paid by Registrant to its principal
accountant in 2005. None of the services described in paragraphs (b) and (d) of
this Item were approved 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.
2005: $307,941 2004: $285,955
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.
2005: $4,058,364 2004: $4,402,056
(h) During the past fiscal year, all non-audit services provided by
Registrant's principal accountant to either Registrant's investment
adviser or to any entity controlling, controlled by, or under common
control with Registrant's investment adviser that provides ongoing
services to Registrant were pre-approved. Included in the audit
committee's pre-approval was the review and consideration as to
whether the provision of these non-audit services is compatible with
maintaining the principal accountant's independence.
ITEM 5: AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6: SCHEDULE OF INVESTMENTS.
Except as noted below, the schedules of investments are included as part of the
report to shareholders filed under Item 1 of this Form. The schedules of
investments for the Schwab S&P 500 Index Fund, Schwab Small-Cap Index Fund,
Schwab Total Stock Market Index Fund and Schwab International Index Fund are
filed under this Item.
SCHWAB CAPITAL TRUST
SCHWAB S&P 500 INDEX FUND
PORTFOLIO HOLDINGS as of October 31, 2005
The following is the schedule of portfolio holdings at 10/31/05. The schedule
should be read in conjunction with the fund's annual report for the period ended
10/31/05.
We use the symbols below to designate certain characteristics of the securities.
With the top ten holdings, the number in the circle is the security's rank among
the top ten.
(1) Top Ten Holding
o Non-income producing security
= All or a portion of this security is held as collateral for open futures
contracts
/ Issuer is affiliated with the fund's adviser
@ All or a portion of this security is on loan
COST VALUE
HOLDINGS BY CATEGORY ($ X 1,000) ($ X 1,000)
- --------------------------------------------------------------------------------
99.9% COMMON STOCK 6,588,735 7,815,203
0.0% U.S. TREASURY
OBLIGATIONS 692 692
- --------------------------------------------------------------------------------
99.9% TOTAL INVESTMENTS 6,589,427 7,815,895
1.2% COLLATERAL INVESTED
FOR SECURITIES ON LOAN 93,658 93,658
(1.1)% OTHER ASSETS AND
LIABILITIES, NET (85,436)
- --------------------------------------------------------------------------------
100.0% TOTAL NET ASSETS 7,824,117
VALUE
SECURITY AND NUMBER OF SHARES ($ X 1,000)
COMMON STOCK 99.9% of net assets
AUTOMOBILES & COMPONENTS 0.6%
-------------------------------------------------------------------------
Cooper Tire & Rubber Co. 22,155 303
Dana Corp. 53,423 401
Ford Motor Co. 1,323,761 11,014
@ General Motors Corp. 388,695 10,650
@o Goodyear Tire & Rubber Co. 128,972 2,017
Harley-Davidson, Inc. 188,641 9,343
Johnson Controls, Inc. 138,948 9,456
Visteon Corp. 92,917 774
-----------
43,958
BANKS 7.3%
-------------------------------------------------------------------------
AmSouth Bancorp. 253,255 6,390
(7) Bank of America Corp. 2,898,120 126,764
BB&T Corp. 394,401 16,699
Comerica, Inc. 121,200 7,003
Compass Bancshares, Inc. 89,989 4,388
Countrywide Financial Corp. 413,810 13,147
Fannie Mae 690,936 32,833
Fifth Third Bancorp 367,610 14,767
First Horizon National Corp. 75,291 2,912
Freddie Mac 492,941 30,242
Golden West Financial Corp. 177,048 10,398
@ Huntington Bancshares, Inc. 170,082 3,956
KeyCorp, Inc. 291,611 9,402
M&T Bank Corp. 63,721 6,855
@ Marshall & Ilsley Corp. 153,566 6,597
MGIC Investment Corp. 68,850 4,079
National City Corp. 425,041 13,699
North Fork Bancorp., Inc. 317,954 8,057
PNC Financial Services Group, Inc. 212,754 12,916
Regions Financial Corp. 318,263 10,359
Sovereign Bancorp, Inc. 241,846 5,217
SunTrust Banks, Inc. 261,883 18,981
Synovus Financial Corp. 226,015 6,209
U.S. Bancorp 1,310,900 38,776
Wachovia Corp. 1,139,550 57,570
Washington Mutual, Inc. 715,587 28,337
Wells Fargo & Co. 1,210,516 72,873
Zions Bancorp. 65,453 4,809
-----------
574,235
CAPITAL GOODS 8.7%
-------------------------------------------------------------------------
3M Co. 552,603 41,987
American Power Conversion Corp. 132,223 2,828
American Standard Cos., Inc. 130,511 4,965
The Boeing Co. 593,330 38,353
Caterpillar, Inc. 484,427 25,476
Cooper Industries Ltd., Class A 67,339 4,774
Cummins, Inc. 31,599 2,698
@ Danaher Corp. 182,127 9,489
Deere & Co. 172,930 10,493
Dover Corp. 149,143 5,814
Eaton Corp. 108,059 6,357
Emerson Electric Co. 298,347 20,750
Fluor Corp. 54,065 3,439
General Dynamics Corp. 148,009 17,213
=(1) General Electric Co. 7,564,419 256,509
Goodrich Corp. 87,770 3,166
Honeywell International, Inc. 612,499 20,948
@ Illinois Tool Works, Inc. 157,188 13,323
Ingersoll-Rand Co., Class A 241,376 9,122
ITT Industries, Inc. 67,380 6,846
L-3 Communications Holdings, Inc. 84,076 6,543
1
SCHWAB S&P 500 INDEX FUND
PORTFOLIO HOLDINGS continued
VALUE
SECURITY AND NUMBER OF SHARES ($ X 1,000)
Lockheed Martin Corp. 270,596 16,387
Masco Corp. 311,163 8,868
o Navistar International Corp. 47,654 1,311
Northrop Grumman Corp. 256,831 13,779
Paccar, Inc. 124,341 8,706
Pall Corp. 73,879 1,933
Parker Hannifin Corp. 87,123 5,461
Raytheon Co. 326,779 12,075
Rockwell Automation, Inc. 125,452 6,668
Rockwell Collins, Inc. 130,499 5,979
Textron, Inc. 96,619 6,960
Tyco International Ltd. 1,441,577 38,043
United Technologies Corp. 726,861 37,273
W.W. Grainger, Inc. 61,411 4,113
-----------
678,649
COMMERCIAL SERVICES & SUPPLIES 0.9%
-------------------------------------------------------------------------
o Allied Waste Industries, Inc. 106,996 871
o Apollo Group, Inc., Class A 105,677 6,660
Avery Dennison Corp. 70,854 4,014
Cendant Corp. 752,183 13,103
Cintas Corp. 84,456 3,426
Equifax, Inc. 94,993 3,275
H&R Block, Inc. 227,890 5,665
o Monster Worldwide, Inc. 87,145 2,859
Pitney Bowes, Inc. 165,031 6,945
R.R. Donnelley & Sons Co. 155,734 5,454
Robert Half International, Inc. 118,552 4,372
Waste Management, Inc. 406,753 12,003
-----------
68,647
CONSUMER DURABLES & APPAREL 1.2%
-------------------------------------------------------------------------
Black & Decker Corp. 58,423 4,798
Brunswick Corp. 69,935 2,667
Centex Corp. 79,715 5,130
o Coach, Inc. 271,902 8,750
D.R. Horton, Inc. 169,806 5,211
@ Eastman Kodak Co. 197,330 4,322
Fortune Brands, Inc. 101,584 7,717
Hasbro, Inc. 149,578 2,818
Jones Apparel Group, Inc. 78,887 2,152
KB Home 47,206 3,085
Leggett & Platt, Inc. 123,642 2,478
Lennar Corp., Class A 82,000 4,558
Liz Claiborne, Inc. 78,899 2,777
Mattel, Inc. 283,132 4,176
Maytag Corp. 37,384 644
Newell Rubbermaid, Inc. 202,003 4,644
Nike, Inc., Class B 144,183 12,119
Pulte Homes, Inc. 143,824 5,435
Reebok International Ltd. 30,925 1,764
Snap-On, Inc. 41,696 1,502
@ The Stanley Works 55,209 2,646
VF Corp. 72,345 3,780
Whirlpool Corp. 48,566 3,812
-----------
96,985
DIVERSIFIED FINANCIALS 8.2%
-------------------------------------------------------------------------
American Express Co. 896,504 44,619
o Ameriprise Financial, Inc. 179,300 6,673
The Bank of New York Co., Inc. 556,728 17,420
The Bear Stearns Cos., Inc. 81,350 8,607
Capital One Financial Corp. 208,575 15,925
/ The Charles Schwab Corp. 745,315 11,329
CIT Group, Inc. 150,496 6,882
(4) Citigroup, Inc. 3,708,732 169,786
o E*TRADE Financial Corp. 271,454 5,035
Federated Investors, Inc., Class B 70,248 2,459
Franklin Resources, Inc. 113,362 10,018
Goldman Sachs Group, Inc. 326,946 41,316
Janus Capital Group, Inc. 153,887 2,701
JPMorgan Chase & Co. 2,537,862 92,936
Lehman Brothers Holdings, Inc. 198,010 23,696
MBNA Corp. 902,064 23,066
Mellon Financial Corp. 303,631 9,622
Merrill Lynch & Co., Inc. 673,026 43,572
Moody's Corp. 193,040 10,281
Morgan Stanley 784,609 42,691
Northern Trust Corp. 145,988 7,825
Principal Financial Group, Inc. 210,739 10,459
SLM Corp. 300,020 16,660
State Street Corp. 239,343 13,219
T. Rowe Price Group, Inc. 88,458 5,796
-----------
642,593
ENERGY 9.5%
-------------------------------------------------------------------------
Amerada Hess Corp. 61,412 7,683
Anadarko Petroleum Corp. 169,544 15,379
Apache Corp. 234,681 14,980
Baker Hughes, Inc. 245,064 13,469
BJ Services Co. 236,972 8,235
Burlington Resources, Inc. 276,541 19,972
ChevronTexaco Corp. 1,622,963 92,622
ConocoPhillips 1,005,577 65,745
Devon Energy Corp. 335,895 20,281
El Paso Corp. 469,411 5,567
EOG Resources, Inc. 170,809 11,577
=(2) Exxon Mobil Corp. 4,532,210 254,438
Halliburton Co. 361,683 21,375
Kerr-McGee Corp. 83,311 7,085
Kinder Morgan, Inc. 64,416 5,855
2
SCHWAB S&P 500 INDEX FUND
PORTFOLIO HOLDINGS continued
VALUE
SECURITY AND NUMBER OF SHARES ($ X 1,000)
Marathon Oil Corp. 262,757 15,807
Murphy Oil Corp. 100,000 4,685
o Nabors Industries Ltd. 104,716 7,187
o National-Oilwell Varco, Inc. 117,831 7,361
Noble Corp. 97,873 6,301
Occidental Petroleum Corp. 285,733 22,539
Rowan Cos., Inc. 76,166 2,513
Schlumberger Ltd. 421,406 38,251
Sunoco, Inc. 98,706 7,354
o Transocean, Inc. 243,774 14,015
Valero Energy Corp. 220,736 23,230
o Weatherford International Ltd. 85,700 5,365
Williams Cos., Inc. 408,767 9,115
XTO Energy, Inc. 249,054 10,824
-----------
738,810
FOOD & STAPLES RETAILING 2.4%
-------------------------------------------------------------------------
@ Albertson's, Inc. 254,911 6,401
Costco Wholesale Corp. 341,661 16,523
CVS Corp. 561,389 13,703
o Kroger Co. 522,864 10,405
Safeway, Inc. 326,767 7,601
Supervalu, Inc. 98,602 3,099
Sysco Corp. 443,446 14,150
Wal-Mart Stores, Inc. 1,783,886 84,396
Walgreen Co. 731,288 33,222
-----------
189,500
FOOD BEVERAGE & TOBACCO 4.9%
-------------------------------------------------------------------------
(10) Altria Group, Inc. 1,475,494 110,736
Anheuser-Busch Cos., Inc. 548,024 22,611
Archer-Daniels-Midland Co. 469,964 11,453
Brown-Forman Corp., Class B 59,541 3,771
Campbell Soup Co. 119,368 3,474
The Coca-Cola Co. 1,503,274 64,310
Coca-Cola Enterprises, Inc. 253,352 4,788
ConAgra Foods, Inc. 361,183 8,405
o Constellation Brands, Inc., Class A 89,644 2,110
General Mills, Inc. 264,738 12,776
H.J. Heinz Co. 250,387 8,889
Hershey Foods Corp. 131,610 7,479
Kellogg Co. 196,671 8,687
McCormick & Co., Inc. 97,082 2,941
Molson Coors Brewing Co., Class B 29,863 1,843
The Pepsi Bottling Group, Inc. 121,278 3,448
PepsiCo, Inc. 1,199,296 70,854
@ Reynolds American, Inc. 61,502 5,228
Sara Lee Corp. 564,858 10,083
Tyson Foods, Inc., Class A 181,600 3,232
UST, Inc. 120,597 4,992
Wm. Wrigley Jr. Co. 123,931 8,613
-----------
380,723
HEALTH CARE EQUIPMENT & SERVICES 5.2%
-------------------------------------------------------------------------
Aetna, Inc. 209,622 18,564
AmerisourceBergen Corp. 77,535 5,914
Bausch & Lomb, Inc. 39,240 2,911
Baxter International, Inc. 458,379 17,524
Becton Dickinson & Co. 181,162 9,194
Biomet, Inc. 160,594 5,593
o Boston Scientific Corp. 408,126 10,252
C.R. Bard, Inc. 76,747 4,787
Cardinal Health, Inc. 306,682 19,171
o Caremark Rx, Inc. 326,224 17,094
CIGNA Corp. 92,709 10,742
o Coventry Health Care, Inc. 119,430 6,448
o Express Scripts, Inc. 108,366 8,172
o Fisher Scientific International, Inc. 79,239 4,477
Guidant Corp. 231,124 14,561
HCA, Inc. 326,520 15,735
Health Management Associates, Inc., Class A 177,653 3,804
o Hospira, Inc. 114,593 4,567
o Humana, Inc. 116,336 5,164
IMS Health, Inc. 162,520 3,775
o Laboratory Corp. of America Holdings 99,309 4,792
Manor Care, Inc. 53,734 2,002
McKesson Corp. 230,789 10,485
o Medco Health Solutions, Inc. 219,061 12,377
Medtronic, Inc. 866,206 49,079
o Millipore Corp. 35,916 2,199
o Patterson Cos., Inc. 78,900 3,265
PerkinElmer, Inc. 92,402 2,039
Quest Diagnostics 130,680 6,104
o St. Jude Medical, Inc. 271,096 13,032
Stryker Corp. 209,857 8,619
o Tenet Healthcare Corp. 340,998 2,871
o Thermo Electron Corp. 115,139 3,476
UnitedHealth Group, Inc. 916,297 53,044
o Waters Corp. 84,402 3,055
o WellPoint, Inc. 447,038 33,385
o Zimmer Holdings, Inc. 173,757 11,080
-----------
409,353
HOTELS RESTAURANTS & LEISURE 1.4%
-------------------------------------------------------------------------
Carnival Corp. 311,847 15,489
Darden Restaurants, Inc. 104,151 3,377
Harrah's Entertainment, Inc. 123,338 7,459
3
SCHWAB S&P 500 INDEX FUND
PORTFOLIO HOLDINGS continued
VALUE
SECURITY AND NUMBER OF SHARES ($ X 1,000)
Hilton Hotels Corp. 263,508 5,125
International Game Technology 238,066 6,306
Marriott International, Inc., Class A 122,761 7,319
McDonald's Corp. 910,045 28,757
o Starbucks Corp. 548,232 15,504
Starwood Hotels & Resorts Worldwide, Inc. 155,650 9,095
Wendy's International, Inc. 68,101 3,182
Yum! Brands, Inc. 209,584 10,662
-----------
112,275
HOUSEHOLD & PERSONAL PRODUCTS 2.5%
-------------------------------------------------------------------------
Alberto-Culver Co., Class B 33,644 1,461
Avon Products, Inc. 330,689 8,925
Clorox Co. 110,933 6,004
Colgate-Palmolive Co. 374,626 19,840
Kimberly-Clark Corp. 343,226 19,509
=(5) Procter & Gamble Co. 2,439,958 136,613
-----------
192,352
INSURANCE 4.8%
-------------------------------------------------------------------------
ACE Ltd. 214,222 11,161
AFLAC, Inc. 370,025 17,680
The Allstate Corp. 480,616 25,372
AMBAC Financial Group, Inc. 74,324 5,269
(8) American International Group, Inc. 1,871,723 121,288
AON Corp. 230,870 7,815
Chubb Corp. 147,394 13,703
Cincinnati Financial Corp. 119,238 5,074
Hartford Financial Services Group, Inc. 213,328 17,013
Jefferson-Pilot Corp. 93,071 5,108
Lincoln National Corp. 123,732 6,262
Loews Corp. 103,819 9,653
Marsh & McLennan Cos., Inc. 382,334 11,145
MBIA, Inc. 92,291 5,375
o Metlife, Inc. 546,540 27,004
The Progressive Corp. 142,736 16,530
Prudential Financial, Inc. 374,539 27,263
Safeco Corp. 92,762 5,167
The St. Paul Travelers Cos., Inc. 484,617 21,822
Torchmark Corp. 76,062 4,018
@ UnumProvident Corp. 217,595 4,415
XL Capital Ltd., Class A 97,114 6,221
-----------
374,358
MATERIALS 2.9%
-------------------------------------------------------------------------
Air Products & Chemicals, Inc. 152,258 8,715
Alcoa, Inc. 615,090 14,941
Allegheny Technologies, Inc. 66,001 1,895
Ashland, Inc. 49,089 2,627
Ball Corp. 78,520 3,091
Bemis Co. 61,258 1,618
The Dow Chemical Co. 689,651 31,627
E.I. du Pont de Nemours & Co. 706,027 29,434
Eastman Chemical Co. 56,985 3,006
Ecolab, Inc. 150,342 4,973
Engelhard Corp. 74,983 2,040
Freeport-McMoran Copper & Gold, Inc., Class B 130,651 6,457
Georgia-Pacific Corp. 188,386 6,128
o Hercules, Inc. 83,082 926
International Flavors & Fragrances, Inc. 61,547 2,030
International Paper Co. 343,890 10,035
Louisiana-Pacific Corp. 78,564 1,959
MeadWestvaco Corp. 135,970 3,565
Monsanto Co. 192,482 12,128
Newmont Mining Corp. 311,996 13,291
@ Nucor Corp. 115,949 6,940
o Pactiv Corp. 108,638 2,140
Phelps Dodge Corp. 70,753 8,524
PPG Industries, Inc. 123,871 7,429
Praxair, Inc. 232,653 11,495
Rohm & Haas Co. 118,100 5,141
o Sealed Air Corp. 61,284 3,083
Sigma-Aldrich Corp. 49,000 3,121
Temple-Inland, Inc. 91,288 3,362
United States Steel Corp. 72,681 2,655
Vulcan Materials Co. 74,703 4,856
Weyerhaeuser Co. 175,619 11,124
-----------
230,356
MEDIA 3.4%
-------------------------------------------------------------------------
Clear Channel Communications, Inc. 364,666 11,093
o Comcast Corp., Class A 1,579,531 43,958
@ Dow Jones & Co., Inc. 42,144 1,429
Gannett Co., Inc. 160,139 10,034
o Interpublic Group of Cos., Inc. 305,375 3,154
Knight-Ridder, Inc. 33,145 1,769
The McGraw-Hill Cos., Inc. 269,447 13,187
Meredith Corp. 33,223 1,658
@ New York Times Co., Class A 83,739 2,281
o News Corp, Inc., Class A 1,763,310 25,127
Omnicom Group, Inc. 131,588 10,917
Time Warner, Inc. 3,391,284 60,467
4
SCHWAB S&P 500 INDEX FUND
PORTFOLIO HOLDINGS continued
VALUE
SECURITY AND NUMBER OF SHARES ($ X 1,000)
Tribune Co. 191,516 6,035
o Univision Communications, Inc., Class A 146,322 3,825
Viacom, Inc., Class B 1,154,698 35,761
The Walt Disney Co. 1,465,746 35,720
-----------
266,415
PHARMACEUTICALS & BIOTECHNOLOGY 7.9%
-------------------------------------------------------------------------
Abbott Laboratories 1,110,600 47,811
Allergan, Inc. 93,748 8,372
o Amgen, Inc. 886,202 67,139
Applied Biosystems Group -- Applera Corp. 140,718 3,415
o Biogen Idec, Inc. 244,461 9,932
Bristol-Myers Squibb Co. 1,397,850 29,592
o Chiron Corp. 78,689 3,473
Eli Lilly & Co. 805,300 40,096
o Forest Laboratories, Inc. 244,410 9,266
o Genzyme Corp. 180,854 13,076
o Gilead Sciences, Inc. 326,107 15,409
o(6) Johnson & Johnson 2,136,946 133,816
o King Pharmaceuticals, Inc. 175,760 2,712
o Medimmune, Inc. 165,220 5,779
Merck & Co., Inc. 1,577,888 44,528
Mylan Laboratories, Inc. 156,766 3,011
(9) Pfizer, Inc. 5,318,550 115,625
Schering-Plough Corp. 1,059,132 21,543
o Watson Pharmaceuticals, Inc. 78,356 2,708
Wyeth 968,895 43,174
-----------
620,477
REAL ESTATE 0.7%
-------------------------------------------------------------------------
Apartment Investment & Management Co.,
Class A 68,308 2,623
Archstone-Smith Trust 143,563 5,824
Equity Office Properties Trust 290,924 8,960
Equity Residential 205,662 8,072
Plum Creek Timber Co., Inc. 130,750 5,086
ProLogis 178,411 7,672
Public Storage, Inc. 59,700 3,952
Simon Property Group, Inc. 131,302 9,404
Vornado Realty Trust 74,600 6,043
-----------
57,636
RETAILING 3.8%
-------------------------------------------------------------------------
o Autonation, Inc. 159,649 3,174
o AutoZone, Inc. 35,099 2,839
@o Bed, Bath & Beyond, Inc. 211,581 8,573
Best Buy Co., Inc. 291,398 12,897
o Big Lots, Inc. 48,158 557
Circuit City Stores, Inc. 117,955 2,098
Dillards, Inc., Class A 51,706 1,071
Dollar General Corp. 218,187 4,242
o eBay, Inc. 808,913 32,033
Family Dollar Stores, Inc. 101,290 2,243
Federated Department Stores, Inc. 183,261 11,247
The Gap, Inc. 451,641 7,804
Genuine Parts Co. 127,453 5,655
@ Home Depot, Inc. 1,527,260 62,679
J.C. Penney Co., Inc. Holding Co. 188,887 9,671
@o Kohl's Corp. 239,784 11,541
Limited Brands, Inc. 231,250 4,627
Lowe's Cos., Inc. 552,470 33,574
@ Nordstrom, Inc. 179,814 6,230
o Office Depot, Inc. 227,985 6,276
OfficeMax, Inc. 27,101 759
o RadioShack Corp. 81,474 1,801
o Sears Holdings Corp. 67,916 8,167
The Sherwin-Williams Co. 81,614 3,473
Staples, Inc. 528,945 12,023
Target Corp. 633,785 35,295
Tiffany & Co. 92,125 3,630
TJX Cos., Inc. 286,841 6,176
-----------
300,355
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT 3.1%
-------------------------------------------------------------------------
o Advanced Micro Devices, Inc. 283,770 6,589
o Altera Corp. 271,760 4,525
Analog Devices, Inc. 265,462 9,233
Applied Materials, Inc. 1,179,504 19,320
o Applied Micro Circuits Corp. 78,101 191
o Broadcom Corp., Class A 209,891 8,912
o Freescale Semiconductor, Inc., Class B 293,057 6,998
Intel Corp. 4,395,616 103,297
KLA-Tencor Corp. 142,649 6,603
Linear Technology Corp. 219,066 7,275
o LSI Logic Corp. 279,453 2,266
Maxim Integrated Products, Inc. 230,618 7,998
o Micron Technology, Inc. 422,898 5,493
National Semiconductor Corp. 254,908 5,769
o Novellus Systems, Inc. 102,601 2,243
o Nvidia Corp. 121,599 4,080
o PMC -- Sierra, Inc. 124,154 882
o Teradyne, Inc. 116,480 1,577
Texas Instruments, Inc. 1,183,239 33,781
Xilinx, Inc. 243,871 5,841
-----------
242,873
5
SCHWAB S&P 500 INDEX FUND
PORTFOLIO HOLDINGS continued
VALUE
SECURITY AND NUMBER OF SHARES ($ X 1,000)
SOFTWARE & SERVICES 5.2%
-------------------------------------------------------------------------
Adobe Systems, Inc. 353,397 11,397
o Affiliated Computer Services, Inc.,
Class A 90,287 4,885
Autodesk, Inc. 166,429 7,511
Automatic Data Processing, Inc. 417,735 19,492
o BMC Software, Inc. 163,936 3,212
o Citrix Systems, Inc. 122,971 3,390
Computer Associates International, Inc. 354,321 9,910
o Computer Sciences Corp. 134,404 6,888
o Compuware Corp. 281,860 2,280
o Convergys Corp. 50,604 822
o Electronic Arts, Inc. 213,086 12,120
Electronic Data Systems Corp. 374,987 8,741
First Data Corp. 551,153 22,294
o Fiserv, Inc. 139,646 6,100
o Intuit, Inc. 132,963 6,107
o Mercury Interactive Corp. 61,461 2,138
=(3) Microsoft Corp. 6,606,793 169,795
@o Novell, Inc. 274,122 2,089
o Oracle Corp. 2,753,415 34,913
o Parametric Technology Corp. 195,843 1,275
Paychex, Inc. 239,702 9,291
Sabre Holdings Corp., Class A 93,639 1,829
Siebel Systems, Inc. 339,453 3,513
o Symantec Corp. 852,481 20,332
o Unisys Corp. 247,170 1,263
o Yahoo! Inc. 902,558 33,368
-----------
404,955
TECHNOLOGY HARDWARE & EQUIPMENT 7.0%
-------------------------------------------------------------------------
o ADC Telecommunications, Inc. 60,840 1,062
o Agilent Technologies, Inc. 357,033 11,429
o Andrew Corp. 92,465 982
o Apple Computer, Inc. 605,127 34,849
o Avaya, Inc. 355,135 4,091
o CIENA Corp. 415,874 986
o Cisco Systems, Inc. 4,576,968 79,868
o Comverse Technology, Inc. 145,026 3,640
o Corning, Inc. 1,070,391 21,504
o Dell, Inc. 1,722,383 54,910
o EMC Corp. 1,720,842 24,023
@o Gateway, Inc. 70,471 201
Hewlett-Packard Co. 2,067,149 57,963
International Business Machines Corp. 1,151,594 94,293
o Jabil Circuit, Inc. 135,348 4,040
o JDS Uniphase Corp. 1,042,083 2,188
o Lexmark International, Inc., Class A 78,883 3,275
@o Lucent Technologies, Inc. 3,168,868 9,031
Molex, Inc. 124,543 3,152
Motorola, Inc. 1,783,756 39,528
o NCR Corp. 136,007 4,110
@o Network Appliance, Inc. 252,854 6,918
o QLogic Corp. 67,869 2,047
Qualcomm, Inc. 1,169,944 46,517
o Sanmina -- SCI Corp. 382,687 1,397
Scientific-Atlanta, Inc. 111,931 3,967
o Solectron Corp. 710,559 2,508
o Sun Microsystems, Inc. 2,474,588 9,898
Symbol Technologies, Inc. 111,414 925
Tektronix, Inc. 61,968 1,424
o Tellabs, Inc. 337,722 3,229
@o Xerox Corp. 687,424 9,328
-----------
543,283
TELECOMMUNICATION SERVICES 3.1%
-------------------------------------------------------------------------
Alltel Corp. 275,772 17,059
AT&T Corp. 571,915 11,313
BellSouth Corp. 1,309,734 34,079
CenturyTel, Inc. 94,175 3,082
Citizens Communications Co. 244,691 2,995
o Qwest Communications International, Inc. 1,231,883 5,371
SBC Communications, Inc. 2,357,762 56,233
Sprint Corp. (FON Group) 2,084,463 48,589
Verizon Communications, Inc. 1,981,776 62,446
-----------
241,167
TRANSPORTATION 1.8%
-------------------------------------------------------------------------
Burlington Northern Santa Fe Corp. 270,844 16,808
CSX Corp. 156,758 7,181
FedEx Corp. 216,034 19,860
Norfolk Southern Corp. 293,191 11,786
Ryder Systems, Inc. 46,429 1,842
Southwest Airlines Co. 485,430 7,772
Union Pacific Corp. 188,808 13,062
United Parcel Service, Inc., Class B
797,790 58,191
-----------
136,502
UTILITIES 3.4%
-------------------------------------------------------------------------
o The AES Corp. 475,800 7,560
o Allegheny Energy, Inc. 119,176 3,368
Ameren Corp. 145,338 7,645
6
SCHWAB S&P 500 INDEX FUND
PORTFOLIO HOLDINGS continued
VALUE
SECURITY AND NUMBER OF SHARES ($ X 1,000)
American Electric Power Co., Inc. 293,401 11,137
@o Calpine Corp. 248,537 592
Centerpoint Energy, Inc. 213,695 2,829
Cinergy Corp. 141,044 5,628
o CMS Energy Corp. 160,430 2,392
@ Consolidated Edison, Inc. 173,842 7,910
Constellation Energy Group, Inc. 128,317 7,032
Dominion Resources, Inc. 240,629 18,307
DTE Energy Co. 123,143 5,320
Duke Energy Corp. 663,698 17,575
@o Dynegy, Inc., Class A 205,373 912
Edison International 233,271 10,208
Entergy Corp. 151,749 10,732
Exelon Corp. 477,634 24,851
FirstEnergy Corp. 236,634 11,240
FPL Group, Inc. 275,487 11,862
KeySpan Corp. 118,161 4,085
Nicor, Inc. 31,870 1,249
NiSource, Inc. 197,349 4,667
Peoples Energy Corp. 16,172 602
PG&E Corp. 263,892 9,600
Pinnacle West Capital Corp. 75,777 3,164
PPL Corp. 271,790 8,518
Progress Energy, Inc. 173,022 7,542
Public Service Enterprise Group, Inc. 170,757 10,739
Sempra Energy 174,053 7,711
The Southern Co. 525,684 18,394
TECO Energy, Inc. 145,055 2,509
TXU Corp. 176,587 17,791
Xcel Energy, Inc. 276,866 5,075
-----------
268,746
FACE
SECURITY AMOUNT
RATE, MATURITY DATE ($ X 1,000)
U.S. TREASURY OBLIGATIONS 0.0% of net assets
= U.S. Treasury Bills
3.40%-3.47%, 12/15/05 695 692
END OF INVESTMENTS.
VALUE
SECURITY AND NUMBER OF SHARES ($ X 1,000)
COLLATERAL INVESTED FOR SECURITIES ON LOAN
1.2% of net assets
SHORT-TERM INVESTMENT 1.2%
-------------------------------------------------------------------------
Securities Lending Investment Fund 93,657,666 93,658
END OF COLLATERAL INVESTED FOR SECURITIES ON LOAN.
In addition to the above, the fund held the following at 10/31/05. All numbers x
$1,000 except number of contracts.
NUMBER
OF CONTRACT UNREALIZED
CONTRACTS VALUE GAINS
FUTURES CONTRACTS
S&P 500 Index,
e-mini, Long
Expires 12/18/05 50 3,025 42
7
SCHWAB CAPITAL TRUST
SCHWAB SMALL-CAP INDEX FUND(R)
PORTFOLIO HOLDINGS as of October 31, 2005
The following is the schedule of portfolio holdings at 10/31/05. The schedule
should be read in conjunction with the fund's annual report for the period ended
10/31/05.
We use the symbols below to designate certain characteristics of the securities.
With the top ten holdings, the number in the circle is the security's rank among
the top ten.
(1) Top Ten Holding
o Non-income producing security
= All or a portion of this security is held as collateral for open futures
contracts
> Security is valued at fair value (see Accounting Policies)
@ All or a portion of this security is on loan
COST VALUE
HOLDINGS BY CATEGORY ($X1,000) ($X1,000)
- --------------------------------------------------------------------------------
99.1% COMMON STOCK 1,252,687 1,603,334
0.8% SHORT-TERM
INVESTMENT 12,862 12,862
0.0% U.S. TREASURY
OBLIGATIONS 483 483
- --------------------------------------------------------------------------------
99.9% TOTAL INVESTMENTS 1,266,032 1,616,679
13.4% COLLATERAL INVESTED
FOR SECURITIES ON LOAN 216,545 216,545
(13.3)% OTHER ASSETS AND
LIABILITIES, NET (215,250)
- --------------------------------------------------------------------------------
100.0% TOTAL NET ASSETS 1,617,974
VALUE
SECURITY AND NUMBER OF SHARES ($ X 1,000)
COMMON STOCK 99.1% of net assets
AUTOMOBILES & COMPONENTS 0.9%
-------------------------------------------------------------------------
American Axle & Manufacturing Holdings,
Inc. 81,491 1,777
ArvinMeritor, Inc. 111,512 1,788
Bandag, Inc. 28,835 1,225
Cooper Tire & Rubber Co. 95,014 1,298
Modine Manufacturing Co. 51,064 1,688
Sauer-Danfoss, Inc. 74,383 1,430
@ Superior Industries International, Inc.
40,700 828
o Tenneco Automotive, Inc. 69,569 1,149
Visteon Corp. 214,603 1,788
Winnebago Industries, Inc. 52,121 1,528
-----------
14,499
BANKS 8.7%
-------------------------------------------------------------------------
1st Source Corp. 25,256 603
@o Accredited Home Lenders Holding Co. 32,349 1,169
Alabama National Bancorp 26,948 1,743
Amcore Financial, Inc. 46,330 1,376
Amegy Bancorp, Inc. 105,372 2,437
Anchor Bancorp Wisconsin, Inc. 42,249 1,338
Bancfirst Corp. 13,400 1,113
@ Bancorpsouth, Inc. 99,075 2,196
Bank Mutual Corp. 103,383 1,071
@ Bank of the Ozarks, Inc. 14,214 498
BankAtlantic Bancorp, Inc., Class A 88,482 1,229
@ BankUnited Financial Corp., Class A 46,833 1,111
Boston Private Financial Holdings, Inc.
40,001 1,158
Brookline Bancorp, Inc. 93,022 1,307
Capitol Bancorp Ltd. 4,956 172
Central Pacific Financial Co. 43,700 1,578
Charter Financial Corp. 8,641 314
CharterMac 82,419 1,694
Chemical Financial Corp. 39,439 1,270
@ Chittenden Corp. 60,161 1,731
Citizens Banking Corp. Michigan 49,123 1,432
City Holding Co. 11,887 436
The Commercial Capital Bancorp, Inc.
82,933 1,332
Commercial Federal Corp. 62,282 2,130
Community Bank System, Inc. 47,421 1,126
Community Trust Bancorp, Inc. 16,832 581
@ Corus Bankshares, Inc. 50,072 2,749
CVB Financial Corp. 96,258 1,897
Dime Community Bancshares, Inc. 61,698 888
Downey Financial Corp. 41,521 2,531
Fidelity Bankshares, Inc. 38,816 1,095
First Charter Corp. 55,321 1,410
First Citizens BancShares, Inc., Class A
17,099 2,855
First Commonwealth Financial Corp. 104,689 1,379
First Community Bancorp, Inc. 25,716 1,294
First Financial Bancorp 72,503 1,354
First Financial Bancshares, Inc. 34,221 1,232
First Financial Corp. Indiana 12,276 338
First Midwest Bancorp, Inc. Illinois
68,286 2,596
1
SCHWAB SMALL-CAP INDEX FUND
PORTFOLIO HOLDINGS continued
VALUE
SECURITY AND NUMBER OF SHARES ($ X 1,000)
First Niagra Financial Group, Inc. 184,377 2,716
First Republic Bank 39,354 1,492
o FirstFed Financial Corp. 24,372 1,304
@ Flagstar Bancorp., Inc. 71,461 959
FNB Corp. 76,618 1,373
Frontier Financial Corp. 46,278 1,492
Glacier Bancorp, Inc. 50,660 1,493
Gold Banc Corp., Inc. 64,513 956
Greater Bay Bancorp 84,847 2,129
Hancock Holding Co. 53,847 1,921
Hanmi Financial Corp. 80,657 1,477
Harbor Florida Bancshares, Inc. 35,308 1,248
Harleysville National Corp. 41,808 857
Hudson United Bancorp 69,545 2,884
Independent Bank Corp. Michigan 34,242 979
Integra Bank Corp. 24,853 502
Irwin Financial Corp. 46,881 978
MAF Bancorp., Inc. 51,924 2,157
Main Street Banks, Inc. 32,147 881
MB Financial, Inc. 44,932 1,675
Mid-State Bancshares 39,695 1,077
National Penn Bancshares, Inc. 82,771 1,623
NBT Bancorp., Inc. 53,981 1,281
NewAlliance Bancshares, Inc. 150,359 2,168
Northwest Bancorp, Inc. 79,433 1,798
Old National Bancorp. 110,006 2,410
Oriental Financial Group 36,703 456
Pacific Capital Bancorp. 67,394 2,431
Park National Corp. 15,671 1,696
PFF Bancorp, Inc. 46,151 1,386
PrivateBancorp, Inc. 32,341 1,099
Prosperity Bancshares, Inc. 36,900 1,125
Provident Bankshares Corp. 51,575 1,798
Provident Financial Services, Inc. 119,531 2,104
Provident New York Bancorp 34,695 378
R&G Financial Corp., Class B 48,931 479
Republic Bancorp, Inc. 110,432 1,507
S&T Bancorp, Inc. 44,227 1,646
Sandy Spring Bancorp, Inc. 18,822 663
Santander BanCorp 63,824 1,625
o Signature Bank NY 13,610 395
Simmons First National Corp., Class A
6,969 196
Sterling Bancorp NY 2,345 46
Sterling Bancshares, Inc. Texas 74,305 1,099
Sterling Financial Corp. Pennsylvania
43,378 913
o Sterling Financial Corp. Washington 53,883 1,349
Suffolk Bancorp 12,684 418
Susquehanna Bancshares, Inc. 73,915 1,707
o SVB Financial Group 59,036 2,935
o Texas Capital Bancshares, Inc. 27,994 599
Texas Regional Bancshares, Inc., Class A
75,472 2,214
Tompkins Trustco, Inc. 1,078 48
@ Trustco Bank Corp. NY 124,675 1,608
Trustmark Corp. 80,763 2,265
UMB Financial Corp. 36,502 2,445
Umpqua Holdings Corp. 68,608 1,825
United Bankshares, Inc. 54,663 1,995
United Community Banks, Inc. Georgia
55,840 1,655
USB Holding Co., Inc. 3,546 75
WesBanco, Inc. 35,948 1,104
Westamerica Bancorp. 52,530 2,800
Wintrust Financial Corp. 34,897 1,873
-----------
141,550
CAPITAL GOODS 8.6%
-------------------------------------------------------------------------
A.O. Smith Corp., Class B 48,501 1,570
o AAR Corp. 2,978 47
o Actuant Corp., Class A 41,796 2,035
Acuity Brands, Inc. 66,532 1,850
o AGCO Corp. 141,475 2,262
Albany International Corp., Class A 54,871 2,120
American Woodmark Corp. 24,836 769
Applied Industrial Technologies, Inc.
48,176 1,587
o Armor Holdings, Inc. 51,936 2,322
o Aviall, Inc. 48,799 1,540
Baldor Electric Co. 50,973 1,239
Barnes Group, Inc. 38,333 1,342
o BE Aerospace, Inc. 89,014 1,614
Bucyrus International, Inc., Class A
31,365 1,303
o Ceradyne, Inc. 37,620 1,475
Clarcor, Inc. 79,718 2,192
Crane Co. 97,717 3,025
Curtiss-Wright Corp. 33,562 1,925
DRS Technologies, Inc. 41,443 2,041
EDO Corp. 28,745 831
ElkCorp 31,569 999
o EMCOR Group, Inc. 24,901 1,519
@o EnerSys 70,313 1,053
Engineered Support Systems, Inc. 62,491 2,528
o EnPro Industries, Inc. 32,969 920
o ESCO Technologies, Inc. 43,988 1,903
o Esterline Technologies Corp. 44,500 1,675
Federal Signal Corp. 77,416 1,256
o Flowserve Corp. 86,629 3,032
Franklin Electric Co., Inc. 39,087 1,697
2
SCHWAB SMALL-CAP INDEX FUND
PORTFOLIO HOLDINGS continued
VALUE
SECURITY AND NUMBER OF SHARES ($ X 1,000)
o Gardner Denver, Inc. 38,300 1,861
@ GATX Corp. 81,695 3,053
@o GenCorp, Inc. 78,600 1,442
o Genlyte Group, Inc. 45,300 2,309
o GrafTech International Ltd. 86,915 426
Granite Construction, Inc. 64,901 2,214
o Griffon Corp. 48,590 1,069
o Hexcel Corp. 83,795 1,326
o Jacuzzi Brands, Inc. 116,861 862
JLG Industries, Inc. 75,000 2,877
Kaydon Corp. 44,235 1,307
Kennametal, Inc. 60,398 3,087
Lennox International, Inc. 97,421 2,717
Lincoln Electric Holdings, Inc. 64,671 2,559
Manitowoc Co., Inc. 44,287 2,357
o McDermott International, Inc. 107,475 3,905
o Mercury Computer Systems, Inc. 34,900 663
o Moog, Inc., Class A 57,855 1,715
Mueller Industries, Inc. 54,847 1,510
NACCO Industries, Inc., Class A 13,602 1,579
o NCI Building Systems, Inc. 32,106 1,321
Nordson Corp. 44,104 1,639
o Quanta Services, Inc. 207,064 2,379
Regal Beloit Corp. 37,606 1,197
o Sequa Corp., Class A 16,914 1,044
@o The Shaw Group, Inc. 123,985 3,323
= Simpson Manufacturing Co., Inc. 72,468 2,860
Stewart & Stevenson Services, Inc. 47,391 1,131
o Surebeam Corp., Class A 132,000 --
Tecumseh Products Co., Class A 29,407 592
o Teledyne Technologies, Inc. 55,100 1,943
Toro Co. 4,014 147
Tredegar Corp. 60,275 759
@o Trex Co., Inc. 21,900 455
Trinity Industries, Inc. 56,568 2,152
o Triumph Group, Inc. 25,569 891
UAP Holding Corp. 23,771 454
@o United Rentals, Inc. 119,975 2,348
Universal Forest Products, Inc. 26,426 1,462
o URS Corp. 69,911 2,827
@o USG Corp. 64,943 3,839
Valmont Industries, Inc. 39,547 1,288
Wabash National Corp. 48,368 890
Wabtec Corp. 75,421 2,051
@ Walter Industries, Inc. 57,414 2,622
Watsco, Inc. 35,995 2,046
Watts Water Technologies, Inc., Class A
51,400 1,427
o WESCO International, Inc. 76,376 3,036
Woodward Governor Co. 19,618 1,567
York International Corp. 64,904 3,642
-----------
139,841
COMMERCIAL SERVICES & SUPPLIES 3.9%
-------------------------------------------------------------------------
ABM Industries, Inc. 77,753 1,538
o Asset Acceptance Capital Corp. 55,299 1,465
Banta Corp. 41,268 2,077
Brady Corp., Class A 74,191 2,135
o Bright Horizons Family Solutions, Inc.
44,724 1,788
o CBIZ, Inc. 45,049 259
@o Coinstar, Inc. 38,400 975
o Consolidated Graphics, Inc. 22,600 881
o Corinthian Colleges, Inc. 141,593 1,761
o Corrections Corp. of America 55,388 2,209
o CoStar Group, Inc. 27,094 1,299
o DeVry, Inc. 109,400 2,472
o DiamondCluster International, Inc.,
Class A 56,926 366
Educate, Inc. 18,438 217
o FTI Consulting, Inc. 68,508 1,875
G&K Services, Inc., Class A 30,618 1,160
o Heidrick & Struggles International, Inc.
31,660 1,022
IKON Office Solutions, Inc. 176,138 1,758
Jackson Hewitt Tax Service, Inc. 62,312 1,540
John H. Harland Co. 45,960 1,912
Kelly Services, Inc., Class A 32,564 901
Knoll, Inc. 52,147 831
o Korn/Ferry International 59,500 1,025
o Labor Ready, Inc. 69,376 1,620
>o Mascotech, Inc. escrow security 107,500 --
Mine Safety Appliances Co. 55,080 2,307
o Navigant Consulting, Inc. 72,843 1,528
o NCO Group, Inc. 47,352 851
o PHH Corp. 80,478 2,264
@o Portfolio Recovery Associates, Inc. 26,600 1,035
@ Pre-Paid Legal Services, Inc. 24,671 1,056
o Resources Connection, Inc. 71,746 2,048
Rollins, Inc. 113,415 2,157
o School Specialty, Inc. 29,600 1,003
o SIRVA, Inc. 107,519 756
o Sotheby's Holdings, Inc., Class A 104,676 1,630
The Standard Register Co. 16,674 254
Strayer Education, Inc. 23,085 2,066
o TeleTech Holdings, Inc. 126,536 1,320
o Tetra Tech, Inc. 52,803 815
o United Stationers, Inc. 51,428 2,333
o Universal Technical Institute, Inc. 29,095 912
Viad Corp. 36,668 1,056
=o Waste Connections, Inc. 80,889 2,699
Watson Wyatt & Co. Holdings 54,393 1,441
-----------
62,617
3
SCHWAB SMALL-CAP INDEX FUND
PORTFOLIO HOLDINGS continued
VALUE
SECURITY AND NUMBER OF SHARES ($ X 1,000)
CONSUMER DURABLES & APPAREL 3.3%
-------------------------------------------------------------------------
o Alliance Gaming Corp. 85,169 921
American Greetings Corp., Class A 111,754 2,822
o Blount International, Inc. 47,175 748
Blyth, Inc. 64,116 1,169
@ Brookfield Homes Corp. 42,626 2,135
Brown Shoe Co., Inc. 26,900 873
Callaway Golf Co. 96,381 1,373
o Carter's, Inc. 46,829 2,957
o Champion Enterprises, Inc. 115,399 1,602
o DHB Industries, Inc. 34,812 104
@ Ethan Allen Interiors, Inc. 55,645 1,882
Furniture Brands International, Inc. 85,832 1,558
o Helen of Troy Ltd. 45,582 818
o Jarden Corp. 63,971 2,162
K-Swiss, Inc., Class A 49,600 1,510
o K2, Inc. 48,468 486
Kellwood Co. 40,528 888
Kimball International, Inc., Class B 57,855 639
@ La-Z-Boy, Inc. 87,091 1,031
@o Leapfrog Enterprises, Inc. 93,455 1,402
Levitt Corp., Class A 26,188 515
M/I Homes, Inc. 21,726 975
Marine Products Corp. 26,877 256
Maytag Corp. 120,419 2,074
@ Nautilus Group, Inc. 48,396 877
@ Oakley, Inc. 101,494 1,502
Oxford Industries, Inc. 24,000 1,182
Phillips-Van Heusen Corp. 60,675 1,726
o RC2 Corp. 26,121 914
Russell Corp. 51,200 693
SCP Pool Corp. 68,300 2,457
o Skechers USA, Inc., Class A 56,178 712
@ Technical Olympic USA, Inc. 83,266 1,760
Tupperware Corp. 96,976 2,224
o The Warnaco Group, Inc. 68,963 1,564
o WCI Communities, Inc. 66,600 1,666
@o William Lyon Homes 15,377 1,828
Wolverine World Wide, Inc. 101,065 2,117
o Yankee Candle Co., Inc. 67,427 1,525
-----------
53,647
DIVERSIFIED FINANCIALS 2.0%
-------------------------------------------------------------------------
Advanta Corp., Class A 13,339 356
Blackrock, Inc., Class A 30,814 2,921
Cash America International, Inc. 44,470 972
Cohen & Steers, Inc. 31,675 585
@o CompuCredit Corp. 76,489 3,352
@o Credit Acceptance Corp. 32,698 494
Financial Federal Corp. 25,681 981
@ Gamco Investors, Inc., Class A 38,069 1,776
@ Greenhill & Co., Inc. 45,682 2,190
o Investment Technology Group, Inc. 77,397 2,516
o Knight Capital Group, Inc. 159,550 1,527
@o LaBranche & Co., Inc. 93,781 895
o Ladenburg Thalmann Financial Services, Inc. 1,022 1
o Metris Cos., Inc. 96,006 1,410
MoneyGram International, Inc. 131,867 3,204
National Financial Partners Corp. 55,278 2,500
=o Nelnet, Inc., Class A 79,748 2,959
o Piper Jaffray Cos. 30,339 1,042
Waddell & Reed Financial, Inc., Class A 129,350 2,481
o World Acceptance Corp. 2,027 57
-----------
32,219
ENERGY 7.1%
-------------------------------------------------------------------------
o Atwood Oceanics, Inc. 23,624 1,664
Berry Petroleum Co., Class A 34,932 2,091
o Bill Barrett Corp. 64,823 2,063
@ BP Prudhoe Bay Royalty Trust 33,544 2,236
@ Buckeye Partners L.P. 45,355 2,060
Cabot Oil & Gas Corp. 82,102 3,759
@ CARBO Ceramics, Inc. 37,542 2,221
=o(2) Cimarex Energy Co. 126,287 4,958
o Comstock Resources, Inc. 57,921 1,744
@ Dorchester Minerals L.P. 23,720 626
@o Enbridge Energy Management LLC 16,876 854
o Encore Acquisition Co. 76,720 2,632
o Energy Partners Ltd. 51,107 1,297
Frontier Oil Corp. 89,184 3,289
o Global Industries Ltd. 188,071 2,390
@o Grey Wolf, Inc. 300,503 2,308
@o Hanover Compressor Co. 148,758 1,913
Holly Corp. 47,370 2,728
o Houston Exploration Co. 46,788 2,412
@ Hugoton Royalty Trust 50,823 1,757
o Hydril Co. 34,423 2,284
o KCS Energy, Inc. 76,744 1,851
o Key Energy Services, Inc. 216,231 2,932
@o KFX, Inc. 55,886 814
o Lone Star Technologies, Inc. 43,076 1,971
@ Magellan Midstream Partners L.P. 84,768 2,839
o Maverick Tube Corp. 66,691 2,065
o NS Group, Inc. 34,792 1,204
o Oceaneering International, Inc. 37,430 1,801
o Offshore Logistics, Inc. 37,843 1,287
4
SCHWAB SMALL-CAP INDEX FUND
PORTFOLIO HOLDINGS continued
VALUE
SECURITY AND NUMBER OF SHARES ($ X 1,000)
o Oil States International, Inc. 73,380 2,429
OMI Corp. 124,999 2,260
@ Pacific Energy Partners L.P. 28,290 842
Penn Virginia Corp. 27,093 1,473
o Petroleum Development Corp. 26,944 905
(8) Range Resources Corp. 112,016 3,998
o Remington Oil & Gas Corp. 45,596 1,596
Resource America, Inc., Class A 27,951 454
RPC, Inc. 56,324 1,547
o Seacor Holdings, Inc. 36,557 2,619
o Spinnaker Exploration Co. 51,243 3,156
@ St. Mary Land & Exploration Co. 89,860 3,056
o Stone Energy Corp. 41,812 1,919
o Superior Energy Services, Inc. 119,490 2,435
o Swift Energy Co. 44,729 1,953
TC Pipelines L.P. 27,461 903
o Tetra Technologies, Inc. 51,478 1,440
o(4) Todco, Class A 99,877 4,469
o Universal Compression Holdings, Inc.
48,587 1,732
@ Valero L.P. 10,283 601
o Veritas DGC, Inc. 53,765 1,732
=(1) Vintage Petroleum, Inc. 108,000 5,604
o W-H Energy Services, Inc. 43,764 1,326
o Whiting Petroleum Corp. 44,669 1,811
World Fuel Services Corp. 34,681 1,106
-----------
115,416
FOOD & STAPLES RETAILING 0.7%
-------------------------------------------------------------------------
Casey's General Stores, Inc. 80,498 1,737
Longs Drug Stores Corp. 63,035 2,629
@o Performance Food Group Co. 57,768 1,594
Ruddick Corp. 77,382 1,703
The Topps Co., Inc. 7,973 58
o United Natural Foods, Inc. 48,149 1,353
Weis Markets, Inc. 41,562 1,586
-----------
10,660
FOOD BEVERAGE & TOBACCO 1.3%
-------------------------------------------------------------------------
Chiquita Brands International, Inc. 64,000 1,767
Delta & Pine Land Co. 63,684 1,589
Farmer Brothers Co. 5,113 102
Flowers Foods, Inc. 84,928 2,488
@o Gold Kist, Inc. 54,909 944
o Hain Celestial Group, Inc. 56,154 1,085
Lancaster Colony Corp. 58,597 2,349
Ralcorp Holdings, Inc. 45,866 1,784
Sanderson Farms, Inc. 31,569 1,089
= Seaboard Corp. 2,079 2,954
Tootsie Roll Industries, Inc. 66,171 2,005
Universal Corp. 40,000 1,498
@ Vector Group Ltd. 72,418 1,446
-----------
21,100
HEALTH CARE EQUIPMENT & SERVICES 7.5%
-------------------------------------------------------------------------
@o Advanced Medical Optics, Inc. 101,894 3,636
o Advanced Neuromodulation Systems, Inc.
30,969 1,889
o The Advisory Board Co. 28,000 1,351
o Alliance Imaging, Inc. 75,290 520
o American Healthways, Inc. 54,266 2,201
o American Medical Systems Holdings, Inc.
111,464 1,822
o Amsurg Corp. 47,558 1,130
Analogic Corp. 22,387 1,048
o Apria Healthcare Group, Inc. 82,766 1,909
Arrow International, Inc. 66,700 1,930
o Arthrocare Corp. 31,874 1,171
@o Beverly Enterprises, Inc. 179,059 2,102
o Bio-Rad Laboratories, Inc., Class A 39,731 2,325
@o Biosite, Inc. 23,322 1,288
o Bruker BioSciences Corp. 43,500 181
o Centene Corp. 62,090 1,251
@o(3) Cerner Corp. 58,675 4,955
Chemed Corp. 37,606 1,808
o Conmed Corp. 47,704 1,144
o Cross Country Healthcare, Inc. 2,519 46
o Cyberonics 38,996 1,171
o Dendrite International, Inc. 66,922 1,175
Diagnostic Products Corp. 48,211 2,030
o DJ Orthopedics, Inc. 9,670 281
o Eclipsys Corp. 69,364 1,110
@o eResearch Technology, Inc. 74,991 1,075
@o Foxhollow Technologies, Inc. 35,300 1,599
o Genesis HealthCare Corp. 32,984 1,339
o Haemonetics Corp. 41,800 2,025
o HealthExtras, Inc. 57,000 1,200
o Hologic, Inc. 33,970 1,884
o IDX Systems Corp. 45,606 1,979
o Immucor, Inc. 71,437 1,852
o Integra LifeSciences Holdings Corp. 44,648 1,540
o Intermagnetics General Corp. 43,353 1,242
=o(5) Intuitive Surgical, Inc. 49,955 4,433
Invacare Corp. 47,186 1,594
@o Kindred Healthcare, Inc. 54,813 1,535
o Kyphon, Inc. 63,651 2,552
o LabOne, Inc. 26,823 1,177
@o Laserscope 33,260 898
=o LifePoint Hospitals, Inc. 81,441 3,184
o Magellan Health Services, Inc. 49,963 1,485
5
SCHWAB SMALL-CAP INDEX FUND
PORTFOLIO HOLDINGS continued
VALUE
SECURITY AND NUMBER OF SHARES ($ X 1,000)
Matthews International Corp., Class A
53,566 1,925
o Medco Health Solutions, Inc. 2,495 141
= Mentor Corp. 70,133 3,156
o Molina Healthcare, Inc. 44,813 921
o NDCHealth Corp. 4,519 85
@o Nektar Therapeutics 130,954 1,972
Owens & Minor, Inc. 61,646 1,816
o Parexel International Corp. 43,237 946
=o Pediatrix Medical Group, Inc. 39,726 3,061
o Per-Se Technologies, Inc. 781 17
PolyMedica Corp. 18,532 612
o PSS World Medical, Inc. 100,094 1,394
o Psychiatric Solutions, Inc. 32,530 1,779
o SFBC International, Inc. 24,874 1,061
=o Sierra Health Services, Inc. 43,728 3,280
Steris Corp. 112,792 2,573
Stewart Enterprises, Inc., Class A 171,003 872
@o Sunrise Senior Living, Inc. 65,322 2,113
o Sybron Dental Specialties, Inc. 64,459 2,765
o Symmetry Medical, Inc. 46,857 1,037
o Thoratec Corp. 92,580 1,831
o United Surgical Partners International,
Inc. 70,378 2,523
o Varian, Inc. 57,713 2,122
=o VCA Antech, Inc. 135,670 3,500
o Ventana Medical Systems, Inc. 54,500 2,089
o Ventiv Health, Inc. 39,444 996
o VistaCare, Inc., Class A 16,463 190
o WellCare Health Plans, Inc. 57,313 1,805
West Pharmaceutical Services, Inc. 52,350 1,255
o Wright Medical Group, Inc. 49,600 923
-----------
120,827
HOTELS RESTAURANTS & LEISURE 3.0%
-------------------------------------------------------------------------
AFC Enterprises, Inc. 41,917 486
Ameristar Casinos, Inc. 89,790 1,915
o Aztar Corp. 54,200 1,630
o Bluegreen Corp. 43,588 661
Bob Evans Farms, Inc. 40,445 906
=o CEC Entertainment, Inc. 58,891 1,991
Cedar Fair L.P. 51,763 1,427
Churchill Downs, Inc. 20,324 653
@ CKE Restaurants, Inc. 85,450 1,087
Domino's Pizza, Inc. 82,035 1,962
o Gaylord Entertainment Co. 59,934 2,366
o Great Wolf Resorts, Inc. 30,742 271
IHOP Corp. 33,472 1,581
@o Isle of Capri Casinos, Inc. 46,292 985
o Jack in the Box, Inc. 60,436 1,795
o La Quinta Corp. 298,380 2,492
Landry's Restaurants, Inc. 45,707 1,257
o Life Time Fitness, Inc. 33,955 1,261
Lone Star Steakhouse & Saloon, Inc. 30,249 781
@o P.F. Chang's China Bistro, Inc. 40,200 1,839
@o Panera Bread Co., Class A 47,322 2,801
o Papa John's International, Inc. 27,826 1,445
o Pinnacle Entertainment, Inc. 61,603 1,167
o Rare Hospitality International Inc. 53,116 1,623
o Red Robin Gourmet Burgers, Inc. 25,000 1,206
@ Ruby Tuesday, Inc. 98,363 2,155
o Ryan's Restaurant Group, Inc. 68,990 735
@o Shuffle Master, Inc. 52,002 1,319
Speedway Motorsports, Inc. 53,729 1,905
o Texas Roadhouse, Inc., Class A 109,830 1,729
Triarc Cos., Class B 109,068 1,622
o Vail Resorts, Inc. 62,900 2,107
o WMS Industries, Inc. 46,967 1,180
-----------
48,340
HOUSEHOLD & PERSONAL PRODUCTS 0.8%
-------------------------------------------------------------------------
o Central Garden & Pet Co. 29,096 1,247
o Chattem, Inc. 32,653 1,078
o Elizabeth Arden, Inc. 41,859 907
@o Ionatron, Inc. 76,735 805
@ Manatech, Inc. 39,844 367
o NBTY, Inc. 103,860 2,078
Nu Skin Enterprises, Inc., Class A 103,089 1,736
o Playtex Products, Inc. 8,772 117
o Revlon, Inc., Class A 588,763 1,731
@o USANA Health Sciences, Inc. 31,986 1,408
WD-40 Co. 27,352 753
-----------
12,227
INSURANCE 3.8%
-------------------------------------------------------------------------
21st Century Insurance Group 126,896 2,024
Alfa Corp. 161,099 2,703
o Arch Capital Group Ltd. 51,588 2,554
o Argonaut Group, Inc. 49,800 1,452
Baldwin & Lyons, Inc., Class B 8,444 217
Bristol West Holdings, Inc. 41,232 795
o CNA Surety Corp. 71,600 1,005
Commerce Group, Inc. 3,561 202
o Covanta Holding Corp. 142,955 1,657
Delphi Financial Group, Inc., Class A
51,722 2,423
FBL Financial Group, Inc., Class A 47,368 1,477
6
SCHWAB SMALL-CAP INDEX FUND
PORTFOLIO HOLDINGS continued
VALUE
SECURITY AND NUMBER OF SHARES ($ X 1,000)
Great American Financial Resources, Inc.
89,165 1,821
Harleysville Group, Inc. 53,942 1,311
Hilb, Rogal & Hobbs Co. 54,619 2,045
Horace Mann Educators Corp. 70,900 1,376
Infinity Property & Casualty Corp. 33,561 1,249
Kansas City Life Insurance Co. 20,870 1,064
Landamerica Financial Group, Inc. 30,845 1,948
The Midland Co. 31,979 1,208
o National Western Life Insurance Co., Class
A 5,594 1,133
o Navigators Group, Inc. 2,773 108
@ Odyssey Re Holdings Corp. 104,814 2,692
Ohio Casualty Corp. 101,777 2,776
=o Philadelphia Consolidated Holding Co.
36,819 3,544
@ The Phoenix Cos., Inc. 155,172 2,009
o ProAssurance Corp. 48,289 2,260
RLI Corp. 41,340 2,222
Selective Insurance Group, Inc. 46,050 2,529
State Auto Financial Corp. 69,408 2,286
Stewart Information Services Corp. 27,927 1,422
o Triad Guaranty, Inc. 22,793 959
UICI 69,731 2,519
United Fire & Casualty Co. 34,300 1,544
o Universal American Financial Corp. 89,527 1,325
o USI Holdings Corp. 81,071 1,066
Zenith National Insurance Corp. 49,545 2,231
-----------
61,156
MATERIALS 5.1%
-------------------------------------------------------------------------
Albemarle Corp. 72,619 2,548
Alliance Resource Partners L.P. 53,872 2,276
AMCOL International Corp. 46,576 946
= Aptargroup, Inc. 60,297 3,087
Arch Chemicals, Inc. 37,275 979
o Buckeye Technologies, Inc. 9,909 74
Cambrex Corp. 43,242 825
Carpenter Technology Corp. 37,777 2,278
o Century Aluminum Co. 47,074 856
= Chemtura Corp. 366,090 3,917
Chesapeake Corp. 5,446 110
@ Cleveland-Cliffs, Inc. 31,946 2,605
@o Coeur D'Alene Mines Corp. 347,500 1,310
Compass Minerals International, Inc.
51,130 1,145
= Eagle Materials, Inc. 31,173 3,320
Ferro Corp. 62,201 1,110
=o FMC Corp. 58,253 3,171
Foundation Coal Holdings, Inc. 69,624 2,611
Georgia Gulf Corp. 52,624 1,531
Gibraltar Industries, Inc. 44,711 905
Glatfelter 72,680 988
o Graphic Packaging Corp. 328,644 871
Greif, Inc., Class A 37,116 2,264
H.B. Fuller Co. 47,383 1,420
@o Headwaters, Inc. 55,649 1,772
o Hecla Mining Co. 135,100 455
o Hercules, Inc. 185,114 2,062
Longview Fibre Co. 75,895 1,427
MacDermid, Inc. 50,180 1,405
Minerals Technologies, Inc. 32,285 1,726
@ Natural Resource Partners L.P. 21,966 1,163
@ NL Industries, Inc. 88,023 1,492
Olin Corp. 101,191 1,809
o OM Group, Inc. 44,462 711
o Oregon Steel Mills, Inc. 52,241 1,326
@ Penn Virginia Resource Partners L.P.
20,538 1,100
o PolyOne Corp. 151,784 876
Potlatch Corp. 48,887 2,187
Quanex Corp. 40,839 2,365
Reliance Steel & Aluminum Co. 48,307 2,754
@ Schnitzer Steel Industries, Inc., Class A
48,991 1,563
Sensient Technologies Corp. 74,547 1,319
Silgan Holdings, Inc. 61,392 1,975
Spartech Corp. 48,885 927
o Stillwater Mining Co. 147,127 1,486
o Symyx Technologies, Inc. 47,700 1,276
o Terra Industries, Inc. 153,500 938
Texas Industries, Inc. 34,151 1,694
USEC, Inc. 125,199 1,252
o W.R. Grace & Co. 97,700 735
Wausau Paper Corp. 79,202 867
Worthington Industries, Inc. 137,735 2,771
-----------
82,580
MEDIA 2.5%
-------------------------------------------------------------------------
Advo, Inc. 46,050 1,137
Arbitron, Inc. 49,217 1,841
@o Catalina Marketing Corp. 89,622 2,336
o Cox Radio, Inc., Class A 67,472 965
o Crown Media Holdings, Inc., Class A 25,696 275
o Cumulus Media, Inc., Class A 85,560 1,040
@o Emmis Communications Corp., Class A 54,139 1,060
o Entercom Communications Corp. 81,209 2,345
o Fisher Communications, Inc. 2,261 110
Gray Television, Inc. 79,673 717
Hearst-Argyle Television, Inc. 71,334 1,709
7
SCHWAB SMALL-CAP INDEX FUND
PORTFOLIO HOLDINGS continued
VALUE
SECURITY AND NUMBER OF SHARES ($ X 1,000)
Hollinger International, Inc., Class A
134,680 1,181
o Insight Communications Co., Class A 96,120 1,105
Journal Communications, Inc., Class A
131,427 1,860
o Journal Register Co. 64,734 1,038
Liberty Corp. 28,289 1,314
@o Martha Stewart Living Omnimedia, Class A
81,100 1,397
Media General, Inc., Class A 38,377 2,024
o Mediacom Communications Corp., Class A
196,771 1,143
@o Primedia, Inc. 412,119 865
o ProQuest Co. 47,169 1,399
o Radio One, Inc., Class A 164,537 1,950
The Reader's Digest Association, Inc.,
Class A 147,171 2,255
o Salem Communications Corp., Class A 41,928 785
o Scholastic Corp. 64,888 2,112
Sinclair Broadcast Group, Inc., Class A
141,487 1,173
o Spanish Broadcasting System, Class A
101,506 619
=o Valassis Communications, Inc. 85,762 2,680
Value Line, Inc. 18,105 706
World Wrestling Entertainment, Inc. 94,294 1,202
-----------
40,343
PHARMACEUTICALS & BIOTECHNOLOGY 4.1%
-------------------------------------------------------------------------
o aaiPharma, Inc. 12,600 5
o Abgenix, Inc. 139,245 1,448
o Albany Molecular Research, Inc. 9,098 122
o Alexion Pharmaceuticals, Inc. 41,356 1,133
@o Alkermes, Inc. 140,224 2,284
Alpharma, Inc., Class A 90,791 2,260
o Andrx Corp. 108,155 1,673
@o Atherogenics, Inc. 56,500 847
o Celera Genomics Group--Applera Corp.
120,958 1,437
o Connetics Corp. 52,703 687
@o CV Therapeutics, Inc. 52,307 1,311
o Encysive Pharmaceuticals, Inc. 52,943 556
o Enzo Biochem, Inc. 52,193 712
o Enzon Pharmaceuticals, Inc. 1,537 11
o Eyetech Pharmaceuticals, Inc. 63,808 1,126
@o First Horizon Pharmaceutical Corp. 60,503 873
o Genzyme Corp. 222 16
@o Human Genome Sciences, Inc. 205,140 1,713
@o ICOS Corp. 105,140 2,837
@o Idenix Pharmaceuticals, Inc. 33,859 705
@o Impax Laboratories, Inc. 88,648 938
o Incyte Corp. 135,257 675
=o Kos Pharmaceuticals, Inc. 61,130 3,668
o KV Pharmaceutical Co., Class A 76,401 1,309
@o Ligand Pharmaceuticals, Inc., Class B
108,580 940
@o Martek Biosciences Corp. 47,168 1,456
@o Medarex, Inc. 138,860 1,214
o Medicines Co. 74,857 1,283
=o MGI Pharma, Inc. 111,363 2,089
o Myriad Genetics, Inc. 48,680 943
o Nabi Biopharmaceuticals 90,613 1,164
o Neurocrine Biosciences, Inc. 57,408 3,032
@o NitroMed, Inc. 46,434 755
@o Onyx Pharmaceuticals, Inc. 54,114 1,390
o Par Pharmaceutical Cos., Inc. 53,100 1,374
Perrigo Co. 114,002 1,524
o Pharmion Corp. 50,829 960
=o(6) Protein Design Labs, Inc. 155,921 4,369
o Regeneron Pharmaceuticals, Inc. 6,564 82
o Salix Pharmaceuticals Ltd. 55,200 990
@o Serologicals Corp. 49,800 970
=o Techne Corp. 68,072 3,691
@o Telik, Inc. 79,491 1,188
o Theravance, Inc. 54,044 1,171
@o United Therapeutics Corp. 32,333 2,388
@o Vertex Pharmaceuticals, Inc. 138,194 3,144
o Zymogenetics, Inc. 63,117 1,106
-----------
65,569
REAL ESTATE 7.3%
-------------------------------------------------------------------------
o Alexander's, Inc. 7,897 1,895
Alexandria Real Estate Equities, Inc.
31,429 2,541
American Financial Realty Trust 190,692 2,347
@ American Home Mortgage Investment Corp.
72,978 1,973
o American Real Estate Partners L.P. 20,101 693
AMLI Residential Properties 39,808 1,507
Anthracite Capital, Inc. 83,413 875
BioMed Realty Trust, Inc. 66,183 1,655
Brandywine Realty Trust 84,006 2,302
Capital Automotive Real Estate Investment
Trust 68,100 2,630
CarrAmerica Realty Corp. 80,716 2,658
@ Colonial Properties Trust 57,841 2,528
Commercial Net Lease Realty 81,282 1,575
Corporate Office Properties Trust SBI
56,653 1,969
Cousins Properties, Inc. 76,856 2,270
8
SCHWAB SMALL-CAP INDEX FUND
PORTFOLIO HOLDINGS continued
VALUE
SECURITY AND NUMBER OF SHARES ($ X 1,000)
@ Crescent Real Estate Equity Co. 147,623 2,945
EastGroup Properties, Inc. 32,937 1,439
Entertainment Properties Trust 39,270 1,575
Equity Inns, Inc. 81,317 1,060
Equity Lifestyle Properties, Inc. 35,810 1,516
Equity One, Inc. 93,734 2,198
Essex Property Trust, Inc. 35,995 3,235
o FelCor Lodging Trust, Inc. 93,080 1,389
First Industrial Realty Trust 61,241 2,488
Getty Realty Corp. 38,661 1,054
Glenborough Realty Trust, Inc. 56,328 1,078
@ Glimcher Realty Trust 55,704 1,280
Global Signal, Inc. 86,141 3,571
@ Health Care Real Estate Investment Trust,
Inc. 77,307 2,724
Healthcare Realty Trust, Inc. 69,952 2,647
@ Heritage Property Investment Trust 73,290 2,389
Highwoods Properties, Inc. 82,783 2,335
Home Properties, Inc. 52,219 2,029
@ IMPAC Mortgage Holdings, Inc. 116,665 1,171
Inland Real Estate Corp. 81,739 1,165
o Jones Lang LaSalle, Inc. 52,100 2,620
Kilroy Realty Corp. 44,568 2,503
LaSalle Hotel Properties 44,504 1,575
@ Lexington Corp. Properties Trust 75,724 1,649
Maguire Properties, Inc. 66,833 2,005
o MeriStar Hospitality Corp. 136,823 1,186
MFA Mortgage Investments, Inc. 125,920 724
Mid-America Apartment Communities, Inc.
31,980 1,492
National Health Investors, Inc. 43,136 1,158
@ Nationwide Health Properties, Inc. 102,452 2,376
Newcastle Investment Corp. 66,017 1,736
@ Novastar Financial, Inc. 43,699 1,286
Parkway Properties, Inc. 22,100 1,039
Pennsylvania Real Estate Investment Trust
53,545 2,061
Post Properties, Inc. 62,362 2,544
Prentiss Properties Trust 67,086 2,647
PS Business Parks, Inc. 34,224 1,593
RAIT Investment Trust 39,573 1,051
Redwood Trust, Inc. 36,588 1,703
Saxon Capital, Inc. 78,154 778
Senior Housing Properties Trust 107,347 1,901
@ Sovran Self Storage, Inc. 24,628 1,146
Spirit Finance Corp. 83,670 939
Sun Communities, Inc. 29,753 907
Sunstone Hotel Investors, Inc. 55,730 1,248
Tanger Factory Outlet Centers 43,034 1,157
Taubman Centers, Inc. 78,307 2,582
@o Tejon Ranch Co. 24,796 1,101
o Trammell Crow Co. 62,635 1,602
U-store-it Trust 55,444 1,157
W.P. Carey & Co. LLC 41,012 1,052
Washington Real Estate Investment Trust
57,619 1,720
-----------
118,944
RETAILING 5.4%
-------------------------------------------------------------------------
o 99 Cents Only Stores 109,029 1,052
Aaron Rents, Inc. 82,333 1,622
o Aeropostale, Inc. 85,391 1,668
o AnnTaylor Stores Corp. 108,246 2,627
= Bebe Stores 140,641 1,989
o Big Lots, Inc. 171,098 1,980
@ Blockbuster, Inc., Class A 283,923 1,295
The Buckle, Inc. 35,650 1,313
@o Build-A-Bear Workshop, Inc. 29,183 699
Building Material Holding Corp. 21,402 1,819
Burlington Coat Factory Warehouse Corp.
73,919 2,850
@o Cabela's, Inc., Class A 62,462 1,024
The Cato Corp., Class A 51,211 1,023
o Charming Shoppes, Inc. 199,826 2,238
o The Children's Place Retail Stores, Inc.
40,744 1,749
Christopher & Banks Corp. 55,937 748
o Coldwater Creek, Inc. 93,431 2,522
o Cost Plus, Inc. 32,921 506
o CSK Auto Corp. 77,069 1,166
@o Dick's Sporting Goods, Inc. 55,064 1,648
The Finish Line, Class A 75,643 1,183
Fred's, Inc. 47,178 703
@o(7) Gamestop Corp., Class A 116,025 4,116
o Genesco, Inc. 32,711 1,204
o Group 1 Automotive, Inc. 34,140 944
o GSI Commerce, Inc. 60,646 969
o Guess?, Inc. 72,187 1,958
@o Guitar Center, Inc. 39,464 2,056
o Hibbet Sporting Goods, Inc. 56,175 1,473
o HOT Topic, Inc. 70,651 1,052
@o IAC/InterActiveCorp 55,885 1,431
o Insight Enterprises, Inc. 75,537 1,550
o Jo-Ann Stores, Inc. 34,401 503
o Linens 'N Things, Inc. 70,762 1,779
=o The Men's Wearhouse, Inc. 89,826 2,219
@ Movie Gallery, Inc. 48,682 339
@o NetFlix, Inc. 91,400 2,414
o New York & Co, Inc. 71,672 968
@o Overstock.com, Inc. 30,100 1,003
=o The Pantry, Inc. 33,576 1,299
o Payless Shoesource, Inc. 112,566 2,068
9
SCHWAB SMALL-CAP INDEX FUND
PORTFOLIO HOLDINGS continued
VALUE
SECURITY AND NUMBER OF SHARES ($ X 1,000)
Pep Boys-Manny, Moe & Jack 89,391 1,234
Pier 1 Imports, Inc. 137,189 1,416
o Priceline.com, Inc. 64,242 1,219
Regis Corp. 65,500 2,513
@o Select Comfort Corp. 54,437 1,192
Sonic Automotive, Inc. 44,861 992
@o The Sports Authority, Inc. 41,100 1,144
o Stage Stores, Inc. 41,250 1,143
Stein Mart, Inc. 69,417 1,274
Talbots, Inc. 93,769 2,446
o TBC Corp. 34,844 1,205
o Too, Inc. 57,176 1,624
o Tractor Supply Co. 51,162 2,481
Tuesday Morning Corp. 64,481 1,547
United Auto Group, Inc. 46,148 1,557
=o Zale Corp. 81,259 2,278
-----------
88,034
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT 3.3%
-------------------------------------------------------------------------
o Advanced Energy Industries, Inc. 77 1
o AMIS Holdings, Inc. 125,998 1,404
@o Amkor Technology, Inc. 262,732 1,387
o Applied Micro Circuits Corp. 461,563 1,126
o Asyst Technologies, Inc. 29,651 128
@o Atheros Communications, Inc. 69,270 601
o Atmel Corp. 706,431 1,738
o ATMI, Inc. 51,954 1,419
o Axcelis Technologies, Inc. 165,541 720
o Brooks Automation, Inc. 66,034 773
@o Cabot Microelectronics Corp. 39,864 1,172
@o Conexant Systems, Inc. 760,209 1,475
o Credence Systems Corp. 159,414 1,227
@o Cree, Inc. 108,896 2,618
o Cymer, Inc. 60,930 2,123
@o Cypress Semiconductor Corp. 195,433 2,658
o DSP Group, Inc. 47,200 1,160
o Entegris, Inc. 151,923 1,483
o Exar Corp. 72,618 914
o FEI Co. 49,346 933
o Formfactor, Inc. 57,251 1,410
o Genesis Microchip, Inc. 1,189 23
o Integrated Device Technology, Inc. 197,821 1,954
o Kopin Corp. 73,817 417
o Lattice Semiconductor Corp. 187,852 823
o Micrel, Inc. 146,439 1,464
o Microsemi Corp. 93,524 2,167
o MKS Instruments, Inc. 88,775 1,675
@o Omnivision Technologies, Inc. 83,773 1,080
o ON Semiconductor Corp. 414,285 1,922
o Photronics, Inc. 58,900 1,060
o Power Integrations, Inc. 51,207 1,081
o RF Micro Devices, Inc. 279,677 1,465
o Semtech Corp. 113,829 1,717
@o Sigmatel, Inc. 55,088 750
o Silicon Image, Inc. 118,000 1,083
o Silicon Laboratories, Inc. 83,700 2,693
o Skyworks Solutions, Inc. 237,871 1,275
o Tessera Technologies, Inc. 65,089 1,816
o Varian Semiconductor Equipment Associates,
Inc. 55,268 2,090
@o Vitesse Semiconductor Corp. 327,762 541
-----------
53,566
SOFTWARE & SERVICES 7.9%
-------------------------------------------------------------------------
o Advent Software, Inc. 55,114 1,693
@o Akamai Technologies, Inc. 208,157 3,609
o Altiris, Inc. 44,345 749
o Ansys, Inc. 51,298 1,911
o Anteon International Corp. 53,340 2,411
@o aQuantive, Inc. 91,020 1,971
@o Ariba, Inc. 54,105 423
@o BearingPoint, Inc. 303,490 2,131
o The BISYS Group, Inc. 181,733 2,304
o Borland Software Corp. 146,391 739
=o CACI International, Inc., Class A 48,231 2,631
o CMGI, Inc. 664,676 1,050
o CNET Networks, Inc. 224,828 3,055
o CSG Systems International, Inc. 86,182 2,026
o Digital Insight Corp. 58,655 1,750
o Digital River, Inc. 50,810 1,423
o Digitas, Inc. 129,700 1,401
o Earthlink, Inc. 260,354 2,867
o eFunds Corp. 67,300 1,388
o Epicor Software Corp. 73,952 908
@o Equinix, Inc. 29,991 1,106
o Euronet Worldwide, Inc. 54,200 1,523
Factset Research Systems, Inc. 71,072 2,493
o FileNet Corp. 65,297 1,838
o Forrester Research, Inc. 8,000 154
o Gartner, Inc., Class A 172,273 2,074
o Homestore, Inc. 12,209 44
o Informatica Corp. 143,296 1,705
@o Infospace, Inc. 53,041 1,332
infoUSA, Inc. 85,004 911
o Internet Security Systems 80,163 1,974
o Interwoven, Inc. 46,337 436
o iPayment, Inc. 20,430 735
@o j2 Global Communications, Inc. 38,892 1,719
Jack Henry & Associates, Inc. 124,275 2,235
o Kanbay International, Inc. 50,318 734
o Keane, Inc. 96,900 1,095
o Kronos, Inc. 49,193 2,256
@o Lawson Software, Inc. 139,352 1,067
10
SCHWAB SMALL-CAP INDEX FUND
PORTFOLIO HOLDINGS continued
VALUE
SECURITY AND NUMBER OF SHARES ($ X 1,000)
o Macrovision Corp. 73,451 1,384
o Manhattan Associates, Inc. 50,749 1,127
o Mantech International Corp., Class A
41,768 1,157
@o Marchex, Inc., Class B 38,658 651
MAXIMUS, Inc. 35,928 1,302
o Mentor Graphics Corp. 121,767 1,007
o Micromuse, Inc. 25,878 186
o Micros Systems, Inc. 61,200 2,810
@o MicroStrategy, Inc., Class A 26,574 1,884
@o Midway Games, Inc. 113,991 2,129
o MPS Group, Inc. 165,064 2,055
o NetIQ Corp. 90,980 1,091
o Netratings, Inc. 32,350 481
o Nuance Communications, Inc. 99,039 509
o Openwave Systems, Inc. 100,800 1,801
=o Parametric Technology Corp. 471,910 3,072
o Perot Systems Corp., Class A 185,719 2,574
o Progress Software Corp. 60,080 1,871
QAD, Inc. 8,502 68
o Quest Software, Inc. 143,478 1,996
o RealNetworks, Inc. 289,943 2,262
@ Renaissance Learning, Inc. 43,188 650
o RSA Security, Inc. 105,421 1,202
o S1 Corp. 95,940 421
=o(10) Salesforce.com, Inc. 157,259 3,930
o Sapient Corp. 191,488 994
o Serena Software, Inc. 73,571 1,611
o SonicWALL, Inc. 17,144 119
o SRA International, Inc., Class A 85,460 2,805
o SupportSoft, Inc. 16,607 67
=o Sybase, Inc. 158,962 3,537
Syntel, Inc. 31,042 630
@o Take-Two Interactive Software, Inc.
105,542 2,179
@o THQ, Inc. 97,252 2,254
o Transaction Systems Architects, Inc.,
Class A 63,261 1,709
@o Travelzoo, Inc. 24,686 460
o Ulticom, Inc. 70,394 741
United Online, Inc. 103,967 1,394
@o Valueclick, Inc. 132,631 2,321
o Verint Systems, Inc. 49,628 1,900
o Verity, Inc. 18,030 179
@o WebEx Communications, Inc. 65,799 1,508
o Websense, Inc. 38,552 2,278
o Wind River Systems, Inc. 136,225 1,785
-----------
127,962
TECHNOLOGY HARDWARE & EQUIPMENT 5.4%
-------------------------------------------------------------------------
o 3Com Corp. 651,848 2,510
o Adaptec, Inc. 182,113 749
=(9) Adtran, Inc. 131,924 3,991
o Advanced Digital Information Corp. 107,545 983
o Aeroflex, Inc. 119,800 1,085
Agilysys, Inc. 53,400 798
o Anixter International, Inc. 53,800 1,995
o Arris Group, Inc. 150,394 1,244
o Avocent Corp. 79,170 2,427
@ Belden CDT, Inc. 75,409 1,503
o Benchmark Electronics, Inc. 63,113 1,773
Black Box Corp. 28,268 1,134
o Brocade Communications Systems, Inc.
429,198 1,597
o Checkpoint Systems, Inc. 56,844 1,364
o CIENA Corp. 942,683 2,234
o Clarent Corp. 105,200 5
Cognex Corp. 60,968 1,743
o Coherent, Inc. 50,300 1,489
o CommScope, Inc. 89,546 1,748
o Dionex Corp. 33,772 1,636
o Echelon Corp. 4,165 32
o Electro Scientific Industries, Inc. 44,287 973
o Electronics for Imaging 79,509 1,997
o Emulex Corp. 137,008 2,536
o Enterasys Networks, Inc. 2,667 27
o Extreme Networks, Inc. 206,755 999
o F5 Networks, Inc. 57,238 2,978
o Foundry Networks, Inc. 218,228 2,603
@o Gateway, Inc. 573,477 1,634
o Global Imaging Systems, Inc. 35,354 1,259
o Harmonic, Inc. 105,897 488
o Hutchinson Technology, Inc. 44,283 1,098
Imation Corp. 58,903 2,522
Inter-Tel, Inc. 40,402 748
o Interdigital Communications Corp. 90,273 1,732
o Intergraph Corp. 54,133 2,619
o Ixia 75,220 949
o Kemet Corp. 135,569 938
o Littelfuse, Inc. 33,699 826
o Maxtor Corp. 409,626 1,434
MTS Systems Corp. 34,881 1,394
@o Palm, Inc. 73,780 1,895
Park Electrochemical Corp. 19,260 483
o Paxar Corp. 58,861 1,011
Plantronics, Inc. 73,291 2,188
o Polycom, Inc. 147,659 2,259
@o Powerwave Technologies, Inc. 172,608 1,935
o Quantum Corp. 167,550 506
o Rogers Corp. 25,733 961
o SafeNet, Inc. 35,647 1,182
o Scansource, Inc. 18,910 1,071
o Sonus Networks, Inc. 381,900 1,665
o Sycamore Networks, Inc. 429,424 1,670
@o Synaptics, Inc. 38,832 902
11
SCHWAB SMALL-CAP INDEX FUND
PORTFOLIO HOLDINGS continued
VALUE
SECURITY AND NUMBER OF SHARES ($ X 1,000)
o SYNNEX Corp. 29,975 531
@o Taser International, Inc. 87,853 540
Technitrol, Inc. 66,950 1,126
o Tekelec 101,116 1,387
o UNOVA, Inc. 100,816 3,125
@o Utstarcom, Inc. 176,473 974
o Vishay Intertechnology, Inc. 65,709 745
-----------
87,950
TELECOMMUNICATION SERVICES 1.2%
-------------------------------------------------------------------------
o Alamosa Holdings, Inc. 219,874 3,254
o Arbinet-thexchange, Inc. 29,117 184
o Centennial Communications Corp. 156,709 2,321
o Cincinnati Bell, Inc. 372,315 1,474
Commonwealth Telephone Enterprises, Inc.
34,888 1,252
o General Communication, Inc., Class A
91,238 877
o IDT Corp., Class B 93,679 1,119
@o InPhonic, Inc. 35,575 514
o Iowa Telecommunications Services, Inc.
47,019 776
@o Level 3 Communications, Inc. 1,121,772 3,253
o Premiere Global Services, Inc. 117,210 994
o Price Communications Corp. 88,483 1,347
SureWest Communications 1,321 37
o Ubiquitel, Inc. 153,698 1,328
o Wireless Facilities, Inc. 111,115 743
-----------
19,473
TRANSPORTATION 2.3%
-------------------------------------------------------------------------
@o AirTran Holdings, Inc. 127,004 1,900
o Alaska Air Group, Inc. 48,950 1,543
o Amerco, Inc. 31,576 1,842
@o AMR Corp. 266,155 3,596
Arkansas Best Corp. 37,176 1,441
@o Continental Airlines, Inc., Class B
110,078 1,425
o Dollar Thrifty Automotive Group, Inc.
37,425 1,411
o ExpressJet Holdings, Inc. 94,388 848
Florida East Coast Industries, Class A
37,755 1,646
Forward Air Corp. 53,478 1,896
Heartland Express, Inc. 122,882 2,427
o HUB Group, Inc., Class A 33,096 1,204
o Kansas City Southern Railway 103,803 2,300
o Kirby Corp. 36,492 1,885
Knight Transportation, Inc. 86,978 2,367
Macquaire Infrastructure Co. Trust 39,173 1,175
o Mesa Air Group, Inc. 865 10
o Northwest Airlines Corp. 143,200 79
o Old Dominion Freight Line 36,854 1,304
o Pacer International, Inc. 61,736 1,596
SkyWest, Inc. 92,821 2,721
Werner Enterprises, Inc. 120,959 2,168
-----------
36,784
UTILITIES 3.0%
-------------------------------------------------------------------------
Allete, Inc. 48,941 2,154
o Aquila, Inc. 379,259 1,343
Avista Corp. 77,880 1,364
Black Hills Corp. 48,259 2,006
California Water Service Group 28,183 1,008
CH Energy Group, Inc. 25,405 1,183
Cleco Corp. 81,790 1,734
@ Duquesne Light Holdings, Inc. 106,855 1,783
@o Dynegy, Inc., Class A 579,523 2,573
o El Paso Electric Co. 78,823 1,706
@ The Empire District Electric Co. 42,273 854
Idacorp, Inc. 63,213 1,825
Inergy L.P. 38,983 1,111
The Laclede Group, Inc. 32,284 965
MGE Energy, Inc. 31,320 1,110
New Jersey Resources Corp. 41,421 1,788
@ Nicor, Inc. 72,983 2,861
Northwest Natural Gas Co. 42,813 1,481
Otter Tail Corp. 43,359 1,294
Peoples Energy Corp. 58,727 2,185
@ Piedmont Natural Gas Co. 119,983 2,839
PNM Resources, Inc. 94,743 2,402
o Sierra Pacific Resources 174,326 2,258
South Jersey Industries 48,310 1,350
Southwest Gas Corp. 54,855 1,495
UIL Holdings Corp. 21,550 1,067
Unisource Energy Corp. 56,749 1,814
WGL Holdings, Inc. 79,706 2,477
-----------
48,030
12
SCHWAB SMALL-CAP INDEX FUND
PORTFOLIO HOLDINGS continued
FACE
SECURITY AMOUNT VALUE
RATE, MATURITY DATE ($ X 1,000) ($ X 1,000)
SHORT-TERM INVESTMENT 0.8% of net assets
Wachovia Bank, Grand Cayman Time
Deposit
3.48%, 11/01/05 12,862 12,862
U.S. TREASURY OBLIGATIONS 0.0% of net assets
= U.S. Treasury Bills
3.28%-3.40%, 12/15/05 485 483
END OF INVESTMENTS.
SECURITY AND NUMBER OF SHARES
COLLATERAL INVESTED FOR SECURITIES ON LOAN
13.4% of net assets
SHORT-TERM INVESTMENT 13.4%
-------------------------------------------------------------------------
Securities Lending Investment Fund
216,544,696 216,545
END OF COLLATERAL INVESTED FOR SECURITIES ON LOAN.
In addition to the above, the fund held the following at 10/31/05. All numbers x
$1,000 except number of contracts.
NUMBER
OF CONTRACT UNREALIZED
CONTRACTS VALUE GAINS
FUTURES CONTRACTS
Russell 2000
Index, e-mini
Futures, Long
Expires 12/17/2005 186 12,075 66
13
SCHWAB CAPITAL TRUST
SCHWAB TOTAL STOCK MARKET INDEX FUND(R)
PORTFOLIO HOLDINGS as of October 31, 2005
The following is the schedule of portfolio holdings at 10/31/05. The schedule
should be read in conjunction with the fund's annual report for the period ended
10/31/05.
We use the symbols below to designate certain characteristics of the securities.
With the top ten holdings, the number in the circle is the security's rank among
the top ten.
(1) Top Ten Holding
o Non-income producing security
= All or a portion of this security is held as collateral for open futures
contracts
/ Issuer is affiliated with the fund's adviser
> Security is valued at fair value (see Accounting Policies)
@ All or a portion of this security is on loan
COST VALUE
HOLDINGS BY CATEGORY ($ x 1,000) ($ x 1,000)
- --------------------------------------------------------------------------------
99.6% COMMON STOCK 1,058,474 1,212,821
0.3% SHORT-TERM INVESTMENT 3,196 3,196
0.0% U.S. TREASURY OBLIGATION 274 274
0.0% PREFERRED STOCK 64 74
0.0% WARRANTS 147 --
0.0% RIGHTS -- --
- --------------------------------------------------------------------------------
99.9% TOTAL INVESTMENTS 1,062,155 1,216,365
2.2% COLLATERAL INVESTED FOR
SECURITIES ON LOAN 26,922 26,922
(2.1)% OTHER ASSETS AND
LIABILITIES, NET (26,001)
- --------------------------------------------------------------------------------
100.0% TOTAL NET ASSETS 1,217,286
VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
COMMON STOCK 99.6% of net assets
AUTOMOBILES & COMPONENTS 0.6%
------------------------------------------------------------------------
o Aftermarket Technology Corp. 2,511 46
American Axle & Manufacturing Holdings, Inc. 5,300 116
ArvinMeritor, Inc. 4,900 79
Bandag, Inc. 700 30
BorgWarner, Inc. 5,400 313
o Collins & Aikman Corp. 1,400 --
Cooper Tire & Rubber Co. 6,400 87
Dana Corp. 12,800 96
o Drew Industries, Inc. 2,400 69
o Dura Automotive Systems, Inc., Class A 12,100 36
Federal Screw Works 250 4
Ford Motor Co. 148,736 1,237
@ General Motors Corp. 45,386 1,244
Gentex Corp. 4,600 87
@o Goodyear Tire & Rubber Co. 12,500 196
Harley-Davidson, Inc. 25,500 1,263
Johnson Controls, Inc. 15,000 1,021
o Keystone Automotive Industries, Inc. 1,800 52
Lear Corp. 5,800 177
o Midas, Inc. 1,300 25
Modine Manufacturing Co. 3,700 122
Monaco Coach Corp. 1,200 15
o Proliance International, Inc. 872 4
Sauer-Danfoss, Inc. 3,800 73
Standard Motor Products, Inc. 2,000 17
o Stoneridge, Inc. 1,700 12
o Strattec Security Corp. 1,500 71
@ Superior Industries International, Inc. 800 16
o Tenneco Automotive, Inc. 1,980 33
Thor Industries, Inc. 4,500 147
Visteon Corp. 5,451 45
Winnebago Industries, Inc. 2,600 76
o Zapata Corp. 8,000 58
-----------
6,867
BANKS 7.3%
------------------------------------------------------------------------
1st Source Corp. 1,571 37
ABC Bancorp 1,800 35
Abigail Adams National Bancorp 550 8
@o Accredited Home Lenders Holding Co. 2,500 90
Alabama National Bancorp 1,600 103
Amcore Financial, Inc. 1,200 36
Amegy Bancorp, Inc. 7,000 162
AmSouth Bancorp. 28,403 717
Anchor Bancorp Wisconsin, Inc. 3,100 98
Arrow Financial Corp. 1,020 27
Associated Banc-Corp. 15,500 484
Astoria Financial Corp. 10,500 293
Bancfirst Corp. 500 42
Bancorpsouth, Inc. 7,612 169
BancTrust Financial Group, Inc. 1,100 20
Bank Mutual Corp. 6,168 64
=(7) Bank of America Corp. 338,518 14,807
Bank of Hawaii Corp. 3,500 180
1
SCHWAB TOTAL STOCK MARKET INDEX FUND
PORTFOLIO HOLDINGS continued
VALUE
SECURITY AND NUMBER OF SHARES ($ X 1,000)
@ Bank of the Ozarks, Inc. 2,800 98
BankAtlantic Bancorp, Inc., Class A 2,200 31
BankUnited Financial Corp., Class A 2,200 52
Banner Corp. 1,200 36
Bay View Capital Corp. 506 8
BB&T Corp. 46,386 1,964
Berkshire Bancorp, Inc. 3,600 61
Berkshire Hills Bancorp, Inc. 1,400 49
BOK Financial Corp. 4,540 200
Boston Private Financial Holdings, Inc. 2,129 62
Brookline Bancorp, Inc. 2,405 34
Bryn Mawr Bank Corp. 1,400 29
Camco Financial Corp. 700 10
Camden National Corp. 700 24
Capital City Bank Group, Inc. 1,875 68
o Capital Crossing Bank 2,000 68
Capitol Bancorp Ltd. 1,500 52
Capitol Federal Financial 6,920 241
Cascade Bancorp 2,655 61
Cathay General Bancorp., Inc. 3,200 125
Cavalry Bancorp, Inc. 500 11
o Central Coast Bancorp 1,830 45
Central Pacific Financial Co. 3,400 123
Century Bancorp, Inc., Class A 800 25
Charter Financial Corp. 900 33
CharterMac 3,900 80
Chemical Financial Corp. 1,383 45
@ Chittenden Corp. 2,272 65
Citizens Banking Corp. Michigan 4,590 134
Citizens First Bancorp, Inc. 700 15
Citizens South Banking Corp. 1,000 12
City Holding Co. 1,800 66
City National Corp. 3,100 227
@ Coastal Financial Corp. 3,034 46
The Colonial BancGroup, Inc. 10,100 246
Columbia Bancorp 700 28
Columbia Banking Systems, Inc. 1,951 56
Comerica, Inc. 13,496 780
@ Commerce Bancorp, Inc. N.J. 11,320 345
Commerce Bancshares, Inc. 12,697 675
The Commercial Capital Bancorp, Inc. 5,362 86
Commercial Federal Corp. 3,000 103
Community Bank System, Inc. 1,400 33
Community Trust Bancorp, Inc. 2,487 86
Compass Bancshares, Inc. 11,400 556
@ Corus Bankshares, Inc. 2,000 110
Countrywide Financial Corp. 45,000 1,430
Cullen/Frost Bankers, Inc. 3,300 174
CVB Financial Corp. 4,227 83
Dime Community Bancshares, Inc. 3,375 49
Doral Financial Corp. 9,900 85
Downey Financial Corp. 2,000 122
East-West Bancorp, Inc. 2,600 100
Exchange National Bancshares, Inc. 750 21
Fannie Mae 81,400 3,868
Fidelity Bankshares, Inc. 2,899 82
Fifth Third Bancorp 42,601 1,711
First Bancorp Puerto Rico 4,200 48
First Busey Corp. 1,500 30
First Charter Corp. 3,500 89
First Citizens BancShares, Inc., Class A 300 50
First Commonwealth Financial Corp. 2,504 33
First Financial Bancorp 1,839 34
First Financial Bancshares, Inc. 2,000 72
First Financial Corp. Indiana 600 16
First Financial Holdings, Inc. 1,400 41
= First Horizon National Corp. 10,800 418
First Indiana Corp. 1,375 48
First M & F Corp. 1,000 34
First Merchants Corp. 1,041 26
First Midwest Bancorp, Inc. Illinois 3,125 119
First Niagra Financial Group, Inc. 7,670 113
First Oak Brook Bancshares, Inc. 1,500 40
The First of Long Island Corp. 2,000 83
First Place Financial Corp. Ohio 2,900 65
First Republic Bank 1,200 45
First United Corp. 2,200 43
o FirstFed Financial Corp. 2,900 155
FirstMerit Corp. 7,300 193
Flagstar Bancorp., Inc. 6,200 83
Flushing Financial Corp. 3,300 53
FNB Corp. 2,639 47
Freddie Mac 57,700 3,540
Fremont General Corp. 6,200 134
Frontier Financial Corp. 1,050 34
@ Fulton Financial Corp. 13,977 235
Glacier Bancorp, Inc. 4,765 140
Gold Banc Corp., Inc. 1,400 21
Golden West Financial Corp. 23,800 1,398
Great Southern Bancorp, Inc. 1,400 40
Greater Bay Bancorp 5,406 136
Hancock Holding Co. 2,100 75
Harbor Florida Bancshares, Inc. 1,100 39
Harleysville National Corp. 1,214 25
Heritage Financial Corp. 735 18
Hibernia Corp., Class A 12,600 374
Home Federal Bancorp 800 20
Horizon Financial Corp. 2,156 46
Hudson City Bancorp, Inc. 48,731 577
2
SCHWAB TOTAL STOCK MARKET INDEX FUND
PORTFOLIO HOLDINGS continued
VALUE
SECURITY AND NUMBER OF SHARES ($ X 1,000)
Hudson United Bancorp 3,240 134
@ Huntington Bancshares, Inc. 18,290 425
IBERIABANK Corp. 875 47
Independence Community Bank Corp. 6,600 261
Independent Bank Corp. 1,000 30
Independent Bank Corp. Michigan 1,717 49
IndyMac Bancorp, Inc. 3,400 127
Integra Bank Corp. 1,225 25
Interchange Financial Services Corp. 1,575 27
International Bancshares Corp. 4,577 137
Irwin Financial Corp. 3,700 77
o ITLA Capital Corp. 700 35
KeyCorp, Inc. 34,300 1,106
Lakeland Financial Corp. 1,100 45
M&T Bank Corp. 8,962 964
MAF Bancorp., Inc. 2,028 84
Main Street Banks, Inc. 1,000 27
MainSource Financial Group, Inc. 1,653 30
@ Marshall & Ilsley Corp. 19,150 823
MASSBANK Corp. 1,500 43
MB Financial, Inc. 1,800 67
Mercantile Bankshares Corp. 5,574 314
Merchants Bancshares, Inc. 750 19
MGIC Investment Corp. 9,300 551
Mid-State Bancshares 3,500 95
Midwest Banc Holdings, Inc. 1,300 29
MutualFirst Financial, Inc. 2,000 44
Nara Bancorp, Inc. 4,000 72
National City Corp. 56,821 1,831
National Penn Bancshares, Inc. 1,415 28
NBT Bancorp., Inc. 1,400 33
NetBank, Inc. 3,300 26
@ New York Community Bancorp, Inc. 22,697 367
NewMil Bancorp, Inc. 1,000 29
North Fork Bancorp., Inc. 38,411 973
North Valley Bancorp 1,500 26
Northrim BanCorp, Inc. 2,500 62
Northway Financial, Inc. 200 7
Northwest Bancorp, Inc. 5,000 113
Oak Hill Financial, Inc. 1,000 31
OceanFirst Financial Corp. 1,050 24
o Ocwen Financial Corp. 5,920 46
Old National Bancorp. 6,244 137
Omega Financial Corp. 1,000 29
Oriental Financial Group 1,663 21
PAB Bankshares, Inc. 700 12
Pacific Capital Bancorp. 2,844 103
Park National Corp. 845 91
Partners Trust Financial Group, Inc. 3,970 46
Pennfed Finance Services, Inc. 4,000 78
@ Peoples Bank-Bridgeport 12,375 398
Peoples Financial Corp. 3,000 53
PFF Bancorp, Inc. 1,680 50
The PMI Group, Inc. 8,100 323
PNC Financial Services Group, Inc. 24,500 1,487
@ Popular, Inc. 21,700 440
Prosperity Bancshares, Inc. 2,400 73
Provident Bankshares Corp. 1,657 58
Provident Financial Holdings 750 20
Provident Financial Services, Inc. 917 16
R&G Financial Corp., Class B 2,550 25
Radian Group, Inc. 6,702 349
Regions Financial Corp. 39,314 1,280
Renasant Corp. 750 24
Republic Bancorp, Inc. 5,135 70
Republic Bancorp, Inc., Class A 1,653 34
S&T Bancorp, Inc. 1,400 52
Sandy Spring Bancorp, Inc. 2,900 102
Santander BanCorp 4,686 119
Seacoast Banking Corp. of Florida 1,980 45
Shore Bancshares, Inc. 500 16
Simmons First National Corp., Class A 1,000 28
Sky Financial Group, Inc. 8,510 239
The South Financial Group, Inc. 4,500 124
Southwest Bancorp, Inc. Oklahoma 3,300 77
Sovereign Bancorp, Inc. 28,942 624
State Bancorp, Inc. 1,058 20
Sterling Bancorp NY 1,827 36
Sterling Bancshares, Inc. Texas 2,100 31
Sterling Financial Corp. Pennsylvania 1,562 33
o Sterling Financial Corp. Washington 1,827 46
Suffolk Bancorp 2,400 79
o Sun Bancorp, Inc. N.J. 3,472 69
SunTrust Banks, Inc. 31,842 2,308
Susquehanna Bancshares, Inc. 3,168 73
o SVB Financial Group 2,200 109
SY Bancorp, Inc. 1,400 33
Synovus Financial Corp. 24,600 676
TCF Financial Corp. 13,600 369
TD Banknorth, Inc. 7,296 210
Texas Regional Bancshares, Inc., Class A 2,326 68
TF Financial Corp. 700 19
Timberland Bancorp, Inc. Washington 1,000 23
Tompkins Trustco, Inc. 847 37
TriCo Bancshares 400 9
Trustco Bank Corp. NY 2,857 37
Trustmark Corp. 4,300 121
3
SCHWAB TOTAL STOCK MARKET INDEX FUND
PORTFOLIO HOLDINGS continued
VALUE
SECURITY AND NUMBER OF SHARES ($ X 1,000)
U.S. Bancorp 158,531 4,689
UCBH Holdings, Inc. 9,400 164
UMB Financial Corp. 1,787 120
Umpqua Holdings Corp. 343 9
Union Bankshares Corp. 700 31
UnionBanCal Corp. 22,600 1,548
United Bankshares, Inc. 3,400 124
United Community Banks, Inc. Georgia 3,750 111
Unizan Financial Corp. 1,371 36
USB Holding Co., Inc. 1,958 42
Valley National Bancorp 8,143 197
W Holding Co., Inc. 11,938 92
Wachovia Corp. 133,649 6,752
Washington Federal, Inc. 7,942 183
Washington Mutual, Inc. 83,149 3,293
Washington Trust Bancorp, Inc. 1,000 28
Webster Financial Corp. 3,790 175
Wells Fargo & Co. 137,577 8,282
WesBanco, Inc. 3,200 98
West Coast Bancorp 1,200 32
Westamerica Bancorp. 1,700 91
WestCorp., Inc. 4,707 297
Whitney Holding Corp. 6,675 180
Willow Grove Bancorp, Inc. 1,596 25
Wilmington Trust Corp. 5,700 216
Wintrust Financial Corp. 1,800 97
WSFS Financial Corp. 1,000 62
Zions Bancorp. 7,700 566
-----------
89,103
BUSINESS SERVICES 0.1%
------------------------------------------------------------------------
o Accenture Ltd., Class A 40,000 1,052
CAPITAL GOODS 7.6%
------------------------------------------------------------------------
o 3D Systems Corp. 1,400 25
3M Co. 65,000 4,939
A.O. Smith Corp., Class B 1,300 42
o Aaon, Inc. 4,075 70
o AAR Corp. 2,500 40
o Actuant Corp., Class A 2,840 138
Acuity Brands, Inc. 5,200 145
o Aerosonic Corp. 300 2
o AGCO Corp. 3,762 60
Alamo Group, Inc. 500 10
Albany International Corp., Class A 3,918 151
o Alleghany Corp. 216 65
o Alliant Techsystems, Inc. 2,437 171
o The Allied Defense Group, Inc. 500 11
American Power Conversion Corp. 16,600 355
o American Science & Engineering, Inc. 500 29
American Standard Cos., Inc. 17,900 681
o American Superconductor Corp. 700 6
American Woodmark Corp. 1,000 31
Ameron International Corp. 900 39
Ametek, Inc. 4,200 171
Ampco-Pittsburgh Corp. 2,800 40
Apogee Enterprises, Inc. 1,200 20
Applied Industrial Technologies, Inc. 4,350 143
Applied Signal Technology, Inc. 2,100 36
o Armor Holdings, Inc. 500 22
o Armstrong Holdings, Inc. 1,600 3
o Artesyn Technologies, Inc. 1,100 10
o Astronics Corp. 1,250 12
o Aviall, Inc. 2,500 79
Badger Meter, Inc. 2,000 66
Baldor Electric Co. 3,800 92
o BE Aerospace, Inc. 1,100 20
o BMC Industries, Inc. 2,100 --
The Boeing Co. 68,800 4,447
Briggs & Stratton Corp. 3,500 112
C&D Technologies, Inc. 4,500 41
@o Capstone Turbine Corp. 2,600 6
Carlisle Cos., Inc. 3,600 240
Cascade Corp. 4,400 214
Caterpillar, Inc. 57,400 3,019
Chase Corp. 100 1
CIRCOR International, Inc. 3,750 106
Clarcor, Inc. 3,400 94
o Columbus McKinnon Corp. 2,400 55
Cooper Industries Ltd., Class A 7,200 510
Crane Co. 5,000 155
Cummins, Inc. 3,900 333
Curtiss-Wright Corp. 300 17
@ Danaher Corp. 24,000 1,250
Deere & Co. 21,500 1,305
o Distributed Energy Systems Corp. 1,400 11
Donaldson Co., Inc. 3,800 119
Dover Corp. 16,700 651
DRS Technologies, Inc. 1,382 68
o Ducommun, Inc. 4,300 86
Eaton Corp. 12,600 741
o Electro Rent Corp. 5,100 66
ElkCorp 3,450 109
o EMCOR Group, Inc. 700 43
Emerson Electric Co. 35,000 2,434
o Encore Wire Corp. 3,000 65
@o Energy Conversion Devices, Inc. 600 19
Engineered Support Systems, Inc. 3,712 150
o ESCO Technologies, Inc. 2,800 121
o Esterline Technologies Corp. 2,400 90
o Evergreen Solar, Inc. 1,000 8
4
SCHWAB TOTAL STOCK MARKET INDEX FUND
PORTFOLIO HOLDINGS continued
VALUE
SECURITY AND NUMBER OF SHARES ($ X 1,000)
Fastenal Co. 6,600 463
Federal Signal Corp. 2,800 45
o Flow International Corp. 900 8
o Flowserve Corp. 3,900 137
Fluor Corp. 5,600 356
Franklin Electric Co., Inc. 3,800 165
@o FuelCell Energy, Inc. 1,200 11
o Gardner Denver, Inc. 1,700 83
@ GATX Corp. 4,000 150
o GenCorp, Inc. 2,500 46
o General Cable Corp. 2,200 36
General Dynamics Corp. 15,700 1,826
=(2) General Electric Co. 854,566 28,978
o Genlyte Group, Inc. 3,200 163
o Global Power Equipment Group, Inc. 1,000 6
Goodrich Corp. 8,404 303
The Gorman-Rupp Co. 2,875 67
Graco, Inc. 7,012 240
o GrafTech International Ltd. 2,100 10
Granite Construction, Inc. 4,850 165
Greenbrier Cos., Inc. 1,600 44
o Griffon Corp. 2,590 57
Hardinge, Inc. 1,800 30
Harsco Corp. 3,100 199
o Hawk Corp., Class A 1,800 23
Heico Corp., Class A 2,286 39
o Herley Industries, Inc. 4,000 68
o Hexcel Corp. 2,000 32
Honeywell International, Inc. 71,062 2,430
Hubbell, Inc., Class B 3,800 183
Hughes Supply, Inc. 2,600 87
o Huttig Building Products, Inc. 811 7
IDEX Corp. 3,150 126
o Ii-Vi, Inc. 3,800 68
Illinois Tool Works, Inc. 25,850 2,191
Ingersoll-Rand Co., Class A 27,400 1,035
o Insituform Technologies, Inc., Class A 1,300 23
o Integrated Electrical Services, Inc. 1,800 3
ITT Industries, Inc. 8,700 884
o Jacobs Engineering Group, Inc. 3,800 242
o Jacuzzi Brands, Inc. 2,000 15
JLG Industries, Inc. 1,800 69
Joy Global, Inc. 12,900 592
o Kadant, Inc. 1 --
Kaydon Corp. 3,300 98
Kennametal, Inc. 4,000 204
L-3 Communications Holdings, Inc. 9,100 708
o Ladish Co., Inc. 1,300 26
Lawson Products, Inc. 2,000 68
Lennox International, Inc. 4,771 133
Lincoln Electric Holdings, Inc. 3,900 154
Lockheed Martin Corp. 37,052 2,244
o Magnetek, Inc. 1,500 5
Manitowoc Co., Inc. 2,900 154
Masco Corp. 35,800 1,020
o Mastec, Inc. 5,350 55
@o Medis Technologies Ltd. 1,110 19
o Mercury Computer Systems, Inc. 3,600 68
o Merrimac Industries, Inc. 600 5
o Michael Baker Corp. 500 13
o Microvision, Inc. 900 5
Middleby Corp. 3,500 254
o Milacron, Inc. 3,340 4
o Millenium Cell, Inc. 2,200 4
o Modtech Holdings, Inc. 1,000 10
o Moog, Inc., Class A 5,287 157
MSC Industrial Direct Co., Class A 4,300 164
Mueller Industries, Inc. 1,700 47
NACCO Industries, Inc., Class A 1,300 151
o Navistar International Corp. 6,900 190
o NCI Building Systems, Inc. 2,900 119
Nordson Corp. 4,000 149
Northrop Grumman Corp. 30,032 1,611
o Omega Flex, Inc. 700 9
o Orbital Sciences Corp. 2,600 30
Oshkosh Truck Corp. 9,000 392
Paccar, Inc. 14,100 987
Pall Corp. 10,900 285
Parker Hannifin Corp. 11,000 690
Pentair, Inc. 9,500 309
o Plug Power, Inc. 2,248 13
o Powell Industries, Inc. 1,000 21
o Power-One, Inc. 6,000 34
Precision Castparts Corp. 10,302 488
o Quanta Services, Inc. 8,900 102
o Quipp, Inc. 900 10
Quixote Corp. 1,300 26
Raven Industries, Inc. 2,800 88
Raytheon Co. 34,900 1,290
Rockwell Automation, Inc. 15,700 834
Rockwell Collins, Inc. 13,100 600
Roper Industries, Inc. 3,000 113
o Rush Enterprises, Inc., Class B 500 7
o Sequa Corp., Class A 2,800 173
o The Shaw Group, Inc. 2,000 54
Simpson Manufacturing Co., Inc. 3,200 126
SPX Corp. 8,610 370
Standex International Corp. 3,000 81
o Stantec, Inc. 845 26
Stewart & Stevenson Services, Inc. 1,000 24
Tecumseh Products Co., Class A 3,200 64
o Teledyne Technologies, Inc. 12,157 429
Teleflex, Inc. 4,300 285
Tennant Co. 2,100 91
5
SCHWAB TOTAL STOCK MARKET INDEX FUND
PORTFOLIO HOLDINGS continued
VALUE
SECURITY AND NUMBER OF SHARES ($ X 1,000)
o Terex Corp. 3,700 203
Textron, Inc. 11,800 850
o Thomas & Betts Corp. 7,300 284
The Timken Co. 6,600 187
Titan International, Inc. 800 14
Toro Co. 1,600 58
o Transtechnology Corp. 500 4
Tredegar Corp. 2,600 33
Trinity Industries, Inc. 1,100 42
o Triumph Group, Inc. 1,200 42
Tyco International Ltd. 85,000 2,243
United Industrial Corp. 1,200 42
o United Rentals, Inc. 5,900 115
United Technologies Corp. 84,068 4,311
o UQM Technologies, Inc. 1,500 6
o URS Corp. 3,700 150
@o USG Corp. 3,900 231
o Valence Technology, Inc. 1,400 3
Valmont Industries, Inc. 1,900 62
Vicor Corp. 4,200 71
W.W. Grainger, Inc. 7,300 489
Wabash National Corp. 2,500 46
Wabtec Corp. 2,828 77
Walter Industries, Inc. 1,900 87
o Water Pik Technologies, Inc. 195 4
Watsco, Inc. 3,400 193
Watts Water Technologies, Inc., Class A 1,000 28
o WESCO International, Inc. 4,800 191
o Wolverine Tube, Inc. 1,000 6
Woodward Governor Co. 500 40
o Xanser Corp. 1,400 4
York International Corp. 3,800 213
-----------
92,334
COMMERCIAL SERVICES & SUPPLIES 1.6%
------------------------------------------------------------------------
o A.T. Cross Co., Class A 2,400 11
ABM Industries, Inc. 4,900 97
Adesa, Inc. 8,200 175
Administaff, Inc. 2,800 118
o Allied Waste Industries, Inc. 26,600 217
Ambassadors International, Inc. 1,700 23
o American Locker Group, Inc. 500 2
Angelica Corp. 2,500 35
o Apollo Group, Inc., Class A 17,050 1,074
Aramark Corp., Class B 9,300 236
o Asset Acceptance Capital Corp. 2,500 66
Avery Dennison Corp. 9,700 549
Banta Corp. 2,700 136
Bowne & Co., Inc. 4,200 60
Brady Corp., Class A 1,400 40
o Bright Horizons Family Solutions, Inc. 2,600 104
The Brink's Co. 5,600 220
o Career Education Corp. 8,614 307
o Casella Waste Systems, Inc., Class A 2,500 32
CDI Corp. 3,700 102
Cendant Corp. 83,720 1,458
Central Parking Corp. 1,600 24
o Cenveo, Inc. 1,300 13
o ChoicePoint, Inc. 6,900 292
Cintas Corp. 15,350 623
Compx International, Inc. 800 13
o Consolidated Graphics, Inc. 3,900 152
o Copart, Inc. 6,550 153
o Corinthian Colleges, Inc. 9,200 114
o Cornell Cos., Inc. 2,100 29
Corporate Executive Board Co. 2,700 223
o Correctional Services Corp. 2,000 12
o Corrections Corp. of America 3,828 153
o CoStar Group, Inc. 800 38
CPI Corp. 400 7
o CRA International, Inc. 2,500 111
Deluxe Corp. 3,800 127
o DeVry, Inc. 4,800 108
o DiamondCluster International, Inc., Class A 1,000 6
o Dun & Bradstreet Corp. 16,000 1,013
o Duratek, Inc. 4,000 57
o Education Management Corp. 5,900 182
Ennis, Inc. 4,500 77
Equifax, Inc. 11,800 407
o Exponent, Inc. 3,000 86
o Falcon Products, Inc. 1,500 --
o First Consulting Group, Inc. 1,800 10
o FTI Consulting, Inc. 2,700 74
G&K Services, Inc., Class A 3,700 140
o The Geo Group, Inc. 3,800 83
o GP Strategies Corp. 1,500 13
H&R Block, Inc. 36,600 910
@ Healthcare Services Group 5,625 105
o Heidrick & Struggles International, Inc. 3,100 100
Herman Miller, Inc. 5,700 156
HNI Corp. 4,000 196
o Hudson Highland Group, Inc. 720 17
o ICT Group, Inc. 500 7
IKON Office Solutions, Inc. 12,500 125
o ITT Educational Services, Inc. 6,000 332
Jackson Hewitt Tax Service, Inc. 3,000 74
John H. Harland Co. 3,500 146
Kelly Services, Inc., Class A 3,200 89
o Kforce, Inc. 405 4
o Korn/Ferry International 3,600 62
o Labor Ready, Inc. 3,500 82
o Laureate Education, Inc. 4,700 232
6
SCHWAB TOTAL STOCK MARKET INDEX FUND
PORTFOLIO HOLDINGS continued
VALUE
SECURITY AND NUMBER OF SHARES ($ X 1,000)
o Learning Tree International, Inc. 1,400 19
Manpower, Inc. 6,991 317
>o Mascotech, Inc. escrow security 1,100 --
McGrath RentCorp 1,600 46
Mine Safety Appliances Co. 2,700 113
o Mobile Mini, Inc. 600 28
o Monster Worldwide, Inc. 9,800 322
Multi-Color Corp. 750 18
o Navigant Consulting, Inc. 5,000 105
o NCO Group, Inc. 2,701 49
o Nobel Learning Communities, Inc. 500 5
o On Assignment, Inc. 1,700 14
o PHH Corp. 4,186 118
Pitney Bowes, Inc. 20,000 842
@o Portfolio Recovery Associates, Inc. 2,000 78
@ Pre-Paid Legal Services, Inc. 3,600 154
o PRG-Schultz International, Inc. 2,500 2
R.R. Donnelley & Sons Co. 17,000 595
o RemedyTemp, Inc., Class A 1,200 9
Republic Services, Inc. 17,700 626
o Resources Connection, Inc. 6,200 177
Robert Half International, Inc. 14,000 516
Rollins, Inc. 6,675 127
o School Specialty, Inc. 1,600 54
o The ServiceMaster Co. 22,900 288
o Sitel Corp. 2,800 8
o Sotheby's Holdings, Inc., Class A 2,938 46
o SOURCECORP, Inc. 3,600 82
o Spherion Corp. 1,830 16
@o Spherix, Inc. 500 1
The Standard Register Co. 4,100 62
Steelcase, Inc., Class A 3,500 50
o Stericycle, Inc. 4,700 271
>o Stone and Webster, Inc. escrow security 700 --
Strayer Education, Inc. 700 63
o TeleTech Holdings, Inc. 5,000 52
o Tetra Tech, Inc. 12,031 186
o TRC Cos., Inc. 1,350 18
o United Stationers, Inc. 2,900 132
o Vertrue, Inc. 4,500 169
Viad Corp. 3,625 104
o Volt Information Sciences, Inc. 2,100 39
o Waste Connections, Inc. 5,250 175
Waste Industries USA, Inc. 1,500 21
Waste Management, Inc. 48,100 1,419
Watson Wyatt & Co. Holdings 4,600 122
o West Corp. 4,500 178
o Westaff, Inc. 2,000 9
-----------
19,884
CONSUMER DURABLES & APPAREL 1.8%
------------------------------------------------------------------------
Action Performance Cos., Inc. 600 7
o Alliance Gaming Corp. 3,000 32
American Greetings Corp., Class A 8,500 215
o Applica, Inc. 3,100 5
@o Avatar Holdings, Inc. 700 40
Beazer Homes USA, Inc. 2,553 148
Black & Decker Corp. 7,100 583
o Blount International, Inc. 1,200 19
Blyth, Inc. 4,800 88
o Boyds Collection Ltd. 2,200 --
@ Brookfield Homes Corp. 3,500 175
Brown Shoe Co., Inc. 3,300 107
Brunswick Corp. 13,900 530
Callaway Golf Co. 5,600 80
o Carter's, Inc. 2,500 158
o Cavco Industries, Inc. 410 16
Centex Corp. 10,700 689
o Champion Enterprises, Inc. 4,700 65
o Chromcraft Revington, Inc. 1,300 16
o Coach, Inc. 32,008 1,030
@o Columbia Sportswear Co. 4,350 185
Craftmade International, Inc. 2,800 58
CSS Industries, Inc. 900 31
D.R. Horton, Inc. 24,604 755
o Department 56, Inc. 3,300 36
o DGSE Cos., Inc. 700 2
o Dominion Homes, Inc. 500 6
@ Eastman Kodak Co. 26,000 569
o Enesco Group, Inc. 1,100 1
Ethan Allen Interiors, Inc. 4,200 142
o The Fairchild Corp., Class A 3,100 7
Flexsteel Industries, Inc. 600 9
o Foamex International, Inc. 2,600 --
Fortune Brands, Inc. 17,700 1,345
o Fossil, Inc. 2,962 46
Furniture Brands International, Inc. 4,700 85
Haggar Corp. 1,200 34
o Hampshire Group Ltd. 2,000 47
Harman International Industries, Inc. 6,800 679
Hasbro, Inc. 14,500 273
o Hovnanian Enterprises, Inc., Class A 3,700 166
o Interface, Inc., Class A 3,300 25
o Jarden Corp. 2,475 84
Jones Apparel Group, Inc. 12,156 332
K-Swiss, Inc., Class A 2,400 73
o K2, Inc. 1,700 17
KB Home 7,800 510
7
SCHWAB TOTAL STOCK MARKET INDEX FUND
PORTFOLIO HOLDINGS continued
VALUE
SECURITY AND NUMBER OF SHARES ($ X 1,000)
Kellwood Co. 2,900 64
Kenneth Cole Productions, Inc., Class A 3,100 78
Kimball International, Inc., Class B 3,600 40
Knape & Vogt Manufacturing Co. 2,200 32
@ La-Z-Boy, Inc. 5,800 69
Leggett & Platt, Inc. 16,200 325
Lennar Corp., Class A 14,490 805
Levitt Corp., Class A 550 11
Liz Claiborne, Inc. 18,600 655
M/I Homes, Inc. 1,800 81
Marine Products Corp. 405 4
o MarineMax, Inc. 800 20
o Marvel Entertainment, Inc. 11,700 206
Mattel, Inc. 34,300 506
Maytag Corp. 7,100 122
MDC Holdings, Inc. 1,903 131
o Meade Instruments Corp. 800 2
o Meritage Corp. 1,000 62
o Mestek, Inc. 700 9
o MITY Enterprises, Inc. 600 11
o Mohawk Industries, Inc. 4,819 376
Movado Group, Inc. 7,400 130
National Presto Industries, Inc. 400 18
Nautilus Group, Inc. 4,125 75
Newell Rubbermaid, Inc. 23,900 549
Nike, Inc., Class B 20,700 1,740
o NVR, Inc. 500 343
@ Oakley, Inc. 6,700 99
o Oneida Ltd. 700 1
@o Palm Harbor Homes, Inc. 2,700 50
Phillips-Van Heusen Corp. 1,800 51
@ Polaris Industries, Inc. 3,200 144
> Polaroid Corp. 3,800 --
Polo Ralph Lauren Corp. 6,500 320
Pulte Homes, Inc. 22,744 859
o Quiksilver, Inc. 4,000 46
o RC2 Corp. 2,200 77
o Recoton Corp. 500 --
Reebok International Ltd. 8,000 456
Russ Berrie & Co., Inc. 1,000 13
Russell Corp. 2,600 35
The Ryland Group, Inc. 6,800 458
o Salton, Inc. 1,100 2
SCP Pool Corp. 5,662 204
o Skechers USA, Inc., Class A 6,500 82
Skyline Corp. 100 4
Snap-On, Inc. 4,000 144
o SONICblue, Inc. 2,600 --
Standard-Pacific Corp. 4,800 185
Stanley Furniture Co., Inc. 5,200 111
@ The Stanley Works 6,600 316
o Steven Madden Ltd. 1,800 46
Stride Rite Corp. 2,900 38
Superior Uniform Group, Inc. 1,600 19
Tandy Brands Accessories, Inc. 1,000 12
o Tarrant Apparel Group 1,700 3
@ Technical Olympic USA, Inc. 2,812 59
o Tempur-Pedic International, Inc. 8,000 88
o Timberland Co., Class A 2,800 79
o Toll Brothers, Inc. 11,200 413
Tupperware Corp. 4,800 110
o Unifi, Inc. 1,900 6
Unifirst Corp. 3,900 137
o Uniroyal Technology Corp. 1,100 --
o Universal Electronics, Inc. 2,200 38
VF Corp. 15,000 784
o Virco Manufacturing Corp. 1,170 8
o The Warnaco Group, Inc. 2,500 57
o WCI Communities, Inc. 3,800 95
Whirlpool Corp. 6,000 471
Wolverine World Wide, Inc. 7,800 163
o Yankee Candle Co., Inc. 3,700 84
-----------
22,351
DIVERSIFIED FINANCIALS 7.0%
------------------------------------------------------------------------
A.G. Edwards, Inc. 5,900 250
>o Actrade Financial Technologies Ltd. 1,000 --
Advanta Corp., Class A 7,400 197
o Aether Holdings, Inc. 1,100 4
o Affiliated Managers Group, Inc. 1,800 138
Alliance Capital Management Holding L.P. 7,700 408
American Express Co. 105,150 5,233
o AmeriCredit Corp. 12,300 275
o Ameriprise Financial, Inc. 21,030 783
@o Ameritrade Holding Corp. 34,300 721
@ Asta Funding, Inc. 2,000 54
The Bank of New York Co., Inc. 63,000 1,971
The Bear Stearns Cos., Inc. 13,620 1,441
Blackrock, Inc., Class A 400 38
Capital One Financial Corp. 19,900 1,519
Cash America International, Inc. 2,500 55
/ The Charles Schwab Corp. 111,120 1,689
Chicago Mercantile Exchange 1,800 657
CIT Group, Inc. 18,600 851
=(4) Citigroup, Inc. 427,436 19,568
@o CompuCredit Corp. 4,400 193
o Credit Acceptance Corp. 2,400 36
o E*TRADE Financial Corp. 30,035 557
Eaton Vance Corp. 11,600 289
o eSpeed, Inc., Class A 3,300 25
Federated Investors, Inc., Class B 9,950 348
Financial Federal Corp. 3,300 126
@ The First Marblehead Corp. 5,000 148
Franklin Resources, Inc. 20,600 1,820
8
SCHWAB TOTAL STOCK MARKET INDEX FUND
PORTFOLIO HOLDINGS continued
VALUE
SECURITY AND NUMBER OF SHARES ($ X 1,000)
Gamco Investors, Inc., Class A 700 33
Goldman Sachs Group, Inc. 38,700 4,891
Instinet Group, Inc. 1,200 6
o Investment Technology Group, Inc. 4,750 154
Investors Financial Services Corp. 5,500 210
Janus Capital Group, Inc. 19,200 337
Jefferies Group, Inc. 4,100 174
JPMorgan Chase & Co. 295,944 10,838
o Knight Capital Group, Inc. 9,700 93
o LaBranche & Co., Inc. 2,400 23
o Ladenburg Thalmann Financial Services, Inc. 813 --
Legg Mason, Inc. 10,050 1,078
Lehman Brothers Holdings, Inc. 23,872 2,857
Leucadia National Corp. 7,704 331
MBNA Corp. 104,650 2,676
Mellon Financial Corp. 35,800 1,135
Merrill Lynch & Co., Inc. 79,800 5,166
o Metris Cos., Inc. 3,000 44
MicroFinancial, Inc. 1,900 8
MoneyGram International, Inc. 7,500 182
Moody's Corp. 26,600 1,417
Morgan Stanley 90,300 4,913
National Financial Partners Corp. 2,500 113
o Nelnet, Inc., Class A 4,500 167
>o NextCard, Inc. 2,600 --
Northern Trust Corp. 18,500 992
Nuveen Investments, Inc., Class A 7,300 295
o Piper Jaffray Cos. 950 33
Principal Financial Group, Inc. 25,400 1,261
Raymond James Financial, Inc. 6,900 235
SEI Investments Co. 9,700 376
o Siebert Financial Corp. 2,900 8
SLM Corp. 37,300 2,071
o SNTL Corp.-- Litigation Trust Certificates 1,300 --
State Street Corp. 28,000 1,546
Student Loan Corp. 1,700 373
SWS Group, Inc. 1,141 20
T. Rowe Price Group, Inc. 10,700 701
Waddell & Reed Financial, Inc., Class A 7,250 139
Westwood Holdings Group, Inc. 285 5
o WFS Financial, Inc. 4,100 295
o World Acceptance Corp. 1,000 28
-----------
84,618
ENERGY 8.6%
------------------------------------------------------------------------
Amerada Hess Corp. 6,400 801
Anadarko Petroleum Corp. 19,530 1,772
Apache Corp. 28,372 1,811
APCO Argentina, Inc. 200 10
o Atlas America, Inc. 1,187 55
o ATP Oil & Gas Corp. 1,600 51
o Atwood Oceanics, Inc. 1,200 85
Baker Hughes, Inc. 28,300 1,555
Berry Petroleum Co., Class A 2,000 120
BJ Services Co. 28,600 994
@ BP Prudhoe Bay Royalty Trust 2,200 147
@ Buckeye Partners L.P. 3,400 154
Burlington Resources, Inc. 34,000 2,455
Cabot Oil & Gas Corp. 21,600 989
o CAL Dive International, Inc. 4,000 246
@ CARBO Ceramics, Inc. 4,500 266
Chesapeake Energy Corp. 19,200 616
ChevronTexaco Corp. 192,819 11,004
o Cimarex Energy Co. 5,508 216
o Comstock Resources, Inc. 4,500 135
ConocoPhillips 112,196 7,335
o Cooper Cameron Corp. 3,300 243
o CREDO Petroleum Corp. 2,700 47
Cross Timbers Royalty Trust 1,500 79
Crosstex Energy L.P. 2,000 75
o Denbury Resources, Inc. 4,900 214
Devon Energy Corp. 37,360 2,256
Diamond Offshore Drilling, Inc. 12,300 694
El Paso Corp. 51,387 609
@o Enbridge Energy Management LLC 1,216 62
o Encore Acquisition Co. 2,250 77
o Energy Partners Ltd. 1,700 43
ENSCO International, Inc. 11,200 511
@ Enterprise Products Partners L.P. 29,500 763
EOG Resources, Inc. 22,800 1,545
=(1) Exxon Mobil Corp. 537,816 30,193
o FMC Technologies, Inc. 4,591 167
o Forest Oil Corp. 4,450 194
Frontier Oil Corp. 7,200 266
General Maritime Corp. 3,000 112
o Global Industries Ltd. 4,400 56
GlobalSantaFe Corp. 19,155 853
o Grant Prideco, Inc. 6,100 237
o Grey Wolf, Inc. 5,800 45
Gulf Island Fabrication, Inc. 2,800 75
o Gulfmark Offshore, Inc. 1,600 46
Halliburton Co. 36,700 2,169
@o Hanover Compressor Co. 5,600 72
o Harvest Natural Resources, Inc. 6,000 58
Helmerich & Payne, Inc. 4,800 266
Holly Corp. 4,000 230
o Houston Exploration Co. 5,400 278
@ Hugoton Royalty Trust 3,300 114
o Hydril Co. 2,500 166
o Input/Output, Inc. 4,200 32
Kerr-McGee Corp. 9,677 823
9
SCHWAB TOTAL STOCK MARKET INDEX FUND
PORTFOLIO HOLDINGS continued
VALUE
SECURITY AND NUMBER OF SHARES ($ X 1,000)
o Key Energy Services, Inc. 10,300 140
o Kinder Morgan Management LLC 3,494 169
Kinder Morgan, Inc. 10,700 973
o Lone Star Technologies, Inc. 1,200 55
Lufkin Industries, Inc. 1,000 47
@ Magellan Midstream Partners L.P. 2,400 80
Marathon Oil Corp. 30,654 1,844
Maritrans, Inc. 2,500 75
Markwest Energy Partners L.P. 500 24
o Maverick Tube Corp. 3,800 118
o Meridian Resource Corp. 3,100 14
Murphy Oil Corp. 17,000 796
o Nabors Industries Ltd. 11,817 811
o NATCO Group, Inc., Class A 1,200 27
o National-Oilwell Varco, Inc. 11,540 721
o Newfield Exploration Co. 7,400 335
Noble Corp. 10,100 650
Noble Energy, Inc. 14,218 569
Occidental Petroleum Corp. 33,100 2,611
o Oceaneering International, Inc. 1,100 53
o Offshore Logistics, Inc. 3,600 122
o Oil States International, Inc. 3,600 119
OMI Corp. 6,500 118
Overseas Shipholding Group 3,700 176
Pacific Energy Partners L.P. 3,500 104
o Parker Drilling Co. 2,800 25
Patterson-UTI Energy, Inc. 13,200 451
>o Petro Corp. escrow security 3,000 --
Pioneer Natural Resources Co. 14,333 717
Plains All American Pipeline L.P. 4,600 195
o Plains Exploration & Production Co. 6,579 257
Pogo Producing Co. 6,300 318
o Pride International, Inc. 10,200 286
o Quicksilver Resources, Inc. 4,200 163
Range Resources Corp. 5,400 193
o Remington Oil & Gas Corp. 2,900 102
Resource America, Inc., Class A 2,000 32
Rowan Cos., Inc. 3,400 112
RPC, Inc. 5,100 140
Schlumberger Ltd. 50,000 4,539
o Seacor Holdings, Inc. 1,250 90
Smith International, Inc. 14,800 480
o Spinnaker Exploration Co. 2,900 179
@ St. Mary Land & Exploration Co. 7,400 252
o Stone Energy Corp. 976 45
@ Sunoco Logistics Partners L.P. 2,000 77
Sunoco, Inc. 11,000 820
o Superior Energy Services, Inc. 4,900 100
o Swift Energy Co. 2,500 109
o Syntroleum Corp. 4,000 29
TC Pipelines L.P. 2,400 79
TEL Offshore Trust 83 1
@ TEPPCO Partners L.P. 4,000 156
Tesoro Petroleum Corp. 4,800 294
o Tetra Technologies, Inc. 5,550 155
Tidewater, Inc. 2,700 124
o Todco, Class A 5,500 246
o Transmontaigne, Inc. 1,600 9
o Transocean, Inc. 27,731 1,594
o Ultra Petroleum Corp. 13,000 682
o Unit Corp. 4,400 231
o Universal Compression Holdings, Inc. 2,900 103
Valero Energy Corp. 25,240 2,656
Valero L.P. 1,600 94
o Veritas DGC, Inc. 3,000 97
Vintage Petroleum, Inc. 10,500 545
o W-H Energy Services, Inc. 900 27
o Weatherford International Ltd. 10,600 664
Western Gas Resources, Inc. 4,000 173
Williams Cos., Inc. 42,360 945
World Fuel Services Corp. 6,000 191
XTO Energy, Inc. 25,942 1,127
-----------
105,142
FOOD & STAPLES RETAILING 2.3%
------------------------------------------------------------------------
o 7-Eleven, Inc. 5,000 187
Albertson's, Inc. 30,468 765
Arden Group, Inc., Class A 600 45
o BJ's Wholesale Club, Inc. 6,100 174
Casey's General Stores, Inc. 5,100 110
Costco Wholesale Corp. 38,600 1,867
CVS Corp. 67,000 1,635
> Fleming Cos., Inc. 3,400 --
o Fresh Brands, Inc. 1,800 13
o Great Atlantic & Pacific Tea Co. 2,200 62
Ingles Markets, Inc., Class A 300 5
o Kroger Co. 60,800 1,210
Longs Drug Stores Corp. 3,300 138
Marsh Supermarkets, Inc., Class B 1,000 14
Nash Finch Co. 1,700 53
o Pathmark Stores, Inc. 3,900 38
o Performance Food Group Co. 1,900 52
o Pricesmart, Inc. 500 4
o Rite Aid Corp. 40,400 141
Ruddick Corp. 3,100 68
Safeway, Inc. 33,400 777
o Smart & Final, Inc. 2,700 34
o Spartan Stores, Inc. 500 5
Supervalu, Inc. 18,087 569
Sysco Corp. 52,036 1,660
The Topps Co., Inc. 1,700 12
o United Natural Foods, Inc. 2,600 73
(10) Wal-Mart Stores, Inc. 289,200 13,682
Walgreen Co. 84,400 3,834
10
SCHWAB TOTAL STOCK MARKET INDEX FUND
PORTFOLIO HOLDINGS continued
VALUE
SECURITY AND NUMBER OF SHARES ($ X 1,000)
Weis Markets, Inc. 1,700 65
Whole Foods Market, Inc. 6,100 879
@o Wild Oats Markets, Inc. 3,800 42
-----------
28,213
FOOD BEVERAGE & TOBACCO 4.6%
------------------------------------------------------------------------
Alliance One International, Inc. 3,300 8
Altria Group, Inc. 168,800 12,668
American Italian Pasta Co., Class A 1,000 7
Anheuser-Busch Cos., Inc. 61,500 2,538
Archer-Daniels-Midland Co. 53,958 1,315
>o Aurora Foods, Inc. 2,500 --
o Bridgford Foods Corp. 300 2
Brown-Forman Corp., Class B 9,912 628
Campbell Soup Co. 35,400 1,030
Chiquita Brands International, Inc. 10,000 276
Coca-Cola Bottling Co. Consolidated 400 18
The Coca-Cola Co. 202,200 8,650
Coca-Cola Enterprises, Inc. 30,000 567
ConAgra Foods, Inc. 43,293 1,007
o Constellation Brands, Inc., Class A 17,600 414
Corn Products International, Inc. 15,600 371
o Dean Foods Co. 8,613 311
o Del Monte Foods Co. 8,931 95
Delta & Pine Land Co. 2,000 50
Flowers Foods, Inc. 29,272 858
Fresh Del Monte Produce, Inc. 4,200 110
General Mills, Inc. 31,300 1,511
o Green Mountain Coffee Roasters, Inc. 900 38
o Griffen Land & Nurseries, Inc. 300 8
H.J. Heinz Co. 27,900 991
o Hain Celestial Group, Inc. 1,406 27
Hershey Foods Corp. 21,400 1,216
Hormel Foods Corp. 9,000 286
J & J Snack Foods Corp. 3,200 181
The J.M. Smuckers Co. 2,438 111
o John B. Sanfilippo & Son 5,000 91
Kellogg Co. 34,400 1,519
Kraft Foods, Inc., Class A 112,000 3,170
Lancaster Colony Corp. 3,400 136
Lance, Inc. 2,900 51
o M&F Worldwide Corp. 1,200 20
o Maui Land & Pineapple Co., Inc. 800 22
McCormick & Co., Inc. 11,300 342
MGP Ingredients, Inc. 3,400 37
Molson Coors Brewing Co., Class B 2,500 154
o Monterey Gourmet Foods, Inc. 700 3
o National Beverage Corp. 7,400 55
o Peet's Coffee & Tea, Inc. 1,800 60
The Pepsi Bottling Group, Inc. 23,400 665
PepsiAmericas, Inc. 13,200 308
PepsiCo, Inc. 140,800 8,319
@ Pilgrim's Pride Corp., Class B 1,400 44
Ralcorp Holdings, Inc. 6,700 261
@ Reynolds American, Inc. 11,332 963
Rocky Mountain Chocolate Factory, Inc. 2,311 37
Sanderson Farms, Inc. 1,750 60
Sara Lee Corp. 64,378 1,149
Seaboard Corp. 200 284
o Smithfield Foods, Inc. 6,300 186
Tasty Baking Co. 500 4
Tootsie Roll Industries, Inc. 2,322 70
o TreeHouse Foods, Inc. 1,722 45
Tyson Foods, Inc., Class A 30,340 540
Universal Corp. 1,800 67
UST, Inc. 12,700 526
@ Vector Group Ltd. 3,557 71
Wm. Wrigley Jr. Co. 19,100 1,327
-----------
55,878
HEALTH CARE EQUIPMENT & SERVICES 5.6%
------------------------------------------------------------------------
o Abiomed, Inc. 800 7
o Accelrys, Inc. 1,300 9
o Advanced Medical Optics, Inc. 4,111 147
o Advanced Neuromodulation Systems, Inc. 1,050 64
o The Advisory Board Co. 1,000 48
Aetna, Inc. 29,600 2,621
@o Align Technology, Inc. 8,700 64
o Alliance Imaging, Inc. 1,800 12
@o Allscripts Healthcare Solutions, Inc. 1,900 30
o Amedisys, Inc. 2,500 96
o America Service Group, Inc. 4,950 76
o American Healthways, Inc. 3,100 126
o American Medical Systems Holdings, Inc. 7,800 128
o American Retirement Corp. 700 13
o AMERIGROUP Corp. 1,800 30
AmerisourceBergen Corp. 10,324 787
o AMN Healthcare Services, Inc. 4,110 68
o Amsurg Corp. 2,300 55
Analogic Corp. 1,400 66
o Apria Healthcare Group, Inc. 4,100 95
Arrow International, Inc. 3,500 101
o Arthrocare Corp. 1,400 51
o Aspect Medical Systems, Inc. 3,700 121
Bausch & Lomb, Inc. 3,400 252
Baxter International, Inc. 50,118 1,916
11
SCHWAB TOTAL STOCK MARKET INDEX FUND
PORTFOLIO HOLDINGS continued
VALUE
SECURITY AND NUMBER OF SHARES ($ X 1,000)
Beckman Coulter, Inc. 5,100 251
Becton Dickinson & Co. 21,300 1,081
o Beverly Enterprises, Inc. 8,800 103
o Bio-Rad Laboratories, Inc., Class A 1,000 59
Biomet, Inc. 20,125 701
o BioScrip, Inc. 2,172 13
@o Biosite, Inc. 1,400 77
o BioVeris Corp. 3,800 20
o Boston Scientific Corp. 70,300 1,766
o Bruker BioSciences Corp. 2,100 9
C.R. Bard, Inc. 8,000 499
o Cantel Medical Corp. 3,571 69
Cardinal Health, Inc. 36,160 2,260
o Caremark Rx, Inc. 37,090 1,944
o Centene Corp. 1,000 20
@o Cerner Corp. 4,200 355
o Cerus Corp. 500 3
Chemed Corp. 1,400 67
@o Chindex International, Inc. 2,200 8
o Cholestech Corp. 1,700 15
CIGNA Corp. 12,800 1,483
o Clarient, Inc. 1,100 1
Clinical Data, Inc. 117 2
o Community Health Systems, Inc. 7,100 263
o Conmed Corp. 1,700 41
The Cooper Cos., Inc. 2,781 191
o Corvel Corp. 1,900 42
o Covance, Inc. 5,800 282
o Coventry Health Care, Inc. 23,937 1,292
o Cross Country Healthcare, Inc. 1,600 29
o CryoLife, Inc. 750 5
o CyberCare, Inc. 900 --
o Cyberonics 1,200 36
o Cytyc Corp. 7,800 198
Dade Behring Holdings, Inc. 5,200 187
Datascope Corp. 2,500 79
o DaVita, Inc. 8,250 406
o Dendrite International, Inc. 3,600 63
Dentsply International, Inc. 6,550 361
Diagnostic Products Corp. 1,700 72
o DJ Orthopedics, Inc. 3,000 87
@o Dynacq Healthcare, Inc. 3,616 13
o Eclipsys Corp. 1,800 29
o Edwards Lifesciences Corp. 3,900 161
o Emdeon Corp. 19,426 179
o Enpath Medical, Inc. 3,000 24
o eResearch Technology, Inc. 5,625 81
o Express Scripts, Inc. 12,600 950
o Fisher Scientific International, Inc. 8,876 501
o Five Star Quality Care, Inc. 135 1
o Gen-Probe, Inc. 3,400 139
o Genesis HealthCare Corp. 6,250 254
o Gentiva Health Services, Inc. 3,250 48
o Greatbatch, Inc. 1,100 29
Guidant Corp. 25,816 1,626
o Haemonetics Corp. 3,700 179
o Hanger Orthopedic Group, Inc. 5,400 33
HCA, Inc. 34,000 1,638
Health Management Associates, Inc., Class A 15,900 340
o Health Net, Inc. 9,100 426
o HealthExtras, Inc. 1,900 40
o HealthTronics, Inc. 3,500 32
o Henry Schein, Inc. 4,600 182
Hillenbrand Industries, Inc. 5,800 267
o Hologic, Inc. 2,600 144
Hooper Holmes, Inc. 4,600 13
o Hospira, Inc. 14,070 561
o Humana, Inc. 18,900 839
o ICU Medical, Inc. 550 19
o Idexx Laboratories, Inc. 2,500 175
o IDX Systems Corp. 4,000 174
o Illumina, Inc. 1,500 23
o Immucor, Inc. 2,530 66
IMS Health, Inc. 19,300 448
o Inamed Corp. 2,850 203
o Integra LifeSciences Holdings Corp. 1,100 38
o Intermagnetics General Corp. 2,056 59
o Intuitive Surgical, Inc. 1,050 93
Invacare Corp. 2,000 68
o Kindred Healthcare, Inc. 4,624 129
o Kinetic Concepts, Inc. 2,500 90
o Kyphon, Inc. 3,000 120
o LabOne, Inc. 2,100 92
o Laboratory Corp. of America Holdings 12,800 618
o Lifeline Systems, Inc. 4,600 152
o LifePoint Hospitals, Inc. 3,707 145
o Lincare Holdings, Inc. 7,100 290
o Magellan Health Services, Inc. 3,007 89
Manor Care, Inc. 8,000 298
o Matria Healthcare, Inc. 1,800 60
Matthews International Corp., Class A 1,900 68
McKesson Corp. 22,900 1,040
o Med-Design Corp. 1,200 1
o Medcath Corp. 1,500 28
o Medco Health Solutions, Inc. 25,033 1,414
o Medical Action Industries, Inc. 2,500 47
o Medical Staffing Network Holdings, Inc. 1,300 7
Medtronic, Inc. 98,374 5,574
Mentor Corp. 3,000 135
Meridian Bioscience, Inc. 7,500 157
o Merit Medical Systems, Inc. 2,222 26
o Millipore Corp. 5,100 312
12
SCHWAB TOTAL STOCK MARKET INDEX FUND
PORTFOLIO HOLDINGS continued
VALUE
SECURITY AND NUMBER OF SHARES ($ X 1,000)
o Molecular Devices Corp. 3,200 72
o Molina Healthcare, Inc. 2,500 51
National Healthcare Corp. 600 22
o National Medical Health Card Systems, Inc. 800 21
o NDCHealth Corp. 1,900 36
@o Nektar Therapeutics 2,200 33
o North American Scientific, Inc. 700 2
o Novoste Corp. 1,600 1
o Nutraceutical International Corp. 5,000 66
NWH, Inc. 2,500 36
@o OCA, Inc. 2,112 2
o Odyssey HealthCare, Inc. 2,250 39
Omnicare, Inc. 7,500 406
Option Care, Inc. 2,250 28
o OraSure Technologies, Inc. 1,500 17
Owens & Minor, Inc. 2,000 59
o Pacificare Health Systems, Inc. 18,800 1,548
o Parexel International Corp. 2,400 53
o Patterson Cos., Inc. 10,600 439
o PDI, Inc. 2,900 41
o Pediatrix Medical Group, Inc. 3,000 231
o Per-Se Technologies, Inc. 5,000 111
PerkinElmer, Inc. 11,477 253
o Pharmaceutical Product Development, Inc. 5,000 287
PolyMedica Corp. 779 26
o Precis, Inc. 1,200 2
o PSS World Medical, Inc. 5,800 81
o QMed, Inc. 500 6
Quest Diagnostics 14,820 692
o Regeneration Technologies, Inc. 1,700 12
o RehabCare Group, Inc. 4,000 85
o Renal Care Group, Inc. 4,550 213
o Res-Care, Inc. 4,500 73
o Resmed, Inc. 4,000 153
o Respironics, Inc. 3,800 136
Service Corp. International 24,100 202
o SFBC International, Inc. 1,500 64
o Sierra Health Services, Inc. 11,700 877
o SonoSite, Inc. 1,600 47
o Specialty Laboratories, Inc. 700 9
o St. Jude Medical, Inc. 29,600 1,423
Steris Corp. 6,100 139
Stewart Enterprises, Inc., Class A 7,200 37
Stryker Corp. 33,600 1,380
@o Sunrise Senior Living, Inc. 3,400 110
o Sybron Dental Specialties, Inc. 4,633 199
o Symbion, Inc. 2,500 57
o Tenet Healthcare Corp. 36,650 309
o Theragenics Corp. 2,500 8
o Thermo Electron Corp. 26,550 802
o Thoratec Corp. 2,636 52
o Triad Hospitals, Inc. 6,044 249
o TriPath Imaging, Inc. 2,600 18
o Tripos, Inc. 6,000 20
o Trizetto Group, Inc. 5,900 84
o United Surgical Partners International, Inc. 2,100 75
UnitedHealth Group, Inc. 102,600 5,940
Universal Health Services, Class B 4,000 189
o Urologix, Inc. 1,800 7
o US Physical Therapy, Inc. 3,500 63
Utah Medical Products, Inc. 2,500 71
o Varian Medical Systems, Inc. 11,900 542
o Varian, Inc. 5,800 213
o VCA Antech, Inc. 5,400 139
o Ventana Medical Systems, Inc. 2,400 92
o Ventiv Health, Inc. 2,233 56
o Viasys Healthcare, Inc. 2,982 71
o VistaCare, Inc., Class A 1,000 12
Vital Signs, Inc. 1,900 89
o Waters Corp. 8,700 315
o WellChoice, Inc. 6,800 514
o WellPoint, Inc. 54,194 4,047
West Pharmaceutical Services, Inc. 6,600 158
o Wright Medical Group, Inc. 1,700 32
Young Innovations, Inc. 2,000 65
o Zimmer Holdings, Inc. 20,300 1,295
-----------
67,814
HOTELS RESTAURANTS & LEISURE 1.8%
------------------------------------------------------------------------
Ambassadors Group, Inc. 3,400 88
Ameristar Casinos, Inc. 3,400 73
Applebee's International, Inc. 7,912 173
o Aztar Corp. 1,900 57
o Bally Total Fitness Holding Corp. 6,500 37
Bob Evans Farms, Inc. 2,200 49
Boyd Gaming Corp. 7,800 322
Brinker International, Inc. 6,900 263
o Buca, Inc. 1,100 6
Carnival Corp. 50,000 2,483
>o Catskill Litigation Trust 500 --
CBRL Group, Inc. 3,300 115
o CEC Entertainment, Inc. 2,025 68
Cedar Fair L.P. 5,300 146
o The Cheesecake Factory 2,887 99
Choice Hotels International, Inc. 6,800 225
Churchill Downs, Inc. 900 29
@ CKE Restaurants, Inc. 4,800 61
Darden Restaurants, Inc. 13,300 431
o Dave and Buster's, Inc. 1,700 23
Dover Downs Gaming & Entertainment, Inc. 1,480 19
Dover Motorsports, Inc. 1,400 9
13
SCHWAB TOTAL STOCK MARKET INDEX FUND
PORTFOLIO HOLDINGS continued
VALUE
SECURITY AND NUMBER OF SHARES ($ X 1,000)
o Empire Resorts, Inc. 500 2
o Gaylord Entertainment Co. 2,625 104
o Golf Trust of America, Inc. L.P. 2,400 5
GTECH Holdings Corp. 9,400 299
Harrah's Entertainment, Inc. 15,273 924
Hilton Hotels Corp. 32,926 640
IHOP Corp. 3,000 142
International Game Technology 29,100 771
International Speedway Corp., Class A 3,245 168
o Interstate Hotels & Resorts, Inc. 82 --
@o Isle of Capri Casinos, Inc. 4,400 94
o Jack in the Box, Inc. 4,200 125
@o Krispy Kreme Doughnuts, Inc. 2,100 10
o La Quinta Corp. 13,000 109
Landry's Restaurants, Inc. 1,800 49
@o Las Vegas Sands Corp. 14,000 480
o Life Time Fitness, Inc. 2,500 93
Lone Star Steakhouse & Saloon, Inc. 4,400 114
o Luby's, Inc. 1,400 18
The Marcus Corp. 4,600 101
Marriott International, Inc., Class A 18,700 1,115
McDonald's Corp. 105,300 3,327
o MGM Mirage 24,600 919
o MTR Gaming Group, Inc. 2,300 15
o Multimedia Games, Inc. 1,500 15
o O'Charleys, Inc. 400 5
Outback Steakhouse, Inc. 7,000 264
o P.F. Chang's China Bistro, Inc. 800 37
o Panera Bread Co., Class A 800 47
o Papa John's International, Inc. 1,700 88
o Penn National Gaming, Inc. 9,800 290
o Rare Hospitality International Inc. 3,325 102
Royal Caribbean Cruises Ltd. 16,500 684
Ruby Tuesday, Inc. 5,600 123
o Ryan's Restaurant Group, Inc. 2,250 24
o Scientific Games Corp., Class A 6,500 195
@o Shuffle Master, Inc. 2,812 71
@o Six Flags, Inc. 7,500 55
o Smith & Wollensky Restaurant Group, Inc. 900 6
o Sonic Corp. 2,812 81
Speedway Motorsports, Inc. 4,800 170
o Starbucks Corp. 62,600 1,770
Starwood Hotels & Resorts Worldwide, Inc. 17,730 1,036
Station Casinos, Inc. 4,650 298
o The Steak N Shake Co. 1,580 29
Triarc Cos., Class B 4,400 65
o Vail Resorts, Inc. 3,800 127
Wendy's International, Inc. 10,300 481
o WMS Industries, Inc. 1,500 38
@o Wynn Resorts Ltd. 4,000 187
Yum! Brands, Inc. 24,000 1,221
-----------
21,909
HOUSEHOLD & PERSONAL PRODUCTS 2.0%
------------------------------------------------------------------------
Alberto-Culver Co., Class B 6,950 302
Avon Products, Inc. 39,000 1,053
o Central Garden & Pet Co. 1,600 68
o Chattem, Inc. 1,200 40
Church & Dwight Co., Inc. 4,950 173
Clorox Co. 18,200 985
Colgate-Palmolive Co. 42,500 2,251
o Energizer Holdings, Inc. 6,333 320
The Estee Lauder Cos., Inc., Class A 10,300 342
@ Inter Parfums, Inc. 675 10
Kimberly-Clark Corp. 40,639 2,310
o NBTY, Inc. 5,400 108
Nu Skin Enterprises, Inc., Class A 6,500 109
Oil-Dri Corp. of America 400 7
=(5) Procter & Gamble Co. 290,815 16,283
o Spectrum Brands, Inc. 2,800 58
@o USANA Health Sciences, Inc. 1,000 44
WD-40 Co. 1,600 44
-----------
24,507
INSURANCE 5.3%
------------------------------------------------------------------------
@ 21st Century Holding Co. 1,500 17
21st Century Insurance Group 7,200 115
ACE Ltd. 10,000 521
AFLAC, Inc. 42,600 2,035
Alfa Corp. 6,800 114
o Allmerica Financial Corp. 4,900 187
The Allstate Corp. 58,874 3,108
AMBAC Financial Group, Inc. 7,750 549
American Financial Group, Inc. 5,500 188
(8) American International Group, Inc. 211,922 13,733
American National Insurance Co. 1,300 153
o American Physicians Capital, Inc. 2,500 106
AmerUs Group Co. 4,400 260
AON Corp. 25,500 863
o Arch Capital Group Ltd. 3,900 193
o Argonaut Group, Inc. 2,400 70
Arthur J. Gallagher & Co. 6,800 200
Assurant, Inc. 11,500 439
Baldwin & Lyons, Inc., Class B 750 19
o Berkshire Hathaway, Inc., Class A 119 10,222
Brown & Brown, Inc. 5,500 299
Chubb Corp. 16,547 1,538
Cincinnati Financial Corp. 13,450 572
14
SCHWAB TOTAL STOCK MARKET INDEX FUND
PORTFOLIO HOLDINGS continued
VALUE
SECURITY AND NUMBER OF SHARES ($ X 1,000)
Clark, Inc. 1,700 26
o CNA Financial Corp. 20,900 644
o CNA Surety Corp. 2,200 31
Commerce Group, Inc. 1,600 91
o Conseco, Inc. 4,000 81
Crawford & Co., Class B 1,600 11
Delphi Financial Group, Inc., Class A 4,515 212
EMC Insurance Group, Inc. 1,200 22
Erie Indemnity Co., Class A 5,500 291
FBL Financial Group, Inc., Class A 2,090 65
Fidelity National Financial, Inc. 13,517 506
o Fidlty National Title Group, Inc., Class A 2,365 52
First American Corp. 7,800 342
o FPIC Insurance Group, Inc. 400 15
Genworth Financial, Inc. 37,500 1,188
Great American Financial Resources, Inc. 2,800 57
Harleysville Group, Inc. 1,800 44
Hartford Financial Services Group, Inc. 24,400 1,946
HCC Insurance Holdings, Inc. 7,950 239
Hilb, Rogal & Hobbs Co. 3,000 112
Horace Mann Educators Corp. 4,300 84
Independence Holding Co. 2,700 48
Infinity Property & Casualty Corp. 2,500 93
Jefferson-Pilot Corp. 7,600 417
Landamerica Financial Group, Inc. 5,300 335
Lincoln National Corp. 15,100 764
Loews Corp. 15,000 1,395
o Markel Corp. 300 95
Marsh & McLennan Cos., Inc. 43,000 1,254
MBIA, Inc. 11,250 655
Mercury General Corp. 5,400 326
o Metlife, Inc. 62,000 3,063
The Midland Co. 1,800 68
o MIIX Group, Inc. 2,400 --
o National Western Life Insurance Co., Class A 300 61
Nationwide Financial Services, Inc., Class A 4,800 194
o Navigators Group, Inc. 1,500 58
NYMAGIC, Inc. 2,100 52
@ Odyssey Re Holdings Corp. 5,400 139
Ohio Casualty Corp. 5,500 150
Old Republic International Corp. 16,350 424
o Penn Treaty American Corp. 150 1
o Philadelphia Consolidated Holding Co. 1,000 96
@ The Phoenix Cos., Inc. 7,000 91
o PMA Capital Corp., Class A 700 6
Presidential Life Corp. 1,000 19
o ProAssurance Corp. 1,670 78
The Progressive Corp. 21,300 2,467
Protective Life Corp. 5,500 241
Prudential Financial, Inc. 45,500 3,312
Reinsurance Group of America, Inc. 5,100 233
RLI Corp. 2,800 151
Safeco Corp. 12,500 696
Safety Insurance Group, Inc. 1,000 38
o SCPIE Holdings, Inc. 700 11
Selective Insurance Group, Inc. 1,200 66
The St. Paul Travelers Cos., Inc. 54,550 2,456
Stancorp Financial Group, Inc. 2,500 230
State Auto Financial Corp. 3,800 125
Stewart Information Services Corp. 3,700 189
Torchmark Corp. 10,600 560
Transatlantic Holdings, Inc. 6,437 373
o Triad Guaranty, Inc. 1,700 72
UICI 2,500 90
United Fire & Casualty Co. 1,000 45
Unitrin, Inc. 5,600 258
@ UnumProvident Corp. 23,914 485
o USI Holdings Corp. 4,500 59
W.R. Berkley Corp. 15,300 669
Wesco Financial Corp. 200 69
White Mountains Insurance Group Ltd. 200 121
Zenith National Insurance Corp. 3,400 153
-----------
64,611
MATERIALS 3.3%
------------------------------------------------------------------------
A. Schulman, Inc. 2,300 47
o A.M. Castle & Co. 1,500 30
o AEP Industries, Inc. 400 8
Air Products & Chemicals, Inc. 17,700 1,013
Airgas, Inc. 5,000 141
o AK Steel Holding Corp. 7,027 49
Albemarle Corp. 4,500 158
Alcoa, Inc. 72,964 1,772
o Aleris International, Inc. 2,459 64
Allegheny Technologies, Inc. 7,700 221
Alliance Resource Partners L.P. 3,400 144
Aptargroup, Inc. 2,200 113
Arch Chemicals, Inc. 2,700 71
Arch Coal, Inc. 3,500 270
Ashland, Inc. 7,000 375
Ball Corp. 12,600 496
Bemis Co. 6,400 169
Bowater, Inc. 2,300 61
o Brush Engineered Materials, Inc. 3,600 54
o Buckeye Technologies, Inc. 1,200 9
Cabot Corp. 5,200 177
15
SCHWAB TOTAL STOCK MARKET INDEX FUND
PORTFOLIO HOLDINGS continued
VALUE
SECURITY AND NUMBER OF SHARES ($ X 1,000)
Cambrex Corp. 3,400 65
Carpenter Technology Corp. 2,500 151
o Century Aluminum Co. 3,100 56
o Chaparral Steel Co. 1,000 25
Chemtura Corp. 16,927 181
Chesapeake Corp. 1,000 20
Commercial Metals Co. 4,500 143
Consol Energy, Inc. 8,300 505
o Crown Holdings, Inc. 6,100 99
Cytec Industries, Inc. 7,400 306
Deltic Timber Corp. 700 32
The Dow Chemical Co. 78,766 3,612
E.I. du Pont de Nemours & Co. 78,195 3,260
Eagle Materials, Inc. 3,381 360
Eastman Chemical Co. 5,600 295
Ecolab, Inc. 21,500 711
Engelhard Corp. 9,300 253
Ferro Corp. 4,200 75
Florida Rock Industries, Inc. 3,487 198
o FMC Corp. 3,100 169
Freeport-McMoran Copper & Gold, Inc., Class B 16,000 791
Georgia Gulf Corp. 3,300 96
Georgia-Pacific Corp. 44,365 1,443
@o Glamis Gold Ltd. 11,100 236
Greif, Inc., Class A 3,700 226
H.B. Fuller Co. 2,000 60
>o HA-LO Industries, Inc. 2,100 --
Hawkins, Inc. 1,900 27
o Headwaters, Inc. 2,500 80
o Hercules, Inc. 8,500 95
International Flavors & Fragrances, Inc. 4,400 145
International Paper Co. 39,304 1,147
o Kaiser Aluminum Corp. 2,000 --
Kronos Worldwide, Inc. 2,560 80
Lafarge North America, Inc. 6,200 375
o Lesco, Inc. 500 8
Louisiana-Pacific Corp. 4,800 120
Lubrizol Corp. 3,400 141
Lyondell Chemical Co. 19,930 534
MacDermid, Inc. 3,800 106
Martin Marietta Materials, Inc. 4,200 331
Massey Energy Co. 6,800 273
o Material Sciences Corp. 4,000 61
MeadWestvaco Corp. 11,674 306
o Meridian Gold, Inc. 6,600 124
Minerals Technologies, Inc. 3,100 166
o Mod-Pac Corp. 500 5
Monsanto Co. 21,645 1,364
@o The Mosaic Co. 29,500 389
Myers Industries, Inc. 2,580 29
Natural Resource Partners L.P. 2,000 106
Neenah Paper, Inc. 1,231 36
o NewMarket Corp 2,000 37
Newmont Mining Corp. 34,251 1,459
@ NL Industries, Inc. 5,300 90
NN, Inc. 1,800 19
@ Nucor Corp. 13,500 808
Olin Corp. 4,820 86
o OM Group, Inc. 2,400 38
o Omnova Solutions, Inc. 3,400 15
o Owens-Illinois, Inc. 16,200 308
Packaging Corp. of America 6,000 122
Packaging Dynamics Corp. 260 3
o Pactiv Corp. 12,400 244
Peabody Energy Corp. 7,600 594
Penford Corp. 2,700 35
@ Penn Virginia Resource Partners L.P. 2,500 134
>o Peregrine Systems, Inc. 7,015 --
Phelps Dodge Corp. 7,330 883
o PolyOne Corp. 3,200 18
Potlatch Corp. 13,400 599
PPG Industries, Inc. 13,900 834
Praxair, Inc. 25,700 1,270
Quanex Corp. 3,750 217
Reliance Steel & Aluminum Co. 4,250 242
Roanoke Electric Steel Corp. 800 18
Rock-Tennessee Co., Class A 1,500 21
Rohm & Haas Co. 26,753 1,165
Royal Gold, Inc. 3,100 71
RPM International, Inc. 9,600 179
o RTI International Metals, Inc. 4,000 134
Schnitzer Steel Industries, Inc., Class A 1,650 53
Schweitzer-Mauduit International, Inc. 2,300 56
The Scotts Miracle-Gro Co., Class A 2,800 246
o Sealed Air Corp. 6,000 302
Sensient Technologies Corp. 2,300 41
Sigma-Aldrich Corp. 6,300 401
Silgan Holdings, Inc. 5,800 187
o Smurfit-Stone Container Corp. 10,900 115
Sonoco Products Co. 4,100 116
@ Southern Copper Corp. 5,400 298
Spartech Corp. 4,200 80
Steel Dynamics, Inc. 3,500 108
Stepan Co. 1,200 31
o Stillwater Mining Co. 1,133 11
o Symyx Technologies, Inc. 3,800 102
Temple-Inland, Inc. 8,800 324
Texas Industries, Inc. 1,000 50
@o Titanium Metals Corp. 1,800 85
United States Steel Corp. 9,900 362
USEC, Inc. 3,000 30
Valhi, Inc. 8,600 152
16
SCHWAB TOTAL STOCK MARKET INDEX FUND
PORTFOLIO HOLDINGS continued
VALUE
SECURITY AND NUMBER OF SHARES ($ X 1,000)
Valspar Corp. 8,400 185
Vulcan Materials Co. 9,400 611
Wausau Paper Corp. 4,700 51
Westlake Chemical Corp. 1,000 29
o Westmoreland Coal Co. 3,500 94
Weyerhaeuser Co. 16,750 1,061
Worthington Industries, Inc. 7,200 145
-----------
39,827
MEDIA 3.8%
------------------------------------------------------------------------
o 4Kids Entertainment, Inc. 1,000 17
o Acme Communications, Inc. 1,900 7
o ACT Teleconferencing, Inc. 1,100 --
o Adelphia Communications, Class A 6,301 1
Advo, Inc. 4,050 100
Arbitron, Inc. 2,120 79
Belo Corp., Class A 9,400 203
o Cablevision Systems Corp., NY Group, Class A
18,800 466
Cadmus Communications Corp. 3,900 82
Carmike Cinemas, Inc. 2,500 55
o Catalina Marketing Corp. 5,900 154
@o Charter Communications, Inc., Class A 20,300 24
o Citadel Broadcasting Corp. 2,500 34
Clear Channel Communications, Inc. 49,721 1,513
o Comcast Corp., Class A 148,336 4,128
o Comcast Corp., Special Class A 42,800 1,173
o Cox Radio, Inc., Class A 4,600 66
o Crown Media Holdings, Inc., Class A 6,000 64
o Cumulus Media, Inc., Class A 5,100 62
DAG Media, Inc. 2,500 6
o Daily Journal Corp. 500 21
Dex Media, Inc. 4,000 108
o The DIRECTV Group, Inc. 101,476 1,443
o Discovery Holding Co., Class A 22,323 315
@ Dow Jones & Co., Inc. 9,000 305
The E.W. Scripps Co., Class A 12,000 550
o EchoStar Communications Corp., Class A 21,300 572
o EMAK Worldwide, Inc. 500 4
o Emmis Communications Corp., Class A 713 14
o Entercom Communications Corp. 3,000 87
o Entravision Communications Corp., Class A 5,000 41
Gannett Co., Inc. 19,500 1,222
o Gemstar -- TV Guide International, Inc. 21,160 55
o Getty Images, Inc. 4,600 382
Gray Television, Inc. 5,600 50
Harte-Hanks, Inc. 8,100 207
Hearst-Argyle Television, Inc. 3,700 89
Hollinger International, Inc., Class A 7,300 64
o Insight Communications Co., Class A 5,200 60
Interactive Data Corp. 20,700 480
o Interpublic Group of Cos., Inc. 34,144 353
John Wiley & Sons, Class A 6,300 247
Journal Communications, Inc., Class A 7,500 106
o Journal Register Co. 3,200 51
Knight-Ridder, Inc. 5,700 304
o Lakes Entertainment, Inc. 1,800 17
@o Lamar Advertising Co., Class A 9,200 411
Lee Enterprises, Inc. 2,500 98
Liberty Corp. 1,000 46
Liberty Global, Inc., Series A 12,759 316
o Liberty Global, Inc., Series C 12,759 303
o Liberty Media Corp., Class A 223,239 1,779
o Lin TV Corp., Class A 3,300 42
@o Martha Stewart Living Omnimedia, Class A 3,900 67
McClatchy Co., Class A 7,200 451
The McGraw-Hill Cos., Inc. 34,600 1,693
Media General, Inc., Class A 2,000 106
o Mediacom Communications Corp., Class A 7,600 44
Meredith Corp. 6,000 299
@ New York Times Co., Class A 13,200 360
o News Corp, Inc., Class A 253,950 3,619
o Nexstar Broadcasting Group, Inc., Class A 4,500 21
o NTL, Inc. 6,000 368
Omnicom Group, Inc. 16,800 1,394
o Paxson Communications Corp. 1,900 1
@o Pegasus Communications Corp., Class A 6,320 34
o Pixar, Inc. 11,200 568
o Playboy Enterprises, Inc., Class B 4,500 68
o ProQuest Co. 1,700 50
o R.H. Donnelley Corp. 2,000 123
o Radio One, Inc., Class A 9,500 113
>o Radio Unica Communications Corp. 300 --
The Reader's Digest Association, Inc., Class A 7,300 112
@ Regal Entertainment Group, Class A 4,200 77
o Saga Communications, Inc., Class A 3,750 47
o Salem Communications Corp., Class A 900 17
o Scholastic Corp. 2,200 72
17
SCHWAB TOTAL STOCK MARKET INDEX FUND
PORTFOLIO HOLDINGS continued
VALUE
SECURITY AND NUMBER OF SHARES ($ X 1,000)
Sinclair Broadcast Group, Inc., Class A 4,800 40
@o Sirius Satellite Radio, Inc. 1,200 8
Thomas Nelson, Inc. 3,300 71
Time Warner, Inc. 367,052 6,545
o Tivo, Inc. 4,500 22
Tribune Co. 26,900 848
o Univision Communications, Inc., Class A 25,510 667
o Valassis Communications, Inc. 5,900 184
Value Line, Inc. 300 12
Viacom, Inc., Class B 144,012 4,460
The Walt Disney Co. 169,650 4,134
Washington Post, Class B 600 447
Westwood One, Inc. 7,200 133
World Wrestling Entertainment, Inc. 4,900 62
o XM Satellite Radio Holdings, Inc., Class A 15,300 441
-----------
46,154
PHARMACEUTICALS & BIOTECHNOLOGY 7.1%
------------------------------------------------------------------------
o aaiPharma, Inc. 4,300 2
Abbott Laboratories 125,705 5,412
o Abgenix, Inc. 7,100 74
o Adolor Corp. 1,700 18
o Affymetrix, Inc. 4,900 223
o Albany Molecular Research, Inc. 1,600 21
@o Alkermes, Inc. 3,100 51
Allergan, Inc. 11,900 1,063
Alpharma, Inc., Class A 3,700 92
o Amgen, Inc. 103,268 7,824
o Amylin Pharmaceuticals, Inc. 2,300 77
o Andrx Corp. 6,400 99
@o Antigenics, Inc. 1,400 7
o Aphton Corp. 800 --
Applied Biosystems Group -- Applera Corp. 16,500 400
o Arena Pharmaceuticals, Inc. 800 8
o Arqule, Inc. 8,800 63
o AVANIR Pharmaceuticals, Class A 1,900 6
o Avant Immunotherapeutics, Inc. 3,000 4
o Avigen, Inc. 900 2
o Barr Pharmaceuticals, Inc. 8,781 504
o BioCryst Pharmaceuticals, Inc. 1,400 19
o Biogen Idec, Inc. 28,125 1,143
o BioMarin Pharmaceuticals, Inc. 1,800 15
o Bradley Pharmaceuticals, Inc. 1,700 20
Bristol-Myers Squibb Co. 158,250 3,350
o Caliper Life Sciences, Inc. 700 5
o Celera Genomics Group -- Applera Corp. 5,600 67
o Celgene Corp. 13,500 757
o Cell Genesys, Inc. 1,500 8
@o Cell Therapeutics, Inc. 1,400 3
o Cephalon, Inc. 3,500 160
o Charles River Laboratories International, Inc. 6,416 281
o Chiron Corp. 15,100 667
o Ciphergen Biosystems, Inc. 1,700 3
CNS, Inc. 5,000 130
o Collagenex Pharmaceuticals, Inc. 3,000 26
o Connetics Corp. 3,400 44
o Cubist Pharmaceuticals, Inc. 1,900 38
o CuraGen Corp. 2,100 10
o Curis, Inc. 3,140 13
@o CV Therapeutics, Inc. 1,100 28
o Cytogen Corp. 230 1
o Dendreon Corp. 1,400 9
o Digene Corp. 1,400 42
o Diversa Corp. 1,100 6
@o Durect Corp. 2,000 13
o Dyax Corp. 2,000 9
Eli Lilly & Co. 92,400 4,601
o Embrex, Inc. 1,300 16
o Emisphere Technologies, Inc. 800 3
o Encysive Pharmaceuticals, Inc. 2,600 27
o Endo Pharmaceutical Holdings, Inc. 10,500 283
o Entremed, Inc. 1,200 3
o Enzo Biochem, Inc. 1,781 24
o Enzon Pharmaceuticals, Inc. 4,400 31
o Exelixis, Inc. 1,800 14
o Eyetech Pharmaceuticals, Inc. 2,500 44
o First Horizon Pharmaceutical Corp. 3,400 49
o Forest Laboratories, Inc. 27,500 1,043
o Gene Logic, Inc. 1,300 5
o Genelabs Technologies, Inc. 800 --
o Genentech, Inc. 83,300 7,547
o Genta, Inc. 2,900 4
o Genzyme Corp. 20,732 1,499
o Geron Corp. 1,000 9
o Gilead Sciences, Inc. 34,120 1,612
o GTC Biotherapeutics, Inc. 1,800 3
o Harvard Bioscience, Inc. 500 2
o Human Genome Sciences, Inc. 5,100 43
@o ICOS Corp. 2,700 73
o ImClone Systems, Inc. 6,935 241
o Immunogen, Inc. 1,500 8
o Immunomedics, Inc. 2,400 4
o Impax Laboratories, Inc. 1,600 17
o Incyte Corp. 2,600 13
o Indevus Pharmaceuticals, Inc. 1,800 8
o Inspire Pharmaceuticals, Inc. 1,300 8
o InterMune, Inc. 1,100 15
18
SCHWAB TOTAL STOCK MARKET INDEX FUND
PORTFOLIO HOLDINGS continued
VALUE
SECURITY AND NUMBER OF SHARES ($ X 1,000)
o Invitrogen Corp. 3,629 231
o Isis Pharmaceuticals, Inc. 1,900 8
o IVAX Corp. 18,437 526
(6) Johnson & Johnson 246,370 15,428
o Kendle International, Inc. 2,700 65
o King Pharmaceuticals, Inc. 18,516 286
o Kos Pharmaceuticals, Inc. 3,200 192
o Kosan Biosciences, Inc. 2,500 18
o KV Pharmaceutical Co., Class A 2,700 46
o Lexicon Genetics, Inc. 6,900 28
@o Ligand Pharmaceuticals, Inc., Class B 2,300 20
o Luminex Corp. 800 8
o Matrixx Initiatives, Inc. 1,700 28
o Maxim Pharmaceuticals, Inc. 2,400 3
o Maxygen, Inc. 1,500 13
o Medarex, Inc. 3,000 26
o Medicines Co. 1,700 29
Medicis Pharmaceutical Corp., Class A 3,400 100
o Medimmune, Inc. 19,875 695
Merck & Co., Inc. 183,552 5,180
o MGI Pharma, Inc. 3,932 74
o Millennium Pharmaceuticals, Inc. 25,856 236
o Monogram Biosciences, Inc. 4,080 9
Mylan Laboratories, Inc. 21,900 421
o Myogen, Inc. 2,500 50
o Myriad Genetics, Inc. 1,400 27
o Nabi Biopharmaceuticals 2,800 36
@o Nanogen, Inc. 1,500 4
o Neogen Corp. 625 12
o NeoRx Corp. 400 --
o Neose Technologies, Inc. 500 1
o Neurocrine Biosciences, Inc. 1,400 74
o Neurogen Corp. 800 6
o Northfield Laboratories, Inc. 1,100 14
o Noven Pharmacuticals, Inc. 5,500 77
o NPS Pharmacuticals, Inc. 1,000 10
o Nuvelo, Inc. 300 3
o Onyx Pharmaceuticals, Inc. 1,800 46
o Orchid Cellmark, Inc. 280 2
o Oscient Pharmaceuticals Corp. 2,100 4
o OSI Pharmaceuticals, Inc. 1,692 39
o Oxigene, Inc. 900 5
o Pain Therapeutics, Inc. 2,600 15
o Par Pharmaceutical Cos., Inc. 1,900 49
Perrigo Co. 7,300 98
(9) Pfizer, Inc. 631,552 13,730
o Pharmacopeia Drug Discovery, Inc. 650 2
o Pharmacyclics, Inc. 1,100 8
o Pharmion Corp. 2,500 47
o Pozen, Inc. 1,300 13
o Praecis Pharmaceuticals, Inc. 1,600 1
o Protein Design Labs, Inc. 4,100 115
o Regeneron Pharmaceuticals, Inc. 1,900 24
o Sangamo Biosciences, Inc. 1,200 6
o Savient Pharmaceuticals, Inc. 2,300 9
Schering-Plough Corp. 121,750 2,476
o Sepracor, Inc. 6,600 371
o Serologicals Corp. 1,200 23
o SuperGen, Inc. 900 5
o Tanox, Inc. 4,900 68
o Techne Corp. 3,800 206
o Third Wave Technologies, Inc. 1,800 6
o Titan Pharmaceuticals, Inc. 800 1
o Transgenomic, Inc. 1,200 1
o Trimeris, Inc. 500 6
Valeant Pharmaceuticals International 7,900 136
@o Vertex Pharmaceuticals, Inc. 3,144 72
o Vical, Inc. 1,600 8
o Viropharma, Inc. 1,000 19
o Watson Pharmaceuticals, Inc. 7,732 267
Wyeth 109,400 4,875
o XOMA Ltd. 2,400 4
o Zymogenetics, Inc. 2,000 35
-----------
86,842
REAL ESTATE 2.1%
------------------------------------------------------------------------
Affordable Residential Communities 3,000 30
o Alexander's, Inc. 700 168
Alexandria Real Estate Equities, Inc. 2,500 202
AMB Property Corp. 7,300 323
American Financial Realty Trust 8,500 105
@ American Home Mortgage Investment Corp. 4,500 122
American Land Lease, Inc. 1,700 40
American Mortgage Acceptance Co. 1,500 21
o American Real Estate Partners L.P. 3,800 131
o American Realty Investors, Inc. 1,037 10
AMLI Residential Properties 1,000 38
@ Annaly Mortgage Management, Inc. 9,400 108
Anthracite Capital, Inc. 4,900 51
Anworth Mortgage Asset Corp. 1,000 8
Apartment Investment & Management Co., Class A 7,400 284
Archstone-Smith Trust 15,285 620
Arden Realty, Inc. 5,500 248
AvalonBay Communities, Inc. 6,100 526
Bedford Property Investors, Inc. 2,900 65
Boston Properties, Inc. 9,900 685
Brandywine Realty Trust 5,500 151
19
SCHWAB TOTAL STOCK MARKET INDEX FUND
PORTFOLIO HOLDINGS continued
VALUE
SECURITY AND NUMBER OF SHARES ($ X 1,000)
BRE Properties, Class A 5,000 221
Camden Property Trust 2,300 130
Capital Automotive Real Estate Investment Trust 2,800 108
Capstead Mortgage Corp. 2,240 14
CarrAmerica Realty Corp. 5,400 178
o CB Richard Ellis Group, Inc., Class A 4,500 220
CBL & Associates Properties, Inc. 4,400 164
Centerpoint Properties Trust 3,600 164
Colonial Properties Trust 2,567 112
Commercial Net Lease Realty 3,320 64
Consolidated-Tomoka Land Co. 900 54
Corporate Office Properties Trust SBI 3,500 122
Correctional Properties Trust 1,600 45
Cousins Properties, Inc. 5,200 154
Crescent Real Estate Equity Co. 7,400 148
Developers Diversified Realty Corp. 7,612 332
Duke Realty Corp. 12,990 443
EastGroup Properties, Inc. 900 39
Entertainment Properties Trust 2,200 88
Equity Inns, Inc. 2,700 35
Equity Lifestyle Properties, Inc. 3,000 127
Equity Office Properties Trust 32,738 1,008
Equity One, Inc. 6,600 155
Equity Residential 24,700 969
Essex Property Trust, Inc. 2,600 234
Federal Realty Investment Trust 5,200 315
o FelCor Lodging Trust, Inc. 5,700 85
First Industrial Realty Trust 2,600 106
Forest City Enterprises, Inc., Class A 10,400 384
@ Friedman Billings Ramsey Group, Inc., Class A 12,080 107
General Growth Properties, Inc. 20,460 869
Getty Realty Corp. 2,000 54
Glenborough Realty Trust, Inc. 2,400 46
Glimcher Realty Trust 3,800 87
Global Signal, Inc. 5,000 207
Health Care Property Investors, Inc. 10,648 271
@ Health Care Real Estate Investment Trust, Inc. 5,200 183
Healthcare Realty Trust, Inc. 4,900 185
Heritage Property Investment Trust 4,000 130
Highwoods Properties, Inc. 5,600 158
Home Properties, Inc. 2,500 97
Hospitality Properties Trust 6,000 238
Host Marriott Corp. 28,400 477
HRPT Properties Trust 13,500 147
@ IMPAC Mortgage Holdings, Inc. 4,800 48
Inland Real Estate Corp. 5,500 78
Innkeepers USA Trust 1,500 23
iStar Financial, Inc. 9,390 346
o Jones Lang LaSalle, Inc. 2,300 116
Kilroy Realty Corp. 1,800 101
Kimco Realty Corp. 18,700 554
LaSalle Hotel Properties 3,500 124
@ Lexington Corp. Properties Trust 3,000 65
Liberty Property Trust 8,300 346
LTC Properties, Inc. 2,800 57
The Macerich Co. 5,200 334
Mack-Cali Realty Corp. 5,900 252
Maguire Properties, Inc. 3,000 90
o MeriStar Hospitality Corp. 2,200 19
MFA Mortgage Investments, Inc. 5,500 32
Mid-America Apartment Communities, Inc. 2,500 117
The Mills Corp. 5,400 289
National Health Investors, Inc. 3,100 83
National Health Realty, Inc. 2,300 44
Nationwide Health Properties, Inc. 5,100 118
New Century Financial Corp. 3,600 111
New Plan Excel Realty Trust 8,500 195
Newcastle Investment Corp. 2,200 58
@ Novastar Financial, Inc. 2,000 59
Omega Healthcare Investors, Inc. 2,784 34
Pan Pacific Retail Properties, Inc. 2,201 140
Parkway Properties, Inc. 500 24
Pennsylvania Real Estate Investment Trust 2,500 96
Plum Creek Timber Co., Inc. 15,047 585
PMC Commercial Trust 1,500 19
Post Properties, Inc. 2,200 90
Prentiss Properties Trust 2,700 107
ProLogis 20,854 897
PS Business Parks, Inc. 3,000 140
Public Storage, Inc. 10,900 722
RAIT Investment Trust 3,300 88
Ramco-Gershenson Properties 1,400 39
Rayonier, Inc. 2,388 91
Realty Income Corp. 4,600 102
Reckson Associates Realty Corp. 5,300 186
Redwood Trust, Inc. 2,500 116
@ Regency Centers Corp. 5,700 317
Saul Centers, Inc. 2,100 73
Saxon Capital, Inc. 3,500 35
Senior Housing Properties Trust 4,950 88
>o Shelbourne Properties I 500 5
>o Shelbourne Properties III 500 3
Shurgard Storage Centers, Inc., Class A 4,500 254
Simon Property Group, Inc. 18,574 1,330
SL Green Realty Corp. 4,200 286
Sovran Self Storage, Inc. 800 37
20
SCHWAB TOTAL STOCK MARKET INDEX FUND
PORTFOLIO HOLDINGS continued
VALUE
SECURITY AND NUMBER OF SHARES ($ X 1,000)
The St. Joe Co. 5,300 350
Sun Communities, Inc. 3,000 91
Tanger Factory Outlet Centers 1,600 43
@o Tarragon Corp. 4,422 83
Taubman Centers, Inc. 4,100 135
@o Tejon Ranch Co. 674 30
@ Thornburg Mortgage, Inc. 7,800 198
The Town & Country Trust 1,000 30
o Trammell Crow Co. 2,800 72
Trizec Properties, Inc. 12,700 283
Trustreet Properties, Inc. 1,000 15
United Dominion Realty Trust, Inc. 9,400 208
United Mobile Homes, Inc. 1,600 24
Universal Health Realty Income 900 29
Urstadt Biddle Properties, Inc. 500 9
Urstadt Biddle Properties, Inc., Class A 1,000 17
Ventas, Inc. 5,800 178
Vornado Realty Trust 10,500 851
W.P. Carey & Co. LLC 4,100 105
Washington Real Estate Investment Trust 3,100 93
Weingarten Realty Investment 7,975 284
o Wellsford Real Properties, Inc. 1,400 27
-----------
26,128
RETAILING 4.2%
------------------------------------------------------------------------
o 99 Cents Only Stores 3,066 30
Aaron Rents, Inc. 3,750 74
Aaron Rents, Inc., Class A 2,175 39
Abercrombie & Fitch Co., Class A 8,300 432
o Advance Auto Parts, Inc. 9,540 358
o Advanced Marketing Services, Inc. 2,400 9
o Amazon.com, Inc. 33,700 1,344
o America's Car Mart, Inc. 3,750 61
American Eagle Outfitters, Inc. 10,100 238
The Andersons, Inc. 1,500 52
o AnnTaylor Stores Corp. 9,825 238
o Artistdirect, Inc. 1,000 3
o Asbury Automotive Group, Inc. 4,100 69
o Autonation, Inc. 21,600 429
o AutoZone, Inc. 8,900 720
o Barnes & Noble, Inc. 7,400 268
@o Bed, Bath & Beyond, Inc. 23,700 960
Best Buy Co., Inc. 39,225 1,736
o Big Lots, Inc. 11,100 128
@ Blockbuster, Inc., Class A 6,900 31
Borders Group, Inc. 9,000 177
The Buckle, Inc. 1,000 37
Building Material Holding Corp. 4,000 340
Burlington Coat Factory Warehouse Corp. 2,500 96
@o Cabela's, Inc., Class A 3,500 57
o Carmax, Inc. 3,923 105
The Cato Corp., Class A 1,800 36
o Charming Shoppes, Inc. 7,700 86
o Chico's FAS, Inc. 13,300 526
o The Children's Place Retail Stores, Inc. 1,800 77
Circuit City Stores, Inc. 16,500 294
Claire's Stores, Inc. 16,000 417
o Coldwater Creek, Inc. 5,668 153
o CSK Auto Corp. 3,500 53
DEB Shops, Inc. 1,600 40
@o Dick's Sporting Goods, Inc. 1,000 30
Dillards, Inc., Class A 5,500 114
Dollar General Corp. 27,775 540
o Dollar Tree Stores, Inc. 8,650 187
o The Dress Barn, Inc. 3,000 80
o Duckwall-ALCO Stores, Inc. 1,800 41
o eBay, Inc. 110,848 4,390
o Expedia, Inc. 31,345 589
Family Dollar Stores, Inc. 10,200 226
Federated Department Stores, Inc. 21,476 1,318
The Finish Line, Class A 3,600 56
o Finlay Enterprises, Inc. 1,000 8
Foot Locker, Inc. 14,100 274
@o Gamestop Corp., Class A 1,524 54
The Gap, Inc. 73,900 1,277
o Genesco, Inc. 4,300 158
Genuine Parts Co. 13,500 599
o Group 1 Automotive, Inc. 1,400 39
o Guess?, Inc. 2,700 73
o Guitar Center, Inc. 1,700 89
Handleman Co. 6,600 79
Haverty Furniture Cos., Inc. 4,200 51
o Hibbet Sporting Goods, Inc. 3,543 93
o Hollywood Media Corp. 1,100 5
Home Depot, Inc. 181,000 7,428
o HOT Topic, Inc. 6,300 94
@o IAC/InterActiveCorp 31,345 802
o Insight Enterprises, Inc. 4,650 95
o The J. Jill Group, Inc. 2,000 25
J.C. Penney Co., Inc. Holding Co. 22,400 1,147
o Kohl's Corp. 25,800 1,242
Limited Brands, Inc. 36,820 737
o Linens 'N Things, Inc. 4,300 108
Lithia Motors, Inc., Class A 700 19
Lowe's Cos., Inc. 63,700 3,871
o The Men's Wearhouse, Inc. 3,600 89
Michaels Stores, Inc. 9,800 324
Monro Muffler Brake, Inc. 1,050 31
Movie Gallery, Inc. 3,525 25
@o NetFlix, Inc. 6,000 158
21
SCHWAB TOTAL STOCK MARKET INDEX FUND
PORTFOLIO HOLDINGS continued
VALUE
SECURITY AND NUMBER OF SHARES ($ X 1,000)
@ Nordstrom, Inc. 20,600 714
o O'Reilly Automotive, Inc. 4,400 124
o Office Depot, Inc. 26,000 716
OfficeMax, Inc. 6,400 179
o Pacific Sunwear of California 9,975 250
o The Pantry, Inc. 400 15
o Party City Corp. 3,800 62
o Payless Shoesource, Inc. 5,906 109
Pep Boys-Manny, Moe & Jack 2,500 35
o Petco Animal Supplies, Inc. 5,000 95
PETsMART, Inc. 11,100 261
Pier 1 Imports, Inc. 3,900 40
o Pomeroy IT Solutions, Inc. 2,100 24
o Priceline.com, Inc. 3,983 76
o RadioShack Corp. 10,700 236
Regis Corp. 3,900 150
o Rent-A-Center, Inc. 5,250 95
o Rent-Way, Inc. 3,200 20
o Restoration Hardware, Inc. 1,700 10
o Retail Ventures, Inc. 700 7
o Rex Stores Corp. 1,875 25
Ross Stores, Inc. 13,400 362
o Saks, Inc. 16,900 307
o Sears Holdings Corp. 8,885 1,068
The Sherwin-Williams Co. 13,000 553
o Shoe Carnival, Inc. 1,200 20
Sonic Automotive, Inc. 1,400 31
o The Source Interlink Cos., Inc. 5,000 51
> Spiegel, Inc., Class A 5,000 --
o The Sports Authority, Inc. 370 10
o The Sportsman's Guide, Inc. 7,500 197
o Stage Stores, Inc. 1,800 50
Staples, Inc. 61,800 1,405
Stein Mart, Inc. 3,800 70
Talbots, Inc. 5,700 149
Target Corp. 74,600 4,154
o TBC Corp. 100 3
Tiffany & Co. 11,500 453
TJX Cos., Inc. 40,400 870
o Too, Inc. 1,742 50
o Tractor Supply Co. 4,000 194
o Trans World Entertainment Corp. 1,500 10
Tuesday Morning Corp. 2,500 60
@o Tweeter Home Entertainment Group, Inc. 1,100 5
United Auto Group, Inc. 1,000 34
o Urban Outfitters, Inc. 12,800 363
o Valuevision Media, Inc., Class A 1,400 14
o Weight Watchers International, Inc. 8,700 457
o Williams-Sonoma, Inc. 9,200 360
o Winmark Corp. 1,200 25
o Zale Corp. 5,020 141
-----------
50,987
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT 2.8%
------------------------------------------------------------------------
o Actel Corp. 1,100 15
o ADE Corp. 3,100 63
o Advanced Energy Industries, Inc. 3,900 42
o Advanced Micro Devices, Inc. 29,000 673
o Advanced Power Technology, Inc. 1,500 14
o Agere Systems, Inc. 15,011 156
o Alliance Semiconductor Corp. 1,200 3
o Altera Corp. 30,400 506
o AMIS Holdings, Inc. 2,500 28
@o Amkor Technology, Inc. 14,400 76
o Anadigics, Inc. 1,150 4
Analog Devices, Inc. 30,200 1,050
Applied Materials, Inc. 139,098 2,278
o Applied Micro Circuits Corp. 25,238 62
o Asyst Technologies, Inc. 1,700 7
o Atmel Corp. 37,900 93
o ATMI, Inc. 1,400 38
o August Technology Corp. 1,300 13
o Axcelis Technologies, Inc. 7,044 31
o AXT, Inc. 800 1
o Broadcom Corp., Class A 26,200 1,113
o Brooks Automation, Inc. 2,585 30
o Cabot Microelectronics Corp. 660 19
o Ceva, Inc. 433 2
o Cirrus Logic, Inc. 3,800 25
Cohu, Inc. 1,100 26
@o Conexant Systems, Inc. 25,046 49
o Credence Systems Corp. 1,700 13
@o Cree, Inc. 6,000 144
o Cymer, Inc. 1,700 59
o Cypress Semiconductor Corp. 8,500 116
o Diodes, Inc. 2,850 103
o DSP Group, Inc. 3,300 81
o Electroglas, Inc. 900 3
o Emcore Corp. 1,500 8
o Entegris, Inc. 10,199 100
o ESS Technology, Inc. 2,100 6
o Exar Corp. 3,300 42
o Fairchild Semiconductor International, Inc., Class A 8,600 133
o FEI Co. 1,500 28
o Formfactor, Inc. 2,500 62
o Freescale Semiconductor, Inc., Class B 21,360 510
o FSI International, Inc. 1,300 5
o HI/FN, Inc. 800 4
o Ibis Technology Corp. 800 1
22
SCHWAB TOTAL STOCK MARKET INDEX FUND
PORTFOLIO HOLDINGS continued
VALUE
SECURITY AND NUMBER OF SHARES ($ X 1,000)
o Integrated Device Technology, Inc. 11,220 111
o Integrated Silicon Solutions, Inc. 3,400 26
Intel Corp. 533,832 12,545
o International Rectifier Corp. 6,600 195
Intersil Corp., Class A 12,364 281
o IXYS Corp. 900 9
KLA-Tencor Corp. 15,000 694
o Kopin Corp. 2,500 14
o Kulicke & Soffa Industries, Inc. 4,400 28
o Lam Research Corp. 11,600 391
o Lattice Semiconductor Corp. 4,600 20
Linear Technology Corp. 25,000 830
o Logicvision, Inc. 1,000 2
o LSI Logic Corp. 29,964 243
o LTX Corp. 1,900 7
o Mattson Technology, Inc. 4,100 32
Maxim Integrated Products, Inc. 27,453 952
o MEMC Electronic Materials, Inc. 16,300 292
o Micrel, Inc. 6,800 68
Microchip Technology, Inc. 16,475 497
o Micron Technology, Inc. 49,500 643
o Microsemi Corp. 7,000 162
@o Mindspeed Technologies, Inc. 7,598 14
o MIPS Technology, Inc., Class A 1,100 6
o MKS Instruments, Inc. 4,300 81
o Monolithic System Technology, Inc. 1,200 6
o Nanometrics, Inc. 300 3
National Semiconductor Corp. 29,200 661
o Novellus Systems, Inc. 11,171 244
o Nvidia Corp. 14,000 470
@o Omnivision Technologies, Inc. 2,800 36
o ON Semiconductor Corp. 21,000 97
o Pericom Semiconductor Corp. 600 5
o Photronics, Inc. 3,900 70
o Pixelworks, Inc. 4,100 23
o PLX Technology, Inc. 1,300 10
o Power Integrations, Inc. 1,400 30
o QuickLogic Corp. 900 3
o Rambus, Inc. 8,200 105
o RF Micro Devices, Inc. 13,700 72
o Rudolph Technologies, Inc. 500 6
o Semitool, Inc. 4,300 39
o Semtech Corp. 6,000 91
o Silicon Image, Inc. 2,000 18
o Silicon Laboratories, Inc. 5,000 161
o Silicon Storage Technology, Inc. 7,000 35
o Sipex Corp. 1,600 3
o Skyworks Solutions, Inc. 5,689 31
o Standard Microsystems Corp. 3,600 102
o Supertex, Inc. 1,400 51
o Teradyne, Inc. 15,559 211
o Tessera Technologies, Inc. 3,000 84
Texas Instruments, Inc. 143,397 4,094
o Therma-Wave, Inc. 1,000 2
o Three-Five Systems, Inc. 1,099 --
o Transmeta Corp. 4,500 6
o Transwitch Corp. 3,100 5
o Tripath Technology, Inc. 1,800 1
o Triquint Semiconductor, Inc. 5,310 22
o Ultratech Stepper, Inc. 1,300 18
o Varian Semiconductor Equipment Associates, Inc. 1,500 57
o Veeco Instruments, Inc. 3,500 56
o Virage Logic Corp. 1,400 11
@o Vitesse Semiconductor Corp. 6,986 12
Xilinx, Inc. 27,600 661
o Zoran Corp. 1,761 26
-----------
33,616
SOFTWARE & SERVICES 6.3%
------------------------------------------------------------------------
=o Activision, Inc. 19,866 313
o Actuate Corp. 2,300 7
Acxiom Corp. 13,300 284
Adobe Systems, Inc. 40,000 1,290
o Advent Software, Inc. 4,100 126
o Affiliated Computer Services, Inc., Class A 12,000 649
o Agile Software Corp. 1,900 14
o Akamai Technologies, Inc. 8,938 155
o Alliance Data Systems Corp. 6,600 235
o Altiris, Inc. 2,500 42
o Analysts International Corp. 2,400 6
o Ansoft Corp. 2,300 74
o answerthink, Inc. 1,700 7
o Ansys, Inc. 3,400 127
o Anteon International Corp. 2,000 90
@o Ariba, Inc. 5,270 41
o Aspen Technology, Inc. 6,000 36
o Atari, Inc. 1,600 2
Autodesk, Inc. 16,800 758
Automatic Data Processing, Inc. 48,100 2,244
o BEA Systems, Inc. 30,400 268
o BearingPoint, Inc. 7,100 50
o BindView Development Corp. 1,700 7
o The BISYS Group, Inc. 9,000 114
o Blue Coat Systems, Inc. 340 16
o BMC Software, Inc. 19,000 372
o Borland Software Corp. 3,000 15
o Bottomline Technologies, Inc. 2,000 25
o BroadVision, Inc. 1,090 1
o CACI International, Inc., Class A 2,100 115
o Cadence Design Systems, Inc. 22,600 361
o Captaris, Inc. 2,200 8
o Carreker Corp. 3,700 20
o Catapult Communications Corp. 1,600 29
23
SCHWAB TOTAL STOCK MARKET INDEX FUND
PORTFOLIO HOLDINGS continued
VALUE
SECURITY AND NUMBER OF SHARES ($ X 1,000)
o CCC Information Services Group, Inc. 7,322 190
o Centra Software, Inc. 2,400 4
o Ceridian Corp. 19,500 427
Certegy, Inc. 4,150 155
o Checkfree Corp. 7,900 336
o Chordiant Software, Inc. 1,100 3
o Ciber, Inc. 1,900 12
o Citrix Systems, Inc. 20,000 551
@o Click Commerce, Inc. 320 6
o CMGI, Inc. 14,086 22
o CNET Networks, Inc. 9,983 136
o Cognizant Technology Solutions Corp., Class A 10,600 466
Computer Associates International, Inc. 47,226 1,321
o Computer Sciences Corp. 16,238 832
o Compuware Corp. 19,900 161
o Convergys Corp. 10,500 171
o Corillian Corp. 2,000 6
o Covansys Corp. 5,000 80
o CSG Systems International, Inc. 5,400 127
o Datastream Systems, Inc. 1,300 11
o Digimarc Corp. 3,500 22
o Digital Insight Corp. 2,300 69
o Digital River, Inc. 2,100 59
o Digitas, Inc. 4,000 43
o Divine, Inc., Class A 161 --
o DST Systems, Inc. 8,100 455
o Dynamics Research Corp. 1,200 19
o Earthlink, Inc. 11,850 130
o Edgewater Technology, Inc. 767 4
o eFunds Corp. 5,002 103
o Electronic Arts, Inc. 25,200 1,433
Electronic Data Systems Corp. 42,100 981
o eLoyalty Corp. 190 1
o Embarcadero Technologies, Inc. 2,900 23
o Entrust, Inc. 2,800 12
o Epicor Software Corp. 4,000 49
o EPIQ Systems, Inc. 550 11
>o ePresence, Inc. 2,700 --
o Equinix, Inc. 2,565 95
o Euronet Worldwide, Inc. 2,500 70
Factset Research Systems, Inc. 3,750 132
Fair Isaac Corp. 7,744 323
@o FalconStor Software, Inc. 1,200 8
o FileNet Corp. 3,800 107
First Data Corp. 62,932 2,546
o Firstwave Technologies, Inc. 1,000 1
o Fiserv, Inc. 15,300 668
o Forrester Research, Inc. 4,100 79
o Gartner, Inc., Class A 10,300 124
>o Genuity, Inc., Class A 280 --
Global Payments, Inc. 6,240 267
o Google, Inc., Class A 22,500 8,373
o GSE Systems, Inc. 424 1
o Hewitt Associates, Inc., Class A 5,925 158
o Homestore, Inc. 4,200 15
o Hyperion Solutions Corp. 2,850 138
>o iBEAM Broadcasting Corp. 290 --
o iGate Corp. 1,300 5
o Informatica Corp. 6,700 80
Inforte Corp. 3,700 15
o Infospace, Inc. 3,872 97
infoUSA, Inc. 2,300 25
o Innodata Isogen, Inc. 2,400 6
o Intellisync Corp. 1,500 7
o Interactive Intelligence, Inc. 1,000 5
o Interland, Inc. 510 2
o Internet Capital Group, Inc. 350 3
o Internet Security Systems 4,600 113
o InterVoice, Inc. 1,678 16
o Interwoven, Inc. 5,925 56
o Intrado, Inc. 3,600 70
o Intuit, Inc. 16,715 768
o iPayment, Inc. 2,500 90
o Iron Mountain, Inc. 9,787 382
>o iTEX escrow security 1,800 --
@o j2 Global Communications, Inc. 2,000 88
Jack Henry & Associates, Inc. 6,300 113
o JDA Software Group, Inc. 2,000 32
>o Jupiter Media Metrix, Inc. 1,673 --
o Kana Software, Inc. 528 1
o Kanbay International, Inc. 3,000 44
o Keane, Inc. 3,960 45
o Kronos, Inc. 1,875 86
@o Lawson Software, Inc. 8,000 61
o Lightbridge, Inc. 2,200 18
o Looksmart Ltd. 480 2
o Macromedia, Inc. 4,500 198
o Macrovision Corp. 3,100 58
o Magma Design Automation, Inc. 1,700 15
o Management Network Group, Inc. 2,400 6
o Manhattan Associates, Inc. 1,300 29
o Manugistics Group, Inc. 2,300 4
o Mapinfo Corp. 3,125 38
o Matrixone, Inc. 1,700 9
MAXIMUS, Inc. 1,700 62
o McAfee, Inc. 14,445 434
o Mentor Graphics Corp. 5,700 47
o Mercury Interactive Corp. 7,500 261
o MetaSolv, Inc. 2,800 8
o Micromuse, Inc. 2,900 21
o Micros Systems, Inc. 11,000 505
=(3) Microsoft Corp. 884,960 22,743
@o MicroStrategy, Inc., Class A 856 61
@o Midway Games, Inc. 5,600 105
o Moldflow Corp. 300 4
24
SCHWAB TOTAL STOCK MARKET INDEX FUND
PORTFOLIO HOLDINGS continued
VALUE
SECURITY AND NUMBER OF SHARES ($ X 1,000)
o MPS Group, Inc. 8,100 101
o MRO Software, Inc. 3,900 64
o MSC.Software Corp. 1,800 26
o Napster, Inc. 724 3
o NAVTEQ Corp. 6,100 239
o Neoforma, Inc. 1,500 15
o Neon Systems, Inc. 2,400 8
o Net2Phone, Inc. 1,600 2
o NetIQ Corp. 7,704 92
o Netratings, Inc. 3,000 45
o Netscout Systems, Inc. 1,800 10
@o Novell, Inc. 25,600 195
o Nuance Communications, Inc. 1,974 10
@o NYFIX, Inc. 750 2
o Onyx Software Corp. 350 1
o Openwave Systems, Inc. 5,271 94
o Opnet Technologies, Inc. 3,600 30
o Opsware, Inc. 800 4
o Oracle Corp. 429,500 5,446
o PalmSource, Inc. 2,500 46
o Parametric Technology Corp. 21,700 141
Paychex, Inc. 32,400 1,256
o Pegasus Solutions, Inc. 3,900 33
o Peregrine Systems, Inc. 18 --
o Perot Systems Corp., Class A 9,100 126
o Phoenix Technologies Ltd. 1,300 8
o PLATO Learning, Inc. 1,433 10
o Portal Software, Inc. 1,220 3
o Progress Software Corp. 4,200 131
Quality Systems, Inc. 1,800 120
o Quest Software, Inc. 7,700 107
o Quovadx, Inc. 2,600 8
o Radiant Systems, Inc. 1,300 15
o RealNetworks, Inc. 6,000 47
o Red Hat, Inc. 14,600 339
o Register.com 1,296 10
Renaissance Learning, Inc. 2,100 32
The Reynolds & Reynolds Co., Class A 7,500 199
o RSA Security, Inc. 5,000 57
o S1 Corp. 12,930 57
@o Saba Software, Inc. 500 2
Sabre Holdings Corp., Class A 12,401 242
o Safeguard Scientifics, Inc. 3,300 5
o Sagent Technology, Inc. 1,500 --
o Salesforce.com, Inc. 8,500 212
o Sapient Corp. 9,100 47
o Secure Computing Corp. 3,200 38
o Selectica, Inc. 1,900 6
o Serena Software, Inc. 4,600 101
Siebel Systems, Inc. 25,100 260
o Sonic Foundry, Inc. 600 1
o SonicWALL, Inc. 4,900 34
o SPSS, Inc. 3,200 73
o SRA International, Inc., Class A 5,000 164
SS&C Technologies, Inc. 2,100 75
Startek, Inc. 1,400 18
o Stellent, Inc. 1,100 10
o SumTotal Systems, Inc. 463 2
o SupportSoft, Inc. 4,800 19
o Sybase, Inc. 19,036 424
o Symantec Corp. 91,173 2,174
o Synopsys, Inc. 13,684 259
o Synplicity, Inc. 1,200 9
Syntel, Inc. 2,500 51
o Take-Two Interactive Software, Inc. 6,000 124
Talx Corp. 2,550 101
o TeleCommunication Systems, Inc., Class A 1,300 3
o THQ, Inc. 2,925 68
o TIBCO Software, Inc. 16,000 121
o Tier Technologies, Inc., Class B 500 4
Total System Services, Inc. 16,300 347
o Transaction Systems Architects, Inc., Class A 5,200 140
o Troy Group, Inc. 2,000 5
o Tumbleweed Communications Corp. 2,000 7
o Ulticom, Inc. 4,800 51
o Unisys Corp. 27,600 141
United Online, Inc. 6,150 82
>o Usinternetworking, Inc. 1,100 --
o VA Software Corp. 1,427 2
@o Valueclick, Inc. 6,000 105
o Verint Systems, Inc. 2,500 96
o VeriSign, Inc. 20,875 493
o Verity, Inc. 4,100 41
o Versata, Inc. 9 --
o Vertel Corp. 900 --
o Viewpoint Corp. 2,000 3
o Vignette Corp. 894 15
o Vitria Technology, Inc. 925 3
o WatchGuard Technologies, Inc. 1,800 6
o WebEx Communications, Inc. 2,500 57
o webMethods, Inc. 1,921 13
o Websense, Inc. 2,500 148
o Wind River Systems, Inc. 6,760 89
o Witness Systems, Inc. 2,100 41
o WorldGate Communications, Inc. 2,000 4
o Yahoo! Inc. 111,144 4,109
o Zix Corp. 900 2
-----------
76,054
TECHNOLOGY HARDWARE & EQUIPMENT 6.2%
------------------------------------------------------------------------
o 3Com Corp. 17,900 69
o Adaptec, Inc. 5,700 23
25
SCHWAB TOTAL STOCK MARKET INDEX FUND
PORTFOLIO HOLDINGS continued
VALUE
SECURITY AND NUMBER OF SHARES ($ X 1,000)
o ADC Telecommunications, Inc. 4,031 70
Adtran, Inc. 7,000 212
o Advanced Digital Information Corp. 2,600 24
o Aeroflex, Inc. 5,400 49
o Agilent Technologies, Inc. 39,317 1,259
Agilysys, Inc. 1,600 24
o American Technical Ceramics Corp. 500 5
Amphenol Corp., Class A 8,800 352
o Anaren, Inc. 3,300 47
o Andrew Corp. 10,925 116
o Anixter International, Inc. 3,300 122
o APA Optics, Inc. 1,000 1
o Apple Computer, Inc. 61,600 3,548
o Arris Group, Inc. 2,600 22
o Arrow Electronics, Inc. 12,000 354
o Audiovox Corp., Class A 1,600 23
o Avanex Corp. 2,100 1
o Avaya, Inc. 37,885 436
o Avici Systems, Inc. 375 2
o Avid Technology, Inc. 3,756 185
o Avnet, Inc. 11,288 260
o Avocent Corp. 3,963 122
AVX Corp. 14,000 173
o Aware, Inc. 1,100 8
Bel Fuse, Inc., Class A 1,200 28
Belden CDT, Inc. 4,400 88
o Bell Microproducts, Inc. 1,000 7
o Benchmark Electronics, Inc. 3,050 86
Black Box Corp. 1,700 68
o Brightpoint, Inc. 2,475 53
o Brocade Communications Systems, Inc. 21,000 78
o C-COR.net Corp. 3,100 17
o CalAmp Corp. 1,000 11
o Carrier Access Corp. 2,500 11
CDW Corp. 6,800 383
o Centillium Communications, Inc. 1,000 4
o Checkpoint Systems, Inc. 4,600 110
o CIENA Corp. 17,294 41
o Cisco Systems, Inc. 563,969 9,841
o Clarent Corp. 1,545 --
o Cogent, Inc. 5,000 133
Cognex Corp. 2,900 83
o Cognitronics Corp. 2,600 7
o Coherent, Inc. 1,300 38
o Com21, Inc. 1,400 --
o Comarco, Inc. 500 4
o CommScope, Inc. 4,900 96
o Comtech Telecommunications Corp. 2,175 83
o Comverse Technology, Inc. 13,400 336
o Concurrent Computer Corp. 3,000 5
o Corning, Inc. 115,607 2,323
o CoSine Communications, Inc. 730 2
CTS Corp. 5,800 68
Daktronics, Inc. 2,600 56
o DDi Corp. 8 --
o Dell, Inc. 202,100 6,443
Diebold, Inc. 5,300 192
o Digital Lightwave, Inc. 1,300 --
o Dionex Corp. 1,200 58
o Ditech Communications Corp. 4,100 26
o Echelon Corp. 3,700 29
o Electro Scientific Industries, Inc. 1,300 29
o Electronics for Imaging 3,400 85
o EMC Corp. 199,686 2,788
o EMS Technologies, Inc. 1,000 16
o Emulex Corp. 5,900 109
o Enterasys Networks, Inc. 1,063 11
o Excel Technology, Inc. 600 16
o Extreme Networks, Inc. 4,500 22
o F5 Networks, Inc. 3,300 172
o Fargo Electronics, Inc. 2,000 38
o Finisar Corp. 7,900 12
o First Virtual Communications, Inc. 240 --
o Flir Systems, Inc. 4,800 101
o Foundry Networks, Inc. 9,300 111
Frequency Electronics, Inc. 500 5
@o Gateway, Inc. 11,800 34
o Gerber Scientific, Inc. 1,900 15
o Glenayre Technologies, Inc. 2,300 9
o Global Imaging Systems, Inc. 2,100 75
o Harmonic, Inc. 6,342 29
Harris Corp. 14,000 575
Hewlett-Packard Co. 252,916 7,092
o Hutchinson Technology, Inc. 16,600 412
o ID Systems, Inc. 3,000 56
o Identix, Inc. 1,600 7
Imation Corp. 2,000 86
o Immersion Corp. 800 6
o InFocus Corp. 1,600 5
o Ingram Micro, Inc., Class A 13,400 243
o Intelli-Check, Inc. 500 1
Inter-Tel, Inc. 6,000 111
o Interdigital Communications Corp. 4,500 86
o Intergraph Corp. 9,700 469
International Business Machines Corp. 135,450 11,091
Iomega Corp. 12,400 37
o Itron, Inc. 2,500 109
o Ixia 5,200 66
o Jabil Circuit, Inc. 15,400 460
o JDS Uniphase Corp. 112,424 236
o Juniper Networks, Inc. 40,565 946
Keithley Instruments, Inc. 3,200 51
o Kemet Corp. 6,700 46
Landauer, Inc. 1,100 55
26
SCHWAB TOTAL STOCK MARKET INDEX FUND
PORTFOLIO HOLDINGS continued
VALUE
SECURITY AND NUMBER OF SHARES ($ X 1,000)
o Lantronix, Inc. 1,900 3
o LaserCard Corp. 1,000 9
o LeCroy Corp. 900 14
@o Lexar Media, Inc. 5,400 40
o Lexmark International, Inc., Class A 10,900 453
o Lightpath Technologies, Inc., Class A 75 --
o Littelfuse, Inc. 2,000 49
@o Lucent Technologies, Inc. 301,923 860
o Maxtor Corp. 17,748 62
o Maxwell Technologies, Inc. 1,000 13
o McData Corp., Class A 4,047 19
o Measurement Specialties, Inc. 700 17
o Mechanical Technology, Inc. 1,800 6
o Merix Corp. 3,700 20
Methode Electronics, Class A 3,600 37
Mocon, Inc. 600 5
Molex, Inc. 16,125 408
Motorola, Inc. 193,455 4,287
o MRV Communications, Inc. 4,307 8
MTS Systems Corp. 4,500 180
National Instruments Corp. 5,675 136
o NCR Corp. 23,800 719
@o Network Appliance, Inc. 27,500 752
o Network Equipment Technologies, Inc. 5,000 25
o Newport Corp. 4,200 55
o NMS Communications Corp. 1,500 5
@o Novatel Wireless, Inc. 160 2
o Oplink Communications, Inc. 4,600 7
o Optical Communication Products, Inc. 500 1
o OSI Systems, Inc. 3,700 61
o OYO Geospace Corp. 300 7
o Packeteer, Inc. 1,100 9
@o Palm, Inc. 1,569 40
Park Electrochemical Corp. 3,600 90
o Parkervision, Inc. 400 3
o Paxar Corp. 2,300 39
o PC Connection, Inc. 3,000 17
o PC-Tel, Inc. 1,400 13
o Pemstar, Inc. 1,600 2
o Performance Technologies, Inc. 1,600 13
o Photon Dynamics, Inc. 3,400 59
o Planar Systems, Inc. 3,700 33
Plantronics, Inc. 4,000 119
o Plexus Corp. 1,700 30
o Polycom, Inc. 9,200 141
o Powerwave Technologies, Inc. 3,583 40
o Presstek, Inc. 1,100 11
Printronix, Inc. 2,400 34
o QLogic Corp. 8,522 257
Qualcomm, Inc. 135,100 5,372
o Quantum Corp. 5,500 17
o Radisys Corp. 3,700 59
o Redback Networks, Inc. 8,076 85
Remec, Inc. 1,115 1
o Research Frontiers, Inc. 800 4
Richardson Electronics Ltd. 1,300 11
o Rofin-Sinar Technologies, Inc. 1,900 70
o SafeNet, Inc. 2,770 92
o Sandisk Corp. 11,000 648
o Sanmina -- SCI Corp. 41,316 151
o SatCon Technology Corp. 900 1
o SBS Technologies, Inc. 1,700 17
o Scansource, Inc. 600 34
Scientific-Atlanta, Inc. 11,900 422
o SCM Microsystems, Inc. 1,200 3
o Seachange International, Inc. 3,350 21
o Seagate Technology 12,500 181
@o Silicon Graphics, Inc. 4,800 3
o Sirenza Microdevices, Inc. 1,300 4
o Sirf Technology Holdings, Inc. 3,500 90
o Socket Communications, Inc. 800 1
o Solectron Corp. 81,520 288
o Somera Communications, Inc. 1,900 2
o Sonus Networks, Inc. 19,400 85
Spectralink Corp. 1,000 13
>o StorageNetworks, Inc. 2,100 --
o Stratasys, Inc. 1,350 32
o Stratex Networks, Inc. 2,800 7
o Sun Microsystems, Inc. 248,230 993
o Sunrise Telecom, Inc. 2,000 5
>o Superior Telecom, Inc. 1,124 --
o Sycamore Networks, Inc. 18,200 71
Symbol Technologies, Inc. 19,690 163
o Symmetricom, Inc. 8,450 67
@o Synaptics, Inc. 3,500 81
@o Taser International, Inc. 1,700 10
o Tech Data Corp. 5,300 184
Technitrol, Inc. 4,000 67
o Tekelec 8,700 119
Tektronix, Inc. 9,202 211
o Tellabs, Inc. 34,564 330
o Terayon Communication Systems Corp. 2,800 8
o Tessco Technologies, Inc. 900 13
o Tollgrade Communications, Inc. 3,600 35
o Trimble Navigation Ltd. 5,700 165
o TTM Technologies, Inc. 4,400 35
o UNOVA, Inc. 5,600 174
@o Utstarcom, Inc. 1,200 7
o Viasat, Inc. 3,500 87
o Vishay Intertechnology, Inc. 36,688 416
o Westell Technologies, Inc., Class A 2,560 12
o Western Digital Corp. 15,700 190
o WJ Communications, Inc. 2,300 3
27
SCHWAB TOTAL STOCK MARKET INDEX FUND
PORTFOLIO HOLDINGS continued
VALUE
SECURITY AND NUMBER OF SHARES ($ X 1,000)
@o Xerox Corp. 69,700 946
o Xybernaut Corp. 1,400 --
o YDI Wireless, Inc. 100 --
o Zebra Technologies Corp., Class A 6,375 275
o Zhone Technologies, Inc. 1,000 2
o Zomax, Inc. 2,000 5
o Zygo Corp. 500 7
-----------
75,843
TELECOMMUNICATION SERVICES 2.6%
------------------------------------------------------------------------
o @Road, Inc. 4,400 20
o Alamosa Holdings, Inc. 8,000 118
@ Alaska Communications Systems Group, Inc. 2,700 30
Alltel Corp. 30,587 1,892
o American Tower Corp., Class A 33,800 806
AT&T Corp. 66,447 1,314
o AT&T Latin America Corp., Class A 2,100 --
Atlantic Tele-Network, Inc. 1,300 43
BellSouth Corp. 160,887 4,186
o Centennial Communications Corp. 8,000 119
CenturyTel, Inc. 10,500 344
o Cincinnati Bell, Inc. 18,568 74
Citizens Communications Co. 24,900 305
Commonwealth Telephone Enterprises, Inc. 9,400 337
o Covad Communications Group, Inc. 7,000 6
o Crown Castle International Corp. 20,900 512
CT Communications, Inc. 4,500 51
>o CTC Communications Group, Inc. 1,550 --
D&E Communications, Inc. 4,000 32
o Global Crossing Ltd. 2,500 33
Hickory Tech Corp. 6,100 49
o IDT Corp., Class B 7,600 91
@o Level 3 Communications, Inc. 53,000 154
o Lynch Interactive Corp. 900 21
MCI, Inc. 26,300 523
>o McLeodUSA, Inc., Class A Escrow 21,892 --
o Metro One Telecommunications 4,400 2
o Moscow CableCom Corp. 1,400 8
o Nextel Partners, Inc., Class A 15,200 382
North Pittsburgh Systems, Inc. 3,500 70
o Price Communications Corp. 4,047 62
@o Primus Telecommunications Group, Inc. 7,500 6
o Qwest Communications International, Inc. 118,337 516
o Rural Cellular Corp., Class A 1,200 19
o SBA Communications Corp. 1,300 19
SBC Communications, Inc. 281,016 6,702
Sprint Corp. (FON Group) 229,430 5,348
o Talk America Holdings, Inc. 5,000 48
>o TelCove 4,638 --
Telephone & Data Systems, Inc. 4,300 163
o Time Warner Telecom, Inc., Class A 4,500 38
o U.S. Cellular Corp. 6,100 311
o Ubiquitel, Inc. 10,000 86
Verizon Communications, Inc. 232,468 7,325
Warwick Valley Telephone Co. 2,100 48
o Wireless Facilities, Inc. 1,800 12
-----------
32,225
TELEPHONE 0.0%
------------------------------------------------------------------------
o Tut Systems, Inc. 1,697 5
TRANSPORTATION 1.7%
------------------------------------------------------------------------
o AirTran Holdings, Inc. 5,800 87
o Alaska Air Group, Inc. 1,900 60
Alexander & Baldwin, Inc. 5,600 274
o Amerco, Inc. 900 53
@o AMR Corp. 12,000 162
Arkansas Best Corp. 1,100 43
Burlington Northern Santa Fe Corp. 30,300 1,880
C.H. Robinson Worldwide, Inc. 15,000 529
CNF, Inc. 4,500 253
o Continental Airlines, Inc., Class B 5,000 65
CSX Corp. 17,100 783
o Dollar Thrifty Automotive Group, Inc. 3,500 132
Expeditors International Washington, Inc. 8,100 491
o ExpressJet Holdings, Inc. 3,000 27
FedEx Corp. 24,063 2,212
Florida East Coast Industries, Class A 3,600 157
Forward Air Corp. 2,600 92
Heartland Express, Inc. 6,706 132
Interpool, Inc. 1,200 23
J.B. Hunt Transport Services, Inc. 13,000 252
@o JetBlue Airways Corp. 7,975 148
o Kansas City Southern Railway 5,050 112
o Kirby Corp. 2,800 145
Knight Transportation, Inc. 2,700 73
o Laidlaw International, Inc. 8,200 187
o Landstar Systems, Inc. 15,200 586
o MAIR Holdings, Inc. 1,100 6
o Mesa Air Group, Inc. 1,300 15
Norfolk Southern Corp. 31,400 1,262
28
SCHWAB TOTAL STOCK MARKET INDEX FUND
PORTFOLIO HOLDINGS continued
VALUE
SECURITY AND NUMBER OF SHARES ($ X 1,000)
o Northwest Airlines Corp. 6,500 4
o Old Dominion Freight Line 2,700 96
o Pacer International, Inc. 2,800 72
o Park-Ohio Holdings Corp. 2,600 43
Ryder Systems, Inc. 6,400 254
o SCS Transportation, Inc. 4,100 82
SkyWest, Inc. 4,000 117
Southwest Airlines Co. 64,125 1,027
o Swift Transportation Co., Inc. 5,970 109
Union Pacific Corp. 22,000 1,522
United Parcel Service, Inc., Class B 91,480 6,673
Werner Enterprises, Inc. 5,832 105
o Yellow Roadway Corp. 5,004 227
-----------
20,572
UTILITIES 3.3%
------------------------------------------------------------------------
o The AES Corp. 52,596 836
AGL Resources, Inc. 4,300 151
o Allegheny Energy, Inc. 10,500 297
Allete, Inc. 2,733 120
Alliant Energy Corp. 9,300 246
Ameren Corp. 15,100 794
American Electric Power Co., Inc. 33,820 1,284
American States Water Co. 950 30
Aqua America, Inc. 3,671 124
Atmos Energy Corp. 6,700 176
Avista Corp. 3,800 67
o BayCorp Holdings Ltd. 6 --
Black Hills Corp. 1,400 58
@o Calpine Corp. 12,300 29
Cascade Natural Gas Corp. 3,500 72
Centerpoint Energy, Inc. 26,100 346
Central Vermont Public Service Corp. 2,700 43
CH Energy Group, Inc. 1,900 88
Cinergy Corp. 15,100 602
Cleco Corp. 3,400 72
o CMS Energy Corp. 5,000 75
@ Consolidated Edison, Inc. 17,000 774
Constellation Energy Group, Inc. 16,800 921
Dominion Resources, Inc. 26,610 2,024
DPL, Inc. 11,452 295
DTE Energy Co. 13,801 596
Duke Energy Corp. 76,800 2,034
Duquesne Light Holdings, Inc. 6,100 102
Edison International 49,200 2,153
o El Paso Electric Co. 2,800 61
Energen Corp. 5,200 196
Energy East Corp. 12,214 291
Entergy Corp. 18,200 1,287
Equitable Resources, Inc. 8,800 340
Exelon Corp. 54,474 2,834
FirstEnergy Corp. 28,217 1,340
Florida Public Utilites Co. 1,599 23
FPL Group, Inc. 29,400 1,266
@ Great Plains Energy, Inc. 6,500 187
Green Mountain Power Corp. 3,800 124
Hawaiian Electric Industries, Inc. 7,700 203
Idacorp, Inc. 4,200 121
Inergy L.P. 2,000 57
KeySpan Corp. 13,400 463
The Laclede Group, Inc. 3,300 99
MDU Resources Group, Inc. 10,950 361
MGE Energy, Inc. 400 14
National Fuel Gas Co. 5,800 175
New Jersey Resources Corp. 1,650 71
Nicor, Inc. 3,000 118
NiSource, Inc. 22,864 541
Northeast Utilities, Inc. 10,124 184
Northwest Natural Gas Co. 2,700 93
o NRG Energy, Inc. 7,000 301
NSTAR 7,734 210
OGE Energy Corp. 6,500 167
Oneok, Inc. 7,400 213
Otter Tail Corp. 1,100 33
Peoples Energy Corp. 3,200 119
Pepco Holdings, Inc. 14,000 301
PG&E Corp. 29,900 1,088
Piedmont Natural Gas Co. 3,200 76
Pinnacle West Capital Corp. 6,800 284
PNM Resources, Inc. 5,500 139
PPL Corp. 30,000 940
Progress Energy, Inc. 21,159 922
Public Service Enterprise Group, Inc. 19,000 1,195
Puget Energy, Inc. 7,500 161
Questar Corp. 8,100 638
o Reliant Energy, Inc. 25,125 319
SCANA Corp. 7,905 314
>o Seagate Escrow Security 7,500 --
Sempra Energy 19,175 849
o Sierra Pacific Resources 4,476 58
The Southern Co. 60,900 2,131
o Southern Union Co. 6,074 143
Southwest Gas Corp. 3,600 98
TECO Energy, Inc. 5,600 97
TXU Corp. 26,400 2,660
>o U.S. Wireless Corp. 400 --
UGI Corp. 8,200 194
UIL Holdings Corp. 400 20
Unisource Energy Corp. 3,800 121
Unitil Corp. 600 16
Vectren Corp. 5,766 157
Westar Energy, Inc. 8,200 181
WGL Holdings, Inc. 3,000 93
29
SCHWAB TOTAL STOCK MARKET INDEX FUND
PORTFOLIO HOLDINGS continued
VALUE
SECURITY AND NUMBER OF SHARES ($ X 1,000)
Wisconsin Energy Corp. 11,400 431
WPS Resources Corp. 2,400 131
Xcel Energy, Inc. 34,195 627
-----------
40,285
PREFERRED STOCK 0.0% of net assets
REAL ESTATE 0.0%
------------------------------------------------------------------------
Simon Property Group LP 1,200 74
WARRANTS 0.0% of net assets
MEDIA 0.0%
------------------------------------------------------------------------
>o RCN Corp. 2 --
SOFTWARE & SERVICES 0.0%
------------------------------------------------------------------------
>o Pinnacle Holdings, Inc. Expires 11/13/07 9 --
RIGHTS 0.0% of net assets
PHARMACEUTICALS & BIOTECHNOLOGY 0.0%
------------------------------------------------------------------------
o OSI Pharmaceuticals, Inc. Expires 01/18/05 1,640 --
FACE
SECURITY AMOUNT
RATE, MATURITY DATE ($ x 1,000)
SHORT-TERM INVESTMENT 0.3% of net assets
Wachovia Bank, Grand Cayman
Time Deposit
3.48%, 11/01/05 3,196 3,196
U.S. TREASURY OBLIGATIONS 0.0% of net assets
= U.S. Treasury Bills
3.46%-3.53%, 12/15/05 275 274
END OF INVESTMENTS.
VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
COLLATERAL INVESTED FOR SECURITIES ON LOAN
2.2% of net assets
SHORT-TERM INVESTMENT 2.2%
------------------------------------------------------------------------
Securities Lending Investment Fund 26,921,966 26,922
END OF COLLATERAL INVESTED FOR SECURITIES ON LOAN.
In addition to the above, the fund held the following at 10/31/05. All numbers x
$1,000 except number of contracts.
NUMBER
OF CONTRACT UNREALIZED
CONTRACTS VALUE GAINS
FUTURES CONTRACTS
S&P 500 Index,
e-mini, Long Expires
12/18/05 55 3,327 65
30
SCHWAB CAPITAL TRUST
SCHWAB INTERNATIONAL INDEX FUND(R)
PORTFOLIO HOLDINGS as of October 31, 2005
The following is the schedule of portfolio holdings at 10/31/05. The schedule
should be read in conjunction with the fund's annual report for the period ended
10/31/05.
We use the symbols below to designate certain characteristics of the securities.
With the top ten holdings, the number in the circle is the security's rank among
the top ten.
(1) Top Ten Holding
o Non-income producing security
* American Depositary Receipt
> Security is valued at fair value (see Accounting Policies)
@ All or a portion of this security is on loan
COST VALUE
HOLDINGS BY CATEGORY ($X1,000) ($X1,000)
- --------------------------------------------------------------------------------
99.4% FOREIGN COMMON
STOCK 958,909 1,362,937
0.3% SHORT-TERM
INVESTMENT 4,247 4,247
0.1% FOREIGN PREFERRED
STOCK 766 1,042
0.0% WARRANTS 200 --
- --------------------------------------------------------------------------------
99.8% TOTAL INVESTMENTS 964,122 1,368,226
6.2% COLLATERAL INVESTED FOR
SECURITIES ON LOAN 85,164 85,164
(6.0)% OTHER ASSETS AND
LIABILITIES, NET (82,204)
- --------------------------------------------------------------------------------
100.0% TOTAL NET ASSETS 1,371,186
VALUE
SECURITY AND NUMBER OF SHARES ($ X 1,000)
FOREIGN COMMON STOCK 99.4% of net assets
AUSTRALIA 4.3%
-------------------------------------------------------------------------
AMP Ltd. 334,425 1,831
Australia & New Zealand Banking Group
Ltd. 305,043 5,386
BHP Billiton Ltd. 600,162 9,309
Coles Myer Ltd. 185,781 1,396
Commonwealth Bank of Australia 217,722 6,340
Foster's Group Ltd. 310,703 1,352
Insurance Australia Group Ltd. 299,917 1,164
Macquarie Bank Ltd. 36,389 1,767
Macquarie Infrastructure Group 386,221 994
National Australia Bank Ltd. 263,464 6,518
QBE Insurance Group Ltd. 128,017 1,709
@ Rio Tinto Ltd. 44,243 1,871
St. George Bank Ltd. 92,734 1,892
Suncorp-Metway Ltd. 94,261 1,361
@ Telstra Corp. Ltd. 984,095 3,103
Wesfarmers Ltd. 59,508 1,593
Westfield Group 250,650 3,120
Westpac Banking Corp. 315,939 4,911
Woodside Petroleum Ltd. 70,492 1,669
Woolworths Ltd. 186,347 2,277
-----------
59,563
BELGIUM 0.9%
-------------------------------------------------------------------------
@ Dexia 116,326 2,513
Electrabel SA 4,910 2,430
Fortis 205,652 5,854
Solvay SA 11,315 1,317
-----------
12,114
CANADA 6.5%
-------------------------------------------------------------------------
Alcan, Inc. 63,686 2,007
@ Bank of Montreal 82,275 4,029
@ Bank of Nova Scotia 165,540 6,028
Barrick Gold Corp. 92,119 2,314
@ BCE, Inc. 156,114 3,856
@ Brascan Corp. 35,110 1,602
@ Canadian Imperial Bank of Commerce
56,793 3,473
Canadian National Railway Co. 46,253 3,350
Canadian Natural Resources Ltd. 88,025 3,601
@ Enbridge, Inc. 59,980 1,829
EnCana Corp. 144,258 6,598
Imperial Oil Ltd. 17,349 1,517
Inco Ltd. 30,635 1,229
Loblaw Cos. Ltd. 17,129 974
Magna International, Inc., Class A
16,790 1,167
@ Manulife Financial Corp. 131,759 6,860
@ National Bank of Canada 26,520 1,328
Nortel Networks Corp. 703,685 2,271
Petro-Canada 87,092 3,036
Placer Dome, Inc. 67,108 1,326
Potash Corp. of Saskatchewan 16,545 1,357
Power Corp. of Canada 48,677 1,205
@ Power Financial Corp. 35,564 943
@ Royal Bank of Canada 107,744 7,605
@ Sun Life Financial, Inc. 97,223 3,628
Suncor Energy, Inc. 76,283 4,084
1
SCHWAB INTERNATIONAL INDEX FUND
PORTFOLIO HOLDINGS continued
VALUE
SECURITY AND NUMBER OF SHARES ($ X 1,000)
Talisman Energy, Inc. 64,055 2,838
@ Thomson Corp. 32,575 1,106
@ Toronto-Dominion Bank 118,761 5,603
@ TransCanada Corp. 84,878 2,521
-----------
89,285
DENMARK 0.7%
-------------------------------------------------------------------------
AP Moller-Maersk A/S 174 1,574
@ AP Moller-Maersk A/S 178 1,565
Danske Bank A/S 79,925 2,508
Novo-Nordisk A/S, Class B 39,280 2,017
TDC A/S 29,418 1,649
-----------
9,313
FRANCE 10.3%
-------------------------------------------------------------------------
Accor SA 37,106 1,853
Air Liquide SA 18,901 3,438
o Alcatel SA, Class A 206,671 2,429
Arcelor SA 107,796 2,560
AXA SA 260,843 7,556
BNP Paribas 132,633 10,060
Bouygues 39,073 1,929
Carrefour SA 103,145 4,588
Cie Generale D'Optique Essilor
International SA 16,331 1,345
Compagnie de Saint-Gobain 53,044 2,906
Credit Agricole SA 113,868 3,339
France Telecom SA 253,842 6,600
Groupe Danone 44,351 4,508
L'Oreal SA 44,278 3,256
Lafarge SA 30,598 2,512
Lagardere S.C.A. 22,134 1,522
LVMH Moet-Hennessy Louis Vuitton SA
44,464 3,601
Michelin (C.G.D.E.), Class B 25,956 1,401
Pernod-Ricard 12,682 2,219
Peugeot SA 28,624 1,739
Pinault-Printemps-Redoute SA 12,173 1,279
Renault SA 34,267 2,968
Sanofi-Aventis 173,827 13,927
Schneider Electric SA 40,373 3,318
Societe Generale, Class A 61,146 6,984
STMicroelectronics NV 108,544 1,788
Suez SA 167,555 4,540
@(5) Total SA 102,990 25,920
Veolia Environnement 45,750 1,904
Vinci SA 23,916 1,870
Vivendi Universal SA 181,776 5,722
* Vivendi Universal SA 54,392 1,709
-----------
141,290
GERMANY 7.4%
-------------------------------------------------------------------------
Adidas-Salomon AG 8,093 1,358
Allianz AG 59,288 8,388
BASF AG 94,612 6,824
Bayer AG 122,306 4,251
o Bayerische Hypo-und Vereinsbank AG
108,268 3,017
Bayerische Motoren Werke AG 59,949 2,601
Commerzbank AG 88,304 2,313
Continental AG 26,167 2,002
DaimlerChrysler AG 142,504 7,142
@ Deutsche Bank AG 94,035 8,817
Deutsche Boerse AG 19,400 1,826
Deutsche Post AG 75,227 1,678
Deutsche Telekom AG 411,262 7,274
E.ON AG 112,817 10,225
o Infineon Technologies AG 127,600 1,192
Linde AG 14,312 1,020
Metro AG 25,777 1,172
Muenchener Rueckversicherungs AG 33,394 3,925
RWE AG 78,776 5,034
SAP AG 34,535 5,917
Schering AG 29,646 1,833
Siemens AG 144,278 10,747
ThyssenKrupp AG 74,228 1,508
@ Volkswagen AG 40,893 2,229
-----------
102,293
HONG KONG/CHINA 1.0%
-------------------------------------------------------------------------
Cheung Kong Holdings Ltd. 254,240 2,656
CLP Holdings Ltd. 295,080 1,694
Hang Seng Bank Ltd. 121,836 1,582
Hong Kong & China Gas Co. 600,400 1,241
HongKong Electric Holdings 230,256 1,089
Hutchison Whampoa Ltd. 366,370 3,486
Sun Hung Kai Properties Ltd. 99,604 945
Swire Pacific Ltd., Class A 167,890 1,511
-----------
14,204
IRELAND 0.1%
-------------------------------------------------------------------------
Depfa Bank PLC 63,448 989
ITALY 3.4%
-------------------------------------------------------------------------
Alleanza Assicurazioni SPA 87,330 1,009
Assicurazioni Generali SPA 182,632 5,432
Banca Intesa SPA 608,806 2,844
Banco Popolare di Verona e Novara 66,166 1,221
2
SCHWAB INTERNATIONAL INDEX FUND
PORTFOLIO HOLDINGS continued
VALUE
SECURITY AND NUMBER OF SHARES ($ X 1,000)
Capitalia SPA 207,288 1,082
@ Enel SPA 640,287 5,157
@ ENI-Ente Nazionale Idrocarburi SPA
429,220 11,490
Mediaset SPA 110,368 1,212
Mediobanca SPA 55,061 975
@ Riunione Adriatica di Sicurta SPA 52,500 1,194
Sanpaolo IMI SPA 164,991 2,383
Telecom Italia RNC SPA 1,076,571 2,604
Telecom Italia SPA 1,799,514 5,208
UniCredito Italiano SPA 823,879 4,601
-----------
46,412
JAPAN 19.8%
-------------------------------------------------------------------------
Aeon Co. Ltd. 117,000 2,432
Ajinomoto Co., Inc. 92,000 898
Asahi Glass Co. Ltd. 179,000 1,936
Asahi Kasei Corp. 250,000 1,339
Astellas Pharma, Inc. 92,370 3,301
Bridgestone Corp. 116,657 2,384
Canon, Inc. 139,395 7,381
Central Japan Railway Co. 120 1,021
@ Chubu Electric Power Co., Inc. 112,100 2,779
Dai Nippon Printing Co. Ltd. 117,000 1,915
o Daiichi Sankyo Co. Ltd. 59,000 1,070
Daiwa Securities Group, Inc. 225,045 1,849
Denso Corp. 92,000 2,620
East Japan Railway Co. 621 3,691
Eisai Co. Ltd. 45,000 1,763
Fanuc Ltd. 32,300 2,546
Fuji Photo Film Co. Ltd. 86,811 2,763
Fujitsu Ltd. 326,000 2,158
Hitachi Ltd. 559,079 3,444
Honda Motor Co. Ltd. 141,539 7,874
o Hoya Corp. 53,721 1,860
Hoya Corp. 17,907 627
Itochu Corp. 273,000 1,872
Japan Tobacco, Inc. 165 2,609
JFE Holdings, Inc. 94,000 2,921
The Kansai Electric Power Co. 130,000 2,860
o Kao Corp. 91,619 2,195
KDDI Corp. 536 3,075
Keyence Corp. 5,900 1,358
Kintetsu Corp. 305,830 1,122
Kirin Brewery Co. Ltd. 136,000 1,513
Komatsu Ltd. 166,609 2,221
Konica Minolta Holdings, Inc. 81,000 672
Kyocera Corp. 31,500 2,044
Kyushu Electric Power Co. 73,493 1,577
Matsushita Electric Industrial Co. Ltd.
343,912 6,304
Millea Holdings, Inc. 294 5,321
Mitsubishi Corp. 229,000 4,455
Mitsubishi Electric Corp. 303,000 1,817
Mitsubishi Estate Co. Ltd. 199,502 2,950
Mitsubishi Heavy Industries Ltd. 565,000 2,136
Mitsubishi UFJ Financial Group, Inc. 988 12,423
Mitsui & Co. Ltd. 239,000 2,936
Mitsui Fudosan Co. Ltd. 125,777 2,060
Mitsui Sumitomo Insurance Co. Ltd.
254,875 3,265
Mizuho Financial Group, Inc. 1,395 9,316
Murata Manufacturing Co. Ltd. 40,574 2,035
NEC Corp. 327,000 1,627
Nikko Cordial Corp. 120,000 1,457
Nintendo Co. Ltd. 18,239 2,046
Nippon Oil Corp. 250,000 2,136
Nippon Steel Corp. 1,020,000 3,645
Nippon Telegraph & Telephone Corp. 1,667 7,971
Nissan Motor Co. Ltd. 387,196 4,061
Nitto Denko Corp. 28,000 1,696
Nomura Holdings, Inc. 345,000 5,324
NTT DoCoMo, Inc. 3,141 5,426
Omron Corp. 43,000 1,015
@ Osaka Gas Co. Ltd. 394,000 1,441
o Resona Holdings, Inc. 1,884 5,464
Ricoh Co. Ltd. 118,000 1,876
Rohm Co. Ltd. 19,112 1,549
@ Sanyo Electric Co. Ltd. 258,655 540
Secom Co. Ltd. 38,500 1,922
Sekisui House Ltd. 94,000 1,171
@o Seven & I Holding Co. Ltd. 139,203 4,546
Sharp Corp. 156,785 2,154
Shin-Etsu Chemical Co. Ltd. 64,280 3,083
SMC Corp. 11,000 1,464
Softbank Corp. 41,000 2,325
Sompo Japan Insurance, Inc. 140,920 2,119
Sony Corp. 176,500 5,768
Sumitomo Corp. 188,000 2,102
Sumitomo Electric Industries Ltd.
131,000 1,724
Sumitomo Mitsui Financial Group, Inc.
938 8,666
The Sumitomo Trust & Banking Co. Ltd.
172,950 1,473
Suzuki Motor Corp. 66,294 1,140
Takeda Pharmaceutical Co. Ltd. 141,200 7,742
TDK Corp. 22,000 1,484
Tohoku Electric Power Co. 83,700 1,708
The Tokyo Electric Power Co., Inc.
201,890 5,022
Tokyo Electron Ltd. 28,000 1,408
@ Tokyo Gas Co. Ltd. 463,201 1,822
Toppan Printing Co. Ltd. 104,653 1,010
3
SCHWAB INTERNATIONAL INDEX FUND
PORTFOLIO HOLDINGS continued
VALUE
SECURITY AND NUMBER OF SHARES ($ X 1,000)
@ Toshiba Corp. 524,178 2,434
(8) Toyota Motor Corp. 442,703 20,535
West Japan Railway Co. 225 798
o Yahoo! Japan Corp. 460 494
Yahoo! Japan Corp. 460 488
Yamato Transport Co. Ltd. 78,000 1,285
-----------
271,869
NETHERLANDS 3.7%
-------------------------------------------------------------------------
ABN Amro Holdings NV 311,572 7,370
Aegon NV 201,241 3,035
Akzo Nobel NV 45,783 1,979
o ASML Holding NV 77,478 1,312
European Aeronautic Defense & Space Co.
46,558 1,613
Heineken Nv 43,627 1,383
ING Groep NV 366,162 10,561
o Koninklijke Ahold NV 244,279 1,705
Koninklijke Philips Electronics NV
219,583 5,743
Reed Elsevier NV 127,172 1,713
Royal KPN NV 332,474 3,159
TNT NV 67,143 1,583
Unilever NV 94,924 6,680
VNU NV 47,654 1,517
Wolters Kluwer NV 55,267 1,025
-----------
50,378
SPAIN 4.2%
-------------------------------------------------------------------------
ACS Actividades Cons y Serv 44,790 1,280
Altadis SA 49,394 2,096
Banco Bilbao Vizcaya Argentaria SA
590,624 10,416
Banco Popular Espanol SA 155,820 1,892
Banco Sabadell SA 46,907 1,238
Banco Santander Central Hispano SA
1,036,437 13,199
Endesa SA 173,536 4,309
Iberdrola SA 129,432 3,466
Inditex SA 41,211 1,220
Repsol YPF SA 171,807 5,118
Telefonica SA 830,416 13,256
-----------
57,490
SWEDEN 2.0%
-------------------------------------------------------------------------
Electrolux AB, Series B 53,392 1,246
ForeningsSparbanken AB 74,977 1,851
Hennes & Mauritz AB, Series B 80,681 2,620
Nordea Bank AB 374,988 3,676
Sandvik AB 38,092 1,834
Skandinaviska Enskilda Banken, Series A
70,925 1,324
Svenska Cellulosa AB, Series B 35,963 1,214
Svenska Handelsbanken AB, Series A
82,642 1,885
Telefonaktiebolaget LM Ericsson,
Class B 2,453,793 8,044
TeliaSonera AB 343,834 1,682
Volvo AB, Series B 40,445 1,664
-----------
27,040
SWITZERLAND 7.7%
-------------------------------------------------------------------------
o ABB Ltd. 336,908 2,614
Adecco SA, Registered 22,375 955
Compagnie Financiere Richemont AG 92,799 3,532
Credit Suisse Group 190,854 8,445
Holcim Ltd. 30,865 1,922
(9) Nestle SA, Registered 67,591 20,133
(6) Novartis AG, Registered 430,836 23,180
(10) Roche Holdings -- Genus 121,834 18,209
Swiss Reinsurance, Registered 56,990 3,848
Swisscom AG, Registered 3,997 1,315
Syngenta AG 18,113 1,946
UBS AG, Registered 177,232 15,115
o Zurich Financial Services AG 24,114 4,113
-----------
105,327
UNITED KINGDOM 27.4%
-------------------------------------------------------------------------
AstraZeneca PLC 284,404 12,722
Aviva PLC 417,820 4,934
BAA PLC 195,619 2,125
BAE Systems PLC 566,657 3,316
Barclays PLC 1,124,769 11,146
BG Group PLC 622,564 5,477
BHP Billiton PLC 417,118 6,138
BOC Group PLC 85,159 1,679
Boots Group PLC 127,401 1,389
(1) BP PLC 3,683,430 40,802
British American Tobacco PLC 269,779 5,936
British Land Co. PLC 90,252 1,422
British Sky Broadcasting PLC 195,898 1,768
BT Group PLC 1,443,643 5,434
Cable & Wireless PLC 386,258 788
Cadbury Schweppes PLC 343,491 3,385
Carnival PLC 30,775 1,561
Centrica PLC 662,309 2,799
Compass Group PLC 401,745 1,352
Diageo PLC 523,989 7,739
DSG International PLC 356,181 908
Friends Provident PLC 417,684 1,303
4
SCHWAB INTERNATIONAL INDEX FUND
PORTFOLIO HOLDINGS continued
VALUE
SECURITY AND NUMBER OF SHARES ($ X 1,000)
Gallaher Group PLC 117,546 1,826
(4) GlaxoSmithKline PLC 1,023,700 26,625
GUS PLC 171,098 2,552
Hanson PLC 128,676 1,304
HBOS PLC 673,991 9,956
Hilton Group PLC 287,543 1,728
(2) HSBC Holdings PLC 1,947,777 30,602
Imperial Tobacco Group PLC 125,097 3,585
Intercontinental Hotels Group PLC 74,904 936
ITV PLC 738,032 1,359
J. Sainsbury PLC 191,810 947
Kingfisher PLC 442,761 1,662
Land Securities Group PLC 75,040 1,846
Legal & General Group PLC 1,136,832 2,159
Lloyds TSB Group PLC 957,348 7,829
Man Group PLC 50,854 1,387
Marks & Spencer Group PLC 275,748 2,038
National Grid PLC 460,800 4,215
Next PLC 41,484 980
O2 PLC 1,437,648 5,237
Pearson PLC 143,637 1,597
Prudential PLC 394,603 3,311
Reckitt Benckiser PLC 103,396 3,124
Reed Elsevier PLC 236,461 2,160
Rentokil Initial PLC 364,152 990
Reuters Group PLC 267,194 1,698
Rio Tinto PLC 188,475 7,181
Rolls-Royce Group PLC 296,618 1,917
Rolls-Royce Group PLC, B Shares
24,737,941 45
Royal Bank of Scotland Group PLC 549,711 15,222
(7) Royal Dutch Shell PLC, A Shares 749,220 23,104
Royal Dutch Shell PLC, B Shares 497,774 16,237
SABMiller PLC 151,731 2,863
Scottish & Newcastle PLC 145,929 1,208
Scottish & Southern Energy PLC 148,675 2,580
Scottish Power PLC 313,346 3,067
Severn Trent Water PLC 60,427 1,024
Smith & Nephew PLC 175,479 1,484
Smiths Group PLC 107,917 1,743
Standard Chartered PLC 197,728 4,152
Tesco PLC 1,376,566 7,330
Unilever PLC 477,377 4,829
United Utilities PLC 99,658 1,100
(3) Vodafone Group PLC 11,087,405 29,109
Wm. Morrison Supermarkets 434,304 1,257
Wolseley PLC 100,048 2,035
WPP Group PLC 214,518 2,107
-----------
375,370
UNITED STATES 0.0%
-------------------------------------------------------------------------
o Novelis, Inc. 1 --
FOREIGN PREFERRED STOCK 0.1% of net assets
GERMANY 0.1%
-------------------------------------------------------------------------
o Henkel KGaA 12,100 1,042
WARRANTS 0.0% of net assets
FRANCE 0.0%
-------------------------------------------------------------------------
>o Casino Guichard Perrachon SA, Expires
12/15/05 1,026 --
UNITED STATES 0.0%
-------------------------------------------------------------------------
o NTL, Inc., Series A, Expires 01/13/11 48 --
FACE
SECURITY AMOUNT
RATE, MATURITY DATE ($ X 1,000)
SHORT-TERM INVESTMENT 0.3% of net assets
Wachovia Bank, Grand Cayman Time
Deposit
3.48%, 11/01/05 4,247 4,247
END OF INVESTMENTS.
At October 31, 2005, all foreign securities were valued at fair value in
accordance with board approved procedures (See Accounting Policies).
5
SCHWAB INTERNATIONAL INDEX FUND
PORTFOLIO HOLDINGS continued
VALUE
SECURITY AND NUMBER OF SHARES ($ X 1,000)
COLLATERAL INVESTED FOR SECURITIES ON LOAN
6.2% of net assets
SHORT-TERM INVESTMENT 6.2%
-------------------------------------------------------------------------
Securities Lending Investment Fund
85,164,128 85,164
END OF COLLATERAL INVESTED FOR SECURITIES ON LOAN.
6
ITEM 7: DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8: PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 9: PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 11: CONTROLS AND PROCEDURES.
(a) Based on their evaluation of Registrant's disclosure controls and
procedures, as of a date within 90 days of the filing date, Registrant's
Chief Executive Officer, Evelyn Dilsaver and Registrant's Principal
Financial Officer, George Pereira, have concluded that Registrant's
disclosure controls and procedures are: (i) reasonably designed to ensure
that information required to be disclosed in this report is appropriately
communicated to Registrant's officers to allow timely decisions regarding
disclosures required in this report; (ii) reasonably designed to ensure
that information required to be disclosed in this report is recorded,
processed, summarized and reported in a timely manner; and (iii) are
effective in achieving the goals described in (i) and (ii) above.
(b) During the second fiscal quarter of the period covered by this report,
there have been no changes in Registrant's internal control over financial
reporting that the above officers believe to have materially affected, or
to be reasonably likely to materially affect, Registrant's internal
control over financial reporting.
ITEM 12: EXHIBITS.
(a)(1) Registrant's code of ethics (that is the subject of the disclosure
required by Item 2(a)) is attached.
(2) Separate certifications for Registrant's principal executive officer and
principal financial officer, as required by Rule 30a-2(a) under the 1940
Act, are attached.
(3) Not applicable.
(b) A certification for Registrant's principal executive officer and principal
financial officer, as required by Rule 30a-2(b) under the 1940 Act, is
attached. This certification is being furnished to the Securities and
Exchange Commission solely pursuant to 18 U.S.C. section 1350 and is not
being filed as part of the Form N-CSR with the Commission.
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) Schwab Capital Trust
By: /S/ Evelyn Dilsaver
---------------------------
Evelyn Dilsaver
Chief Executive Officer
Date: 12/15/2005
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: 12/15/2005
By: /S/ George Pereira
---------------------------
George Pereira
Principal Financial Officer
Date: 12/15/2005