Schwab Investments – ‘N-30D’ for 10/31/98

On:  Tuesday, 7/20/99   ·   For:  10/31/98   ·   Accession #:  935069-99-130   ·   File #:  811-06200

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Annual or Semi-Annual Report Mailed to Shareholders   —   Rule 30d-1
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Document/Exhibit                   Description                      Pages   Size 

 1: N-30D       Charles Schwab Equity Index Report                   159±   624K 

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SchwabFunds-Registered Trademark-                                               

Schwab Equity                                                                   
Index Funds                                                                     

- Schwab S&P 500 Fund                                                           

- Schwab 1000 Fund-Registered Trademark-                                        

- Schwab Small-Cap                                                              
Index Fund-Registered Trademark-                                            

- Schwab International                                                          
Index Fund-Registered Trademark-                                            

Annual Report                                                                   
October 31, 1998                                                                

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SCHWAB EQUITY INDEX FUNDS                                                       

We are pleased to bring you this annual report for the Schwab Equity Index Funds
(the Funds) for the one-year period ended October 31, 1998. This report includes
the following four Funds and all classes-- Investor Shares, e.Shares-TM- and    
Select Shares:-TM-                                                              

Schwab S&P 500 Fund                                             
Schwab 1000 Fund-Registered Trademark-                          
Schwab Small-Cap Index Fund-Registered Trademark-               
Schwab International Index Fund-Registered Trademark-           

As covered in their respective sections of this report, all the Funds achieved  
their primary objectives of tracking or matching the price and dividend         
performance of their benchmark indices during the reporting period. In addition,
the Funds also succeeded in maintaining the tax efficiencies and low costs      
designed to help maximize long-term performance results.                        

FUND LISTINGS                                                                   

The Funds are listed in THE WALL STREET JOURNAL, USA TODAY, INVESTOR'S BUSINESS 
DAILY and most local newspapers as follows under the heading                    
SCHWABFUNDS:-Registered Trademark-                                              

                                                                [Download Table]

  NEWSPAPER           
   LISTING      SYMBOL
                      
S&P e           SWPEX 
S&P Inv         SWPIX 
S&P Sel         SWPPX 
1000 Inv r      SNXFX 
1000 Sel        SNXSX 
SmCp Inv        SWSMX 
Sm Cp Sel       SWSSX 
Intl Inv r      SWINX 
Intl Sel        SWISX 

CONTENTS                                                                        

                                                                [Download Table]
                                                    
----------------------------------------------------
A Message from the Chairman                        1
----------------------------------------------------
What Every Investor Should Know                    2
----------------------------------------------------
Market Overview                                    4
----------------------------------------------------
Portfolio Management                               8
----------------------------------------------------
Schwab S&P 500 Fund                                9
----------------------------------------------------
Schwab 1000 Fund                                  15
----------------------------------------------------
Schwab Small-Cap Index Fund                       22
----------------------------------------------------
Schwab International Index Fund                   30
----------------------------------------------------
Financial Statements and Notes                    37
----------------------------------------------------

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A MESSAGE FROM THE CHAIRMAN                                                     

Dear Shareholder:                                                               

[PHOTO]                                                                         

No doubt you've experienced the extreme volatility in the stock market over the 
past year. The 12-month reporting period ended October 31, 1998, has served as a
clear example of how the performance of different asset classes can vary        
substantially over a given time frame. For example, domestic large-cap stocks   
made an impressive rebound in September and October to provide the highest      
asset-class returns for the period, even more spectacular when viewed against   
the lackluster performance of small-caps. Similarly, the divergence between the 
returns of value versus growth styles, Europe versus Asia, and emerging versus  
developed markets reflects the overall volatility that's been inherent in the   
market for the past year.                                                       

Given this divergent performance, we think the message is clear: Expect         
volatility, and understand that it's extremely difficult to predict which asset 
classes will be strong performers and which will suffer. One way to cushion the 
volatility is to be sure that you're adequately diversified in your investments 
and that you've properly allocated your assets based on your investing needs and
goals. By investing in one of our SchwabFunds,-Registered Trademark- you've     
already taken an important step in building a portfolio that can help you meet  
your future goals. On the following pages, we outline several ways to help you  
reach those goals by establishing--or maintaining--an ongoing investment        
program.                                                                        

In addition, as a Schwab Equity Index Fund shareholder, you probably know the   
benefits of investing for market returns in an index fund. Index investing      
continues to grow in popularity, because it allows investors to aim for overall 
market returns. It can be an excellent way to help reduce your risk by          
distributing your money across multiple securities, with lower costs than are   
typically incurred through actively managed funds.                              

The support of investors like you has helped Charles Schwab Investment          
Management, Inc. (CSIM) become one of the largest and fastest-growing mutual    
fund families in the nation. CSIM now manages more than $77 billion in assets on
behalf of more than 3.2 million SchwabFunds-Registered Trademark- shareholders. 
We offer a broad spectrum of 38 mutual funds for investors with varying         
financial situations and goals.                                                 

Once again, thank you for your investment in SchwabFunds. We continue to do     
everything we can to warrant the trust you have placed in us.                   

Sincerely,                                                                      

/s/ Charles R. Schwab                                                           

Charles R. Schwab                                                               
October 31, 1998                                                                

THE YEAR 2000 AND EURO CONVERSION ISSUES                                    

Two issues with the potential to disrupt portfolio operations and affect    
performance are the inability of some computers to recognize the year 2000, 
and the conversion of certain European currencies to the euro beginning on  
 January 1, 1999. The investment adviser will continue to take steps to enable
its systems to handle these changes. With regard to the year 2000 problem,  
the investment adviser is also seeking assurances that its service providers
and business partners are taking similar steps as well. However, it is      
impossible to know in advance exactly how either of these issues will affect
portfolio administration, portfolio performance (particularly for portfolios
with European exposure) or securities markets in general.                   

                                                                               1

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WHAT EVERY INVESTOR SHOULD KNOW                                                 

WHY ASSET ALLOCATION MATTERS                                                    

As most investors know, one of the most compelling reasons to invest in a mutual
fund is diversification. By allocating your assets across many different        
securities, a fund can help reduce the risk that you might otherwise encounter  
by owning just a few stocks or bonds.                                           

But remember that diversification across asset classes can be just as important 
as diversification within one of the mutual funds you own. As you probably know,
stocks historically have offered much higher returns over the long term than    
bonds, cash or other asset classes, but those returns have come at the price of 
higher volatility. To help mitigate some of that risk, many investors often     
include at least some bonds and cash in their portfolios. They also diversify   
their exposure across different stock market segments-- such as large-cap and   
small-cap U.S. stocks and international stocks, which have tended to move with  
less-than-perfect correlation over time. In short, allocating assets across     
market segments may help reduce your overall portfolio risk.                    

REGULAR-INVESTING STRATEGIES                                                    

Another way to help dampen the effects of short-term market volatility is to    
invest the same amount of money on a regular basis. With this investment        
strategy, known as DOLLAR-COST AVERAGING, you automatically buy more shares when
stock or bond prices are low and fewer when they're high.                       

A hypothetical example can help illustrate this concept. Let's say you invest   
$400 on a monthly basis in a single mutual fund, as shown below. Because of     
fluctuating prices, your per-share purchase price varies monthly. A simple      
average of your five purchase prices would yield $8.20 per share; however, your 
AVERAGE COST BASIS (your total investment divided by the number of shares       
actually purchased) would be significantly lower--by more than $0.50 per share. 
The net result in this example is that your average cost per share is reduced   
and you'd have purchased more shares than you would have had you paid the       
average share price over the five-month period.                                 

                                                                [Download Table]

                                                    No. of   
                           Fixed                    Shares   
                        Investment   Share Price   Purchased 
                                                             
-------------------------------------------------------------
Month 1                       $400          $10           40 
-------------------------------------------------------------
Month 2                       $400           $8           50 
-------------------------------------------------------------
Month 3                       $400           $5           80 
-------------------------------------------------------------
Month 4                       $400           $8           50 
-------------------------------------------------------------
Month 5                       $400          $10           40 
-------------------------------------------------------------
Totals                      $2,000          $41          260 
-------------------------------------------------------------

AVERAGE SHARE PRICE ($41  DIVIDED BY 5 periods):       $8.20 
YOUR AVERAGE COST BASIS                                      
  ($2,000  DIVIDED BY 260 shares):                     $7.69 
PER-SHARE ADVANTAGE:                                   $0.51 

This example is for illustrative purposes only and is not intended to predict or
guarantee the performance of any particular fund available through Schwab.    

(Of course, in this example, hindsight shows you that your best move would have 
been to invest your entire $2,000 in Month 3, when the share price was at a low 
of $5--but it's unlikely that you would have been able to predict that.)        

2                                                                               

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SCHWAB'S 10 INVESTING PRINCIPLES                                              

1 START WITH THE BASICS FOR LONG-TERM INVESTING.                            

2 GET STARTED NOW!                                                          

3 KNOW YOURSELF.                                                            

4 INVEST IN THE STOCK MARKET FOR GROWTH.                                    

5 TAKE A LONG-TERM VIEW.                                                    

6 BUILD A DIVERSIFIED PORTFOLIO.                                            

7 CONSIDER BONDS AND CASH FOR DIVERSIFICATION AND INCOME.                   

8 MINIMIZE YOUR EXPENSES.                                                   

9 STAY ON TRACK.                                                            

10 BECOME A LIFELONG INVESTOR.                                                

In addition to reducing your per-share costs over time, dollar-cost averaging   
provides another benefit: the discipline of investing regularly. You're more    
likely to maintain a regular investment plan if it's automatic: You don't have  
to think about it, and you minimize any propensity to skip an investment in     
favor of some other expenditure. To encourage this discipline, Schwab offers you
two convenient, no-cost ways to begin or maintain a program of regular          
investing:                                                                      

Schwab's AUTOMATIC INVESTMENT PLAN (AIP) allows you to automatically            
purchase--on a regular basis-- additional shares in mutual funds that you       
already own. For amounts as little as $100 per month, you can use the cash or   
sweep shares of your existing Schwab Money Fund,(1) or you can enroll in        
Schwab's free MoneyLink Transfer Service to automatically transfer money to your
Schwab account.                                                                 

With MONEYLINK,-TM- Schwab's electronic funds transfer service, you can arrange 
to regularly and automatically transfer money between your bank account and your
Schwab account. It's a convenient way to build your investment over time.       

Please be aware that these programs--and dollar-cost averaging in general--do   
not ensure a profit or protect against a loss, and investors should know that   
markets fall as well as rise. Because dollar-cost averaging involves continuous 
investment in securities regardless of fluctuating prices, you should consider  
your financial ability to purchase in both up and down markets. Over the long   
term, however, dollar-cost averaging may help to smooth out volatility caused by
short-term market trends. For more information, please call us at               
1-800-435-4000.                                                                 

WE MAKE IT EASY TO INVEST                                                       

We try to make it easy and convenient for you to invest in our                  
SchwabFunds.-Registered Trademark- In addition to our automated methods that    
allow you to invest or transfer money to your Schwab account on a regular basis,
you can also invest through our Web site at WWW.SCHWAB.COM; through our         
automated touchtone telephone service, TeleBroker,-Registered Trademark- by     
calling 1-800-272-4922; or in person at any of our nationwide branches.         

(1)Includes uninvested cash and margin cash available. If sufficient cash is not
available, your automatic purchases will not be made.                     

KEEPING YOU INFORMED                                                          

You can find a wealth of information about our investment philosophy and    
Funds, as well as the market and economic environments at our Web site:     
WWW.SCHWAB.COM/SCHWABFUNDS.                                                 

                                                                               3

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MARKET OVERVIEW                                                                 

U.S. ECONOMIC GROWTH                                                            

The U.S. economy, as measured by gross domestic product (GDP), continued to grow
at a strong real rate of 3.5% during the first three quarters of 1998--well in  
excess of the Federal Reserve's estimated noninflationary growth rate of 2.0% to
2.75%. Hurt by the Asian economic crisis and declining exports, the growth rate 
slowed from 5.5% in the first quarter to 1.8% in the second quarter. Strong     
consumer spending--which represents about two-thirds of economic activity--     
helped the growth rate rebound to 3.3% during the third quarter.                

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC                     

                                                                [Download Table]

            REAL GDP GROWTH RATE                       
  QUARTERLY PERCENTAGE CHANGE (ANNUALIZED              
                   RATE)                               
                                                       

Q1 1990                                            3.9%
Q2 1990                                            1.2%
Q3 1990                                           -1.9%
Q4 1990                                           -4.0%
Q1 1991                                           -2.1%
Q2 1991                                            1.8%
Q3 1991                                            1.0%
Q4 1991                                            1.0%
Q1 1992                                            4.7%
Q2 1992                                            2.5%
Q3 1992                                            3.0%
Q4 1992                                            4.3%
Q1 1993                                            0.1%
Q2 1993                                            2.0%
Q3 1993                                            2.1%
Q4 1993                                            5.3%
Q1 1994                                            3.0%
Q2 1994                                            4.7%
Q3 1994                                            1.8%
Q4 1994                                            3.6%
Q1 1995                                            1.7%
Q2 1995                                            0.4%
Q3 1995                                            3.3%
Q4 1995                                            2.8%
Q1 1996                                            3.3%
Q2 1996                                            6.1%
Q3 1996                                            2.1%
Q4 1996                                            4.2%
Q1 1997                                            4.2%
Q2 1997                                            4.0%
Q3 1997                                            4.2%
Q4 1997                                            3.0%
Q1 1998                                            5.5%
Q2 1998                                            1.8%
Q3 1998                                            3.9%
Source: BLOOMBERG L.P.                                 

At the time of this writing, the consensus of most economists is that the U.S.  
economy appears poised for growth--but at a more moderate rate than over the    
previous nine months. High levels of consumer confidence, low interest rates,   
rising real wages and strong gains in stock prices have been the principal      
factors continuing this lengthy expansion. Uncertainties persist, however, as to
the ultimate effect that international economic problems may have on the U.S.   
economy, particularly on corporate earnings. Going forward, the behavior of     
domestic consumers in response to recent stock market volatility also may be a  
key determinant of whether the economy continues on its current course or       
softens in 1999.                                                                

UNEMPLOYMENT                                                                    

After declining to 4.3% in April and May--its lowest level in 28 years--the U.S.
unemployment rate stood at 4.6% in October. Labor markets have become extremely 
tight, growth in the labor force has slowed and wage increases are beginning to 
put more pressure on labor costs (see Employment Cost Index on the following    
page).                                                                          

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC                     

                                                                [Download Table]

   U.S. UNEMPLOYMENT RATE              
                                       

Jan-90                             5.4%
Feb-90                             5.3%
Mar-90                             5.2%
Apr-90                             5.4%
May-90                             5.4%
Jun-90                             5.2%
Jul-90                             5.5%
Aug-90                             5.7%
Sep-90                             5.9%
Oct-90                             5.9%
Nov-90                             6.2%
Dec-90                             6.3%
Jan-91                             6.4%
Feb-91                             6.6%
Mar-91                             6.8%
Apr-91                             6.7%
May-91                             6.9%
Jun-91                             6.9%
Jul-91                             6.8%
Aug-91                             6.9%
Sep-91                             6.9%
Oct-91                             7.0%
Nov-91                             7.0%
Dec-91                             7.3%
Jan-92                             7.3%
Feb-92                             7.4%
Mar-92                             7.4%
Apr-92                             7.4%
May-92                             7.6%
Jun-92                             7.8%
Jul-92                             7.7%
Aug-92                             7.6%
Sep-92                             7.6%
Oct-92                             7.3%
Nov-92                             7.4%
Dec-92                             7.4%
Jan-93                             7.3%
Feb-93                             7.1%
Mar-93                             7.0%
Apr-93                             7.1%
May-93                             7.1%
Jun-93                             7.0%
Jul-93                             6.9%
Aug-93                             6.8%
Sep-93                             6.7%
Oct-93                             6.8%
Nov-93                             6.6%
Dec-93                             6.5%
Jan-94                             6.6%
Feb-94                             6.6%
Mar-94                             6.5%
Apr-94                             6.4%
May-94                             6.0%
Jun-94                             6.1%
Jul-94                             6.1%
Aug-94                             6.1%
Sep-94                             5.9%
Oct-94                             5.8%
Nov-94                             5.6%
Dec-94                             5.4%
Jan-95                             5.6%
Feb-95                             5.4%
Mar-95                             5.4%
Apr-95                             5.7%
May-95                             5.6%
Jun-95                             5.6%
Jul-95                             5.7%
Aug-95                             5.7%
Sep-95                             5.7%
Oct-95                             5.6%
Nov-95                             5.6%
Dec-95                             5.6%
Jan-96                             5.7%
Feb-96                             5.5%
Mar-96                             5.5%
Apr-96                             5.5%
May-96                             5.5%
Jun-96                             5.3%
Jul-96                             5.5%
Aug-96                             5.2%
Sep-96                             5.2%
Oct-96                             5.3%
Nov-96                             5.4%
Dec-96                             5.3%
Jan-97                             5.3%
Feb-97                             5.3%
Mar-97                             5.2%
Apr-97                             5.0%
May-97                             4.8%
Jun-97                             5.0%
Jul-97                             4.9%
Aug-97                             4.9%
Sep-97                             4.9%
Oct-97                             4.8%
Nov-97                             4.6%
Dec-97                             4.7%
Jan-98                             4.7%
Feb-98                             4.6%
Mar-98                             4.7%
Apr-98                             4.3%
May-98                             4.3%
Jun-98                             4.5%
Jul-98                             4.5%
Aug-98                             4.5%
Sep-98                             4.6%
Oct-98                             4.6%
SOURCE: BLOOMBERG L.P.                 

INFLATION                                                                       

Price inflation remained remarkably well contained. The Consumer Price Index    
(CPI) rose just 1.5% for the year ended October 1998, reaching levels during the
reporting period that were the lowest since January 1987. Its core rate (which  
excludes the more volatile                                                      

4                                                                               

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food and energy components) rose 2.3%--also very low.                           

The Employment Cost Index (ECI), which measures inflation in wages, salaries and
benefits, increased 3.7% for the year ended September 30, 1998--its largest     
increase in more than six years.                                                

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC                     

                                                        [Enlarge/Download Table]

   MEASURES OF INFLATION                                                                       

                          Monthly Consumer Price Index          Quarterly Employment Cost Index
                                                                                               
Jan-90                                            5.2%  Jan-90                            5.46%
Feb-90                                            5.3%  Feb-90                            5.46%
Mar-90                                            5.2%  Mar-90                            5.46%
Apr-90                                            4.7%  Apr-90                            5.40%
May-90                                            4.4%  May-90                            5.40%
Jun-90                                            4.7%  Jun-90                            5.40%
Jul-90                                            4.8%  Jul-90                            5.22%
Aug-90                                            5.6%  Aug-90                            5.22%
Sep-90                                            6.2%  Sep-90                            5.22%
Oct-90                                            6.3%  Oct-90                            4.87%
Nov-90                                            6.3%  Nov-90                            4.87%
Dec-90                                            6.1%  Dec-90                            4.87%
Jan-91                                            5.7%  Jan-91                            4.60%
Feb-91                                            5.3%  Feb-91                            4.60%
Mar-91                                            4.9%  Mar-91                            4.60%
Apr-91                                            4.9%  Apr-91                            4.55%
May-91                                            5.0%  May-91                            4.55%
Jun-91                                            4.7%  Jun-91                            4.55%
Jul-91                                            4.4%  Jul-91                            4.30%
Aug-91                                            3.8%  Aug-91                            4.30%
Sep-91                                            3.4%  Sep-91                            4.30%
Oct-91                                            2.9%  Oct-91                            4.28%
Nov-91                                            3.0%  Nov-91                            4.28%
Dec-91                                            3.1%  Dec-91                            4.28%
Jan-92                                            2.6%  Jan-92                            4.03%
Feb-92                                            2.8%  Feb-92                            4.03%
Mar-92                                            3.2%  Mar-92                            4.03%
Apr-92                                            3.2%  Apr-92                            3.63%
May-92                                            3.0%  May-92                            3.63%
Jun-92                                            3.1%  Jun-92                            3.63%
Jul-92                                            3.2%  Jul-92                            3.50%
Aug-92                                            3.1%  Aug-92                            3.50%
Sep-92                                            3.0%  Sep-92                            3.50%
Oct-92                                            3.2%  Oct-92                            3.48%
Nov-92                                            3.0%  Nov-92                            3.48%
Dec-92                                            2.9%  Dec-92                            3.48%
Jan-93                                            3.3%  Jan-93                            3.52%
Feb-93                                            3.2%  Feb-93                            3.52%
Mar-93                                            3.1%  Mar-93                            3.52%
Apr-93                                            3.2%  Apr-93                            3.59%
May-93                                            3.2%  May-93                            3.59%
Jun-93                                            3.0%  Jun-93                            3.59%
Jul-93                                            2.8%  Jul-93                            3.55%
Aug-93                                            2.8%  Aug-93                            3.55%
Sep-93                                            2.7%  Sep-93                            3.55%
Oct-93                                            2.8%  Oct-93                            3.53%
Nov-93                                            2.7%  Nov-93                            3.53%
Dec-93                                            2.7%  Dec-93                            3.53%
Jan-94                                            2.5%  Jan-94                            3.23%
Feb-94                                            2.5%  Feb-94                            3.23%
Mar-94                                            2.5%  Mar-94                            3.23%
Apr-94                                            2.4%  Apr-94                            3.21%
May-94                                            2.3%  May-94                            3.21%
Jun-94                                            2.5%  Jun-94                            3.21%
Jul-94                                            2.8%  Jul-94                            3.18%
Aug-94                                            2.9%  Aug-94                            3.18%
Sep-94                                            3.0%  Sep-94                            3.18%
Oct-94                                            2.6%  Oct-94                            2.99%
Nov-94                                            2.7%  Nov-94                            2.99%
Dec-94                                            2.7%  Dec-94                            2.99%
Jan-95                                            2.8%  Jan-95                            2.88%
Feb-95                                            2.9%  Feb-95                            2.88%
Mar-95                                            2.9%  Mar-95                            2.88%
Apr-95                                            3.1%  Apr-95                            2.87%
May-95                                            3.2%  May-95                            2.87%
Jun-95                                            3.0%  Jun-95                            2.87%
Jul-95                                            2.8%  Jul-95                            2.68%
Aug-95                                            2.6%  Aug-95                            2.68%
Sep-95                                            2.5%  Sep-95                            2.68%
Oct-95                                            2.8%  Oct-95                            2.75%
Nov-95                                            2.6%  Nov-95                            2.75%
Dec-95                                            2.5%  Dec-95                            2.75%
Jan-96                                            2.7%  Jan-96                            2.80%
Feb-96                                            2.7%  Feb-96                            2.80%
Mar-96                                            2.8%  Mar-96                            2.80%
Apr-96                                            2.9%  Apr-96                            2.87%
May-96                                            2.9%  May-96                            2.87%
Jun-96                                            2.8%  Jun-96                            2.87%
Jul-96                                            3.0%  Jul-96                            2.84%
Aug-96                                            2.9%  Aug-96                            2.84%
Sep-96                                            3.0%  Sep-96                            2.84%
Oct-96                                            3.0%  Oct-96                            2.91%
Nov-96                                            3.3%  Nov-96                            2.91%
Dec-96                                            3.3%  Dec-96                            2.91%
Jan-97                                            3.0%  Jan-97                            2.88%
Feb-97                                            3.0%  Feb-97                            2.88%
Mar-97                                            2.8%  Mar-97                            2.88%
Apr-97                                            2.5%  Apr-97                            2.79%
May-97                                            2.2%  May-97                            2.79%
Jun-97                                            2.3%  Jun-97                            2.79%
Jul-97                                            2.2%  Jul-97                            2.99%
Aug-97                                            2.2%  Aug-97                            2.99%
Sep-97                                            2.2%  Sep-97                            2.99%
Oct-97                                            2.1%  Oct-97                            3.29%
Nov-97                                            1.8%  Nov-97                            3.29%
Dec-97                                            1.7%  Dec-97                            3.29%
Jan-98                                            1.6%  Jan-98                            3.26%
Feb-98                                            1.4%  Feb-98                            3.26%
Mar-98                                            1.4%  Mar-98                            3.26%
Apr-98                                            1.4%  Apr-98                            3.50%
May-98                                            1.7%  May-98                            3.50%
Jun-98                                            1.7%  Jun-98                            3.50%
Jul-98                                            1.7%  Jul-98                            3.70%
Aug-98                                            1.6%  Aug-98                            3.70%
Sep-98                                            1.5%  Sep-98                            3.70%
Oct-98                                            1.5%  Oct-98                                 
Source: BLOOMBERG L.P.                                                                         

Although inflation has been well contained, the combination of a tight labor    
market (as evidenced by low unemployment rates) and strong economic growth      
typically leads to inflationary pressures on wages and, ultimately, prices. In  
this environment, productivity growth becomes particularly important. Strong    
productivity gains allow companies to pay higher wages without raising prices.  
Through the third quarter of 1998, year-to-date nonfarm productivity grew at an 
annualized rate of 2.3%, continuing a healthy trend that began in 1996.         

ASSET CLASS PERFORMANCE                                                         

The 12-month reporting period served as a textbook example of the benefits of   
asset allocation, demonstrating that various segments of the equity market can  
exhibit markedly divergent returns as well as the relative stability of bond and
cash asset classes.                                                             

The equity markets experienced significant volatility throughout the period;    
however, what was truly remarkable was the difference between the returns of    
large- and small-cap stocks. Large-cap stocks, as represented by the S&P        
500-Registered Trademark- Index, achieved a total return of 22.0% for the       
12-month period, while small-cap stocks, as represented by the Russell          
2000-Registered Trademark- Index, experienced a total decline of 11.9%,         
resulting in a difference of 33.9% between the 12-month total returns for the   
two asset classes.                                                              

International stock returns were characterized by the markedly divergent        
performance of Asian countries, which experienced significant declines, and     
European countries, which experienced healthy gains for the period.             
International stock returns, as represented by the                              
MSCI-EAFE-Registered Trademark- Index, experienced a positive total return of   
9.7% for the 12-month reporting period.                                         

Reflecting the decline in interest rates, fixed income returns were generally   
strong for the period. Bond returns, as represented by the Lehman Brothers      
Aggregate Bond Index, were 9.3% for the 12-month reporting period.              

                                                                               5

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MARKET OVERVIEW (continued)                                                     

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC                     

                                                        [Enlarge/Download Table]

      TOTAL-RETURN PERFORMANCE                                                                                            
VALUE OF A HYPOTHETICAL $1 INVESTMENT                                                                                     
                                                                RUSSELL                                                   
                                       S&P 500-REGISTERED   2000-REGISTERED                                               
                                           TRADEMARK-          TRADEMARK-        MSCE-EAFE-REGISTERED    LEHMAN AGGREGATE 
                                              INDEX              INDEX             TRADEMARK- INDEX         BOND INDEX    
                                                                                                                          
Inception                                            1.000                1.000                   1.000              1.000
Nov-97                                               1.046                0.994                   0.990              1.005
Dec-97                                               1.064                1.011                   0.998              1.015
Jan-98                                               1.076                0.995                   1.044              1.028
Feb-98                                               1.154                1.068                   1.111              1.027
Mar-98                                               1.213                1.112                   1.145              1.030
Apr-98                                               1.225                1.118                   1.154              1.036
May-98                                               1.204                1.058                   1.149              1.046
Jun-98                                               1.253                1.060                   1.157              1.054
Jul-98                                               1.240                0.975                   1.169              1.057
Aug-98                                               1.061                0.785                   1.024              1.074
Sep-98                                               1.129                0.847                   0.993              1.099
Oct-98                                               1.220                0.881                   1.096              1.093
Compiled by Charles Schwab & Co.,                                                                                         
Inc.                                                                                                                      

TOTAL RETURN ASSUMES REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAIN             
DISTRIBUTIONS. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. The indices  
represent returns of specific market sectors during the reporting period and do 
not reflect the performance of any fund. Indices are unmanaged and, unlike a    
fund, do not reflect the payment of advisory fees and other expenses associated 
with an investment in a fund. Investors cannot invest in an index directly.     

(1)The MSCI-EAFE Index, also referred to as the MSCI-EAFE (ND) Index, represents
total return net of foreign income taxes withheld on dividends.           

U.S. EQUITY VALUATION                                                           

The price/earnings (P/E) ratio for the S&P 500 Index demonstrated the volatility
of U.S. equities during the reporting period. (The price/earnings ratio, also   
known as a multiple, is the price of a stock divided by its earnings per share, 
and generally indicates how much investors are willing to pay for a company's   
earning potential.) At the end of October 1997, the P/E ratio of the S&P 500    
Index was 22.8. It reached a high for the decade of 28.3 in April, then declined
precipitously to 22.8 at the end of August before rising once again to 27.6 at  
the end of October 1998. In addition to the P/E ratio's volatility, current     
valuation levels remain well above the S&P 500's 30-year average of 15.0.       

Based on other traditional market valuation measures such as the price-to-book  
value ratio or dividend yield, the U.S. stock market continues to remain at high
valuation levels.                                                               

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC                     

                                                                [Download Table]

  S&P 500 PRICE/EARNINGS RATIO              

                                            
Jan-90                                 14.37
Feb-90                                 14.21
Mar-90                                 14.77
Apr-90                                 14.82
May-90                                 15.84
Jun-90                                 16.66
Jul-90                                 16.65
Aug-90                                 15.57
Sep-90                                 14.90
Oct-90                                 14.36
Nov-90                                 14.59
Dec-90                                 15.19
Jan-91                                 14.95
Feb-91                                 16.82
Mar-91                                 17.48
Apr-91                                 17.85
May-91                                 17.92
Jun-91                                 17.96
Jul-91                                 18.07
Aug-91                                 19.72
Sep-91                                 19.88
Oct-91                                 19.92
Nov-91                                 21.02
Dec-91                                 21.85
Jan-92                                 23.35
Feb-92                                 23.83
Mar-92                                 25.45
Apr-92                                 25.51
May-92                                 25.71
Jun-92                                 25.08
Jul-92                                 25.61
Aug-92                                 25.50
Sep-92                                 24.37
Oct-92                                 23.94
Nov-92                                 24.08
Dec-92                                 24.01
Jan-93                                 24.20
Feb-93                                 24.25
Mar-93                                 24.22
Apr-93                                 23.20
May-93                                 23.21
Jun-93                                 22.58
Jul-93                                 22.52
Aug-93                                 23.02
Sep-93                                 23.74
Oct-93                                 23.97
Nov-93                                 22.55
Dec-93                                 23.55
Jan-94                                 22.98
Feb-94                                 21.17
Mar-94                                 20.34
Apr-94                                 20.10
May-94                                 20.16
Jun-94                                 19.76
Jul-94                                 18.64
Aug-94                                 18.90
Sep-94                                 18.26
Oct-94                                 17.55
Nov-94                                 16.58
Dec-94                                 16.98
Jan-95                                 16.23
Feb-95                                 16.20
Mar-95                                 16.50
Apr-95                                 16.02
May-95                                 16.43
Jun-95                                 16.82
Jul-95                                 16.55
Aug-95                                 16.18
Sep-95                                 16.86
Oct-95                                 16.18
Nov-95                                 17.14
Dec-95                                 17.41
Jan-96                                 18.11
Feb-96                                 18.56
Mar-96                                 18.94
Apr-96                                 19.16
May-96                                 19.48
Jun-96                                 19.30
Jul-96                                 18.31
Aug-96                                 18.62
Sep-96                                 19.75
Oct-96                                 19.60
Nov-96                                 21.05
Dec-96                                 20.70
Jan-97                                 20.55
Feb-97                                 20.98
Mar-97                                 19.87
Apr-97                                 20.24
May-97                                 21.43
Jun-97                                 22.45
Jul-97                                 23.92
Aug-97                                 22.64
Sep-97                                 24.00
Oct-97                                 22.84
Nov-97                                 24.02
Dec-97                                 24.51
Jan-98                                 24.99
Feb-98                                 26.44
Mar-98                                 27.76
Apr-98                                 26.51
May-98                                 26.12
Jun-98                                 27.09
Jul-98                                 26.78
Aug-98                                 22.77
Sep-98                                 24.23
Oct-98                                 27.58
30-Year Average                             
Source: BLOOMBERG L.P.                      

TREASURY YIELDS                                                                 

Treasury yields fell significantly during the 12-month reporting period--by     
0.99% to 5.16% for 30-year bonds and by 1.48% to 4.23% for five-year notes.     
International economic problems were a major factor contributing to the decline 
in yields. Investors seeking a safe haven increased demand for U.S. Treasury    
securities and bid up prices, thereby decreasing Treasury bond yields. The      
Federal Reserve's decision to leave rates unchanged throughout most of the      
reporting period--in part due to international market turbulence as well as     
acceptable domestic economic statistics showing strong growth coupled with      
contained inflation--also led to favorable fixed income market conditions.      

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EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC                     

                                                                [Download Table]

    30-YEAR AND FIVE-YEAR TREASURY BOND YIELDS                              
                                                      30-YEAR     FIVE-YEAR 
                                                     TREASURY     TREASURY  
                                                    BOND YIELD   NOTE YIELD 
                                                                            
10/31/97                                                  6.15%        5.71%
11/7/97                                                   6.16%        5.81%
11/14/97                                                  6.11%        5.80%
11/21/97                                                  6.03%        5.75%
11/28/97                                                  6.05%        5.84%
12/5/97                                                   6.08%        5.88%
12/12/97                                                  5.93%        5.69%
12/19/97                                                  5.92%        5.71%
12/26/97                                                  5.90%        5.71%
1/2/98                                                    5.84%        5.61%
1/9/98                                                    5.73%        5.25%
1/16/98                                                   5.81%        5.40%
1/23/98                                                   5.97%        5.52%
1/30/98                                                   5.80%        5.38%
2/6/98                                                    5.92%        5.47%
2/13/98                                                   5.85%        5.42%
2/20/98                                                   5.87%        5.49%
2/27/98                                                   5.92%        5.59%
3/6/98                                                    6.02%        5.65%
3/13/98                                                   5.89%        5.53%
3/20/98                                                   5.89%        5.55%
3/27/98                                                   5.96%        5.68%
4/3/98                                                    5.79%        5.49%
4/10/98                                                   5.88%        5.56%
4/17/98                                                   5.88%        5.56%
4/24/98                                                   5.95%        5.63%
5/1/98                                                    5.93%        5.62%
5/8/98                                                    5.98%        5.65%
5/15/98                                                   5.97%        5.67%
5/22/98                                                   5.90%        5.64%
5/29/98                                                   5.80%        5.55%
6/5/98                                                    5.79%        5.59%
6/12/98                                                   5.66%        5.45%
6/19/98                                                   5.67%        5.51%
6/26/98                                                   5.63%        5.49%
7/3/98                                                    5.60%        5.41%
7/10/98                                                   5.63%        5.40%
7/17/98                                                   5.75%        5.49%
7/24/98                                                   5.69%        5.48%
7/31/98                                                   5.71%        5.50%
8/7/98                                                    5.63%        5.38%
8/14/98                                                   5.54%        5.33%
8/21/98                                                   5.43%        5.19%
8/28/98                                                   5.34%        4.90%
9/4/98                                                    5.29%        4.89%
9/11/98                                                   5.23%        4.65%
9/18/98                                                   5.15%        4.52%
9/25/98                                                   5.11%        4.37%
10/2/98                                                   4.84%        4.08%
10/9/98                                                   5.12%        4.46%
10/16/98                                                  4.98%        4.04%
10/23/98                                                  5.18%        4.30%
10/30/98                                                  5.16%        4.23%
Source: BLOOMBERG L.P.                                                      

In an effort to provide liquidity to financial markets and shelter the U.S.     
economy from the impact of increasing weakness in foreign economies, the Federal
Reserve cut short-term interest rates three times since the end of September. At
the time of this writing, the federal funds rate stood at 4.75%.                

INTERNATIONAL PERFORMANCE                                                       

The Morgan Stanley Capital International Europe, Australasia and Far            
East-Registered Trademark-(MSCI-EAFE) Index gained 9.7% in U.S. dollar terms    
(excluding reinvested dividends) during the 12-month reporting period. In       
local-currency terms, it gained 7.89%, reflecting the relative strength of most 
foreign currencies during the period.                                           

Most European equity markets had strong returns over the 12 months ended October
31, 1998, with Finland, Belgium, Spain and Italy posting the strongest returns. 
In contrast, other markets-- principally non-European ones--declined sharply    
over the period. The worst-performing markets were New Zealand, Norway,         
Singapore and Japan. Malaysia, which would have had the lowest return, was      
dropped from the index in September.                                            

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC                     

                                                                [Download Table]

    MSCI-EAFE COUNTRY $US RETURNS               
    FOR THE ONE-YEAR PERIOD ENDED               
              10/31/98                          
                                                
Finland                                   55.62%
Belgium                                   47.96%
Spain                                     45.32%
Italy                                     39.08%
France                                    33.71%
Germany                                   28.11%
Switzerland                               23.24%
Ireland                                   17.76%
Denmark                                   12.97%
United Kingdom                            11.06%
Netherlands                                7.75%
Sweden                                     3.24%
Austria                                    2.61%
Australia                                 -0.89%
Hong Kong                                 -5.81%
Japan                                    -15.05%
Singapore                                -23.90%
Norway                                   -28.64%
New Zealand                              -35.03%
SOURCE: DATASTREAM                              

NOTE: Malaysian country total return data are not shown because Malaysia was    
dropped from the MSCI-EAFE Index in September 1998 due to the imposition of     
capital controls. Malaysian returns for the period were -63.91%.                

This market overview has been provided by the portfolio management team.      

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Portfolio Management                                                            

The Portfolio Management Team                                                   

Geri Hom, vice president and senior portfolio manager, has primary              
responsibility for the day-to-day management of the Fund's portfolio. Geri      
joined CSIM in March 1995 as portfolio manager and was promoted to her current  
position in December 1996. She currently manages approximately $8.6 billion in  
indexed equity mutual fund assets. Prior to joining CSIM, Geri was a principal  
for Wells Fargo Nikko Investment Advisors and vice president and manager of the 
Domestic Equity Portfolio Management Group for Wells Fargo Nikko.               

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SCHWAB S&P 500 FUND-INVESTOR SHARES AND e.SHARES-TM- FUND PERFORMANCE           

AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED 10/31/98                     

                                                        [Enlarge/Download Table]

                                                                                SINCE    
                                                                              INCEPTION  
                                                                 ONE YEAR      (5/1/96)  
                                                                                         
-----------------------------------------------------------------------------------------
SCHWAB S&P 500 FUND(1)-INVESTOR SHARES                              21.39%        24.58% 
-----------------------------------------------------------------------------------------
SCHWAB S&P 500 FUND-e.SHARES                                        21.50%        24.75% 
-----------------------------------------------------------------------------------------
S&P 500-Registered Trademark- Index                                 21.99%        25.26% 
-----------------------------------------------------------------------------------------
Index Tracking Differential:                                                             
  Investor Shares                                                    0.60%         0.68% 
-----------------------------------------------------------------------------------------
  e.Shares                                                           0.49%         0.51% 
-----------------------------------------------------------------------------------------

TAX-SMART INVESTMENT STRATEGY                                                   

The Schwab S&P 500 Fund seeks to maximize its after-tax performance by using a  
strategy that helps reduce capital gains distributions. This strategy is        
designed to help investors keep more of what their money earns. The chart below 
illustrates the effects of this strategy on the one-year performance of the     
Schwab S&P 500 Fund-Investor Shares.                                            

ONE-YEAR AVERAGE ANNUAL TOTAL RETURNS AS OF 10/31/98                            

                                                        [Enlarge/Download Table]

                                                            BEFORE      AFTER     % LOST  
                                                              TAX      TAX(2)    TO TAXES 
                                                                                          
------------------------------------------------------------------------------------------
Schwab S&P 500 Fund-Investor Shares(3)                        21.39%     20.94%      0.45%
------------------------------------------------------------------------------------------
Average Large-Cap Fund(4)                                     11.96%      8.94%      3.02%
------------------------------------------------------------------------------------------

(1)The Investment Adviser and Schwab waived a portion of their fees during the  
reporting period and have guaranteed through at least 2/29/2000 that total
operating expenses will not exceed 0.35% and 0.28%, respectively, for the 
Investor Shares and the e.Shares. Without fee waivers and guarantees, the 
one-year and since-inception average annual total returns would have been 
21.11% and 24.30%, respectively, for the Investor Shares and 21.25% and   
24.44%, respectively, for the e.Shares as of 10/31/98.                    

(2)After-tax returns assume the maximum federal income tax rate of 39.6% on     
 dividends and 28% on capital gains distributions. Tax rates vary and may be
higher or lower than those shown.                                         

(3)The Investment Adviser and Schwab waived a portion of their fees during the  
reporting period and have guaranteed through at least 2/29/2000 that total
   operating expenses will not exceed 0.35%. Without fee waivers and guarantees,
the Investor Shares' returns would have been lower.                       

(4)Source: Morningstar, Inc. The Large-Cap Fund category contains 826 funds with
one-year track records as of 10/31/98. These funds may or may not follow a
 tax-efficient strategy similar to that followed by the Schwab S&P 500 Fund.
Also, although many mutual funds have multiple classes of shares, the     
category average includes only those funds that were classified by        
Morningstar as a distinct portfolio. This typically means that a fund's   
oldest class of shares was used.                                          

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SCHWAB S&P 500 FUND-INVESTOR SHARES AND e.SHARES-TM- FUND                       
PERFORMANCE (continued)                                                         

GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT                                     

This graph compares the growth of a hypothetical $10,000 investment in the      
Schwab S&P 500 Fund-Investor Shares and e.Shares, made at their inception, with 
a similar investment in the S&P 500-Registered Trademark- Index.                

Also shown is the difference between the total returns of the S&P 500 Index and 
the Schwab S&P 500 Fund, which is often referred to as the "tracking            
differential." The tracking differential arises due to several factors. For     
example, unlike the index, the Fund has operating expenses and incurs trading   
costs when it buys or sells securities. The Fund also may hold non-index        
securities that can produce either higher or lower returns than their index     
counterparts. Furthermore, unlike the index, the Fund holds a portion of its    
assets in cash.                                                                 

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC                     

                                                        [Enlarge/Download Table]

    SCHWAB S&P 500 FUND-INVESTOR AND E.SHARES                                                       
                                                  SCHWAB S&P 500     SCHWAB S&P 500                 
                                               FUND-INVESTOR SHARES  FUND-E.SHARES    S&P 500 INDEX 
                                                                                                    
5/1/96                                                      $10,000          $10,000         $10,000
5/31/96                                                     $10,250          $10,250         $10,257
6/30/96                                                     $10,290          $10,290         $10,296
7/31/96                                                      $9,840           $9,840          $9,841
8/31/96                                                     $10,040          $10,050         $10,049
9/30/96                                                     $10,600          $10,600         $10,613
10/31/96                                                    $10,880          $10,890         $10,906
11/30/96                                                    $11,690          $11,710         $11,731
12/31/96                                                    $11,462          $11,473         $11,498
1/31/97                                                     $12,157          $12,179         $12,216
2/28/97                                                     $12,248          $12,270         $12,312
3/31/97                                                     $11,744          $11,766         $11,808
4/30/97                                                     $12,430          $12,452         $12,511
5/31/97                                                     $13,186          $13,209         $13,272
6/30/97                                                     $13,760          $13,794         $13,867
7/31/97                                                     $14,849          $14,873         $14,969
8/31/97                                                     $14,012          $14,036         $14,131
9/30/97                                                     $14,778          $14,803         $14,904
10/31/97                                                    $14,284          $14,318         $14,406
11/30/97                                                    $14,930          $14,964         $15,073
12/31/97                                                    $15,184          $15,227         $15,332
1/31/98                                                     $15,357          $15,390         $15,502
2/28/98                                                     $16,455          $16,490         $16,620
3/31/98                                                     $17,289          $17,336         $17,471
4/30/98                                                     $17,452          $17,499         $17,647
5/31/98                                                     $17,147          $17,193         $17,344
6/30/98                                                     $17,838          $17,886         $18,048
7/31/98                                                     $17,645          $17,692         $17,857
8/31/98                                                     $15,092          $15,136         $15,278
9/30/98                                                     $16,058          $16,103         $16,257
10/31/98                                                    $17,340          $17,397         $17,579

THIS INFORMATION IS HISTORICAL AND DOES NOT REPRESENT FUTURE RESULTS. TOTAL     
RETURNS ASSUME REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS.   
PRINCIPAL VALUE AND INVESTMENT RETURNS WILL FLUCTUATE, SO AN INVESTOR'S SHARES, 
WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. Indices are  
unmanaged and do not reflect advisory fees and other expenses associated with an
investment in the Fund. Investors cannot invest in an index directly.           

10                                                                              

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SCHWAB S&P 500 FUND-SELECT SHARES-TM-                                           
FUND PERFORMANCE                                                                

AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED 10/31/98                     

                                                        [Enlarge/Download Table]

                                                                                SINCE    
                                                                              INCEPTION  
                                                                  ONE YEAR    (5/19/97)  
                                                                                         
-----------------------------------------------------------------------------------------
SCHWAB S&P 500 FUND-SELECT SHARES(1)                                 21.63%       22.53% 
-----------------------------------------------------------------------------------------
S&P 500-Registered Trademark- Index                                  21.99%       22.91% 
-----------------------------------------------------------------------------------------
Index Tracking Differential                                           0.36%        0.38% 
-----------------------------------------------------------------------------------------

GROWTH OF A HYPOTHETICAL $50,000 INVESTMENT                                     

This graph compares the growth of a hypothetical $50,000 investment(2) in the   
Schwab S&P 500 Fund-Select Shares, made at its inception, with a similar        
investment in the S&P 500 Index.                                                

Also shown is the difference between the total returns of the S&P 500 Index and 
the Schwab S&P 500 Fund, often referred to as the "tracking differential." (See 
page 10 for a more detailed discussion.)                                        

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC                     

                                                        [Enlarge/Download Table]

   SCHWAB S&P 500 FUND-SELECT SHARES                                                  

                                      Schwab S&P 500 Fund-Select Shares  S&P 500 Index
                                                                                      
5/19/97                                                         $50,000        $50,000
5/31/97                                                         $50,935        $50,930
6/30/97                                                         $53,190        $53,212
7/31/97                                                         $57,395        $57,442
8/31/97                                                         $54,165        $54,225
9/30/97                                                         $57,120        $57,191
10/31/97                                                        $55,215        $55,281
11/30/97                                                        $57,745        $57,841
12/31/97                                                        $58,745        $58,836
1/31/98                                                         $59,375        $59,489
2/28/98                                                         $63,660        $63,778
3/31/98                                                         $66,880        $67,043
4/30/98                                                         $67,550        $67,720
5/31/98                                                         $66,370        $66,556
6/30/98                                                         $69,040        $69,258
7/31/98                                                         $68,295        $68,524
8/31/98                                                         $58,435        $58,629
9/30/98                                                         $62,165        $62,387
10/31/98                                                        $67,155        $67,459

(1)The Investment Adviser and Schwab waived a portion of their fees during the  
reporting period and have guaranteed through at least 2/29/2000 that total
 operating expenses will not exceed 0.19% for the Select Shares. Without fee
   waivers and guarantees, the one-year and since-inception average annual total
returns would have been 21.35% and 22.27%, respectively as of 10/31/98.   

(2)The required minimum initial investment in the Select Shares is $50,000.     

THIS INFORMATION IS HISTORICAL AND DOES NOT REPRESENT FUTURE RESULTS. TOTAL     
RETURNS ASSUME REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS.   
PRINCIPAL VALUE AND INVESTMENT RETURNS WILL FLUCTUATE, SO AN INVESTOR'S SHARES, 
WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. Indices are  
unmanaged and do not reflect advisory fees and other expenses associated with an
investment in the Fund. Investors cannot invest in an index directly.           

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SCHWAB S&P 500 FUND                                                             
FUND HOLDINGS                                                                   

Schwab S&P 500 Fund (the Fund) invests primarily in common stocks of the S&P    
500-Registered Trademark- Index, a widely recognized, unmanaged index of 500    
large-cap stocks selected by Standard & Poor's.-Registered Trademark- As of     
October 31, 1998, the aggregate market capitalization of the S&P 500 Index      
represented approximately 79% of the total value of the U.S. stock market.(1)   
Common stocks of the 50 largest companies of the S&P 500 Index accounted for    
approximately 54% of the index.                                                 

TOP 10 HOLDINGS                                                                 
AS A PERCENTAGE OF FUND INVESTMENTS(2)                                          

                                                                [Download Table]
                                                
------------------------------------------------
General Electric Co.                       3.21%
------------------------------------------------
Microsoft Corp.                            2.92%
------------------------------------------------
Exxon Corp.                                1.94%
------------------------------------------------
Coca-Cola Co.                              1.87%
------------------------------------------------
Merck & Co., Inc.                          1.81%
------------------------------------------------
Wal-Mart Stores, Inc.                      1.72%
------------------------------------------------
Intel Corp.                                1.68%
------------------------------------------------
Pfizer, Inc.                               1.57%
------------------------------------------------
IBM Corp.                                  1.54%
------------------------------------------------
Philip Morris Companies, Inc.              1.38%
------------------------------------------------
Total                                     19.64%
------------------------------------------------

(1) Source: Wilshire Associates. The U.S. stock market is represented by the    
Wilshire 5000 Index.                                                    

(2) Both the top 10 holdings and the economic sector percentages are not        
  indicative of current or future investments. These percentages do not take
into account other assets and liabilities. A complete list of the Fund's
    investments as of 10/31/98 can be found in the Schedule of Investments later
in this report.                                                         

PORTFOLIO BY ECONOMIC SECTOR(2)                                                 

                                                                [Download Table]
                                                
------------------------------------------------
Healthcare/Drugs and Medicine             12.63%
------------------------------------------------
Business Machines and Software            10.52%
------------------------------------------------
Telephone                                  7.90%
------------------------------------------------
Banks                                      7.60%
------------------------------------------------
Retail                                     5.78%
------------------------------------------------
Oil-International                          5.35%
------------------------------------------------
Electronics                                5.25%
------------------------------------------------
Food and Agriculture                       5.10%
------------------------------------------------
Miscellaneous Finance                      4.77%
------------------------------------------------
Producer Goods and Manufacturing           4.74%
------------------------------------------------

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SCHWAB S&P 500 FUND                                                             
FUND DISCUSSION                                                                 

QUESTIONS TO THE                                                                
PORTFOLIO MANAGEMENT TEAM                                                       

Q. HOW DID THE FUND PERFORM DURING THE                                          
REPORTING PERIOD?                                                               

A. As discussed in the MARKET OVERVIEW (pages 4-7), large-cap domestic equities 
as represented by the S&P 500 Index were clearly the strongest performing of the
major asset classes. As the table below indicates, the Fund achieved strong     
total returns for the 12-month reporting period. All classes of shares closely  
tracked the Fund's benchmark, the S&P 500 Index, which achieved a total return  
of 21.99% for the period. As the table below reveals, the Fund outperformed the 
average U.S. large-cap fund.(1) The Fund's outperformance was even greater on an
after-tax basis, which was a direct result of the Fund's tax-efficient          
investment strategy.                                                            

                                                                [Download Table]

                                       ONE-YEAR RETURNS:  
                                       BEFORE             
                                         TAX     AFTER TAX
                                                          
----------------------------------------------------------
Investor Shares                        21.39%     20.94%  
----------------------------------------------------------
e.Shares-TM-                           21.50%     21.02%  
----------------------------------------------------------
Select Shares-TM-                      21.63%     21.13%  
----------------------------------------------------------
Average Large-Cap Fund(1)              11.96%      8.94%  
----------------------------------------------------------

(1)Source: Morningstar, Inc. The Large-Cap Fund category contains 826 funds with
one-year track records as of 10/31/98. These funds may or may not follow a
  tax-efficient strategy similar to that followed by all classes of the Schwab
S&P 500 Fund. Also, although many mutual funds have multiple classes of   
 shares, the category average includes only those funds that were classified
by Morningstar as a distinct portfolio. This typically means that a fund's
oldest class of shares was used.                                          

Q. WHY CAN INDEX FUNDS BE A SOUND WAY TO IMPLEMENT AN ASSET ALLOCATION PLAN?    

A. Research has shown that the manner in which an investor allocates his or her 
portfolio among different asset classes can determine the vast majority of the  
variance in the portfolio's returns. Unless investors build their portfolios    
with investments that are designed to consistently deliver the performance of   
the asset classes they wish to track, their portfolios may not behave as        
expected.                                                                       

Index funds can be an excellent choice to implement an asset allocation plan,   
because they seek to invest only in the intended asset class and therefore      
should achieve returns that closely track those of that benchmark asset class.  
Index funds also should not be subject to the "style drift" that investors may  
face with many actively managed funds. Consistent with their mission to track   
their benchmarks, index funds also usually maintain minimal cash holdings.      

In addition to seeking to deliver consistent asset class performance, index     
funds are typically efficient both from a cost and a tax standpoint. Most index 
funds minimize their trading and operating costs by keeping portfolio turnover  
and operating expense ratios low. These savings are passed on to investors in   
the form of higher returns.                                                     

Index funds also can be effective at reducing certain types of investment risk. 
Most investment risks can be categorized as SYSTEMATIC (nondiversifiable) or    
NONSYSTEMATIC (diversifiable). Systematic risks are those that may affect all   
stocks or bonds, such as a bear market caused by adverse economic conditions.   
Index funds do not safeguard against this type of risk; their goal is to        
consistently track their benchmark regardless of how it                         

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SCHWAB S&P 500 FUND                                                             
FUND DISCUSSION (continued)                                                     

is performing. They also generally maintain minimal cash balances, so they do   
not build up a defensive cash position in a negative market environment.        

Nonsystematic risks are those that affect a particular stock or bond, such as a 
decline in demand for a company's product or a negative earnings surprise.      
Nonsystematic risk is also referred to as "diversifiable risk," because an      
investor can reduce it by diversifying his or her portfolio across a            
sufficiently large number of companies. Because most broad-based index funds    
purchase many--in some cases, hundreds of-- securities, they can be effective at
minimizing nonsystematic or company-specific risk.                              

Q. WHAT STRATEGIES DOES THE FUND EMPLOY TO HELP INVESTORS ACHIEVE HIGHER        
AFTER-TAX RETURNS?                                                              

A. PRE-TAX TOTAL RETURN is the most common measure used to compare mutual fund  
performance. Because of different tax management policies, however, two funds   
with identical pre-tax total returns may actually have significant differences  
in their after-tax returns. Over the long term, these after-tax return          
differences can have a major impact on investors' fund balances held outside of 
retirement accounts.                                                            

As discussed in the first question in this section, the Schwab S&P 500 Fund has 
been more "tax efficient" than the average large-cap fund. Index funds can be   
tax efficient because they are designed to have lower portfolio turnover rates  
and, hence, lower realization of capital gains than most actively managed funds.
Furthermore, when the Fund's portfolio manager does trade stocks, an attempt is 
made to offset capital gains with capital losses to minimize the potential for  
capital gain distributions to shareholders.                                     

Q. HOW HAVE LARGE-CAP INDEX FUNDS PERFORMED                                     
IN DOWN MARKETS?                                                                

A. Equity index funds do not employ two management techniques commonly          
associated with actively managed funds in down markets: the buildup of cash or  
bond positions to unusually high levels, and/or the overweighting of "defensive"
stocks in the portfolio. Given this distinction, therefore, it is fair to pose  
the question of whether index funds underperform actively managed funds in down 
markets.                                                                        

The Schwab Center for Investment Research recently looked at how the S&P        
500-Registered Trademark- Index compared to the average actively managed        
large-cap fund during four relatively recent down markets. The results are      
summarized below:                                                               

                                                                [Download Table]

                                                AVERAGE ACTIVELY MANAGED
TIME PERIOD                     S&P 500 INDEX        LARGE-CAP FUND     
                                                                        
------------------------------------------------------------------------
9/1/87-11/30/87                    -29.6%                -28.1%         
------------------------------------------------------------------------
6/1/90-10/31/90                    -14.7%                -17.7%         
------------------------------------------------------------------------
1/1/94-12/31/94                      1.3%                 -1.0%         
------------------------------------------------------------------------
10/1/97-10/31/97                    -3.3%                 -3.9%         
------------------------------------------------------------------------

The results of the study showed that actively managed large-cap funds do not    
necessarily outperform index funds in down markets. In three of the four periods
analyzed, the actively managed funds trailed the S&P 500 Index returns by       
margins ranging from 0.6% to 3.0%. Keep in mind that investors cannot invest in 
an index directly and that indices do not reflect advisory fees and other       
expenses associated with an investment in a fund.                               

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SCHWAB 1000 FUND-REGISTERED TRADEMARK--INVESTOR SHARES                          
FUND PERFORMANCE                                                                

AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED 10/31/98                     

                                                        [Enlarge/Download Table]

                                                                               SINCE    
                                                                   FIVE      INCEPTION  
                                                      ONE YEAR     YEARS      (4/2/91)  
                                                                                        
----------------------------------------------------------------------------------------
SCHWAB 1000 FUND-INVESTOR SHARES(1)                      19.63%     19.85%       17.28% 
----------------------------------------------------------------------------------------
Schwab 1000 Index-Registered Trademark-                  20.33%     20.44%       17.79% 
----------------------------------------------------------------------------------------
Index Tracking Differential                               0.70%      0.59%        0.51% 
----------------------------------------------------------------------------------------
S&P 500 Index                                            21.99%     21.29%       17.93% 
----------------------------------------------------------------------------------------

TAX-SMART INVESTMENT STRATEGY                                                   

The Schwab 1000 Fund seeks to maximize its after-tax performance by using a     
strategy that helps reduce  capital gains distributions. This strategy is       
designed to help investors keep more of what their money earns. The chart below 
illustrates the effects of this strategy on the five-year performance of the    
Schwab 1000 Fund- Investor Shares.                                              

FIVE-YEAR AVERAGE ANNUAL TOTAL RETURNS AS OF 10/31/98                           

                                                        [Enlarge/Download Table]

                                                          BEFORE      AFTER     % LOST  
                                                            TAX      TAX(2)    TO TAXES 
                                                                                        
----------------------------------------------------------------------------------------
Schwab 1000 Fund-Investor Shares(3)                         19.85%     19.18%      0.67%
----------------------------------------------------------------------------------------
Average Large-Cap Fund(4)                                   16.63%     13.94%      2.69%
----------------------------------------------------------------------------------------

(1)The Investment Adviser and Schwab waived a portion of their fees during the  
reporting period and have guaranteed through at least 2/29/2000 that total
   operating expenses will not exceed 0.46% for the Investor Shares. Without fee
 waivers and guarantees, the one-year, five-year and since-inception average
   annual total returns would have been 19.58%, 19.79% and 17.12%, respectively,
for the Investor Shares as of 10/31/98.                                   

(2)After-tax returns assume the maximum federal income tax rate of 39.6% on     
 dividends and 28% on capital gains distributions. Tax rates vary and may be
higher or lower than those shown.                                         

(3)The Investment Adviser and Schwab waived a portion of their fees during the  
reporting period and have guaranteed through at least 2/29/2000 that total
   operating expenses will not exceed 0.46%. Without fee waivers and guarantees,
the Investor Shares' returns would have been lower.                       

(4)Source: Morningstar, Inc. The Large-Cap Fund category contains 521 funds with
 five-year track records as of 10/31/98. These funds may or may not follow a
tax-efficient strategy similar to that followed by the Schwab 1000 Fund.  
Also, although many mutual funds have multiple classes of shares, the     
category average includes only those funds that were classified by        
Morningstar as a distinct portfolio. This typically means that a fund's   
oldest class of shares was used.                                          

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SCHWAB 1000 FUND-REGISTERED TRADEMARK--INVESTOR SHARES                          
FUND PERFORMANCE (continued)                                                    

GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT                                     

This graph compares the growth of a hypothetical $10,000 investment in the      
Schwab 1000 Fund-Investor Shares, made at its inception, with similar           
investments in the Schwab 1000 Index-Registered Trademark- and the S&P          
500-Registered Trademark- Index.                                                

Also shown is the difference between the total returns of the Schwab 1000 Index 
and the Schwab 1000 Fund, which is often referred to as the "tracking           
differential." (See page 10 for a more detailed discussion.)                    

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC                     

                                                        [Enlarge/Download Table]

    SCHWAB 1000 FUND-INVESTOR SHARES                                                                    

                                      Schwab 1000 Fund-Investor Shares  Schwab 1000 Index  S&P 500 Index
                                                                                                        
4/2/91                                                         $10,000            $10,000        $10,000
4/30/91                                                         $9,910             $9,898         $9,908
5/31/91                                                        $10,320            $10,311        $10,335
6/30/91                                                         $9,850             $9,840         $9,861
7/31/91                                                        $10,320            $10,310        $10,321
8/31/91                                                        $10,600            $10,591        $10,566
9/30/91                                                        $10,460            $10,455        $10,389
10/31/91                                                       $10,630            $10,625        $10,528
11/30/91                                                       $10,240            $10,225        $10,104
12/31/91                                                       $11,425            $11,412        $11,260
1/31/92                                                        $11,283            $11,272        $11,050
2/29/92                                                        $11,425            $11,415        $11,193
3/31/92                                                        $11,171            $11,163        $10,975
4/30/92                                                        $11,404            $11,392        $11,298
5/31/92                                                        $11,404            $11,457        $11,353
6/30/92                                                        $11,465            $11,257        $11,184
7/31/92                                                        $11,726            $11,728        $11,641
8/31/92                                                        $11,480            $11,486        $11,403
9/30/92                                                        $11,623            $11,646        $11,537
10/31/92                                                       $11,746            $11,763        $11,577
11/30/92                                                       $12,208            $12,233        $11,971
12/31/92                                                       $12,398            $12,428        $12,119
1/31/93                                                        $12,502            $12,539        $12,220
2/28/93                                                        $12,595            $12,632        $12,387
3/31/93                                                        $12,896            $12,948        $12,648
4/30/93                                                        $12,533            $12,583        $12,342
5/31/93                                                        $12,896            $12,957        $12,673
6/30/93                                                        $12,958            $13,024        $12,710
7/31/93                                                        $12,905            $12,989        $12,659
8/31/93                                                        $13,397            $13,492        $13,139
9/30/93                                                        $13,355            $13,454        $13,038
10/31/93                                                       $13,544            $13,654        $13,308
11/30/93                                                       $13,355            $13,462        $13,181
12/31/93                                                       $13,592            $13,700        $13,341
1/31/94                                                        $14,005            $14,136        $13,794
2/28/94                                                        $13,645            $13,781        $13,420
3/31/94                                                        $13,042            $13,169        $12,837
4/30/94                                                        $13,190            $13,326        $13,001
5/31/94                                                        $13,349            $13,488        $13,213
6/30/94                                                        $12,988            $13,127        $12,889
7/31/94                                                        $13,405            $13,558        $13,312
8/31/94                                                        $13,971            $14,147        $13,856
9/30/94                                                        $13,651            $13,825        $13,518
10/31/94                                                       $13,918            $14,095        $13,821
11/30/94                                                       $13,416            $13,590        $13,318
12/31/94                                                       $13,577            $13,767        $13,514
1/31/95                                                        $13,923            $14,121        $13,864
2/28/95                                                        $14,474            $14,700        $14,404
3/31/95                                                        $14,852            $15,094        $14,829
4/30/95                                                        $15,219            $15,476        $15,264
5/31/95                                                        $15,770            $16,048        $15,874
6/30/95                                                        $16,191            $16,490        $16,242
7/31/95                                                        $16,807            $17,111        $16,779
8/31/95                                                        $16,936            $17,245        $16,821
9/30/95                                                        $17,606            $17,949        $17,531
10/31/95                                                       $17,520            $17,859        $17,468
11/30/95                                                       $18,276            $18,646        $18,233
12/31/95                                                       $18,547            $18,924        $18,585
1/31/96                                                        $19,095            $19,499        $19,217
2/29/96                                                        $19,379            $19,789        $19,396
3/31/96                                                        $19,554            $19,980        $19,582
4/30/96                                                        $19,883            $20,321        $19,870
5/31/96                                                        $20,354            $20,812        $20,380
6/30/96                                                        $20,299            $20,779        $20,458
7/31/96                                                        $19,335            $19,794        $19,554
8/31/96                                                        $19,861            $20,327        $19,966
9/30/96                                                        $20,967            $21,465        $21,088
10/31/96                                                       $21,394            $21,899        $21,670
11/30/96                                                       $22,938            $23,485        $23,308
12/31/96                                                       $22,549            $23,103        $22,847
1/31/97                                                        $23,846            $24,442        $24,272
2/28/97                                                        $23,935            $24,528        $24,464
3/31/97                                                        $22,870            $23,457        $23,461
4/30/97                                                        $24,101            $24,696        $24,859
5/31/97                                                        $25,631            $26,291        $26,371
6/30/97                                                        $26,695            $27,402        $27,552
7/31/97                                                        $28,857            $29,615        $29,743
8/31/97                                                        $27,471            $28,216        $28,077
9/30/97                                                        $28,946            $29,732        $29,613
10/31/97                                                       $27,992            $28,756        $28,624
11/30/97                                                       $29,167            $29,983        $29,949
12/31/97                                                       $29,747            $30,582        $30,464
1/31/98                                                        $29,960            $30,818        $30,802
2/28/98                                                        $32,166            $33,116        $33,023
3/31/98                                                        $33,801            $34,830        $34,714
4/30/98                                                        $34,149            $35,211        $35,065
5/31/98                                                        $33,398            $34,441        $34,462
6/30/98                                                        $34,742            $35,824        $35,861
7/31/98                                                        $34,260            $35,324        $35,481
8/31/98                                                        $29,142            $30,049        $30,357
9/30/98                                                        $31,023            $32,014        $32,303
10/31/98                                                       $33,487            $34,602        $34,929

THIS INFORMATION IS HISTORICAL AND DOES NOT REPRESENT FUTURE RESULTS. TOTAL     
RETURNS ASSUME REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS.   
PRINCIPAL VALUE AND INVESTMENT RETURNS WILL FLUCTUATE, SO AN INVESTOR'S SHARES, 
WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. Indices are  
unmanaged and do not reflect advisory fees and other expenses associated with an
investment in the Fund. Investors cannot invest in an index directly.           

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SCHWAB 1000 FUND-REGISTERED TRADEMARK--SELECT SHARES-TM-                        
Fund Performance                                                                

AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED 10/31/98                     

                                                        [Enlarge/Download Table]

                                                                                SINCE    
                                                                              INCEPTION  
                                                                  ONE YEAR    (5/19/97)  
                                                                                         
-----------------------------------------------------------------------------------------
SCHWAB 1000 FUND-SELECT SHARES(1)                                    19.79%       22.11% 
-----------------------------------------------------------------------------------------
Schwab 1000 Index                                                    20.33%       22.59% 
-----------------------------------------------------------------------------------------
Index Tracking Differential                                           0.54%        0.48% 
-----------------------------------------------------------------------------------------
S&P 500 Index                                                        21.99%       22.91% 
-----------------------------------------------------------------------------------------

GROWTH OF A HYPOTHETICAL $50,000 INVESTMENT                                     

This graph compares the growth of a hypothetical $50,000 investment(2) in the   
Schwab 1000 Fund-Select Shares, made at its inception, with a similar investment
in the Schwab 1000 Index and the S&P 500 Index.                                 

Also shown is the difference between the total returns of the Schwab 1000 Index 
and the Schwab 1000 Fund, often referred to as the "tracking differential." (See
page 10 for a more detailed discussion.)                                        

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC                     

                                                        [Enlarge/Download Table]

   SCHWAB 1000 FUND-SELECT SHARES                                                                  

                                   Schwab 1000 Fund-Select Shares  Schwab 1000 Index  S&P 500 Index
                                                                                                   
5/19/97                                                   $50,000            $50,000        $50,000
5/31/97                                                   $51,040            $51,064        $50,930
6/30/97                                                   $53,180            $53,222        $53,212
7/31/97                                                   $57,490            $57,518        $57,442
8/31/97                                                   $54,750            $54,801        $54,225
9/30/97                                                   $57,685            $57,746        $57,191
10/31/97                                                  $55,785            $55,851        $55,281
11/30/97                                                  $58,150            $58,233        $57,841
12/31/97                                                  $59,325            $59,398        $58,836
1/31/98                                                   $59,725            $59,855        $59,489
2/28/98                                                   $64,145            $64,318        $63,778
3/31/98                                                   $67,405            $67,648        $67,043
4/30/98                                                   $68,100            $68,387        $67,720
5/31/98                                                   $66,625            $66,893        $66,556
6/30/98                                                   $69,305            $69,578        $69,258
7/31/98                                                   $68,345            $68,606        $68,524
8/31/98                                                   $58,140            $58,362        $58,629
9/30/98                                                   $61,915            $62,179        $62,387
10/31/98                                                  $66,825            $67,206        $67,459

(1)The Investment Adviser and Schwab waived a portion of their fees during the  
reporting period and have guaranteed through at least 2/29/2000 that total
 operating expenses will not exceed 0.35% for the Select Shares. Without fee
   waivers and guarantees, the one-year and since-inception average annual total
returns would have been 19.75% and 22.06%, respectively, for the Select   
Shares as of 10/31/98.                                                    

(2)The required minimum initial investment in the Select Shares is $50,000.     

THIS INFORMATION IS HISTORICAL AND DOES NOT REPRESENT FUTURE RESULTS. TOTAL     
RETURNS ASSUME REINVESTMENT OF ALL DIVIDEND AND CAPITAL GAIN DISTRIBUTIONS.     
PRINCIPAL VALUE AND INVESTMENT RETURNS WILL FLUCTUATE, SO AN INVESTOR'S SHARES, 
WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. Indices are  
unmanaged and do not reflect advisory fees and other expenses associated with an
investment in the Fund. Investors cannot invest in an index directly.           

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SCHWAB 1000 FUND-REGISTERED TRADEMARK-                                          
FUND HOLDINGS                                                                   

The Schwab 1000 Fund (the Fund) invests primarily in common stocks of the Schwab
1000 Index,-Registered Trademark- an index created to represent the performance 
of publicly traded common stocks of the 1,000 largest U.S. companies (excluding 
investment companies). As of October 31, 1998, the aggregate market             
capitalization of the Schwab 1000 Index represented approximately 87.4% of the  
total value of the U.S. stock market.(1)                                        

TOP 10 HOLDINGS                                                                 
AS A PERCENTAGE OF FUND INVESTMENTS(2)                                          

                                                                [Download Table]
                                                
------------------------------------------------
General Electric Co.                       2.89%
------------------------------------------------
Microsoft Corp.                            2.64%
------------------------------------------------
Exxon Corp.                                1.76%
------------------------------------------------
Coca-Cola Co.                              1.69%
------------------------------------------------
Merck & Co., Inc.                          1.65%
------------------------------------------------
Wal-Mart Stores, Inc.                      1.56%
------------------------------------------------
Intel Corp.                                1.53%
------------------------------------------------
Pfizer, Inc.                               1.43%
------------------------------------------------
IBM Corp.                                  1.40%
------------------------------------------------
Philip Morris Companies, Inc.              1.26%
------------------------------------------------
Total                                     17.81%
------------------------------------------------

(1)Source: Wilshire Associates. The U.S. stock market is represented by the     
Wilshire 5000 Index.                                                      

(2)Both the top 10 holdings and the economic sector percentages are not         
indicative of current or future investments. These percentages do not take
into account other assets and liabilities. A complete list of the Fund's  
  investments as of 10/31/98 can be found in the Schedule of Investments later
in this report.                                                           

PORTFOLIO BY ECONOMIC SECTOR(2)                                                 

                                                                [Download Table]
                                                
------------------------------------------------
Healthcare/Drugs and Medicine             12.04%
------------------------------------------------
Business Machines and Software            10.26%
------------------------------------------------
Banks                                      8.19%
------------------------------------------------
Telephone                                  7.41%
------------------------------------------------
Retail                                     6.04%
------------------------------------------------
Miscellaneous Finance                      5.46%
------------------------------------------------
Electronics                                5.34%
------------------------------------------------
Food and Agriculture                       5.02%
------------------------------------------------
Producer Goods and Manufacturing           4.58%
------------------------------------------------
Insurance                                  4.43%
------------------------------------------------

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SCHWAB 1000 FUND-REGISTERED TRADEMARK-                                          
FUND DISCUSSION                                                                 

QUESTIONS TO THE                                                                
PORTFOLIO MANAGEMENT TEAM                                                       

Q. HOW DID THE FUND PERFORM DURING THE                                          
REPORTING PERIOD?                                                               

A. As discussed in the MARKET OVERVIEW (pages 4-7), large-cap domestic equities,
represented by the majority of the Schwab 1000 Fund, were clearly the           
strongest-performing major asset class. As shown below, the Fund achieved strong
total returns for the 12-month reporting period. Both classes of shares closely 
tracked the Fund's benchmark, the Schwab 1000 Index, which achieved a total     
return of 20.33% for the period. As the table below reveals, the Fund           
outperformed the average U.S. large-cap fund on both a one-year and a five-year 
basis.(1) The Fund's outperformance was even greater on an after-tax basis, a   
direct result of the Fund's tax-efficient investment strategy.                  

                                                                [Download Table]

                    BEFORE TAX:              AFTER TAX:      
               ONE YEAR   FIVE YEARS*  ONE YEAR   FIVE YEARS*
                                                             
-------------------------------------------------------------
Investor                                                     
Shares            19.63%      19.85%      19.12%      19.18% 
-------------------------------------------------------------
Select                                                       
Shares-TM-        19.79%      --          19.24%      --     
-------------------------------------------------------------
Average                                                      
Large-Cap                                                    
Fund              11.96%      16.63%       8.94%      13.94% 
-------------------------------------------------------------

*Five-year returns represent average annual total returns over the five-year    
period.                                                                       

(1)Source: Morningstar, Inc. The Large-Cap Fund category contains 521 funds with
 five-year track records as of 10/31/98. These funds may or may not follow a
tax-efficient strategy similar to that followed by the Schwab 1000 Fund.  
Also, although many mutual funds have multiple classes of shares, the     
category average includes only those funds that were classified by        
Morningstar as a distinct portfolio. This typically means that a fund's   
oldest class of shares was used.                                          

Q. HOW DID THE PERFORMANCE OF THE SCHWAB 1000 INDEX COMPARE WITH THAT OF THE S&P
500-REGISTERED TRADEMARK- INDEX?                                                

A. As shown in the table below, the S&P 500 Index marginally outperformed the   
Schwab 1000 Index for the one-year reporting period. On an inception-to-date    
basis, the performance of the two indices are almost identical. As we have      
discussed in previous reports, these two indices are constructed differently,   
and it is not unusual that their performance should differ. In particular,      
during the reporting period, the Schwab 1000 Index had more mid-cap stock       
exposure than did the S&P 500 Index. Because mid-cap stocks underperformed      
large-cap stocks for the period, the S&P 500 Index performed slightly better    
than did the Schwab 1000 Index.                                                 

                                                                [Download Table]

                                              INCEPTION   
                                              (4/2/91)    
                                           TO DATE AVERAGE
                                ONE YEAR   ANNUAL RETURNS 
                                                          
----------------------------------------------------------
Schwab 1000 Index                  20.33%         17.79%  
----------------------------------------------------------
S&P 500 Index                      21.99%         17.93%  
----------------------------------------------------------

Q. WHY CAN INDEX FUNDS BE A SOUND WAY TO IMPLEMENT AN ASSET ALLOCATION PLAN?    

A. Research has shown that the manner in which an investor allocates his or her 
portfolio among different asset classes can determine the vast majority of the  
variance in the portfolio's returns. Unless investors build their portfolios    
with investments that are designed to consistently deliver the performance of   
the asset classes they wish to track, their portfolios may not behave as they   
expect.                                                                         

Index funds can be an excellent choice to implement an asset allocation plan,   
because they seek to invest only in the intended asset class and therefore      
should, because of their investment objectives, achieve returns that closely    
track those of that benchmark asset class.                                      

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SCHWAB 1000 FUND-REGISTERED TRADEMARK-                                          
FUND DISCUSSION (continued)                                                     

Index funds also should not be subject to the "style drift" that investors may  
face with many actively managed funds. Consistent with their mission to track   
their benchmarks, index funds also usually maintain minimal cash holdings.      

In addition to seeking to deliver consistent asset class performance, index     
funds are typically efficient both from a cost and a tax standpoint. Most index 
funds minimize their trading and operating costs by keeping portfolio turnover  
and operating expense ratios low. These savings are passed on to investors in   
the form of higher returns.                                                     

Index funds also can be effective at reducing certain types of investment risk. 
Most investment risks can be categorized as SYSTEMATIC (nondiversifiable)       
or NONSYSTEMATIC (diversifiable). Systematic risks are those that may affect all
stocks or bonds, such as a bear market caused by adverse economic               
conditions. Index funds do not safeguard against this type of risk; their goal  
is to consistently track their benchmark regardless of how it is performing.    
They also generally maintain minimal cash balances, so they do not build up a   
defensive cash position in a negative market environment.                       

Nonsystematic risks are those that affect a particular stock or bond, such as a 
decline in demand for a company's product or a negative earnings surprise.      
Nonsystematic risk is also referred to as "diversifiable risk," because an      
investor can reduce it by diversifying his or her portfolio across a            
sufficiently large number of companies. Because most broad-based index funds    
purchase many--in some cases, hundreds of-- securities, they can be effective at
minimizing nonsystematic or company-specific risk.                              

Q. WHAT STRATEGIES DOES THE FUND EMPLOY TO HELP INVESTORS ACHIEVE HIGHER        
AFTER-TAX RETURNS?                                                              

A. PRE-TAX TOTAL RETURN is the most common measure used to compare mutual fund  
performance. Because of different tax management policies, however, two funds   
with identical pre-tax total returns may actually have significant differences  
in their after-tax returns. Over the long term, these after-tax return          
differences can have a major impact on investors' fund balances held outside of 
retirement accounts.                                                            

As discussed in the first question in this section, the Schwab 1000 Fund has    
been more "tax efficient" than the average large-cap fund. Since its inception  
in 1991, the Fund has not paid a capital gain distribution. Although no         
assurance can be provided that this record will be maintained in the future, it 
is indicative of the Fund's tax-efficient management strategy. Index funds can  
be tax efficient because they are designed to have lower portfolio turnover     
rates and, hence, lower realization of capital gains than most actively managed 
funds. Furthermore, when the Fund's investment manager does trade stocks, an    
attempt is made to offset capital gains with capital losses to minimize the     
potential for capital gain distributions to shareholders.                       

Q. HOW HAVE LARGE-CAP INDEX FUNDS PERFORMED IN DOWN MARKETS?                    

A. Equity index funds do not employ two management techniques commonly          
associated with actively managed funds in down markets: the buildup of the      
portfolio cash or bond position to unusually high levels, and/or the            
overweighting of "defensive" stocks in the portfolio. Given this distinction,   
therefore, it is fair to pose the question of whether index funds underperform  
actively managed funds in down markets.                                         

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The Schwab Center for Investment Research recently looked at how the S&P        
500-Registered Trademark- Index compared to the average actively managed        
large-cap fund during four relatively recent down markets. The results are      
summarized below:                                                               

                                                                [Download Table]

                                       AVERAGE ACTIVELY   
                                            MANAGED       
TIME PERIOD              S&P 500        LARGE-CAP FUND    
                                                          
----------------------------------------------------------
9/1/87-11/30/87             -29.6%              -28.1%    
----------------------------------------------------------
6/1/90-10/31/90             -14.7%               -17.7%   
----------------------------------------------------------
1/1/94-12/31/94               1.3%                -1.0%   
----------------------------------------------------------
10/1/97-10/31/97             -3.3%                -3.9%   
----------------------------------------------------------

The results of the study showed that actively managed large-cap funds do not    
necessarily outperform index funds in down markets. In three of the four periods
analyzed, the actively managed funds trailed the S&P 500 Index returns by       
margins ranging from 0.6% to 3.0%. Keep in mind that investors cannot invest in 
an index directly and that indices do not reflect advisory fees and other       
expenses associated with an investment in a fund.                               

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SCHWAB SMALL-CAP INDEX FUND-REGISTERED TRADEMARK--INVESTOR SHARES               
FUND PERFORMANCE                                                                

AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED 10/31/98                     

                                                        [Enlarge/Download Table]

                                                                                  SINCE    
                                                                                INCEPTION  
                                                      ONE YEAR    THREE YEARS   (12/3/93)  
                                                                                           
-------------------------------------------------------------------------------------------
SCHWAB SMALL-CAP INDEX FUND-                                                               
INVESTOR SHARES(1)                                       -12.88%      10.04%         9.62% 
-------------------------------------------------------------------------------------------
Schwab Small-Cap Index-Registered Trademark-             -11.20%      11.95%        11.01% 
-------------------------------------------------------------------------------------------
Index Tracking Differential                                1.68%       1.91%         1.39% 
-------------------------------------------------------------------------------------------
Russell 2000-Registered Trademark- Index                 -11.87%       9.96%        10.00% 
-------------------------------------------------------------------------------------------

TAX-SMART INVESTMENT STRATEGY                                                   

The Schwab Small-Cap Index Fund seeks to maximize its after-tax performance by  
using a strategy that helps reduce capital gains distributions. This strategy is
designed to help investors keep more of what their money earns. The chart below 
illustrates the effects of this strategy on the three-year performance of the   
Schwab Small-Cap Fund-Investor Shares.                                          

THREE-YEAR AVERAGE ANNUAL TOTAL RETURNS AS OF 10/31/98                          

                                                        [Enlarge/Download Table]

                                                          BEFORE      AFTER     % LOST  
                                                            TAX      TAX(2)    TO TAXES 
                                                                                        
----------------------------------------------------------------------------------------
Schwab Small-Cap Index Fund-Investor Shares(3)              10.04%      9.84%      0.20%
----------------------------------------------------------------------------------------
Average Small-Cap Fund(4)                                    9.02%      6.35%      2.67%
----------------------------------------------------------------------------------------

(1)The Investment Adviser and Schwab waived a portion of their fees during the  
reporting period and have guaranteed through at least 2/29/2000 that total
   operating expenses will not exceed 0.49% for the Investor Shares. Without fee
  waivers and guarantees, the one-year, three-year and since-inception average
  annual total returns would have been -13.13%, 9.68% and 9.20%, respectively,
for the Investor Shares as of 10/31/98.                                   

(2)After-tax returns assume the maximum federal income tax rate of 39.6% on     
dividends and 28% on capital gain distributions. Tax rates vary and may be
higher or lower than those shown.                                         

(3)The Investment Adviser and Schwab waived a portion of their fees during the  
reporting period and have guaranteed through at least 2/29/2000 that total
   operating expenses will not exceed 0.49%. Without fee waivers and guarantees,
the Investor Shares' returns would have been lower.                       

(4)Source: Morningstar, Inc. The Small-Cap Fund category contains 263 funds with
  three-year track records as of 10/31/98. These funds may or may not follow a
   tax-efficient strategy similar to that followed by the Schwab Small-Cap Index
 Fund. Also, although many mutual funds have multiple classes of shares, the
category average includes only those funds that were classified by        
Morningstar as a distinct portfolio. This typically means that a fund's   
oldest class of shares was used.                                          

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SCHWAB SMALL-CAP INDEX FUND-REGISTERED TRADEMARK--INVESTOR SHARES               
FUND PERFORMANCE                                                                

GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT                                     

This graph compares the growth of a hypothetical $10,000 investment in the      
Schwab Small-Cap Index Fund-Investor Shares, made at its inception, with similar
investments in the Schwab Small-Cap Index and the Russell 2000 Index.           

Also shown is the difference between the total returns of the Schwab Small-Cap  
Index and the Schwab Small-Cap Index Fund, often referred to as the "tracking   
differential." (See page 10 for a more detailed discussion.)                    

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC                     

                                                        [Enlarge/Download Table]

   SCHWAB SMALL-CAP INDEX                                                             
    FUND-INVESTOR SHARES                                                              
                                SCHWAB SMALL-CAP       SCHWAB SMALL-CAP   RUSSELL 2000
                           INDEX FUND-INVESTOR SHARES       INDEX            INDEX    
                                                                                      
12/3/93                                       $10,000            $10,000       $10,000
12/31/93                                      $10,154            $10,234       $10,186
1/31/94                                       $10,394            $10,469       $10,505
2/28/94                                       $10,334            $10,430       $10,467
3/31/94                                        $9,783             $9,871        $9,915
4/30/94                                        $9,753             $9,847        $9,974
5/31/94                                        $9,613             $9,692        $9,861
6/30/94                                        $9,333             $9,419        $9,529
7/31/94                                        $9,493             $9,614        $9,685
8/31/94                                       $10,134            $10,249       $10,225
9/30/94                                       $10,094            $10,191       $10,190
10/31/94                                      $10,064            $10,149       $10,149
11/30/94                                       $9,663             $9,767        $9,739
12/31/94                                       $9,841            $10,000       $10,000
1/31/95                                        $9,730             $9,838        $9,874
2/28/95                                       $10,082            $10,229       $10,285
3/31/95                                       $10,334            $10,442       $10,461
4/30/95                                       $10,566            $10,671       $10,693
5/31/95                                       $10,717            $10,809       $10,877
6/30/95                                       $11,211            $11,356       $11,441
7/31/95                                       $11,866            $12,021       $12,100
8/31/95                                       $12,077            $12,270       $12,351
9/30/95                                       $12,309            $12,510       $12,572
10/31/95                                      $11,785            $11,910       $12,010
11/30/95                                      $12,329            $12,114       $12,514
12/31/95                                      $12,562            $12,782       $12,845
1/31/96                                       $12,491            $12,749       $12,831
2/29/96                                       $12,967            $13,261       $13,231
3/31/96                                       $13,170            $13,492       $13,505
4/30/96                                       $13,899            $14,206       $14,227
5/31/96                                       $14,384            $14,692       $14,788
6/30/96                                       $13,848            $14,222       $14,180
7/31/96                                       $12,643            $13,075       $12,942
8/31/96                                       $13,413            $13,904       $13,694
9/30/96                                       $14,010            $14,416       $14,230
10/31/96                                      $13,757            $14,169       $14,010
11/30/96                                      $14,344            $14,733       $14,588
12/31/96                                      $14,508            $15,007       $14,970
1/31/97                                       $14,895            $15,361       $15,269
2/28/97                                       $14,376            $14,986       $14,900
3/31/97                                       $13,654            $14,257       $14,196
4/30/97                                       $13,756            $14,299       $14,236
5/31/97                                       $15,383            $16,045       $15,821
6/30/97                                       $16,125            $16,880       $16,499
7/31/97                                       $17,213            $17,842       $17,267
8/31/97                                       $17,538            $18,243       $17,662
9/30/97                                       $18,850            $19,675       $18,955
10/31/97                                      $18,026            $18,816       $18,123
11/30/97                                      $17,843            $18,645       $18,005
12/31/97                                      $18,236            $19,035       $18,320
1/31/98                                       $17,787            $18,736       $18,031
2/28/98                                       $19,195            $20,285       $19,361
3/31/98                                       $20,042            $21,199       $20,159
4/30/98                                       $20,144            $21,344       $20,270
5/31/98                                       $18,930            $20,090       $19,177
6/30/98                                       $18,960            $20,146       $19,218
7/31/98                                       $17,471            $18,597       $17,661
8/31/98                                       $14,062            $15,011       $14,231
9/30/98                                       $14,991            $15,953       $15,345
10/31/98                                      $15,705            $16,709       $15,972

THIS INFORMATION IS HISTORICAL AND DOES NOT REPRESENT FUTURE RESULTS. TOTAL     
RETURNS ASSUME REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS.   
PRINCIPAL VALUE AND INVESTMENT RETURNS WILL FLUCTUATE, SO AN INVESTOR'S SHARES, 
WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. Indices are  
unmanaged and do not reflect advisory fees and other expenses associated with an
investment in the Fund. Investors cannot invest in an index directly.           

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SCHWAB SMALL-CAP INDEX FUND-REGISTERED TRADEMARK--SELECT SHARES                 
FUND PERFORMANCE                                                                

AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED 10/31/98                     

                                                                [Download Table]

                                                               SINCE INCEPTION
                                                    ONE YEAR      (5/19/97)   
                                                                              
------------------------------------------------------------------------------
SCHWAB SMALL-CAP INDEX FUND-SELECT SHARES(1)         -12.81%        4.59%     
------------------------------------------------------------------------------
Schwab Small-Cap Index-Registered Trademark-         -11.20%        5.96%     
------------------------------------------------------------------------------
Index Tracking Differential                            1.61%        1.37%     
------------------------------------------------------------------------------
Russell 2000-Registered Trademark- Index             -11.87%        3.36%     
------------------------------------------------------------------------------

GROWTH OF A HYPOTHETICAL $50,000 INVESTMENT                                     
This graph compares the growth of a hypothetical $50,000 investment(2) in the   
Schwab Small-Cap Index Fund-Select Shares, made at its inception, with similar  
investments in the Schwab Small-Cap Index and the Russell 2000 Index.           

Also shown is the difference between the total returns of the Schwab Small-Cap  
Index and the Schwab Small-Cap Index Fund, often referred to as the "tracking   
differential." (See page 10 for a more detailed discussion.)                    

(1)The Investment Adviser and Schwab waived a portion of their fees during the  
reporting period and have guaranteed through at least 2/29/2000 that total
 operating expenses will not exceed 0.38% for the Select Shares. Without fee
   waivers and guarantees, the one-year and since-inception average annual total
returns would have been -13.30% and 3.95%, respectively, for the Select   
Shares as of 10/31/98.                                                    

(2)The required minimum initial investment in the Select Shares is $50,000.     

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC                     

                                                        [Enlarge/Download Table]

     SCHWAB SMALL-CAP INDEX FUND-SELECT SHARES                                                                 
                                                    SCHWAB SMALL-CAP      SCHWAB SMALL-CAP                     
                                                INDEX FUND-SELECT SHARES       INDEX         RUSSELL 2000 INDEX
                                                                                                               
5/19/97                                                          $50,000            $50,000             $50,000
5/31/97                                                          $52,170            $52,226             $51,960
6/30/97                                                          $54,690            $54,942             $54,189
7/31/97                                                          $58,415            $58,075             $56,709
8/31/97                                                          $59,485            $59,380             $58,008
9/30/97                                                          $63,965            $64,039             $62,254
10/31/97                                                         $61,205            $61,244             $59,521
11/30/97                                                         $60,550            $60,687             $59,134
12/31/97                                                         $61,920            $61,958             $60,169
1/31/98                                                          $60,400            $60,983             $59,218
2/28/98                                                          $65,175            $66,026             $63,588
3/31/98                                                          $68,050            $69,002             $66,208
4/30/98                                                          $68,430            $69,473             $66,572
5/31/98                                                          $64,310            $65,391             $62,984
6/30/98                                                          $64,415            $65,575             $63,116
7/31/98                                                          $59,360            $60,531             $58,004
8/31/98                                                          $47,790            $48,861             $46,740
9/30/98                                                          $50,945            $51,924             $50,399
10/31/98                                                         $53,365            $54,386             $52,456

THIS INFORMATION IS HISTORICAL AND DOES NOT REPRESENT FUTURE RESULTS. TOTAL     
RETURNS ASSUME REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS.   
PRINCIPAL VALUE AND INVESTMENT RETURNS WILL FLUCTUATE, SO AN INVESTOR'S SHARES, 
WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. Indices are  
unmanaged and do not reflect advisory fees and other expenses associated with an
investment in the Fund. Investors cannot invest in an index directly.           

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SCHWAB SMALL-CAP INDEX FUND-REGISTERED TRADEMARK-                               
FUND HOLDINGS                                                                   

The Schwab Small-Cap Index Fund (the Fund) invests primarily in common stocks of
the Schwab Small-Cap Index an index created to represent the performance of     
common stocks of the second 1,000 largest U.S. companies, ranked by market      
capitalization. As of October 31, 1998, the aggregate market capitalization of  
stocks included in the index represented approximately 5.3% of the total market 
value of all publicly traded U.S. companies, as represented by the Wilshire 5000
Index.(1)                                                                       

TOP 10 HOLDINGS                                                                 
AS A PERCENTAGE OF FUND INVESTMENTS(2)                                          

                                                                [Download Table]
                                                 
-------------------------------------------------
Interstate Energy Corp.                     0.40%
-------------------------------------------------
Learning Company, Inc.                      0.36%
-------------------------------------------------
Waters Corp.                                0.35%
-------------------------------------------------
Pixar Inc.                                  0.35%
-------------------------------------------------
Comverse Technology                         0.34%
-------------------------------------------------
Excite Inc.                                 0.34%
-------------------------------------------------
Micron Electronics                          0.33%
-------------------------------------------------
Nova Corp.                                  0.33%
-------------------------------------------------
Rational Software Corp.                     0.32%
-------------------------------------------------
NTL Inc.                                    0.32%
-------------------------------------------------
Total                                       3.44%
-------------------------------------------------

(1)Source: Wilshire Associates. The U.S. stock market is represented by the     
Wilshire 5000 Index.                                                      

(2)Both the top 10 holdings and the economic sector percentages are not         
indicative of current or future investments. These percentages do not take
into account other assets and liabilities. A complete list of the Fund's  
  investments as of 10/31/98 can be found in the Schedule of Investments later
in this report.                                                           

PORTFOLIO BY ECONOMIC SECTOR(2)                                                 

                                                                [Download Table]
                                             
---------------------------------------------
Business Services                      14.12%
---------------------------------------------
Healthcare/Drugs and Medicine           8.24%
---------------------------------------------
Producer Goods and Manufacturing        7.05%
---------------------------------------------
Banks                                   6.03%
---------------------------------------------
Business Machines and Software          5.72%
---------------------------------------------
Electronics                             5.32%
---------------------------------------------
Utilities-Electric & Gas                4.95%
---------------------------------------------
Insurance                               4.51%
---------------------------------------------
Media                                   3.69%
---------------------------------------------
Retail                                  3.51%
---------------------------------------------

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SCHWAB SMALL-CAP INDEX FUND-REGISTERED TRADEMARK-                               
FUND DISCUSSION                                                                 

QUESTIONS TO THE                                                                
PORTFOLIO MANAGEMENT TEAM                                                       

Q. HOW DID THE FUND PERFORM DURING THE REPORTING PERIOD?                        

A. As discussed in the MARKET OVERVIEW (pages 4-7), small-cap domestic equities 
were the worst performing of the major asset classes. The Fund achieved negative
total returns for the one-year reporting period of -12.88% and -12.81% for the  
Investor Shares and Select Shares,-TM- respectively. Both classes of shares     
continued to track the Fund's benchmark, the Schwab Small-Cap                   
Index,-Registered Trademark- which realized a negative total return of -11.20%  
for the period. As the table below reveals, the Fund did manage to outperform   
the average U.S. small-cap fund over the one-year and three-year periods ended  
October 31, 1998.(1) The Fund's outperformance was even greater on an after-tax 
basis, a direct result of the Fund's tax-efficient investment strategy.         

                                                                [Download Table]

                     BEFORE TAX:                AFTER TAX:       
                               THREE                     THREE   
                ONE YEAR      YEARS*      ONE YEAR      YEARS*   
                                                                 
-----------------------------------------------------------------
Investor                                                         
Shares             -12.88%      10.04%       -13.01%       9.84% 
-----------------------------------------------------------------
Select Shares      -12.81%      --           -12.97%      --     
-----------------------------------------------------------------
Average                                                          
Small-Cap                                                        
Fund               -15.12%       9.02%       -16.95%       6.35% 
-----------------------------------------------------------------

* Three-year returns represent average annual total returns over the three-year 
period.                                                                     

(1)Source: Morningstar, Inc. Returns are load-adjusted. The Small-Cap Fund      
category contains 263 funds with three-year track records as of 10/31/98. 
These funds may or may not follow a tax-efficient strategy similar to that
   followed by the Schwab Small-Cap Index Fund. Also, although many mutual funds
have multiple classes of shares, the category average includes only those 
funds that were classified by Morningstar as a distinct portfolio. This   
typically means that a fund's oldest class of shares was used.            

Q. HOW DID THE PERFORMANCE OF THE SCHWAB SMALL-CAP INDEX COMPARE TO THAT OF THE 
RUSSELL 2000 INDEX?                                                             

A. As shown in the table below, the Schwab Small-Cap Index marginally           
outperformed the Russell 2000-Registered Trademark- Index for the one-year      
reporting period as well as on an inception-to-date basis.                      

                                                                [Download Table]

                                              INCEPTION    
                                              (12/3/93)    
                                           TO DATE AVERAGE 
                               ONE YEAR     ANNUAL RETURNS 
                                                           
-----------------------------------------------------------
Schwab Small-Cap Index            -11.20%         11.95%   
-----------------------------------------------------------
Russell 2000 Index                -11.87%           9.96%  
-----------------------------------------------------------

Q. WHY CAN INDEX FUNDS BE A SOUND WAY TO IMPLEMENT AN ASSET ALLOCATION PLAN?    

A. Research has shown that the manner in which an investor allocates his or her 
portfolio among different asset classes can determine the vast majority of the  
variance in the portfolio's returns. Unless investors build their portfolios    
with investments that are designed to consistently deliver the performance of   
the asset classes they wish to track, their portfolios may not behave as they   
expect.                                                                         

Index funds can be an excellent choice to implement an asset allocation plan,   
because they seek to invest only in the intended asset class and therefore      
should, because of their investment objectives, achieve returns that closely    
track those of that benchmark asset class. Index funds also should not be       
subject to the "style drift" that investors may face with many actively managed 
funds. Consistent with their mission to track their benchmarks, index funds also
usually maintain minimal cash holdings.                                         

In addition to seeking to deliver consistent asset class performance, index     
funds are typically efficient both                                              

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from a cost and a tax standpoint. Most index funds minimize their trading and   
operating costs by keeping portfolio turnover and operating expense ratios low. 
These savings are passed on to investors in the form of higher returns.         

Index funds also can be effective at reducing certain types of investment risk. 
Most investment risks can be categorized as SYSTEMATIC (nondiversifiable) or    
NONSYSTEMATIC (diversifiable). Systematic risks are those that may affect all   
stocks or bonds, such as a bear market caused by adverse economic conditions.   
Index funds do not safeguard against this type of risk; their goal is to        
consistently track their benchmark regardless of how it is performing. They also
generally maintain minimal cash balances, so they do not build up a defensive   
cash position in a negative market environment.                                 

Nonsystematic risks are those that affect a particular stock or bond, such as a 
decline in demand for a company's product or a negative earnings surprise.      
Nonsystematic risk is also referred to as "diversifiable risk," because an      
investor can reduce it by diversifying his or her portfolio across a            
sufficiently large number of companies. Because most broad-based index funds    
purchase many--in some cases, hundreds of-- securities, they can be effective at
minimizing nonsystematic or company-specific risk.                              

Q. WHAT STRATEGIES DOES THE FUND EMPLOY TO HELP INVESTORS ACHIEVE HIGHER        
AFTER-TAX RETURNS?                                                              

A. PRE-TAX TOTAL RETURN is the most common measure used to compare mutual fund  
performance. Because of different tax management policies, however, two funds   
with identical pre-tax total returns may actually have significant differences  
in their after-tax returns. Over the long term, these after-tax return          
differences can have a major impact on investors' fund balances held outside of 
retirement accounts.                                                            

As discussed in the first question in this section, the Schwab Small-Cap Index  
Fund has generally been more "tax efficient" than the average small-cap fund.   
Index funds can be tax efficient because they are designed to have lower        
portfolio turnover rates and, hence, lower realization of capital gains than    
most actively managed funds. Furthermore, when the Fund's investment manager    
does trade stocks, an attempt is made to offset capital gains with capital      
losses to minimize the potential for capital gain distributions to shareholders.

Recently, however, shareholders of the Fund were sent a letter notifying them of
the first capital gain distribution since the Fund's inception in December 1993,
estimated to be $0.84 per share--approximately 5% of the net asset value (NAV)  
as of the end of the reporting period. This capital gain was a result of changes
in the stocks comprising the Index, in part driven by significant market        
volatility and our efforts to ensure that the composition and performance of the
Fund closely matched that of the Index. To put this distribution in perspective,
small-cap equity funds averaged capital gain distributions of nearly 6% of NAV  
PER YEAR over the past five years.(1)                                           

Although we would prefer not to realize these capital gains, we believe that    
rebalancing the portfolio to closely match the Index is essential to remain true
to the Fund's stated investment mandate and to ensure that it continues to      
provide you with an effective small-cap investment choice. As in the past, we   
will                                                                            

(1)Source: Morningstar, Inc., based on the capital gain distributions of 437    
small-cap funds through 12/31/97.                                         

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SCHWAB SMALL-CAP INDEX FUND-REGISTERED TRADEMARK-                               
FUND DISCUSSION (continued)                                                     

continue to manage the Fund for tax efficiency whenever possible by using such  
techniques as choosing to realize certain capital losses to offset capital      
gains, avoiding unnecessary trading, selling the highest-cost-basis shares      
first, and maintaining appropriate cash reserves to meet redemptions and pay    
Fund expenses without selling securities. By reducing taxable distributions,    
these approaches help increase your after-tax returns.                          

Q. GIVEN THE RECENT UNDERPERFORMANCE OF SMALL-CAP STOCKS, IS THERE STILL A      
REASON TO INVEST IN THEM?                                                       

A. Yes, if history is any guide. As the first of the graphs at the right        
illustrates, the total returns of U.S. large-cap and small-cap stocks have been 
fairly comparable over extended periods of time--such as from 1970 to 1997. Over
the past 28 years, small-cap stocks have outperformed large-cap stocks 14 times,
over varying lengths of time, as the second graph illustrates. In the remaining 
14 years, large-caps outperformed small-caps. There appears to be little, if    
any, predictability to this seesaw effect. That's why it can be wise for an     
investor to consider diversifying his or her portfolio by holding both small-   
and large-cap stocks. For example, small-cap stocks generally outperformed      
large-cap stocks from 1991 to 1993. Large-cap stocks were the winners from 1994 
through 1997. Although not readily apparent from viewing these graphs, small-cap
stocks have also exhibited a higher level of volatility over the period shown.  
In addition, there is less publicly available information about small-cap       
stocks.                                                                         

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC                     

                                                                [Download Table]

     LARGE-CAP AND SMALL-CAP CUMULATIVE RETURNS: 1970-1997                          
            GROWTH OF A HYPOTHETICAL $1 INVESTMENT                                  
                                                            LARGE-CAP    SMALL-CAP  
                                                            CUMULATIVE   CUMULATIVE 
                                                              RETURN       RETURN   
                                                                                    
1970                                                              $1.04        $0.88
1971                                                              $1.19        $1.05
1972                                                              $1.41        $1.09
1973                                                              $1.21        $0.69
1974                                                              $0.89        $0.50
1975                                                              $1.22        $0.82
1976                                                              $1.51        $1.24
1977                                                              $1.40        $1.47
1978                                                              $1.49        $1.73
1979                                                              $1.77        $2.50
1980                                                              $2.34        $3.34
1981                                                              $2.22        $3.47
1982                                                              $2.70        $4.45
1983                                                              $3.31        $5.79
1984                                                              $3.52        $5.49
1985                                                              $4.65        $7.22
1986                                                              $5.51        $7.73
1987                                                              $5.79        $7.03
1988                                                              $6.77        $8.71
1989                                                              $8.90       $10.12
1990                                                              $8.62        $8.08
1991                                                             $11.25       $12.06
1992                                                             $12.11       $14.41
1993                                                             $13.32       $17.08
1994                                                             $13.50       $16.76
1995                                                             $18.55       $21.93
1996                                                             $22.83       $25.93
1997                                                             $30.44       $32.81

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC                     

                                                        [Enlarge/Download Table]

     LARGE-CAP AND SMALL-CAP RELATIVE PERFORMANCE: 1970-1997                                            
                                                                LARGE-CAP STRONG      SMALL-CAP STRONG  
                                                              RELATIVE PERFORMANCE  RELATIVE PERFORMANCE
                                                                                                        
1970                                                                         16.3%                      
1971                                                                                               -5.8%
1972                                                                         15.4%                      
1973                                                                         22.0%                      
1974                                                                          1.5%                      
1975                                                                                              -27.1%
1976                                                                                              -27.3%
1977                                                                                              -26.0%
1978                                                                                              -11.5%
1979                                                                                              -25.8%
1980                                                                                               -1.0%
1981                                                                                               -8.9%
1982                                                                                               -6.9%
1983                                                                                               -7.5%
1984                                                                         11.5%                      
1985                                                                          0.6%                      
1986                                                                         11.3%                      
1987                                                                         14.3%                      
1988                                                                                               -7.1%
1989                                                                         15.3%                      
1990                                                                         17.0%                      
1991                                                                                              -18.7%
1992                                                                                              -11.8%
1993                                                                                               -8.5%
1994                                                                          3.2%                      
1995                                                                          6.6%                      
1996                                                                          4.8%                      
1997                                                                          6.8%                      

Source: Schwab's Center for Investment Research. Large-cap stocks are           
represented by the S&P 500-Registered Trademark- Index; small-cap stocks are  
represented by the Russell 2000-Registered Trademark- Index. Index returns    
include reinvestment of dividends and capital gain distributions. An index    
cannot be invested in directly. Indices are unmanaged and do not charge fees  
and expenses.                                                                 

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Q. HOW HAS THE U.S. SMALL-CAP SECTOR PERFORMED IN DOWN MARKETS?                 

A. Equity index funds do not employ two management techniques commonly          
associated with actively managed funds in down markets: the buildup of the      
portfolio cash or bond position to unusually high levels, and/or the            
overweighting of "defensive" stocks in the portfolio. Given this distinction,   
therefore, it is fair to pose the question of whether index funds underperform  
actively managed funds in down markets.                                         

The Schwab Center for Investment Research recently looked at how the Russell    
2000 Index compared to the average actively managed small-cap fund during four  
relatively recent down markets. The results are summarized below:               

                                                                [Download Table]

                                                     AVERAGE ACTIVELY MANAGED
         TIME PERIOD            RUSSELL 2000 INDEX        SMALL-CAP FUND     
                                                                             
-----------------------------------------------------------------------------
9/1/87-11/30/87                       -35.5%                  -30.2%         
-----------------------------------------------------------------------------
6/1/90-10/31/90                       -29.0%                  -23.6%         
-----------------------------------------------------------------------------
1/1/94-12/31/94                        -1.8%                   -0.6%         
-----------------------------------------------------------------------------
10/1/97-10/30/97                      -20.1%                  -21.3%         
-----------------------------------------------------------------------------

The results of the study showed that actively managed small-cap funds           
outperformed the Russell 2000 Index in three of the four down markets, but not  
the most recent one. Keep in mind that investors cannot invest in an index      
directly and that indices do not reflect advisory fees and other expenses       
associated with an investment in a fund.                                        

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SCHWAB INTERNATIONAL INDEX FUND-REGISTERED TRADEMARK--INVESTOR SHARES           
FUND PERFORMANCE                                                                

AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED 10/31/98                     

                                                                [Download Table]

                                                        SINCE INCEPTION
                                ONE YEAR   FIVE YEARS      (9/9/93)    
                                                                       
-----------------------------------------------------------------------
SCHWAB INTERNATIONAL INDEX                                             
FUND-                                                                  
INVESTOR SHARES(1)                 8.02%     8.10%           8.17%     
-----------------------------------------------------------------------
Schwab International                                                   
Index-Registered Trademark-        8.68%     8.57%           8.66%     
-----------------------------------------------------------------------
Index Tracking Differential        0.66%     0.47%           0.49%     
-----------------------------------------------------------------------
MSCI-EAFE-Registered Trademark-                                        
Index                              9.65%     6.81%           6.71%     
-----------------------------------------------------------------------

TAX-SMART INVESTMENT STRATEGY                                                   

The Schwab International Index Fund seeks to maximize its after-tax performance 
by using a strategy that helps reduce capital gains distributions. This strategy
is designed to help investors keep more of what their money earns. The chart    
below illustrates the effects of this strategy on the three-year performance of 
the Schwab International Index Fund-Investor Shares.                            

FIVE-YEAR AVERAGE ANNUAL TOTAL RETURNS AS OF 10/31/98                           

                                                        [Enlarge/Download Table]

                                                               BEFORE      AFTER     % LOST  
                                                                 TAX      TAX(2)    TO TAXES 
                                                                                             
---------------------------------------------------------------------------------------------
Schwab International Index Fund-Investor Shares(3)                8.10%      7.63%      0.47%
---------------------------------------------------------------------------------------------
Average Foreign Fund(4)                                           6.81%      5.29%      1.52%
---------------------------------------------------------------------------------------------

(1)The Investment Adviser and Schwab waived a portion of their fees during the  
reporting period and have guaranteed through at least 2/29/2000 that total
   operating expenses will not exceed 0.58% for the Investor Shares. Without fee
 waivers and guarantees, the one-year, five-year and since-inception average
 annual total returns would have been 7.48%, 10.48% and 7.64%, respectively,
for the Investor Shares as of 10/31/98.                                   

(2)After-tax returns assume the maximum federal income tax rate of 39.6% on     
 dividends and 28% on capital gains distributions. Tax rates vary and may be
higher or lower than those shown.                                         

(3)The Investment Adviser and Schwab waived a portion of their fees during the  
reporting period and have guaranteed through at least 2/29/2000 that total
   operating expenses will not exceed 0.58%. Without fee waivers and guarantees,
the Fund's returns would have been lower.                                 

(4)Source: Morningstar, Inc. The Foreign Fund category contains 123 funds with  
 five-year track records as of 10/31/98. These funds may or may not follow a
 tax-efficient strategy similar to that followed by the Schwab International
   Index Fund. Also, although many mutual funds have multiple classes of shares,
the category average includes only those funds that were classified by    
Morningstar as a distinct portfolio. This typically means that a fund's   
oldest class of shares was used.                                          

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GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT                                     

This graph compares the growth of a hypothetical $10,000 investment in the      
Schwab International Index Fund-Investor Shares, made at its inception, with    
similar investments in the Schwab International Index-Registered Trademark- and 
the Morgan Stanley Capital International Europe, Australasia, Far               
East-Registered Trademark- (MSCI-EAFE) Index.                                   

Also shown is the difference between the total returns of the Schwab            
International Index and the Schwab International Index Fund, which is often     
referred to as the "tracking differential." (See page 10 for a more detailed    
discussion.)                                                                    

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC                     

                                                        [Enlarge/Download Table]

    SCHWAB INTERNATIONAL INDEX                                                                    
       FUND-INVESTOR SHARES                                                                       
                                SCHWAB INTERNATIONAL INDEX        SCHWAB                          
                                   FUND-INVESTOR SHARES     INTERNATIONAL INDEX  MSCI-EAFE INDEX  
                                                                                                  
9/9/93                                             $10,000              $10,000            $10,000
9/30/93                                             $9,770               $9,786             $9,749
10/31/93                                           $10,150              $10,167            $10,049
11/30/93                                            $9,420               $9,454             $9,171
12/31/93                                           $10,096              $10,137             $9,833
1/31/94                                            $10,769              $10,823            $10,664
2/28/94                                            $10,558              $10,623            $10,634
3/31/94                                            $10,156              $10,172            $10,176
4/30/94                                            $10,458              $10,544            $10,607
5/31/94                                            $10,407              $10,448            $10,547
6/30/94                                            $10,488              $10,508            $10,696
7/31/94                                            $10,649              $10,692            $10,798
8/31/94                                            $10,941              $10,999            $11,054
9/30/94                                            $10,559              $10,621            $10,706
10/31/94                                           $10,950              $11,026            $11,062
11/30/94                                           $10,428              $10,478            $10,530
12/31/94                                           $10,484              $10,564            $10,597
1/31/95                                            $10,108              $10,254            $10,190
2/28/95                                            $10,189              $10,282            $10,160
3/31/95                                            $10,759              $10,964            $10,794
4/30/95                                            $11,145              $11,346            $11,200
5/31/95                                            $11,176              $11,303            $11,067
6/30/95                                            $11,064              $11,168            $10,873
7/31/95                                            $11,623              $11,826            $11,550
8/31/95                                            $11,237              $11,384            $11,110
9/30/95                                            $11,470              $11,661            $11,327
10/31/95                                           $11,318              $11,461            $11,022
11/30/95                                           $11,562              $11,782            $11,329
12/31/95                                           $11,975              $12,238            $11,785
1/31/96                                            $12,006              $12,277            $11,834
2/29/96                                            $12,026              $12,300            $11,874
3/31/96                                            $12,232              $12,529            $12,126
4/30/96                                            $12,530              $12,826            $12,478
5/31/96                                            $12,396              $12,674            $12,249
6/30/96                                            $12,489              $12,761            $12,317
7/31/96                                            $12,139              $12,430            $11,958
8/31/96                                            $12,253              $12,538            $11,984
9/30/96                                            $12,592              $12,907            $12,303
10/31/96                                           $12,571              $12,863            $12,177
11/30/96                                           $13,136              $13,460            $12,662
12/31/96                                           $13,067              $13,341            $12,499
1/31/97                                            $12,640              $12,898            $12,061
2/28/97                                            $12,827              $13,114            $12,259
3/31/97                                            $12,932              $13,202            $12,303
4/30/97                                            $13,025              $13,344            $12,368
5/31/97                                            $13,984              $14,324            $13,174
6/30/97                                            $14,766              $15,160            $13,899
7/31/97                                            $15,214              $15,570            $14,125
8/31/97                                            $14,109              $14,447            $13,070
9/30/97                                            $15,078              $15,354            $13,801
10/31/97                                           $13,869              $14,110            $12,740
11/30/97                                           $13,859              $14,055            $12,610
12/31/97                                           $14,022              $14,254            $12,720
1/31/98                                            $14,538              $14,830            $13,301
2/28/98                                            $15,382              $15,727            $14,155
3/31/98                                            $15,782              $16,139            $14,591
4/30/98                                            $15,888              $16,248            $14,706
5/31/98                                            $15,888              $16,209            $14,634
6/30/98                                            $16,025              $16,315            $14,745
7/31/98                                            $16,067              $16,419            $14,894
8/31/98                                            $14,085              $14,350            $13,049
9/30/98                                            $13,632              $13,880            $12,648
10/31/98                                           $14,981              $15,335            $13,966

THIS INFORMATION IS HISTORICAL AND DOES NOT REPRESENT FUTURE RESULTS. TOTAL     
RETURNS ASSUME REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS.   
PRINCIPAL VALUE AND INVESTMENT RETURNS WILL FLUCTUATE, SO AN INVESTOR'S SHARES, 
WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. Indices are  
unmanaged and do not reflect advisory fees and other expenses associated with an
investment in the Fund. Investors cannot invest in an index directly.           

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SCHWAB INTERNATIONAL INDEX FUND-REGISTERED TRADEMARK--SELECT SHARES             
FUND PERFORMANCE                                                                

AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED 10/31/98                     

                                                                [Download Table]

                                                SINCE INCEPTION     
                                ONE YEAR           (5/19/97)        
                                                                    
--------------------------------------------------------------------
SCHWAB INTERNATIONAL INDEX                                          
FUND-SELECT SHARES(1)              8.16%             4.10%          
--------------------------------------------------------------------
Schwab International                                                
Index-Registered Trademark-        8.68%             3.77%          
--------------------------------------------------------------------
Index Tracking Differential        0.52%             0.33%          
--------------------------------------------------------------------
MSCI-EAFE-Registered Trademark-                                     
Index                              9.65%             3.02%          
--------------------------------------------------------------------

GROWTH OF A HYPOTHETICAL $50,000 INVESTMENT                                     

This graph compares the growth of a hypothetical $50,000 investment(2) in the   
Schwab International Index Fund-Select Shares, made at its inception, with a    
similar investment in the Schwab International Index and the MSCI-EAFE Index.   

Also shown is the difference between the total returns of the Schwab            
International Index and the Schwab International Index Fund, often referred to  
as the "tracking differential." (See page 10 for a more detailed discussion.)   

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC                     

                                                        [Enlarge/Download Table]

    SCHWAB INTERNATIONAL INDEX                                                                    
        FUND-SELECT SHARES                                                                        
                                SCHWAB INTERNATIONAL INDEX        SCHWAB                          
                                    FUND-SELECT SHARES      INTERNATIONAL INDEX  MSCI-EAFE INDEX  
                                                                                                  
5/19/97                                            $50,000              $50,000            $50,000
5/31/97                                            $49,375              $49,283            $49,248
6/30/97                                            $52,170              $52,161            $51,961
7/31/97                                            $53,755              $53,571            $52,803
8/31/97                                            $49,815              $49,706            $48,859
9/30/97                                            $53,240              $52,827            $51,595
10/31/97                                           $49,005              $48,550            $47,627
11/30/97                                           $48,970              $48,360            $47,141
12/31/97                                           $49,580              $49,042            $47,551
1/31/98                                            $51,405              $51,027            $49,725
2/28/98                                            $54,385              $54,111            $52,917
3/31/98                                            $55,800              $55,529            $54,547
4/30/98                                            $56,175              $55,905            $54,978
5/31/98                                            $56,175              $55,770            $54,708
6/30/98                                            $56,655              $56,133            $55,124
7/31/98                                            $56,845              $56,493            $55,681
8/31/98                                            $49,840              $49,376            $48,782
9/30/98                                            $48,240              $47,757            $47,284
10/31/98                                           $53,005              $52,763            $52,211

(1)The Investment Adviser and Schwab waived a portion of their fees during the  
reporting period and have guaranteed through at least 2/29/2000 that total
 operating expenses will not exceed 0.47% for the Select Shares. Without fee
  waivers and guarantees the one-year and since-inception average annual total
   returns would have been 7.29% and 3.02%, respectively, for the Select Shares,
as of 10/31/98.                                                           

(2)The required minimum initial investment in the Select Shares is $50,000.     

THIS INFORMATION IS HISTORICAL AND DOES NOT REPRESENT FUTURE RESULTS. TOTAL     
RETURNS ASSUME REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS.   
PRINCIPAL VALUE AND INVESTMENT RETURNS WILL FLUCTUATE, SO AN INVESTOR'S SHARES, 
WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. Indices are  
unmanaged and do not reflect advisory fees and other expenses associated with an
investment in the Fund. Investors cannot invest in an index directly.           

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SCHWAB INTERNATIONAL INDEX FUND                                                 
FUND HOLDINGS                                                                   

The Schwab International Index Fund (the Fund) invests primarily in common      
stocks of the Schwab International Index, an index created to represent the     
performance of common stocks and other equity securities issued by large,       
publicly traded companies from countries around the world with major developed  
securities markets, excluding the United States. As of October 31, 1998, the    
aggregate market capitalization of stocks included in the index represented     
approximately 50% of the total market value of all publicly traded non-U.S.     
companies.(1)                                                                   

TOP 10 HOLDINGS                                                                 
AS A PERCENTAGE OF FUND INVESTMENTS(2)                                          

                                                                [Download Table]
                                               
-----------------------------------------------
Glaxo Wellcome PLC                        1.86%
-----------------------------------------------
Novaritis AG (Registered)                 1.86%
-----------------------------------------------
Royal Dutch Petroleum Co.                 1.72%
-----------------------------------------------
Nippon Telegraph and Telephone                 
Corp.                                     1.68%
-----------------------------------------------
Toyota Motor Corp.                        1.56%
-----------------------------------------------
British Petroleum PLC                     1.42%
-----------------------------------------------
Nestle SA                                 1.40%
-----------------------------------------------
British Telecommunications                1.40%
-----------------------------------------------
Roche Holding Genusscheine                1.37%
-----------------------------------------------
SmithKline Beecham                        1.15%
-----------------------------------------------
Total                                    15.42%
-----------------------------------------------

(1)Source: Wilshire Associates.                                                 

(2)The top 10 holdings and the percentages invested by country are not          
indicative of current or future investments. These percentages do not take
into account other assets and liabilities. A complete list of the Fund's  
  investments as of 10/31/98 can be found in the Schedule of Investments later
in this report.                                                           

EQUITY HOLDINGS BY COUNTRY(2)                                                   

                                                                [Download Table]
                                              
----------------------------------------------
United Kingdom                          25.35%
----------------------------------------------
Japan                                   20.12%
----------------------------------------------
Germany                                 10.17%
----------------------------------------------
Switzerland                              9.12%
----------------------------------------------
France                                   8.63%
----------------------------------------------
Netherlands                              7.06%
----------------------------------------------
Italy                                    4.40%
----------------------------------------------
Spain                                    3.19%
----------------------------------------------
Canada                                   2.97%
----------------------------------------------
Sweden                                   2.86%
----------------------------------------------
Belgium                                  1.93%
----------------------------------------------
China/Hong Kong                          1.80%
----------------------------------------------
Australia                                1.61%
----------------------------------------------
Denmark                                  0.78%
----------------------------------------------

                                                                              33

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SCHWAB INTERNATIONAL INDEX FUND-REGISTERED TRADEMARK-                           
FUND DISCUSSION                                                                 

QUESTIONS TO THE                                                                
PORTFOLIO MANAGEMENT TEAM                                                       

Q. HOW DID THE FUND PERFORM DURING THE                                          
REPORTING PERIOD?                                                               

A. As discussed in the MARKET OVERVIEW (pages 4-7), international equities were 
negatively impacted by news of international economic problems, particularly in 
July and August. Over the full-year reporting period, however, the Fund achieved
total returns of 8.02% and 8.16% for the Investor Shares and Select Shares,-TM- 
respectively. Both classes of shares closely tracked the Fund's benchmark, the  
Schwab International Index,-Registered Trademark- which realized a total return 
of 8.68% for the period. As the table below reveals, the Fund did manage to     
outperform the average foreign fund over the one- and five-year periods ended   
October 31, 1998.(1) The Fund's outperformance was even greater on an after-tax 
basis, a direct result of the Fund's tax-efficient investment strategy.         

                                                                [Download Table]

                       BEFORE TAX:               AFTER TAX:       
                  ONE YEAR    FIVE YEARS*   ONE YEAR   FIVE YEARS*
                                                                  
------------------------------------------------------------------
Investor Shares       8.02%        8.10%        7.50%       7.63% 
------------------------------------------------------------------
Select Shares         8.16%       --            7.62%      --     
------------------------------------------------------------------
Average Foreign                                                   
Fund                  1.64%        6.81%       -0.13%       5.29% 
------------------------------------------------------------------

* Five-year returns represent average annual total returns over the five-year   
period.                                                                     

(1)Source: Morningstar, Inc. Returns are load-adjusted. The Foreign Fund        
category contains 123 funds with five-year track records as of 10/31/98.  
These funds may or may not follow a tax-efficient strategy similar to that
followed by the Schwab International Index Fund.                          

Q. HOW DID THE PERFORMANCE OF THE SCHWAB INTERNATIONAL INDEX COMPARE TO THAT OF 
THE MSCI-EAFE-REGISTERED TRADEMARK- INDEX?                                      

A. As shown in the table below, the performance of the Schwab International     
Index lagged that of the MSCI-EAFE Index by approximately 0.97% for the one-year
reporting period. On an inception-to-date basis, however, the Schwab            
International Index has outperformed the MSCI-EAFE Index by approximately 1.95% 
annually. As we have discussed in previous reports, these two indices are       
constructed differently, particularly in that they have different country       
weightings, so we anticipate continued performance differentials in the future. 

                                                                [Download Table]

                                       INCEPTION (9/9/93) 
                                         TO DATE AVERAGE  
                            ONE YEAR     ANNUAL RETURNS   
                                                          
----------------------------------------------------------
Schwab International Index   8.68%            8.66%       
----------------------------------------------------------
MSCI-EAFE Index              9.65%            6.71%       
----------------------------------------------------------

The impact of currency exchange rates was relatively minor during the reporting 
period. Expressed on local currency terms, the one-year performance of the      
Schwab International Index was 7.35%, approximately 1% less than the            
dollar-denominated return, reflecting the relative strength of foreign          
currencies during the reporting period.                                         

Q. WERE ANY CHANGES MADE TO THE SCHWAB INTERNATIONAL INDEX DURING THE REPORTING 
PERIOD?                                                                         

A. During the reporting period, the total number of countries included in the   
Index dropped from 15 to 14. After the Index conducted its annual rebalancing on
June 30, no Singapore companies met the size and liquidity necessary for        
inclusion in the Index.                                                         

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Q. WHY CAN INDEX FUNDS BE A SOUND WAY TO IMPLEMENT AN ASSET ALLOCATION PLAN?    

A. Research has shown that the manner in which an investor allocates his or her 
portfolio among different asset classes can determine the vast majority of the  
variance in the portfolio's returns. Unless investors build their portfolios    
with investments that are designed to consistently deliver the performance of   
the asset classes they wish to track, their portfolios may not behave as they   
expect.                                                                         

Index funds can be an excellent choice to implement an asset allocation plan,   
because they seek to invest only in the intended asset class and therefore      
should, because of their investment objectives, achieve returns that closely    
track those of that benchmark asset class. Index funds also should not be       
subject to the "style drift" that investors may face with many actively managed 
funds. Consistent with their mission to track their benchmarks, index funds also
usually maintain minimal cash holdings.                                         

In addition to seeking to deliver consistent asset class performance, index     
funds are typically efficient both from a cost and a tax standpoint. Most index 
funds minimize their trading and operating costs by keeping portfolio turnover  
and operating expense ratios low. These savings are passed on to investors in   
the form of higher returns.                                                     

Index funds also can be effective at reducing certain types of investment risk. 
Most investment risks can be categorized as SYSTEMATIC (nondiversifiable) or    
NONSYSTEMATIC (diversifiable). Systematic risks are those that may affect all   
stocks or bonds, such as a bear market caused by adverse economic conditions.   
Index funds do not safeguard against this type of risk; their goal is to        
consistently track their benchmark regardless of how it is performing. They also
generally maintain minimal cash balances, so they do not build up a defensive   
cash position in a negative market environment.                                 

Nonsystematic risks are those that affect a particular stock or bond, such as a 
decline in demand for a company's product or a negative earnings surprise.      
Nonsystematic risk is also referred to as "diversifiable risk," because an      
investor can reduce it by diversifying his or her portfolio across a            
sufficiently large number of companies. Because most broad-based index funds    
purchase many--in some cases, hundreds of-- securities, they can be effective at
minimizing nonsystematic or company-specific risk.                              

Q. WHAT STRATEGIES DOES THE FUND EMPLOY TO HELP INVESTORS ACHIEVE HIGHER        
AFTER-TAX RETURNS?                                                              

A. PRE-TAX TOTAL RETURN is the most common measure used to compare mutual fund  
performance. Because of different tax management policies, however, two funds   
with identical pre-tax total returns may actually have significant differences  
in their after-tax returns. Over the long term, these after-tax return          
differences can have a major impact on investors' fund balances held outside of 
retirement accounts.                                                            

As discussed in the first question in this section, the Schwab International    
Index Fund has been more "tax efficient" than the average foreign fund. Index   
funds can be tax efficient because they are designed to have lower portfolio    
turnover rates and, hence, lower realization of capital gains than most actively
managed funds. Furthermore, when the Fund's investment manager does trade       
stocks, an attempt is made to                                                   

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SCHWAB INTERNATIONAL INDEX FUND-REGISTERED TRADEMARK-                           
FUND DISCUSSION (continued)                                                     

offset capital gains with capital losses to minimize the potential for capital  
gain distributions to shareholders.                                             

Q. WHAT IMPACT HAS THE FINANCIAL TURMOIL IN RUSSIA AND IN MANY ASIAN COUNTRIES  
HAD ON THE FUND?                                                                

A. As shown in the MARKET OVERVIEW (page 4-7), most Asian markets experienced   
significant losses during the reporting period. Although well diversified across
many developed securities markets, the Schwab International                     
Index-Registered Trademark- does have exposure to several Asian countries that  
had a negative impact on returns for the period. The table below shows Asian    
country exposure in the Fund based on the percentage of total assets as of the  
end of the reporting period, as well as the returns for each of those countries 
during the reporting period (based on the MSCI-EAFE country returns for the     
period).                                                                        

                                                                [Download Table]

                                               COUNTRY    
                               PERCENTAGE      RETURNS    
                                   OF         FOR THE 12  
                               FUND ASSETS      MONTHS    
                               (10/31/98)   ENDED 10/31/98
                                                          
----------------------------------------------------------
Japan                              20.12%         -15.05% 
----------------------------------------------------------
Hong Kong                           1.80%          -5.81% 
----------------------------------------------------------

The Schwab International Index-Registered Trademark- is a capitalization-       
weighted index, which means that each country's percentage representation in the
Index is based on the total size--or market capitalization--of its stock market.
To ensure that the Schwab International Index maintains sufficient              
diversification, the Index limits the maximum representation of any one country 
to 35%. Neither the Fund nor the Index held any Russian securities, as Russia   
does not meet the definition of a "developed securities market" as required for 
inclusion in the Index.                                                         

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SCHWAB S&P 500 FUND                                                             
SCHEDULE OF INVESTMENTS                                                         
October 31, 1998                                                                

Number       Value
of Shares      (000s) 
---------    ---------
---------------------------------------------------                             
COMMON STOCK -- 99.6%                                                           
---------------------------------------------------                             
AEROSPACE/DEFENSE -- 1.5%                                                       
Boeing Co.                     432,854    $  16,232                             
General Dynamics Corp.          58,862        3,484                             
Lockheed Martin Corp.           84,905        9,456                             
Northrop Grumman Corp.          34,139        2,723                             
Raytheon Co., Class B          142,994        8,303                             
Textron, Inc.                   68,145        5,068                             
United Technologies Corp.       99,392        9,467                             
             ---------
                54,733
             ---------

AIR TRANSPORTATION -- 0.5%                                                      
AMR Corp.+                      83,584        5,600                             
Delta Airlines, Inc.            31,053        3,278                             
FDX Corp.+                      62,144        3,267                             
Southwest Airlines Co.         146,612        3,106                             
U.S. Airways Group, Inc.+       44,090        2,494                             
             ---------
                17,745
             ---------

ALCOHOLIC BEVERAGES -- 0.5%                                                     
Adolph Coors Co., Class B       13,077          654                             
Anheuser-Busch Companies, Inc. 204,527       12,157                             
Brown-Forman Corp., Class B     26,844        1,824                             
Seagram Co., Ltd.              152,775        5,022                             
             ---------
                19,657
             ---------

APPAREL -- 0.3%                                                                 
Fruit of the Loom, Inc.,                                                        
Class A+                      35,553          542                           
Liz Claiborne, Inc.             28,646          842                             
Nike, Inc., Class B            129,503        5,658                             
Reebok International, Ltd.+     14,018          233                             
Russell Corp.                   12,276          302                             
Springs Industries, Inc.         7,642          270                             
V.F. Corp.                      56,262        2,352                             
             ---------
                10,199
             ---------

AUTOMOTIVE PRODUCTS/MOTOR VEHICLE -- 2.0%                                       
BF Goodrich Co.                 26,613          958                             
Chrysler Corp.                 271,109       13,047                             
Cooper Tire & Rubber Co.        29,764          495                             
Cummins Engine Co., Inc.        12,880          440                             
Dana Corp.                      78,096        3,265                             
Eaton Corp.                     34,161        2,312                             
Fleetwood Enterprises, Inc.     11,175          361                             
Ford Motor Co.                 510,495       27,694                             
General Motors Corp.           276,823       17,457                             
Genuine Parts Co.               75,876        2,390                             

Number       Value
of Shares      (000s) 
---------    ---------

Goodyear Tire & Rubber Co.      62,626    $   3,374                             
Navistar International Corp.+   21,753          454                             
Paccar, Inc.                    30,263        1,320                             
TRW, Inc.                       51,457        2,930                             
             ---------
                76,497
             ---------

BANKS -- 7.6%                                                                   
Bank of New York Co., Inc.     315,386        9,954                             
Bank One Corp.                 502,724       24,571                             
BankAmerica Corp.              731,299       42,004                             
BankBoston Corp.               121,808        4,484                             
Bankers Trust New York Corp.    39,008        2,450                             
BB&T Corp.                     112,172        4,003                             
Chase Manhattan Corp.          365,370       20,758                             
Comerica, Inc.                  63,130        4,072                             
Fifth Third Bancorp.           115,283        7,638                             
First Union Corp.              406,321       23,567                             
Fleet Financial Group, Inc.    241,444        9,643                             
Golden West Financial Corp.     28,019        2,541                             
Huntington Bancshares Inc.     101,728        2,925                             
J.P. Morgan & Co., Inc.         77,374        7,293                             
KeyCorp, Inc.                  178,308        5,405                             
MBNA Corp.                     329,420        7,515                             
Mellon Bank Corp.              111,426        6,699                             
Merchantile Bancorp, Inc.       60,900        2,782                             
National City Corp.            140,850        9,058                             
Northern Trust Corp.            44,600        3,289                             
Norwest Corp.                  320,066       11,902                             
PNC Bank Corp.                 127,641        6,382                             
Regions Financial Corp.         96,500        3,571                             
Republic New York Corp.         53,630        2,242                             
State Street Corp.              65,435        4,082                             
Summit Bancorp                  77,500        2,940                             
SunTrust Banks, Inc.            90,947        6,338                             
Synovus Financial Corp.        103,247        2,394                             
U.S. Bancorp                   321,481       11,734                             
Union Planters Corp.            52,100        2,419                             
Wachovia Corp.                  94,326        8,572                             
Washington Mutual, Inc.        257,156        9,627                             
Wells Fargo & Co.               36,184       13,388                             
             ---------
               286,242
             ---------

BUSINESS MACHINES & SOFTWARE -- 10.5%                                           
3Com Corp.+                    148,420        5,352                             
Adobe Systems, Inc.             29,752        1,104                             
Apple Computer, Inc.+           60,166        2,234                             
Autodesk, Inc.                  31,000          967                             
BMC Software, Inc.+             84,500        4,061                             

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SCHWAB S&P 500 FUND                                                             
SCHEDULE OF INVESTMENTS (continued)                                             
October 31, 1998                                                                

Number       Value
of Shares      (000s) 
---------    ---------

Cabletron Systems, Inc.+        69,329    $     789                             
Ceridian Corp.+                 34,360        1,971                             
Cisco Systems, Inc.+           651,945       41,072                             
Compaq Computer Corp.          711,694       22,507                             
Computer Associates                                                             
International, Inc.          237,990        9,371                           
Data General Corp.+             16,600          282                             
Dell Computer Corp.+           539,164       35,383                             
EMC Corp.+                     210,331       13,540                             
Gateway 2000, Inc.+             64,300        3,589                             
Hewlett-Packard Co.            442,473       26,631                             
Honeywell, Inc.                 52,866        4,223                             
International Business                                                          
Machines Corp.               391,052       58,047                           
Microsoft Corp.+             1,040,006      110,111                             
Novell, Inc.+                  135,829        2,020                             
Oracle Systems Corp.+          419,997       12,416                             
Parametric Technology Corp.+   119,732        1,991                             
Peoplesoft, Inc.+               94,300        1,998                             
Pitney Bowes, Inc.             117,602        6,475                             
Seagate Technology, Inc.+      114,411        3,018                             
Silicon Graphics, Inc.+         74,570          839                             
Sun Microsystems, Inc.+        164,571        9,586                             
Unisys Corp.+                  120,065        3,197                             
Xerox Corp.                    139,962       13,559                             
             ---------
               396,333
             ---------

BUSINESS SERVICES -- 2.0%                                                       
Automatic Data Processing, Inc.129,612       10,086                             
Browning-Ferris Industries, Inc.70,313        2,492                             
Computer Sciences Corp.         70,522        3,720                             
Cendant Corp.+                 371,500        4,249                             
Deluxe Corp.                    42,372        1,372                             
Ecolab, Inc.                    55,470        1,657                             
Equifax, Inc.                   61,015        2,361                             
First Data Corp.               186,527        4,943                             
H&R Block, Inc.                 41,817        1,874                             
IKON Office Solutions           41,977          396                             
Interpublic Group of                                                            
Companies, Inc.               57,460        3,361                           
Laidlaw, Inc.                  122,187        1,153                             
Moore Corp., Ltd.               30,785          348                             
National Service                                                                
Industries, Inc.              18,094          649                           
Omnicom Group, Inc.             72,400        3,579                             
Paychex, Inc.                   66,800        3,323                             
R.R. Donnelley & Sons Co.       57,206        2,467                             
Tyco International Ltd.        272,554       16,881                             
Waste Management, Inc.         245,426       11,075                             
             ---------
                75,986
             ---------

Number       Value
of Shares      (000s) 
---------    ---------

CHEMICAL -- 2.0%                                                                
Air Products & Chemicals, Inc.  98,258    $   3,709                             
Dow Chemical Co.                92,176        8,630                             
E. I. du Pont de Nemours & Co. 475,662       27,351                             
Eastman Chemical Co.            38,764        2,277                             
Great Lakes Chemical Corp.      22,225          925                             
Hercules, Inc.                  48,607        1,619                             
Minnesota Mining &                                                              
Manufacturing Co.            172,768       13,822                           
Morton International, Inc.      47,078        1,171                             
Nalco Chemical Co.              23,640          731                             
PPG Industries, Inc.            78,375        4,482                             
Praxair, Inc.                   72,930        2,935                             
Rohm & Haas Co.                 81,087        2,737                             
Sigma-Aldrich Corp.             39,209        1,212                             
Union Carbide Corp.             56,460        2,174                             
W. R. Grace & Co.+              44,452          772                             
             ---------
                74,547
             ---------

CONSTRUCTION -- 0.3%                                                            
Armstrong World                                                                 
Industries, Inc.              21,685        1,344                           
Centex Corp.                    20,922          701                             
Crane Co.                       27,069          780                             
Fluor Corp.                     33,275        1,292                             
Georgia Pacific Corp.           44,391        2,297                             
Kaufman & Broad Home Corp.      17,481          499                             
Owens Corning                   19,211          698                             
Pulte Corp.                     10,488          270                             
Sherwin-Williams Co.            66,261        1,669                             
The Stanley Works               45,586        1,368                             
             ---------
                10,918
             ---------

CONSUMER - DURABLE -- 0.4%                                                      
Black & Decker Corp.            39,297        2,031                             
Masco Corp.                    142,490        4,016                             
Maytag Corp.                    44,306        2,190                             
Newell Co.                      66,332        2,919                             
Snap-On, Inc.                   26,878          953                             
Whirlpool Corp.                 30,556        1,566                             
             ---------
                13,675
             ---------

CONSUMER - NON-DURABLE -- 1.5%                                                  
American Greetings Corp.,                                                       
Class A                       31,157        1,250                           
Darden Restaurants, Inc.        48,620          802                             
Harcourt General, Inc.          26,848        1,307                             
Hasbro, Inc.                    61,665        2,162                             

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Number       Value
of Shares      (000s) 
---------    ---------

Jostens, Inc.                   18,082    $     408                             
Mattel, Inc.                   128,307        4,603                             
McDonald's Corp.               293,737       19,644                             
Rubbermaid, Inc.                69,413        2,304                             
Tricon Global                                                                   
Restaurants, Inc.+            57,050        2,482                           
Unilever NV                    274,937       20,689                             
Wendy's International, Inc.     48,575        1,020                             
             ---------
                56,671
             ---------
CONTAINERS -- 0.2%                                                              
Ball Corp.                       9,263          391                             
Bemis Co., Inc.                 30,311        1,125                             
Crown Cork & Seal Co., Inc.     54,268        1,730                             
Owens-Illinois, Inc.+           59,993        1,834                             
Sealed Air Corp.+               30,726        1,089                             
Stone Container Corp.+          45,308          433                             
             ---------
                 6,602
             ---------
ELECTRONICS -- 5.3%                                                             
Advanced Micro Devices, Inc.+   58,294        1,315                             
Applied Materials, Inc.+       152,362        5,285                             
Ascend Communications, Inc.+    98,800        4,767                             
EG&G, Inc.                      13,296          334                             
Electronic Data Systems Corp.  208,700        8,491                             
Emerson Electric Co.           183,226       12,093                             
General Instrument Corp.+       60,508        1,554                             
Harris Corp.                    29,166        1,023                             
Intel Corp.                    708,312       63,173                             
KLA-Tencor Corp.+               33,275        1,227                             
LSI Logic Corp.+                64,297          972                             
Lucent Technologies, Inc.      558,320       44,770                             
Micron Technology, Inc.+        87,140        3,311                             
Milacron, Inc.                  11,183          217                             
Motorola, Inc.                 254,544       13,236                             
National Semiconductor Corp.+   58,837          747                             
Northern Telecom Ltd.          276,520       11,839                             
Perkin Elmer Corp.              21,691        1,829                             
Rockwell International Corp.    73,236        3,007                             
Scientific-Atlanta, Inc.        34,262          512                             
Tektronix, Inc.                 24,305          434                             
Tellabs, Inc.+                  80,578        4,432                             
Texas Instruments, Inc.        166,401       10,639                             
Thermo Electron Corp.+          73,614        1,468                             
Thomas & Betts Corp.            20,315          908                             
             ---------
               197,583
             ---------

Number       Value
of Shares      (000s) 
---------    ---------

ENERGY - RAW MATERIALS -- 1.0%                                                  
Anadarko Petroleum Corp.        54,850    $   1,858                             
Apache Corp.                    36,489        1,033                             
Baker Hughes, Inc.             127,708        2,817                             
Burlington Resources, Inc.      81,255        3,347                             
Eastern Enterprises             13,843          568                             
Halliburton Co.                197,729        7,106                             
Helmerich & Payne, Inc.         13,504          322                             
Occidental Petroleum Corp.     154,092        3,063                             
ONEOK, Inc.                     12,365          423                             
Rowan Companies, Inc.+          32,481          473                             
Schlumberger Ltd.              231,834       12,171                             
Sempra Energy                  104,111        2,707                             
Union Pacific Resources Group  114,762        1,492                             
             ---------
                37,380
             ---------

FOOD & AGRICULTURE -- 5.1%                                                      
Archer Daniels Midland Co.     253,526        4,231                             
Bestfoods, Inc.                118,800        6,475                             
Campbell Soup Co.              191,627       10,216                             
Coca-Cola Co.                1,042,882       70,525                             
Coca-Cola Enterprises, Inc.    167,200        6,030                             
ConAgra, Inc.                  201,688        6,139                             
General Mills, Inc.             64,334        4,729                             
H.J. Heinz Co.                 156,738        9,110                             
Hershey Foods Corp.             61,398        4,164                             
Kellogg Co.                    170,162        5,615                             
Monsanto Co.                   250,965       10,195                             
PepsiCo, Inc.                  626,997       21,161                             
Pioneer-Hi-Bred                                                                 
International, Inc.          102,414        2,868                           
Quaker Oats Co.                 57,487        3,395                             
Ralston Purina Co.             126,369        4,218                             
RJR Nabisco Holdings Corp.     130,400        3,725                             
Sara Lee Corp.                 195,169       11,649                             
SYSCO Corp.                    147,728        3,979                             
Wm. Wrigley Jr. Co.             47,043        3,807                             
             ---------
               192,231
             ---------
GOLD -- 0.2%                                                                    
Barrick Gold Corp.             150,379        3,214                             
Battle Mountain Gold Co.        81,580          444                             
Homestake Mining Co.            73,807          876                             
Newmont Mining Corp.            76,969        1,636                             
Placer Dome, Inc.              103,700        1,633                             
             ---------
                 7,803
             ---------

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SCHWAB S&P 500 FUND                                                             
SCHEDULE OF INVESTMENTS (continued)                                             
October 31, 1998                                                                

Number       Value
of Shares      (000s) 
---------    ---------

HEALTHCARE/DRUGS & MEDICINE -- 12.7%                                            
Abbott Laboratories            653,614    $  30,679                             
Allergan, Inc.                  24,935        1,557                             
ALZA Corp.+                     42,078        2,014                             
American Home Products Corp.   557,310       27,169                             
Amgen, Inc.+                   108,554        8,528                             
Bausch & Lomb, Inc.             23,816          993                             
Baxter International, Inc.     126,284        7,569                             
Becton, Dickinson & Co.        110,310        4,647                             
Biomet, Inc.                    49,132        1,667                             
Boston Scientific Corp.+        79,506        4,328                             
Bristol-Meyers Squibb Co.      420,482       46,490                             
C.R. Bard, Inc.                 21,120          902                             
Cardinal Health, Inc.           56,127        5,308                             
Columbia / HCA Healthcare                                                       
Corp.                        264,916        5,563                           
Eli Lilly & Co.                461,124       37,322                             
Guidant Corp.                   62,310        4,767                             
HBO & Co.                      183,028        4,805                             
Hcr Manor Care, Inc.+           44,133        1,434                             
Healthsouth Corp.+             173,909        2,109                             
Humana, Inc.+                   70,742        1,340                             
IMS Health, Inc.                75,743        5,037                             
Johnson & Johnson              569,980       46,453                             
Mallinckrodt, Inc.              25,553          728                             
Medtronic, Inc.                197,877       12,862                             
Merck & Co., Inc.              504,023       68,169                             
Pfizer, Inc.                   551,000       59,129                             
Pharmacia & Upjohn, Inc.       215,461       11,406                             
Schering-Plough Corp.          311,431       32,038                             
Service Corp. International    107,726        3,838                             
Shared Medical Systems Corp.     9,852          491                             
St. Jude Medical, Inc.+         46,392        1,311                             
Tenet Healthcare Corp.+        137,633        3,845                             
United Healthcare Corp.         90,392        3,938                             
Warner Lambert Co.             347,001       27,196                             
             ---------
               475,632
             ---------

HOUSEHOLD PRODUCTS -- 2.5%                                                      
Alberto-Culver Co., Class B     20,017          532                             
Avon Products, Inc.            114,554        4,546                             
Clorox Co.                      46,016        5,027                             
Colgate-Palmolive Co.          126,918       11,216                             
Gillette Co.                   469,338       21,091                             
International Flavors &                                                         
Fragrances, Inc.              51,628        1,933                           
Procter & Gamble Co.           569,522       50,616                             
Tupperware Corp.                16,428          256                             
             ---------
                95,217
             ---------

Number       Value
of Shares      (000s) 
---------    ---------

INSURANCE -- 3.8%                                                               
Aetna, Inc.                     63,758    $   4,758                             
Allstate Corp.                 351,618       15,142                             
American General Corp.         111,422        7,632                             
American International                                                          
Group, Inc.                  437,947       37,335                           
Aon Corp.                       70,499        4,371                             
Chubb Corp.                     73,260        4,506                             
CIGNA Corp.                     93,065        6,788                             
Cincinnati Financial Corp.      63,245        2,360                             
Conseco, Inc.                  126,502        4,388                             
General Re Corp.                33,166        7,286                             
Hartford Financial Services                                                     
Group, Inc.                   97,692        5,190                           
Jefferson-Pilot Corp.           47,822        2,905                             
Lincoln National Corp.          43,713        3,317                             
Marsh & McLennan                                                                
Companies, Inc.              111,378        6,181                           
MBIA, Inc.                      46,986        2,872                             
MGIC Investment Corp.           52,438        2,045                             
Progressive Corp. of Ohio       27,651        4,072                             
Provident Companies, Inc.       53,200        1,546                             
SAFECO Corp.                    55,791        2,416                             
St. Paul Companies, Inc.       100,016        3,313                             
SunAmerica, Inc.                86,908        6,127                             
Torchmark Corp.                 58,789        2,572                             
Transamerica Corp.              23,432        2,437                             
UNUM Corp.                      58,692        2,608                             
             ---------
               142,167
             ---------

MEDIA -- 2.6%                                                                   
CBS Corp.                      311,375        8,699                             
Clear Channel                                                                   
Communications, Inc.+         98,810        4,502                           
Comcast Corp., Class A         160,829        7,941                             
Dow Jones & Co., Inc.           45,300        2,075                             
Gannett Co., Inc.              118,192        7,313                             
King World Productions, Inc.+   24,354          639                             
Knight-Ridder, Inc.             36,683        1,868                             
McGraw-Hill Companies, Inc.     44,907        4,039                             
Mediaone Group+                256,967       10,873                             
Meredith Corp.                  23,612          874                             
New York Times Co., Class A     80,200        2,266                             
Telecommunications, Inc.,                                                       
Series A (Liberty Media                                                     
Group)+                      221,958        9,350                           
Time Warner, Inc.              253,970       23,572                             
Times Mirror Co., Series A      34,800        1,929                             
Tribune Co.                     54,556        3,144                             
Viacom, Inc., Class B+         153,037        9,163                             
             ---------
                98,247
             ---------

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Number       Value
of Shares      (000s) 
---------    ---------

MISCELLANEOUS FINANCE -- 4.8%                                                   
American Express Co.           190,979    $  16,878                             
Associates First Capital Corp. 142,801       10,067                             
Bear Stearns Companies, Inc.    52,500        1,874                             
Capital One Financial Corp.     32,300        3,286                             
Charles Schwab Corp.           117,053        5,611                             
Citigroup, Inc.                960,904       45,223                             
Countrywide Credit                                                              
Industries, Inc.              47,724        2,061                           
Dun & Bradstreet Corp.          65,656        1,863                             
Fannie Mae                     436,917       30,939                             
Freddie Mac                    294,052       16,908                             
Franklin Resources, Inc.        98,400        3,721                             
Household International, Inc.  201,908        7,382                             
Lehman Brothers Holdings, Inc.  49,900        1,893                             
Merrill Lynch & Co., Inc.      150,792        8,934                             
Morgan Stanley, Dean Witter,                                                    
Discover & Co.               252,336       16,339                           
Providian Financial Corp.       44,596        3,540                             
Student Loan Marketing Assoc.   75,700        3,033                             
             ---------
               179,552
             ---------

NON-FERROUS METALS -- 0.4%                                                      
Alcan Aluminum, Ltd.           107,274        2,715                             
Aluminum Company of America     77,063        6,107                             
Asarco, Inc.                     9,188          197                             
Cyprus Amax Minerals Co.        33,795          420                             
Engelhard Corp.                 53,401        1,122                             
Freeport-McMoran Copper & Gold,                                                 
Inc., Class B                 62,215          766                           
Inco, Ltd.                      57,949          619                             
Phelps Dodge Corp.              29,826        1,719                             
Reynolds Metals Co.             28,054        1,682                             
             ---------
                15,347
             ---------

OIL - DOMESTIC -- 0.8%                                                          
Amerada Hess Corp.              35,092        1,939                             
Ashland, Inc.                   31,856        1,533                             
Atlantic Richfield Co.         132,170        9,103                             
Kerr-McGee Corp.                16,100          642                             
Oryx Energy Co.+                51,420          720                             
Pennzoil Co.                    15,999          574                             
Phillips Petroleum Co.         111,950        4,842                             
Sun, Inc.                       41,352        1,419                             
Unocal Corp.                   106,916        3,628                             
USX-Marathon Group             123,702        4,044                             
             ---------
                28,444
             ---------

Number       Value
of Shares      (000s) 
---------    ---------

OIL - INTERNATIONAL -- 5.3%                                                     
Amoco Corp.                    406,550    $  22,818                             
Chevron Corp.                  277,968       22,654                             
Exxon Corp.                  1,023,369       72,915                             
Mobil Corp.                    332,842       25,192                             
Royal Dutch Petroleum Co. -                                                     
Sponsored ADR                898,280       44,240                           
Texaco, Inc.                   227,354       13,485                             
             ---------
               201,304
             ---------

OPTICAL & PHOTO -- 0.3%                                                         
Eastman Kodak Co.              135,781       10,523                             
Polaroid Corp.                  12,095          321                             
             ---------
                10,844
             ---------

PAPER & FOREST PRODUCTS -- 0.9%                                                 
Boise Cascade Corp.             17,316          485                             
Champion International Corp.    48,300        1,543                             
Fort James Corp.                99,395        4,007                             
International Paper Co.        133,632        6,206                             
Kimberly-Clark Corp.           233,313       11,257                             
Louisiana-Pacific Corp.         42,328          751                             
Mead Corp.                      55,719        1,762                             
Potlatch Corp.                   8,560          312                             
Temple Inland, Inc.             29,119        1,414                             
Union Camp Corp.                29,245        1,258                             
Westvaco Corp.                  53,813        1,325                             
Weyerhaeuser Co.                83,717        3,919                             
Willamette Industries, Inc.     54,832        1,700                             
             ---------
                35,939
             ---------

PRODUCER GOODS & MANUFACTURING -- 4.7%                                          
Aeroquip-Vickers, Inc.          10,459          329                             
Allied Signal, Inc.            236,582        9,212                             
Avery Dennison Corp.            47,515        1,969                             
Briggs & Stratton Corp.          8,153          383                             
Case Corp.                      30,156          663                             
Caterpillar, Inc.              157,286        7,078                             
Cooper Industries, Inc.         52,755        2,328                             
Corning, Inc.                   95,682        3,474                             
Deere & Co.                     98,027        3,468                             
Dover Corp.                    101,365        3,218                             
FMC Corp.+                      12,778          652                             
Foster Wheeler Corp.             9,485          151                             
General Electric Co.         1,382,340      120,955                             
Grainger (W.W.), Inc.           37,808        1,742                             
Harnischfeger Industries, Inc.  12,303          116                             

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SCHWAB S&P 500 FUND                                                             
SCHEDULE OF INVESTMENTS (continued)                                             
October 31, 1998                                                                

Number       Value
of Shares      (000s) 
---------    ---------

Illinois Tool Works, Inc.      103,921    $   6,664                             
Ingersoll Rand Co.              74,397        3,757                             
ITT Industries, Inc.            47,647        1,703                             
Johnson Controls, Inc.          40,175        2,260                             
McDermott International, Inc.   25,216          739                             
Millipore Corp.                 29,991          739                             
Nacco Industries, Inc.           3,117          287                             
Pall Corp.                      45,366        1,145                             
Parker-Hannifin Corp.           54,933        1,964                             
Raychem Corp.                   33,182        1,014                             
Tenneco, Inc.                   67,356        2,046                             
Timken Co.                      28,032          499                             
             ---------
               178,555
             ---------

RAILROAD & SHIPPING -- 0.5%                                                     
Burlington Northern Santa Fe                                                    
Corp.                        203,875        6,294                           
CSX Corp.                       89,955        3,531                             
Norfolk Southern Corp.         157,288        5,181                             
Union Pacific Corp.            102,216        4,868                             
             ---------
                19,874
             ---------
RETAIL -- 5.8%                                                                  
Albertson's, Inc.              102,813        5,713                             
American Stores Co.            122,569        3,991                             
AutoZone, Inc.                  65,715        1,729                             
Circuit City Stores, Inc.       41,906        1,516                             
Consolidated Stores Corp.+      37,000          608                             
CVS Corp.                      168,918        7,717                             
Dayton Hudson Corp.            183,510        7,776                             
Dillards, Inc., Class A         41,633        1,293                             
Dollar General Corp.            86,625        2,068                             
Federated Department                                                            
Stores, Inc.+                 97,637        3,753                           
Fred Meyer, Inc.+               65,600        3,497                             
Gap, Inc.                      163,090        9,806                             
Great Atlantic & Pacific                                                        
Tea Co., Inc.                 10,280          242                           
Home Depot, Inc.               623,250       27,111                             
J.C. Penney Co., Inc.          104,120        4,946                             
Kmart Corp. +                  220,017        3,108                             
Kohl's Corp.+                   72,000        3,442                             
Kroger Co.+                    104,931        5,824                             
Limited, Inc.                  104,667        2,682                             
Longs Drug Stores, Inc.         15,682          613                             
Lowe's Companies, Inc.         142,726        4,808                             
May Department Stores Co.      100,386        6,124                             
Nordstrom, Inc.                 60,322        1,648                             
Pep Boys-Manny, Moe & Jack      19,232          301                             

Number       Value
of Shares      (000s) 
---------    ---------

Price/Costco, Inc.+             94,144    $   5,343                             
Rite Aid Corp.                 112,914        4,481                             
Sears, Roebuck & Co.           168,918        7,591                             
Staples, Inc.+                 118,500        3,866                             
SUPERVALU, Inc.                 64,054        1,537                             
Tandy Corp.                     47,521        2,355                             
TJX Companies, Inc.            123,882        2,346                             
Toys "R" Us, Inc.+             118,496        2,318                             
Venator Group Inc.+             55,782          471                             
Wal-Mart Stores, Inc.          938,431       64,752                             
Walgreen Co.                   207,928       10,123                             
Winn Dixie Stores, Inc.         63,711        2,162                             
             ---------
               217,661
             ---------
STEEL -- 0.1%                                                                   
Allegheny Teledyne, Inc.        85,503        1,758                             
Armco, Inc.+                     7,124           34                             
Bethlehem Steel Corp.+          36,335          327                             
Nucor Corp.                     33,484        1,517                             
USX-U.S. Steel Group, Inc.      31,779          739                             
Worthington Industries, Inc.    29,002          393                             
             ---------
                 4,768
             ---------
TELEPHONE -- 7.9%                                                               
AirTouch Communications, Inc.+ 238,052       13,331                             
Alltel Corp.                   113,590        5,318                             
Ameritech Corp.                466,798       25,178                             
AMP, Inc.                       90,059        3,698                             
Andrew Corp.+                   34,788          570                             
AT&T Corp.                     761,994       47,434                             
Bell Atlantic Corp.            651,896       34,632                             
BellSouth Corp.                418,771       33,423                             
Frontier Corp.                  78,943        2,373                             
GTE Corp.                      402,198       23,604                             
MCI WorldCom, Inc.+            751,736       41,534                             
Nextel Communications, Inc.+   119,500        2,166                             
SBC Communications, Inc.       824,382       38,179                             
Sprint Corp.                   178,999       13,738                             
US West, Inc. (Media Group)    217,262       12,465                             
             ---------
               297,643
             ---------
TOBACCO -- 1.6%                                                                 
Fortune Brands, Inc.            66,858        2,210                             
Loew's Corp.                    48,040        4,513                             
Philip Morris                                                                   
Companies, Inc.            1,019,762       52,135                           
UST, Inc.                       84,284        2,866                             
             ---------
                61,724
             ---------

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of Shares      (000s) 
---------    ---------

TRAVEL & RECREATION -- 0.8%                                                     
Brunswick Corp.                 36,407    $     708                             
Harrah's Entertainment, Inc.+   31,711          448                             
Hilton Hotels Corp.            111,522        2,237                             
Marriott International, Inc.,                                                   
Class A                      117,532        3,159                           
Mirage Resorts, Inc.+           66,574        1,127                             
Walt Disney Co.                867,930       23,380                             
             ---------
                31,059
             ---------
TRUCKING & FREIGHT -- 0.0%                                                      
Ryder Systems, Inc.             29,062          716                             
             ---------
UTILITIES - ELECTRIC & GAS -- 3.2%                                              
AES Corp.+                      72,000        2,948                             
Ameren Corp.                    64,013        2,557                             
American Electric                                                               
Power Co., Inc.               79,295        3,881                           
Baltimore Gas & Electric Co.    58,608        1,839                             
Carolina Power & Light Co.      59,916        2,749                             
Central & South West Corp.      86,843        2,415                             
Cinergy Corp.                   62,129        2,143                             
Coastal Corp.                   95,642        3,371                             
Columbia Gas System, Inc.       33,774        1,955                             
Consolidated Edison, Inc.      102,591        5,142                             
Consolidated Natural Gas Co.    45,499        2,403                             
Dominion Resources, Inc.        88,488        4,087                             
DTE Energy Co.                  59,803        2,549                             
Duke Power Co.                 154,615       10,002                             
Edison International           142,929        3,770                             
Enron Corp.                    140,739        7,424                             
Entergy Corp.                   99,604        2,864                             
First Energy Corp.             100,581        3,017                             
FPL Group, Inc.                 80,680        5,048                             
GPU, Inc.                       50,352        2,171                             
Houston Industries, Inc.       119,186        3,702                             
Niagara Mohawk Power Corp.+     73,202        1,071                             
NICOR, Inc.                     18,201          771                             
Northern States Power Co.       70,108        1,893                             
PacifiCorp.                    118,419        2,257                             
PECO Energy Co.                 97,765        3,782                             
Peoples Energy Corp.            12,173          449                             
PG&E Corp.                     164,016        4,992                             
PP&L Resources, Inc.            74,145        2,011                             
Public Service Enterprise                                                       
Group, Inc.                  102,585        3,898                           
Sonat, Inc.                     54,779     $  1,661                             
Southern Co.                   290,831        8,198                             
Texas Utilities Co.            120,987        5,293                             
Unicom Corp.                    86,452        3,258                             
Williams Companies, Inc.       181,664        4,984                             
             ---------
               120,555
             ---------
TOTAL COMMON STOCK                                                              
(Cost $3,211,947)                       3,750,050                           
             ---------

Par             
(000s)            
---------             

U.S. TREASURY OBLIGATIONS (a)(b) -- 0.0%                                        

U.S. TREASURY BILLS                                                             
4.54%, 12/17/98              $  700          697                          
4.04%, 04/15/99                 275          270                          
             ---------
TOTAL U.S. TREASURY OBLIGATIONS                                                 
(Cost $966)                                   967                           
             ---------

Number            
of Shares             
---------             

SHORT-TERM INVESTMENTS -- 0.4%                                                  

Temporary Investment Fund, Inc.                                                 
Temporary Cash Portfolio                                                    
2.72%*, 11/06/98         14,696,000       14,696                          
             ---------
TOTAL SHORT-TERM INVESTMENTS                                                    
(Cost $14,696)                             14,696                           
             ---------
TOTAL INVESTMENTS -- 100.0%                                                     
(Cost $3,227,609)                       3,765,713                           
             ---------
OTHER ASSETS AND LIABILITIES -- 0.0%                                            
Other assets                             459,843                          
Liabilities                             (461,282)                         
             ---------
                 (1,439)
             ---------
TOTAL NET ASSETS -- 100.0%               $3,764,274                             
            ==========

SEE ACCOMPANYING NOTES TO SCHEDULES OF INVESTMENTS
AND NOTES TO FINANCIAL STATEMENTS.
                                                                              43

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SCHWAB 1000 FUND(R)                                                             
SCHEDULE OF INVESTMENTS                                                         
October 31, 1998                                                                

Number       Value
of Shares      (000s) 
---------    ---------
---------------------------------------------------                             
COMMON STOCK -- 99.8%                                                           
---------------------------------------------------                             
AEROSPACE/DEFENSE -- 1.4%                                                       
Boeing Co.                     474,052    $  17,777                             
Coltec Industries, Inc.+        18,200          304                             
Cordant Technologies, Inc.      14,200          578                             
General Dynamics Corp.          68,600        4,060                             
General Motors Corp., Class H   53,000        2,027                             
Gulfstream Aerospace Corp.+     35,000        1,549                             
Litton Industries, Inc.+        20,500        1,337                             
Lockheed Martin Corp.           93,592       10,424                             
Northrop Grumman Corp.          29,900        2,384                             
Raytheon Co., Class B          154,400        8,965                             
Sundstrand Corp.                24,600        1,155                             
Textron, Inc.                   75,400        5,608                             
United Technologies Corp.      111,400       10,611                             
             ---------
                66,779
             ---------
AIR TRANSPORTATION -- 0.5%                                                      
AMR Corp.+                      82,200        5,507                             
Comair Holdings, Inc.           38,000        1,249                             
Continental Airlines, Inc.,                                                     
Class B+                      33,400        1,324                           
Delta Air Lines, Inc.           35,200        3,716                             
FDX Corp.+                      73,680        3,873                             
Northwest Airlines Corp.,                                                       
Class A                       46,500        1,219                           
Southwest Airlines Co.         156,900        3,324                             
UAL Corp.+                      32,700        2,124                             
U.S. Airways Group, Inc.+       51,500        2,913                             
             ---------
                25,249
             ---------

ALCOHOLIC BEVERAGES -- 0.4%                                                     
Adolph Coors Co., Class B       28,000        1,400                             
Anheuser-Busch Companies, Inc. 231,800       13,778                             
Brown-Forman Corp., Class B     36,700        2,493                             
             ---------
                17,671
             ---------
APPAREL -- 0.3%                                                                 
Fruit of the Loom, Inc.,                                                        
Class A+                      26,300          401                           
Jones Apparel Group, Inc.+      57,200          987                             
Liz Claiborne, Inc.             32,000          940                             
Nike, Inc., Class B            135,600        5,924                             
Reebok International, Ltd.+     16,700          278                             
Unifi, Inc.                     21,925          370                             
V.F. Corp.                      63,100        2,638                             
Warnaco Group, Inc., Class A    28,600          731                             
Westpoint Stevens, Inc.+        34,000          967                             
             ---------
                13,236
             ---------

Number       Value
of Shares      (000s) 
---------    ---------

AUTOMOTIVE PRODUCTS/MOTOR VEHICLE -- 2.0%                                       
Bandag, Inc.                     8,800    $     311                             
BF Goodrich Co.                 38,400        1,382                             
Borg Warner Automotive, Inc.     9,200          431                             
Carlisle Companies, Inc.        16,000          618                             
Chrysler Corp.                 298,600       14,370                             
Cummins Engine Co., Inc.        14,800          505                             
Dana Corp.                      81,688        3,416                             
Danaher Corp.                   70,800        2,828                             
Eaton Corp.                     32,100        2,173                             
Federal-Mogul Corp.             23,000        1,246                             
Fleetwood Enterprises, Inc.     22,000          710                             
Ford Motor Co.                 574,500       31,167                             
General Motors Corp.           313,400       19,764                             
Genuine Parts Co.               80,575        2,538                             
Goodyear Tire & Rubber Co.      72,300        3,895                             
Harley-Davidson, Inc.           71,400        2,767                             
Lear Corp.+                     26,000          835                             
Meritor Automotive, Inc.        40,000          748                             
Navistar International Corp.+   21,000          438                             
Paccar, Inc.                    42,120        1,837                             
TRW, Inc.                       62,700        3,570                             
             ---------
                95,549
             ---------
BANKS -- 8.2%                                                                   
Amsouth Bancorp.                55,800        2,235                             
Associated Bancorp.             24,625          865                             
Bank of New York Co., Inc.     350,000       11,047                             
Bank One Corp.                 555,692       27,159                             
Bank United Corp., Class A       7,000          279                             
BankAmerica Corp.              831,006       47,731                             
BankBoston Corp.               141,040        5,192                             
Bankers Trust New York Corp.    47,940        3,011                             
BB & T Corp.                   130,500        4,657                             
CCB Financial Corp.             21,000        1,105                             
Centura Banks, Inc.             10,000          690                             
Chase Manhattan Corp.          418,460       23,774                             
City National Corp.             15,000          513                             
Colonial BancGroup, Inc.        40,000          522                             
Comerica, Inc.                  71,296        4,599                             
Commerce Bancshares, Inc.       28,992        1,263                             
Compass Bancshares, Inc.        36,275        1,335                             
Crestar Financial Corp.         58,600        3,860                             
Cullen/Frost Bankers, Inc.       8,600          458                             
Dime Bancorp, Inc.              49,926        1,189                             
Fifth Third Bancorp.           126,443        8,377                             
First American Corp. -                                                          
Tennessee                     50,086        2,066                           

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of Shares      (000s) 
---------    ---------

First Citizens BancShares,                                                      
Class A                        4,400    $     393                           
First Hawaiian, Inc.            10,000          399                             
First Security Corp.            92,627        1,893                             
First Tennessee National Corp.  52,600        1,667                             
First Union Corp.              470,822       27,308                             
First Virginia Banks, Inc.      24,625        1,124                             
Firstar Corp.                   69,000        3,916                             
Firstmerit Corp.                32,800          869                             
Fleet Financial Group, Inc.    272,960       10,901                             
Fulton Financial Corp.          41,250          851                             
Golden State Bancorp, Inc.+     34,000          652                             
Golden West Financial Corp.     29,900        2,712                             
Hibernia Corp., Class A         60,000        1,001                             
Huntington Bancshares Inc.      92,799        2,668                             
Imperial Bancorp.+               9,000          125                             
J.P. Morgan & Co., Inc.         84,000        7,917                             
KeyCorp, Inc.                  211,846        6,422                             
Keystone Financial, Inc.        30,000          877                             
M&T Bank Corp.                   4,600        2,293                             
Marshall & Ilsley Corp.         57,185        2,788                             
MBNA Corp.                     349,987        7,984                             
Mellon Bank Corp.              123,244        7,410                             
Mercantile Bancorp, Inc.        68,925        3,149                             
Mercantile Bankshares Corp.     30,675        1,001                             
National City Corp.            153,300        9,859                             
National Community Bancorp.     60,000        1,065                             
North Fork Bancorporation, Inc. 67,000        1,332                             
Northern Trust Corp.            54,900        4,049                             
Norwest Corp.                  366,576       13,632                             
Ocwen Financial Corp.+          30,000          360                             
Old Kent Financial Corp.        57,749        2,429                             
Old National Bancorp            17,875          917                             
Pacific Century Financial Corp. 40,350          822                             
People's Bank-Bridgeport+       25,400          649                             
Peoples Heritage Financial                                                      
Group, Inc.                   62,000        1,116                           
PNC Bank Corp.                 144,630        7,231                             
Regions Financial Corp.         98,765        3,654                             
Republic New York Corp.         47,800        1,999                             
Southtrust Corp.                77,787        2,839                             
Sovereign Bancorp, Inc.         48,000          630                             
Star Bank Corp.                 55,000        4,159                             
State Street Corp.              77,000        4,803                             
Summit Bancorp.                 86,850        3,295                             
SunTrust Banks, Inc.           101,300        7,059                             
Synovus Financial Corp.        122,962        2,851                             

Number       Value
of Shares      (000s) 
---------    ---------

TCF Financial Corp.             33,600    $     792                             
Trustmark Corp.                 44,000          844                             
U.S. Bancorp.                  355,798       12,987                             
U.S. Trust Corp.                 7,500          478                             
Union Planters Corp.            58,900        2,735                             
UnionBanCal Corp.               29,200        2,701                             
Valley National Bancorp.        35,000          945                             
Wachovia Corp.                  98,749        8,974                             
Washington Federal, Inc.        15,400          411                             
Washington Mutual, Inc.        296,447       11,098                             
Wells Fargo & Co.               41,500       15,355                             
Westamerica Bancorp.            16,800          559                             
Whitney Holdings Corp.           8,000          294                             
Wilmington Trust Co.            14,200          782                             
Zions Bancorp.                  46,600        2,473                             
             ---------
               384,425
             ---------
BUSINESS MACHINES & SOFTWARE -- 10.3%                                           
3Com Corp.+                    167,450        6,039                             
Adobe Systems, Inc.             31,800        1,181                             
Apple Computer, Inc.+           65,700        2,439                             
Autodesk, Inc.                  27,200          848                             
BMC Software, Inc.+            100,400        4,825                             
Cabletron Systems, Inc.+        82,000          933                             
Ceridian Corp.+                 30,700        1,761                             
Cisco Systems, Inc.+           752,725       47,422                             
Citrix Systems, Inc.+           16,050        1,138                             
Compaq Computer Corp.          805,768       25,482                             
Computer Associates                                                             
International, Inc.          263,662       10,382                           
Computer Horizons Corp.+        10,000          230                             
Compuware Corp.+                89,800        4,866                             
Dell Computer Corp.+           597,600       39,217                             
Diebold, Inc.                   25,818          805                             
Electronic Arts, Inc.+          30,400        1,250                             
EMC Corp.+                     232,800       14,986                             
Gateway 2000, Inc.+             71,000        3,963                             
Hewlett-Packard Co.            489,500       29,462                             
Honeywell, Inc.                 59,100        4,721                             
I2 Technologies, Inc.+          24,800          462                             
International Business                                                          
Machines Corp.               442,900       65,743                           
Intuit, Inc.+                   23,800        1,202                             
Iomega Corp.+                  118,000          634                             
Lexmark International Group,                                                    
Inc., Class A+                35,000        2,448                           

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SCHWAB 1000 FUND (R)                                                            
SCHEDULE OF INVESTMENTS (continued)                                             
October 31, 1998                                                                

Number       Value
of Shares      (000s) 
---------    ---------

Microchip Technology, Inc.+     30,000    $     812                             
Microsoft Corp.+             1,173,000      124,191                             
Netscape Communications                                                         
Corp.+                        45,898          984                           
Network Associates, Inc.+       65,050        2,765                             
Novell, Inc.+                  170,800        2,541                             
Oracle Systems Corp.+          459,962       13,598                             
Parametric Technology Corp.+   117,400        1,952                             
Peoplesoft, Inc.+               99,600        2,110                             
Pitney Bowes, Inc.             124,600        6,861                             
Platinum Technology, Inc.+      37,000          608                             
Policy Management Systems                                                       
Corp.+                        14,200          645                           
Quantum Corp.+                  95,400        1,669                             
Seagate Technology, Inc.+      112,060        2,956                             
Security Dynamics                                                               
Technologies, Inc.+           28,000          287                           
Siebel Systems, Inc.+           41,800          854                             
Silicon Graphics, Inc.+         73,700          829                             
Sterling Commerce, Inc.+        37,000        1,303                             
Sterling Software, Inc.+        47,600        1,247                             
Storage Technology Corp.+       60,800        2,033                             
Sun Microsystems, Inc.+        190,000       11,068                             
Synopsis, Inc.+                 38,800        1,755                             
Technology Data Corp.+          23,000          906                             
Unisys Corp.+                  129,800        3,456                             
Veritas Software Corp.+         28,500        1,429                             
Western Digital Corp.+          33,400          351                             
Xerox Corp.                    158,700       15,374                             
YAHOO! Inc.+                    53,400        6,987                             
             ---------
               482,010
             ---------
BUSINESS SERVICES -- 2.6%                                                       

ACNielsen Corp.+                35,000          936                             
Allied Waste Industries, Inc.+  70,000        1,514                             
America Online, Inc.           110,400       14,028                             
Apollo Group, Inc.+             42,500        1,365                             
Automatic Data Processing,                                                      
Inc.                         146,400       11,392                           
Browning-Ferris Industries,                                                     
Inc.                          91,200        3,232                           
Cadence Design Systems, Inc.+   89,750        1,918                             
Cambridge Technology                                                            
Partners, Inc.+               24,000          531                           
Cendant Corp.+                 382,259        4,372                             
Ciber, Inc.+                    16,400          322                             
Cintas Corp.                    47,200        2,525                             
Comdisco, Inc.                  66,066        1,020                             
Computer Sciences Corp.         74,196        3,914                             
Concentra Managed Care, Inc.+   33,000          338                             

Number       Value
of Shares      (000s) 
---------    ---------

Concord EFS, Inc.+              52,275    $   1,490                             
Corrections Corp. of America+   31,000          597                             
Deluxe Corp.                    46,000        1,489                             
DST Systems, Inc.+              30,000        1,500                             
Ecolab, Inc.                    52,800        1,577                             
Equifax, Inc.                   74,000        2,863                             
First Data Corp.               209,302        5,547                             
Fiserv, Inc.+                   40,462        1,882                             
Gartner Group, Inc., Class A+   38,400          763                             
Gtech Holdings Corp.+           15,700          377                             
H&R Block, Inc.                 48,700        2,182                             
IKON Office Solutions           61,400          579                             
IMS Health, Inc.                71,600        4,761                             
Integrated Health Services,                                                     
Inc.+                         28,000          453                           
Interpublic Group of Companies,                                                 
Inc.                          66,850        3,911                           
Keane, Inc.+                    30,000          998                             
Manpower, Inc.                  31,500          760                             
Medpartners, Inc.+              81,144          289                             
Modis Professional Services,                                                    
Inc.+                         50,000          881                           
National Service Industries,                                                    
Inc.                          16,700          599                           
NCR Corp.+                      44,451        1,495                             
Ogden Corp.                     20,000          538                             
Olsten Corp.                    22,275          205                             
Omnicom Group, Inc.             83,200        4,113                             
Paychex, Inc.                   83,130        4,136                             
PhyCor, Inc.+                   22,650          164                             
Quorum Health Group, Inc.+      39,650          575                             
R.H. Donnelley Corp.            13,920          195                             
R.R. Donnelley & Sons Co.       66,500        2,868                             
Republic Industries, Inc.+     201,700        3,240                             
Reynolds & Reynolds Co.,                                                        
Class A                       45,400          817                           
Robert Half International,                                                      
Inc.+                           49,650        1,992                             
Steris Corp.+                   26,400          607                             
Stewart Enterprises, Inc.       56,100        1,294                             
Sungard Data Systems, Inc.+     41,600        1,404                             
Sylvan Learning Systems, Inc.+  24,000          741                             
Symantec Corp.+                 30,000          480                             
Total Renal Care Holdings,                                                      
Inc.+                         35,000          858                           
Total System Services, Inc.     77,700        1,539                             
U.S. Office Products Co.+       13,625          105                             
Vencor, Inc.+                   27,775          128                             
Viad Corp.                      38,100        1,045                             
Wallace Computer Service, Inc.  23,800          521                             
Waste Management, Inc.         267,775       12,083                             
             ---------
               122,048
             ---------
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Number       Value
of Shares      (000s) 
---------    ---------

CHEMICAL -- 2.0%                                                                
Air Products & Chemicals, Inc. 112,200    $   4,236                             
Albemarle Corp.                 15,400          294                             
Arterial Vascular Engineering,                                                  
Inc.+                         24,200          744                           
Cabot Corp.                     37,800        1,061                             
Crompton & Knowles Corp.        22,000          353                             
Cytec Industries, Inc.+         13,755          330                             
Dow Chemical Co.               107,000       10,018                             
E. I. du Pont de Nemours & Co. 546,400       31,418                             
Eastman Chemical Co.            33,725        1,981                             
Great Lakes Chemical Corp.      21,700          903                             
Hercules, Inc.                  54,400        1,812                             
International Speciality                                                        
Products Inc.+                45,400          610                           
Lubrizol Corp.                  40,600        1,132                             
Lyondell Petrochemical Co.      36,300          613                             
M.A. Hanna, Co.                 10,725          157                             
Millennium Chemicals, Inc.      24,000          585                             
Minnesota Mining &                                                              
Manufacturing Co.            194,400       15,552                           
Morton International, Inc.      71,900        1,788                             
Nalco Chemical Co.              26,800          829                             
Olin Corp.                      20,000          554                             
PPG Industries, Inc.            78,700        4,501                             
Praxair, Inc.                   72,100        2,902                             
Rohm & Haas Co.                 90,900        3,068                             
RPM, Inc.                       44,843          754                             
Sigma-Aldrich Corp.             45,000        1,391                             
Solutia, Inc.                   55,000        1,207                             
Union Carbide Corp.             67,000        2,579                             
Valspar Corp.                   21,600          606                             
Witco Corp.                     25,900          487                             
W. R. Grace & Co.+              34,700          603                             
             ---------
                93,068
             ---------
CONSTRUCTION -- 0.4%                                                            
Armstrong World Industries, Inc.15,700          973                             
Centex Corp.                    23,000          770                             
Clayton Homes, Inc.             51,346          793                             
Crane Co.                       32,850          946                             
Fluor Corp.                     39,000        1,514                             
Georgia Pacific Timber Group    35,000          777                             
Global Industries, Inc.+        43,000          414                             
J. Ray McDermott, S.A.+         23,500          737                             
Johns Manville Corp.            84,300        1,106                             
Lafarge Corp.                   31,100        1,048                             
Martin Marietta Materials, Inc. 21,400        1,050                             

Number       Value
of Shares      (000s) 
---------    ---------

Oakwood Homes Corp.             14,000    $     221                             
Owens Corning                   18,300          665                             
Sherwin-Williams Co.            82,000        2,065                             
Southdown, Inc.                 24,200        1,317                             
The Stanley Works Co.           36,800        1,104                             
USG Corp.                       18,700          892                             
Vulcan Materials, Inc.          14,800        1,756                             
             ---------
                18,148
             ---------
CONSUMER - DURABLE -- 0.4%                                                      
Black & Decker Corp.            43,500        2,248                             
Leggett & Platt, Inc.           91,600        2,141                             
Masco Corp.                    162,800        4,589                             
Maytag Corp.                    42,800        2,116                             
Newell Co.                      76,674        3,374                             
Shaw Industries, Inc.           60,100        1,044                             
Snap-On, Inc.                   22,150          785                             
Sunbeam Corp.                   33,100          224                             
Whirlpool Corp.                 31,100        1,594                             
             ---------
                18,115
             ---------
CONSUMER - NONDURABLE -- 1.0%                                                   
American Greetings Corp.,                                                       
Class A                       29,200        1,172                           
CKE Restaurants, Inc.           27,000          710                             
Cracker Barrel Old Country                                                      
Store, Inc.                   20,900          541                           
Darden Restaurants, Inc.        63,600        1,049                             
Hasbro, Inc.                    64,725        2,269                             
Lancaster Colony Corp.          24,450          733                             
Mattel, Inc.                   134,220        4,815                             
McDonald's Corp.               327,200       21,882                             
Outback Steakhouse, Inc.+       31,250        1,082                             
Premark International, Inc.     37,300        1,182                             
Rubbermaid, Inc.                74,000        2,456                             
Starbucks Corp.+                35,500        1,540                             
Tricon Global Restaurants,                                                      
Inc.+                         74,760        3,252                           
U.S. Industries, Inc.           47,500          775                             
Wendy's International, Inc.     63,500        1,334                             
             ---------
                44,792
             ---------
CONTAINERS -- 0.2%                                                              
Bemis Co., Inc.                 21,400          794                             
Crown Cork & Seal Co., Inc.     55,600        1,772                             
Jefferson Smurfit Corp.+        51,900          594                             
Owens-Illinois, Inc.+           75,900        2,320                             
Sealed Air Corp.+               44,199        1,566                             
Sonoco Products                 42,141        1,196                             
             ---------
                 8,242
             ---------

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SCHWAB 1000 FUND(R)                                                             
SCHEDULE OF INVESTMENTS (continued)                                             
October 31, 1998                                                                

Number       Value
of Shares      (000s) 
---------    ---------

ELECTRONICS -- 5.3%                                                             
Adaptec, Inc.+                  45,400    $     735                             
ADC Telecommunications, Inc.+   65,400        1,504                             
Advanced Micro Devices, Inc.+   74,300        1,676                             
Altera Corp.+                   47,200        1,965                             
American Power Conversion                                                       
Corp.+                        51,500        2,186                           
AMP, Inc.                      103,300        4,242                             
Analog Devices, Inc.+           68,400        1,359                             
Applied Materials, Inc.+       179,400        6,223                             
Arrow Electronics, Inc.+        38,800          846                             
Ascend Communications, Inc.+    95,010        4,584                             
Atmel Corp.+                    30,200          349                             
Avnet, Inc.                     17,100          851                             
AVX Corp.                       26,000          461                             
Electronic Data Systems Corp.  230,800        9,391                             
Emerson Electric Co.           203,400       13,424                             
Fore Systems, Inc.+             48,400          756                             
General Instrument Corp.+       60,000        1,541                             
Harris Corp.                    36,600        1,283                             
Input/Output, Inc.+             20,000          177                             
Intel Corp.                    806,000       71,885                             
Jabil Circuit, Inc.+            18,000          834                             
KLA-Tencor Corp.+               37,400        1,379                             
Linear Technology Corp.         34,900        2,081                             
Loral Space and                                                                 
Communications Corp.+        115,000        2,178                           
LSI Logic Corp.+                65,100          985                             
Lucent Technologies, Inc.      636,454       51,036                             
Maxim Integrated Products,                                                      
Inc.+                         69,200        2,470                           
Micron Technology, Inc.+       104,500        3,971                             
Molex, Inc.                     70,257        2,507                             
Motorola, Inc.                 283,400       14,737                             
National Semiconductor Corp.+   69,300          879                             
Perkin Elmer Corp.              24,500        2,066                             
Pittway Corp., Class A          16,300          374                             
Qualcomm, Inc.+                 38,500        2,142                             
Rockwell International Corp.    94,600        3,885                             
Sanmina Corp.+                  15,800          648                             
SCI Systems, Inc.               38,000        1,501                             
Scientific-Atlanta, Inc.        24,700          369                             
Sensormatic Electronics Corp.+  35,250          198                             
Solectron Corp.+                60,600        3,469                             
Symbol Technologies, Inc.+      37,325        1,670                             
Tektronix, Inc.                 26,400          472                             
Tellabs, Inc.+                  95,000        5,225                             
Teradyne, Inc.+                 32,900        1,069                             
Texas Instruments, Inc.        193,600       12,378                             

Number       Value
of Shares      (000s) 
---------    ---------
Thermo Electron Corp.+          66,737    $   1,331                             
Thomas & Betts Corp.            34,400        1,537                             
Uniphase Corp.+                 20,000          990                             
Varian Associates, Inc.          9,300          364                             
Vishay Intertechnology, Inc.+   14,122          214                             
Vitesse Semiconductor Corp.+    35,000        1,129                             
Xilinx, Inc.+                   27,400        1,224                             
             ---------
               250,750
             ---------
ENERGY - RAW MATERIALS -- 0.9%                                                  
Anadarko Petroleum Corp.        66,200        2,243                             
Apache Corp.                    50,100        1,418                             
Baker Hughes, Inc.             140,020        3,089                             
BJ Services Co.+                36,000          736                             
Burlington Resources, Inc.      88,467        3,644                             
Cooper Cameron Corp.+           35,000        1,216                             
Devon Energy Corp.              10,000          339                             
Diamond Offshore Drilling, Inc. 56,600        1,737                             
Dynegy, Inc.                    56,000          840                             
Enron Oil & Gas                 57,800          965                             
Ensco International, Inc.       52,800          710                             
Global Marine, Inc.+            69,500          860                             
Halliburton Co.                200,460        7,204                             
Helmerich & Payne, Inc.         20,000          476                             
Mitchell Energy & Development                                                   
Corp., Class A                28,000          390                           
Nabors Industries, Inc.+        41,100          760                             
National-Oilwell, Inc.+         25,000          397                             
Noble Affiliates, Inc.          27,400          897                             
Noble Drilling Corp.+           55,000          945                             
Occidental Petroleum Corp.     174,900        3,476                             
ONEOK, Inc.                     10,000          343                             
Pioneer Natural Resources Co.   29,400          443                             
Rowan Companies, Inc.+          44,500          648                             
Tidewater, Inc.                 27,000          764                             
Transocean Offshore, Inc.       51,000        1,884                             
Union Pacific Resources Group  107,588        1,399                             
Varco International, Inc.+      26,000          281                             
Vastar Resources, Inc.          49,800        2,381                             
Weatherford International,                                                      
Inc.+                         47,930        1,303                           
             ---------
                41,788
             ---------

FOOD & AGRICULTURE -- 5.0%                                                      
Archer Daniels Midland Co.     281,258        4,694                             
Bestfoods, Inc.                141,400        7,706                             
Campbell Soup Co.              218,400       11,643                             
Coca-Cola Co.                1,173,100       79,331                             

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of Shares      (000s) 
---------    ---------

Coca-Cola Enterprises, Inc.    199,600    $   7,198                             
ConAgra, Inc.                  230,848        7,026                             
Dean Foods Co.                  21,150          991                             
Dekalb Genetics Corp., Class B  18,000        1,649                             
Dole Food Co., Inc.             23,100          696                             
Flowers Industries, Inc.        47,500          974                             
General Mills, Inc.             71,100        5,226                             
H.J. Heinz Co.                 174,600       10,149                             
Hershey Foods Corp.             73,100        4,957                             
Hormel Foods Corp.              34,100        1,110                             
IBP, Inc.                       31,400          850                             
IMC Global, Inc.                47,360        1,231                             
Interstate Bakeries Corp.       37,200          932                             
Kellogg Co.                    198,800        6,560                             
McCormick & Co., Inc.           33,400        1,038                             
Monsanto Co.                   291,500       11,842                             
Nabisco Holdings Corp.,                                                         
Class A                       26,000          982                           
PepsiCo, Inc.                  695,600       23,477                             
Pioneer-Hi-Bred                                                                 
International, Inc.          123,500        3,458                           
Quaker Oats Co.                 66,600        3,934                             
Ralston Purina Group           153,300        5,116                             
Rexall Sundown, Inc.+           26,000          466                             
Richfood Holdings, Inc.         12,750          226                             
RJR Nabisco Holdings Corp.     151,736        4,334                             
Sara Lee Corp.                 223,100       13,316                             
Smithfield Foods, Inc.+          8,000          157                             
Suiza Foods Corp.+              11,300          369                             
SYSCO Corp.                    149,400        4,025                             
Tyson Foods, Inc., Class A     119,300        2,744                             
U.S. Foodservice, Inc.+         30,000        1,425                             
Universal Corp.                 19,500          724                             
Whitman Corp.                   41,900          898                             
Wm. Wrigley Jr. Co.             54,000        4,371                             
             ---------
               235,825
             ---------
GOLD -- 0.1%                                                                    
Battle Mountain Gold Co.        66,000          359                             
Homestake Mining Co.            87,800        1,043                             
Newmont Mining Corp.           172,996        3,676                             
             ---------
                 5,078
             ---------
HEALTHCARE/DRUGS & MEDICINE -- 12.0%                                            
Abbott Laboratories            733,400       34,424                             
Allegiance Corp.                59,840        2,225                             
Allergan, Inc.                  35,700        2,229                             
ALZA Corp.+                     42,600        2,039                             
American Home Products Corp.   631,600       30,790                             

Number       Value
of Shares      (000s) 
---------    ---------

Amgen, Inc.+                   117,200    $   9,208                             
Bausch & Lomb, Inc.             20,800          867                             
Baxter International, Inc.     134,000        8,032                             
Becton, Dickinson & Co.        120,200        5,063                             
Bergen Brunswig Corp.           39,353        1,921                             
Beverly Enterprises, Inc.+      48,400          327                             
Biogen, Inc.+                   34,300        2,384                             
Biomet, Inc.                    48,900        1,660                             
Boston Scientific Corp.+        93,471        5,088                             
Bristol-Meyers Squibb Co.      478,700       52,926                             
C.R. Bard, Inc.                 33,600        1,434                             
Cardinal Health, Inc.           63,113        5,968                             
Centocor, Inc.+                 30,600        1,362                             
Chiron Corp.+                   94,612        2,129                             
Columbia / HCA Healthcare                                                       
Corp.                        299,258        6,284                           
Dentsply International, Inc.+   18,000          463                             
Depuy, Inc.+                    40,000        1,400                             
Dura Pharmaceuticals, Inc.+     19,000          229                             
Eli Lilly & Co.                518,168       41,939                             
First Health Group Corp.+       40,000          922                             
Forest Laboratories, Inc.+      31,200        1,305                             
Fresenius National                                                              
Medical, Inc., Class D+         24,900            1                             
Genetech, Inc.+                 62,500        4,477                             
Genzyme Corp.                                                                   
(General Division)+           43,800        1,842                           
Guidant Corp.                   77,136        5,901                             
HBO & Co.                      208,400        5,470                             
Hcr Manor Care, Inc.+           48,600        1,580                             
Health Management Associates,                                                   
Inc., Class A+               118,128        2,104                           
Healthsouth Corp.+             194,200        2,355                             
Humana, Inc.+                   68,500        1,297                             
ICN Pharmaceuticals, Inc.       25,650          600                             
Immunex Corp.+                  15,400        1,064                             
Johnson & Johnson              647,300       52,755                             
Lincare Holdings, Inc.+         22,000          879                             
Mallinckrodt, Inc.              25,600          730                             
McKesson Corp.                  49,000        3,773                             
Medtronic, Inc.                231,200       15,028                             
Merck & Co., Inc.              572,554       77,438                             
Mylan Laboratories, Inc.        49,550        1,706                             
Omnicare, Inc.                  37,900        1,310                             
Pacificare Health Systems, Inc.,                                                
Class B+                      21,164        1,667                           
Pfizer, Inc.                   624,800       67,049                             
Quintiles Transnational                                                         
Corp.+                        32,000        1,448                           
Safeskin Corp.+                 20,400          451                             

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SCHWAB 1000 FUND(R)                                                             
SCHEDULE OF INVESTMENTS (continued)                                             
October 31, 1998                                                                

Number       Value
of Shares      (000s) 
---------    ---------
Schering-Plough Corp.          347,300    $  35,728                             
Service Corp. International    121,400        4,325                             
Shared Medical Systems Corp.     9,700          484                             
Sofamor/Danek Group, Inc.+       9,700          986                             
St. Jude Medical, Inc.+         46,450        1,312                             
Stryker Corp.                   51,600        2,164                             
Sybron International Corp.      59,600        1,475                             
Tenet Healthcare Corp.+        152,373        4,257                             
United Healthcare Corp.         85,400        3,720                             
Universal Health Services,                                                      
Class B+                      10,000          513                           
Ventas, Inc.+                   27,775          318                             
Warner Lambert Co.             398,200       31,209                             
Watson Pharmaceuticals, Inc.+   47,000        2,614                             
Wellpoint Health Networks,                                                      
Inc.+                         41,925        3,087                           
             ---------
               565,735
             ---------

HOUSEHOLD PRODUCTS -- 2.3%                                                      
Alberto-Culver Co., Class B     18,700          498                             
Avon Products, Inc.            124,400        4,937                             
Clorox Co.                      47,900        5,233                             
Colgate-Palmolive Co.          147,100       13,000                             
Dial Corp.                      45,100        1,243                             
Estee Lauder Companies, Inc.,                                                   
Class A                       26,000        1,704                           
Gillette Co.                   533,410       23,970                             
International Flavors &                                                         
Fragrances, Inc.              43,500        1,628                           
Procter & Gamble Co.           633,200       56,276                             
Tupperware Corp.                28,700          447                             
             ---------
               108,936
             ---------
INSURANCE -- 4.4%                                                               
20th Century Industries         55,000        1,351                             
Aetna, Inc.                     71,365        5,326                             
AFLAC, Inc.                    128,850        4,912                             
Alleghany Corp.+                 2,953          560                             
Allmerica Financial Corp.       40,216        2,011                             
Allstate Corp.                 398,448       17,158                             
AMBAC Financial Group, Inc.     32,800        1,908                             
American Bankers Insurance                                                      
Group, Inc.                   24,200        1,081                           
American General Corp.         117,493        8,048                             
American International Group,                                                   
Inc.                         505,555       43,099                           
American National                                                               
Insurance Co.                 10,300          865                           
Aon Corp.                       86,675        5,374                             
Chubb Corp.                     83,700        5,147                             
CIGNA Corp.                    112,200        8,184                             
Cincinnati Financial Corp.      73,614        2,747                             
CMAC Investment Corp.            8,700          364                             

Number       Value
of Shares      (000s) 
---------    ---------
CNA Financial Corp.+            96,200    $   4,004                             
Conseco, Inc.                  149,296        5,179                             
Equitable Companies, Inc.      103,100        5,052                             
Erie Indemnity Co., Class A     40,000        1,030                             
Everest Reinsurance Holdings,                                                   
Inc.                          31,000        1,068                           
Financial Security Assurance                                                    
Holdings, Ltd.                18,000          897                           
Foundation Health Systems, Inc.,                                                
Class A+                      45,760          538                           
Fremont General Corp.           12,800          632                             
General Re Corp.                35,700        7,843                             
Hartford Financial Services                                                     
Group, Inc.                  105,200        5,589                           
Horace Mann Educators Corp.     30,000          859                             
Jefferson-Pilot Corp.           53,725        3,264                             
Leucadia National Corp.         30,000          919                             
Liberty Financial Corp.         26,500          666                             
Lincoln National Corp.          43,900        3,331                             
Marsh & McLennan Companies,                                                     
Inc.                         119,700        6,643                           
MBIA, Inc.                      62,000        3,790                             
Mercury General Corp.           39,400        1,674                             
MGIC Investment Corp.           57,400        2,239                             
Ohio Casualty Corp.             17,300          653                             
Old Republic International                                                      
Corp.                         61,275        1,164                           
Orion Capital Corp.              8,000          273                             
Oxford Health Plans, Inc.+      29,900          353                             
PMI Group, Inc.                 12,600          635                             
Progressive Corp.               33,900        4,992                             
Protective Life Corp.           27,600        1,023                             
Provident Companies, Inc.       91,992        2,673                             
Provident Financial Group, Inc. 19,200          740                             
Reliance Group Holdings, Inc.   64,000          892                             
Reliastar Financial Corp.       52,000        2,278                             
SAFECO Corp.                    64,600        2,798                             
St. Paul Companies, Inc.       120,754        4,000                             
SunAmerica, Inc.                94,650        6,673                             
TIG Holdings, Inc.              16,300          227                             
Torchmark Corp.                 64,700        2,831                             
Transamerica Corp.              32,500        3,380                             
Transatlantic Holdings, Inc.    26,000        2,028                             
Travelers Property Casualty Corp.,                                              
Class A                       35,000        1,074                           
United Insurance Companies,                                                     
Inc.+                         12,000          177                           
Unitrin, Inc.                   24,500        1,742                             
UNUM Corp.                      68,516        3,045                             
W.R. Berkley Corp.               7,000          211                             
Wesco Financial Corp.            2,800          944                             
             ---------
               208,158
             ---------

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Number       Value
of Shares      (000s) 
---------    ---------

MEDIA -- 3.2%                                                                   
A. H. Belo Corp., Class A       52,000    $     946                             
BHC Communications, Inc.,                                                       
Class A                       11,700        1,381                           
Cablevision Systems Corp.,                                                      
Class A+                      61,600        2,972                           
CBS Corp.                      329,807        9,214                             
Central Newspapers, Inc.,                                                       
Class A                        8,500          559                           
Chancellor Media Corp.+         61,000        2,341                             
Chris-Craft Industries, Inc.+   12,556          560                             
Clear Channel Communications,                                                   
Inc.+                        111,002        5,058                           
Comcast Corp., Class A         170,688        8,428                             
Cox Communications, Inc.+      124,306        6,821                             
Dow Jones & Co., Inc.           46,000        2,107                             
Gannett Co., Inc.              131,600        8,143                             
Harcourt General, Inc.          30,200        1,470                             
Harte-Hanks Communications,                                                     
Inc.                          38,200          929                           
Heftel Broadcasting Corp.+      23,000          946                             
Hollinger International, Inc.   35,000          455                             
King World Productions, Inc.+   38,000          997                             
Knight-Ridder, Inc.             32,600        1,661                             
Lee Enterprises, Inc.           22,000          598                             
McGraw-Hill Companies, Inc.     50,200        4,515                             
Mediaone Group+                289,700       12,258                             
Meredith Corp.                  36,000        1,332                             
New York Times Co., Class A     94,026        2,656                             
Outdoor Systems, Inc.+          90,500        1,997                             
Primedia, Inc.+                 63,000          681                             
Pulitzer Publishing Co.         13,066        1,032                             
Reader's Digest Association.,                                                   
Inc., Class A                 42,800          931                           
Scripps, (E.W.) Co., Class A    51,675        2,287                             
Snyder Communications, Inc.+    30,000        1,071                             
Telecommunications, Inc.,                                                       
Class A (Liberty Media Group)+ 162,193        6,173                             
Telecommunications, Inc.,                                                       
Class A (TCI Group)+         245,559       10,344                           
Time Warner, Inc.              292,955       27,190                             
Times Mirror Co., Class A       37,000        2,051                             
Tribune Co.                     59,400        3,423                             
USA Networks, Inc.+             58,200        1,309                             
Valassis Communications,                                                        
Inc.+                         25,000          997                           
Viacom, Inc., Class B+         166,026        9,941                             
Washington Post Co.              4,300        2,283                             
             ---------
               148,057
             ---------
MISCELLANEOUS FINANCE -- 5.5%                                                   
A.G. Edwards & Sons, Inc.       42,843        1,481                             
American Express Co.           217,400       19,213                             

Number       Value
of Shares      (000s) 
---------    ---------

American Financial Group, Inc.  24,100    $     845                             
Associates First Capital Corp. 164,601       11,604                             
Astoria Financial Corp.         29,750        1,279                             
Bear Stearns Co., Inc.          54,138        1,932                             
Berkshire Hathaway, Inc.,                                                       
Class A+                         579       37,345                           
Capital One Financial Corp.     33,000        3,358                             
Charles Schwab Corp.           121,250        5,812                             
Charter One Financial, Inc.     70,835        1,944                             
CheckFree Holdings Corp.+       31,000          487                             
Citigroup, Inc.              1,083,783       51,006                             
Contifinancial Corp.+           30,000          223                             
Countrywide Credit Industries,                                                  
Inc.                          50,985        2,202                           
Donaldson, Lufkin & Jenrette,                                                   
Inc.                          61,600        2,202                           
Dun & Bradstreet Corp.         104,600        2,968                             
Fannie Mae                     495,000       35,052                             
Finova Group, Inc.              21,700        1,058                             
FIRSTPLUS Financial Group,                                                      
Inc.+                         23,000          102                           
Franklin Resources, Inc.       112,600        4,258                             
Freddie Mac                    324,400       18,653                             
GATX Corp.                      19,000          656                             
GreenPoint Financial Corp.      52,800        1,733                             
Household International, Inc.  226,298        8,274                             
Legg Mason, Inc.                32,000          850                             
Lehman Brothers Holdings, Inc.  55,880        2,120                             
Merrill Lynch & Co., Inc.      166,600        9,871                             
Morgan Stanley, Dean Witter,                                                    
Discover & Co.               280,405       18,156                           
PaineWebber Group, Inc.         58,687        1,962                             
Providian Financial Corp.       41,900        3,326                             
Raymond James Financial, Inc.   12,000          275                             
Sudent Loan Marketing                                                           
Association                   90,350        3,620                           
T. Rowe Price Associates, Inc.  48,400        1,721                             
United Asset Management Co.     38,400          931                             
             ---------
               256,519
             ---------
NON-FERROUS METALS -- 0.3%                                                      
Aluminum Company of America     92,685        7,345                             
Cyprus Amax Minerals Co.        31,200          388                             
Engelhard Corp.                 69,687        1,463                             
Freeport-McMoran Copper & Gold,                                                 
Inc., Class B                 88,894        1,095                           
Phelps Dodge Corp.              32,700        1,884                             
Reynolds Metals Co.             38,800        2,326                             
             ---------
                14,501
             ---------

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SCHWAB 1000 FUND(R)                                                             
SCHEDULE OF INVESTMENTS (continued)                                             
October 31, 1998                                                                

                                                    Number         Value
                                                   of Shares        (000s)
                                                     ---------      ----------
OIL - DOMESTIC -- 0.8%                                                          
Amerada Hess Corp.                                      40,100          $ 2,215 
Ashland, Inc.                                           41,000            1,973 
Atlantic Richfield Co.                                 154,200           10,620 
Kerr-McGee Corp.                                        18,400              734 
Murphy Oil Corp.                                        22,370              924 
Oryx Energy Co.+                                        41,200              577 
Pennzoil Co.                                            23,800              854 
Phillips Petroleum Co.                                 123,700            5,350 
Pride International, Inc.+                              10,000              116 
Sun, Inc.                                               51,900            1,781 
Tosco Corp.                                             85,600            2,402 
Ultramar Diamond Shamrock Corp.                         50,700            1,366 
Unocal Corp.                                           120,534            4,091 
USX-Marathon Group                                     141,000            4,609 
Valero Energy Corp.                                     19,600              490 
                                                                     ---------
                                                                        38,102
                                                                     ---------
OIL - INTERNATIONAL -- 3.8%                                                     
Amoco Corp.                                            464,100           26,048 
Chevron Corp.                                          309,400           25,216 
Exxon Corp.                                          1,160,400           82,679 
Mobil Corp.                                            380,500           28,799 
Texaco, Inc.                                           253,509           15,036 
                                                                     ---------
                                                                       177,778
                                                                     ---------
OPTICAL & PHOTO -- 0.3%                                                         
Eastman Kodak Co.                                      155,300           12,036 
Polaroid Corp.                                          18,200              483 
                                                                     ---------
                                                                        12,519
                                                                     ---------
PAPER & FOREST PRODUCTS -- 1.0%                                                 
Boise Cascade Corp.                                     23,000              644 
Bowater, Inc.                                           35,700            1,457 
Champion International Corp.                            38,500            1,230 
Consolidated Papers, Inc.                               34,800              837 
Fort James Corp.                                       118,100            4,761 
Georgia-Pacific Group                                   50,800            2,629 
International Paper Co.                                148,100            6,877 
Kimberly-Clark Corp.                                   255,660           12,336 
Louisiana-Pacific Corp.                                 66,500            1,180 
Mead Corp.                                              51,800            1,638 
Potlatch Corp.                                           9,300              339 
Rayonier, Inc.                                          13,875              544 
St. Joe Co.                                             43,300            1,037 
Temple Inland, Inc.                                     21,900            1,064 

                                                    Number         Value
                                                   of Shares        (000s)
                                                     ---------      ----------

Union Camp Corp.                                        26,900          $ 1,157 
Westvaco Corp.                                          43,300            1,066 
Weyerhaeuser Co.                                       102,000            4,775 
Willamette Industries, Inc.                             52,000            1,612 
                                                                       -------
                                                                        45,183
                                                                       -------

PRODUCER GOODS & MANUFACTURING -- 4.6%                                          
Aeroquip-Vickers, Inc.                                  10,900              343 
AGCO, Inc.                                              19,600              186 
Allied Signal, Inc.                                    261,800           10,194 
American Standard Corp.+                                35,500            1,134 
AMF Bowling, Inc.+                                      30,000              129 
Avery Dennison Corp.                                    51,800            2,147 
Blyth Industries, Inc.+                                 15,000              414 
Briggs & Stratton Corp.                                 16,300              766 
Case Corp.                                              33,900              746 
Caterpillar, Inc.                                      175,600            7,902 
Cooper Industries, Inc.                                 60,700            2,678 
Corning, Inc.                                          106,800            3,878 
Corporate Express, Inc.+                                34,350              402 
Deere & Co.                                            107,200            3,792 
Dover Corp.                                            109,200            3,467 
FMC Corp.+                                              14,200              725 
General Electric Co.                                 1,551,100          135,721 
Harnischfeger Industries, Inc.                          22,500              212 
Harsco Corp.                                            14,800              485 
Henry Schein, Inc.                                      24,000              929 
Herman Miller, Inc.                                     35,600              785 
Hillenbrand Industries, Inc.                            37,000            2,190 
Hon Industries, Inc.                                    23,800              504 
Hubbell, Inc., Class B                                  26,938            1,074 
Illinois Tool Works, Inc.                              120,200            7,708 
Ingersoll-Rand Co.                                      80,550            4,068 
ITT Industries, Inc.                                    50,600            1,809 
Johnson Controls, Inc.                                  40,600            2,284 
Kennametal, Inc.                                        10,200              212 
Mark IV Industries, Inc.                                15,405              237 
McDermott International, Inc.                           31,000              909 
Millipore Corp.                                         12,400              305 
Pall Corp.                                              60,233            1,521 
Parker-Hannifin Corp.                                   49,375            1,765 
Pentair, Inc.                                           21,200              798 
Precision Castparts Corp.                                9,400              414 
Raychem Corp.                                           30,800              941 
Sanmina Corp.                                           15,800              648 
Smith International, Inc.+                              17,000              611 
Teleflex, Inc.                                          25,000              967 
Tenneco, Inc.                                           85,500            2,597 

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                                                    Number         Value
                                                   of Shares        (000s)
                                                     ---------      ----------
Thermo Instrument Systems, Inc.+                        52,171         $    636 
Timken Co.                                              18,600              331 
Trinity Industries, Inc.+                               27,950            1,038 
U.S. Filter Corp.+                                      70,000            1,483 
Ucar International, Inc.+                               14,000              252 
W.W Grainger., Inc.                                     43,600            2,008 
York International Corp.                                23,400              880 
                                                                      --------
                                                                       215,225
                                                                      --------
RAILROAD & SHIPPING -- 0.5%                                                     
Alexander & Baldwin, Inc.                               21,700              441 
Burlington Northern Santa Fe Corp.                     234,753            7,248 
CSX Corp.                                              109,700            4,306 
Kansas City Southern Industries, Inc.                   44,100            1,703 
Norfolk Southern Corp.                                 186,100            6,130 
Union Pacific Corp.                                    114,761            5,465 
Wisconsin Central                                                               
 Transportation Corp.+                                 12,900              195
                                                                      --------
                                                                        25,488
                                                                      --------
REAL PROPERTY -- 0.0%                                                           
Catellus Development Corp.+                             45,000              619 
Rouse Co.                                               22,500              631 
                                                                      --------
                                                                         1,250
                                                                      --------
RETAIL -- 6.0%                                                                  
Albertson's, Inc.                                      121,200            6,734 
American Stores Co.                                    138,400            4,507 
AutoZone, Inc.+                                         72,000            1,894 
Barnes & Noble, Inc.+                                   30,000              979 
Bed, Bath & Beyond, Inc.+                               79,600            2,194 
Best Buy Co., Inc.+                                     49,800            2,390 
Borders Group, Inc.+                                    52,000            1,319 
Circuit City Stores, Inc.                               58,800            2,128 
CompUSA, Inc.+                                          36,000              499 
Consolidated Stores Corp.+                              45,312              745 
CVS Corp.                                              177,914            8,128 
Dayton Hudson Corp.                                    204,000            8,644 
Dillards, Inc., Class A                                 62,200            1,932 
Dollar General Corp.                                    95,213            2,273 
Dollar Tree Stores, Inc.+                               27,000            1,041 
Family Dollar Stores, Inc.                             139,500            2,528 
Fastenal Co.                                             9,700              350 
Federated Department Stores, Inc.+                    105,200            4,044  
Food Lion, Inc., Class A                               205,450            2,260 
Fred Meyer, Inc.+                                       71,390            3,806 
Gap, Inc.                                              181,000           10,883 

                                                    Number         Value
                                                   of Shares        (000s)
                                                     ---------      ----------
General Nutrition Companies, Inc.+                      39,600         $    577 
Hannaford Bros. Co., Inc.                               28,300            1,240 
Home Depot, Inc.                                       692,898           30,141 
International Game Technology                           58,600            1,322 
Intimate Brands, Inc.                                  120,000            2,685 
J.C. Penney Co., Inc.                                  125,800            5,976 
Kmart Corp.+                                           215,700            3,047 
Kohl's Corp.+                                           70,800            3,385 
Kroger Co.+                                            116,400            6,460 
Limited, Inc.                                          114,819            2,942 
Longs Drug Stores, Inc.                                 28,000            1,094 
Lowe's Companies, Inc.                                 158,600            5,343 
May Department Stores Co.                              112,900            6,887 
Neiman-Marcus Group, Inc.+                              30,000              664 
Nordstrom, Inc.                                         73,800            2,016 
Office Depot, Inc.+                                    124,500            3,113 
Officemax, Inc.+                                        56,100              512 
Payless Shoesource, Inc.+                               19,600              920 
Pep Boys-Manny, Moe & Jack                              13,700              214 
Pier 1 Imports, Inc.                                    52,500              486 
Planet Hollywood International Inc.+                    25,000              100 
Price/Costco, Inc.+                                    105,704            5,999 
Rite Aid Corp.                                         126,300            5,013 
Ross Stores, Inc.                                       16,000              520 
Safeway, Inc.+                                         235,080           11,240 
Saks Holdings, Inc.+                                    63,340            1,441 
Sears, Roebuck & Co.                                   185,100            8,318 
Staples, Inc.+                                         137,907            4,499 
SUPERVALU, Inc.                                         71,600            1,718 
Tandy Corp.                                             51,116            2,533 
Tiffany & Co., Inc+                                     10,000              323 
TJX Companies, Inc.                                    154,400            2,924 
Toys "R" Us, Inc.+                                     125,480            2,455 
Venator Group, Inc.+                                    49,000              413 
Wal-Mart Stores, Inc.                                1,064,500           73,451 
Walgreen Co.                                           227,400           11,072 
Weis Markets, Inc.                                      23,900              857 
Whole Foods Market, Inc.+                               14,000              561 
Winn Dixie Stores, Inc.                                 62,300            2,114 
                                                                       -------
                                                                       283,853
                                                                       -------
STEEL -- 0.1%                                                                   
Allegheny Teledyne, Inc.                                83,280            1,713 
Nucor Corp.                                             45,100            2,044 
USX-U.S. Steel Group, Inc.                              42,160              980 
Worthington Industries, Inc.                            46,700              633 
                                                                       -------
                                                                         5,370
                                                                       -------

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SCHWAB 1000 FUND(R)                                                             
SCHEDULE OF INVESTMENTS (continued)                                             
October 31, 1998                                                                
                                                    Number         Value
                                                   of Shares        (000s)
                                                     ---------      ----------
TELEPHONE -- 7.4%                                                               
Advanced Fibre Communications,                                                  
 Inc.+                                                 40,000        $     387
AirTouch Communications, Inc.+                         276,200           15,467 
Alltel Corp.                                           123,707            5,791 
Ameritech Corp.                                        524,600           28,296 
Andrew Corp.+                                           25,612              419 
AT&T Corp.                                             856,966           53,346 
Bell Atlantic Corp.                                    735,886           39,094 
BellSouth Corp.                                        475,500           37,951 
Century Telephone Enterprises, Inc.                     43,125            2,450 
Cincinnati Bell, Inc.                                   66,800            1,733 
COMSAT Corp.                                            32,000            1,262 
Excel Communications, Inc.+                             60,000            1,444 
Frontier Corp.                                          87,450            2,629 
GTE Corp.                                              453,400           26,609 
Jacor Communications, Inc.,                                                     
 Class A+                                              28,300            1,557
MCI WorldCom, Inc.+                                    850,652           46,999 
McLeodUSA, Inc., Class A+                               30,000            1,097 
Nextel Communications, Inc.+                           141,100            2,557 
Omnipoint Corp.+                                        10,000               93 
Pairgain Technologies, Inc.+                            29,000              238 
Qwest Communications                                                            
 International, Inc.+                                  45,477            1,779
SBC Communications, Inc.                               946,881           43,852 
Skytel Communications, Inc.+                            30,000              497 
Sprint Corp.                                           199,334           15,299 
Tel-Save Holdings, Inc.+                                26,000              233 
Telephone & Data Systems, Inc.                          35,100            1,400 
U.S. Cellular Corp.+                                    53,800            1,970 
US West Inc. (Media Group)                             240,265           13,785 
                                                                     ---------
                                                                       348,234
                                                                     ---------

TOBACCO -- 1.5%                                                                 
Fortune Brands, Inc.                                    81,300            2,688 
Loew's Corp.                                            55,000            5,167 
Philip Morris Companies, Inc.                        1,160,100           59,311 
UST, Inc.                                               80,200            2,727 
                                                                     ---------
                                                                        69,893
                                                                     ---------

TRAVEL & RECREATION -- 0.8%                                                     
Brunswick Corp.                                         38,900              756 
Callaway Golf Co.                                       31,000              337 
Central Parking Corp.                                   10,000              420 
Circus Circus Enterprises, Inc.+                        40,400              452 
Extended Stay America, Inc.+                            20,400              196 

                                                    Number         Value
                                                   of Shares        (000s)
                                                     ---------      ----------
Harrah's Entertainment, Inc.+                           47,100        $     665 
Hilton Hotels Corp.                                    116,200            2,331 
Marriott International, Inc., Class A                  118,600            3,187 
Mirage Resorts, Inc.+                                   69,100            1,171 
Promus Hotel Corp.+                                     35,060            1,118 
Walt Disney Co.                                        977,721           26,337 
                                                                     ---------
                                                                        36,970
                                                                     ---------
TRUCKING & FREIGHT -- 0.1%                                                      
Airborne Freight Corp.                                  19,200              450 
CNF Transportation, Inc.                                35,000            1,059 
Pittston Brink's Group                                  29,900              890 
Ryder Systems, Inc.                                     33,800              832 
                                                                       -------
                                                                         3,231
                                                                       -------
UTILITIES - ELECTRIC & GAS -- 4.2%                                              
AES Corp.+                                              90,318            3,697 
Allegheny Energy, Inc.                                  62,100            1,910 
Ameren Corp.                                            67,130            2,681 
American Electric Power Co., Inc.                       93,200            4,561 
American Water Works Co., Inc.                          34,600            1,105 
Baltimore Gas & Electric Co.                            78,150            2,452 
BEC Energy                                              32,900            1,306 
CalEnergy Co., Inc.+                                    45,000            1,232 
Carolina Power & Light Co.                              80,500            3,693 
Central & South West Corp.                             101,800            2,831 
Cinergy Corp.                                           67,565            2,331 
Citizens Utilities Co., Class B                        129,718            1,167 
CMS Energy Corp.                                        62,900            2,772 
Coastal Corp.                                          106,600            3,758 
Columbia Gas System, Inc.                               44,100            2,552 
Conectiv, Inc.                                          45,700            1,045 
Consolidated Edison, Inc.                              113,700            5,699 
Consolidated Natural Gas Co.                            40,400            2,134 
Dominion Resources, Inc.                                88,650            4,095 
DPL, Inc.                                               83,275            1,577 
DQE, Inc.                                               44,050            1,737 
DTE Energy Co.                                          72,100            3,073 
Duke Power Co.                                         169,931           10,992 
Edison International                                   165,600            4,368 
El Paso Energy Corp.                                    66,168            2,345 
Energy East Corp.                                       33,400            1,632 
Enron Corp.                                            160,569            8,470 
Entergy Corp.                                          117,421            3,376 
Equitable Resources, Inc.                               25,100              698 
First Energy Corp.                                     119,515            3,585 
Florida Progress Corp.                                  50,400            2,114 

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                                                    Number         Value
                                                   of Shares        (000s)
                                                     ---------      ----------
FPL Group, Inc.                                         84,200          $ 5,268 
GPU, Inc.                                               58,600            2,527 
Hawaiian Electric Industries, Inc.                      22,900              907 
Houston Industries, Inc.                               131,917            4,098 
Idaho Power Co.                                         21,400              669 
Illinova Corp.                                          31,300              792 
Ipalco Enterprises, Inc.                                32,000            1,468 
Kansas City Power & Light Co.                           35,900            1,034 
Keyspan Energy Corp.                                    77,934            2,328 
KN Energy, Inc.                                         27,200            1,352 
LG&E Energy Corp.                                       70,155            1,850 
MCN Corp.                                               35,600              688 
Midamerican Energy                                                              
 Holdings Co.                                          54,461            1,416
Minnesota Power & Light Co.                             22,000              923 
Montana Power Co.                                       32,900            1,425 
National Fuel Gas Co.                                   16,600              784 
Nevada Power Co.                                        35,000              884 
New Century Energies, Inc.                              57,700            2,788 
New England Electric Co.                                28,800            1,172 
Niagara Mohawk Power Corp.+                             75,200            1,100 
NICOR, Inc.                                             25,300            1,072 
Nipsco Industries, Inc.                                 61,800            1,850 
Northeast Utilities+                                    66,000            1,031 
Northern States Power Co.                               77,600            2,095 
Oklahoma Gas & Electric Co.                             31,200              829 
PacifiCorp                                             149,500            2,850 
PECO Energy Co.                                        103,500            4,004 
Peoples Energy Corp.                                    19,500              719 
PG&E Corp.                                             185,458            5,645 
Pinnacle West Capital Co.                               47,300            2,072 
Potomac Electric Power Co.                              49,400            1,294 
PP&L Resources, Inc.                                    84,720            2,298 
Public Service Enterprise Group, Inc.                  112,300            4,267 
Puget Sound Power & Light Co.                           48,200            1,301 
Questar Corp.                                           35,800              705 
Rochester Gas and Electric Corp.                        10,000              291 
Scana Corp.                                             45,800            1,549 
Seagull Energy Corp.+                                   19,000              227 
Sempra Energy                                          112,024            2,913 
Sonat, Inc.                                             43,600            1,322 
Southern Co.                                           333,700            9,406 
Teco Energy, Inc.                                       72,200            1,995 
Texas Utilities Co.                                    135,812            5,942 
Unicom Corp.                                           103,500            3,901 
UtiliCorp United, Inc.                                  28,900            1,039 
Washington Gas Light Co.                                30,000              793 

                                                    Number         Value
                                                   of Shares        (000s)
                                                     ---------      ----------
Washington Water Power Co.                              27,700       $      521 
Western Resources, Inc.                                 27,231              953 
Williams Companies, Inc.                               209,461            5,747 
Wisconsin Energy Corp.                                  59,600            1,825 
                                                                     ---------
                                                                       198,917
                                                                     ---------
TOTAL COMMON STOCK                                                              
 (Cost $3,062,677)                                                   4,686,692
                                                                     ---------

WARRANTS -- 0.0%                                                                
Golden State Bancorp Litigation                                                 
 Tracking+                                             34,000              166
Coram Healthcare+                                          191               -- 
Petrofina ADS+                                          11,300               38 
                                                                        ------
TOTAL WARRANTS                                                                  
 (Cost $216)                                                               204
                                                                        ------
                                     Par
                                      (000s)
                                      ------

U.S. TREASURY OBLIGATIONS -- 0.0% (a) (b)                                       
U.S. TREASURY BILLS                                                             
    3.65%, 12/10/98                                   $    75               75
    4.74%, 12/10/98                                        50               50
                                                                   -----------
TOTAL U.S. TREASURY OBLIGATIONS                                                 
 (Cost $124)                                                               125
                                                                   -----------

REPURCHASE AGREEMENT -- 0.2%                                                    
PNC Bank                                                                        
Collateralized by: Federal Home Loan                                        
Mortgage Assoc                                                              
4.25%* Issue 10/30/98                                                     
         Due 11/02/98                                 $10,975           10,975
                                                                   -----------
TOTAL REPURCHASE AGREEMENT                                                      
 (Cost $10,975)                                                         10,975
                                                                   -----------
TOTAL INVESTMENTS -- 100.0%                                                     
 (Cost $3,073,992)                                                   4,697,996
                                                                   -----------
OTHER ASSETS AND LIABILITIES -- 0.0%                                            
  Other assets                                                         583,326
   Liabilities                                                         (583,649)
                                                                   -----------
                                                                           (323)
                                                                   -----------
TOTAL NET ASSETS -- 100.0%                                          $ 4,697,673 
                                                                   ===========

SEE ACCOMPANYING NOTES TO SCHEDULES OF INVESTMENTS AND NOTES TO FINANCIAL       
STATEMENTS.                                                                     

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SCHWAB SMALL-CAP INDEX FUND(R)                                                  
SCHEDULE OF INVESTMENTS                                                         
October 31, 1998                                                                

                                                    Number         Value
                                                   of Shares        (000s)
                                                     ---------      ----------
COMMON STOCK -- 99.6%                                                           
AEROSPACE/DEFENSE -- 0.8%                                                       
AAR Corp.                                                27,300          $  631 
Alliant Techsystems, Inc.+                               13,900             973 
BE Aerospace, Inc.+                                      21,900             471 
GenCorp., Inc.                                           43,900             971 
OEA, Inc.                                                29,900             335 
Orbital Sciences Corp.+                                  38,300           1,264 
Trimble Navigation Ltd.+                                 17,700             142 
                                                                        ------
                                                                         4,787
                                                                        ------

AIR TRANSPORTATION -- 0.7%                                                      
Alaska Airgroup, Inc.+                                   25,700             924 
America West Holding Corp., Class B+                     48,200             741 
ASA Holdings, Inc.                                       29,700           1,065 
Atlas Air, Inc.+                                         22,600             780 
Offshore Logistics, Inc.+                                24,500             368 
Trans World Airlines, Inc.+                              55,900             279 
                                                                        ------
                                                                         4,157
                                                                        ------

ALCOHOLIC BEVERAGES -- 0.2%                                                     
Canandaigua Wine, Co., Inc., Class A+                    20,300           1,018 
Mondavi (Robert) Corp., Class A+                          6,300             214 
                                                                        ------
                                                                         1,232
                                                                        ------
APPAREL -- 1.6%                                                                 
Buckle, Inc.+                                            19,650             356 
Burlington Industries, Inc.+                             67,200             622 
Footstar, Inc.+                                          28,700             750 
Goody's Family Clothing, Inc.+                           30,200             323 
Guilford Mills                                           22,400             280 
Kellwood Co.                                             20,800             567 
Men's Wearhouse, Inc.+                                   35,850             869 
Nautica Enterprises, Inc.+                               40,600             840 
Nine West Group, Inc.+                                   40,600             515 
Pacific Sunwear of California+                           22,350             483 
Phillips-Van Heusen Corp.                                22,200             204 
Russell Corp.                                            37,900             931 
Springs Industries, Inc.                                 21,300             753 
St. John Knits, Inc.                                     15,100             305 
Stride Rite Corp.                                        49,400             451 
Talbots, Inc.                                            31,300             710 
Timberland Co., Class A+                                 10,600             424 
Wolverine World Wide, Inc.                               46,500             607 
                                                                        ------
                                                                         9,990
                                                                        ------

                                                    Number         Value
                                                   of Shares        (000s)
                                                     ---------      ----------

AUTOMOTIVE PRODUCTS/MOTOR VEHICLES -- 1.7%                                      
A.O. Smith Corp., Class B                                23,400         $   478 
Arvin Industries, Inc.                                   26,700           1,058 
Breed Technologies, Inc.                                 33,400             282 
Coach USA, Inc.+                                         26,900             721 
Detroit Diesel Corp.+                                    29,900             529 
Gentex Corp.+                                            76,900           1,129 
Hayes Lemmerz International, Inc.+                       29,700             796 
MascoTech, Inc.                                          49,000             864 
Modine Manufacturing Co.                                 32,100           1,051 
O'Reilly Automotive, Inc.+                               23,200             908 
Standard Products Co.                                    20,200             317 
Superior Industries International, Inc.                  29,200             765 
Titan International, Inc.                                17,000             176 
Tower Automotive, Inc.+                                  48,600           1,081 
Wynns International, Inc.                                25,100             472 
                                                                       -------
                                                                        10,627
                                                                       -------
BANKS -- 6.1%                                                                   
                                                        14,000             373
ALBANK Financial Corp.                                   15,020             918 
AMCORE Financial, Inc.                                   33,150             794 
Bancorpsouth South, Inc.                                 49,200             978 
Banknorth Group, Inc.                                    16,000             510 
Bay View Cap Corp.                                       17,800             307 
BOK Financial Corp.+                                     22,810           1,099 
Chemical Financial Corp.                                 12,588             516 
Chittenden Corp.                                         15,500             463 
Citizens Banking Corp.                                   27,750             895 
CNB Bancshares, Inc.                                     36,364           1,545 
Commerce Bancorp, Inc.- New Jersey                       22,612             919 
Community First Bankshares, Inc.                         49,700             988 
Corus Bankshares Inc.                                    14,400             559 
Downey Financial Corp.                                   29,671             695 
F&M National Corp.                                       22,555             670 
F.N.B Corp.                                              18,860             519 
First Commonwealth Financial Corp.                       24,300             627 
First Financial Bancorp                                  37,482           1,092 
First Midwest Bancorp, Inc.                              33,400           1,369 
First Source Bancorp Inc.                                33,262             287 
First Source Corp.                                       17,493             560 
Firstfed Financial Corp.+                                24,800             406 
Hancosk Holding Co.                                      10,045             482 
Harris Financial, Inc.                                   37,500             584 
HUBCO, Inc.                                              45,266           1,222 
Irwin Financial Corp.                                    21,200             572 

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                                                    Number         Value
                                                   of Shares        (000s)
                                                     ---------      ----------

KeyCorp, Inc.                                           20,670          $   627 
MAF Bancorp, Inc.                                       23,725              581 
Merchants Bancorp, Inc. New York                         7,700              265 
National Bancorp of Alaska, Inc.                        30,000            1,125 
National City Bancshares, Inc.                          11,100              451 
Northwest Bancorp, Inc.                                 42,700              507 
One Valley Bancorp of                                                           
 West Virginia, Inc.                                   34,081            1,103
Park National Corp.                                     12,000            1,188 
Peoples Bancorp, Inc.                                   35,565              360 
Provident Bankshares Corp.                              26,990              688 
Queens County Bancorp, Inc.                             24,330              725 
Republic Bancorp, Inc.                                  25,750              425 
Riggs National Corp.                                    32,500              784 
S & T Bancorp, Inc.                                     13,100              714 
St. Paul Bancorp, Inc.                                  50,237            1,033 
Susquehanna Bancshares, Inc.                            36,275              821 
T R Financial Corp.                                     18,000              589 
Texas Regional Bancshares, Inc.                         12,300              280 
The Trust Company of New Jersey                         24,500              612 
Triangle Bancorp, Inc.                                  24,300              442 
TrustCo Bank Corp.                                      29,912              838 
UMB Financial Corp.                                     21,362              979 
United Bankshares, Inc.                                 45,900            1,228 
UST Corp.                                               44,300            1,024 
Wesbanco, Inc.                                          22,600              653 
Westcorp, Inc.                                          20,575              141 
                                                                       -------
                                                                        38,132
                                                                       -------
BUSINESS MACHINES & SOFTWARE -- 5.7%                                            
Analogic Corp.                                          14,000              535 
Avant Corp.+                                            33,400              570 
BancTec, Inc.+                                          17,100              212 
Black Box Corp.+                                        18,100              604 
Boole & Babbage, Inc.+                                  29,050              773 
Cirrus Logic, Inc.+                                     62,900              611 
Comverse Technology, Inc.+                              46,685            2,148 
Data General Corp.+                                     53,300              906 
Davox Corp.+                                             9,300               76 
Dialogic Corp.+                                         19,300              434 
Electronics for Imaging, Inc.+                          55,600            1,338 
FileNet Corp.+                                          34,200              316 
GT Interactive Software Corp.+                          75,000              511 
HMT Technology Corp.+                                   50,500              436 
HNC Software, Inc.+                                     27,900              938 
Hyperion Solutions Corp.+                               31,745              952 
Inacom Corp.+                                           20,400              395 

                                                    Number         Value
                                                   of Shares        (000s)
                                                     ---------      ----------
Informix Corp.+                                        181,500          $   925 
Intergraph Corp.+                                       52,700              343 
Komag, Inc.+                                            55,200              310 
Legato Systems, Inc.+                                   37,700            1,475 
Manugistics Group, Inc.+                                28,500              410 
Micron Electronics+                                    100,200            2,098 
National Computer Systems                               33,600              941 
National Instruments+                                   32,450              888 
Network Appliance+                                      36,100            1,976 
Novellus Systems+                                       35,300            1,370 
Pixar, Inc.+                                            46,300            2,199 
Premiere Technologies, Inc.+                            56,400              310 
Rational Software+                                      91,000            2,036 
Read-Rite+                                              45,500              489 
Remedy Corp.+                                           31,100              272 
Sequent Computer Systems+                               39,000              385 
Sybase+                                                 76,100              452 
Systems & Computer                                                              
 Technology Corp.+                                     32,400              462
The Learning Company, Inc.+                             87,340            2,254 
Transaction Systems Architects+                         29,800            1,076 
Vantive Corp.+                                          24,700              181 
Veritas DGC, Inc.+                                      24,200              451 
Visio Corp.+                                            31,700              844 
Wang Labs+                                              47,900            1,024 
Wind River Systems+                                     27,325            1,197 
                                                                       -------
                                                                        36,123
                                                                       -------
BUSINESS SERVICES -- 14.2%                                                      
Abacus Direct Corp.+                                     9,500              463 
ABM Industries, Inc.                                    21,500              602 
ABR Information Services, Inc.+                         33,500              632 
Access Health, Inc.+                                    27,600              990 
Advo, Inc.+                                             24,700              628 
Affiliated Computer Services, Inc.+                     46,800            1,732 
Affymetrix, Inc.+                                       21,800              534 
Allied Waste Industries+                                46,365            1,003 
American Management Systems, Inc.+                      45,000            1,381 
Analysts International Corp.                            25,550              449 
APAC Teleservices, Inc.+                                51,300              321 
Apria Healthcare Group, Inc.+                           40,600              165 
Artesyn Technologies+                                   42,600              615 
Aspect Development, Inc.+                               32,600            1,030 
Aspen Technology, Inc.+                                 21,600              302 
Bell & Howell Co.+                                      24,400              647 
Billing Information Concepts+                           36,700              518 
BISYS Group, Inc.+                                      28,100            1,229 

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SCHWAB SMALL-CAP INDEX FUND(R)                                                  
SCHEDULE OF INVESTMENTS (continued)                                             
October 31, 1998                                                                

                                                    Number         Value
                                                   of Shares        (000s)
                                                     ---------      ----------

Borg Warner Security Corp.+                             25,300           $  386 
Bowne & Co., Inc.                                       37,200              500 
Brightpoint, Inc.+                                      51,650              633 
Caribiner International, Inc.+                          23,400              154 
Catalina Marketing Corp.+                               20,700              987 
Catalytica, Inc.+                                       41,400              673 
CDI Corp.+                                              18,100              395 
CDW Computer Centers, Inc.+                             23,800            1,784 
CellStar Corp.+                                         66,000              454 
Century Business Services, Inc.+                        62,400              870 
Cerner Corp.+                                           31,100              696 
Choicepoint, Inc.+                                      16,300              770 
Computer Learning Centers, Inc.+                         7,700               69 
Computer Task Group, Inc.                               23,000              704 
Consolidated Graphics, Inc.+                            12,300              583 
Cort Business Services Corp.+                           12,200              239 
CSG Systems International, Inc.+                        27,700            1,510 
Curative Technologies, Inc.+                            13,600              371 
DBT Online, Inc.+                                       19,900              403 
DeVRY, Inc.+                                            71,600            1,575 
Documentum, Inc.+                                       17,900              609 
Eastern Environmental                                                           
 Services, Inc.+                                       39,300            1,091
Educational Management Corp.+                           17,400              639 
Electro Rent Corp.+                                     23,400              228 
Envoy Corp.+                                            22,400              661 
Equity Corp. International+                             23,300              578 
Excite, Inc.+                                           55,200            2,129 
Express Scripts, Inc., Class A+                         18,300            1,788 
Fair, Isaac & Co., Inc.                                 17,200              690 
Franklin Covey Co.+                                     25,500              504 
G. & K. Services, Inc., Class A                         22,150            1,013 
HA-LO Industries, Inc.+                                 30,350              857 
Harbinger Corp.+                                        46,900              311 
Henry Jack & Associates, Inc.                           20,400              931 
IDX Systems Corp.+                                      28,000            1,186 
Information Resources, Inc.+                            32,800              260 
Interim Services, Inc.+                                 49,700            1,056 
Iron Mountain, Inc.+                                    32,050              980 
ITT Educational Services, Inc.+                         28,850              856 
Jacobs Engineering Group, Inc.+                        29,100              949  
JDA Software Group, Inc.+                               23,700              225 
John H. Harland Co.                                     32,800              476 
Kirby Corp.+                                            19,100              405 
Lamar Advertising                                                               
 Company, Class A+                                     36,200            1,130
Learning Tree International, Inc.+                      22,200              200 
Lycos, Inc.+                                            41,200            1,674 
Mastech Corp.+                                          52,000            1,222 

                                                    Number         Value
                                                   of Shares        (000s)
                                                     ---------      ----------
Medaphis Corp.+                                         65,400           $  213 
Medusa                                                  16,800              523 
Mentor Graphics Corp.+                                  62,100              501 
Mercury Interactive Corp.+                              18,600              772 
Metamor Worldwide, Inc.+                                36,100              927 
Metris Companies, Inc.                                  32,028            1,053 
Metromedia International                                                        
 Group, Inc.+                                          59,800              366
Metzler Group, Inc.+                                    35,900            1,508 
Micro Warehouse, Inc.+                                  35,200              768 
Miravant Medical Technologies+                           5,100               64 
National Data Corp.                                     35,800            1,213 
National Processing, Inc.+                              54,700              321 
NFO Worldwide, Inc.+                                    16,100              151 
Norrell Corp.                                           29,200              396 
NOVA Corp.+                                             71,736            2,071 
Oceaneering International, Inc.+                        26,400              379 
Orthodontic Centers of                                                          
 America, Inc.+                                        51,500              975
PAXAR Corp.+                                            45,835              415 
Pediatrix Medical Group, Inc.+                          16,900              788 
Pegasystems, Inc.+                                      27,900              295 
Personal Group of America, Inc.+                        33,400              518 
Physician Reliance Network, Inc.+                       54,800              610 
Pittstion Burlington Group                              16,050               93 
Pre-Paid Legal Services, Inc.+                          26,900              644 
Renaissance Worldwide, Inc.+                            59,620              563 
Renters Choice, Inc.+                                   26,600              660 
Rollins, Inc.                                           35,500              612 
Romac International, Inc.+                              48,300              845 
Rural/Metro Corp.+                                      24,400              256 
Safeguard Scientifics, Inc.+                            31,700              850 
Safety-Kleen+                                          318,000              974 
Sandisk Corp.+                                          21,600              208 
Sapient Corp.+                                          26,400            1,190 
SEACOR SMIT, Inc.+                                      12,700              607 
SEI Investments Co.                                     19,800            1,641 
Sitel Corp.+                                            57,600              198 
Spartech Corp.                                          27,700              499 
StaffMark, Inc.+                                        23,900              420 
Standard Register Co.                                   31,100              892 
Strayer Education, Inc.                                 18,800              639 
Structural Dynamics Research Corp.+                     33,500              482 
Sun Healthcare Group, Inc.+                             53,608              315 
Superior Services, Inc.+                                27,200              571 
Sykes Enterprises, Inc.+                                41,900              822 
Synetic, Inc.+                                          19,300              832 
Technology Solutions Co.+                               39,600              475 
Teletech Holdings, Inc.+                                63,300              625 

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                                                    Number         Value
                                                   of Shares        (000s)
                                                     ---------      ----------
Tetra Technology, Inc.+                                 33,500          $   680 
Transition Systems, Inc.+                               13,600              142 
True North Communications, Inc.                         48,300            1,141 
Unisource Worldwide, Inc.                               74,300              683 
USCS International, Inc.+                               28,200              839 
Vanstar Corp.+                                          43,900              491 
Viasoft, Inc.+                                          28,600              175 
Volt Information Sciences, Inc.+                        18,000              431 
Wackenhut Corrections Corp.+                            23,400              575 
Walter Industries, Inc.+                                55,800              781 
Whittman-Hart, Inc.+                                    55,000            1,093 
Xylan Corp.+                                            45,500              728 
Zebra Technologies Corp., Class A+                      33,100            1,084 
                                                                       -------
                                                                        89,228
                                                                       -------
CHEMICAL -- 2.5%                                                                
A. Schulman                                             32,400              644 
Calgon Carbon Corp.                                     31,200              220 
Cambrex Corp.                                           22,700              580 
Chemed Corp.                                            11,500              364 
Chemfirst, Inc.                                         15,900              308 
Dexter Corp.                                            24,800              725 
Ethyl Corp.                                             92,700              510 
Ferro Corp.                                             38,600              984 
Fuller (H.B.)                                           15,600              642 
Furon Co.                                               14,300              227 
General Chemical Group, Inc.                            25,500              454 
Geon Co.                                                28,200              612 
Georgia Gulf Corp.                                      33,700              575 
Lawter International, Inc.                              35,700              272 
Lilly Industries, Inc., Class A                         28,350              544 
Macdermid, Inc.                                         28,100            1,029 
Mastec, Inc.+                                           32,350              770 
NCH Corp.                                                6,500              445 
NL Industries, Inc.                                     50,700              719 
OM Group, Inc.                                          22,600              737 
Regal Beloit                                            21,400              451 
Scotts Co., Class A+                                    19,700              657 
Sequa Corp., Class A+                                   12,800              819 
Tredegar Industries, Inc.                               38,300              864 
Twinlab Corp.+                                          32,600              723 
WD-40 Co.                                               19,400              514 
Wellman, Inc.                                           29,400              369 
Zoltek Companies, Inc.+                                 17,200              258 
                                                                       -------
                                                                        16,016
                                                                       -------

                                                    Number         Value
                                                   of Shares        (000s)
                                                     ---------      ----------
CONSTRUCTION -- 2.5%                                                            
Blount International, Inc., Class A                     41,800          $   917 
CalMat Co.                                              26,200              614 
Carbo Ceramics, Inc.                                    16,000              438 
Centex Construction Products, Inc.                      23,200              780 
DAL-Tile International, Inc.+                           50,900              455 
DR Horton                                               55,700              884 
Florida Rock Industries, Inc.                           22,400              556 
Granite Construction, Inc.                              32,850            1,094 
Kaufman & Broad Home Corp.                              41,600            1,188 
Lone Star Industries, Inc.                              11,700              824 
Morrison Knudsen Corp.+                                 65,700              653 
Palm Harbor Homes, Inc.+                                23,687              598 
Pulte Corp.                                             46,200            1,190 
Sawtek, Inc.+                                           23,700              478 
Simpson Manufacturing, Inc.+                            12,700              416 
Standard Pacific Corp.                                  32,200              312 
Stone & Webster, Inc.                                   12,000              382 
T J International, Inc.                                 15,200              299 
Toll Brothers, Inc.+                                    39,300              911 
U.S. Home Corp.+                                        15,100              478 
United Dominion Industries, Ltd.                        44,300              905 
Webb Del Corp.                                          21,900              515 
West Teleservices Corp.+                                65,700              788 
                                                                       -------
                                                                        15,675
                                                                       -------

CONSUMER - DURABLE -- 1.6%                                                      
Bassett Furniture Industries, Inc.                      10,200              232 
Champion Enterprises, Inc.+                             50,892            1,011 
Ethan Allen Interiors, Inc.                             28,500              980 
Furniture Brands International, Inc.+                   55,000            1,182 
Granite Construction+                                   34,800              341 
Harman International Industries, Inc.                   20,200              817 
Helen of Troy Ltd.+                                     29,200              434 
Interface, Inc.                                         51,400              633 
Kimball International, Inc., Class B+                   44,800              830 
La-Z-Boy Chair Co.                                      57,600            1,058 
Linens 'N Things, Inc.+                                 41,800            1,293 
Samsonite Corp.+                                        25,600              130 
Sturm, Ruger & Co., Inc.                                31,300              432 
Toro Co.                                                14,800              327 
Windmere Durable Holdings, Inc. +                       19,000              146 
                                                                       -------
                                                                         9,846
                                                                       -------
CONSUMER - NONDURABLE -- 3.2%                                                   
Action Performance Companies, Inc.+                     17,700              529 
Applebee's International, Inc.                          29,700              605 

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SCHWAB SMALL-CAP INDEX FUND(R)                                                  
SCHEDULE OF INVESTMENTS (continued)                                             
October 31, 1998                                                                
                                                    Number         Value
                                                   of Shares        (000s)
                                                     ---------      ----------

Avado Brands, Inc.                                      30,400          $   239 
Brinker International, Inc+                             69,500            1,681 
Buffets, Inc.+                                          49,500              535 
CEC Entertainment, Inc.+                                18,200              514 
Cheesecake Factory+                                     22,300              426 
Cytyc Corp.+                                            20,200              338 
Department 56, Inc.+                                    19,200              599 
Enesco Group                                            13,700              348 
First Brands Corp.                                      43,000            1,623 
Foodmaker, Inc.+                                        41,700              659 
Hanover Direct, Inc.+                                  217,000              597 
Jostens, Inc.                                           40,300              909 
Landry's Seafood Restaurants, Inc.+                     25,300              212 
Lone Star Steakhouse & Saloon, Inc.+                    36,200              290 
Luby's Cafeterias, Inc.                                 26,400              393 
Midway Games, Inc.+                                     44,466              436 
Mohawk Industries, Inc.+                                55,800            1,684 
Oakley, Inc.+                                           74,600              657 
Onieda Ltd.                                             13,200              189 
Papa John's International, Inc.+                        31,825            1,208 
Rainforest CafE, Inc.+                                  11,850               79 
Regis                                                   25,400              779 
Ruby Tuesday, Inc.                                      39,074              659 
Russ Berrie & Co., Inc.                                 23,400              462 
Ryan's Family Steak Houses, Inc.+                       47,000              505 
Sbarro, Inc.                                            21,100              496 
Trans World Entertainment Corp.+                        33,750              696 
Trex Medical Corp.+                                     36,700              450 
Williams-Sonoma, Inc.+                                  57,000            1,553 
                                                                       -------
                                                                        20,350
                                                                       -------

CONTAINERS -- 0.6%                                                              
ACX Technologies, Inc.+                                 24,000              345 
Ball Corp.                                              32,000            1,350 
Greif Brothers Corp., Class A                           23,300              746 
Stone Container Corp.                                  108,900            1,041 
                                                                       -------
                                                                         3,482
                                                                       -------

ELECTRONICS -- 5.3%                                                             
Allen Telecom, Inc.+                                    23,700              130 
Amphenol Corp.+                                         19,400              651 
Anadigics, Inc.+                                        14,200              114 
Anixter International, Inc.+                            52,000              803 
Ascend Communications, Inc.+                            19,875              959 
Atmi, Inc.+                                             18,200              250 
Belden, Inc.                                            22,700              331 
Burr Brown Corp.+                                       39,150              727 

                                                    Number         Value
                                                   of Shares        (000s)
                                                     ---------      ----------
Cable Design Technologies Corp.+                        33,250          $   549 
CCC Information Services                                                        
 Group, Inc.+                                          24,800              276
Centennial Technologies, Inc.+                           5,600                4 
Checkpoint Systems, Inc.+                               28,200              335 
Commscope, Inc.+                                        46,000              641 
CTS Corp.                                               12,400              367 
Cypress Semiconductor Corp.+                           102,300            1,138 
Dallas Semiconductor Corp.                              29,800            1,103 
Digital Microwave Corp.+                                64,900              284 
Dionex+                                                 21,800              580 
DSP Communications, Inc.+                               43,900              431 
Dupont Photomasks, Inc.+                                14,500              526 
E Spire Communications, Inc.+                           49,000              588 
EG & G, Inc.                                            48,500            1,219 
Electro Scientific Industries, Inc.+                    13,000              327 
Exide Corp.                                             17,100              147 
General Semiconductor, Inc.+                            28,900              229 
Genrad, Inc.+                                           31,900              518 
Gerber Scientific, Inc.                                 23,700              536 
Glenayre Technologies, Inc.+                            57,400              344 
Hadco Corp.+                                            17,100              539 
Hutchinson Technology, Inc.+                            23,400              455 
Imation Corp.+                                          43,800              775 
Information Management                                                          
 Resources, Inc.+                                      32,650              767
Integrated Device Technology, Inc.+                     89,200              619 
International Rectifier Corp.+                          52,700              474 
International Network Services+                         34,800            1,479 
Kemet Corp.+                                            44,400              622 
Kent Electronics Corp.+                                 25,900              419 
Kulicke & Soffa Industries, Inc.+                       28,800              470 
Lam Research Corp.+                                     43,700              631 
Lattice Semiconductor Corp.+                            26,600              904 
Level One Communications, Inc.+                         33,800              889 
Littelfuse, Inc.+                                       25,900              570 
Marshall Industries+                                    19,600              564 
MEMC Electronic Materials, Inc.+                        44,900              309 
Methode Electronics, Inc., Class A                      36,350              559 
MRV Communications, Inc.+                               28,300              196 
Pioneer Standard Electronics, Inc.                      20,700              185 
Premisys Communications, Inc.+                          27,100              286 
Remec, Inc.+                                            18,600              195 
Service Experts, Inc.+                                  18,100              546 
Silicon Valley Group, Inc.+                             28,600              366 
Sipex Corp.+                                            21,800              605 
Smart Modular Technologies, Inc.+                       46,100              968 

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                                                    Number         Value
                                                   of Shares        (000s)
                                                     ---------      ----------
SpeedFam International, Inc.+                           12,200          $   197 
Superior Telecommunications, Inc.                       16,875              726 
Technitrol, Inc.                                        16,700              455 
Tekelec, Inc.+                                          57,100            1,024 
United States Satellite                                                         
 Broadcasting Co.+                                     95,400              668
Unitrode Corp.+                                         38,700              486 
Univision Communications, Inc.+                         25,900              764 
Vicor Corp.+                                            36,800              345 
VLSI Technology, Inc.+                                  50,300              484 
                                                                       -------
                                                                        33,648
                                                                       -------

ENERGY - RAW MATERIALS -- 1.8%                                                  
Amcol International Corp.                               32,300              327 
Arch Coal, Inc.                                         43,700              778 
Atwood Oceanics, Inc.+                                  14,800              416 
Barrett Resources Corp.+                                33,600              792 
Benton Oil & Gas Co.+                                   23,100              118 
Cabot Oil & Gas Corp., Class A                          22,200              377 
Chesapeake Energy Corp.                                 95,700              185 
Cliff's Drilling Co.+                                   20,800              476 
EEX Corp.+                                             135,400              525 
Forcenergy, Inc.+                                       11,900               71 
Forest Oil Corp.+                                       51,400              524 
Grey Wolf, Inc.+                                       187,600              223 
Harken Energy Corp.+                                   139,400              479 
Key Energy Group, Inc.+                                 14,200              141 
Louis Dreyfus Natural Gas Corp.+                        37,300              543 
Marine Drilling Company, Inc.+                          50,100              560 
Newfield Exploration Co.+                               38,900              946 
Newpark Resources, Inc.+                                63,100              596 
Nuevo Energy Co.+                                       24,400              517 
Parker Drilling Co.+                                    77,800              384 
Stone Energy Corp.+                                     16,800              540 
Tom Brown, Inc.+                                        31,600              454 
Trico Marine Services, Inc.+                            15,500              110 
Tuboscope Vetco International Corp.+                    48,900              605 
UTI Energy Corp.+                                       12,900              115 
Vintage Petroleum, Inc.                                 54,600              710 
                                                                       -------
                                                                        11,512
                                                                       -------

FOOD & AGRICULTURE -- 2.6%                                                      
AgriBioTech, Inc.+                                      39,000              558 
Bob Evans Farms, Inc.                                   45,900              904 
Chiquita Brands International, Inc.                     72,100              766 
Coca Cola Bottling Co.                                  11,100              669 
Delta & Pine Land Co.                                   40,622            1,356 

                                                    Number         Value
                                                   of Shares        (000s)
                                                     ---------      ----------
Dimon, Inc.                                             40,800          $   528 
Dominick's Supermarkets, Inc.+                          20,100              981 
Dreyer's Grand Ice Cream, Inc.                          25,600              336 
Earthgrains Co.                                         45,096            1,353 
Fleming Companies, Inc.                                 35,700              364 
International Multifoods Corp.                          20,000              416 
J.M. Smucker Co., Class A                               27,400              603 
Lance, Inc.                                             28,800              551 
Lindsay Manufacturing Co.+                              17,250              280 
Michael Foods, Inc.                                     23,100              554 
Mississippi Chemical Corp.                              31,540              455 
Pilgrim's Pride Corp.                                   33,700              777 
Ralcorp Holdings, Inc.+                                 34,466              607 
Seaboard Corp.                                           1,200              382 
Terra Industries, Inc.                                  80,300              602 
Tootsie Roll Industries, Inc.                           36,494            1,444 
United Natural Foods, Inc.+                             21,100              588 
Universal Foods Corp.                                   52,600            1,141 
                                                                       -------
                                                                        16,215
                                                                       -------

GOLD -- 0.1%                                                                    
Getchell Gold Corp.+                                    35,171              615 
                                                                       -------

HEALTHCARE/DRUG & MEDICINE -- 8.3%                                              
Acuson Corp.+                                           30,600              461 
Advanced Tissue Sciences, Inc.+                         39,500              120 
Agouron Pharmaceuticals, Inc.+                          34,300            1,329 
Algos Pharmaceuticals Corp.+                            19,500              500 
Alkermes, Inc.+                                         23,900              466 
Alpharma, Inc., Class A                                 27,067              749 
Alternative Living Services, Inc.+                      24,600              643 
American Medical Security Group                         13,000              114 
American Oncology Resources, Inc.+                      32,900              438 
Amerisource Health Corp.+                               22,000            1,154 
Andrx Corp.+                                            18,200              710 
Arrow International, Inc.                               22,300              619 
Aviron+                                                 17,600              334 
Ballard Medical Products                                36,100              767 
Barr Laboratories, Inc.+                                25,100              858 
Bindley Western Industries, Inc.                        21,599              783 
Bio-Technology General Corp.+                           54,600              399 
Carematrix Corp.+                                       21,500              529 
Carter-Wallace, Inc.                                    49,500              879 
Cognex Corp.+                                           46,400              719 
Columbia Laboratories, Inc.+                            22,400               73 
Conmed Corp.+                                           16,500              437 

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SCHWAB SMALL-CAP INDEX FUND(R)                                                  
SCHEDULE OF INVESTMENTS (continued)                                             
October 31, 1998                                                                

                                                    Number         Value
                                                   of Shares        (000s)
                                                     ---------      ----------
Cooper Companies, Inc.+                                 15,700          $   373 
COR Therapeutics, Inc.+                                 18,600              224 
Covance, Inc.+                                          61,500            1,714 
Coventry Health Care, Inc.+                             60,400              585 
Cygnus, Inc.+                                            5,100               27 
Datascope Corp.+                                        17,600              397 
Egghead+                                                19,400              865 
Genesis Health Ventures, Inc.+                          38,550              520 
Gensia, Inc.+                                           90,000              338 
Gilead Sciences, Inc.+                                  34,500              979 
Guilford Pharmaceuticals, Inc.+                         21,200              347 
Heartport, Inc.+                                        19,400               82 
Human Genome Sciences, Inc.+                            23,800              824 
Icos Corp.+                                             41,300              764 
IDEC Pharmaceuticals Corp.+                             21,100              630 
Idexx Laboratories, Inc.+                               41,900              956 
Incyte Pharmaceuticals, Inc.+                           28,600              872 
Inhale Therapeutic Systems+                             18,500              486 
Interneuron Pharmaceuticals, Inc.+                      46,600              163 
Invacare Corp.                                          28,300              637 
IVAX Corp.+                                            130,200            1,237 
Jones Medical Industries, Inc.                          32,500            1,050 
Life Technologies, Inc.                                 26,250              974 
Magellan Health Services, Inc.+                         31,700              287 
Mariner Post-Acute Network+                             78,279              455 
Medicis Pharmaceutical                                                          
 Corp., Class A+                                       20,200            1,013
Medimmune, Inc.+                                        28,200            1,896 
Mentor Corp.                                            24,600              418 
Mid Atlantic Medical Services, Inc.+                    52,100              407 
Millennium Pharmaceuticals+                             34,800              639 
Minimed, Inc.+                                          14,200              788 
Natures Sunshine Products, Inc.                         14,650              233 
NBTY, Inc.+                                             70,400              563 
North American Vaccine, Inc.+                           30,600              463 
NovaCare, Inc.+                                         56,180              232 
Organogenesis, Inc.+                                    26,358              410 
Owens & Minor Holding, Inc.                                                     
 Holding Co.                                           35,200              559
Parexel International Corp.+                            25,000              552 
Pathogenesis Corp.+                                     19,300              772 
Patterson Dental Co.+                                   33,425            1,379 
Perrigo Co.+                                            79,000              627 
PhyMatrix Corp.+                                         5,000               19 
Protein Design Labs, Inc.+                              21,400              514 
PSS World Medical, Inc.+                                73,175            1,619 

                                                    Number         Value
                                                   of Shares        (000s)
                                                     ---------      ----------

Quest Diagnostic, Inc.+                                 31,500           $   524
Renal Care Group, Inc.+                                 42,500             1,238
Respironics, Inc.+                                      34,700               536
Sangstat Medical Corp.+                                 17,300               359
Sepracor, Inc.+                                         28,500             1,956
Serologicals Corp.+                                     29,700               672
Sola International, Inc.+                               27,300               524
Sunrise Assisted Living, Inc.+                          22,100               952
Theragenics Corp.+                                      32,000               646
Thermedics, Inc.+                                       40,800               439
Thermo Cardiosystems, Inc.+                             34,600               402
ThermoLase Corp.+                                        3,182                52
Thermotrex Corp.+                                       15,100               197
Transkaryotic Therapies, Inc.+                          18,500               395
Vertex Pharmaceuticals, Inc.+                           29,800               786
West Company, Inc.                                      15,100               448
                                                                         -------
                                                                          52,096
                                                                         -------

HOUSEHOLD PRODUCTS -- 0.5%                                                      
Bush Boake Allen, Inc.+                                 20,600               551
Church & Dwight Co., Inc.                               22,700               697
Libbey, Inc.                                            17,600               546
Playtex Products, Inc.+                                 63,600               839
Revlon, Inc.+                                           21,800               413
ThermoLase Corp.+                                       31,018               171
                                                                         -------
                                                                           3,217
                                                                         -------

INSURANCE -- 4.5%                                                               
Alfa Farmers Federation Corp.                           38,000               797
American Annuity Group, Inc.                            46,050             1,059
American Heritage Life                                                          
  Investment Corp.                                      30,200               629
Amerin Corp.+                                           22,500               481
Argonaut Group, Inc.                                    25,700               654
Arthur J. Gallegher & Co.                               19,100               809
Capital Re Corp.                                        36,200               663
Citizens Corp.                                          35,300             1,068
Commerce Group, Inc.                                    38,300             1,326
Delphi Financial Group, Inc.,Class A+                   21,817             1,017
E.W. Blanch Holdings                                    16,000               623
Enhance Financial Services                                                      
  Group, Inc.                                           40,600               997
Executive Risk, Inc.                                    10,000               475
FBL Financial Group, Inc., Class A                      30,400               773
Foremost Corp. of America                               29,100               518
Frontier Insurance Group, Inc.                          40,385               659
Harleysville Group, Inc.                                26,600               569

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                                                    Number         Value
                                                   of Shares        (000s)
                                                     ---------      ----------
Hartford Life, Inc., Class A                            26,600          $ 1,230 
HCC Insurance Holdings, Inc.                            50,450              905 
HSB Group, Inc.                                         30,450            1,229 
Kansas City Life Insurance Co.                           7,200              601 
Liberty Corp.                                           18,700              776 
Life Re Corp.                                           18,800            1,754 
Markel Corp.+                                            5,800              862 
Medical Assurance, Inc.+                                25,101              678 
MMI                                                      5,100                9 
NAC Re Corp.                                            19,800              959 
PMI Group                                               32,600              591 
PXRE Corp.                                              15,300              388 
Reinsurance Group of America, Inc.                      26,600            1,466 
RLI Corp.                                               11,375              373 
Selective Insurance Group, Inc.                         27,400              502 
Sierra Health Services, Inc.+                           27,450              640 
State Auto Financial, Corp.                             34,700              490 
Trenwick Group, Inc.                                    14,550              484 
Triad Guarantee, Inc.+                                  15,600              332 
United Companies Financial Corp.                        27,000              115 
United Fire & Casualty Co.                               9,000              340 
Vesta Insurance Group, Inc.                             12,300               98 
Zenith National Insurance Corp.                         21,000              537 
                                                                       -------
                                                                        28,476
                                                                       -------

MEDIA -- 3.7%                                                                   
Amc Entertainment, Inc.+                                14,500              210 
Applied Graphics Technologies+                          19,600              234 
Banta Corp.                                             30,000              746 
Big Flower Holdings, Inc.+                              20,300              396 
Century Communications                                                          
 Corp., Class A+                                       77,237            1,709
CNET, Inc.+                                             19,700              750 
Cymer, Inc.+                                            26,900              330 
Gaylord Entertainment Co.                               33,000              875 
Houghton Mifflin Co.                                    32,900            1,283 
IXC Communications, Inc.+                               36,800            1,426 
John Wiley & Sons, Inc., Class A                        35,200            1,287 
Jones Intercable, Inc., Class A+                        42,900            1,204 
Knightsbridge Tankers, Ltd.+                            20,300              549 
McClatchy Newspapers, Inc., Class A                     46,700            1,585 
Media General, Inc., Class A                            27,200            1,217 
Metro Networks, Inc.+                                   15,900              582 
On Command Corp.+                                       24,500              202 
PanAmSat Corp.+                                         20,000              759 
Paxson Communications Corp.+                            49,000              410 
Scholastic Corp.+                                       15,600              615 

                                                    Number         Value
                                                   of Shares        (000s)
                                                     ---------      ----------
Sinclair Broadcast Group, Inc.+                         50,800          $   660 
Spelling Entertainment Group,Inc.+                      96,700              653 
TCA Cable TV, Inc.                                      51,400            1,423 
TCI Satellite Entertainment, Inc.,                                              
 Class A+                                              47,000               76
United Television, Inc.                                 10,200            1,125 
United Video Satellite Group+                           51,400              816 
Westwood One, Inc.+                                     34,200              616 
World Color Press, Inc.+                                39,100            1,188 
Young Broadcasting, Inc.+                               11,900              376 
                                                                        ------
                                                                        23,302
                                                                        ------

MISCELLANEOUS FINANCE -- 3.3%                                                   
Advanta Corp., Class A                                  31,209              373 
AmeriCredit Corp.+                                      64,000              856 
AMRESCO, Inc.+                                          39,800              276 
Commercial Federal Corp.                                60,804            1,380 
Dain Rauscher Corp.                                     11,300              384 
E*Trade Group, Inc.+                                    53,900              970 
Eaton Vance Corp.                                       33,600              752 
Everen Capital Corp.                                    33,200              676 
Fidelity National Financial, Inc.                       28,100              864 
First American Financial Corp.                          57,750            1,808 
First Financial Corp.                                    9,600              410 
Florida Panthers Holdings, Inc.+                        37,300              364 
Fund American Enterprise                                                        
 Holdings, Inc.                                         5,809              736
Hambrecht and Quist Group, Inc.+                        27,700              531 
Imperial Credit Industries, Inc.+                       34,900              231 
Interpool, Inc.                                         23,900              338 
Investment Technology Group, Inc.+                      21,800              714 
Jefferies Group, Inc.                                   21,200              636 
John Nuveen Co., Class A                                34,500            1,203 
JSB Financial, Inc.                                      9,600              507 
LNR Property Corp.                                      32,700              580 
Mail Well Holdings, Inc.+                               50,800              664 
Morgan Keegan, Inc.                                     30,550              569 
PaymenTech, Inc.+                                       32,700              503 
Pioneer Group, Inc.                                     23,100              331 
Price Enterprises, Inc.                                 18,600               91 
Sabre Group Holdings, Inc.+                             23,800              897 
Sky Financial Group, Inc.                               23,682              722 
Student Loan Corp.                                      21,600            1,013 
Value Line, Inc.                                         9,000              369 
Webster Financial Corp.                                 40,000              988 
                                                                       -------
                                                                        20,736
                                                                       -------

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SCHWAB SMALL-CAP INDEX FUND(R)                                                  
SCHEDULE OF INVESTMENTS (continued)                                             
October 31, 1998                                                                

                                                    Number         Value
                                                   of Shares        (000s)
                                                     ---------      ----------
NON-FERROUS METALS -- 0.9%                                                      
Asarco, Inc.                                            45,700          $   980 
Brush Wellman, Inc.                                     12,900              219 
Commercial Metals Co.                                   16,233              432 
Kaiser Aluminum Corp.+                                  72,100              455 
Minerals Technologies, Inc.                             24,700            1,125 
Mueller Industries, Inc.+                               39,400              887 
Reliance Steel & Aluminum Co.                           17,350              537 
RTI International Metals+                               18,000              268 
Titanium Metals Corp.+                                  27,700              289 
Wolverine Tube, Inc.+                                   16,200              343 
                                                                       -------
                                                                         5,535
                                                                       -------

OIL - DOMMESTIC -- 1.2%                                                         
Belco Oil & Gas Corp.+                                  24,500              145 
Cross Timbers Oil Co.                                   48,725              700 
Houston Exploration Co.+                                27,300              485 
Ocean Energy, Inc.+                                    102,916            1,286 
Patterson Energy, Inc.+                                 24,700              153 
Pogo Producing Co.                                      42,800              642 
Pool Energy Service Co.+                                20,200              270 
Quaker State Corp.                                      32,600              460 
Rutherford Moran Oil Corp.+                             20,100              151 
Santa Fe Energy Resources, Inc.+                       109,200              887 
Snyder Oil Corp.                                        38,500              614 
St. Mary Land & Exploring Co.                            8,600              181 
Tesoro Petroleum Corp.+                                 33,000              489 
Trans Montaigne Oil, Inc.+                              30,300              472 
TransTexas Gas Corp.+                                   50,600               79 
UNOVA, Inc.+                                            57,800              834 
                                                                       -------
                                                                         7,848
                                                                       -------

OPTICAL & PHOTO -- 0.7%                                                         
Avid Technology, Inc.+                                  27,900              722 
BMC Industries, Inc.                                    35,000              252 
C-Cube Microsystems, Inc.+                              41,300              738 
Ingram Micro, Inc., Class A+                            42,900            1,952 
Panavision Inc.+                                         7,894              126 
Photronics, Inc.+                                       23,000              502 
Ultratech Stepper, Inc.+                                23,300              419 
                                                                       -------
                                                                         4,711
                                                                       -------

PAPER & FOREST PRODUCTS -- 0.9%                                                 
Buckeye Technology, Inc.+                               39,400              788 
Caraustar Industries, Inc.                              23,200              551 
Chesapeake Corp.                                        21,100              739 

                                                    Number         Value
                                                   of Shares        (000s)
                                                     ---------      ----------

Longview Fibre Co.                                      55,300           $  664 
PH Glatfelter Co.                                       40,100              494 
Pope & Talbot+                                          31,450              503 
Rock Tennessee Co., Class A                             18,330              202 
Thermo Fibertek, Inc.+                                  62,100              380 
Wausau Mosinee Paper Corp.                              62,825            1,096 
                                                                        ------
                                                                         5,417
                                                                        ------

                                                    Number         Value
                                                   of Shares        (000s)
                                                     ---------      ----------
PRODUCER GOODS & MANUFACTURING -- 7.1%                                          
Airgas, Inc.+                                           75,100              864 
Albany International Corp., Class A                     32,664              596 
AMETEK, Inc.                                            34,900              739 
Applied Industrial Technologies, Inc.                   19,025              252 
Applied Power, Inc., Class A                            40,200            1,108 
Aptargroup, Inc.                                        39,200            1,049 
Baldor Electric, Co.                                    40,720              855 
Barnes Group, Inc.                                      23,300              612 
Beckman Coulter, Inc.                                   29,600            1,391 
Boise Cascade Office Products Corp.+                    59,400              546 
CLACOR, Inc.                                            29,050              490 
Collins & Aikman Corp+                                  71,800              498 
Consolidated Cigar Holdings, Inc.+                      35,600              409 
Credence Systems, Corp.+                                23,950              356 
DII Group, Inc.+                                        23,900              351 
Donaldson Co., Inc.                                     51,400              935 
DT Industries, Inc.                                      8,900              160 
Eastern Enterprises                                     22,000              903 
Federal Signal Corp.                                    48,400            1,165 
Flowserve Corp.                                         43,634              785 
Foster Wheeler Corp.                                    43,000              683 
Franklin Electric Corp.                                  5,100              306 
Gardner Denver Machinery, Inc.+                         15,900              229 
General Binding Corp.                                   15,500              533 
Graco, Inc.                                             23,437              618 
Helix Technology Corp.                                  23,500              269 
Hexcel Corp.+                                           37,400              409 
Hughes Supply, Inc.                                     22,950              610 
IDEX Corp.                                              32,425              839 
Ionics, Inc.+                                           16,700              518 
JLG Industries, Inc.                                    42,700              707 
Kaydon Corp.                                            32,900            1,156 
Kuhlman Corp.                                           15,000              398 
Lincoln Electric Co., Class A                           51,000            1,119 
Magnatek, Inc.+                                         36,500              463 
Manitowoc Co., Inc.                                     16,675              584 
Maverick Tube Corp.+                                    12,100               85 

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                                                    Number         Value
                                                   of Shares        (000s)
                                                     ---------      ----------
Micrel, Inc.+                                           21,500          $   707 
Milacron, Inc.                                          41,900              812 
Miller Industries, Inc.+                                45,000              236 
MSC Industrial Direct, Inc.+                            38,000              808 
NACCO Industries, Inc., Class A                          8,450              777 
Nordson Corp.                                           15,900              713 
PMC Sierra, Inc.+                                       32,500            1,458 
Presstek, Inc.+                                         24,900              184 
PRI Automation, Inc.+                                   26,900              466 
Quanex Corp.                                            11,000              186 
Robbins & Myers, Inc.                                    8,700              206 
Roper Industries, Inc.                                  29,400              524 
SLI, Inc.+                                              32,150              539 
SPS Technologies, Inc.+                                 11,900              589 
SPX Corp.                                               32,167            1,751 
Standex International Corp.                             10,400              257 
Stewart & Stevenson Services, Inc.                      30,000              411 
Tecumseh Products Co., Class A                          23,100            1,201 
Terex Corp.+                                            23,100              502 
Texas Industries, Inc.                                  22,800              674 
Thermo Ecotek Corp.+                                    36,250              451 
Thermo Optek Corp.+                                     42,000              370 
Thermoquest Corp.+                                      55,500              562 
Valhi, Inc.                                            120,200            1,345 
Valmont Industries, Inc.                                32,900              518 
VWR Scientific Products Corp.+                          30,300              737 
W.H. Brady Co., Class A                                 20,600              474 
Waters Corp.+                                           30,400            2,234 
Watts Industries, Inc., Class A                         25,200              463 
WMS Industries, Inc.+                                   23,600              187 
Wyman Gordon Co.+                                       36,500              525 
X-Rite Inc.                                             16,600              118 
                                                                       -------
                                                                        44,575
                                                                       -------

RAILROAD & SHIPPING -- 0.7%                                                     
Avondale Industries, Inc.+                              11,400              297 
Florida East Coast Industry, Inc.                       38,800            1,162 
Halter Marine Group, Inc.+                              22,400              193 
Marine Transport Corp+                                   3,380                7 
MotivePower Industries, Inc.+                           21,900              557 
Newport News Shipbuilding, Inc.                         37,700              992 
Overseas Shipholding Group, Inc.                        39,500              696 
Westinghouse Air Brake Co.                              33,600              722 
                                                                       -------
                                                                         4,626
                                                                       -------

                                                    Number         Value
                                                   of Shares        (000s)
                                                     ---------      ----------
REAL PROPERTY -- 0.9%                                                           
Alexander's+                                             4,700          $   352 
California Costal Community, Inc.+                       8,400               58 
CB Richard Ellis Services+                              22,300              435 
Fairfield Communities, Inc.+                            41,800              410 
Forest City Enterprises, Inc.                           34,300              737 
Insignia Financial Group, Inc.+                              1             --   
Lennar Corp.                                            60,700            1,229 
Newhall Land & Farming Co.                              37,600              877 
Premier Parks, Inc.+                                    80,000            1,775 
                                                                       -------
                                                                         5,873
                                                                       -------

RETAIL -- 3.5%                                                                  
99 Cents Only Stores+                                   20,700              957 
Ames Department Stores, Inc.+                           24,500              450 
Authentic Fitness Corp.                                 24,900              344 
BJ's Wholesale Club, Inc.+                              39,500            1,420 
Burlington Coat Factory                                                         
 Warehouse Corp.                                       51,840              778
Casey's General Stores, Inc.                            57,800              809 
Central Garden & Pet Co.+                               30,300              598 
Charming Shoppes, Inc.+                                 85,500              321 
CHS Electronics, Inc.+                                  54,100              527 
Claire's Stores, Inc.                                   54,075              916 
Cole National Corp.+                                    16,600              344 
Dress Barn, Inc.+                                       22,000              311 
Eagle Hardware & Garden, Inc.+                          32,900              765 
Etec Systems, Inc.+                                     24,900              843 
Fingerhut Companies, Inc.                               45,000              380 
Global Directmail Corp.+                                37,000              527 
Great Atlantic & Pacific Tea Co., Inc.                  40,500              952 
Gymboree Corp.+                                         19,300              129 
Heilig-Meyers Co.                                       65,400              503 
Jo-Ann Stores, Inc., Class A+                           20,000              360 
Just for Feet, Inc.+                                    31,575              535 
Lands' End, Inc.+                                       31,300              534 
Michaels Stores, Inc.+                                  32,300              646 
Petco Animal Supplies, Inc.+                            16,500              146 
PETsMART, Inc.+                                        126,400              909 
Ruddick Corp.                                           51,700            1,005 
ShopKo Stores, Inc.+                                    28,700              899 
Smart & Final, Inc.                                     17,600              152 
Sotheby's Holdings, Inc., Class A                       60,700            1,313 
Southland Corp.+                                       391,200              801 
Stage Stores, Inc.+                                     27,600              366 
Stein Mart, Inc.+                                       42,400              334 

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SCHWAB SMALL-CAP INDEX FUND(R)                                                  
SCHEDULE OF INVESTMENTS (continued)                                             
October 31, 1998                                                                

                                                    Number         Value
                                                   of Shares        (000s)
                                                     ---------      ----------
United Stationers, Inc.+                                39,400          $ 1,044 
Wet Seal, Inc., Class A+                                15,700              332 
Zale Corp.+                                             38,000              900 
                                                                       -------
                                                                        22,150
                                                                       -------

STEEL -- 1.3%                                                                   
AK Steel Holding Corp.                                  60,000            1,039 
Armco, Inc.+                                           114,800              545 
Bethlehem Steel Corp.+                                 134,400            1,210 
Birmingham Steel Corp.                                  23,300              121 
Carpenter Technology Corp.                              23,600              827 
Cleveland-Cliffs, Inc.                                  10,800              429 
Inland Steel Industries, Inc.+                          38,600              704 
Intermet Corp.                                          29,800              484 
J & L Specialty Steel, Inc.                             34,000              206 
Lone Star Technologies, Inc.+                           30,500              324 
LTV Corp.                                              105,300              645 
National Steel Corp., Class B+                          38,000              245 
NS Group, Inc.+                                         18,900              132 
Oregon Steel Mills, Inc.                                27,200              333 
Steel Dynamics, Inc.+                                   51,000              695 
                                                                       -------
                                                                         7,939
                                                                       -------

TELEPHONE -- 2.6%                                                               
Adtran, Inc.+                                           39,300              996 
Aliant Communications, Inc.                             37,500            1,058 
ANTEC Corp.+                                            36,800              612 
Aspect Telecommunications Corp.+                        52,700              797 
Associated Group, Inc., Class A+                        40,100            1,353 
Cellular Comm International, Inc.+                      17,600            1,094 
Coherent, Inc.+                                         18,200              214 
Commonwealth Telephone                                                          
 Enterprises, Inc.+                                    22,366              548
ICG Communications, Inc.+                               47,900              991 
Inter Tel, Inc.                                         32,800              592 
Intermedia Communications, Inc.+                        50,000              925 
Natural Microsystems Corp.+                             22,200              199 
NTL, Inc.+                                              41,933            2,010 
P-Com, Inc.+                                            13,700               44 
Pacific Gateway Exchange, Inc.+                         20,900              603 
Paging Network, Inc.+                                   98,800              543 
Plantronics, Inc.+                                      17,700            1,008 
Powertel, Inc.+                                         24,200              360 
Vanguard Cellular Systems, Inc.,                                                
 Class A+                                              37,550              864

                                                    Number         Value
                                                   of Shares        (000s)
                                                     ---------      ----------
Winstar Communications, Inc.+                           41,300          $ 1,115 
World Access, Inc.+                                     24,300              519 
                                                                       -------
                                                                        16,445
                                                                       -------

TOBACCO -- 0.0%                                                                 
Schweitzer Mauduit International, Inc.                  12,760              232 
                                                                       -------

TRAVEL & RECREATION -- 1.7%                                                     
Acxiom Corp.+                                           74,600            1,874 
Anchor Gaming, Inc.+                                    13,700              697 
Bally Total Fitness Holding Corp.+                      26,200              495 
Boyd Gaming Corp.+                                      55,200              166 
Budget Group, Inc.+                                     29,100              522 
Coleman Co., Inc.+                                      60,600              595 
Family Golf Centers, Inc.+                              28,150              593 
Grand Casinos, Inc.+                                    43,500              383 
Homestead Village Properties, Inc.+                     29,800              186 
K2, Inc.                                                13,615              150 
Marcus Corp.                                            32,225              495 
Polaris Industries, Inc.                                26,000              894 
Primadonna Resorts, Inc.+                               26,000              189 
Prime Hospitality Corp.+                                52,000              475 
Red Roof Inns, Inc.+                                    32,000              554 
Rental Services, Corp.+                                 26,600              592 
Rio Hotel and Casino, Inc.+                             31,900              447 
Speedway Motorsports, Inc.+                             45,500              956 
Sports Authority, Inc.+                                 24,800              189 
Sunterra+                                               38,100              362 
                                                                       -------
                                                                        10,814
                                                                       -------

TRUCKING & FREIGHT -- 1.6%                                                      
Air Express International Corp.                         33,050              694 
AMERCO+                                                 21,800              512 
Arnold Industries, Inc.                                 30,300              386 
Eagle USA Airfreight, Inc.+                             16,000              205 
Expeditores International of                                                    
 Washington, Inc.                                      27,000              915
Fritz, Inc.+                                            40,000              355 
Heartland Express, Inc.+                                33,047              595 
J.B. Hunt Transport Services, Inc.                      39,050              654 
Roadway Express, Inc.                                   23,600              326 
Rollins Truck Leasing Corp.                             56,450              656 
Swift Transportation Co., Inc.+                         47,300            1,045 
U.S. Freightways Corp.                                  27,700              694 
Wabash National Corp.                                   28,000              497 

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Werner Enterprises, Inc.                                50,062         $    901 
XTRA Corp.                                              17,600              737 
Yellow Corp.+                                           32,400              520 
                                                                      --------
                                                                         9,692
                                                                      --------

UTILITIES - ELECTRIC & GAS -- 5.0%                                              
AGL Resources, Inc.                                     57,300            1,200 
Atmos Energy Corp.                                      32,100              953 
Bay State Gas Co.                                       16,500              648 
Black Hills Corp.                                       26,100              674 
Central Hudson Gas Electric Corp.                       17,800              721 
CILCORP, Inc.                                           13,100              675 
Cleco Corp.                                             23,500              795 
CMP Group, Inc.                                         33,500              618 
Commonwealth Energy System                              23,000              858 
Eastern Utilities Association                           21,600              560 
El Paso Electric Co.+                                   70,000              613 
Energen Corp.                                           26,800              482 
Global Industries Technologies, Inc.+                   17,700              154 
Indiana Energy, Inc.                                    28,933              647 
Interstate Energy Corp.                                 81,208            2,512 
KCS Energy                                              32,300              164 
Laclede Gas Co.                                         20,800              533 
MDU Resources Group, Inc.                               56,150            1,491 
New Jersey Resources Corp.                              20,100              773 
Northwest Natural Gas Co.                               23,400              652 
Northwestern Public Services Co.                        20,000              494 
Orange & Rockland Utilities, Inc.                       16,100              884 
Otter Tail Power Co.                                    14,700              570 
Philadelphia Suburban Corp.                             32,800              806 
Piedmont Natural Gas Co., Inc.                          32,600            1,133 
Primark Corp.+                                          27,100              732 
Public Service Co. of New Mexico                        45,800            1,010 
Public Service Co. of North Carolina                    24,400              538 
Sierra Pacific Resources                                32,900            1,199 
SIGCORP, Inc.                                           25,749              884 
Southern Union Co.+                                     27,427              636 
Southwest Gas Corp.                                     34,000              805 
TNP Enterprises, Inc.                                   11,700              395 
Triarc Companies, Inc.+                                 27,800              434 
UGI Corp.                                               37,800              865 
Unisource Energy Corp.+                                 36,680              569 
United Illuminating Co.                                 15,500              760 
United Water Resources, Inc.                            38,300              742 

Western Gas Resources, Inc.                             25,200         $    206 
WICOR, Inc.                                             41,400            1,009 
WPS Resources Corp.                                     26,800              891 
                                                                      --------
                                                                        31,285
                                                                      --------
TOTAL COMMON STOCK                                                              
 (Cost $652,242)                                                       626,604
                                                                      --------

PREFERRED STOCK -- 0.1%                                                         
Apartment Investments - Series E+                        8,331              331 
Price Enterprises, Inc.+                                18,600              248 
                                                                      --------
TOTAL PREFERRED STOCK                                                           
 (Cost $634)                                                               579
                                                                      --------

WARRANTS -- 0.0%                                                                

IMC Global, Inc. (expire 12/22/00)                       4,900                6 
                                                                      --------
TOTAL WARRANTS                                                                  
 (Cost $16)                                                                  6
                                                                      --------

SHORT-TERM INVESTMENTS -- 0.7%                                                  
MSTC Cash Reserve                                                               
Liquid Asset Fund,                                                          
  5.26%*                                            4,724,149            4,724
                                                                      --------
Total SHORT-TERM INVESTMENTS                                                    
 (Cost $4,724)                                                           4,724
                                                                      --------
TOTAL INVESTMENTS -- 100.4%                                                     
 (Cost $657,616)                                                       631,913
                                                                      --------
OTHER ASSETS AND LIABILITIES -- (0.4)%                                          
 Other assets                                                           40,415
  Liabilities                                                           (43,072)
                                                                       -------
                                                                         (2,657)
                                                                      --------
TOTAL NET ASSETS -- 100.0%                                             $629,256 
                                                                      ========

SEE ACCOMPANYING NOTES TO SCHEDULES OF INVESTMENTS AND NOTES TO FINANCIAL       
STATEMENTS.                                                                     

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SCHWAB INTERNATIONAL INDEX FUND(R)                                              
SCHEDULE OF INVESTMENTS (continued)                                             
October 31, 1998                                                                

                                                      Number         Value
                                                     of Shares        (000s)
                                                       ---------      ----------
COMMON STOCK -- 98.5%                                                           
AUSTRALIA -- 1.4%                                                               
Australia & New Zealand                                                         
 Banking Group                                        131,438          $   749
Broken Hill Proprietary Co., Ltd.                      172,198            1,458 
Coca-Cola Amatil, Ltd.                                 117,150              431 
Coca-Cola Beverage+                                     33,834               69 
Commonwealth Bank of Australia                          80,011              991 
National Australia Bank                                124,927            1,649 
News Corporation, Ltd.+                                165,965            1,130 
Westpac Banking Corp.                                  156,216              947 
                                                                       -------
                                                                         7,424
                                                                       -------

BELGIUM -- 1.9%                                                                 
Almanij                                                 16,313            1,321 
de Beligique+                                              600             --   
Dexia Belgium                                            3,096              503 
Electrabel                                               4,702            1,736 
Fortis AG                                                6,997            2,013 
Fortis Cvg Rts '98                                       3,311               23 
Fortis Strips Vvpr                                       3,311             --   
Lyon Des Eaux Cvg                                        6,090               62 
Petrofina SA                                             1,990              740 
Solvay SA                                                7,090              557 
Suez Lyonnaise Des Eaux                                  6,090            1,095 
Tractebel Investors                                                             
 International Capital                                  7,329            1,224
UCB                                                        124              725 
                                                                       -------
                                                                         9,999
                                                                       -------

CANADA -- 2.9%                                                                  
Alcan Aluminum, Ltd.                                    21,666              543 
Bank of Montreal, Quebec                                22,977              938 
Bank of Nova Scotia, Halifax                            43,694              910 
Barrick Gold Corp.                                      34,591              734 
BCE, Inc.                                               54,132            1,831 
Bombardier, Inc., Class B                               62,000              732 
Canadian Imperial Bank                                                          
 of Commerce                                           35,145              697
Canadian Pacific, Ltd.                                  30,124              675 
Imasco, Ltd.                                            46,200              867 
Imperial Oil, Ltd.                                      41,022              650 
Loblaw                                                  20,500              381 
Northern Telecom, Ltd.                                  43,646            1,869 
Royal Bank of Canada,                                                           
 Montreal, Quebec                                      26,186            1,204
Seagram Co., Ltd.                                       31,590            1,036 
Thomson Corp.                                           53,932            1,327 
Toronto Dominion Bank Ontario                           33,578              997 
                                                                       -------
                                                                        15,391
                                                                       -------

                                                    Number         Value
                                                   of Shares        (000s)
                                                     ---------      ----------
DENMARK -- 0.8%                                                                 
D/S 1912, Series B                                          93          $   702 
D/S Svendborg, Series B                                     70              761 
Den Danske Bank                                          4,463              606 
Novo-Nordisk A/S, Series B                               6,514              760 
Tele Danmark A/S, Series B                              11,294            1,230 
                                                                       -------
                                                                         4,059
                                                                       -------

FRANCE -- 8.6%                                                                  
Accor                                                    3,024              636 
Air Liquide (Prime Fidelite) (Reg.)                     10,179            1,705 
Alcatel Alsthom SA                                      13,704            1,528 
AXA UAP                                                 29,104            3,291 
Banque Nationale de Paris                               18,362            1,164 
Canal Plus                                               2,645              642 
Cap Gemini                                               5,772              868 
Carrefour                                                3,396            2,255 
Casino Guichard                                          6,151              613 
Cie de Saint-Gobain SA                                   7,453            1,103 
Credit Commerical de France                              6,138              431 
Danone Groupe                                            6,076            1,607 
Dassault Systems                                         9,523              364 
L'Oreal SA                                               5,642            3,226 
Lafarge Coppee SA                                       10,491            1,073 
Lagardere Groupe                                        10,104              407 
LVMH (Moet Hennesy Louis Vuitton)                        8,075            1,498 
Michelin (CDGE), Class B (Reg.)                         11,087              457 
Paribas                                                 13,501              993 
Peugeot                                                  4,226              705 
Pinault Printemps Redoute SA                             9,875            1,654 
Promodes                                                 1,614            1,017 
Rhone-Poulenc SA, Series A                              29,401            1,345 
Sadexho Frenc                                            2,820              548 
Sanofi                                                   9,171            1,437 
Schneider SA                                            12,655              752 
Societe Nationale Elf Aquitaine                         22,772            2,637 
Societe Generale                                         7,691            1,018 
Stmicroelectonics+                                      12,436              761 
Suez Lyonn Vvpr STRIP+                                   6,090                1 
Suez Lyonnaise des Eaux                                 11,888            2,130 
Synthelabo                                               4,356              832 
Total B Compgne                                         20,512            2,368 
Valeo SA                                                 5,951              515 
Vivendi                                                 13,356            3,052 
                                                                       -------
                                                                        44,633
                                                                       -------

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                                                    Number         Value
                                                   of Shares        (000s)
                                                     ---------      ----------
GERMANY -- 9.5%                                                                 
Adidas                                                   3,900          $   457 
BASF AG                                                 52,679            2,234 
Bayer AG                                                60,463            2,458 
Bayerische Motoren Werke+                                  331              226 
Bayerische Motoren Werke AG                              2,058            1,451 
Bayerische Vereinsbank AG                               39,411            3,131 
Commerzbank AG                                          40,089            1,206 
Daimler-Benz AG                                         47,397            3,679 
Degussa                                                  7,800              375 
Deutsche Bank AG                                        46,029            2,864 
Dresdner Bank AG                                        40,548            1,580 
Ergo Versich Gruppe                                      6,400            1,061 
Hoechst AG                                              49,111            2,053 
Linde AG                                                   865              470 
Lufthansa AG (Reg.)                                     29,568              643 
Man                                                      1,000              326 
Mannesmann AG                                           33,620            3,310 
Metro                                                    3,260              129 
Metro AG                                                20,164            1,242 
Muenchener Ruckvers                                        510              156 
Muenchener Ruckvers (Reg.)+                                451              205 
Muenchener Rueckversicherungs-                                                  
 Gesellschaft                                          10,772            4,932
Preussag                                                 1,300              480 
RWE AG                                                  38,501            2,089 
SAP AG                                                   5,197            2,182 
Schering AG                                              6,082              717 
Siemens AG                                              46,995            2,828 
Thyssen AG                                               2,817              507 
Veba AG                                                 41,301            2,308 
Vew AG                                                   1,912              609 
Viag AG                                                  2,257            1,534 
Volkswagen AG                                           31,520            2,371 
                                                                       -------
                                                                        49,813
                                                                       -------

HONG KONG -- 1.8%                                                               
Cheung Kong Holdings                                   196,000            1,341 
CLP Holdings Limited                                   211,900            1,190 
Hang Seng Bank, Ltd.                                   164,700            1,425 
Henderson Land Development Co.                         103,000              507 
Hong Kong & China Gas Co. Limited                      240,900              342 
Hong Kong Electric Holdings, Ltd.                      139,500              512 
Hutchison Whampoa, Ltd.                                287,000            2,057 
Sun Hung Kai Properties                                203,500            1,419 
Swire Pacific, Ltd., Class A                           102,500              544 
                                                                       -------
                                                                         9,337
                                                                       -------

                                                    Number         Value
                                                   of Shares        (000s)
                                                     ---------      ----------
ITALY -- 4.3%                                                                   
Assicurazioni Generali                                  88,478          $ 3,171 
Banca Intesa                                           155,155              784 
Bca Comm Italiana                                      151,323              936 
Bca Intesa Spa-Rnc                                      60,500              140 
Credito Italiano                                       242,817            1,305 
ENI SPA (Reg.)                                         680,372            4,050 
Fiat Spa-RNC                                            60,267               99 
Fiat SPA                                               312,492              897 
Istituto Banc San Paolo+                                68,800            1,012 
Istituto Nazionale delle Assicurazioni                 326,204              899 
Montedison                                             420,960              417 
Montedison Spa -Rnc                                     60,500               48 
Pirelli SPA-RNC                                          7,500               16 
Pirelli SPA                                            156,370              449 
TIM SPA-RNC+                                           223,802              794 
Telecom Italia SPA                                     486,774            3,522 
TIM SPA                                                564,690            3,281 
Telecom Italia SPA-RNC+                                179,792              907 
                                                                       -------
                                                                        22,727
                                                                       -------

JAPAN -- 20.0%                                                                  
Advantest Corp.                                          9,700              612 
Ajinomoto Co., Inc.                                     46,000              435 
All Nipon Airways Co., Ltd.+                           104,000              384 
Asahi Bank                                             167,000              559 
Asahi Breweries                                         41,000              586 
Asahi Glass Co., Ltd.                                   84,000              469 
Bank of Tokyo-Mitsubishi, Ltd.                         397,500            3,691 
Bridgestone Corp.                                       70,000            1,542 
Canon, Inc.                                             75,000            1,420 
Cent Japan Railway                                         190              976 
Chubu Electric Power Co.                                63,100            1,241 
Dai Nippon Printing Co.                                 68,000            1,048 
Dai-Ichi Kangyo Bank, Ltd.                             274,000            1,683 
DDI Corp.                                                  182              532 
Denso                                                   95,000            1,791 
East Japan Railway Co.                                     375            2,226 
Fanuc                                                   21,100              634 
Fuji Bank, Ltd.                                        208,000              797 
Fuji Photo Film Co.                                     43,000            1,577 
Fujitsu, Ltd.                                          154,000            1,640 
Hitachi, Ltd.                                          284,000            1,447 
Honda Motor Co., Ltd.                                   82,000            2,465 
Industrial Bank of Japan, Ltd.                         182,000              871 
Ito Yokado Co., Ltd.                                    35,000            2,044 
Japan Tobacco, Inc.                                        167            1,401 
Joyo Bank                                                  100             --   
Jusco Co.                                               29,000              468 
Kansai Electric Power Co.                               86,300            1,849 

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SCHWAB INTERNATIONAL INDEX FUND(R)                                              
SCHEDULE OF INVESTMENTS (continued)                                             
October 31, 1998                                                                

                                                    Number         Value
                                                 of Shares        (000s)
                                                     ---------      ----------
Kao Corp.                                               51,000          $ 1,034 
Kinki Nippon Railway Co.                               115,830              597 
Kirin Brewery Co., Ltd.                                 75,000              818 
Kyocera Corp.                                           16,000              708 
Kyushu Electric Power Co.                               40,700              781 
Marui Co.                                               33,000              575 
Matsushita Communications Ind                            7,000              787 
Matsushita Electric                                                             
 Industrial Co., Ltd.                                 177,000            2,601
Matsushita Electric Works                               55,000              525 
Mitsubishi Corp.                                       113,000              599 
Mitsubishi Estate Co.                                   94,000              853 
Mitsubishi Heavy Industries, Ltd.                      297,000            1,148 
Mitsubishi Trust & Banking Corp.                        94,000              635 
Mitsui & Co.                                           113,000              604 
Murata Manufacturing Co.                                23,000              776 
NEC Corp.                                              144,000            1,067 
Nintendo Co., Ltd.                                      12,600            1,067 
Nippon Express Co.                                      77,000              433 
Nippon Steel Corp.                                     622,000            1,085 
Nippon Telegraph & Telephone Corp.                       1,113            8,719 
Nissan Motor Co., Ltd.                                 181,000              491 
Nomura Securities Co. Ltd.                             164,000            1,240 
Odakyu Electric Railway Co.                                510                2 
Osaka Gas Co.                                          182,000              585 
Ricoh Co., Ltd.                                         47,000              398 
Rohm Co.                                                10,000              885 
Sakura Bank                                            246,000              613 
Sankyo Co.                                              38,000              858 
Sanwa Bank                                             247,000            1,929 
Sanyo Electric Co., Ltd.                               140,000              394 
Secom Co.                                               10,000              743 
Seibu Railway Co.                                       37,000            1,211 
Sekisui House                                           51,000              509 
Seven-Eleven Japan Co.                                  35,000            2,664 
Sharp Co.                                               81,000              612 
Shin-Etsu Chemical Co.                                  31,700              632 
Shizuoka Bank                                           58,000              669 
SMC Corp.                                                6,000              453 
Sony Corp.                                              37,700            2,396 
Sumitomo Bank                                          268,000            2,636 
Sumitomo Corp.                                          76,000              364 
Sumitomo Electric Industries                            61,000              676 
Sumitomo Trust & Banking Co.                            89,000              248 
Taisho Pharmaceuticals Co.                              31,000              831 
Takeda Chemical Industries                              77,000            2,507 
TDK Corp.                                               12,000              792 
Tohoku Electric Power Co.                               43,600              762 
Tokai Bank                                             146,000              722 
Tokio Marine & Fire Insurance Co.                      142,000            1,616 
Tokyo Electric Power Co., Inc.                         115,700            2,932 

                                                    Number         Value
                                                   of Shares        (000s)
                                                     ---------      ----------
Tokyo Electron                                          16,000         $    521 
Tokyo Gas Co.                                          202,000              519 
Toppan Printing Co.                                     59,000              606 
Toray Industries, Inc.                                 100,000              466 
Toshiba Corp.                                          281,000            1,320 
Toyota Motor Corp.                                     337,000            8,105 
West Japan Railway                                         175              782 
Yamanouchi Pharmaceutical Co.                           29,000              832 
                                                                      --------
                                                                       104,321
                                                                      --------

NETHERLANDS -- 7.0%                                                             
ABN AMRO Holdings NV                                   114,603            2,148 
Aegon NV                                                48,342            4,196 
Ahold (Kon) NV                                          48,061            1,598 
Akzo Nobel NV                                           30,366            1,181 
Asm Lithography+                                        11,636              295 
Baan+                                                   16,492              184 
Dordtsche Petroleum                                     18,778              814 
Elsevier NV                                             55,561              783 
Fortis Amev NV                                          16,443            1,068 
Heineken NV                                             25,593            1,364 
ING Groep NV                                            78,063            3,779 
Koninklijke PTT Nederland                               40,076            1,558 
Philips Electronics NV                                  29,505            1,571 
PolyGram NV                                             16,354              964 
Randstad Hlds                                            9,106              488 
Royal Dutch Petroleum Co.                              184,938            8,933 
Unilever NV                                             53,417            3,965 
Vnu Ver Ned Uitg Bezit                                  15,978              553 
Wolter Kluwer NV                                         6,045            1,172 
                                                                      --------
                                                                        36,614
                                                                      --------

SPAIN -- 3.2%                                                                   
Argentaria Corp.                                        41,944              914 
Banco Central Hispano                                   93,234            1,030 
Banco Popular Espanol                                   10,581              654 
Banco Santander                                         97,994            1,797 
BCO Bilbao Vizcaya                                     168,834            2,280 
Endesa SA                                               89,171            2,250 
Gas Natural SDG                                         13,003            1,121 
Iberdrola SA                                            75,984            1,228 
Repsol SA                                               25,312            1,272 
Telefonica International                                                        
 de Espana SA                                          88,392            3,995
                                                                      --------
                                                                        16,541
                                                                      --------

SWEDEN -- 2.8%                                                                  
ABB AB, Series A                                        59,869              632 
Asea AB                                                 27,898              294 
Astra AB, Series A                                     112,270            1,817 

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                                                    Number         Value
                                                   of Shares        (000s)
                                                     ---------      ----------
Astra AB, Series B                                       30,472        $    478 
Atlas Copco AB-B                                          5,100             118 
Atlas Copco, Series A                                    10,329             240 
Electrolux AB                                            30,874             464 
Foreningssparbaken, Series A                             33,220             899 
Hennes & Mauritz, Series B                               18,570           1,307 
L.M. Ericsson Telephone, Series B                       168,087           3,785 
Nordbanken Holding                                      109,987             659 
Sandvik AB, Series A                                     17,866             367 
Sandvik AB, Series B                                      8,461             174 
Skand. Enskil. Bank, Series A                            47,732             482 
Skandia Forsakrings                                      43,150             549 
Skanska AB, Series B                                      9,600             316 
Svenska Cell AB, Series B                                16,644             390 
Svenska Handelsbanken, Series A                          19,488             819 
Svenska Handelsbanken, Series B                           3,956             152 
Volvo AB, Series A                                       14,094             296 
Volvo AB, Series B                                       28,295             610 
                                                                       -------
                                                                        14,848
                                                                       -------

SWITZERLAND -- 9.1%                                                             
ABB (Reg.)                                                  568             138 
ABB - Asea Brown Boveri                                     677             811 
Adecco SA                                                 1,525             608 
Alusuisse Lonza HD (Reg.)                                   516             590 
Ares Serono                                                 316             475 
Ciba Specialty Chemicals                                  6,025             619 
Cie Financiere Richemont, Series A                          484             644 
Clariant (Reg.)                                           6,020           3,114 
Credit Suisse Group                                      22,407           3,448 
Holderbank Financiere Glaris (Bearer)                       988             221 
Holderbank Financiere Glaris (Reg.)                         489             545 
Nestle SA (Reg.)                                          3,409           7,254 
Novartis AG (Bearer)                                      1,014           1,827 
NovartisAG (Reg.)                                         5,342           9,631 
Roche Group Holding                                         135           2,449 
Roche Holding Genusscheine                                  607           7,086 
Sfr Schweizerischer Bkver+                                  425               6 
Swatch Group (Reg.)                                       1,250             171 
Swatch Group AG, Series B                                   310             171 
UBS AG (Reg.)                                            17,907           4,915 
Zurich Allied                                             4,183           2,544 
                                                                       -------
                                                                        47,267
                                                                       -------

UNITED KINGDOM -- 25.2%                                                         
Abbey National                                          118,862           2,310 
Alliance & Leicester                                     49,071             712 
Allied Domecq                                            74,995             686 
Asda Group                                              254,135             684 

                                                    Number         Value
                                                   of Shares        (000s)
                                                     ---------      ----------
Associated British Foods                                 70,618         $   661 
BAA PLC                                                  97,041           1,091 
Bank of Scotland PLC                                    101,794           1,105 
Barclays PLC                                            126,231           2,717 
BASS PLC                                                 76,639             929 
BG                                                      374,681           2,453 
BOC Group PLC                                            45,114             662 
Boots Co.                                                75,415           1,138 
British Aerospace                                       135,040           1,004 
British Airways                                          68,936             500 
British Energy PLC                                       60,690             593 
British Land                                             43,550             350 
British Petroleum Co.                                   501,754           7,360 
British Sky Broadcast                                   156,349           1,273 
British Telecommunications                              560,943           7,244 
BTR PLC                                                 286,134             500 
Cable & Wireless Communications+                        125,565             945 
Cable & Wireless PLC                                    192,150           2,153 
Cadbury Schweppes                                        83,540           1,278 
Centrica PLC+                                           374,033             726 
CGU                                                     114,746           1,816 
Compass Group                                            56,151             568 
Diageo PLC                                              299,917           3,235 
Emi Group PLC                                            77,574             460 
General Electric Company PLC                            235,140           1,878 
GKN PLC                                                  56,652             688 
Glaxo Wellcome PLC                                      310,895           9,650 
Granada Group                                            73,879           1,113 
Great Universal Stores                                   83,923             901 
Guardian Royal Exchange PLC                              74,127             359 
Halifax                                                 212,429           2,814 
Hays PLC                                                 35,497             523 
HSBC Holdings                                           149,497           3,400 
HSBC Holdings 75p                                        74,178           1,737 
Imperial Chemical Industries                             63,162             567 
Invseco PLC                                              54,037             408 
Kingfisher                                              119,454           1,048 
Ladbroke                                                100,099             366 
Legal & General Group                                   106,157           1,257 
Lloyds TSB Group PLC                                    465,419           5,741 
Lucas Varity                                            119,699             408 
Marks & Spencer PLC                                     239,914           1,776 
Misys                                                    47,030             330 
National Grid Group PLC                                 134,171             918 
National Power Development                              104,878             910 
National Westminster Bancorp                            142,724           2,409 
Norwich Union                                           165,424           1,179 
Pearson Inc.                                             47,646             830 
Peninsular & Oriental Steam                                                     
 Navigation                                             50,816             532

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SCHWAB INTERNATIONAL INDEX FUND (R)                                             
SCHEDULE OF INVESTMENTS (continued)                                             
October 31, 1998                                                                

                                                      Number         Value
                                                     of Shares        (000s)
                                                       ---------      ----------

Powergen                                                  56,653       $    804 
Prudential Corp.                                         160,525          2,086 
Railtrack Group                                           43,011          1,155 
Reckitt & Colman PLC                                      37,912            655 
Reed International                                       104,356            882 
Rentokil Initial                                         252,578          1,580 
Reuters Holdings Group PLC                               140,900          1,449 
Rio Tinto                                                 89,386          1,084 
Rolls Royce PLC                                           93,075            343 
Royal & Sun Alliance Insurance                                                  
 Group PLC                                              136,047          1,245
Royal Bank of Scotland                                    72,182            956 
Safeway PLC                                               67,071            337 
Sainsbury J                                              166,084          1,467 
Schroders                                                 24,544            466 
Scot & Newcastle                                          51,294            625 
Scottish Power                                           100,903            992 
Severn Trent                                              28,525            493 
Shell Transport & Trading Co. (Reg.)                     845,745          5,131 
Siebe PLC                                                166,152            681 
Smithkline Beecham                                       479,192          5,987 
Stagecoach Holdings                                      107,780            425 
Standard Chartered PLC                                    82,031            881 
Tesco PLC                                                561,186          1,582 
Thames Water                                              29,328            544 
Tomkins                                                   99,594            461 
Unilever PLC                                             277,313          2,783 
United News & Media PLC                                   40,983            453 
United Utilities PLC                                      43,940            642 
Vodafone Group PLC                                       260,131          3,481 
Whitbread                                                 45,126            606 
Williams                                                  66,185            413 
Woolwich                                                 134,902            800 
Zeneca Group                                              79,013          3,032 
                                                                      --------
                                                                       131,416
                                                                      --------
TOTAL COMMON STOCK                                                              
 (Cost $427,517)                                                       514,390
                                                                      --------

PREFERRED STOCK -- 0.8%                                                         

AUSTRALIA -- 0.2%                                                               
News Corporation, Ltd.                                                          
 (Limited Voting Shares)+                               153,739            921
                                                                      --------

FRANCE -- 0.0%                                                                  
Casino Guichard Perrach (Limited                                                
 Voting Shares)                                         1,700              104
                                                                      --------

                                                    Number         Value
                                                   of Shares        (000s)
                                                     ---------      ----------
GERMANY -- 0.6%                                                                 
Man AG Vorzugsouktien                                                           
 (Non-Voting)                                             370        $      86
RWE                                                     18,788              687 
SAP AG (Non-Voting)                                      3,537            1,724 
Volkswagen AG (Non-Voting)                               7,870              370 
                                                                     ---------
                                                                         2,867
                                                                     ---------

ITALY -- 0.0%                                                                   
Fiat Finance SPA                                        62,447               95 
                                                                     ---------
TOTAL PREFERRED STOCK                                                           
 (Cost $2,333)                                                           3,987
                                                                     ---------

WARRANTS -- 0.0%                                                                

FRANCE -- 0.0%                                                                  
AXA UAP CVG (expire 01/07/99)                            5,916                6 
Cie Generale de Eaux (expire 05/02/01)                   8,094               17 
                                                                     ---------
                                                                            23
                                                                     ---------

GERMANY -- 0.0%                                                                 
Muenchener Rueckversich                                                         
 (expire 06/03/02)                                        451               20
                                                                     ---------

HONG KONG -- 0.0%                                                               
Hong Kong & China Gas                                                           
 (expire 09/30/99)                                    10,950                 1
Wharf Holdings (expire 12/31/99)                        6,200                -- 
                                                                     ---------
                                                                             1
                                                                     ---------
TOTAL WARRANTS                                                                  
 (Cost $5)                                                                  44
                                                                     ---------
TOTAL INVESTMENTS -- 99.3%                                                      
 (Cost $429,855)                                                       518,421
                                                                     ---------
OTHER ASSETS AND LIABILITIES -- 0.7%                                            
 Other assets                                                            4,496
  Liabilities                                                              (895)
                                                                     ---------
                                                                         3,601
                                                                     ---------
TOTAL NET ASSETS -- 100.0%                                            $ 522,022 
                                                                     =========

SEE ACCOMPANYING NOTES TO SCHEDULES OF INVESTMENTS AND NOTES TO FINANCIAL       
STATEMENTS.                                                                     

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NOTES TO SCHEDULES OF INVESTMENTS                                               
October 31, 1998                                                                

+  Non-Income Producing Security.                                           
*  Interest rate represents the yield on report date.                       
ADR -- American Depository Receipt.                                             
(a) Yields shown are effective yields at time of purchase.                      
(b) These securities, or portion thereof, are being used to collaterize open    
financial futures contracts.                                            

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.                                 

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STATEMENTS OF ASSETS AND LIABILITIES (in thousands)                             
October 31, 1998                                                                

                                                        [Enlarge/Download Table]


                                                                   Schwab       Schwab        Schwab         Schwab    
                                                                  S&P 500       1000        Small-Cap     International
                                                                    Fund        Fund(R)    Index Fund(R)  Index Fund(R)
                                                                 ----------   ----------   -------------  -------------
                                                                                                                       
ASSETS                                                                                                                 
Investments, at value (Cost: $3,227,609, $3,073,992,                                                                   
   $657,616and $429,855, respectively)                           $3,765,713   $4,697,996     $631,913       $518,421   
Cash                                                                     --            1          521             --   
Foreign currency (Cost: $0, $0, $0 and $8, respectively)                 --           --           --              8   
Amounts on deposit with brokers                                         816        2,178           --             --   
Cash held as collateral for securities on loan (Note 6)             417,834      565,945       35,407             --   
Receivables:                                                                                                           
   Investments sold                                                      --           --           --          2,624   
   Fund shares sold                                                  36,139        9,638        4,153            498   
   Interest                                                              42            3           18             40   
   Dividends                                                          4,044        4,925          300            831   
   Securities lending income                                             --           76           16             --   
   Variation margin                                                     721          419           --             --   
   Dividend tax reclaim                                                  --           --           --            495   
Prepaid expenses                                                        247          141           --             --   
                                                                 ----------   ----------     --------       --------   
     Total assets                                                 4,225,556    5,281,322      672,328        522,917   
                                                                 ----------   ----------     --------       --------   
LIABILITIES                                                                                                            
Collateral held for securities on loan (Note 6)                     417,834      565,945       35,407             --   
Payables:                                                                                                              
   Investments purchased                                             38,359       14,167        7,157             --   
   Fund shares redeemed                                               4,524        2,751          301             62   
   Cash overdraft payable to custodian                                   --           --           --            170   
   Borrowings on line of credit                                          --           --           --            434   
   Investment advisory and administration fees                           57          137           30             27   
   Transfer agency and shareholder service fees                          65          127           36             19   
   Interest                                                              --            5           --             --   
   Withholding taxes                                                     --           --           --              6   
Accrued expenses                                                        443          517          141            164   
Unrealized loss on forward foreign currency contracts (Note 2)           --           --          --              13   
                                                                 ----------   ----------     --------       --------   
     Total liabilities                                              461,282      583,649       43,072            895   
                                                                 ----------   ----------     --------       --------   
Net assets applicable to outstanding shares                      $3,764,274   $4,697,673     $629,256       $522,022   
                                                                 ==========   ==========     ========       ========   
NET ASSETS CONSIST OF:                                                                                                 
   Paid-in-capital                                               $3,205,607   $3,045,789     $616,874       $444,825   
   Undistributed net investment income                               30,878       34,084        1,866          5,810   
   Accumulated net realized gain (loss) on investments sold,                                                           
     futures contracts and foreign currency transactions            (11,036)      (6,623)      36,219        (17,215)  
   Net unrealized appreciation (depreciation)                                                                          
     on investments and futures contracts                           538,825    1,624,423      (25,703)        88,566   
   Net unrealized appreciation on translating                                                                          
     assets and liabilities into reporting currency                      --           --           --             36   
                                                                 ----------   ----------     --------       --------   
                                                                 $3,764,274   $4,697,673     $629,256       $522,022   
                                                                 ==========   ==========     ========       ========   
PRICING OF SHARES                                                                                                      
   Net asset value, offering and redemption price per share,                                                           
     applicable to outstanding shares, $0.00001 par value                                                              
     (unlimited shares authorized)                                                                                     
       Investor Shares ($1,935,398/113,480, $3,657,122/122,308,                                                        
         $479,500/31,148,and $428,462/30,160, respectively)          $17.05       $29.90       $15.39         $14.21   
       Select Shares ($1,548,052/90,563, $1,040,551/34,762,                                                            
         $149,756/9,715,and $93,560/6,577, respectively)             $17.09       $29.93       $15.41         $14.23   
       e. Shares ($280,824/16,444)                                   $17.08         NA           NA              NA    

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.                                 

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STATEMENTS OF OPERATIONS (in thousands)                                         
For the year ended October 31, 1998                                             

                                                        [Enlarge/Download Table]


                                                                      Schwab     Schwab       Schwab         Schwab    
                                                                      S&P 500     1000       Small-Cap    International
                                                                       Fund      Fund(R)   Index Fund(R)  Index Fund(R)
                                                                     --------   --------   -------------  -------------
                                                                                                                       
Investment income:                                                                                                     
   Dividends (net of foreign taxes withheld of                                                                         
     $234, $2, $1 and $928, repectively)                             $ 42,456   $ 56,961     $  4,810        $ 8,436   
   Interest                                                               180      1,013          194            478   
   Income from securities lending                                         326        712           16             --   
                                                                      --------   --------     --------        -------  
     Total investment income                                           42,962     58,686        5,020          8,914   
                                                                     --------   --------     --------        -------   
Expenses:                                                                                                              
   Investment advisory and administration fees                          9,034      9,162        2,832          3,067   
   Transfer agency and shareholder service fees                                                                        
     Investor Shares                                                    3,665      8,177        1,164            961   
     Select Shares                                                      1,019        712          129             76   
     e.Shares                                                             207        N/A          N/A            N/A   
   Custodian and portfolio accounting fees                                317        427          260            352   
   Professional fees                                                       62         27           45             30   
   Registration fees                                                      531        325          116             90   
   Shareholder reports                                                    254        500           99             97   
   Trustees' fees                                                          26         45            8              7   
   Insurance and other expenses                                            54         56           54             60   
                                                                     --------   --------     --------        -------   
                                                                       15,169     19,431        4,707          4,740   
Less:expenses reduced (see Note 4)                                     (7,517)    (1,888)      (1,935)        (2,154)  
                                                                     --------   --------     --------        -------   
     Net expenses incurred by Fund                                      7,652     17,543        2,772          2,586   
                                                                     --------   --------     --------        -------   
Net investment income                                                  35,310     41,143        2,248          6,328   
                                                                     --------   --------     --------        -------   
Netrealized gain (loss) on investments sold,                                                                           
   futures contracts and foreign currency transactions:                                                                
     Net realized gain (loss) on investments sold                      (3,247)       389       50,081        (12,198)  
     Net realized loss on futures contracts                            (5,056)    (1,558)          --             --   
     Net realized loss on foreign currency transactions                    --         --           --         (1,094)  
                                                                     --------   --------     --------        -------   
       Net realized gain (loss) on investments sold,                                                                   
         futures contracts and foreign currency transactions           (8,303)    (1,169)      50,081        (13,292)  
                                                                     --------   --------     --------        -------   
Change in net unrealized appreciation (depreciation) on                                                                
   investments, futures contracts and foreign currency translation:                                                    
     Net unrealized appreciation (depreciation) on investments        371,102    585,829     (145,100)        31,951   
     Net unrealized appreciation on futures contracts                     721        419           --             --   
     Net unrealized depreciation on foreign currency translation           --         --           --            (25)  
                                                                     --------   --------     --------        -------   
       Net unrealized appreciation (depreciation) on investments,                                                      
         futures contracts and foreign currency translation           371,823    586,248     (145,100)        31,926   
                                                                     --------   --------     --------        -------   
Net gain (loss) on investments                                        363,520    585,079      (95,019)        18,634   
                                                                     --------   --------     --------        -------   
Increase (decrease) in net assets resulting from operations          $398,830   $626,222     $(92,771)       $24,962   
                                                                     ========   ========     ========        =======   

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.                                 

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STATEMENTS OF CHANGES IN NET ASSETS (in thousands)                              
For the periods ended October 31, 1998                                          

                                                        [Enlarge/Download Table]

                                                               Schwab S&P 500                       Schwab 1000                 
                                                                    Fund                               Fund(R)                  
                                                         --------------------------   ----------------------------------------- 
                                                             1998           1997          1998          1997+          1997++   
                                                         -----------    -----------   -----------    -----------    ----------- 
                                                                                                                                
Operations:                                                                                                                     
   Net investment income                                 $    35,310    $    12,073   $    41,143    $     5,159    $    29,087 
   Net realized gain (loss) on investments sold                                                                                 
      and futures contracts                                   (8,303)        (2,679)       (1,169)         1,097         (4,992)
   Change in net unrealized appreciation on investments                                                                         
      and futures contracts                                  371,823        149,986       586,248         43,118        651,010 
                                                         -----------    -----------   -----------    -----------    ----------- 
     Increase in net assets resulting from operations        398,830        159,380       626,222         49,374        675,105 
                                                         -----------    -----------   -----------    -----------    ----------- 
Dividends to shareholders from net investment income                                                                            
   Investor Shares                                            (8,697)        (2,361)      (27,684)          --          (23,949)
   Select Shares                                              (5,313)          --          (5,010)          --             --   
   e. Shares                                                  (1,504)          (498)         --             --             --   
                                                         -----------    -----------   -----------    -----------    ----------- 
                                                             (15,514)        (2,859)      (32,694)          --          (23,949)
                                                         -----------    -----------   -----------    -----------    ----------- 
Capital share transactions:                                                                                                     
   Proceeds from shares sold                               3,118,974      1,636,074     2,003,202        270,742      1,328,283 
   Net asset value of shares issued in reinvestment                                                                             
      of dividends                                            14,660          2,679        29,584           --           21,833 
   Early withdrawal fees (see Note 8)                           --             --             834            104            429 
   Less payments for shares redeemed                      (1,293,119)      (534,934)     (966,474)      (129,356)      (715,625)
                                                         -----------    -----------   -----------    -----------    ----------- 
     Increase in net assets from capital share                                                                                  
       transactions                                        1,840,515      1,103,819     1,067,146        141,490        634,920 
                                                         -----------    -----------   -----------    -----------    ----------- 
Total increase in net assets                               2,223,831      1,260,340     1,660,674        190,864      1,286,076 

Net Assets:                                                                                                                     
   Beginning of period                                     1,540,443        280,103     3,036,999      2,846,135      1,560,059 
                                                         -----------    -----------   -----------    -----------    ----------- 
   End of period (including undistributed net                                                                                   
     investment income of $30,878, $11,074,                                                                                     
     $34,084, $25,431 and $20,272, respectively)         $ 3,764,274    $ 1,540,443   $ 4,697,673    $ 3,036,999    $ 2,846,135 
                                                         ===========    ===========   ===========    ===========    =========== 
Number of fund shares:                                                                                                          
   Sold                                                      190,511        122,252        69,393         10,444         59,126 
   Reinvested                                                  1,017            231         1,155           --            1,058 
   Redeemed                                                  (79,685)       (39,579)      (33,764)        (4,990)       (31,365)
                                                         -----------    -----------   -----------    -----------    ----------- 
   Net increase in shares outstanding                        111,843         82,904        36,784          5,454         28,819 
Shares outstanding:                                                                                                             
   Beginning of period                                       108,644         25,740       120,286        114,832         86,013 
                                                         -----------    -----------   -----------    -----------    ----------- 
   End of period                                             220,487        108,644       157,070        120,286        114,832 
                                                         ===========    ===========   ===========    ===========    =========== 

+ For the period from September 1, 1997 to October 31, 1997.                  
++ For the period from September 1, 1996 to August 31, 1997.                    

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.                                 

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STATEMENTS OF CHANGES IN NET ASSETS (in thousands)                              
For the years ended October 31, 1998                                            

                                                        [Enlarge/Download Table]


                                                                         Schwab                    Schwab           
                                                                        Small-Cap                International      
                                                                       Index Fund(R)             Index Fund(R)      
                                                                   ---------------------    ----------------------  
                                                                    1998          1997        1998           1997   
                                                                   --------     --------    --------       -------- 
                                                                                                                    
Operations:                                                                                                         
   Net investment income                                          $   2,248     $   1,671   $   6,328     $   4,224 
   Net realized gain (loss) on investments sold and                                                                 
     foreign currency transactions                                   50,081          (478)    (13,292)       (1,963)
   Change in net unrealized appreciation                                                                            
     (depreciation) on investments                                                                                  
     and foreign currency translation                              (145,100)       83,214      31,926        24,079 
                                                                  ---------     ---------   ---------     --------- 
   Increase (decrease) in net assets resulting from operations      (92,771)       84,407      24,962        26,340 
                                                                  ---------     ---------   ---------     --------- 
Dividends to shareholders from net investment income                                                                
   Investor Shares                                                   (1,517)         (998)     (3,700)       (3,464)
   Select Shares                                                       (379)         --          (654)         --   
                                                                  ---------     ---------   ---------     --------- 
                                                                     (1,896)         (998)     (4,354)       (3,464)
                                                                  ---------     ---------   ---------     --------- 
Capital Share Transactions:                                                                                         
   Proceeds from shares sold                                        417,865       314,331     233,250       199,296 
   Net asset value of shares issued in reinvestment of dividends      1,744           901       3,935         3,084 
   Early withdrawal fees (see Note 8)                                   212           155         127            76 
   Less payments for shares redeemed                               (187,542)     (116,277)   (103,260)     (104,748)
                                                                  ---------     ---------   ---------     --------- 
   Increase in net assets from capital share transactions           232,279       199,110     134,052        97,708 
                                                                  ---------     ---------   ---------     --------- 
Total increase in net assets                                        137,612       282,519     154,660       120,584 
Net Assets:                                                                                                         
   Beginning of year                                                491,644       209,125     367,362       246,778 
                                                                  ---------     ---------   ---------     --------- 
   End of year (including undistributed net investment income                                                       
     of $1,866, $1,452, $5,810, and $4,052, respectively)         $ 629,256     $ 491,644   $ 522,022     $ 367,362 
                                                                  =========     =========   =========     ========= 
Number of fund shares:                                                                                              
   Sold                                                              23,894        19,646      16,160        15,015 
   Reinvested                                                           102            64         302           250 
   Redeemed                                                         (10,855)       (7,380)     (7,328)       (7,843)
                                                                  ---------     ---------   ---------     --------- 
   Net increase in shares outstanding                                13,141        12,330       9,134         7,422 
Shares outstanding:                                                                                                 
   Beginning of year                                                 27,722        15,392      27,603        20,181 
                                                                  ---------     ---------   ---------     --------- 
   End of year                                                       40,863        27,722      36,737        27,603 
                                                                  =========     =========   =========     ========= 

                                                                              77

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.                                 

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FINANCIAL HIGHLIGHTS                                                            

                                                        [Enlarge/Download Table]


                                                                            Schwab S&P 500 Fund               
                                                          --------------------------------------------------  
INVESTOR SHARES                                                 1998              1997           1996(1)      
------------------------------                            ----------------   --------------   --------------  
                                                                                                              
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD:                                                               

Net asset value at beginning of period                    $          14.17   $        10.88   $        10.00  
                                                          ----------------   --------------   --------------  
From investment operations:                                                                                   
    Net investment income                                             0.16             0.14             0.08  
    Net realized and unrealized gains on investments                  2.85             3.24             0.80  
                                                          ----------------   --------------   --------------  
    Total from investment operations                                  3.01             3.38             0.88  
Less distributions:                                                                                           
    Dividends from net investment income                             (0.13)           (0.09)             --   
                                                          ----------------   --------------   --------------  
    Total distributions                                              (0.13)           (0.09)             --   
                                                          ----------------   --------------   --------------  
NET ASSET VALUE AT END OF PERIOD                          $          17.05   $        14.17   $        10.88  
                                                          ================   ==============   ==============  
 Total return (%)                                                    21.39            31.29             8.80* 

RATIOS/SUPPLEMENTAL DATA (%)                                                                                  
----------------------------                                                                                  
Ratio of net operating expenses to average net assets                 0.35             0.38             0.49**
Reductions reflected in above expense ratio                           0.28             0.32             0.40**
Ratio of net investment income to average net assets                  1.25             1.49             1.89**
Portfolio turnover rate                                                  1                3                1  
Net assets, end of period (000s)                             $   1,935,398      $   923,148      $   243,772  

SELECT SHARES                                                    1998              1997(2)                    
-----------------------------                                -------------      -----------                   
                                                                                                              
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD:                                                               

Net asset value at beginning of period                       $       14.19      $     12.85                   
                                                             -------------      -----------                   
Income from investment operations:                                                                            
   Net investment income                                              0.26             0.05                   
   Net realized and unrealized gains on investments                   2.78             1.29                   
                                                             -------------      -----------                   
   Total income from investment operations                            3.04             1.34                   
Less distributions:                                                                                           
   Dividends from net investment income                              (0.14)           (0.00)                  
                                                             -------------      -----------                   
   Total distributions                                               (0.14)           (0.00)                  
                                                             -------------      -----------                   
NET ASSET VALUE AT END OF PERIOD                             $       17.09      $     14.19                   
                                                             =============      ===========                   
Total return (%)                                                     21.63            10.43*                  

RATIOS/SUPPLEMENTAL DATA (%)                                                                                  
------------------------------                                                                                
Ratio of actual operating expenses to average net assets              0.19             0.19**                 
Reductions reflected in above expense ratio                           0.28             0.34**                 
Ratio of net investment income to average net assets                  1.40             1.46**                 
Portfolio turnover rate                                                  1                3                   
Net assets, end of period (000s)                                $1,548,052         $485,604                   

*   Not Annualized.                                                           
**   Annualized.                                                                
(1)  For the period from May 1, 1996 (commencement of operations) to October 31,
1996.                                                                 
(2)  For the period from May 19, 1997 (commencement of operations) to October   
31, 1997.                                                             

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.                                 
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                                                                            Schwab S&P 500 Fund            
                                                             --------------------------------------------  
E. SHARES                                                        1998             1997           1996(1)   
------------------------------                               -----------      -----------      ----------  
                                                                                                           
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD:                                                            
Net asset value at beginning of period                       $     14.19      $     10.89      $    10.00  
                                                             -----------      -----------      ----------  
From investment operations:                                                                                
    Net investment income                                           0.15             0.21            0.04  
    Net realized and unrealized gains                                                                      
      on  investments                                               2.88             3.19            0.85  
                                                             -----------      -----------      ----------  
    Total income from investment operations                         3.03             3.40            0.89  
Less distributions:                                                                                        
    Dividends from net investment income                           (0.14)           (0.10)             --  
                                                             -----------      -----------      ----------  
    Total distributions                                            (0.14)           (0.10)             --  
                                                             -----------      -----------      ----------  
NET ASSET VALUE AT END OF PERIOD                             $     17.08      $     14.19      $    10.89  
                                                             ===========      ===========      ==========  

Total return (%)                                                   21.50            31.48            8.90* 

RATIOS/SUPPLEMENTAL DATA (%)                                                                               
----------------------------                                                                               
Ratio of actual operating expenses to average net assets            0.28             0.28            0.28**
Reductions reflected in above expense ratio                         0.24             0.33            0.91**
Ratio of net investment income to average net assets                1.32             1.61            1.82**
Portfolio turnover rate                                                1                3               1  
Net assets, end of period (000s)                             $   280,824      $   131,691      $   36,331  

<FN>                                                                                                       
 *  Not Annualized.                                                                                        
**  Annualized.                                                                                            
(1) For the period from May 1, 1996 (commencement of operations) to October 31, 1996.                      
</FN>                                                                                                      

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.                                 
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FINANCIAL HIGHLIGHTS (continued)                                                

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                                                                                 Schwab 1000 Fund(R)                             
                                                     --------------------------------------------------------------------------  
INVESTOR SHARES                                        1998        1997(1)      1997(3)      1996(3)      1995(3)      1994(3)   
---------------                                      ---------    ---------    ---------   ----------    ---------    ---------  
                                                                                                                                 
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD:                                                                                  
Net asset value at beginning of period               $   25.25    $   24.78    $   18.14    $   15.68    $   13.08    $   12.80  
                                                     ---------    ---------    ---------    ---------    ---------    ---------  
Income from investment operations:                                                                                               
    Net investment income                                 0.27         0.04         0.28         0.24         0.26         0.26  
    Net realized and unrealized gains                                                                                            
    on investments                                        4.64         0.43         6.62         2.45         2.48         0.28  
                                                     ---------    ---------    ---------    ---------    ---------    ---------  
    Total income from investment operations               4.91         0.47         6.90         2.69         2.74         0.54  
Less distributions:                                                                                                              
    Dividends from net investment income                 (0.26)        0.00        (0.26)       (0.23)       (0.14)       (0.26) 
                                                     ---------    ---------    ---------    ---------    ---------    ---------  
    Total distributions                                  (0.26)        0.00        (0.26)       (0.23)       (0.14)       (0.26) 
                                                     ---------    ---------    ---------    ---------    ---------    ---------  
NET ASSET VALUE AT END OF PERIOD                     $   29.90    $   25.25    $   24.78    $   18.14    $   15.68    $   13.08  
                                                     =========    =========    =========    =========    =========    =========  
Total return (%)                                         19.63         1.90*       38.32        17.27        21.23         4.28  



RATIOS/SUPPLEMENTAL DATA (%)                                                                                                     
----------------------------                                                                                                     
                                                                                                                                 
Ratio of net operating expenses to average net assets         0.46         0.46**        0.47         0.49        0.54       0.51
Reductions reflected in above expense ratio                   0.05         0.04**        0.06         0.08        0.09       0.05
Ratio of net investment income to average net assets          1.02         1.00**        1.33         1.66        2.03       2.06
Portfolio turnover rate                                          2         --               2            2           2          3
Net assets, end of period (000s)                        $3,657,122   $2,610,607    $2,498,891   $1,560,059   $ 826,714  $ 554,061

SELECT SHARES                                               1998            1997(1)           1997(2)                            
-------------                                           ------------    --------------     --------------                        
                                                                                                                                 
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD:                                                                                  
Net asset value at beginning of period                  $      25.26    $        24.79     $        22.64                        
                                                        ------------    --------------     --------------                        
Income from investment operations:                                                                                               
    Net investment income                                       0.32              0.04               0.05                        
    Net realized and unrealized gains                                                                                            
    on investments                                              4.63              0.43               2.10                        
                                                        ------------    --------------     --------------                        
    Total income from investment operations                     4.95              0.47               2.15                        
Less distributions:                                                                                                              
    Dividends from net investment income                       (0.28)             0.00               0.00                        
                                                        ------------    --------------     --------------                        
    Total distributions                                        (0.28)             0.00               0.00                        
                                                        ------------    --------------     --------------                        
NET ASSET VALUE AT END OF PERIOD                        $      29.93    $        25.26     $        24.79                        
                                                        ============    ==============     ==============                        
Total return (%)                                               19.79              1.90*              9.50*                       

RATIOS/SUPPLEMENTAL DATA (%)                                                                                                     
----------------------------                                                                                                     
Ratio of actual operating expenses to average net assets              0.35              0.35**             0.35**                
Reductions reflected in above expense ratio                           0.04              0.06**             0.33**                
Ratio of net investment income to average net assets                  1.11              1.11**             1.26**                
Portfolio turnover rate                                                  2              --                    2                  
Net assets, end of period (000s)                              $  1,040,551       $   426,392        $   347,244                  

<FN>                                                                                                                             

*   Not Annualized.                                                                                                              
**  Annualized.                                                                                                                  
(1) For the period from September 1, 1997 to October 31, 1997.                                                                   
(2) For the period from May 19, 1997 (commencement of operations) to August 31, 1997.                                            
(3) For the fiscal year ended August 31.                                                                                         
</FN>                                                                                                                            

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.                                 
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                                                                              Schwab Small-Cap Index Fund(R)                    
                                                          --------------------------------------------------------------------  

INVESTOR SHARES                                               1998            1997          1996        1995          1994(1)   
---------------                                           -----------       ---------     -------     --------      ----------  
                                                                                                                                
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD:                                                                                 
Net asset value at beginning of period                    $     17.73       $   13.59     $  11.70    $   10.05     $    10.00  
                                                          -----------       ---------     --------    ---------     ----------  
From investment operations:                                                                                                     
    Net investment income                                        0.05            0.06         0.07         0.10           0.06  
    Net realized and unrealized gains                                                                                           
      (losses) on investments                                   (2.33)           4.14         1.88         1.61            --   
                                                          -----------       ---------     --------    ---------     ----------  
    Total income from investment operations                     (2.28)           4.20         1.95         1.71           0.06  
Less distributions:                                                                                                             
    Dividends from net investment income                        (0.06)          (0.06)       (0.06)       (0.06)         (0.01) 
                                                          -----------       ---------     --------    ---------     ----------  
    Total distributions                                         (0.06)          (0.06)       (0.06)       (0.06)         (0.01) 
                                                          -----------       ---------     --------    ---------     ----------  
NET ASSET VALUE AT END OF PERIOD                          $     15.39       $   17.73     $  13.59    $   11.70     $    10.05  
                                                          ===========       =========     ========    =========     ==========  
Total return (%)                                               (12.88)          31.03        16.73        17.11           0.63* 

RATIOS/SUPPLEMENTAL DATA (%)                                                                                                    
-----------------------------                                                                                                   
Ratio of actual operating expenses to average net assets         0.49            0.52         0.59         0.68           0.67**
Reductions reflected in above expense ratio                      0.32            0.37         0.35         0.34           0.52**
Ratio of net investment income to average net assets             0.35            0.53         0.56         0.68           0.68**
Portfolio turnover rate                                            40              23           23           24             16  
Net assets, end of period (000s)                            $ 479,500       $ 410,470    $ 209,125    $ 122,074       $ 68,128  

                                                        [Enlarge/Download Table]


SELECT SHARES                                                  1998            1997(2)    
-------------                                             --------------   -------------  
                                                                                          
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD:                                           
Net asset valueat beginning of period                     $        17.75   $       14.50  
                                                          --------------   -------------  
From investment operations:                                                               
   Net investment income                                            0.08            0.02  
   Net realized and unrealized gains                                                      
     (losses) on  investments                                      (2.35)           3.23  
                                                          --------------   -------------  
   Total income from investment operations                         (2.27)           3.25  
Less distributions:                                                                       
   Dividends from net investment income                            (0.07)          (0.00) 
                                                          --------------   -------------  
   Total distributions                                             (0.07)          (0.00) 
                                                          --------------   -------------  
NET ASSET VALUE AT END OF PERIOD                          $        15.41   $       17.75  
                                                          ==============   =============  
Total return (%)                                                  (12.81)          22.41* 

RATIOS/SUPPLEMENTAL DATA (%)                                                              
----------------------------                                                              
Ratio of actual operating expenses to average net assets            0.38            0.38**
Reductions reflected in above expense ratio                         0.33            0.52**
Ratio of net investment income to average net assets                0.46            0.56**
Portfolio turnover rate                                               40              23  
Net assets, end of period (000s)                          $      149,756    $     81,174  

*  Not Annualized.                                                            
**  Annualized.                                                                 
(1) For the period from December 3, 1993 (commencement of operations) to October
31, 1994.                                                               
(2) For the period from May 19, 1997 (commencement of operations) to            
October 31, 1997.                                                       

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.                                 

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FINANCIAL HIGHLIGHTS (continued)                                                

                                                        [Enlarge/Download Table]

                                                                              Schwab International Index Fund(R)                 
                                                          ---------------------------------------------------------------------- 
INVESTOR SHARES                                               1998            1997          1996           1995         1994     
---------------                                           -----------    ------------   -----------     ----------   ----------- 
                                                                                                                                 
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD:                                                                                  
Net asset value at beginning of period                    $     13.31    $      12.23   $     11.13    $     10.89   $     10.15 
                                                          -----------    ------------   -----------    -----------   ----------- 
From investment operations:                                                                                                      
   Net investment income                                         0.17            0.17          0.16           0.14          0.11 
   Net realized and unrealized gains                                                                                             
     on  investments                                             0.88            1.08          1.07           0.22          0.69 
                                                          -----------    ------------   -----------    -----------   ----------- 
   Total income from investment operations                       1.05            1.25          1.23           0.36          0.80 
Less distributions:                                                                                                              
   Dividends from net investment income                         (0.15)          (0.17)        (0.13)         (0.12)        (0.04)
   Distributions from realized gains on investments               --              --            --             --          (0.02)
                                                           -----------    ------------   -----------    -----------   -----------
   Total distributions                                          (0.15)          (0.17)        (0.13)         (0.12)        (0.06)
                                                          -----------    ------------   -----------    -----------   ----------- 
NET ASSET VALUE AT END OF PERIOD                          $     14.21    $      13.31   $     12.23    $     11.13   $     10.89 
                                                          ===========    ============   ===========    ===========   =========== 
 Total return (%)                                                8.02           10.33         11.07           3.35          7.89 

RATIOS/SUPPLEMENTAL DATA (%)                                                                                                     
----------------------------                                                                                                     
Ratio of actual operating expenses to average net assets         0.58            0.61          0.69           0.85          0.90 
Reductions reflected in above expense ratio                      0.46            0.52          0.48           0.37          0.40 
Ratio of net investment income to average net assets             1.35            1.36          1.50           1.45          1.14 
Portfolio turnover rate                                             6              13             6           --               6 
Net assets, end of period (000s)                          $   428,462     $   317,833   $   246,778    $   179,612   $   142,355 


                                                        [Enlarge/Download Table]


SELECT SHARES                                                    1998            1997(1) 
-------------                                                 ----------      ---------- 
                                                                                         
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD:                                          

Net asset value at beginning of period                        $   13.32      $    13.59  
                                                              ---------      ----------  
From investment operations:                                                              
    Net investment income                                          0.22            0.04  
    Net realized and unrealized gains (losses)                                           
      on  investments                                              0.85           (0.31) 
                                                              ----------     ----------  
    Total income from investment operations                        1.07           (0.27) 
Less distributions:                                                                      
    Dividends from net investment income                          (0.16)             --  
                                                              ---------      ----------  
    Total distributions                                           (0.16)             --  
                                                              ---------      ----------  
NET ASSET VALUE AT END OF PERIOD                              $   14.23      $    13.32  
                                                              =========      ==========  

Total return (%)                                                   8.16           (1.99)*

RATIOS/SUPPLEMENTAL DATA (%)                                                             
-----------------------------                                                            
Ratio of actual operating expenses to average net assets           0.47            0.47**
Reductions reflected in above expense ratio                        0.48            0.80**
Ratio of net investment income to average net assets               1.49            0.17**
Portfolio turnover rate                                               6              13  
Net assets, end of period (000s)                             $   93,560      $   49,529  

<FN>                                                                                     
*   Not Annualized.                                                                      
**  Annualized.                                                                          
(1) For the period from May 19, 1997 (commencement of operations) to October 31, 1997.   
</FN>                                                                                    

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.                                 
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NOTES TO FINANCIAL STATEMENTS                                                   
For the year ended October 31, 1998                                             
(All currency amounts are in thousands unless otherwise noted.)                 

1.  DESCRIPTION OF THE FUNDS                                                    
The Schwab S&P 500 Fund, Schwab Small-Cap Index Fund(R) and Schwab International
Index Fund(R) are a series of the Schwab Capital Trust (the "Capital Trust") and
the Schwab 1000 Fund(R) is a series of the Schwab Investments (the "Investment  
Trust"), each a no-load, open-end management investment company organized as    
Massachusetts business trusts on May 7, 1993 and October 26, 1990, respectively,
and registered under the Investment Company Act of 1940 ("the Act") as amended. 
Each series in this report is hereafter referred to as a "Fund".                

The Schwab S&P 500 Fund, Schwab 1000 Fund(R), Schwab Small-Cap Index Fund(R) and
Schwab International Index Fund(R) each offer two classes of shares -- Investor 
Shares and Select Shares. Both classes represent interests in the same portfolio
of investments of each Fund and are substantially the same in all respects      
except that the classes are subject to different transfer agency and shareholder
service fees (see Note 3), investment minimums and certain other expenses. In   
addition, the Schwab S&P 500 Fund offers a third class of shares -- the         
e.Shares(TM). This class offers the same concept as the Investor Shares and the 
Select Shares, but the e.Shares are available only to clients of Schwab         
Institutional, Charles Schwab Trust Company and to certain tax-advantaged       
retirement plans that can execute their trading and information requests through
SchwabLink(TM).                                                                 

In addition to the Schwab S&P 500 Fund, Schwab Small-Cap Index Fund(R) and      
Schwab International Index Fund(R), the Capital Trust also offers the Schwab    
MarketTrack All Equity Portfolio(TM), Schwab MarketTrack Growth Portfolio(TM)   
(formerly Schwab Asset Director(R) -- High Growth Fund), Schwab MarketTrack     
Balanced Portfolio(TM) (formerly Schwab Asset Director(R) -- Balanced Growth    
Fund), Schwab MarketTrack Conservative Portfolio(TM) (formerly Schwab Asset     
Director(R) -- Conservative Growth Fund), Schwab Analytics Fund(R), Schwab      
MarketManager International Portfolio(TM)(formerly Schwab OneSource Portfolios  
-- International), Schwab MarketManager Growth Portfolio(TM) (formerly Schwab   
OneSource Portfolios -- Growth Allocation), Schwab MarketManager Balanced       
Portfolio(TM) (formerly Schwab OneSource Portfolios -- Balanced Allocation), and
Schwab MarketManager Small Cap Portfolio(TM) (formerly Schwab OneSource         
Portfolios -- Small Company). The assets of each series are segregated and      
accounted for separately.                                                       

In addition to the Schwab 1000 Fund(R), the Investment Trust also offers the    
Schwab Short-Term Bond Market Index Fund, Schwab Total Bond Market Index Fund,  
Schwab California Short/Intermediate Tax-Free Bond Fund, Schwab California      
Long-Term Tax-Free Bond Fund, Schwab Short/Intermediate Tax-Free Bond Fund and  
Schwab Long-Term Tax-Free Bond Fund. The assets of each series are segregated   
and accounted for separately.                                                   

2.  SIGNIFICANT ACCOUNTING POLICIES                                             
The following significant accounting policies are in conformity with generally  
accepted accounting principles. The preparation of financial statements in      
accordance with generally accepted accounting principles requires management to 
make estimates and assumptions that affect the reported amounts and disclosures 
in the financial statements. Actual results could differ from those estimates.  

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SECURITY VALUATION -- Investments in securities traded on an exchange or in the 
over-the-counter market are valued at the last quoted sale price for a given    
day, or if a sale is not reported for that day, at the mean between the most    
recent quoted bid and asked prices. Securities for which no quotations are      
readily available are valued at fair value as determined by the Fund's          
investment adviser pursuant to guidelines adopted in good faith by the Board of 
Trustees. Financial futures contracts and options thereon, which are traded on  
exchanges, are valued at their settlement prices as of the close of such        
exchanges. Short-term securities with 60 days or less to maturity are stated at 
amortized cost, which approximates market value.                                

Security transactions, realized gain/loss and investment income -- Security     
transactions are accounted for on a trade date basis (date the order to buy or  
sell is executed). Realized gains and losses from security transactions are     
determined on an identified cost basis. Dividend income and distributions to    
shareholders are recorded on the ex-dividend date; interest income (including   
accretion of discounts) is recorded on the accrual basis.                       

FUTURES CONTRACTS -- The Schwab S&P 500 Fund and the Schwab 1000 Fund(R) may    
invest in financial futures contracts. The Funds are required to deposit with   
the broker an amount of cash equivalents equal to a certain percentage of the   
contract amount. This is known as the "initial margin." The "variation margin"  
represents unrealized gains (losses) due to daily fluctuation in the value of   
the contract. The Funds record a realized gain or loss equal to the variation   
margin at the time the contracts are closed.                                    

The Funds will invest in these instruments to participate in the return of an   
index. The use of futures contracts involves certain risks, which include (1)   
imperfect correlation between the price movement of the contracts and the       
underlying securities, or (2) inability to close out positions due to different 
trading hours, or the temporary absence of a liquid market, for either the      
contract or underlying securities. These risks may involve amounts exceeding the
amount recognized in each Fund's Statements of Operations at any given time.    

As of October 31, 1998, the Schwab S&P 500 Fund and the Schwab 1000 Fund(R) had 
the following open S&P 500 Index futures contracts:                             

                          Number of    Contract                   Unrealized
    Fund                   Contracts     Value       Expiration   Appreciation
    ----                   ---------   ----------    ----------   ------------
  S&P 500 Fund              29        $8,013        12/21/98        $  721
  Schwab 1000 Fund(R)       20        $5,526        12/21/98        $  419

The cash and eligible securities on deposit with brokers available to cover     
margin requirements for open futures positions at October 31, 1998 were $816 and
$967 for the Schwab S&P 500 Fund, and $2,178 and $125 for the Schwab 1000       
Fund(R), respectively. The Funds have segregated short-term investments or      
repurchase agreements for the remaining portion of the contract value.          

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REPURCHASE AGREEMENTS -- Repurchase agreements are fully collateralized by U.S. 
Treasury or government agency securities. All collateral is held by the Funds'  
custodian and is monitored daily to ensure that its market value at least equals
the repurchase price under the agreement.                                       

FOREIGN CURRENCY TRANSLATION -- The accounting records of the Schwab            
International Index Fund(R) are maintained in U.S. dollars. Investment          
securities and all other assets and liabilities of the fund denominated in      
foreign currencies are translated into U.S. dollars at the exchange rates on    
October 31, 1998. Purchases and sales of securities, income receipts and expense
payments are translated into U.S. dollars at the exchange rate in effect on the 
dates of the respective transactions.                                           

The Schwab International Index Fund(R) separates within its statement of        
operations the portion of realized and unrealized gains and losses resulting    
from changes in foreign currency exchange rates from the fluctuations in market 
prices of investments held.                                                     

FORWARD CURRENCY CONTRACTS -- A forward currency contract ("Forward") is an     
agreement between two parties to buy and sell a currency at a set price on a    
future date. The value of the Forward fluctuates with changes in currency       
exchange rates. The Forward is marked-to-market daily and the change in value is
recorded by the Schwab International Index Fund(R) as an unrealized gain or     
loss. When the Forward is closed, the Schwab International Index Fund records a 
realized gain or loss equal to the difference between the value at the time the 
contract was entered into and the value at the time the contract was closed. The
Schwab International Index Fund engages in Forwards in connection with the      
purchase and sale of portfolio securities to minimize the uncertainty of changes
in future exchange rates. The Schwab International Index Fund could be exposed  
to risk 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 following forward foreign currency contract was outstanding as of October   
31, 1998:                                                                       

                                                                [Download Table]


                        Settlement  Foreign Currency  In Exchange   Net Unrealized
                           Date       to Deliver      For (U.S. $)   Depreciation 
                        ----------   ---------------  -----------   --------------
                                                                                  
Foreign Currency Sale:                                                            
  British Pound          11/02/98        1,569           $2,611          $(13)    

EXPENSES -- Expenses arising in connection with a Fund are charged directly to  
that Fund. Expenses common to all series of the Trust are generally allocated to
each series in proportion to their relative net assets.                         

FEDERAL INCOME TAXES -- It is each Fund's policy to meet the requirements of the
Internal Revenue Code applicable to regulated investment companies and to       
distribute substantially all net investment income and realized net capital     
gains, if any, to shareholders. Therefore, no federal income tax provision is   
required. Each Fund is considered a separate entity for tax purposes.           

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The aggregate gross unrealized appreciation and depreciation for securities held
by the Funds at October 31, 1998 (for financial reporting and federal income tax
purposes) is as follows:                                                        

                                                                [Download Table]


                                    Net Unrealized                           
                                     Appreciation   Appreciated  Depreciated 
Fund                                (Depreciation)   Securities   Securities 
----                                 ------------   -----------  ------------
                                                                             
Schwab S&P 500 Fund                  $   538,104    $   652,706  $   114,602 
Schwab 1000 Fund(R)                    1,624,004      1,713,450       89,446 
Schwab Small-Cap Index Fund(R)           (25,703)        87,256      112,959 
Schwab International Index Fund(R)        88,566        130,955       42,389 

At October 31, 1998, the unused capital loss carryforwards, for federal income  
tax purposes with expiration dates, were as follows:                            

                                                                [Download Table]


                              Schwab                     Schwab     
                             S&P 500     Schwab 1000  International 
Capital Loss Expirations:     Fund         Fund(R)     Index Fund(R)
                           -----------  ------------  --------------
                                                                    
10/31/00                   $       --   $     (354)   $       --    
10/31/01                           --           --            --    
10/31/02                           --         (935)         (140)   
10/31/03                           --           --            --    
10/31/04                           (5)        (844)       (1,743)   
10/31/05                       (2,152)      (2,643)       (1,837)   
10/31/06                       (5,876)        (650)      (11,905)   
                           ----------   ----------    ----------    
                           $   (8,033)  $   (5,426)   $  (15,625)   
                           ==========   ==========    ==========    

RECLASSIFICATION -- Generally accepted accounting principles require that       
certain components of net assets be reclassified between financial and tax      
reporting. These reclassifications have no effect on net assets or net asset    
values per share.                                                               

On the Statements of Assets and Liabilities the following adjustments were made:

                                                                [Download Table]


                                       Accumulated  Undistributed                  
                                      Net Realized  Net Investment                 
Fund                                  Gain (Loss)      Income       Paid-In-Capital
-----                                 ------------  --------------  ---------------
                                                                                   
Schwab S&P 500 Fund                 $        --       $      8            $ (8)    
Schwab S&P 1000 Fund                         --            204            (204)    
Schwab Small-Cap Index Fund(R)          (12,500)            62          12,438     
Schwab International Index Fund(R)          257           (216)            (41)    

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3.  TRANSACTIONS WITH AFFILIATES                                                
INVESTMENT ADVISORY AND ADMINISTRATION AGREEMENT -- The Capital Trust and the   
Investment Trust have investment advisory and administration agreements with    
Charles Schwab Investment Management, Inc. (the "Investment Adviser"). For      
advisory services and facilities furnished, the Schwab S&P 500 Fund pays an     
annual fee, payable monthly, of 0.36% of the first $1 billion of average daily  
net assets, 0.33% of such net assets over $1 billion, and 0.31% of such assets  
in excess of $2 billion. the Schwab 1000 Fund(R) pays an annual fee, payable    
monthly, of 0.30% of the first $500 million of average daily net assets and     
0.22% of such assets over $500 million. The Schwab Small-Cap Index Fund(R) pays 
an annual fee, payable monthly of 0.50% of the first $300 million of average    
daily net assets and 0.45% of such net assets over $300 million. The Schwab     
International Index Fund(R) pays an annual fee, payable monthly, of 0.70% of the
first $300 million of average daily net assets and 0.60% of such net assets over
$300 million. The Investment Adviser has reduced a portion of its fee for the   
year ended October 31, 1998 (see Note 4).                                       

TRANSFER AGENCY AND SHAREHOLDER SERVICE AGREEMENTS -- The Capital Trust and     
Investment Trust have transfer agency and shareholder service agreements with   
Charles Schwab & Co., Inc. ("Schwab"). For services provided under these        
agreements, Schwab receives an annual fee, payable monthly, of 0.05% of each    
Fund's average daily net assets for transfer agency services. for shareholder   
services provided, Schwab will receive from the Investor Shares, Select Shares  
and e.Shares(TM) an annual fee of 0.20%, 0.05% and 0.05%, respectively, of the  
average daily net assets of that class of shares. Schwab has reduced a portion  
of its fees for the year ended October 31, 1998 (see Note 4).                   

OFFICERS AND TRUSTEES -- Certain officers and trustees of the Capital Trust and 
the Investment Trust are also officers and/or directors of the Investment       
Adviser and/or Schwab. During the year ended October 31, 1998, the Capital Trust
and the Investment Trust made no direct payments to its officers or trustees who
are "interested persons" within the meaning of the the "Act", as amended. The   
Schwab S&P 500 Fund, Schwab 1000 Fund(R), Schwab Small-Cap Index Fund(R) and    
Schwab International Index Fund(R) incurred fees of $26, $45, $8 and $7         
respectively, related to the Trusts' unaffiliated trustees.                     

OTHER AFFILIATED PARTIES AND TRANSACTIONS -- As of October 31, 1998, Schwab S&P 
500 Fund, Schwab Small-Cap Index Fund(R), and Schwab International Index        
Fund(R), had outstanding shares of 1%, 1%, 0.3% and 1%; 9%, 6%, 2%, and 5%; and 
11%, 8%, 2% and 7%, respectively, owned by Schwab MarketTrack(TM) Growth        
Portfolio, Schwab MarketTrack Balanced Portfolio, Schwab MarketTrack            
Conservative Portfolio and Schwab MarketTrack All Equity Portfolio(TM)          
respectively. The Schwab S&P 500 Fund and the Schwab 1000 Fund(R) placed a      
portion of its portfolio transactions with Charles Schwab & Co., Inc., an       
affiliated broker. For the year ended October 31, 1998, the commissions paid    
were $12 and $14, respectively.                                                 

INTERFUND TRANSACTIONS -- For the year ended October 31, 1998, Schwab S&P 500   
Fund, Schwab 1000 Fund, Schwab Small-Cap Index Fund(R) and Schwab International 
Index Fund(R) engaged in purchase transactions with funds that have a common    
investment adviser, common trustees, and common officers. These purchases and   
sale transactions, made at current market value pursuant to Rule 17a-7 under the
Act, were $557, $36,422, $39,200 and $2,317, respectively.                      

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NOTES TO FINANCIAL STATEMENTS (continued)                                       

4.  EXPENSES REDUCED AND ABSORBED BY THE INVESTMENT ADVISER AND SCHWAB          
The Investment Adviser and Schwab guarantee that, through at least February 29, 
2000, total operating expenses of each class of shares will not exceed the      
percentages of the average daily net assets of that class of shares, after      
waivers and reimbursements, as shown below. For the purpose of this guarantee,  
operating expenses do not include interest expenses, extraordinary expenses,    
taxes, foreign taxes and capital items.                                         

                                                                [Download Table]


                                    Investor Shares  Select Shares   e.Shares 
                                    ---------------  -------------  ----------
                                                                              
Schwab S&P 500 Fund                      0.35%           0.19%        0.28%   
Schwab 1000 Fund(R)                      0.46%           0.35%         N/A    
Schwab Small-Cap Index Fund(R)           0.49%           0.38%         N/A    
Schwab International Index Fund(R)       0.58%           0.47%         N/A    

For the year ended October 31, 1998, the total of such fees and expenses reduced
by the Investment Adviser were $6,509, $1,552, $1,911 and $2,126 for the Schwab 
S&P 500 Fund, Schwab 1000 Fund(R), Schwab Small-Cap Index Fund(R) and Schwab    
International Index Fund(R), respectively. The total of such fees reduced by    
Schwab were $1,008, $336, $24 and $28 for the Schwab S&P 500 Fund, Schwab 1000  
Fund(R), Schwab Small-Cap Index Fund(R) and Schwab International Index Fund(R), 
respectively.                                                                   

5.  BORROWING AGREEMENTS                                                        
The Trusts have line of credit arrangements with PNC Bank N.A. and Bank of      
America NT & SA whereby the Trusts may borrow on behalf of the Schwab S&P 500   
Fund and Schwab 1000 Fund(R), on a temporary basis, to fund shareholder         
redemptions. The Trusts may borrow in an aggregate amount of up to $100 million 
from PNC Bank N.A. and $100 million from Bank of America NT & SA. As of October 
31, 1998, there were no outstanding borrowings made under these arrangements.   
The Trusts have line of credit arrangements with The Bank of New York whereby   
the Trusts may borrow on behalf of the Schwab S&P 500 Fund, Schwab 1000 Fund(R),
Schwab Small-Cap Index Fund(R) and Schwab International Index Fund(R) an        
aggregate amount of up to $150 million, on a temporary basis, to fund           
shareholder redemptions. Amounts borrowed under these arrangements bear interest
at periodically negotiated rates and may be collateralized by the assets of the 
Funds. As of October 31, 1998, the Schwab International Index Fund(R) had $434  
in borrowings with an interest rate of 5.73% under this arrangement.            

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6.  SECURITIES LENDING                                                          
The Schwab S&P 500 Fund, Schwab 1000 Fund(R), and Schwab Small-Cap Index Fund(R)
loaned securities to certain brokers, dealers and other financial institutions  
who paid the Funds negotiated lenders' fees. The Fund received cash collateral, 
letters of credit, or U.S. Government securities against the loaned securities  
in an amount equal to 102% of the market value of the loaned securities at the  
inception of each loan. The loans will be collateralized at all times in an     
amount equal to at least 100% of the market value of the securities loaned.     

                             Market Value of
        Fund                                 Securities Loaned      Collateral
         ----                                 ----------------      ------------
       Schwab S&P 500 Fund(R)                  $408,514             $417,834
       Schwab 1000 Fund(R)                      550,463              565,945
       Schwab Small-Cap Index Fund(R)            33,821               35,407

7.  INVESTMENT TRANSACTIONS                                                     
Aggregate purchases and sales of investment securities, other than short-term   
obligations, for the year ended October 31, 1998, were as follows:              

                                                               Proceeds of Sales
       Fund                                   Purchases       and Maturities
         ----                                   ----------     -----------------
   Schwab S&P 500 Fund(R)                 $1,887,091       $  26,285
   Schwab 1000 Fund(R)                     1,170,169          92,996
   Schwab Small-Cap Index Fund(R)            480,841         237,527
   Schwab International Index Fund(R)        170,612          25,892

For the Schwab S&P 500 Fund and Schwab 1000 Fund(R), included in the            
aforementioned purchases of common stock are purchases of The Charles Schwab    
Corp., an affiliated issuer, with a current value as of October 31, 1998, of    
$5,611 and $5,812, respectively.                                                

8.  EARLY WITHDRAWAL FEES                                                       
The early withdrawal fees are retained by the Funds and are treated as a        
contribution to capital.                                                        

                                                                [Download Table]


                                   Early withdrawal fees on  Early withdrawal fees
Fund                                 redemption proceeds*       as of 10/31/98    
----                               ------------------------  -------------------- 
                                                                                  
Schwab 1000 Fund(R)                          0.50%                $834            
Schwab Small-Cap Index Fund(R)               0.50%                 212            
Schwab International Index Fund(R)           0.75%                 127            

*Attributable to shares purchased and held less than six months.                

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NOTES TO FINANCIAL STATEMENTS (continued)                                       

9.  CAPITAL SHARE TRANSACTIONS                                                  

The Funds offer two classes of shares: Investor Shares and Select Shares, with  
the exception of Schwab S&P 500 Fund which offers a third class of shares:      
e.Shares(TM). Shares of each class represent interest in the same portfolio of  
investments of the Funds. Transactions in capital shares for the period ended   
October 31, 1998 were as follows:                                               

                                                        [Enlarge/Download Table]


                                                        Schwab S&P 500 Fund                       
                                 -----------------------------------------------------------------
                                        Year ended                          Year ended            
                                     October 31, 1998                     October 31, 1997        
                                 ----------------------------        ---------------------------- 
                                   Shares            Dollars           Shares           Dollars   
                                 ----------       -----------        ----------       ----------- 
                                                                                                  
Investor Shares:                                                                                  
   Sold                              84,045       $ 1,377,701            68,380       $   894,864 
   Reinvested                           583             8,407               193             2,235 
   Redeemed                         (36,297)         (589,636)          (25,827)         (345,122)
                                -----------       -----------       -----------       ----------- 
      Net Increase                   48,331       $   796,472            42,746       $   551,977 
                                -----------       -----------       -----------       ----------- 

Select Shares:*                                                                                   
   Sold                              89,528       $ 1,468,401            39,327       $   556,939 
   Reinvested                           338             4,872              --                --   
   Redeemed                         (33,515)         (545,494)           (5,116)          (73,675)
                                -----------       -----------       -----------       ----------- 
      Net Increase                   56,351       $   927,779            34,211       $   483,264 
                                -----------       -----------       -----------       ----------- 
e.Shares:                                                                                         
   Sold                              16,938       $   272,872            14,545       $   184,271 
   Reinvested                            96             1,381                38               444 
   Redeemed                          (9,873)         (157,989)           (8,636)         (116,137)
                                -----------       -----------       -----------       ----------- 
      Net Increase                    7,161       $   116,264             5,947       $    68,578 
                                -----------       -----------       -----------       ----------- 

   Total increase from capital                                                                    
     share transactions             111,843       $ 1,840,515            82,904       $ 1,103,819 
                                ===========       ===========       ===========       =========== 

                                                        [Enlarge/Download Table]


                                                                   Schwab 1000 Fund(R)                                      
                                ------------------------------------------------------------------------------------------- 
                                         Year ended                      Period ended                   Year ended          
                                      October 31, 1998                October 31, 1997**              August 31, 1997       
                                ---------------------------     ---------------------------     --------------------------- 
                                  Shares          Dollars         Shares          Dollars          Shares         Dollars   
                                -----------     -----------     -----------     -----------     -----------     ----------- 
                                                                                                                            
Investor Shares:                                                                                                            
   Sold                              46,456     $ 1,340,936           7,163     $   185,593          44,512     $   972,064 
   Reinvested                           985          25,237            --              --             1,058          21,833 
   Redeemed                         (28,539)       (817,355)         (4,583)      (118,834)         (30,757)       (700,480)
                                -----------     -----------     -----------     -----------     -----------     ----------- 
      Net Increase                   18,902     $   548,818           2,580     $    66,759          14,813     $   293,417 
                                -----------     -----------     -----------     -----------     -----------     ----------- 

Select Shares:*                                                                                                             
   Sold                              22,937     $   662,266           3,281     $    85,253          14,614     $   356,648 
   Reinvested                           170           4,347            --              --              --              --   
   Redeemed                          (5,225)       (148,285)           (407)        (10,522)           (608)        (15,145)
                                -----------     -----------     -----------     -----------     -----------     ----------- 
      Net Increase                   17,882     $   518,328           2,874     $    74,731          14,006     $   341,503 
                                -----------     -----------     -----------     -----------     -----------     ----------- 

   Total increase from capital                                                                                              
     share transactions              36,784     $ 1,067,146           5,454     $   141,490          28,819     $   634,920 
                                ===========     ===========     ===========     ===========     ===========     =========== 

* Select shares commenced operations on May 19, 1997.                         
** For the period September 1, 1997 to October 31, 1997.                        

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                                                        [Enlarge/Download Table]


                                               Schwab Small-Cap Index Fund(R)                    
                                ---------------------------------------------------------        
                                       Year ended                      Year ended                
                                     October 31, 1998               October 31, 1997             
                                -------------------------       -------------------------        
                                 Shares          Dollars         Shares          Dollars         
                                ---------       ---------       ---------       ---------        
                                                                                                 
Investor Shares:                                                                                 
   Sold                            15,575       $ 272,822          14,644       $ 230,161        
   Reinvested                          82           1,410              64             901        
   Redeemed                        (7,657)       (133,456)         (6,952)       (108,657)       
                                ---------       ---------       ---------       ---------        
      Net Increase                  8,000       $ 140,776           7,756       $ 122,405        
                                ---------       ---------       ---------       ---------        

Select Shares:*                                                                                  
   Sold                             8,319       $ 145,043           5,002       $  84,325        
   Reinvested                          20             334            --              --          
   Redeemed                        (3,198)        (53,874)           (428)         (7,620)       
                                ---------       ---------       ---------       ---------        
      Net Increase                  5,141       $  91,503           4,574       $  76,705        
                                ---------       ---------       ---------       ---------        

   Total increase from capital                                                                   
     share transactions            13,141       $ 232,279          12,330       $ 199,110        
                                =========       =========       =========       =========        

                                                  Schwab International Index Fund(R)             
                                      ---------------------------------------------------------- 
                                            Year ended                       Year ended          
                                         October 31, 1998                 October 31, 1997       
                                      -------------------------       -------------------------- 
                                       Shares          Dollars         Shares           Dollars  
                                      ---------       ---------       ----------       --------- 
                                                                                                 
Investor Shares:                                                                                 
   Sold                                  11,876       $ 172,076          11,009        $ 142,547 
   Reinvested                               261           3,395             250            3,084 
   Redeemed                              (5,861)        (82,444)         (7,556)        (100,709)
                                      ---------       ---------       ---------        --------- 
      Net Increase                        6,276       $  93,027           3,703        $  44,922 
                                      ---------       ---------       ---------        --------- 

Select Shares:*                                                                                  
   Sold                                   4,284       $  61,174           4,006        $  56,825 
   Reinvested                                41             540            --               --   
   Redeemed                              (1,467)        (20,689)           (287)          (4,039)
                                      ---------       ---------       ---------        --------- 
      Net Increase                        2,858       $  41,025           3,719        $  52,786 
                                      ---------       ---------       ---------        --------- 

   Total increase from capital                                                                   
     share transactions                   9,134       $ 134,052           7,422        $  97,708 
                                      =========       =========       =========        ========= 

*Select shares commenced operations on May 19, 1997                             

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REPORT OF INDEPENDENT ACCOUNTANTS                                               

To the Board of Trustees and Shareholders of                                    
Schwab S&P 500 Fund, Schwab 1000 Fund(R),                                       
Schwab Small-Cap Index Fund(R), and                                             
Schwab International Index Fund(R):                                             

In our opinion, the accompanying statements of assets and liabilities, including
the schedules of investments, and the related statements of operations and of   
changes in net assets and the financial highlights present fairly, in all       
material respects, the financial position of Schwab S&P 500 Fund, Schwab        
Small-Cap Index Fund(R), and Schwab International Index Fund(R), (three series  
constituting part of Schwab Capital Trust) and Schwab 1000 Fund(R) (a series    
constituting part of Schwab Investments) (hereafter collectively referred to as 
the "Funds") at October 31, 1998, 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      
generally accepted accounting principles. 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 generally accepted      
auditing standard which require that we plan and perform the audit to obtain    
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting 
the amounts and disclosures in the financial statements, assessing the          
accounting principles used and significant estimates made by management, and    
evaluating the overall financial statement presentation. We believe that our    
audits, which included confirmation of securities at October 31, 1998 by        
correspondence with the custodians and brokers, provide a reasonable basis for  
the opinion expressed above.                                                    

PricewaterhouseCoopers LLP                                                      
San Francisco, CA                                                               
December 8, 1998                                                                

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TAX DESIGNATIONS (UNAUDITED)                                                    

Pursuant to Section 852 (b) (3) (C) of the Internal Revenue Code, the Small-Cap 
Index Fund(R) hereby designates $13,000,000 as a capital gain dividend for the  
fiscal year ended October 31, 1998.                                             

Pursuant to Section 854 (b) (2) of the Internal Revenue Code, the Schwab S&P 500
Fund(R), Schwab 1000 Fund(R), and Schwab Small-Cap Index Fund(R) hereby         
designates 100% of the ordinary dividends as qualifying for the dividends       
received deduction for the fiscal year ended October 31, 1998.                  

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THIS SPACE RESERVED FOR YOUR COMMENTS AND QUESTIONS.
A SCHWAB REPRESENTATIVE WILL BE HAPPY TO ASSIST YOU.

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THIS SPACE RESERVED FOR YOUR COMMENTS AND QUESTIONS.
A SCHWAB REPRESENTATIVE WILL BE HAPPY TO ASSIST YOU.

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THIS SPACE RESERVED FOR YOUR COMMENTS AND QUESTIONS.
A SCHWAB REPRESENTATIVE WILL BE HAPPY TO ASSIST YOU.

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THE SCHWABFUNDS FAMILY-REGISTERED TRADEMARK-                                    

The SchwabFunds Family includes a variety of funds to help meet your investment 
needs. You can diversify your portfolio in a single step with our asset         
allocation funds. Or you can customize your portfolio with a combination of our 
stock funds as well as our taxable and tax-advantaged bond and money market     
funds.                                                                          

Please call 1-800-435-4000 for a free prospectus and brochure for any of these  
SchwabFunds.                                                                    

This report must be preceded or accompanied by a current prospectus.            

SCHWAB ASSET ALLOCATION FUNDS                                                   
Schwab MarketTrack All Equity Portfolio                                         
Schwab MarketTrack Growth Portfolio                                             
Schwab MarketTrack Balanced Portfolio                                           
Schwab MarketTrack Conservative Portfolio                                       
Schwab MarketManager Growth Portfolio                                           
Schwab MarketManager Balanced Portfolio                                         

SCHWAB STOCK FUNDS                                                              
Schwab S&P 500 Fund                                                             
Schwab 1000 Fund-Registered Trademark-                                          
Schwab Analytics Fund-Registered Trademark-                                     
Schwab Small-Cap Index Fund-Registered Trademark-                               
Schwab MarketManager Small-Cap Portfolio                                        
Schwab International Index Fund-Registered Trademark-                           
Schwab MarketManager International Portfolio                                    

SCHWAB BOND FUNDS                                                               
Schwab Total Bond Market Index Fund                                             
Schwab Short-Term Bond Market Index Fund                                        
Schwab Long-Term Tax-Free Bond Fund                                             
Schwab Short/Intermediate Tax-Free Bond Fund                                    
Schwab California Long-Term Tax-Free Bond Fund                                  
Schwab California Short/Intermediate                                            
Tax-Free Bond Fund                                                          

SCHWAB MONEY MARKET FUNDS                                                       
Schwab offers an array of money market funds(1) that seek high current income   
with safety and liquidity. Choose from taxable or tax-advantaged alternatives.  
Many can be linked to your Schwab account to "sweep" cash balances automatically
when you're between investments. Or, for your larger cash reserves, choose one  
of our Value Advantage Investments.-Registered Trademark-                       

(1)Investments in money market funds are neither insured nor guaranteed by the  
U.S. government, and there is no assurance that the funds will be able to 
maintain a stable share price of $1.                                      

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SCHWABFUNDS                                                                     
FAMILY-Registered Trademark-                                                    

101 Montgomery Street                                                           
San Francisco, California 94104                                                 

INVESTMENT ADVISOR                                                              
Charles Schwab Investment Management, Inc.                                      
101 Montgomery Street, San Francisco, CA 94104                                  

DISTRIBUTOR                                                                     
Charles Schwab & Co., Inc.                                                      
101 Montgomery Street, San Francisco, CA 94104                                  

This report is not authorized for distribution to prospective investors         
unless preceded or accompanied by a current prospectus.                         

-C- 1998 Charles Schwab & Co., Inc. All rights reserved.                        
Member SIPC/NYSE.                                                               

Printed on recycled paper. CRS 20415 (1298-4860) MKT3810(12/98)                 

Dates Referenced Herein   and   Documents Incorporated by Reference

				Referenced-On Page
This ‘N-30D’ Filing		Date		First		Last			Other Filings
		2/29/00		90					497,  N-30D,  NSAR-A
Filed on:		7/20/99							N-30D
		1/1/99		3
		12/8/98		94
For Period End:		10/31/98		1		95			24F-2NT,  NSAR-B
		9/30/98		7					485APOS,  497
		10/31/97		78		93			24F-2NT,  485BPOS,  NSAR-BT
		9/1/97		78		92
		8/31/97		78		92			24F-2NT,  N-30D,  NSAR-B
		5/19/97		80		93			497
		10/31/96		80		81
		9/1/96		78
		5/1/96		80		81
		10/31/94		83
		12/3/93		83
		5/7/93		85
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