<PAGE> 1
As filed with the Securities and Exchange Commission on December 15, 1995
File Nos. 33-62470 and 811-7704
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 6 /X/
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 8 /X/
--------------
SCHWAB CAPITAL TRUST
--------------------
(Exact Name of Registrant as Specified in Charter)
101 Montgomery Street, San Francisco, California 94104
------------------------------------------------ -----
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code:
(415) 627-7000
--------------
Timothy F. McCarthy, President
Schwab Capital Trust
101 Montgomery Street, San Francisco, California 94104
------------------------------------------------------
(Name and Address of Agent for Service)
Copies of communications to:
Martin E. Lybecker, Esq. Frances Cole, Esq.
Ropes & Gray Charles Schwab Investment Management, Inc.
1301 K Street, NW, Suite 800 East 101 Montgomery Street
Washington, D.C. 20005 San Francisco, CA 94104
It is proposed that this filing will become effective (check appropriate box)
/ / Immediately upon filing pursuant to paragraph (b)
/ / On (date) pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)(1)
/ / On (date) pursuant to paragraph (a)(1)
/X/ 75 days after filing pursuant to paragraph (a)(2)
/ / On (date) pursuant to paragraph (a)(2) of Rule 485
if appropriate, check appropriate box:
/ / This post-effective amendment designates a new effective date for
a previously filed post-effective amendment.
DECLARATION PURSUANT TO RULE 24f-2: Pursuant to Rule 24f-2 under the
Investment Company Act of 1940, as amended, Registrant has registered an
indefinite number or amount of its shares of beneficial interest
under the Securities Act of 1933, as amended. The Rule 24f-2 Notice for
Registrant's fiscal year ending October 31, 1994 was filed on December 16, 1994.
<PAGE> 2
PART A
SCHWAB CAPITAL TRUST
The information required by Items 1 through 9 for Schwab Small-Cap Index
Fund(TM) and Schwab International Index Fund(TM), two separate portfolios of
Registrant, is hereby incorporated by reference to the Prospectuses for these
portfolios filed with the Securities and Exchange Commission under Rule 497(e)
on June 30, 1995.
The information required by Items 1 through 9 for Schwab Asset
Director(R) -- High Growth Fund, Schwab Asset Director(R) -- Balanced Growth
Fund and Schwab Asset Director(R) -- Conservative Growth Fund, three separate
portfolios of Registrant, is hereby incorporated by reference to the
Prospectuses for these portfolios filed with the Securities and Exchange
Commission under Rule 497(e) on September 29, 1995.
<PAGE> 3
CROSS REFERENCE SHEET
SCHWAB CAPITAL TRUST:
SCHWAB S&P 500 FUND--INVESTOR SHARES AND E.SHARES
<TABLE>
<CAPTION>
Part A Item Prospectus Caption
- ----------- ------------------
<S> <C>
Cover Page Cover Page
Synopsis Expenses; Key Features of Our Fund; Matching the Fund
to Your Investment Needs
Condensed Financial Information Not Applicable
General Description of Registrant Matching the Fund to Your Investment Needs; Investment
Objective and Policies; Investments and Techniques Used
by Our Fund; Organization and Management of Our Fund
Management of the Fund Organization and Management of Our Fund
Management's Discussion of Fund Performance [Discussion to be included in the Fund's Shareholder
Reports]
Capital Stock and Other Securities Investing in Our Fund; Important Information About Your
Investment; Organization and Management of Our Fund
Purchase of Securities Being Offered Investing in Our Fund; Important Information About Your
Investment
Redemption or Repurchase Investing in Our Fund
Pending Legal Proceedings Not Applicable
</TABLE>
<PAGE> 4
CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Expenses
Key Features of Our Fund
Matching the Fund to Your Investment Needs
Investing in Our Fund
How to Buy Investor Shares
How to Buy e.Shares
How to Sell or Exchange Investor Shares
How to Sell or Exchange e.Shares
Investment Objective and Policies
Investments and Techniques Used by Our Fund
Important Information About Your Investment
Distribution Options
Income Tax Information
How We Determine the Price of Your Shares
How Our Fund Shows Performance
Annual Report and Semi-Annual Report Mailings
Organization and Management of Our Fund
Management Functions and Responsibilities
Operating Fees and Expenses
Other Information on the Operation of Our Fund
Glossary of Important Terms
</TABLE>
READING THIS PROSPECTUS. Explanations of all italicized terms in this Prospectus
are included in the Glossary at the end of this Prospectus. References to "you"
and "your" in this Prospectus refer to prospective investors and/or
shareholders, while references to "we," "us," "our" and "our Fund" refer to the
Fund or in some cases, the Trust.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
SCHWAB S&P 500 FUND
SCHWAB S&P 500 FUND-INVESTOR SHARES
SCHWAB S&P 500 FUND-E.SHARES(TM)
SCHWAB S&P 500 FUND (THE "FUND") seeks to track the price and dividend
performance (total return) of common stocks of United States companies, as
represented by the Standard & Poor's Composite Index of 500 Stocks (the "S&P
500(R)" or "Index"). The Fund invests primarily in equity securities of
companies composing the S&P 500. The Fund is a diversified investment portfolio
of Schwab Capital Trust (the "Trust"), a no-load, open-end management investment
company managed by Charles Schwab Investment Management, Inc. (the "Investment
Manager" or "CSIM"). This Prospectus describes both of the Fund's classes of
shares - the Investor Shares (the "Investor Shares") and the e.Shares (the
"e.Shares").
ABOUT THIS PROSPECTUS: THIS PROSPECTUS PROVIDES YOU WITH CONCISE INFORMATION
THAT YOU SHOULD KNOW BEFORE YOU DECIDE IF THE FUND PROVIDES THE INVESTMENT
OPPORTUNITIES YOU SEEK. READ IT CAREFULLY, AND RETAIN IT FOR FUTURE REFERENCE.
You can find more detailed information in the Statement of Additional
Information, dated February __, 1996. That Statement has been filed with the
Securities and Exchange Commission ("SEC") and is incorporated in this
Prospectus by reference (which means that it is legally considered part of this
Prospectus even though it is not printed here). This Prospectus is available
electronically by using our Internet address: http://www.schwab.com. You can get
a free paper copy of this Prospectus or the Statement of Additional Information
by calling Schwab at 800-2 NO-LOAD, or by writing Schwab at 101 Montgomery
Street, San Francisco, California 94104.
TO PLACE ORDERS AND FOR ACCOUNT INFORMATION:
INVESTOR SHARES: Contact your local Schwab office, or call 800-2 NO-LOAD.
E.SHARES: Use SchwabLink(TM) to contact Schwab Institutional or The Charles
Schwab Trust Company.
PROSPECTUS FEBRUARY , 1996
1
<PAGE> 5
EXPENSES
SHAREHOLDER TRANSACTION EXPENSES are the fees and charges you pay for buying or
selling shares of a fund. You pay no sales fees or charges when you buy or sell
shares of our Fund.
ANNUAL FUND OPERATING EXPENSES include management fees paid to the Investment
Manager, transfer agency fees, and other expenses. These expenses cover, for
example, services such as investment research and management of the Fund,
maintaining shareholder records, and issuing shareholder statements. Each class
of shares pays its own annual operating expenses from its income, which is
factored into the dividends paid to shareholders and into the share price of
that class. As a shareholder, you are not charged any of these fees directly.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
INVESTOR
SHARES E.SHARES(TM)
- ------------------------------------------------------------------------------------
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Sales charge on purchases and
reinvested dividends None None
Deferred sales charge or redemption fees None None
Exchange fees None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management fee (after fee reduction)(1) 0.13% 0.13%
12b-1 fees None None
Other expenses (after expense
reduction)(2) 0.36% 0.15%
Total fund operating expenses(3,4) 0.49% 0.28%
- ------------------------------------------------------------------------------------
</TABLE>
(1) This amount reflects a reduction guaranteed by the Investment Manager
through at least December 31, 1996. If there were no such reduction, the maximum
management fee would be 0.36% of the average daily net assets of the Fund.
(2) "Other Expenses" are based on estimated amounts for the current fiscal year
for the Fund after fee reductions. See "Organization and Management of Our Fund
- -- Operating Fees and Expenses" for information regarding the differing expenses
for the Fund's multiple classes of shares. If there were no such reductions,
the estimated other expenses of the Investor Shares and the e.Shares would be
0.40% and 0.19%, respectively, of the average daily net assets of that class of
shares.
(3) This amount reflects the guarantee by Schwab and the Investment Manager
that, through at least December 31, 1996, the total fund operating expenses of
each class will not exceed 0.49% and 0.28% of average daily net assets of the
Investor Shares and the e.Shares, respectively. After that, the guarantee may be
terminated, modified or continued. If there were no such reduction, the
estimated total operating expenses of the Investor Shares and the e.Shares would
be 0.76% and 0.55%, respectively, of the average daily net assets of that class
of shares.
(4) You may be charged a fee if applicable minimum balances are not maintained
in your Schwab brokerage or Schwab One(R) account. (See "Investing in Our Fund -
How to Buy Shares - Schwab Account Minimums and Associated Fees.") Schwab
Individual Retirement Accounts with balances or $10,000 or more by September 15,
1996 will not be charged Schwab's $29 annual IRA account fee for the life of the
account. Schwab Keogh plans are currently charged an annual fee of $45. See
"Investing in Our Fund" for information regarding minimum balance and investment
requirements.
EXAMPLES. You would pay the following expenses on a $1,000 investment in each
class of the Fund's shares assuming: (1) 5% annual return and (2) redemption at
the end of the period.
<TABLE>
<CAPTION>
1 Year 3 Years
------ -------
<S> <C> <C>
Investor Shares $5 $16
e.Shares $3 $9
</TABLE>
THIS IS AN EXAMPLE ONLY AND DOES NOT REPRESENT PAST OR FUTURE EXPENSES. ACTUAL
EXPENSES MAY BE GREATER OR LESS THAN THE EXPENSES SHOWN IN THE EXAMPLE. This
example reflects the guarantee by Schwab and the Investment Manager that,
through at least December 31, 1996, total fund operating expenses of each class
will not exceed 0.49% and 0.28% of the average daily net assets of the Investor
Shares and the e.Shares, respectively. Please remember that, while this example
assumes a 5% annual return on investment, the actual returns of each class may
be more or less than the 5% used in this example.
The purpose of the table above is to help you understand the various costs and
expenses you will bear directly or indirectly when you invest in the Fund. (See
"Organization and Management of Our Fund - Operating Fees and Expenses.")
KEY FEATURES OF OUR FUND
INVESTMENT OBJECTIVE: to track the price and dividend performance (total return)
of common stocks of United States companies as represented by the S&P 500. The
S&P 500 is a widely recognized, unmanaged index of the prices of 500 large
company common stocks. These stocks represent approximately 70% of the market
value of all common stocks publicly traded in the United States.*
* Source: Standard & Poor's, September 1995.
STRATEGY: to invest in equity securities of companies composing the S&P 500 and
to minimize trading and other costs.
Common stock prices can be volatile in the short term. Market conditions or
other company, political and economic news often can cause large changes in a
stock's price. You should be comfortable with the volatility of an all-stock
investment and the risks of the stock market. When you sell your shares they may
be worth more or less than you paid for them. For more details on the Fund's
investments and the risks associated with them, see "Matching the Fund to Your
Investment Needs--Risk Considerations," "Investment Objectives and Policies" and
"Investment Techniques Used by Our Fund."
2
<PAGE> 6
MANAGEMENT. The Investment Manager, Charles Schwab Investment Management, Inc.,
currently manages the mutual funds in the SchwabFunds Family(R), a family of 22
mutual funds with approximately $32 billion in assets as of November 28, 1995.
For more details, see "Organization and Management of Our Fund."
MARKET PERFORMANCE. For the twenty years ended 1994, the S&P 500 provided an
average annual return of 14.5%.* Total return figures for the S&P 500 assume
reinvestment of all dividends paid by stocks included in the Index. These
figures do not include fees such as those charged by the Fund. They also do not
include taxes, brokerage or other fees that you would pay if you directly
invested in all the stocks of the Index.
* Source: BARRA Inc. Past performance of the S&P 500 does not necessarily
reflect future performance results of the S&P 500 or the Fund.
LOW COST INVESTING. You pay no sales fees or charges when you buy or sell shares
of the Fund. The Investment Manager and Schwab guarantee that the Investor
Shares' total operating expenses will not exceed 0.49% and that the e.Shares
total operating expenses will not exceed 0.28% through December 31, 1996. After
that, the guarantee may be terminated, modified or continued. For more details,
see "Investing in Our Fund" and "Operating Fees and Expenses."
REDUCED TAXES. The Fund has adopted trading strategies which are designed to
offset capital gains and losses and keep portfolio turnover low. This can help
reduce your current capital gains taxes. See "Investment Objectives and
Policies."
SHAREHOLDER SERVICES - INVESTOR SHARES. Schwab's professional representatives
are available toll-free 24 hours a day at 800-2 NO-LOAD to serve your account,
or you can visit or call your local Schwab office during regular business hours.
SHAREHOLDER SERVICES - E.SHARES(TM). The e.Shares are available only to clients
of Schwab Institutional and The Charles Schwab Trust Company and to certain
tax-advantaged retirement plans who can execute their trading and information
requests through SchwabLink(TM). Transactions in the e.Shares are not available
by telephone, mail or in person. See "Investing in the Fund."
CONVENIENT REPORTING. You receive one consolidated account statement for all of
your account activity, including all of your mutual fund activity.
FREE AUTOMATIC INVESTMENT PLAN. Schwab's free Automatic Investment Plan allows
you to make regular investments in the Investor Shares in amounts and at
intervals that you select. For more details, see "Schwab Automatic Investment
Plan."
MATCHING THE FUND TO YOUR INVESTMENT NEEDS
We designed the Fund to provide you exposure to the growth potential of the
stock market. In the past, common stocks have outperformed most other securities
over time. The Fund may be appropriate for you if you have a long-term
investment horizon and want the growth potential of stock investments. Typical
uses for the Fund might include investors saving for retirement or college
funding. The Fund is also appropriate for use in IRA's and other retirement
plans. A broadly-based stock index fund, like the Fund, is also often used as a
component of an asset allocation plan. While the Fund is not a complete
investment plan, you might use it as a "core" equity investment around which you
may tailor your overall plan.
The Fund offers two different classes of shares - one of which may be
appropriate for you. Although both classes invest in the same portfolio of
stocks, each class's operating expense ratio, and therefore their return and
per share net asset value, is different. The lower operating expense ratio of
the e.Shares reflects the substantially lower costs of entering transactions
and communicating with the Fund through SchwabLink(TM).
The e.Shares are available only to clients of Schwab Institutional and The
Charles Schwab Trust Company and to certain tax-advantaged retirement plans who
can execute their trading and information requests through SchwabLink(TM).
Transactions in e.Shares are not available by telephone, mail or in person.
The Investor Shares are appropriate for investors who desire to enter their
transactions or communicate with the Fund in person, by telephone, or by mail or
who do not want to be limited to using a computer for these purposes.
We seek investment results that track, rather than beat, the total return of the
S&P 500. Thus, we do not "actively" choose investments in the same way as
actively managed stock funds do. Those funds choose investments based on
economic, financial, and market factors and investment judgment. In contrast, we
use a "passive" or "indexing" strategy. This means that we buy and sell stocks
primarily to match the Index or to invest cash from purchases or obtain cash for
redemptions of our shares. The Fund and the Investment Manager normally do not
judge the merits of any particular stock. Thus, you should not expect our Fund
to match the potential returns of
3
<PAGE> 7
funds that aggressively seek growth. You also should not expect the price
stability of funds investing primarily in bonds or money market instruments.
We designed the Fund for long-term investors. You should not use the Fund to
speculate on short term market movements. Doing so can disrupt our investment
strategy and operations. It also raises costs for other Fund investors. As a
result, we may refuse any purchase or exchange order that we deem to be
disruptive to the Fund or its investments.
RISK CONSIDERATIONS. We invest in substantially all of the 500 common stocks
composing the Index. Hence, your investing in our Fund will expose you to stock
risk. Prices of many stocks or of a single stock may decline over short or even
long periods. However, diversity of stock holdings does tend to reduce stock
risk. Because we own so many different stocks, our Fund is less sensitive to the
decline of any one of them than if it invested in fewer stocks. Their wide range
of industries also tends to lessen the impact of one industry's decline. Even
so, these factors cannot protect you from all possible losses.
Also, to better track the investment results of the S&P 500, we may engage in
certain stock futures contracts and options, which are types of derivative
transactions. Their potential return and risk can vary widely from type to type.
See "Investment Techniques Used By Our Fund" in this Prospectus and "Investment
Securities" in the SAI for details about the derivatives that we use and the
limits on them. You should pay special attention to these descriptions of
derivatives, for these investments carry more risk potential than the Fund's
other investments.
INVESTING IN OUR FUND
NEW INVESTORS TO SCHWAB need to open a Schwab account by completing and signing
an account application. Mail it, together with your check, to the address
indicated on the application. You may also open your account in person as
described in the table on this page.
EXISTING SCHWAB INVESTORS must have funds in their Schwab account to buy shares
in the Fund. Schwab will charge your account a $15 service fee for any check
returned because of insufficient or uncollected funds, or because of a stop
payment order.
Within your Schwab account, you have access to other investments available at
Schwab, such as stocks, bonds and other mutual funds. The Securities Investor
Protection Corporation (known as "SIPC") will provide account protection, in an
amount up to $500,000 for your securities, including Fund shares, that you hold
in a Schwab account. Of course, SIPC account protection does not protect you
from share price fluctuations.
ACCOUNT MINIMUMS AND FEES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
FUND INITIAL PURCHASE:
Brokerage account $1,000
Custodial account $ 500
FUND ADDITIONAL PURCHASE:
Brokerage account $ 100
Custodial account $ 100
Automatic investment plan
(Investor Shares only) $ 100
FUND MINIMUM BALANCE:
Brokerage account $1,000
Custodial account $ 500
- --------------------------------------------------------------------------------
</TABLE>
Schwab reserves the right to waive these minimums for clients of Schwab
Institutional and The Charles Schwab Trust Company and for certain
tax-advantaged retirement plans.
A quarterly fee of $7.50 will be charged on Schwab brokerage accounts that fall
below the minimum. This fee, if applicable, will be charged at the end of each
quarter and will be waived if there has been one commissionable trade within the
last six months, or if the shareholder's combined account balances at Schwab
total $10,000 or more.
Schwab currently imposes no fee for opening a Schwab One(R) account with a
minimum of $5,000 account equity. Schwab One accounts containing less than
$5,000 account equity are subject to a fee of $5 per month imposed by Schwab if
there have been fewer than two commissionable trades within the last twelve
months.
The Fund, in its sole discretion and without prior notice to you, reserves the
right to reject orders to buy shares, to change the minimum investment
requirements, and to withdraw or suspend any part of the offering made by this
Prospectus. The Fund must accept all orders to buy shares to be effective, and
orders are not binding until the Fund confirms or accepts them in writing.
HOW TO BUY INVESTOR SHARES
You may place Investor Shares purchase and redemption orders as well as request
exchanges at any one of over 200 Schwab offices nationwide or by calling 800-2
NO-LOAD, where trained representatives are available to answer questions about
the Investor Shares and your account. The privilege to initiate transactions by
4
<PAGE> 8
telephone, as discussed below, is automatically available through your Schwab
account.
We will follow reasonable procedures to confirm that your telephone instructions
are genuine. If we do not follow reasonable procedures to confirm that your
telephone order is genuine, we may be liable for any losses you may suffer from
unauthorized or fraudulent orders. These procedures may include requiring a form
of personal identification, providing written confirmation of your telephone
instructions, and recording all telephone transactions. You should be aware that
telephone transactions may be difficult to implement during periods of drastic
economic or market changes. If you experience difficulties in reaching us by
telephone, you can mail your orders or place them in person as set forth below.
- --------------------------------------------------------------------------------
Whether by phone, mail, or in person, you must always provide the following
information:
- - your Schwab account number.
- - the name of the Fund and class of shares you wish to buy.
- - the amount you wish to invest.
BY PHONE
- - Call 800-2 NO-LOAD (800-266-5623)
- - Place a buy order for your account.
BY MAIL
- - Include a letter of instruction with the information requested above,
signed by one of the registered account holders in the exact form
specified on the account.
- - Make your check payable to Charles Schwab & Co., Inc.
- - Mail to 101 Montgomery Street, San Francisco, CA 94104 or your local
Schwab office.
- - After you mail your letter, it is irrevocable, and you may not modify or
cancel it.
ELECTRONICALLY
- - For more information regarding how to purchase Investor Shares
electronically using StreetSmart(TM), The Equalizer(R), TeleBroker(R) and
SchwabLink(TM), call 800-2 NO-LOAD.
IN PERSON
- - Deposit your check at your local Schwab office.
- - For the Schwab office nearest you, call 800-2 NO-LOAD.
BY WIRE
- - Contact your local Schwab office for instructions.
AUTOMATICALLY (INVESTOR SHARES ONLY)
- - Use Schwab Automatic Investment Plan.
- - Sign up for this service when opening your account.
- --------------------------------------------------------------------------------
SCHWAB'S AUTOMATIC INVESTMENT PLAN ("AIP") allows you to make periodic
investments in the Investor Shares and other non-money market SchwabFunds(R)
(and certain other funds available through Schwab) automatically and
conveniently. You can make automatic investments in any amount, from $100 to
$50,000, once you meet the Fund's investment minimum. You may make investments
automatically from your Schwab account. You may use the uninvested cash in your
Schwab account. You also may use the proceeds of redemption of shares of the
Schwab Money Fund linked to your Schwab account. In addition, you may use the
Schwab MoneyLink(R) Transfer Service. For more detailed information about this
service, or to establish your Automatic Investment Plan, call your local Schwab
office or 800-2 NO-LOAD, 24 hours a day.
As long as you are purchasing Fund shares through the Automatic Investment Plan,
all dividends and distributions paid by the Fund must be reinvested in
additional Fund shares and may not be received in cash.
HOW TO BUY E.SHARES(TM)
The e.Shares are available to clients of Schwab Institutional and The Charles
Schwab Trust Company and to certain tax-advantaged retirement plans who can
communicate with Schwab through SchwabLink(TM). Transactions in e.Shares are not
available by telephone, mail or in person.
To enter your transactions, follow the specific transaction instructions in the
user manual SchwabLink(TM).
HOW TO SELL OR EXCHANGE YOUR SHARES
You can sell your Investor Shares at any time, in person, by telephone or by
mail. You can sell your e.Shares at any time electronically. When you sell your
shares, you may receive more or less than the amount you invested.
The exchange privilege allows you to exchange your SchwabFunds(R) shares for
shares of any other SchwabFunds class or series available to investors in your
state if your purchase meets the Fund's eligibility requirements. Thus, you can
conveniently modify your investments if your goals or market conditions change.
An exchange of shares between Funds will be treated as a sale of the shares for
federal income tax purposes, while an exchange of shares between classes of
shares of the same Fund will not be treated as a sale of the shares. Note that
you must meet the minimum investment requirements applicable to the shares you
wish to receive in an exchange. The Fund reserves the right on 60 days' written
notice to modify, limit or terminate the exchange privilege.
5
<PAGE> 9
HOW TO SELL OR EXCHANGE INVESTOR SHARES
- --------------------------------------------------------------------------------
Whether by phone, mail or in person, the following information is always needed:
When Selling Shares:
- - your Schwab account number.
- - the name of the Fund from which you wish to sell Investor Shares.
- - the number of shares you wish to sell.
When Exchanging Shares:
- - your Schwab account number.
- - the number of shares you want to exchange.
- - the name of the Fund from which you wish to exchange Investor Shares.
- - the name of the Fund and class (if any) into which shares are to be
exchanged.
- - the distribution option you select.
BY PHONE
- - Call 800-2 NO-LOAD (800-266-5623)
- - Place a sell or exchange request for your account.
BY MAIL
- - Include a letter of instruction with the information requested above,
signed by one of the registered account holders in the exact form
specified on the account.
- - Mail to 101 Montgomery Street, San Francisco, CA 94104 or your local
Schwab office.
- - Once your letter is mailed, it is irrevocable and may not be modified or
canceled.
ELECTRONICALLY
- - For more information regarding how to sell or exchange Investor Shares
electronically using StreetSmart(TM), The Equalizer(R), TeleBroker(R) and
SchwabLink(TM), call 800-2 NO-LOAD.
IN PERSON
- - Place your sell or exchange request at your local Schwab office.
- - For the Schwab office nearest you, call 800-2 NO-LOAD.
- --------------------------------------------------------------------------------
HOW TO SELL OR EXCHANGE E.SHARES(TM)
- --------------------------------------------------------------------------------
To sell or exchange your e.Shares the following information is always needed:
When Selling Shares:
- - Your SchwabLink(TM) master account number and subaccount number.
- - the name of the Fund from which you wish to sell e.Shares.
- - the number of shares you wish to sell.
When Exchanging Shares:
- - Your SchwabLink(TM) master account number and subaccount number.
- - the name of the Fund from which you wish to exchange e.Shares
- - the number of shares you wish to exchange
- - the name of the Fund and class (if any) into which shares are to be
exchanged
- - the distribution option you select.
To enter your transaction, follow the specific transaction instructions in the
user manual on SchwabLink(TM). Transactions in e.Shares are not available by
telephone, mail or in person.
Payment for redeemed shares will be credited directly to your Schwab account no
later than 7 days after Schwab's Mutual Fund Transfer Agency Department receives
your sell instructions in proper form. Proceeds will then be held there or
mailed to you depending on the account standing instructions you have selected.
For information on how to wire funds from your Schwab account to your bank,
contact your local Schwab office for additional information.
If you purchased shares by check, your sales proceeds may be held in your Schwab
account until your check clears (which may take up to 15 days). Depending on the
type of Schwab account you have, your money may earn interest during any holding
period.
The Fund may suspend redemption rights or postpone payments when trading on the
New York Stock Exchange is restricted, the Exchange is closed for any reason
other than its customary weekend or holiday closings, emergency circumstances as
determined by the SEC exist, or for such other circumstances as the SEC may
permit. The Fund may also elect to invoke a 7 day period for cash settlement of
individual redemption requests in excess of $250,000 or 1% of the Fund's net
assets, whichever is less. (See "Purchase and Redemption of Shares" in the
Statement of Additional Information.)
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to track the price and dividend performance
(total return) of common stocks of United States companies, as represented by
the S&P 500.
The S&P 500(R) is a widely recognized, unmanaged index of 500 large company
common stocks selected by Standard & Poor's ("Index Stocks"). Index Stocks
represent nearly 70% of the market value of all common stocks publicly traded in
the United States. The Index
6
<PAGE> 10
Stocks of the 50 largest companies of the S&P 500 account for approximately 46%
of the Index. Total returns for the S&P 500 assume reinvestment of dividends.
These returns do not include fees such as those charged by the Investment
Manager. They also do not reflect taxes, brokerage commissions or other fees
that you would pay if you invested directly in all the Index Stocks.
The Fund seeks investment results that track, rather than beat, the total return
of the S&P 500. Thus, it does not "actively" choose investments in the same way
as actively managed stock funds do. Those funds choose investments based on
economic, financial, and market factors and investment judgment. In contrast,
the Fund uses a "passive" or "indexing" strategy. It buys and sells stocks
primarily to match the Index or to invest cash from Fund share purchases or
obtain cash for redemptions of Fund shares. Thus, the Fund and the Investment
Manager normally do not judge the merits of any particular stock.
Under normal market conditions, the Fund invests at least 80% of its assets in
Index Stocks. The Fund generally tries to match its Index Stock holdings to
those Stocks' weightings in the Index. In extraordinary circumstances, the Fund
may exclude a stock from its holdings or the Index or include a similar stock in
its place if it believes that doing so will help achieve its investment
objective. The Fund may purchase securities of companies of which it may be
affiliated to the extent that these companies are represented in the Index.
TAX EFFICIENCY. The Fund is managed to minimize the Fund's current capital gains
tax liability. This feature can make a real difference in your after-tax return,
especially if you are in a high tax bracket. The Fund has adopted a number of
policies which help reduce its portfolio turnover ratio and minimize the level
of current realized capital gains. These policies include selling the highest
tax cost securities first, not automatically rebalancing the portfolio to
reflect changes in the Index, and trading only round-lots or large blocks of
securities. These policies will be utilized only to the extent they do not have
a material effect on the Fund's ability to track the performance of the Index.
Although the Fund focuses on Index Stocks, it also may buy and sell other equity
securities and other types of instruments. It also buys and sells short-term
debt securities for cash management purposes. It also uses various techniques,
such as options and futures contracts, to adjust its correlation to the S&P 500.
The Fund typically will not track the performance of the S&P 500 perfectly. Fund
costs, fees and expenses impair the Fund's correlation, as do the amounts and
timing of Fund cash inflows and outflows. Changes in the markets can also
inhibit the match. The Fund's strategy of minimizing capital gains taxes and
portfolio turnover also may cause differences.
INVESTMENTS AND TECHNIQUES USED BY OUR FUND
In seeking its objective, the Fund may buy and sell the investments and employ
the techniques described below. Please see the Statement of Additional
Information ("SAI") and the Fund's annual and semi-annual reports for more
details. The Fund's investment policies and restrictions apply when the Fund
makes an investment. Except with respect to futures and options, later changes,
such as changed market values, do not require the Fund to sell the investment
even if the Fund could not then make the same investment.
The Fund's investment objective and designated investment policies discussed
below are fundamental. The Fund cannot change them without shareholder approval.
See "Investment Restrictions" in the SAI for details. Because any investment
involves risk, we cannot guarantee achieving the Fund's objective.
EQUITY SECURITIES. Equity securities are ownership interests in the net worth of
a corporation. They include common stocks, preferred stocks, convertible
securities and warrants. In the past, they have outperformed most other
securities over time. Their prices can be volatile in the short term though.
Market conditions or other company, political and economic news often can cause
large changes in a stock's price for the short term or long term. Smaller
company securities are especially sensitive to these factors.
SHORT TERM DEBT SECURITIES. While the Fund tries to remain invested in Index
Stocks as fully as possible, it must manage cash flows resulting from the
purchase and sale of Fund shares. Thus, the Fund also may invest in U.S. Dollar
denominated short-term bonds and money market instruments. The Fund may buy debt
securities of or guaranteed by the U.S. government, its agencies or related
bodies. It also may use certificates of deposit, time deposits and bankers
acceptances. The Fund also may buy commercial paper if the commercial paper has
one of an NRSRO's top two ratings or has comparable quality if it is unrated.
The Fund uses repurchase agreements regarding any of these debt securities. It
also may buy and sell shares of other mutual funds to manage its cash flows.
THE FUND MAY USE FUTURES CONTRACTS AND OPTIONS. To track the Index, and to do so
in an efficient and cost effective manner, the Fund may use stock futures
contracts and options which are types of derivative transactions. Specifically,
the Fund may enter into futures contracts and options on futures contracts
provided that the aggregate
7
<PAGE> 11
deposits required on these contracts do not exceed 5% of the Fund's total
assets.
The Fund may use futures contracts and options for several reasons: to more
closely track the performance of the S&P 500, to reallocate the Fund's assets
among Index Stocks while minimizing transaction costs; to maintain cash reserves
while simulating full investment; to facilitate trading; or to seek higher
investment returns or simulate full investment when a futures contract is priced
more attractively or is otherwise considered more advantageous than the
underlying security or index.
Trading costs for futures contracts and options often are less than the costs of
direct investments. Thus, the Fund tries to use futures contracts to reduce the
Fund's total trading costs. Also, futures contracts only require a small initial
margin deposit. That way, the Fund often is able to keep a cash reserve for
future redemptions but in effect keep fully invested. The Fund sells futures
contracts upon net redemptions to avoid leverage.
Futures contracts and options pose certain risks. The values of futures
contracts and options may not perfectly track changes in the Index Stocks'
holdings. The secondary market for a futures contract also may not be liquid. As
a result, the Fund may not be able to close a futures position before it
settles. The Fund seeks to avoid the risk of tracking errors by careful
selection of the futures and options to match the Fund's holdings. It also buys
and sells on a national exchange that has an active and liquid secondary market.
The risk of loss in trading futures contracts in some strategies can be
substantial. Low required margin deposits and the extremely high degree of
leverage of some contracts help cause this risk. Thus, a relatively small price
change in a security or index linked to a futures contract may result in
immediate and substantial loss (or gain). If it invests in futures contracts,
the Fund sets assets aside to cover any related Fund payment that it may have to
make in the future related to the contracts. The Fund sets aside cash or other
holdings that it quickly can turn into cash.
Since the Fund will not use futures and options contracts for the purposes of
leveraging the portfolio, the Investment Manager does not believe that the Fund
is subject to the degree of risk frequently associated with futures and options
transactions.
ILLIQUID SECURITIES. The Fund may buy illiquid securities, provided that it does
not invest more than 10% of its net assets valued at the time of the transaction
in such securities.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Fund may purchase securities on
a "when-issued" or "delayed delivery" basis. When-issued or delayed delivery
securities are securities purchased for future delivery at a stated price and
yield. Generally, the Fund will not pay for securities or start earning interest
on them until the Fund receives them. Securities purchased on a when-issued or
delayed delivery basis are recorded as assets. During the period between the
agreement date and the settlement date, the value of such securities may change
as the prices of securities in the stock market increase or decrease, or as
interest rates change. Default by the other party to the agreement may result in
a loss to the Fund.
REPURCHASE AGREEMENTS. The Fund may engage in repurchase agreements. In a
repurchase agreement, the Fund buys a security at one price and agrees to sell
it back at a higher price. In the event of a bankruptcy or other default of a
repurchase agreement counterparty, the Fund might have expenses in enforcing its
rights, and could experience losses, including a decline in the value of the
underlying securities and loss of income.
BORROWING POLICY. The Fund may borrow money only for temporary purposes to meet
redemption requests that it cannot otherwise meet without immediately selling
portfolio securities. The Fund may borrow up to 33 1/3% of its total asset
value. It may pledge up to 10% of its net asset value to secure such borrowings.
The Fund may not borrow to leverage. The Fund's borrowing policy is fundamental.
SECURITIES LENDING: As a means of increasing income, the Fund may lend
securities it owns worth up to 33 1/3% of its assets. The borrower must fully
collateralize these loans always. If the borrower defaults or becomes insolvent,
the Fund may incur expenses or losses. The Fund might not recover the loaned
securities immediately and might even lose them entirely.
INVESTMENT COMPANIES. The Fund may buy shares of other investment companies,
including those managed by CSIM, the Investment Manager. These purchases will be
subject to the limitations imposed by the 1940 Act, and we will only make these
purchases after obtaining any required regulatory approvals. Investment by the
Fund in other investment companies may cause you to bear duplicative fees for
certain services..
TURNOVER. The Fund anticipates that its annual turnover rate will not exceed
100%.
IMPORTANT INFORMATION ABOUT YOUR INVESTMENT
8
<PAGE> 12
DISTRIBUTION OPTIONS
When you first buy shares in our Fund, you may choose one of the three following
distribution options:
1. AUTOMATIC REINVESTMENT: We will reinvest all istributions in additional
shares of the Fund. The Fund chooses this option automatically unless you
specify otherwise. If you are purchasing Fund shares through Schwab's AIP, you
must choose this distribution option for this Fund.
2. CASH DIVIDENDS/REINVESTED CAPITAL GAINS: We will pay you income dividends
in cash and invests capital gains for you in additional Fund shares.
3. ALL CASH: We will pay you both income dividends and any capital gains
distributions in cash.
The Fund reinvests distributions at the net asset value the Fund next determines
after the record date. We credit your cash distributions to your Schwab account
on the date distributions are payable. We leave them there or mail them to you,
depending your standing account instructions.
To change the distribution option you have selected, call your local Schwab
office or 800-2 NO-LOAD.
The Fund intends to distribute substantially all of its net investment income
each year, as determined by the Board of Trustees. The Fund will pay net
investment income dividends annually in December. It will distribute net capital
gains, if any, annually in December. You should be aware that your per share
equity in undistributed net investment income may be diluted by the continuing
purchases and redemptions of the Fund's shares We will automatically reinvest
all your distributions in additional shares of the Fund unless you elect
otherwise.
INCOME TAX INFORMATION
The following is only a very brief summary of how some of the federal income tax
laws affect you and the Fund. Thus, you must consult with your own tax advisers
about your particular tax situation.
The Fund intends to qualify as a regulated investment company under the Code. To
qualify, we will distribute substantially all of our investment company taxable
income and our capital gain net income (if any) each year. In addition, we will
meet certain other Code requirements. As a regulated investment company, we will
pay no federal income taxes insofar as we distribute our earnings to our
shareholders. Income we receive from certain foreign sources, however, may be
subject to foreign income taxes and withholding.
Dividends that the Fund pays to you from net investment income generally are
taxable to you as ordinary income. So are distributions of the Fund's net
short-term capital gains in excess of any net long-term capital losses.
Distributions that the Fund designates as long term capital gains (net of
capital losses) generally are taxable to you as long term capital gains no
matter how long you own your Fund shares. These tax rules apply whether the Fund
pays dividends in cash or in reinvested shares.
If you are not subject to tax on your income, you may have different tax
treatment. In general, you will not pay tax on the Fund's distributions to you.
You should be aware that an exchange of Fund shares for shares of other
SchwabFunds(R) will be treated as a taxable event for federal income tax
purposes. However, an exchange between the Investor Shares and the e.Shares will
not be treated as a taxable event.
We will provide you with a record of all dividends, distributions, purchases,
and sales on your regular Schwab brokerage account statement. Each year we will
notify you of the federal income tax treatment of all distributions made that
year to your account.
HOW WE DETERMINE THE PRICE OF YOUR SHARES
The price of an Investor Share or an e.Share of the Fund is its net asset value.
We determine net asset values each Business Day at the close of trading on the
New York Stock Exchange, generally at 4:00 p.m., Eastern time. We determine the
price of each class of shares by first valuing the total assets of the Fund
attributable to that class, then subtracting that class's share of any
liabilities; and dividing the balance by the number of shares outstanding of
that class.
The Fund values its assets based on market quotes if they are readily available.
If they not available, the Investment Manager assigns assets fair values in good
faith under Board of Trustees guidelines. The Fund values illiquid and
restricted securities in this way. The Board of Trustees regularly reviews these
values. The Fund uses prices furnished by pricing services if it believes that
they reflect market values.
Purchase or redemption orders and exchange requests will be executed at the net
asset value next determined after receipt by Schwab's Mutual Fund Transfer
Agency Department.
HOW OUR FUND REPORTS PERFORMANCE
9
<PAGE> 13
From time to time the Fund may advertise the total return and yield of each
class of shares. These figures reflect past results and are not intended to
predict future performance. We often will compare our performance to the S&P 500
and other indices.
Total return measures the percentage change in the value of an investment in a
class of shares over time. It reflects all share price movements, dividends,
distributions and expenses. It assumes the reinvestment of all dividends and
capital gains. Average annual total return is a measure of the yearly changes in
the value of the investment. It is the constant compound rate of return, which
if applied to the investment each year, would result in the actual total return
over that time. Other total return figures we show may differ. We may base them
on non-standard periods. We also might show aggregate or cumulative returns.
Yield refers to the income generated by an investment in the a class of shares
over a given period. It is expressed as an annualized percentage rate. Each
class of shares calculates yields according to an SEC standard for all stock and
bond funds. Because this differs from other accounting methods, each class of
shares may quote a yield not equal the income that class actually pays to you.
The Investor Shares and the e.Shares are subject to different expenses. As a
result, their performances will differ.
ANNUAL REPORT AND SEMI-ANNUAL REPORT MAILINGS
Twice a year, the Fund provides you a report showing the performance of the Fund
and each class of its shares and outlining its investments. To reduce mailing
costs, we combine these mailings by household. If a household has multiple
accounts and the same address of record for all the accounts, we send mailings
for all accounts at that address in a single package. If you do not want to
combine mailings for your account, please write to SchwabFunds(R) at the address
on the front of this Prospectus. To request a free copy of the Fund's Annual
Report (or Semi-Annual Report), call your local Schwab office or call 800-2
NO-LOAD.
ORGANIZATION AND MANAGEMENT
OF OUR FUND
MANAGEMENT FUNCTIONS AND RESPONSIBILITIES
GENERAL OVERSIGHT OF OUR FUND. The Board of Trustees and officers meet regularly
to review the Fund's investments, performance, expenses and other business
affairs.
THE INVESTMENT MANAGER. The Investment Manager, Charles Schwab Investment
Management, Inc. or CSIM, manages the Fund's business affairs. Its actions are
subject to the authority of the Board of Trustees and officers of Schwab Capital
Trust. The Investment Manager also manages the Fund's investments. It places all
orders for the Fund's securities transactions. The Investment Manager, founded
in 1989, is a wholly owned subsidiary of The Charles Schwab Corporation. It also
acts as investment manager and administrator to the SchwabFunds(R) mutual funds.
As of November 28, 1995, the SchwabFunds(R) had aggregate net assets of
approximately $32 billion.
Geri Hom is the Fund's portfolio manager. She joined Schwab in March 1995 as
Portfolio Manager - Equities and currently manages the three Schwab index funds
with $1.2 billion in assets and the equity portions of the three Schwab Asset
Director(R) Funds. For four years before joining Schwab, she was a Principal for
Wells Fargo Nikko Investment Advisors. She was Vice President and Manager of the
Domestic Equity Portfolio Management Group for Wells Fargo Nikko for seven years
before that.
Stephen B. Ward, Schwab's Senior Vice President and Chief Investment Officer,
also participates in the management of the Fund. Before April 1991, Mr. Ward was
Vice President and Portfolio Manager for Federated Investors.
TRANSFER AGENT AND SHAREHOLDER SERVICES. Schwab serves as the Shareholder
Services Agent and Transfer Agent for the Fund. Schwab was established in 1971
and is America's largest discount broker. Schwab provides low-cost securities
brokerage and related financial services to approximately 3.3 million active
customer accounts and has over 200 branch offices. Schwab also offers convenient
access to financial information services and provides products and services that
help investors make investment decisions. Schwab is a wholly owned subsidiary of
The Charles Schwab Corporation. Charles R. Schwab is the founder, Chairman and
Chief Executive Officer, and a director of The Charles Schwab Corporation and,
as of August 31, 1995, the beneficial owner of approximately 20.4% of the
outstanding shares of that corporation. Mr. Schwab may be deemed to be a
controlling person of Schwab and the Investment Manager.
OPERATING FEES AND EXPENSES
The Investment Manager provides investment management services under the terms
of its Investment Advisory and Administration Agreement with the Trust. For
these services, it is entitled to a graduated annual fee payable monthly from
the Fund. The rate is 0.36% of the Funds' average daily net assets not in excess
of $1 billion;
10
<PAGE> 14
0.33% of such net assets over $1 billion, but not more than $2 billion; and
0.31% of such net assets over $2 billion.
The Investment Manager guarantees that, through at least December 31, 1996, the
management fees for each class of the Fund's shares will not exceed 0.13% of its
average daily net assets.
For its services as Transfer Agent, Schwab is entitled to receive an annual fee
from each class of shares of 0.05% of its average daily net assets. In addition,
for shareholder services provided, Schwab is entitled to receive from the
Investor Shares an annual fee of 0.20% of average daily net assets and from
the e.Shares an annual fee of 0.05% of average daily net assets. Schwab may
absorb certain expenses incurred by the Fund for these services in order to
limit the Fund's ratio of operating expenses.
The Investment Manager and Schwab also guarantee that, through at least December
31, 1996, total operating expenses of the Fund allocable to the Investor Shares
will not exceed 0.49% of its average daily net assets and that the total
operating expenses allocable to the e.Shares(TM) will not exceed 0.28% of its
average daily net assets. For purposes of this guarantee, "operating expenses"
do not include interest expenses, taxes, foreign taxes withheld, and capital
items such as costs of purchase or sale of portfolio securities, including
brokerage fees or commissions. The effect of this voluntary expense limitation
is to maintain or increase the Fund's total return to shareholders.
Schwab serves as the distributor for the Fund but receives no compensation for
this service.
OTHER EXPENSES. The Trust pays the expenses of the Fund's operations. These
expenses include the fees and expenses for independent auditors, legal counsel,
custodians, and the cost of maintaining books and records of account, taxes,
registration fees, and the fees and expenses of qualifying the Trust and its
shares for distribution under federal and state securities laws, and industry
association membership dues. The Fund seeks to keep transaction costs and other
expenses low.
The Trust generally allocates these expenses among the individual investment
portfolios or series ("Series") of the Trust, including the Fund. The Fund
allocates expenses when incurred based on the relative net assets of each
Series. However, the Fund charges expenses directly attributable to a particular
Series or class of a Series to that Series or class, respectively. The differing
expenses applicable to the Investors Shares and the e.Shares of the Fund will
cause the performance of the classes to differ.
PORTFOLIO BROKERAGE. When placing orders for the Fund's securities transactions,
the Investment Manager uses its judgment to obtain the best price and execution.
It considers the full range and quality of brokerage services available in
making these determinations. For securities transactions in which Schwab is not
a principal, the Investment Manager may use Schwab to execute the Fund's
transactions. To do so, it must reasonably believe that Schwab's commissions (or
prices) and transaction quality will be at least comparable to those available
from other qualified brokers or dealers.
OTHER INFORMATION ON THE OPERATION OF OUR FUND
The Trust is a business trust formed under the laws of Massachusetts on May 7,
1993. It may issue an unlimited number of shares of beneficial interest in one
or more Series or classes. Currently it offers shares of six Series. The Board
of Trustees may authorize the issuance of shares of additional Series or
classes, if it deems it desirable. Shares within each Series have equal,
noncumulative voting rights, and have equal rights as to dividends, assets, and
liquidation of such Series except to the extent that such voting rights or
rights as to dividends, assets and liquidation vary among classes of a Series.
The Fund's two classes of shares represent ownership of the same investment
portfolio. The two classes have equal rights except for dividends and
distributions. The differing expenses applicable to the two classes cause their
dividends, distributions and share prices to differ.
ANNUAL SHAREHOLDER MEETINGS. The Trust is not required to hold annual meetings.
It does not intend to do so except in connection with certain matters. These
include a change in a Fund's fundamental policies, election of Trustees, or
approval of any investment advisory agreement. In addition, shareholders may
elect or remove a Trustee at a special meeting called upon written request of
shareholders owning in the aggregate at least 10% of the outstanding shares of
the Trust.
YOUR VOTING RIGHTS. If we were to make changes to the Fund's management or
fundamental policies, we would ask you to vote as a shareholder. If we hold a
meeting and you cannot attend, you can vote by proxy. Before the meeting, the
Fund will send you proxy materials that explain the issues to be decided and
include a voting card
11
<PAGE> 15
for you to mail back. Shareholders have one vote for each share owned. Unless
permitted by the 1940 Act, shareholders will vote by Series and not in the
aggregate. For example, when voting to approve an investment advisory agreement
for a Series, only shareholders of that Series may vote. When voting to elect
Trustees, shareholders of all the Series vote in the aggregate. In addition,
holders of each class of shares will vote exclusively as a class on any matter
relating solely to their arrangement as a class and on any matter in which the
interest of that class differ from the interest of any other class in that Fund.
SHARE CERTIFICATES. To assist in minimizing administrative costs, share
certificates will not be issued. Records regarding share ownership are
maintained by the Transfer Agent.
S&P 500 LICENSE. The Fund is not sponsored, endorsed, sold or promoted by
Standard & Poor's ("S&P"). S&P makes no representation or warranty, express or
implied, to the shareholders of the Fund or any member of the public regarding
the advisability of investing in securities generally or in the Fund
particularly or the ability of the S&P 500 Index to track general stock market
performance. S&P's only relationship to the Fund is the licensing of certain
trademarks and trade names of S&P and of the S&P 500 Index which is determined,
composed and calculated by S&P without regard to the Fund. S&P has no obligation
to take the needs of the Fund or its Fund's shareholders into consideration in
determining, composing or calculating the S&P 500 Index. S&P is not responsible
for and has not participated in the determination of the prices and amount of
Fund shares or the timing of the issuance or sale of the Fund or in the
determination or calculation of the equation by which the Fund's shares are to
be converted into cash. S&P has no obligation or liability in connection with
the administration, marketing or trading of the Fund's shares.
S&P does not guarantee the accuracy and/or the completeness of the S&P 500 Index
or any data included therein, and S&P shall have no liability for any errors,
omissions or interruptions therein. S&P makes no warranty, express or implied,
as to results to be obtained by the Fund, its shareholders, or any other person
or entity from the use of the S&P 500 Index or any data included therein. S&P
makes no express or implied warranties, and expressly disclaims all warranties
of merchantability or fitness for a particular purpose or use with respect to
the S&P 500 Index or any data included therein. Without limiting any of the
foregoing, in no event shall S&P have any liability for any special, punitive,
indirect or consequential damages (including lost profits), even if notified of
the possibility of such damages.
GLOSSARY OF IMPORTANT TERMS
ANNUALIZED: calculated to represent a year; a statement produced by calculating
financial results covering less than a year to show what might happen when the
results are hypothetically extended to cover an entire year.
BOND: a debt obligation that requires the issuer to pay a fixed sum of money
each year (the interest payments) until maturity, the date on which the bond
comes due and the principal (the amount borrowed) must be paid. Floating or
variable rate bonds have an interest rate that rises or falls if general
interest rates or some other security (such as Treasury bills) rises or falls.
BUSINESS DAY: any day the New York Stock Exchange is open for business. A
Business Day normally begins at 9 a.m. Eastern time when the Exchange opens, and
usually ends at 4 p.m. Eastern time when the Exchange closes.
CAPITAL GAIN OR LOSS: the increase or decrease in the value of a security over
the original purchase price. A gain is realized when the security that has
increased in value is sold. An unrealized gain or loss occurs when the value of
a security increases or decreases but the security is not sold. If a security is
held for more than 12 months and then sold at a profit, that profit is a
realized long-term capital gain. If it is sold at a profit after being held for
less than 12 months, that profit is a realized short-term capital gain.
CODE: The Internal Revenue Code of 1986, as amended.
CSIM: The Fund's Investment Manager, Charles Schwab Investment Management, Inc,
101 Montgomery Street, San Francisco, CA 94104.
DERIVATIVES: financial instrument or arrangement whose value depends on (or
"derives") from the value of an underlying asset, reference rate or index.
DISTRIBUTION: payment the Fund makes to shareholders. There are two kinds of
distributions: dividends, or the profits (after expenses) from the Fund's
investments, and capital gains distributions.
DIVERSIFIED: under the 1940 Act, a diversified fund generally may not invest
more than 5% of its assets in the securities of any one issuer, and may not hold
more than 10% of the voting shares of any one issuer with respect to 75% of the
value of its total assets. Certain minor exceptions apply to this policy, which
are described in the SAI.
FUNDAMENTAL: a policy which can not be changed without the approval of a
majority of the shareholders of the Fund.
INVESTMENT MANAGER: Charles Schwab Investment Management, Inc. (or CSIM), 101
Montgomery Street, San Francisco, CA 94104
LARGE COMPANY STOCKS: The stocks of companies with the largest market
capitalization's, i.e., market capitalizations of about $1.5 billion and up.
MARKET VALUE: The total value of a company as represented by the share price
times the number of shares outstanding.
MONEY MARKET INSTRUMENT: Short-term liquid debt such as Treasury bills and
commercial paper.
12
<PAGE> 16
NET ASSET VALUE (NAV): on a per share basis, the value of one share in a fund or
class of a fund. This value is determined by adding the total fund or class
assets, subtracting all liabilities, and then dividing the resulting number by
the number of shares outstanding.
1940 ACT: the Investment Company Act of 1940, as amended.
NONCUMULATIVE VOTING RIGHTS: the right of a shareholder to vote only the number
of shares owned at the time of voting.
NRSRO: nationally recognized statistical rating organization.
PORTFOLIO: the total stocks, bonds, and other securities held by an individual
investor, a mutual fund, or a financial institution.
RISK: the possibility of losing all or part of your investment, that the value
of your investment will decrease, or that you will receive little or no return
on your investment.
S&P 500(R): an index of 500 stocks selected, calculated, and published by
Standard & Poor's ("S&P"). S&P is neither an affiliate nor sponsor of the Fund,
and inclusion of a stock in the Index does not imply necessarily that it is a
good investment. "Standard & Poor's(R)," "S&P(R)," "S&P 500(R)," "Standard &
Poor's 500," and "500" are trademarks of The McGraw-Hill Companies, Inc. and
have been licensed for use by Schwab Capital Trust.
SAI: the Trust's Statement of Additional Information, as revised from time to
time.
SCHWAB: Charles Schwab & Co., Inc. 101 Montgomery Street, San Francisco, CA
94104.
SECURITIES AND EXCHANGE COMMISSION (SEC): established by Congress to administer
the Securities Act of 1933, the Investment Company Act of 1940, and other
securities-related laws.
SHORT TERM: with respect to the Fund's portfolio investments, maturing in 397
days or less.
STOCK RISK: the possibility that stock prices in general or particular will
decline over short or even extended periods.
TOTAL RETURN: the change in value of an investment in the Fund over a given
period, assuming reinvestment of any dividends and capital gains. Cumulative
total return reflects actual performance over a stated period of time. Average
annual total return is a hypothetical rate of return that would have produced
the same cumulative total return if performance had been constant over the
entire period. Average annual total returns smooth out variations in
performance; they are not the same as actual year-by-year results.
TRANSFER AGENT: Charles Schwab & Co., Inc., 101 Montgomery Street, San
Francisco, CA 94104.
TRUST: Schwab Capital Trust.
VOLATILITY: a measure of the magnitude and frequency of changes in securities
values. Statistically, volatility is the measure of the spread of the prices or
yields around the mean of the prices or yields.
- ----------------------------------------------------------
NO ONE HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY STATEMENTS
ABOUT THIS OFFERING NOT CONTAINED IN THIS PROSPECTUS. IF ANYONE GIVES ANY OTHER
INFORMATION OR MAKES ANY OTHER REPRESENTATIONS, DO NOT RELY ON SUCH INFORMATION
OR REPRESENTATIONS AS HAVING BEEN AUTHORIZED BY THE TRUST OR ITS DISTRIBUTOR.
- --------------------------------------------------------------------------------
THIS PROSPECTUS IS NOT AN OFFER IN ANY STATE IN WHICH SUCH AN OFFER MAY NOT
LAWFULLY BE MADE, NOR IS IT AN OFFER TO ANY PERSON TO WHOM SUCH AN OFFER MAY NOT
LAWFULLY BE MADE.
- ----------------------------------------------------------
13
<PAGE> 17
CROSS REFERENCE SHEET
SCHWAB CAPITAL TRUST
<TABLE>
<CAPTION>
Statement of Additional
Part B Item Information Caption
- ----------- -------------------
<S> <C>
Cover Page Cover Page
Table of Contents Table of Contents
General Information and History General Information
Investment Objectives and Policies Investment Objectives; Investment Securities;
Investment Restrictions
Management of the Fund Management of the Trust
Control Persons and Principal Holders of Securities Management of the Trust; General Information
Investment Advisory and Other Services Management of the Trust
Brokerage Allocation and Other Practices Portfolio Transactions and Turnover
Capital Stock and Other Securities General Information
Purchase, Redemption and Pricing of Securities Being Share Price Calculation; Purchase and Redemption of
Offered Shares
Tax Status Taxes
Underwriters Management of the Trust
Calculation of Performance Data How the Funds Reflect Performance
Financial Statements Financial Statements
</TABLE>
<PAGE> 18
STATEMENT OF ADDITIONAL INFORMATION
SCHWAB CAPITAL TRUST
101 Montgomery Street, San Francisco, CA 94104
FEBRUARY , 1996
This Statement of Additional Information is not a prospectus. It should
be read in conjunction with the Prospectuses, dated February 28, 1995, as
amended June 30, 1995, for Schwab International Index Fund(TM) (the
"International Index Fund"), and Schwab Small-Cap Index Fund(TM) (the "Small-Cap
Index Fund"), the joint Prospectus dated September 25, 1995 as amended
December 8, 1995 for Schwab Asset Director(R)-High Growth Fund, Schwab Asset
Director(R)-Balanced Growth Fund and Schwab Asset Director(R)-Conservative
Growth Fund (the "Asset Director Funds"), and the joint prospectus for the
Schwab S & P 500 Fund - Investor Shares and the Schwab S & P 500 Fund - e.Shares
(the "S & P 500 Fund"), six separately managed investment portfolios
(collectively the "Funds") of Schwab Capital Trust (the "Trust"). To obtain a
copy of any of these Prospectuses, please contact Charles Schwab & Co., Inc.
("Schwab") at 800-2 NO-LOAD, 24 hours a day or 101 Montgomery Street, San
Francisco, CA 94104.
SCHWABFunds(R)
800-2 NO-LOAD
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
INVESTMENT OJBECTIVES........................................................................................ 2
INVESTMENT SECURITIES........................................................................................ 3
INVESTMENT RESTRICTIONS...................................................................................... 25
MANAGEMENT OF THE TRUST...................................................................................... 28
PORTFOLIO TRANSACTIONS AND TURNOVER.......................................................................... 36
TAXES........................................................................................................ 39
SHARE PRICE CALCULATION...................................................................................... 42
HOW THE FUNDS REFLECT PERFORMANCE............................................................................ 43
THE BENEFITS OF INTERNATIONAL INVESTING...................................................................... 44
INDEXING AND THE SCHWAB INDEX FUNDS.......................................................................... 44
GENERAL INFORMATION.......................................................................................... 49
PURCHASE AND REDEMPTION OF SHARES............................................................................ 51
OTHER INFORMATION............................................................................................ 51
APPENDIX A................................................................................................... 52
APPENDIX B................................................................................................... 57
FINANCIAL STATEMENTS......................................................................................... 70
</TABLE>
<PAGE> 19
INVESTMENT OBJECTIVES
SCHWAB INTERNATIONAL INDEX FUND(TM)
The investment objective of the International Index Fund is to track
the price and dividend performance (total return) of the Schwab International
Index(TM), (the "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.
SCHWAB SMALL-CAP INDEX FUND(TM)
The investment objective of the Small-Cap Index Fund is to attempt to
track the price and dividend performance (total return) of the Schwab Small-Cap
Index(TM) (the "Small-Cap Index"), an index created to represent the performance
of the second 1,000 publicly traded common stocks issued by United States
companies, ranked by market capitalization (share price times the number of
shares outstanding).
SCHWAB ASSET DIRECTOR(R)-
HIGH GROWTH FUND
The investment objective of the Schwab Asset Director-High Growth Fund
is to provide high capital growth with less volatility than an all-stock
portfolio. This Fund provides the greatest exposure to various stock categories,
including domestic large and small company stocks, and international stocks.
SCHWAB ASSET DIRECTOR(R)-
BALANCED GROWTH FUND
The investment objective of the Schwab Asset Director-Balanced Growth
Fund is to provide the shareholder with maximum total return, including both
capital growth and income. This Fund represents a more balanced approach to
stocks and bonds.
SCHWAB ASSET DIRECTOR(R)-
CONSERVATIVE GROWTH FUND
The investment objective of the Schwab Asset Director-Conservative
Growth Fund is to provide the shareholder with income and more growth potential
than an all-bond portfolio. This Fund's stock component is designed to help
offset inflation.
SCHWAB S&P 500 FUND-INVESTOR SHARES
SCHWAB S&P 500 FUND - E.SHARES
The Fund's investment objective is to track the price and dividend
performance (total return) of common stocks of United States companies, as
represented by the S&P 500.
The investment objectives stated above for each of the Funds, along
with certain investment restrictions adopted by the Funds, are fundamental and
cannot be changed without approval by holders of a majority of the Funds'
outstanding voting shares, as defined in the Investment Company Act of 1940 (the
"1940 Act").
2
<PAGE> 20
INVESTMENT SECURITIES
FOREIGN INVESTMENTS
The International Index Fund and the Asset Director Funds expect to
invest in stocks of foreign issuers. The International Index Fund will invest
primarily in such stocks. Investing in foreign issuers involves certain special
considerations, including those set forth below, which are not typically
associated with investing in U.S. issuers. Since investments in the securities
of foreign issuers are usually made and held in foreign currencies, and since
the International Index Fund and the Asset Director Funds may hold cash in
foreign currencies, they may be affected favorably or unfavorably by changes in
currency rates and in exchange control regulations and may incur costs in
connection with conversions between various currencies. The rate of exchange
between the U.S. dollar and other currencies is determined by the forces of
supply and demand in the foreign exchange market as well as by political and
economic factors.
Since foreign companies are not subject to uniform accounting, auditing
and financial reporting standards, practices and requirements comparable to
those applicable to U.S. companies, there may be less publicly available
information about a foreign company than about a U.S. company. Volume and
liquidity in most markets are less than in the U.S. and securities of many
foreign companies are less liquid and more volatile than securities of
comparable U.S. companies. Fixed commissions on foreign securities exchanges are
generally higher than negotiated commissions on U.S. exchanges, although the
International Index Fund and the Asset Director Funds endeavors to achieve the
most favorable net results on their portfolio transactions. There is generally
less government supervision and regulation of foreign securities exchanges,
brokers, dealers and listed companies than in the U.S., thus increasing the risk
of delayed settlements of portfolio transactions or loss of certificates for
portfolio securities.
Foreign markets also have different clearance and settlement
procedures, and in certain markets there have been times when settlements have
been unable to keep pace with the volume of securities transactions, making it
difficult to conduct such transactions. Such delays in settlement could result
in temporary periods when a portion of the assets of the International Index
Fund and the Asset Director Funds are uninvested and no return is earned
thereon. The inability to make intended security purchases due to settlement
problems could cause the International Index Fund and the Asset Director Funds
to miss attractive investment opportunities. Losses to the International Index
Fund and the Asset Director Funds arising out of the inability to fulfill a
contract to sell such securities, could result in potential liability to the
International Index Fund and Asset Director Funds.
In addition, with respect to those countries in which the International
Index Fund and the Asset Director Funds
3
<PAGE> 21
may invest or other countries which may have a significant impact on the
companies in which the International Index Fund and the Asset Director Funds may
invest, there is the possibility of expropriation or confiscatory taxation,
political or social instability, diplomatic developments, change of government
or war which could affect the International Index Fund's and the Asset Director
Funds' investments. Moreover, individual foreign economies may differ favorably
or unfavorably from the U.S. economy in such respects as growth of gross
national product, rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payments position.
Each of the Asset Director Funds may invest up to 5% of its total
assets in companies located in developing countries. Compared to the United
States and other developed countries, developing countries may have relatively
unstable governments, economies based on only a few industries, and securities
markets which trade a small number of securities. Prices on these exchanges tend
to be volatile and, in the past, securities in these countries have offered
greater potential for gain (as well as loss) than securities of companies
located in developed countries.
Hong Kong. In addition to the risks discussed above, it is impossible
to currently foresee what risk, if any, may exist to the International Index
Fund's and the Asset Director Funds' investments as a result of the planned 1997
incorporation of the British Crown Colony of Hong Kong into the People's
Republic of China. Shareholders should note that the risks discussed above may
increase depending on political and economic developments as the scheduled time
for the change in government in Hong Kong draws nearer.
DEPOSITORY RECEIPTS
Each of the Asset Director Funds may invest up to 5% of its total
assets in American Depository Receipts and European Depositary Receipts (ADRs
and EDRs) which are receipts representing ownership of share of a foreign-based
issuer held in trust by a bank or similar financial institution. These are
designed for U.S. and European securities markets as alternatives to purchasing
underlying securities in their corresponding national markets and currencies.
ADRs and EDRs can be sponsored or unsponsored. Sponsored ADRs and EDRs are
certificates in which a bank or financial institution participates with a
custodian. Issuers of unsponsored ADRs and EDRs are not contractually obligated
to disclose material information in the United States. Therefore, there may not
be a correlation between such information and the market value of the
unsponsored ADR or EDR.
OPTIONS ON SECURITIES
Writing Covered Options. The Funds may write (sell) covered call and
put options on any securities in which they may invest. The Funds may purchase
and write such options on securities that are listed on domestic or foreign
securities exchanges or traded in the over-the-counter market. All call options
written by the Funds are covered,
4
<PAGE> 22
which means that the Funds will own the securities subject to the option so long
as the option is outstanding. The purpose of writing covered call options is to
realize greater income than would be realized on portfolio securities
transactions alone. However, in writing covered call options for additional
income, the Funds may forego the opportunity to profit from an increase in the
market price of the underlying security.
All put options written by the Funds will be covered, which means that
each of the Funds will have deposited with its custodian cash, U.S. government
securities or other high-grade debt securities (i.e., securities rated in one of
the top three categories by Moody's Investor Service ("Moody's") or Standard &
Poor's Corporation ("S&P"), or, if unrated, determined by the Funds' Investment
Manager to be of comparable credit quality) with a value at least equal to the
exercise price of the put option. The purpose of writing such options is to
generate additional income for the Funds. However, in return for the option
premium, the Funds accept the risk that they may be required to purchase the
underlying securities at a price in excess of the securities market value at the
time of purchase.
The Funds may terminate their obligations under a written call or put
option by purchasing an option identical to the one it has written. Such
purchases are referred to as "closing purchase transactions."
Purchasing Options. The Funds may purchase put and call options on any
securities in which they may invest or options on any securities index based on
securities in which they may invest. The Funds would also be able to enter into
closing sale transactions in order to realize gains or minimize losses on
options they have purchased.
The writer of an option may have no control over when the underlying
securities must be sold, in the case of a call option, or purchased, in the case
of a put option, since, with regard to certain options the writer may be
assigned an exercise notice at any time prior to the termination of the
obligation. Whether or not an option expires unexercised, the writer retains the
amount of the premium. This amount may, in the case of a covered call option, be
offset by a decline in the market value of the underlying security during the
option period. If a call option is exercised, the writer experiences a profit or
loss from the sale of the underlying security. If a put option is exercised, the
writer must fulfill its obligation to purchase the underlying security at the
exercise price, which will usually exceed the then market value of the
underlying security.
The purchase of a call option would entitle the Funds, in return for
the premium paid, to purchase specified securities at a specified price during
the option period. The Funds would ordinarily realize a gain if, during the
option period, the value of such securities exceeded the sum of the exercise
price, the premium paid and transaction costs, otherwise the Funds would realize
either no gain or a loss on the purchase of the call option.
5
<PAGE> 23
Risks Associated With Options Transactions. There is no assurance that
a liquid secondary market on a domestic or foreign options exchange will exist
for any particular exchange-traded option or at any particular time. If the
Funds are unable to effect a closing purchase transaction with respect to
covered options they have written, the Funds will not be able to sell the
underlying securities or dispose of assets held in a segregated account until
the options expire or are exercised. Similarly, if the Funds are unable to
effect a closing sale transaction with respect to options they have purchased,
they would have to exercise the options in order to realize any profit and will
incur transaction costs upon the purchase or sale of underlying securities.
Reasons for the absence of a liquid secondary market on an exchange
include the following: (i) there may be insufficient trading interest in certain
options; (ii) restrictions may be imposed by an exchange on opening transaction
or closing transactions or both; (iii) trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or series of
options; (iv) unusual or unforeseen circumstances may interrupt normal
operations on an exchange; (v) the facilities of an exchange or the Options
Clearing Corporation (the "OCC") may not at all times be adequate to handle
current trading volume; or (vi) one or more exchanges could, for economic or
other reasons, decide or be compelled at some future date to discontinue the
trading of options (or a particular class or series of options), although
outstanding options on that exchange that had been issued by the OCC as a result
of trades on that exchange would continue to be exercisable in accordance with
their terms.
The Funds may purchase and sell both options that are traded on U.S.
and foreign exchanges and options traded over-the-counter with broker-dealers
who make markets in these options. The ability to terminate over-the-counter
options is more limited than with exchange-traded options and may involve the
risk that broker-dealers participating in such transactions will not fulfill
their obligations. Until such time as the staff of the Securities and Exchange
Commission (the "SEC") changes its position, the Funds will treat purchased
over-the-counter options and all assets used to cover written over-the-counter
options as illiquid securities, except that with respect to options written with
primary dealers in the U.S. government securities pursuant to an agreement
requiring a closing purchase transaction at a formula price, the amount of
illiquid securities may be calculated with reference to a formula approved by
the staff of the SEC. Each of the Funds will write or purchase an option only
where the market value of that option, when aggregated with the market value of
all other options transactions made on behalf of the Fund does not exceed 5% of
the Fund's total assets.
FOREIGN CURRENCY TRANSACTIONS
Forward Foreign Currency Exchange Contracts. The International Index
Fund and the Asset Director Funds may enter into forward foreign currency
exchange contracts in several
6
<PAGE> 24
circumstances. The International Index Fund and the Asset Director Funds may
engage in foreign currency exchange transactions to protect against uncertainty
in the level of future exchange rates. The International Index Fund and the
Asset Director Funds expect to engage in foreign currency exchange transactions
in connection with the purchase and sale of portfolio securities (so-called
"transaction hedging") and to protect the value of specific portfolio positions
("position hedging").
For transaction hedging purposes, the International Index Fund and the
Asset Director Funds enter into foreign currency transactions with respect to
specific receivables or payables of the funds arising in connection with the
purchase or sale of portfolio securities. By transaction hedging, the
International Index Fund and the Asset Director Funds will attempt to protect
against a possible loss resulting from an adverse change in the relationship
between the U.S. dollar and the applicable foreign currency during the period
between the date on which the security is purchased or sold, and the date on
which such payments are made or received. When engaging in position hedging, the
International Index Fund and the Asset Director Funds enter into foreign
currency exchange transactions to protect against a decline in the values of the
foreign currencies in which portfolio securities are denominated (or against an
increase in the value of currency for securities which the International Index
Fund and the Asset Director Funds expect to purchase).
When engaging in portfolio and/or transaction hedging, the
International Index Fund and the Asset Director Funds may purchase or sell
foreign on a spot (or cash) basis at the prevailing spot rate, and may also
enter into contracts to purchase or sell foreign currencies at a future date
("forward contracts") and purchase and sell foreign currency futures contracts
("futures contracts"). The International Index Fund and the Asset Director Funds
may also purchase exchange-listed and over-the-counter call and put options on
futures contracts and on foreign currencies. A put option on a futures contract
gives the International Index Fund and the Asset Director Funds the right to
assume a short position in the futures contract until expiration of the option.
A put option on currency gives the International Index Fund and the Asset
Director Funds the right to sell a currency at an exercise price until the
expiration of the option. A call option on a futures contract gives the
International Index Fund and the Asset Director Funds the right to assume a long
position in the futures contract until the expiration of the option. A call
option on currency gives the International Index Fund and the Asset Director
Funds the right to purchase a currency at the exercise price until the
expiration of the option.
Hedging transactions involve costs and may result in losses, and the
International Index Fund and the Asset Director Funds' ability to engage in
hedging transactions may be limited by tax considerations. Transaction and
position hedging do not eliminate fluctuations in the underlying prices of the
securities which the fund owns or
7
<PAGE> 25
expects to purchase or expects to purchase or sell. They simply establish a rate
of exchange which one can achieve at some future point in time. Additionally,
although these techniques tend to minimize the risk of loss due to decline in
the value of the hedged currency, they tend to limit any potential gain which
might result from an increase in the value of such currency.
Although the contracts are not presently regulated by the Commodity
Futures Trading Commission (the "CFTC"), the CFTC may in the future assert
authority to regulate these contracts. In such event, the International Index
Fund's and the Asset Director Funds' ability to utilize forward foreign currency
exchange contracts may be restricted.
Each of the Asset Director Funds will enter into a forward foreign
currency exchange contract only when the market value of such contract, when
aggregated with the market value of all other such contracts held by the Fund
does not exceed 5% of the Fund's total assets.
The International Index Fund and the Asset Director Funds generally
will not enter into a forward contract with a term of greater than one year.
While the International Index Fund and the Asset Director Funds will
enter into forward contracts to reduce currency exchange rate risks,
transactions in such contracts involve certain other risks. Thus, while the
International Index Fund and the Asset Director Funds may benefit from such
transactions, unanticipated changes in currency prices may result in a poorer
overall performance for the International Index Fund and the Asset Director
Funds than if it had not engaged in any such transactions. Moreover, there may
be imperfect correlation between the International Index Fund's and the Asset
Director Funds' portfolio holdings of securities denominated in a particular
currency and forward contracts entered into by the International Index Fund and
the Asset Director Funds. Such imperfect correlation may cause the International
Index Fund and the Asset Director Funds to sustain losses which will prevent the
International Index Fund and the Asset Director Funds from achieving a complete
hedge or expose the International Index Fund and the Asset Director Funds to
risk of foreign exchange loss.
Writing and Purchasing Currency Call and Put Options. The International
Index Fund and the Asset Director Funds may write covered put and call options
and purchase put and call options on foreign currencies for the purpose of
protecting against declines in the dollar value of portfolio securities and
against increases in the dollar cost of securities to be acquired. A call option
written by the International Index Fund and the Asset Director Funds obligates
the International Index Fund and the Asset Director Funds to sell specified
8
<PAGE> 26
currency to the holder of the option at a specified price at any time before the
expiration date. A put option written by the International Index Fund and the
Asset Director Funds would obligate the International Index Fund and the Asset
Director Funds to purchase specified currency from the option holder at a
specified time before the expiration date. The writing of currency options
involves a risk that the International Index Fund and the Asset Director Funds
will, upon exercise of the option, be required to sell currency subject to a
call at a price that is less than the currency's market value or be required to
purchase currency subject to a put at a price that exceeds the currency's market
value.
The International Index Fund and the Asset Director Funds may terminate
their obligations under a call or put option by purchasing an option identical
to the one it has written. Such purchases are referred to as "closing purchase
transactions." The International Index Fund and the Asset Director Funds would
also be able to enter into closing sale transactions in order to realize gains
or minimize losses on options purchased by the International Index Fund and the
Asset Director Funds.
The purchase of a call option would entitle the International Index
Fund and the Asset Director Funds, in return for the premium paid, to purchase
specified currency at a specified price during the option period. The
International Index Fund and the Asset Director Funds would ordinarily realize a
gain or a loss on the purchase of the call option.
The purchase of a put option would entitle the International Index Fund
and the Asset Director Funds, in exchange for the premium paid, to sell specific
currency at a specified price during the option period. The purchase of
protective puts is designed merely to offset or hedge against a decline in the
dollar value of the International Index Fund's and the Asset Director Funds'
portfolio securities due to currency exchange rate fluctuations. The
International Index Fund and the Asset Director Funds would ordinarily realize a
gain, if, during the option period, the value of the underlying currency
decreased below the exercise price sufficiently to more than cover the premium
and transaction costs; otherwise the International Index Fund and the Asset
Director Funds would realize either no gain or a loss on the purchase of the put
option. Gains and losses on the purchase of protective put options would tend to
be offset by countervailing changes in the value of the underlying currency.
Special Risks Associated With Options on Foreign Currency. An exchange
traded option position may be closed out only on an options exchange which
provides a secondary market for an option of the same series. Although the
International Index Fund and the Asset Director Funds will generally purchase or
write only those options for which there appears to be an active secondary
market, there is no assurance that a liquid secondary market on an exchange will
exist for any particular option, or at any particular time. For some options, no
secondary market on an exchange may exist, In such event, it might not be
possible to effect closing transactions in particular options, with the result
that the International Index Fund and the Asset Director Funds would have to
exercise its options in order to realize any profit and would incur transaction
costs upon the sale of underlying securities
9
<PAGE> 27
pursuant to the exercise of put options. If the International Index Fund and the
Asset Director Funds as a covered call option writer is unable to effect a
closing purchase transaction in a secondary market, it will not be able to sell
the underlying currency (or security denominated in that currency) until the
option expires or it delivers the underlying currency upon exercise.
There is no assurance that higher than anticipated trading activity or
other unforeseen events might not, at times, render certain of the facilities of
the OCC inadequate, and thereby result in the institution by an exchange of
special procedures which may interfere with the timely execution of customers'
orders.
The International Index Fund and the Asset Director Funds will purchase
and write over-the-counter options only to the extent consistent with its
limitations on investments in illiquid securities, as described in the
Prospectuses. Trading in over-the-counter options is subject to the risk that
the other party will be unable or unwilling to close-out purchasing and writing
activities.
FUTURES CONTRACTS
AND OPTIONS ON FUTURES CONTRACTS
To hedge against changes in interest rates, securities prices or
currency exchange rates, the Funds may purchase and sell various kinds of
futures contracts and options on futures contracts. In addition, the Asset
Director Funds and the S&P 500 Fund may purchase and sell futures contracts and
options on futures contracts as a substitute for a comparable market position in
the underlying securities. The Funds may also enter into closing purchase and
sale transactions with respect to any such contracts and options. The futures
contracts may be based on various securities (such as U.S. government
securities), securities indices, foreign currencies and other financial
instruments and indices. The Small-Cap Index and International Index Funds will
engage in futures and related option transactions only for bona fide hedging or
other appropriate risk management purposes as defined below. All futures
contracts entered into by the Funds are traded on U.S. exchanges or boards of
trade that are licensed and regulated by the CFTC or on foreign exchanges.
Futures Contracts. A futures contract may generally be described as an
agreement between two parties to buy and sell particular financial instruments
for an agreed upon price during a designated month (or to deliver the final cash
settlement price, in the case of a contract relating to an index or otherwise
not calling for physical delivery at the end of trading in the contract).
When interest rates are rising or securities prices are falling, the
Funds can seek, through the sale of futures contracts, to offset a decline in
the value of its current portfolio securities. When rates are falling or prices
are rising, the Funds, through the purchase of futures contracts, can attempt to
secure better rates or prices than might later be available in the market when
they affect anticipated purchases. Similarly, the International Index Fund and
the Asset
10
<PAGE> 28
Director Funds can sell futures contracts on a specified currency to protect
against a decline in the value of such currency and its portfolio securities
which are denominated in such currency. The International Index Fund and the
Asset Director Funds can purchase futures contracts on foreign currency to fix
the price in U.S. dollars of a security denominated in such currency that the
International Index Fund and the Asset Director Funds have acquired or expect to
acquire.
Although futures contracts by their terms generally call for the actual
delivery or acquisition of underlying securities or the cash value of the index,
in most cases the contractual obligation is fulfilled before the date of the
contract without having to make or take such delivery. The contractual
obligation is offset by buying (or selling, as the case may be) on a commodities
exchange an identical futures contract calling for delivery in the same month.
Such a transaction, which is effected through a member of an exchange, cancels
the obligation to make or take delivery of the securities or the cash value of
the index underlying the contractual obligations. The Funds may incur brokerage
fees when they purchase or sell futures contracts.
Positions taken in the futures markets are not normally held to
maturity, but are instead liquidated through offsetting transactions which may
result in a profit or a loss. While the Funds' futures contracts on securities
or currency will usually be liquidated in this manner, the Funds may instead
make or take delivery of the underlying securities or currency whenever it
appears economically advantageous for them to do so. A clearing corporation
associated with the exchange on which futures on securities or currency are
traded guarantees that, if still open, the sale or purchase will be performed on
the settlement date.
Hedging Strategies With Futures. Hedging by use of futures contracts
seeks to establish more certainty than would otherwise be possible with respect
to the effective price, rate of return or currency exchange rate on portfolio
securities or securities that the Funds own or propose to acquire. Such futures
contracts may include contracts for the future delivery of securities held by
the Funds or securities with characteristics similar to those of the Funds'
portfolio securities. Similarly, the International Index Fund and the Asset
Director Funds may sell futures contracts on currency in which its portfolio
securities are denominated or in one currency to hedge against fluctuations in
the value of securities denominated in a different currency if there is an
established historical pattern of correlation between the two currencies. If, in
the opinion of the Funds' Investment Manager, there is a sufficient degree of
correlation between price trends for the Funds' portfolio securities and futures
contracts based on other financial instruments, securities indices or other
indices, the Funds may also enter into such futures contracts as part of their
hedging strategy. Although under some circumstances, prices of securities in the
Funds' portfolio may be more or less volatile than prices of such futures
11
<PAGE> 29
contracts, the Funds' Investment Manager will attempt to estimate the extent of
this difference in volatility based on historical patterns and to compensate for
it by having the Funds enter into a greater or lesser number of futures
contracts or by attempting to achieve only a particular hedge against price
changes affecting the Funds' portfolio securities. When hedging of this
character is successful, any depreciation in the value of the portfolio
securities will substantially be offset by appreciation in the value of the
futures position. On the other hand, any unanticipated appreciation in the value
of the Funds' portfolio securities would be substantially offset by a decline in
the value of the futures position.
On other occasions, the Funds may take "long" positions by purchasing
such futures contracts. This would be done, for example, when the Funds
anticipate the subsequent purchase of particular securities when they have the
necessary cash, but expects the prices or currency exchange rates then available
in the applicable market to be less favorable than prices that are currently
available.
Options on Futures Contracts. The acquisition of put and call options
on futures contracts will give the Funds the right (but not the obligation), for
a specified price, to sell or to purchase, respectively, the underlying futures
contract at any time during the option period. As the purchaser of an option on
a futures contract, the Funds obtain the benefit of the futures position if
prices move in a favorable direction but limit their risk of loss in the event
of an unfavorable price movement to the loss of the premium and transaction
costs.
The writing of a call option on a futures contract generates a premium
which may partially offset a decline in the value of the Funds' assets. By
writing a call option, the Funds become obligated, in exchange for the premium,
to sell a futures contract, which may have a value lower than the exercise
price. Thus, the loss incurred by the Funds in writing options on futures is
potentially unlimited and may exceed the amount of the premium received. The
Funds will incur transaction costs in connection with the writing of options on
futures.
The holder or writer of an option on a futures contract may terminate
its position by selling or purchasing an offsetting option on the same series.
There is no guarantee that such closing transactions can be effected. The Funds'
ability to establish and close out positions on such options will be subject to
the development and maintenance of a liquid market.
Other Considerations. The Small-Cap Index and International Index Funds
will engage in futures and related options transactions only for bona fide
hedging or other appropriate risk management purposes, and the Asset Director
Funds will engage in futures and related options transactions to meet asset
allocation targets, in accordance with CFTC regulations which permit principals
of an investment company registered under the 1940 Act to engage in such
transactions without registering as commodity pool operators. "Appropriate risk
management
12
<PAGE> 30
purposes" means activities in addition to bona fide hedging which the CFTC deems
appropriate for operators of entities, including registered investment
companies, that are excluded from the definition of commodity pool operator. The
Funds are not permitted to engage in speculative futures trading. The Funds will
determine that the price fluctuations in the futures contracts and options on
futures used for hedging purposes are substantially related to price
fluctuations in securities held by the Funds or which they expect to purchase.
Except as stated below, the Funds' futures transactions will be entered into for
traditional hedging purposes--i.e., futures contracts will be sold to protect
against a decline in the price of securities, or the currency will be purchased
to protect the Fund against an increase in the price of securities, or the
currency in which they are denominated. As evidence of this hedging intent, the
Small-Cap Index and International Index Funds expect that on 75% or more of the
occasions on which it takes a long futures (or option) position (involving the
purchase of futures contracts), the Small-Cap Index and International Index
Funds will have purchased, or will be in the process of purchasing, equivalent
amounts of related securities (or assets denominated in the related currency) in
the cash market at the time when the futures (or option) position is closed out.
However, in particular cases, when it is economically advantageous for the Funds
to do so, a long futures position may be terminated (or an option may expire)
without the corresponding purchase of securities or other assets. As an
alternative to literal compliance with the bona fide hedging definition, a CFTC
regulation permits the Funds to elect to comply with a different test, under
which (i) the Funds' futures positions will be used as part of its portfolio
management strategy and will be incidental to its activities in the underlying
cash market and (ii) the underlying commodity value of such positions will not
exceed the sum of (a) cash or cash equivalents segregated for this purpose, (b)
cash proceeds on existing investments due within 30 days, and (c) accrued
profits on such futures or options positions.
Each of the Funds will engage in transactions in futures contracts and
related options only to the extent such transactions are consistent with the
requirements of the Internal Revenue Code of 1986, as amended (the "Code") for
maintaining its qualification as a regulated investment company for federal
income tax purposes.
Each Fund may not purchase or sell futures contracts or purchase or
sell related options, except for closing purchase or sale transactions, if
immediately thereafter the aggregate amount of margin deposits required on these
contracts exceeds 5% of the Fund's total assets. These transactions involve
brokerage costs, require margin deposits and, in the case of futures contracts
and options obligating the Funds to purchase securities or currencies, require
the Funds to segregate assets to cover such contracts and options.
While transactions in futures contracts and options on futures may
reduce certain risks, such transactions
13
<PAGE> 31
themselves entail certain other risks. Thus, while the Funds may benefit from
the use of futures and options on futures, unanticipated changes in interest
rates, securities prices or currency exchange rates may result in a poorer
overall performance for the Funds than if they had not entered into any futures
contracts or options transactions. In the event of an imperfect correlation
between a futures position and portfolio position which is intended to be
protected, the desired protection may not be obtained and the Funds may be
exposed to risk of loss.
Perfect correlation between the Funds' futures positions and portfolio
positions may be difficult to achieve. In addition, it is not possible to hedge
fully or perfectly against currency fluctuations affecting the value of
securities denominated in foreign currencies because the value of such
securities is likely to fluctuate as a result of independent factors not related
to currency fluctuations.
In addition to bona fide hedging and other risk management purposes as discussed
above, the Asset Director Funds may purchase and sell stock and bond futures
contracts, including stock index futures contracts, and options on such futures
contracts as a substitute for a comparable market position in the underlying
securities. To the extent the Asset Director Funds and the S&P 500 Fund engage
in the use of futures and options on futures other than for hedging purposes,
the Funds may be subject to additional risk.
The price of stock index futures may not correlate perfectly with the movement
in the stock index because of certain market distortions. First, all
participants in the futures market are subject to margin deposit and maintenance
requirements. Rather than meeting additional margin deposit requirements,
investors may close futures contracts through offsetting transactions which
would distort the normal relationship between the index and futures markets.
Secondly, from the point of view of speculators, the deposit requirements in the
futures market are less onerous than margin requirements in the securities
market. Therefore, increased participation by speculators in the futures market
also may cause temporary price distortions.
SWAPS
Each of the Asset Director Funds may enter into swaps on various
securities (such as U.S. government securities), securities indexes, interest
rates, prepayment rates, foreign currencies or other financial instruments or
indexes, in order to protect the value of the Asset Director Funds from interest
rate fluctuations and to hedge against fluctuations in the floating rate market
in which the Asset Director Funds' investments are traded, for both hedging and
non-hedging purposes. While swaps are different from futures contracts (and
options on futures contracts) in that swap contracts are individually negotiated
with specific counterparties, the Asset Director Funds will use swap contracts
for purposes similar to the purposes for which they use options, futures, and
options on futures. Those uses of swap contracts
14
<PAGE> 32
(i.e., risk management and hedging) present the Funds with risks and
opportunities similar to those associated with options contracts, futures
contracts, and options on futures. See "Futures Contracts and Options on Futures
Contracts" in this Statement.
The Asset Director Funds may enter into these transactions to manage
their exposure to changing interest rates and other market factors. Some
transactions may reduce each Asset Director Funds' exposure to market
fluctuations while others may tend to increase market exposure.
The use of swaps involves investment techniques and risks different
from and potentially greater than those associated with ordinary fund securities
transactions. If the Investment Manager is incorrect in its expectations of
market values, interest rates, or currency exchange rates, the investment
performance of the Asset Director Funds would be less favorable than it would
have been if this investment technique were not used. The Asset Director Funds
will only invest in swaps up to 5% of each Fund's total assets.
PREFERRED STOCK
The Funds may invest in preferred stock. Preferred stock has priority
as to income and generally as to assets of the issuer, however, income is
usually limited to a definitive percentage regardless of the issuer's earnings.
Preferred stock usually has limited voting rights. The Asset Director Funds will
only invest in preferred stock up to 5% of each Fund's net assets.
CONVERTIBLE SECURITIES
Each of the Asset Director Funds and the S&P 500 Fund may invest up to
5% of its net assets in securities that are convertible into common stock,
including convertible bonds, convertible preferred stocks, and warrants.
Convertible bonds are issued with lower coupons than nonconvertible
bonds of the same quality and maturity, but they give holders the option to
exchange their bonds for a specific number of shares of the company's common
stock at a predetermined price. This structure allows the convertible bond
holder to participate in share price movements in the company's common stock.
The actual return on a convertible bond may exceed its stated yield if the
company's common stock appreciates in value, and the option to convert to common
shares becomes more valuable.
Convertible preferred stocks are nonvoting equity securities that pay a
fixed dividend. These securities have a convertible feature similar to
convertible bonds; however, they do not have a maturity date. Due to their
fixed-income features, convertible issues typically are more sensitive to
interest rate changes than the underlying common stock. In the event of
liquidation, bondholders would have claims on company assets senior to those of
stockholders; preferred stockholders would have claims senior to those of common
stockholders.
15
<PAGE> 33
The Funds may invest in warrants. Warrants entitle the holder to buy
the issuer's stock at a specific price for a specific period of time. The price
of a warrant tends to be more volatile than, and does not always track, the
prices of its underlying stock. Warrants are issued with expiration dates. Once
a warrant expires, it has no value in the market.
REAL ESTATE-RELATED INVESTMENTS
Each of the Asset Director Funds may invest up to 5% of its total
assets in real estate-related investments. Real estate-related instruments
include real estate investment trusts, commercial and residential
mortgage-backed securities, and real estate financings. Real estate-related
instruments are sensitive to factors such as changes in real estate values and
property taxes, interest rates, cash flow of underlying real estate assets,
overbuilding, and the management skill and creditworthiness of the issuer. Real
estate-related instruments may also be affected by tax and regulatory
requirements, such as those relating to the environment.
PRECIOUS METAL-RELATED INVESTMENTS
Each of the Asset Director Funds may invest up to 5% of its total
assets in precious metal-related investments. The Asset Director Funds may
invest in common stocks of companies principally engaged in precious
metal-related activities which include companies principally engaged in the
extraction, processing, distribution, or marketing of precious metals industry
if at the time of investment the Investment Manager considers that at least 50%
of the company's assets, revenues or profits are derived from the precious metal
industry. The Asset Director Funds may also invest in securities of companies
principally engaged in the precious metals industry in which the Asset Director
may be foreign or domestic. For further disclosure on foreign securities, see
"Foreign Investments" in this Statement of Additional Information.
The Asset Director Funds may also invest in futures on precious metals,
such as gold futures, and options thereon. Such investments are subject to the
investment limitations for investments in futures and options for the Asset
Director Funds as set forth in "Futures Contracts and Options on Futures
Contracts" in this Statement of Additional Information.
Prices of precious metals can be expected to respond to changes in
rates of inflation and to perceptions of economic and political instability.
Historically, the prices of precious metals and of securities of companies
engaged in the precious metal-related activities may be subject to extreme
fluctuations, reflecting wider economic or political instability or for other
reasons.
U.S. GOVERNMENT SECURITIES
The Funds may purchase U.S. Government securities direct obligations of
the United States Government are supported by the full faith and credit of the
United States Treasury. While obligations of certain United States Government
agencies and instrumentalities are similarly backed,
16
<PAGE> 34
those of others, such as the Federal National Mortgage Association and the
Student Loan Marketing Association, are only supported by the right of the
issuer to borrow from the U.S. Treasury, the discretionary authority of the U.S.
Government to purchase the agency's obligations or the credit of the issuing
agency or instrumentality. There can be no assurance that the U.S. Government
would provide financial support to United States Government sponsored agencies
or instrumentalities if it is not obligated to do so by law. A Fund will invest
in U.S. Government securities not backed by the full faith and credit of the
United States Treasury only when Charles Schwab Investment Management, Inc. (the
"Investment Manager") is satisfied that the credit risk with respect to their
issuer is minimal.
GOVERNMENT
"MORTGAGE BACKED" SECURITIES
Among the U.S. Government securities in which the Funds may invest are
government "mortgage-backed" (or government guaranteed mortgage-related)
securities. Mortgages backing the securities purchased by the Funds include,
among others, conventional thirty year fixed rate mortgages, graduated payment
mortgages, fifteen year mortgages and adjustable rate mortgages. All of these
mortgages can be used to create pass-through securities. A pass-through security
is formed when mortgages are pooled together and undivided interest in the pool
or pools are sold. The cash flow from the mortgages is passed through to the
holders of the securities in the form of periodic payments of interest,
principal and prepayments (net of a service fee). Prepayments occur when the
holder of an individual mortgage prepays the remaining principal before the
mortgage's scheduled maturity date. As a result of the pass-through of
prepayments of principal on the underlying securities, mortgage-backed
securities are often subject to more rapid prepayment of principal then their
stated maturity would indicate. Because the prepayment characteristics of the
underlying mortgages vary, it is not possible to predict accurately the realized
yield or average life of a particular issue of pass-through certificates.
Prepayment rates are important because of their effect on the yield and price of
the securities. Accelerated prepayments adversely impact yields for
pass-throughs purchased at a premium (i,e., a price in excess of principal
amount) and may involve additional risk of loss of principal because the premium
may not have been fully amortized at the time the obligation is repaid. The
opposite is true for pass-throughs purchased at a discount. The Funds may
purchase mortgage-related securities at a premium or at a discount. Principal
and interest payments on the mortgage-related securities are government
guaranteed to the extent described below. Such guarantees do not extend to the
value or yield of the mortgage-related securities themselves or of a Fund's
shares.
GNMA Certificates. Certificates of the Government National Mortgage
Association ("GNMA") are mortgaged securities which evidence an undivided
interest in a pool or pools of mortgages.
17
<PAGE> 35
GNMA Certificates that the Funds may purchase are the "modified pass-through"
type, which entitle the holder to receive timely payment of all interest and
principal payments due on the mortgage pool, net of fees paid to the "issuer"
and GNMA, regardless of whether or not the mortgagor actually makes the payment.
The National Housing Act authorized GNMA to guarantee the timely
payment of principal and interest on securities backed by a pool of mortgages
insured by the Federal Housing Administration ("FHA") or guaranteed by the
Veterans Administration ("VA"). The GNMA guarantee is backed by the full faith
and credit of the United States. The GNMA is also empowered to borrow without
limitation from the U.S. Treasury if necessary to make any payments required
under its guarantee.
The average life of a GNMA Certificate is likely to be substantially
shorter than the original maturity of the mortgages underlying the securities.
Prepayments of principal by mortgagors and mortgage foreclosures will usually
result in the return of the greater part of principal investment long before the
maturity of the mortgages in the pool. Foreclosures impose no risk to principal
investment because of the GNMA guarantee, except to the extent that a Fund has
purchased the certificates above par in the secondary market.
FHLMC Securities. The Federal Home Loan Mortgage Corporation ("FHLMC")
was created in 1970 to promote development of a nationwide secondary market in
conventional residential mortgages. The FHLMC issues two types of mortgage
pass-through securities ("FHLMC Certificates"), mortgage participation
certificates ("PCs") and guaranteed mortgage certificates ("GMCs"). PCs resemble
GNMA Certificates in that each PC represents a pro rata share of all interest
and principal payments made and owed on the underlying pool. The FHLMC
guarantees timely monthly payment of interest on PCs and the ultimate payment of
principal.
GMCs also represent a pro rata interest in a pool of mortgages.
However, these instruments pay interest semi-annually and return principal once
a year in guaranteed minimum payments. The expected average life of these
securities is approximately ten years. The FHLMC guarantee is not backed by the
full faith and credit of the United States.
FNMA Securities. The Federal National Mortgage Association ("FNMA") was
established in 1938 to create a secondary market in mortgages insured by the
FHA. FNMA issues guaranteed mortgage pass-through certificates ("FNMA
Certificates"). FNMA Certificates resemble GNMA Certificates in that each FNMA
Certificate represents a pro rata share of all interest and principal payments
made and owed on the underlying pool. FNMA guarantees timely payment of interest
and principal on FNMA Certificates. The FNMA guarantee is not backed by the full
faith and credit of the United States.
18
<PAGE> 36
OTHER ASSET-BACKED SECURITIES
The Asset Director Funds may invest a portion of their assets in debt
obligations known as "Asset-Backed Securities" that are rated in one of the
three highest rating categories by a nationally recognized statistical rating
organization (e.g., Standard & Poor's Corporation or Moody's Investors Service,
Inc.) or, if not so rated, deemed to be of equivalent quality by the Investment
Manager pursuant to guidelines adopted by the Board of Trustees. The credit
quality of most Asset-Backed Securities depends primarily on the credit quality
of the assets underlying such securities, how well the entity issuing the
security is insulated from the credit risk of the originator (or any other
affiliated entities), and the amount and quality of any credit support provided
to the securities. The rate of principal payments on asset-backed securities
generally depends on the rate of principal payments received on the underlying
assets, which in turn may be affected by a variety of economic and other
factors. As a result, the yield on any asset-backed security is difficult to
predict with precision and actual yield to maturity may be more or less than the
anticipated yield to maturity. Asset-Backed Securities may be classified as
"Pass-Through Certificates" or "Collateralized Obligations."
"Pass-Through Certificates" are asset-backed securities that represent
undivided fractional ownership interests in the underlying pool of assets.
Pass-Through Certificates usually provide for payments of principal and interest
received to be passed through to their holders, usually after deduction for
certain costs and expenses incurred in administering the pool. Because
Pass-Through Certificates represent ownership interests in the underlying
assets, the holders thereof bear directly the risk of any defaults by the
obligors on the underlying assets not covered by any credit support.
Asset-Backed Securities issued in the form of debt instruments, also
known as Collateralized Obligations, are generally issued as the debt of a
special purpose entity organized solely for the purpose of owning such assets
and issuing such debt. The assets collateralizing such Asset-Backed Securities
are pledged to a trustee or custodian for the benefit of the holders thereof.
Such issuers generally hold no assets other than those underlying the
Asset-Backed Securities and any credit support provided. As a result, although
payments on such Asset-Backed Securities are obligations of the issuers, in the
event of default on the underlying assets not covered by any credit support, the
issuing entities are unlikely to have sufficient assets to satisfy their
obligations on the related Asset-Backed Securities.
METHODS OF ALLOCATING
CASH FLOWS
While many Asset-Backed Securities are issued with only one class of
security, many others are issued in more than one class, each with different
payment terms. Multiple class Asset-Backed Securities are issued for two main
reasons. First, multiple classes may be
19
<PAGE> 37
used as a method of providing credit support. This is accomplished typically
through creation of one or more classes whose right to payments on the
Asset-Backed Security is made subordinate to the right to such payments of the
remaining class or classes. Second, multiple classes may permit the issuance of
securities with payment terms, interest rates or other characteristics differing
both from those of each other and from those of the underlying assets. Examples
include so-called "multi-tranche CMOs" (collateralized mortgage obligations)
with serial maturities such that all principal payments received on the
mortgages underlying the securities are first paid to the class with the
earliest stated maturity, and then sequentially to the class with the next
stated maturity), "Strips" (Asset-Backed Securities entitling the holder to
disproportionate interests with respect to the allocation of interest and
principal of the assets backing the security), and securities with a class or
classes having characteristics which mimic the characteristics of
non-Asset-Backed Securities, such as floating interest rates (i.e., interest
rates which adjust as a specified benchmark changes) or scheduled amortization
of principal.
TYPES OF CREDIT SUPPORT
Asset-Backed Securities are often backed by a pool of assets
representing the obligations of a number of different parties. To lessen the
effect of failures by obligors on these underlying assets to make payments, such
securities may contain elements of credit support. Such credit support falls
into two classes: liquidity protection and protection against ultimate default
on the underlying assets. Liquidity protection refers to the provision of
advances, generally by the entity administering the pool of assets, to ensure
that scheduled payments on the underlying pool are made in a timely fashion.
Protection against ultimate default ensures payment on at least a portion of the
assets in the pool. Such protection may be provided through guarantees,
insurance policies or letters of credit obtained from third parties, through
various means of structuring the transaction, or through a combination of such
approaches. Examples of Asset-Backed Securities with credit support arising out
of the structure of the transaction include "senior-subordinated securities"
(multiple class Asset-Backed Securities with certain classes subordinate to
other classes as to the payment of principal thereon, with the result that
defaults on the underlying assets are borne first by the holders of the
subordinated class) and Asset-Backed Securities that have "reserve funds" (where
cash or investments, sometimes funded from a portion of the initial payments on
the underlying assets, are held in reserve against future losses) or that have
been "overcollateralized" (where the scheduled payments on, or the principal
amount of, the underlying assets substantially exceed that required to make
payment on the Asset-Backed Securities and pay any servicing or other fees). The
degree of credit support provided on each issue is based generally on historical
information respecting the level of credit risk associated with such payments.
Delinquency or loss in excess of that anticipated could adversely affect
20
<PAGE> 38
the return on an investment in an Asset-Backed Security.
CREDIT CARD RECEIVABLE SECURITIES
The Asset Director Funds may invest in Asset-Backed Securities backed
by receivables from revolving credit card agreements ("Credit Card Receivable
Securities"). Most of the Credit Card Receivable Securities issued publicly to
date have been Pass-Through Certificates. In order to lengthen the maturity of
Credit Card Receivable Securities, most such securities provide for a fixed
period during which only interest payments on the underlying Accounts are passed
through to the security holder and principal payments received on such Accounts
are used to fund the transfer to the pool of assets supporting the related
Credit Card Receivable Securities of additional credit card charges made on an
Account. The initial fixed period usually may be shortened upon the occurrence
of specified events that signal a potential deterioration in the quality of the
assets backing the security, such as the imposition of a cap on interest rates.
The ability of the issuer to extend the life of an issue of Credit Card
Receivable Securities thus depends upon the continued generation of additional
principal amounts in the underlying accounts during the initial period and the
non-occurrence of specified events. Competitive and general economic factors
could adversely affect the rate at which new receivables are created in an
Account and conveyed to an issuer, shortening the expected weighted average life
of the related Credit Card Receivable Security, and reducing its yield. An
acceleration in cardholders' payment rates or any other event that shortens the
period during which additional credit card charges on an Account may be
transferred to the pool of assets supporting the related Credit Card Receivable
Security could have a similar effect on the weighted average life and yield.
Credit card holders are entitled to the protection of a number of state
and federal consumer credit laws, many of which give such holders the right to
set off certain amounts against balances owed on the credit card, thereby
reducing amounts paid on Accounts. In addition, unlike most other Asset-Backed
Securities, Accounts are unsecured obligations of the cardholder.
CERTIFICATES OF DEPOSIT
AND BANKERS' ACCEPTANCES
The Funds may invest in certificates of deposit which are certificates
issued against funds deposited in a banking institution for a specified period
of time at a specified interest rate. Bankers' acceptances are credit
instruments evidencing a bank's obligation to pay a draft drawn on it by a
customer. These instruments reflect the obligation both of the bank and of the
drawer to pay the full amount of the instrument upon maturity. Each Fund will
only invest in certificates of deposit and bankers' acceptances of banks having
capital, surplus and undivided profits in excess of $100 million.
21
<PAGE> 39
COMMERCIAL PAPER
The Funds may invest in Commercial paper which consists of short-term,
unsecured promissory notes issued to finance short-term credit needs. The Funds
will only invest in commercial paper that at the time of purchase is rated
Prime-1 or Prime-2 by Moody's, A-1 or A-2 by S&P, "Duff 2" or higher by Duff &
Phelps, Inc. ("Duff"), or "F2" or higher by Fitch Investors Services, Inc.
("Fitch") or if unrated by Moody's, S&P, Duff, or Fitch, is determined by the
Investment Manager, using guidelines approved by the Board of Trustees, to be at
least equal in quality to one or more of the above ratings.
OTHER INVESTMENT POLICIES
Securities which are acquired by the International Index Fund and the
Asset Director Funds outside the U.S. and which are publicly traded in the U.S.
or on a foreign securities exchange or in a foreign securities market are not
considered by the Funds to be illiquid assets so long as the Funds acquire and
hold the securities with the intention of reselling the securities in the
foreign trading market, the Funds reasonably believe they can readily dispose of
the securities in the foreign trading market, the Funds reasonably believe they
can readily dispose of the securities for cash in the U.S., or foreign market
and current market quotations are readily available. Investments may be in
securities of foreign issuers, whether located in developed or undeveloped
countries. Investments in foreign securities where delivery takes place outside
the U.S. will have to be made in compliance with any applicable U.S. and foreign
currency restrictions and tax laws (including laws imposing withholding taxes on
any dividend or interest income) and laws limiting the amount and types of
foreign investments. Changes of government administrations or of economic or
monetary policies, in the U.S. or abroad, or changed circumstances
convertibility or exchange rates could result in investment losses for the
Funds. Investments in foreign securities may also subject the Funds to losses
due to nationalization, expropriation or differing accounting practices and
treatments. Moreover, investors should recognize that foreign securities are
often traded with less frequency and volume, and therefore may have greater
price volatility, than is the case with many U.S. securities. Notwithstanding
the fact that the Funds generally intend to acquire the securities of foreign
issuers where there are public trading markets, investments by the Funds in the
securities of foreign issuers may tend to increase the risks with respect to the
liquidity of the Funds' portfolio and the Funds' ability to meet a large number
of shareholder redemption requests should there be economic or political turmoil
in a country in which the Funds have a substantial portion of their assets
invested or should relations between the U.S. and foreign countries deteriorate
markedly. Furthermore, the reporting and disclosure requirements applicable to
foreign issuers may differ from those applicable to domestic issuers, and there
may be difficulties in obtaining or enforcing judgments against foreign issuers.
22
<PAGE> 40
Loans of Portfolio Securities. The Funds may loan securities to
qualified broker-dealers or other institutional investors provided that such
loans do not exceed one-third of the value of the Funds' total assets at the
time of the most recent loan, and that the borrower deposits and maintains with
the Funds cash collateral or U.S. government securities with a value equal to
102% of the value of the securities loaned. The lending of securities is a
common practice in the securities industry. The Funds will engage in security
lending arrangements with the primary objective of increasing the Funds' income
through investment of the cash collateral in short-term, interest-bearing
obligations, but will do so only to the extent that the Funds will not lose the
tax treatment available to regulated investment companies. The Funds will be
entitled to all dividends or interest on any loaned securities.
Repurchase Transactions. Repurchase agreements are instruments under
which a buyer acquires ownership of a security from a seller that agrees to
repurchase the security at a mutually agreed upon time and price (which price is
higher than the purchase price), thereby determining the yield during the
buyer's holding period. Under the 1940 Act, a repurchase agreement is deemed to
be the loan of money by a Fund to the seller, collateralized by the underlying
security. The interest rate is effective for the period of time in which the
Funds are invested in the agreement and is not related to the coupon rate on the
underlying security. Any repurchase agreements entered into by a Fund will
involve the Fund as the buyer and banks or broker-dealers as sellers (repurchase
agreements with broker-dealers will be limited to obligations of the U.S.
Government, its agencies or instrumentalities). The period of these repurchase
agreements will usually be short, from overnight to one week, and at no time
will the Funds invest in repurchase agreements for more than one year. However,
the securities which are subject to repurchase agreements may have maturity
dates in excess of one year from the effective date of the repurchase
agreements. The transaction requires the initial collateralization of the
seller's obligation with securities having a market value, including accrued
interest, equal to at least 102% of the dollar amount invested by the Funds,
with the value marked-to-market daily to maintain 100% coverage. A default by
the seller might cause the Funds to experience a loss or delay in the
liquidation of the collateral securing the repurchase agreement. The Funds might
also incur disposition costs in liquidating the collateral. The Funds will make
payment for such securities only upon physical delivery or evidence of book
entry transfer to the account of its custodian bank. The Funds may not enter
into a repurchase agreement of more than seven days duration if, as a result,
the market value of the Funds' net assets, together with investments in other
securities deemed to be not readily marketable, would be invested in excess of
the Funds' policy on investments in illiquid securities.
In the event of a bankruptcy or other default of a repurchase
agreement's seller, a Fund might incur expenses in enforcing its rights, and
could experience
23
<PAGE> 41
losses, including a decline in the value of the underlying securities and loss
of income. Each Fund will not invest more than 10% of its total assets at the
time of purchase in repurchase agreements maturing in more than seven days and
other illiquid securities.
Illiquid Securities. Each Fund reserves the right to invest up to 10%
of its net assets in illiquid securities. Generally an "illiquid security" is
any security that cannot be disposed of promptly and in the ordinary course of
business at approximately the amount at which the Funds have valued the
instrument. Subject to this limitation, the Funds may invest in restricted
securities where such investment is consistent with the Funds' investment
objectives and such securities may be considered to be liquid to the extent the
Funds' Investment Manager determines that there is a liquid institutional or
other market for such securities. In determining whether a restricted security
is properly considered a liquid security, the Funds' Investment Manager, under
the direction of the Board of Trustees, will take into account the following
factors: (i) the frequency of trades and quotes for the security; (ii) the
number of dealers willing to purchase or sell the security and the number of
potential purchasers; (iii) dealer undertakings to make a market in the
security; and (iv) the nature of the security and the nature of the marketplace
trades (e.g., the time needed to dispose of the security, the method of
soliciting offers, and the mechanics of transfer). To the extent the Funds
invest in restricted securities that are deemed liquid, the general level of
illiquidity in the Funds' portfolio may be increased if qualified institutional
buyers become uninterested in purchasing these securities contracts. The Funds
will limit their investments in liquid restricted securities to 5% of their net
assets.
24
<PAGE> 42
INVESTMENT RESTRICTIONS
Except as otherwise noted, the restrictions below are fundamental and
cannot be changed without approval of the holders of a majority of the
outstanding voting securities (as defined in the 1940 Act). Each of the Funds
may not:
1) As to 75% of its assets, purchase securities of any issuer
(other than obligations of, or guaranteed by, the United States Government, its
agencies or instrumentalities) if, as a result, more than 5% of the value of its
total assets would be invested in the securities of such issuer.
2) Purchase securities (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if, as a
result of such purchase, 25% or more of the value of its total assets would be
invested in any industry (except that the International Index Fund, the
Small-Cap Index Fund and the S&P 500 Fund may purchase securities under such
circumstances only to the extent that the Schwab International Index(TM) or the
Schwab Small-Cap Index(TM) is also so concentrated).
3) Invest more than 10% of the total value of its assets in
illiquid securities, including repurchase agreements with maturities in excess
of seven days.
4) Purchase or retain securities of an issuer if any of the
officers, trustees or directors of the Trust, or the Investment Manager
individually own beneficially more than 1/2 of 1% of the securities of such
issuer and together beneficially own more than 5% of the securities of such
issuer.
5) Purchase or sell commodities or real estate, including
interests in real estate limited partnerships, provided that each Fund may (i)
purchase securities of companies that deal in real estate or interests therein,
(ii) purchase or sell futures contracts, options contracts, equity index
participations and index participation contracts, and (iii) for the Asset
Director Funds and the S&P 500 Fund, purchase securities of companies that deal
in precious metals or interests therein.
6) Invest for the purpose of exercising control or management of
another issuer.
7) Purchase securities of other investment companies, except as
permitted by the 1940 Act, including any exemptive relief granted by the
Securities and Exchange Commission.
8) Lend money to any person, except that each Fund may (i)
purchase a portion of an issue of short-term debt securities or similar
obligations (including repurchase
25
<PAGE> 43
agreements) that are publicly distributed or customarily purchased by
institutional investors, and (ii) lend its portfolio securities.
9) Borrow money except from banks as a temporary measure to
satisfy redemption requests or for extraordinary or emergency purposes and then
only in an amount not to exceed one-third of the value of its total assets
(including the amount borrowed), provided that each Fund will not purchase
securities while borrowings represent more than 5% of its total assets.
10) Pledge, mortgage or hypothecate any of its assets except that,
to secure allowable borrowings, each Fund may do so with respect to no more than
one-third of the value of its total assets.
11) Underwrite securities issued by others except to the extent it
may be deemed to be an underwriter, under the federal securities laws, in
connection with the disposition of securities from its investment portfolio.
In order to permit the sale of shares of each Fund in certain
jurisdictions, each Fund may make commitments more restrictive than the
fundamental operating restrictions described above. Should it do so and later
determine that any such commitment is no longer in the best interests of the
Fund and its shareholders, it will revoke the commitment(s) by terminating sales
of its shares in the jurisdiction(s) involved.
The following restrictions are non-fundamental and may be changed by
the Trust's Board of Trustees. Each of the Funds may not:
1) Purchase more than 10% of any class of securities of any
issuer if, as a result of such purchase, it would own more than 10% of such
issuer's outstanding voting securities.
2) Invest more than 5% of its total assets in securities of
issuers (other than obligations of, or guaranteed by the United States
Government, its agencies or instrumentalities) that with their predecessors have
a record of less than three years continuous operation.
3) Invest more than 5% of its net assets in warrants, valued at
the lower of cost or market, and no more than 40% of this 5% may be invested in
warrants that are not listed on the New York Stock Exchange or the American
Stock Exchange, provided, however, that for purposes of this restriction,
warrants acquired by a Fund in units or attached to other securities are deemed
to be without value.
4) Purchase puts, calls, straddles, spreads or any combination
thereof if by reason of such purchase the value of its aggregate investment in
such securities would exceed 5% of the Fund's total assets.
26
<PAGE> 44
5) Make short sales, except for short sales against the box.
6) Purchase or sell interests in oil, gas or other mineral
development programs or leases, although it may invest in companies that own or
invest in such interests or leases.
7) Purchase securities on margin, except such short-term credits
as may be necessary for the clearance of purchases and sales of securities.
MANAGEMENT OF THE TRUST
OFFICERS AND TRUSTEES. The officers and trustees of the Trust, their
principal occupations over the past five years and their affiliations, if any,
with The Charles Schwab Corporation, Schwab, and Charles Schwab Investment
Management, Inc., are as follows:
<TABLE>
<CAPTION>
POSITION WITH
-------------
NAME/BIRTHDAY THE TRUST PRINCIPAL OCCUPATION
- ------------- --------- --------------------
<S> <C> <C>
CHARLES R. SCHWAB* Chairman and Trustee Founder, Chairman, Chief Executive Officer and
July 29, 1937 Director, The Charles Schwab Corporation; Founder,
Chairman and Director, Charles Schwab & Co., Inc.
and Charles Schwab Investment Management, Inc.;
Chairman and Director, The Charles Schwab Trust
Company and Mayer & Schweitzer, Inc. (a securities
brokerage subsidiary of The Charles Schwab
Corporation); Director, The Gap, Inc. (a clothing
retailer), Transamerica Corporation (a financial
services organization) and AirTouch Communications
(a telecommunications company).
TIMOTHY F. McCARTHY ** President and Trustee Executive Vice President - Mutual Funds, Charles
September 19, 1951 Schwab & Co., Inc. and The Charles Schwab
Corporation; Chief Executive Officer, Charles
Schwab Investment Management, Inc. Prior to
October 1995, Mr. McCarthy was Chief Executive
Officer of Jardine Fleming Unit Trusts Ltd. (mutual
fund company) and President of Fidelity Investment
Advisor Group.
DONALD F. DORWARD Trustee President and Chief Executive Officer, Dorward &
September 23, 1931 Associates (advertising and
</TABLE>
_____________________________
*Mr. Schwab is an "interested person" of the Trust.
**Mr. McCarthy is an "interested person" of the Trust.
27
<PAGE> 45
<TABLE>
<CAPTION>
POSITION WITH
-------------
NAME/BIRTHDAY THE TRUST PRINCIPAL OCCUPATION
- ------------- --------- --------------------
<S> <C> <C>
marketing/consulting).
ROBERT G. HOLMES Trustee Chairman, Chief Executive Officer and Director,
May 15, 1931 Semloh Financial, Inc. (international financial
services).
DONALD R. STEPHENS Trustee Managing Partner, D.R. Stephens & Co. (real estate
June 28, 1938 investment). Prior to 1993, Mr. Stephens was
Chairman and Chief Executive Officer of the Bank of
San Francisco.
MICHAEL W. WILSEY Trustee Chairman, Chief Executive Officer and Director,
August 18, 1943 Wilsey Bennett, Inc. (truck and air transportation,
real estate investment and management, and
investments).
A. JOHN GAMBS Treasurer and Principal Executive Vice President - Finance and Chief
November 16, 1945 Financial Officer Financial Officer, The Charles Schwab Corporation;
Executive Vice President, Chief Financial Officer
and Director, Charles Schwab & Co., Inc.; Chief
Financial Officer and Director, Charles Schwab
Investment Management, Inc.; and Chief Financial
Officer, The Charles Schwab Trust Company.
WILLIAM J. KLIPP* Senior Vice President, Senior Vice President, Charles Schwab & Co., Inc.;
December 9, 1955 Chief Operating Officer President and Chief Operating Officer, Charles
and Trustee Schwab Investment Management, Inc. Prior to 1993,
Mr. Klipp was Treasurer of Charles Schwab & Co.,
Inc. and Mayer & Schweitzer, Inc. Prior to 1990,
he was Vice President, Director Funding, Merrill
Lynch & Co., Inc.
STEPHEN B. WARD Senior Vice President & Senior Vice President and Chief Investment
April 5, 1955 Chief Investment Officer, Charles Schwab Investment Management,
Officer Inc. Prior to 1991, Mr. Ward was Vice President
and Portfolio Manager for Federated Investors.
FRANCES COLE Secretary Vice President, Chief Counsel and Compliance
September 9, 1955 Officer, and Assistant Corporate Secretary, Charles
Schwab Investment Management, Inc. Prior to 1991,
Ms. Cole was Senior Counsel for Equitec Securities
Company.
PAMELA E. HERLICH Assistant Secretary Assistant Corporate Secretary, The Charles Schwab
August 19, 1953 Corporation and Charles Schwab & Co.,
</TABLE>
_____________________________________
*Mr. Klipp is an "interested person" of the Trust.
28
<PAGE> 46
<TABLE>
<CAPTION>
POSITION WITH
-------------
NAME/BIRTHDAY THE TRUST PRINCIPAL OCCUPATION
- ------------- --------- --------------------
<S> <C> <C>
Inc.; Corporate Secretary, Charles Schwab Investment
Management, Inc., Mayer & Schweitzer and The
Charles Schwab Trust Company. Prior to 1993, Ms.
Herlich was Assistant Corporate Secretary for Mayer
& Schweitzer, Inc. and The Charles Schwab Trust
Company.
DAVID H. LUI Assistant Secretary Vice President and Senior Counsel - Charles Schwab
October 14, 1960 Investment Management, Inc. From 1991 to 1992, he
was Assistant Secretary and Assistant Corporate
Counsel for the Franklin Group of Mutual Funds.
Prior to 1991, he was an Associate of Thelen,
Marrin, Johnson & Bridges (a San Francisco law
firm).
CHRISTINA M. PERRINO Assistant Secretary Vice President and Senior Counsel - Charles Schwab
June 16, 1961 Investment Management, Inc. Prior to 1994, she was
Counsel and Assistant Secretary for North American
Security Life Insurance Company and Secretary for
North American Funds.
</TABLE>
Each of the above-referenced Officers and/or Trustees also serves in
the same capacity as described for the Trust for Schwab Investments, The Charles
Schwab Family of Funds, Schwab Annuity Portfolios, and Schwab Advantage Trust
(which has not yet commenced operations). The address of each individual listed
above is 101 Montgomery Street, San Francisco, California 94104.
29
<PAGE> 47
COMPENSATION TABLE(1)
<TABLE>
<CAPTION>
Pension or
Retirement
Benefits Estimated
Accrued as Part Annual Benefits
of Fund Upon Total
Aggregate Expenses from Retirement from Compensation
Name of Person, Compensation the Fund the Fund from the Fund
Position from the Trust Complex(2) Complex(2) Complex(2)
- --------------- -------------- ---------------- --------------- -------------
<S> <C> <C> <C> <C>
Charles R. Schwab, 0 N/A N/A 0
Chairman and
Trustee
Elizabeth G. Sawi(3), 0 N/A N/A 0
President and
Trustee
William J. Klipp, 0 N/A N/A 0
Sr. Vice President,
Chief Operating
Officer, and Trustee
Donald F. Dorward, 16,000 N/A N/A 55,000
Trustee
Robert G. Holmes, 16,000 N/A N/A 55,000
Trustee
Donald R. Stephens, 16,000 N/A N/A 55,000
Trustee
Michael W. Wilsey, 16,000 N/A N/A 55,000
Trustee
</TABLE>
(1) Figures are for the Trust's fiscal year ended October 31,
1994.
(2) "Fund Complex" comprises all 22 funds of the Trust, The
Charles Schwab Family of Funds, Schwab Investments, Schwab
Annuity Portfolios and Schwab Advantage Trust.
(3) Ms. Sawi served as President and Trustee until October 1995.
____________________________________________________
30
<PAGE> 48
Pursuant to exemptive relief received by the Trust from the Securities
and Exchange Commission, the Trust may enter into deferred fee arrangements (the
"Fee Deferral Plan" or the "Plan") with the Trust's trustees who are not
"interested persons" of any of the Funds of the Trust (the "Independent
Trustees" or the "Trustees").
As of the date of this Statement of Additional Information, none of the
Independent Trustees has elected to participate in the Fee Deferral Plan. In the
event an Independent Trustee does elect to participate in the Plan, the Plan
would operate as described below.
Under the Plan, deferred Trustee's fees will be credited to a book
reserve account established by the Trust (the "Deferred Fee Account"), as of the
date such fees would have been paid to such Trustee. The value of the Deferred
Fee Account as of any date will be equal to the value the Account would have had
as of that date if the amounts credited to the Account had been invested and
reinvested in the securities of the SchwabFund(R) or SchwabFunds selected by the
participating Trustee (the "Selected SchwabFund Securities"). SchwabFunds
include the series or classes of beneficial interest of the Trust, The Charles
Schwab Family of Funds, and Schwab Investments.
Pursuant to the exemptive relief granted to the Trust, each Fund will
purchase and maintain the Selected SchwabFund Securities in an amount equal to
the deemed investments in that Fund of the Deferred Fee Accounts of the
Independent Trustees. The exemptive relief granted to the Trust permits the
Funds and the Trustees to purchase the Selected SchwabFund Securities, which
transactions would otherwise be limited or prohibited by the investment policies
and/or restrictions of the Funds. See "Investment Restrictions."
INVESTMENT MANAGER
The Investment Manager, a wholly-owned subsidiary of The Charles Schwab
Corporation, serves as the Funds' investment adviser and administrator pursuant
to an Investment Advisory and Administration Agreement (the "Advisory
Agreement") between it and the Trust. The Investment Manager is registered as an
investment adviser under the Investment Advisers Act of 1940, as amended, and
currently provides investment management services to the SchwabFunds(R), a
family of 22 mutual funds with approximately $31 billion in assets as of October
31, 1995. The Investment Manager is an affiliate of Schwab, the Trust's
distributor and shareholder services and transfer agent. The Advisory Agreement
will continue in effect until July 21, 1996 with respect to the Schwab
International Index Fund, October 14, 1996 with respect to the Schwab Small-Cap
Index Fund, September 25, 1997 with respect to the Asset Director Funds,
_________, 1997 with respect to the S & P 500 Fund, and thereafter will continue
for one year terms subject to annual approval by: (1) the Trust's Board of
Trustees or (2) a vote of a majority (as defined in the 1940 Act) of the
outstanding voting securities of a Fund. In either event, the continuance must
also be approved by a majority of
31
<PAGE> 49
the Trust's Board of Trustees who are not parties to the Agreement or interested
persons (as defined in the 1940 Act) of any such party by vote cast in person at
a meeting called for the purpose of voting on such approval. The Advisory
Agreement may be terminated at any time upon 60 days notice by either party, or
by a majority vote of the outstanding shares of a Fund, and will terminate
automatically upon assignment.
International Index Fund. For its advisory and administrative services
to the International Index Fund, the Investment Manager is entitled to receive a
graduated annual fee, payable monthly, of 0.70% of the Fund's average daily net
assets not in excess of $300 million, and 0.60% of such assets over $300
million.
The Investment Manager and Schwab have guaranteed that, through at
least June 30, 1996, the total fund operating expenses for the International
Index Fund will not exceed 0.69% of that Fund's average daily net assets.
For the fiscal period from September 9, 1993 (commencement of
operations) to October 31, 1993, no investment advisory fees were paid by the
International Index Fund (fees were reduced by $97,986). For the fiscal year
ended October 31, 1994, the International Index Fund paid investment advisory
fees of $474,0000 (fees were reduced by $388,000).
Small-Cap Index Fund. For its advisory and administrative services to
the Small-Cap Index Fund, the Investment Manager is entitled to receive a
graduated annual fee, payable monthly, of 0.50% of the Fund's average daily net
assets not in excess of $300 million, and 0.45% of such assets over $300
million.
The Investment Manager and Schwab have guaranteed that, through June
30, 1996, the total fund operating expenses for the Small-Cap Index Fund will
not exceed 0.59% of that Fund's average daily net assets.
For the fiscal period from December 3, 1993 (commencement of
operations) to October 31, 1994, the Small-Cap Index Fund paid investment
advisory fees of $151,861 (fees were reduced by $106,533).
Asset Director Funds. For its advisory and administrative services to
the Asset Director Funds, the Investment Manager is entitled to receive a
graduated annual fee, payable monthly, of 0.74% of each Fund's average daily net
assets not in excess of $1 billion, and 0.69% of the next $1 billion; and 0.64%
of such net assets over $2 billion.
The Investment Manager and Schwab have guaranteed that, through at
least December 31, 1996, the total fund operating expenses for the International
Index Fund will not exceed 0.89% of each Fund's average daily net assets.
S&P 500 Fund. For its advisory and administrative services to the S&P
500 Fund, the Investment Manager is entitled to receive a graduated annual fee,
payable monthly, of 0.36% of the Fund's average daily net assets not in excess
of $1 billion, and 0.33% of the next $1
32
<PAGE> 50
billion; and 0.31% of such net assets over $2 billion.
The Investment Manager and Schwab have guaranteed that, through at
least December 31, 1996, the total operating expenses allocable to the Investor
Shares will not exceed 0.49% of its average daily net assets and that the toal
operating expenses allocable to the e.Shares will not exceed 0.28% of its
average daily net assets.
Additional Information. The Advisory Agreement provides that the fees
to be paid to the Investment Manager will be less than the amount that would
cause the aggregate operating expenses of a Fund (excluding interest, taxes, net
brokerage commissions and extraordinary expenses) in any year to exceed the most
stringent limits prescribed by any state in which shares of a Fund are offered
for sale. The most stringent current limit for such expenses is 2.5% of a fund's
first $30 million of average net assets, 2.0% of a fund's next $70 million of
average net assets and 1.5% of a fund's average net assets in excess of $100
million.
From time to time, each Fund may compare its total operating expense
ratio to the total operating expense ratio of other mutual funds or mutual fund
averages with similar investment objectives as reported by Lipper Analytical
Service, Inc., Morningstar, Inc. or other independent sources of such
information ("independent sources").
SUB-ADVISER
The Investment Manager has entered into an investment sub-advisory
agreement (the "Sub-Advisory Agreement") with respect to the Asset Director
Funds with Symphony Asset Management, Inc. (the "Sub-Adviser"), pursuant to
which it will act as the Funds' sub-adviser. The Sub-Adviser is registered as an
investment adviser under the Investment Advisers Act of 1940 and currently
manages directly and indirectly approximately $700 million in institutional and
private account assets.
The Sub-Adviser furnishes investment advice through direct assistance
to the Investment Manager in the development and execution of quantitatively
based investment strategies. The Sub-Adviser uses a sophisticated optimization
technique known as "Tactical Asset Allocation" in evaluating the optimal
allocation of the Asset Director Funds' assets among asset categories: stocks,
bonds, and cash.
Tactical Asset Allocation is a value-oriented strategy which seeks the
highest reward for a given level of risk. Expected returns are measured for each
asset category; for stocks, the internal rate of return is measured on
forecasted dividend stream; for bonds, the yield to maturity is evaluated on
representative long corporate bonds; and for cash-equivalents, yield to maturity
is evaluated on representative money market instruments. Risks and correlations
of the asset categories are measured from long-term return histories.
33
<PAGE> 51
The Investment Manager pays the Sub-Adviser an annual investment
sub-advisory fee, payable monthly, of 0.08% of the first $100 million of each of
the Asset Director Fund's average daily net assets, 0.06% of a Fund's next $150
million of average daily net assets, 0.04% of a Fund's next $600 million of
average daily net assets, and 0.02% of such assets over $850 million.
As of May 1, 1995 and June 30, 1995, Dimensional Fund Advisors Inc.
("Dimensional") no longer served as the sub-adviser to the Schwab Small-Cap
Index Fund and the Schwab International Index Fund, respectively. As of the same
dates, the Investment Manager became responsible for providing all investment
advisory services to the Funds.
Expenses. Under the Sub-Advisory Agreement between Dimensional and the
Investment Manager, the Investment Manager paid Dimensional the following
amounts for the fiscal periods indicated below.
International Index Fund: $20,999 and $185,000 for the fiscal period from
September 9, 1993 (commencement of operations) to October 31, 1993 and for the
fiscal year ended October 31, 1994, respectively.
Small-Cap Index Fund: $51,419 for the fiscal period from December 3, 1993
(commencement of operations) to October 31, 1994.
DISTRIBUTOR
Pursuant to a Distribution Agreement, Schwab is the principal
underwriter for shares of the Trust and is the Trust's agent for the purpose of
the continuous offering of the Funds' shares. Each Fund pays the cost for the
prospectuses and shareholder reports to be prepared and delivered to existing
shareholders. Schwab pays such costs when the described materials are used in
connection with the offering of shares to prospective investors and for
supplementary sales literature and advertising. Schwab receives no fee under the
Distribution Agreement. Terms of continuation, termination and assignment under
the Distribution Agreement are identical to those described above with respect
to the Advisory Agreement.
CUSTODIAN AND FUND ACCOUNTANT
State Street Bank and Trust Company, at 1 Heritage Drive, North Quincy,
Massachusetts 02171-2197 serves as Custodian and as Fund Accountant for the
Trust.
ACCOUNTANTS
AND REPORTS TO SHAREHOLDERS
The Trust's independent accountants, Price Waterhouse LLP, audit and
report on the annual financial statements of each series of the Trust and review
certain regulatory reports and the Trust's federal income tax return. Price
Waterhouse LLP also performs other professional accounting, auditing, tax and
advisory services when engaged to do so
34
<PAGE> 52
by the Trust. Shareholders will be sent audited annual and unaudited semi-annual
financial statements. The address of Price Waterhouse LLP is 555 California
Street, San Francisco, California 94104.
LEGAL COUNSEL
Ropes & Gray, 1301 K Street, N.W., Suite 800 East, Washington, D.C.
20054, is counsel to the Trust.
PORTFOLIO TRANSACTIONS AND TURNOVER
PORTFOLIO TRANSACTIONS
In effecting securities transactions for the Funds, the Investment
Manager seeks to obtain best price and execution. Subject to the supervision of
the Board of Trustees, the Investment Manager will generally select brokers and
dealers for the Funds primarily on the basis of the quality and reliability of
brokerage services, including execution capability and financial responsibility.
In assessing these criteria, the Investment Manager will, among other things,
monitor the performance of brokers effecting transactions for the Funds to
determine the effect, if any, the Funds' transactions through those brokers have
on the market prices of the stocks involved. This may be of particular
importance for the Funds' investments in relatively smaller companies whose
stocks are not as actively traded as those of their larger counterparts. The
Funds will seek to buy and sell securities in a manner that causes the least
possible fluctuation in the prices of those stocks in view of the size of the
transactions.
In an attempt to obtain best execution for the Funds, the Investment
Manager may also place orders directly with market makers or with third market
brokers, Instinet or brokers on an agency basis. Placing orders with third
market brokers or through Instinet may enable the Funds to trade directly with
other institutional holders on a net basis. At times, this may allow the Funds
to trade larger blocks than would be possible trading through a single market
maker.
When the execution and price offered by two or more broker-dealers are
comparable, the Investment Manager may, in its discretion, in agency
transactions (and not principal transactions) utilize the services of
broker-dealers that provide it with investment information and other research
resources. Such resources may also be used by the Investment Manager when
providing advisory services to other investment advisory clients, including
mutual funds.
In determining when and to what extent to use Schwab or any other
affiliated broker-dealer as its broker for executing orders for the Funds on
securities exchanges, the Investment Manager will consider (if relevant) whether
the compensation to be paid Schwab or any other affiliated broker-dealer will be
(i) fair and reasonable, (ii) at least as favorable to the Funds as commissions
that would be charged by other qualified brokers having
35
<PAGE> 53
comparable execution capabilities, and (iii) at least as favorable as
commissions contemporaneously charged by Schwab or any other affiliated
broker-dealer on comparable transactions for its most favored unaffiliated
customers. The Funds do not consider it practicable or in the best interests of
their shareholders to solicit competitive bids for commission rates on each
transaction. However, the Board of Trustees, including a majority of the
trustees who are not "interested persons" of Schwab or any other affiliated
broker-dealer within the meaning of the 1940 Act, (i) has prescribed procedures
designed to provide that the Funds do not pay commissions that do not meet the
standards described above, (ii) reviews those procedures annually to determine
whether they remain adequate, and (iii) considers quarterly whether or not the
commissions charged by Schwab or any other affiliated broker-dealer have met the
standards.
Brokerage services provided by Schwab to the Funds are also subject to
Rule 11a2-2(T) under the Securities Exchange Act of 1934, as amended. Rule
11a2-2(T) permits the Funds to use Schwab as a broker provided certain
conditions are met. Among these requirements are that the floor brokerage
element of portfolio transactions (that is, execution on the exchange floor or
through use of exchange facilities) be performed by members of the exchange not
associated with Schwab, that the orders to such members be transmitted from off
the exchange floor and that neither Schwab nor an associated person of Schwab
participates in the execution of the transaction after the order has been so
transmitted. In connection with transactions in which Schwab acts as broker for
the Funds, Schwab, while not permitted to perform floor brokerage (which is
undertaken by members selected by Schwab who are not associated with that firm),
still continues to bear principal responsibility for determining important
elements of overall execution such as timing and order size, and also clears and
settles such transactions. Schwab pays the fees charged by those persons
performing the described floor brokerage elements. Schwab will not trade
directly with the Funds in any transactions in which Schwab or an affiliate acts
as principal.
Brokerage Commissions. For the fiscal period from December 3, 1993
(commencement of operations) to October 31, 1994, the Small-Cap Index Fund paid
brokerage commissions of $165,997. For the fiscal period from September 9, 1993
(commencement of operations) to October 31, 1993 and for the fiscal year ended
October 31, 1994, the International Index Fund paid brokerage commissions of
$170,195 and $86,127, respectively.
PORTFOLIO TURNOVER
For reporting purposes, each Fund's turnover rate is calculated by
dividing the value of purchases or sales of portfolio securities for the fiscal
year, whichever is less, by the monthly average value of portfolio securities
owned by the Fund during the fiscal year. When making the calculation, all
securities whose maturities at the time of acquisition were one year or less
("short-term securities") are excluded.
36
<PAGE> 54
A 100% portfolio turnover rate would occur, for example, if all
portfolio securities (aside from short-term securities) were sold and either
repurchased or replaced once during the fiscal year. The Funds expect that their
portfolio turnover rate will not exceed 100% in any given year, a turnover rate
lower than that of most non-index mutual funds. In the case of the Asset
Director Funds, this 100% portfolio turnover rate applies to the Funds' stock
and bond categories separately. A high portfolio turnover rate may increase a
Fund's transaction costs. The International Index Fund's portfolio turnover rate
for the fiscal period from September 9, 1993 (commencement of operations) to
October 31, 1993 and for the fiscal year ended October 31, 1994 was 2% and 6%,
respectively. The Small-Cap Index Fund's portfolio turnover rate for the fiscal
period from December 3, 1993 (commencement of operations) to October 31, 1994
was 16%.
From time to time, each Fund may compare its portfolio turnover rate
with that of other mutual funds as reported by independent sources.
TAXES
It is the policy of each Fund to qualify for taxation as a "regulated
investment company" by meeting the requirements of Subchapter M of the Code. By
following this policy, each Fund expects to eliminate or reduce to a nominal
amount the federal income tax to which it is subject.
In order to qualify as a regulated investment company, each of the
Funds must, among other things, (1) derive at least 90% of its gross income from
dividends, interest, payments with respect to securities loans and gains from
the sale or other disposition of stocks, securities, foreign currencies or other
income (including gains from options, futures or forward contracts) derived with
respect to its business of investing in stocks, securities or currencies; (2)
derive less than 30% of its gross income from gains from the sale or other
disposition of certain assets (including stocks and securities) held for less
than three months; and (3) diversify its holdings so that at the end of each
quarter of its taxable year (i) at least 50% of the market value of the Fund's
total assets is represented by cash or cash items, United States Government
securities, securities of other regulated investment companies and other
securities limited, in respect of any one issuer, to a value not greater than 5%
of the value of the Fund's total assets and 10% of the outstanding voting
securities of such issuer, and (ii) not more than 25% of the value of its assets
is invested in the securities of any one issuer (other than United States
Government securities or securities of any other regulated investment company)
or of two or more issuers that the Fund controls, within the meaning of the
Code, and that are engaged in the same, similar or related trades or businesses.
These
37
<PAGE> 55
requirements may restrict the degree to which a Fund may engage in short-term
trading and certain hedging transactions and may limit the range of a Fund's
investments. If a Fund qualifies as a regulated investment company, it will not
be subject to federal income tax on the part of its net investment income and
net realized capital gains, if any, which it distributes to shareholders,
provided that the Fund meets certain minimum distribution requirements. To
comply with these requirements, a Fund must distribute at least (a) 90% of its
"investment company taxable income" (as that term is defined in the Code) and
(b) 90% of the excess of its (i) tax-exempt interest income over (ii) certain
deductions attributable to that income (with certain exceptions), for its
taxable year. Each Fund intends to make sufficient distributions to shareholders
to meet these requirements.
The Code imposes a non-deductible excise tax on regulated investment
companies that do not distribute in a calendar year (regardless of whether they
otherwise have a non-calendar taxable year) an amount equal to 98% of their
"ordinary income" (as defined in the Code) for the calendar year plus 98% of
their capital gain net income for the one year period ending on October 31 of
such calendar year. The balance of such income must be distributed during the
next calendar year. For the foregoing purposes, a Fund is treated as having
distributed any amount on which it is subject to income tax for any taxable year
ending in such calendar year. If the distributions during a calendar year were
less than the required amount, the Fund is subject to a non-deductible excise
tax equal to 4% of the deficiency.
A Fund's transactions in futures contracts, forward contracts, foreign
currency transactions, options, and certain other investment and hedging
activities is subject to special tax rules. In a given case, these rules may
accelerate income to a Fund, defer its losses, cause adjustments in the holding
periods of the Fund's assets, convert short-term capital losses into long-term
capital losses or otherwise affect the character of the Fund's income. These
rules could therefore affect the amount, timing and character of distributions
to shareholders. The Funds will endeavor to make any available elections
pertaining to these transactions in a manner believed to be in the best interest
of the Funds and their shareholders.
INCOME TAX INFORMATION
Any dividends declared by the Funds in October, November or December to
shareholders of record during those months and paid during the following January
are treated, for tax purposes, as if they were received by each shareholder on
December 31 of the year declared.
Dividends paid by the Funds from net investment income and
distributions from the Funds' net short-term capital gains in excess of any net
long-term capital losses, whether received in cash or reinvested, generally will
be taxable to shareholders as ordinary income. For corporate investors in the
Funds, dividend distributions designated by the Funds to be from dividends
received from
38
<PAGE> 56
qualifying domestic corporations will be eligible for the 70% corporate
dividends-received deduction to the extent they would qualify if the Funds were
regular corporations. Distributions received from the Funds designated as
long-term capital gains (net of capital losses), whether received in cash or
reinvested, will be taxable as long-term capital gains without regard to the
length of time a shareholder owned shares in the Funds. However, if a
shareholder receives a long-term capital gain distribution with respect to
Funds' shares held for six months or less, any loss on the sale or exchange of
those shares shall, to the extent of the long-term capital gain distribution, be
treated as a long-term capital loss. If a shareholder is not subject to income
tax, generally the shareholder will not be taxed on amounts distributed by the
Funds.
A Fund will be required in certain cases to withhold and remit to the
United States Treasury 31% of taxable dividends paid to any shareholder (1) who
fails to provide a correct taxpayer identification number certified under
penalty of perjury; (2) who is subject to withholding by the Internal Revenue
Service for failure to properly report all payments of interest or dividends; or
(3) who fails to provide a certified statement that he or she is not subject to
"backup withholding." This "backup withholding" is not an additional tax and any
amounts withheld may be credited against the shareholder's ultimate U.S. tax
liability.
The foregoing discussion relates only to federal income tax law as
applicable to U.S. citizens or residents. Foreign shareholders (i.e.,
nonresident alien individuals and foreign corporations, partnerships, trusts and
estates) generally are subject to U.S. withholding tax at the rate of 30% (or a
lower tax treaty rate) on distributions derived from net investment income and
short-term capital gains. Distributions to foreign shareholders of long-term
capital gains and any gains from the sale or other disposition of shares of the
Funds generally are not subject to U.S. taxation, unless the recipient is an
individual who meets the Code's definition of "resident alien." Different tax
consequences may result if the foreign shareholder is engaged in a trade or
business within the United States. In addition, the tax consequences to a
foreign shareholder entitled to claim the benefits of a tax treaty may be
different than those described above. Distributions by a Fund may also be
subject to state, local and foreign taxes, and its treatment under applicable
tax laws may differ from the federal income tax treatment.
Although the International Index Fund and the Asset Director Funds will
attempt not to invest in any non-U.S. corporation which could be treated as a
passive Foreign investment company ("PFIC"), or become a PFIC, under the Code,
it might inadvertently do so. This could result in adverse tax consequences upon
the disposition of, or the receipt of "excess distributions" with respect to,
such equity investments. To the extent the International Index Fund and the
Asset Director Funds do invest in PFIC, they may adopt certain tax strategies to
reduce or eliminate the adverse effects of certain federal tax provisions
governing PFIC investments. Many non-U.S. banks
39
<PAGE> 57
and insurance companies may not be treated as PFICs if they satisfy certain
technical requirements under the Code. To the extent that the International
Index Fund and the Asset Director Funds do invest in foreign securities which
are determined to be PFIC securities and are required to pay a tax on such
investments, a credit for this tax would not be allowed to be passed through to
the International Index Fund's and the Asset Director Funds' shareholders.
Therefore, the payment of this tax would reduce the International Index Fund's
and the Asset Director Funds' economic return from their PFIC shares and excess
distributions received with respect to such shares are treated as ordinary
income rather than capital gains.
This discussion of federal income taxation presented above only summarizes some
of the important federal tax considerations generally affecting purchasers of
Fund shares. No attempt has been made to present a detailed explanation of the
federal income tax treatment of a Fund and its shareholders, and the discussion
is not intended as a substitute for careful tax planning. Accordingly,
prospective investors (particularly those not residing or domiciled in the
United States) should consult their own tax advisers regarding the consequences
of investing in a Fund.
SHARE PRICE CALCULATION
Each Fund's net asset value per share is determined each day the New
York Stock Exchange is open for trading as of 4:00 p.m., Eastern time. The net
asset value of the International Index Fund is expressed in U.S. dollars by
translating the Fund's assets using the bid price for the U.S. dollar as quoted
by generally recognized, reliable sources. Currently, the New York Stock
Exchange is closed on the following holidays: New Year's Day (observed),
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. The Funds value their portfolio securities
based on their market value. Each security held by the Funds which is listed on
a securities exchange and for which market quotations are available is 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. Price
information on each listed security is taken from the exchange where the
security is primarily traded. Unlisted securities for which market quotations
are readily available are valued at the mean between the most recent bid and
asked prices. The value of other assets for which no quotations are readily
available (including any restricted securities) are valued at fair value as
determined in good faith by the Investment Manager pursuant to Board of Trustees
guidelines. Securities may be valued on the basis of prices provided by pricing
services when such prices are believed to reflect fair market value.
40
<PAGE> 58
HOW THE FUNDS REFLECT PERFORMANCE
STANDARDIZED TOTAL RETURN
Average annual total return for a period is determined by calculating
the actual dollar amount of investment return on a $1,000 investment in the Fund
made at the beginning of the period, then calculating the average annual
compounded rate of return that would produce the same investment return on the
$1,000 over the same period. In computing average annual total return, the Fund
assumes the reinvestment of all distributions at net asset value on applicable
reinvestment dates. For the fiscal period from September 9, 1993 (commencement
of operations) to October 31, 1993 and for the fiscal year ended October 31,
1994, the International Index Fund's total return was 1.5% and 7.9%,
respectively. For the fiscal period from December 3, 1993 (commencement of
operations) to October 31, 1994, the Small-Cap Index Fund's total return was
0.63%.
NONSTANDARDIZED TOTAL RETURN
Nonstandardized total return for a Fund differs from standardized total
return in that it relates to periods other than the period for standardized
total return and/or that it represents aggregate (rather than average) total
return.
In addition, an after-tax total return for each Fund may be calculated
by taking that Fund's standardized or non-standardized total return and
subtracting applicable federal taxes from the portions of each Fund's total
return attributable to capital gains distributions and ordinary income. This
after-tax total return may be compared to that of other mutual funds with
similar investment objectives as reported by independent sources.
Each Fund may also report the percentage of that Fund's standardized or
non-standardized total return which would be paid to taxes annually (at the
applicable federal personal income and capital gains tax rates) before
redemption of Fund shares. This proportion may be compared to that of other
mutual funds with similar investment objectives as reported by independent
sources.
YIELD
Yield refers to the net investment income generated by a hypothetical
investment in the Fund over a specific 7-day period. This net investment income
is then annualized, which means that the net investment income generated during
the 7-day period is assumed to be generated in each 7-day period over an annual
period, and is shown as a percentage of the investment.
COMPARING THE PERFORMANCE OF THE FUNDS WITH OTHER FUNDS AND INDICES
The performance of the Funds may be compared with the performance of
other mutual funds by comparing the ratings of mutual fund rating services,
various indices of investment
41
<PAGE> 59
performance, United States government obligations, bank certificates of deposit,
the consumer price index, and other investments for which reliable data is
available.
The Asset Director Funds may also compare their historical performance
figures to the performance of indices similar to their asset categories and
sub-categories, such as those indices names in the Funds' Prospectus under
"Market Performance."
THE BENEFITS OF INTERNATIONAL INVESTING
INCREASED DIVERSIFICATION
CAN LOWER RISK
To some extent, all U.S.-based investments -- stocks, bonds, mutual
funds and CDs -- are affected by the same economic forces. Tax cuts, interest
rate changes and the performance of the U.S. stock market can all influence U.S.
investments. Adding international (or overseas) investments to a U.S.-based
portfolio has historically reduced the portfolio's overall volatility. Although
U.S. and international markets may be interrelated, they do not move in tandem
- -- so losses in one market can be offset by gains in another.
POTENTIALLY HIGHER OVERALL PERFORMANCE
During the past 10 years ending December 31, 1994, international equity
markets outperformed the U.S. equity market and most other U.S. securities
investments -- corporate bonds, CDs and U.S. Treasuries. The returns produced by
the international markets have also kept investors well ahead of inflation. This
historical performance means that investors diversified overseas earned a higher
level of return.
BROADER GROWTH OPPORTUNITIES
Investors who limit their portfolios to U.S. securities are missing
these investment opportunities. Ten years ago, the United States made up more
than half of the world's equity investments. As of December 31, 1993, it
represented just over one-third.
INDEXING AND THE SCHWAB INDEX FUNDS
Because the unmanaged performance of a broad-based equity index has
often proven superior to that of many individually selected stock portfolios, a
growing percentage of assets invested in the equity markets are being placed in
"index" portfolios. Institutional investors often devote a substantial
percentage of their assets to indexed strategies.
An index typically tracks the performance of a group of securities
42
<PAGE> 60
selected to represent a particular market, and is most often used to gauge that
market's performance. The Dow Jones Industrial Average ("DJIA") and Standard &
Poor's 500 Index(R) ("S&P 500") are two indices designed to measure the
performance of United States stocks. When investment managers invest indexed
separate accounts or index fund assets, they attempt to replicate the
performance of the applicable target index by holding all or a representative
sample of the securities included in the index.
The Funds performance data assume the reinvestment of dividends, but do
not reflect deductions for administrative and management expenses. The Funds
will be subject to these costs and expenses. In addition, various factors may
cause the Funds' performance to be higher or lower than that of the Index.
THE SCHWAB INTERNATIONAL
INDEX(TM)
The Schwab International Index(TM) is a broad-based stock market index
which contains the common stocks of the 350 largest operating companies (i.e.,
non-investment companies) incorporated outside the United States. To reduce
undue risk, the Index represents equities only from countries that are
considered to have developed markets and economies. By tracking the largest
companies in developed markets, the Index represents the performance of the
"blue chips" of international markets. The Index is also designed to provide a
broad representation of the international market, by limiting each country to no
more than 35% of the total market capitalization of the Index. As the stocks
contained in the Index represent about 35% of the total market capitalization of
international companies, the Index provides a reliable measure of market
performance. The Schwab International Index(TM) was first made available to the
public on July 29, 1993.
THE SCHWAB SMALL-CAP INDEX(TM)
To be included in the Schwab Small-Cap Index, a company must satisfy
all of the following criteria: (1) it must be an "operating company" (i.e., not
an investment company) incorporated in the United States, its territories or
possessions; (2) a liquid market for its common shares must exist on the New
York Stock Exchange, American Stock Exchange or the NASDAQ/NMS, and (3) its
market value must place it among the second 1000 such companies as measured by
market capitalization (i.e., from the company with a rank of 1001 through the
company with a rank of 2000). Shareholders generally avoid exposure to the
smallest companies, whose shares are often thinly traded and very volatile,
because these stocks are not included in the Index.
A particular stock's weighting in the Schwab Small-Cap Index is based
on its relative total market value (i.e., its market price per share times the
number of shares outstanding), divided by the total market capitalization of the
Schwab Small-Cap Index. The returns produced by the United States stock market
during the 25 years ending December 31, 1990 have been exceeded by those of very
few types of securities investments. Because the unmanaged performance of the
U.S. stock market has often proven superior to that of
43
<PAGE> 61
many individually selected stock portfolios, a growing percentage of assets
invested in the equity markets are being placed in "index" portfolios. From less
than $9 billion in 1980, indexed institutional holdings have grown to over $280
billion, a figure equal to approximately one-quarter of all institutional
assets. (Source: Callan Associates Survey, reported in Fall 1990 edition of The
Journal of Portfolio Management).
Historically a long-term investment in a group of common stocks
representative of the stock market as a whole as well as a group of common
stocks representative of small-cap stocks has significantly exceeded that of
U.S. Treasury Bills, CDs, corporate bonds and inflation.
THE S & P 500 INDEX
The primary objective of the Standard and Poor's 500 Composite Stock Price
Index, known as the S & P 500 Index, is to be the performance benchmark for U.S.
stock market performance. The Index consists of 500 stocks chosen for market
size, liquidity, and industry group representation. It is a market-value
weighted index (stock price times number of shares outstanding), with each
stocks weight in the Index proportionate to its market value. The S & P does not
contain the 500 largest stocks. Although many of the stocks in the Index are
among the largest, there are also some relatively small companies in the Index.
Those companies, however, are generally leaders within their industry group. S &
P identifies important industry groups within the U.S. economy and then
allocates a representative sample of stocks with each group to the S & P 500.
There are four major industry sectors within the Index: Industrials, Utilities,
Financial, and Transportation.
ASSET ALLOCATION STRATEGIES
USING SCHWABFUNDS(R)
Shareholders of SchwabFunds may wish to invest in the SchwabFunds as
part of their personal asset allocation plan. An asset allocation program is
available through Schwab. This program may help shareholders select investments,
including investments in SchwabFunds, that match their individual investment
needs. The shareholders' personal investment plan is based on a number of
factors including personal financial situation, time horizon, investment
objectives and goals, and risk tolerance.
ACCESS TO SCHWAB'S MUTUAL
FUND ONESOURCE SERVICE(TM)
With Schwab's Mutual Fund OneSource Service(TM) ("OneSource"), a
shareholder can invest in over 200 mutual funds from many fund companies,
subject to the following. If a shareholder makes five or more short-term
redemptions of OneSource mutual funds (other than the SchwabFunds) within any
12-month period, a fee will be charged on all future trades. A short-term
redemption in this context refers to the sale of mutual fund shares held for six
months or less. Some mutual funds available through OneSource may charge fees
permitted under Rule 12b-1 in excess of one quarter of one percent per year.
Schwab reserves the right to modify OneSource's terms and conditions at any
time. For more information, a shareholder should contact their Schwab office
during
44
<PAGE> 62
its regular business hours or 800-2 NO-LOAD, 24 hours a day.
From time to time, the Funds may include discussions in advertisements
of the income tax savings shareholders may experience as a result of their
policy of limiting portfolio trading in order to reduce capital gains. This
information may be supplemented by presentations of statistical data
illustrating the extent of such income tax savings and the impact of such
savings on the yield and/or total return of the Funds. In addition, such
advertisements may include comparisons of the Funds' performance against that of
investment products that do not employ the Funds' policy of seeking to limit
capital gains. The Funds are intended to make indexed investing easily available
to Schwab customers with the highest level of convenience and economy thereby
facilitating their ability to participate in the long-term performance of the
United States stock market.
45
<PAGE> 63
SCHWABFUNDS(R).
SchwabFunds offers a variety of series and classes of shares of beneficial
interest to help you with your investment needs.
EQUITY FUNDS
Schwab 1000 Fund(R)(1)
Schwab International Index Fund(TM)(2)
Schwab Small-Cap Index Fund(TM)(2)
Schwab Asset Director(R)-High Growth Fund(2)
Schwab Asset Director(R)-Balanced Growth Fund(2)
Schwab Asset Director(R)-Conservative Growth Fund(2)
Schwab S & P 500 Index Fund - Investor Shares(2)
Schwab S & P 500 Index Fund - e.Shares(2)
FIXED INCOME FUNDS(1)
Schwab Short/Intermediate Government Bond Fund
Schwab Long-Term Government Bond Fund
Schwab Short/Intermediate Tax-Free Bond Fund
Schwab Long-Term Tax-Free Bond Fund
Schwab California Short/Intermediate Tax-Free Bond Fund(3)
Schwab California Long-Term Tax-Free Bond Fund(3)
MONEY MARKET FUNDS(4)
Schwab Money Market Fund
Schwab Government Money Fund
Schwab U.S. Treasury Money Fund
Schwab Value Advantage Money Fund(TM)
Schwab Tax-Exempt Money Fund--Sweep Shares
Schwab Tax-Exempt Money Fund--Value Advantage Shares(6)
Schwab California Tax-Exempt Money Fund--Sweep Shares(3)
Schwab California Tax-Exempt Money Fund--Value Advantage Shares(3)
Schwab Retirement Money Fund(TM)(5)
Schwab Institutional Advantage Money Fund(TM)(5)
Schwab New York Tax-Exempt Money Fund--Sweep Shares(6)
Schwab New York Tax-Exempt Money Fund--Value Advantage Shares,(6)
(1) The Schwab 1000 Fund and all fixed income funds are separate investment
portfolios of Schwab Investments.
(2) The Schwab International Index Fund, the Schwab Small-Cap Index Fund,
the Schwab Asset Director Funds, and the Schwab S & P 500 Index Fund
are separate investment portfolios of the Trust.
(3) Available only to California residents and residents of selected other
states.
(4) All listed money market funds are separate investment portfolios of The
Charles Schwab Family of Funds.
(5) Designed for institutional investors only.
(6) Available only to New York residents and residents of selected other
states.
OTHER INFORMATION
From time to time, the International Index Fund and the Small-Cap Index
Fund may compare the historical performance of the Schwab International
Index(TM) and the Schwab Small-Cap Index(TM), respectively, to the historical
performance of various other
46
<PAGE> 64
indices, including the S&P 500, as reported by independent sources.
Each Fund is managed to offset capital gains with capital losses in
order to minimize that Fund's capital gains tax liability. This special feature
can make a real difference in an investor's after-tax return, especially if the
investor is in a high tax bracket. In addition, each Fund has adopted a number
of policies that should cause its portfolio turnover rate to be below the
portfolio turnover rate of many other mutual funds. A lower portfolio turnover
rate acts to minimize associated transaction costs as well as the level of
realized capital gains. By avoiding, where possible, the distribution of capital
gains to shareholders, the Funds help to build the value of a shareholders
shares and defer payment of capital gains taxes until shares are redeemed. A
shareholder's current tax liability for capital gains should be reduced and the
shareholder's total return increased by these policies.
Each Fund may, from time to time, refer to recent studies that analyze certain
techniques and strategies which either Fund may use. In addition, each Fund may,
from time to time, promote the advantages of investing in a series that is part
of a large, diverse mutual fund complex. From time to time, either Fund may
include discussions in advertisements of the income tax savings shareholders may
experience as a result of that Fund's policy of limiting portfolio trading in
order to reduce capital gains. This information may be supplemented by
presentations of statistical data illustrating the extent of such income tax
savings and the impact of such savings on the yield and/or total return of
either Fund. In addition, such advertisements may include comparisons of each
Fund's performance against that of investment products that do not employ each
Fund's policy of seeking to limit capital gains.
GENERAL INFORMATION
The Trust is generally not required to hold shareholder meetings.
However, as provided in its Agreement and Declaration of Trust and Bylaws,
shareholder meetings will be held in connection with the following matters: (1)
election or removal of trustees if a meeting is requested in writing by a
shareholder or shareholders who beneficially own(s) 10% or more of the Trust's
shares; (2) adoption of any contract for which shareholder approval is required
by the 1940 Act; (3) any termination of the Trust to the extent and as provided
in the Declaration of Trust; (4) any amendment of the Declaration of Trust
(other than amendments changing the name of the Trust or any of its investment
portfolios, supplying any omission, curing any ambiguity or curing, correcting
or supplementing any defective or inconsistent provision thereof); (5)
determining whether a court action, proceeding or claim should or should not be
brought or maintained derivatively or as a class action on behalf of the Trust
or the shareholders, to the same extent as the stockholders of a Massachusetts
business corporation; and (6) such additional matters as may be required by law,
the Declaration of Trust, the Bylaws or any registration of the Trust with the
SEC or any state or as the Board of Trustees may consider desirable. The
shareholders also would vote upon changes to a Fund's fundamental investment
objective, policies or restrictions.
Each Trustee serves until the next meeting of shareholders, if any,
called for the purpose of electing trustees and until the election and
qualification of his or her successor or until death, resignation,
47
<PAGE> 65
retirement or removal by a majority vote of the shares entitled to vote (as
described below) or of a majority of the Trustees. In accordance with the 1940
Act (i) the Trust will hold a shareholder meeting for the election of trustees
when less than a majority of the trustees have been elected by shareholders, and
(ii) if, as a result of a vacancy in the Board of Trustees, less than two-thirds
of the trustees have been elected by the shareholders, that vacancy will be
filled by a vote of the shareholders.
Upon the written request of 10 or more shareholders who have been such
for at least six months and who hold shares constituting at least 1% of the
Trust's outstanding shares stating that they wish to communicate with the other
shareholders for the purpose of obtaining signatures necessary to demand a
meeting to consider removal of one or more trustees, the Trust has undertaken to
disseminate appropriate materials at the expense of the requesting shareholders.
The Bylaws provide that the presence at a shareholder meeting in person
or by proxy of at least 30% of the shares entitled to vote on a matter shall
constitute a quorum, unless otherwise provided by the 1940 Act or other
applicable law. Thus, even if less than a majority of shareholders were
represented, a meeting of the Trust's shareholders could occur. Attending
shareholders would in such case be permitted to take action not requiring the
vote of more than a majority of a quorum. Some matters requiring a larger vote
under the Declaration of Trust, such as termination or reorganization of the
Trust, and certain amendments of the Declaration of Trust, could not be decided
at such a meeting, nor could matters which under the 1940 Act require the vote
of a "majority of the outstanding voting securities," as defined in the 1940
Act. The Declaration of Trust specifically authorizes the Board of Trustees to
terminate the Trust (or any of its investment portfolios) by notice to the
shareholders without shareholder approval.
Under Massachusetts law, shareholders of a Massachusetts business trust
could, under certain circumstances, be held personally liable for the Trust's
obligations. The Declaration of Trust, however, disclaims shareholder liability
for the Trust's acts or obligations and requires that notice of such disclaimer
be given in each agreement, obligation or instrument entered into or executed by
the Trust or the trustees. In addition, the Declaration of Trust provides for
indemnification out of the property of an investment portfolio in which a
shareholder owns or owned shares for all losses and expenses of such shareholder
or former shareholder if he or she is held personally liable for the obligations
of the Trust solely by reason of being or having been a shareholder. Moreover,
the Trust will be covered by insurance which the trustees consider adequate to
cover foreseeable tort claims. Thus, the risk of a shareholder incurring
financial loss on account of shareholder liability is considered remote, because
it is limited to circumstances in which a disclaimer is inoperative and the
Trust itself is unable to meet its obligations.
For further information, please refer to the registration statement and
exhibits for the Trust on file with the SEC in Washington, D.C. and available
upon payment of a copying fee. The statements in the Prospectus and this
Statement of Additional Information concerning the contents of contracts or
other documents, copies of which are filed as exhibits to the registration
statement, are qualified by reference to such contracts or documents.
48
<PAGE> 66
PRINCIPAL HOLDERS OF SECURITIES
As of September 25, Charles Schwab and Co., Inc., 101 Montgomery St.,
San Francisco, CA 94104 directly owned 100% of the outstanding shares of each of
the Asset Director Funds.
In addition, as of September 1, 1995, the officers and trustees of the
Trust, as a group, owned less than 1% of the outstanding voting securities of
the Small-Cap Index and International Index Funds.
PURCHASE AND REDEMPTION OF SHARES
Each Fund has set minimum initial investment requirements, as disclosed
in their respective Prospectuses. Subsequent investments of $100 or more may be
made. These minimum investment requirements may be changed at any time and are
not applicable to certain types of investors. The Trust may waive the minimums
for purchases by trustees, directors, officers or employees of the Trust,
Schwab, the Investment Manager, or the Sub-Adviser.
The Trust has made an election with the SEC to pay in cash all
redemptions requested by any shareholder of record limited in amount during any
90-day period to the lesser of $250,000 or 1% of its net assets at the beginning
of such period. This election is irrevocable without the SEC's prior approval.
Redemption requests in excess of the stated limits may be paid, in whole or in
part, in investment securities or in cash, as the Trust's Board of Trustees may
deem advisable; however, payment will be made wholly in cash unless the Board of
Trustees believes that economic or market conditions exist that would make such
a practice detrimental to the best interests of the Fund. If redemption proceeds
are paid in investment securities, such securities will be valued as set forth
in the Prospectus of the Fund affected under "Share Price Calculation" and a
redeeming shareholder would normally incur brokerage expenses if he or she
converted the securities to cash.
OTHER INFORMATION
The Prospectuses of the Funds and this Statement of Additional
Information do not contain all the information included in the Registration
Statement filed with the SEC under the Securities Act of 1933, as amended, with
respect to the securities offered by the Prospectuses. Certain portions of the
Registration Statement have been omitted from the Prospectuses and this
Statement of Additional Information pursuant to the rules and regulations of the
SEC. The Registration Statement, including the exhibits filed therewith, may be
examined
49
<PAGE> 67
at the office of the SEC in Washington, D.C.
Statements contained in the Prospectuses or in this Statement of
Additional Information as to the contents of any contract or other document
referred to are not necessarily complete, and, in each instance, reference is
made to the copy of such contract or other document filed as an exhibit to the
Registration Statement of which the Prospectuses and this Statement of
Additional Information form a part, each such statement being qualified in all
respects by such reference.
50
<PAGE> 68
APPENDIX A
The following is a list of Companies whose securities were included in
the Schwab International Index(TM) calculation as of the date of this Statement
of Additional Information:
<TABLE>
<S> <C>
ABBEY NATIONAL United Kingdom
ABN-AMRO HOLDING Netherlands
AEGON Netherlands
AGF France
AIR LIQUIDE France
AJINOMOTO CO Japan
AKZO NOBEL Netherlands
ALCAN ALUMINIUM Canada
ALCATEL CABLE France
ALCATEL ALSTHOM France
ALL NIPPON AIRWAYS CO Japan
ALLEANZA ASSICUR. Italy
ALLIED DOMECQ(ALD-LYONS) United Kingdom
AMERICAN BARRICK RES. Canada
ARGENTARIA Spain
ARGYLL GROUP United Kingdom
ASAHI BREWERIES Japan
ASAHI BANK Japan
ASAHI GLASS CO Japan
ASAHI CHEMICAL IND CO Japan
ASEA Sweden
ASHIKAGA BANK Japan
ASSICURAZIONI GENERALI Italy
ASTRA Sweden
AXA France
BAA United Kingdom
BANCO SANTANDER Spain
BANCO BILBAO VIZCAYA Spain
BANCO ESPANOL DE CREDITO Spain
BANK TOKYO Japan
BANK YOKOHAMA Japan
BANK MONTREAL Canada
BANK FUKUOKA Japan
BANKGESELLSCHAFT BERLIN Germany
BARCLAYS United Kingdom
</TABLE>
51
<PAGE> 69
<TABLE>
<S> <C>
BASF Germany
BASS United Kingdom
BAT INDUSTRIES United Kingdom
BAYER Germany
BAYER VEREINSBANK STAMM Germany
BAYER HYPOTHEKEN BANK Germany
BBC BROWN BOVERI Switzerland
BCE INC Canada
BMW Germany
BNP France
BOC GROUP United Kingdom
BOOTS CO United Kingdom
BRIDGESTONE CORP Japan
BRITISH AIRWAYS United Kingdom
BRITISH GAS United Kingdom
BRITISH PETROLEUM United Kingdom
BRITISH TELECOM United Kingdom
BRITISH STEEL United Kingdom
BROKEN HILL PROP CO Australia
BTR United Kingdom
BTR NYLEX Australia
CABLE & WIRELESS United Kingdom
CADBURY SCHWEPPES United Kingdom
CANADIAN IMPERIAL BANK Canada
CANADIAN PACIFIC LTD Canada
CANON INC Japan
CARREFOUR France
CATHAY PACIFIC AIRWAYS Hong Kong
CHIBA BANK Japan
CHINA LIGHT & POWER Hong Kong
CHUBU ELECTRIC POWER CO Japan
CHUGOKU ELECTRIC POWER Japan
CIBA-GEIGY Switzerland
CITIC PACIFIC Hong Kong
COMMERCIAL UNION United Kingdom
COMMERZBANK AKTIE Germany
COMMONWEALTH BANK Australia
COSMO OIL CO Japan
CRA Australia
CS HOLDING Switzerland
DAI-ICHI KANGYO BANK Japan
</TABLE>
52
<PAGE> 70
<TABLE>
<S> <C>
DAI NIPPON PRINTING CO Japan
DAIEI Japan
DAIMLER-BENZ Germany
DAIWA HOUSE IND CO Japan
DAIWA BANK Japan
DAIWA SECURITIES CO Japan
DANONE (BSN) France
DEUTSCHE BANK Germany
DEVELOPMENT BK SINGAPORE Singapore
DRESDNER BANK Germany
EAST JAPAN RAILWAY CO Japan
EBARA CORP Japan
EISAI CO Japan
ELECTRABEL Belgium
ELF AQUITAINE France
ELSEVIER Netherlands
ENDESA Spain
ERICSSON (LM) Sweden
FANUC Japan
FIAT Italy
FUJI BANK Japan
FUJI PHOTO FILM CO Japan
FUJITSU LTD Japan
FURUKAWA ELECTRIC CO Japan
GENERAL ELECTRIC PLC United Kingdom
GENERALE BELGIQUE Belgium
GENERALE EAUX France
GLAXO HOLDINGS United Kingdom
GRAND METROPOLITAN United Kingdom
GREAT UNIVERSAL ST. ORD United Kingdom
GUINNESS United Kingdom
GUNMA BANK Japan
HACHIJUNI BANK Japan
HANG SENG BANK Hong Kong
HANKYU CORP Japan
HANSON United Kingdom
HEINEKEN NV Netherlands
HENDERSON LAND DEV. Hong Kong
HENKEL VORZUG Germany
HITACHI ZOSEN CORP Japan
HITACHI Japan
</TABLE>
53
<PAGE> 71
<TABLE>
<S> <C>
HOECHST Germany
HOKKAIDO ELECTRIC POWER Japan
HOKURIKU ELECTRIC POWER Japan
HOKURIKU BANK Japan
HONDA MOTOR CO Japan
HONGKONG LAND HOLDINGS Hong Kong
HONGKONG ELECTRIC HLDGS Hong Kong
HONGKONG TELECOM Hong Kong
HSBC HOLDINGS United Kingdom
HUTCHISON WHAMPOA Hong Kong
IBERDROLA Spain
IMPERIAL OIL Canada
IMPERIAL CHEMICAL ICI United Kingdom
INA Italy
INDUSTRIAL BANK OF JAPAN Japan
INT'LE NEDERLANDEN GROEP Netherlands
ISHIKAWAJIMA-HARIMA Japan
ISUZU MOTORS Japan
ITO-YOKADO CO Japan
ITOCHU CORP Japan
JAPAN AIRLINES CO Japan
JAPAN ENERGY(NIKKO KYODO Japan
JARDINE MATHESON HLDGS Hong Kong
JOYO BANK Japan
JUSCO CO Japan
KAJIMA CORP Japan
KANSAI ELECTRIC POWER CO Japan
KAO CORP Japan
KAWASAKI STEEL CORP Japan
KAWASAKI HEAVY IND Japan
KDD Japan
KINGFISHER United Kingdom
KINKI NIPPON RAILWAY CO Japan
KIRIN BREWERY CO Japan
KOBE STEEL Japan
KOMATSU Japan
KON. PTT NEDERLAND Netherlands
KUBOTA CORP Japan
KYOCERA CORP Japan
KYUSHU ELECTRIC POWER CO Japan
KYUSHU MATSUSHITA ELECT Japan
</TABLE>
54
<PAGE> 72
<TABLE>
<S> <C>
LAFARGE COPPEE France
LLOYDS BANK United Kingdom
LONG-TERM CREDIT BANK Japan
LOREAL France
LVMH France
LYONNAISE DES EAUX France
MANNESMANN Germany
MARKS & SPENCER United Kingdom
MARUBENI CORP Japan
MARUI CO Japan
MATSUSHITA COMMUNICATION Japan
MATSUSHITA-KOTOBUKI ELEC Japan
MATSUSHITA ELECT WORKS Japan
MATSUSHITA ELECT IND'L Japan
MAZDA MOTOR CORP Japan
MICHELIN France
MITSUBISHI KASEI CORP Japan
MITSUBISHI MOTORS CORP Japan
MITSUBISHI OIL CO Japan
MITSUBISHI TRUST Japan
MITSUBISHI MATERIALS Japan
MITSUBISHI BANK Japan
MITSUBISHI CORP Japan
MITSUBISHI ESTATE CO Japan
MITSUBISHI HEAVY IND Japan
MITSUBISHI ELECTRIC Japan
MITSUI MARINE & FIRE Japan
MITSUI & CO Japan
MITSUI FUDOSAN CO Japan
MITSUI TRUST & BANK CO Japan
MITSUKOSHI Japan
MONTEDISON Italy
MUNCHENER RUCK Germany
MURATA MANUFACTURING CO Japan
NATIONAL WESTMINSTER BK United Kingdom
NATIONAL POWER United Kingdom
NATIONAL AUSTRALIA BANK Australia
NEC CORP Japan
NESTLE Switzerland
NEW WORLD DEVELOPMENT Hong Kong
NEW OJI PAPER CO Japan
</TABLE>
55
<PAGE> 73
<TABLE>
<S> <C>
NEWS CORP Australia
NIKKO SECURITIES CO Japan
NINTENDO CO Japan
NIPPON OIL CO Japan
NIPPON CREDIT BANK Japan
NIPPON EXPRESS CO Japan
NIPPON YUSEN K.K Japan
NIPPON STEEL CORP Japan
NIPPON PAPER IND CO Japan
NIPPONDENSO CO Japan
NISSAN MOTOR CO Japan
NISSHIN STEEL CO Japan
NKK CORP Japan
NOMURA SECURITIES CO Japan
NORTHERN TELECOM Canada
NOVA CORP Canada
NTT CORP Japan
OBAYASHI CORP Japan
OCBC BANK Singapore
ODAKYU ELECTRIC RAILWAY Japan
OKI ELECTRIC INDUSTRY CO Japan
ONO PHARMACEUTICAL CO Japan
OSAKA GAS CO Japan
PARIBAS(CIE FINANCIERE)A France
PEARSON United Kingdom
PEN & ORIENTAL STEAM United Kingdom
PETROFINA Belgium
PEUGEOT SA France
PHILIPS ELECTRONICS Netherlands
PIONEER ELECTRONIC CORP Japan
PLACER DOME Canada
POLYGRAM Netherlands
POWERGEN United Kingdom
PREUSSAG Germany
PRUDENTIAL CORP United Kingdom
RANK ORGANISATION United Kingdom
REED INTERNATIONAL United Kingdom
REPSOL Spain
REUTERS HOLDINGS United Kingdom
RHONE-POULENC France
RICHEMONT (FIN) A UNIT Switzerland
</TABLE>
56
<PAGE> 74
<TABLE>
<S> <C>
RICOH CO Japan
ROCHE HOLDING Switzerland
ROYAL BANK OF SCOTLAND United Kingdom
ROYAL DUTCH PETROLEUM CO Netherlands
ROYAL BANK OF CANADA Canada
RTZ CORP United Kingdom
RWE Germany
SAINSBURY (J) United Kingdom
SAINT-GOBAIN France
SAKURA BANK Japan
SANDOZ Switzerland
SANKYO CO Japan
SANWA BANK Japan
SANYO ELECTRIC CO Japan
SAP Germany
SCHNEIDER (EX-SPEP) France
SCHWEIZ BANKGESELL Switzerland
SCHWEIZ BANKVEREIN Switzerland
SCOTTISH POWER United Kingdom
SEAGRAM CO Canada
SECOM CO Japan
SEGA ENTREPRISES Japan
SEIBU RAILWAY CO Japan
SEKISUI CHEMICAL CO Japan
SEKISUI HOUSE Japan
SEVEN-ELEVEN JAPAN CO Japan
SHARP CORP Japan
SHELL T & T United Kingdom
SHIKOKU ELECTRIC POWER Japan
SHIMIZU CORP Japan
SHIN-ETSU CHEMICAL CO Japan
SHISEIDO CO Japan
SHIZUOKA BANK Japan
SHOWA SHELL SEKIYU K.K Japan
SIEMENS Germany
SINGAPORE AIRLINES Singapore
SINGAPORE TELECOM Singapore
SMITHKLINE BEECHAM PLC United Kingdom
SOCIETE GENERALE France
SONY CORP Japan
SONY MUSIC ENTERTAINMENT Japan
</TABLE>
57
<PAGE> 75
<TABLE>
<S> <C>
STET Italy
SUEZ (COMPAGNIE DE) France
SUMITOMO BANK Japan
SUMITOMO TRUST & BANK Japan
SUMITOMO METAL MINING CO Japan
SUMITOMO METAL IND Japan
SUMITOMO MARINE & FIRE Japan
SUMITOMO CHEMICAL CO Japan
SUMITOMO ELECTRIC IND Japan
SUMITOMO CORP Japan
SUN HUNG KAI PROPERTIES Hong Kong
SUZUKI MOTOR CORP Japan
SWIRE PACIFIC A Hong Kong
TAISEI CORP Japan
TAISHO PHARMACEUTICAL CO Japan
TAKEDA CHEMICAL IND Japan
TDK CORP Japan
TEIJIN Japan
TELE DANMARK Denmark
TELECOM ITALIA (SIP) Italy
TELEFONICA DE ESPANA Spain
TESCO United Kingdom
THOMSON CORP Canada
THORN-EMI United Kingdom
THYSSEN Germany
TOBU RAILWAY CO Japan
TOHOKU ELECTRIC POWER CO Japan
TOKAI BANK Japan
TOKIO MARINE & FIRE Japan
TOKYO ELECTRIC POWER CO Japan
TOKYO GAS CO Japan
TOKYO ELECTRON Japan
TOKYU CORP Japan
TONEN CORP Japan
TOPPAN PRINTING CO Japan
TORAY INDUSTRIES Japan
TORONTO-DOMINION BANK Canada
TOSHIBA CORP Japan
TOSTEM CORP Japan
TOTAL SA France
TOTO Japan
</TABLE>
58
<PAGE> 76
<TABLE>
<S> <C>
TOYO SEIKAN KAISHA Japan
TOYO TRUST & BANKING CO Japan
TOYODA AUTOMATIC LOOM Japan
TOYOTA MOTOR CORP Japan
TSB GROUP United Kingdom
UAP (COMPAGNIE) France
UNILEVER PLC United Kingdom
UNILEVER NV Netherlands
UNITED OVERSEAS BANK Singapore
VEBA Germany
VENDOME LUXURY GRP UNITS United Kingdom
VEREIN EL WESTFALEN Germany
VIAG Germany
VODAFONE GROUP United Kingdom
VOLKSWAGEN Germany
VOLVO Sweden
WELLCOME United Kingdom
WESTERN MINING CORP HLDG Australia
WESTPAC BANKING Australia
WHARF (HOLDINGS) Hong Kong
WOLTERS KLUWER Netherlands
YAMAICHI SECURITIES CO Japan
YAMANOUCHI PHARM. Japan
YAMAZAKI BAKING CO Japan
YASUDA FIRE & MARINE Japan
YASUDA TRUST & BANK CO Japan
ZENECA GROUP United Kingdom
ZURICH VERS. Switzerland
</TABLE>
59
<PAGE> 77
APPENDIX B
The following is a list of Companies whose securities were included in
the Schwab Small-Cap Index(TM) calculation as of the date of this Statement of
Additional Information:
A L PHARMA INC
AAR CORP
ABBEY HEALTHCARE GROUP
ABM INDS INC
ACCLAIM ENTMT INC
ACME METALS INC
ACORDIA INC
ACUSON CORP
ACX TECHNOLOGIES INC
ACXIOM CORP
ADELPHIA COMMUNICATIONS
ADIA SVCS INC
ADVANCED TECH LABS
ADVANCED TISSUE SCIENCES
ADVANTAGE HEALTH CORP
ADVO INC
AGCO CORP
AIR & WTR TECHNOLOGIES
AIR EXPRESS INTL
AIRBORNE FREIGHT
ALANTEC CORP
ALASKA AIR GROUP INC
ALBANK FINL CORP
ALBANY INTL CORP
ALDILA INC
ALEX BROWN INC
ALEXANDERS INC
ALFA CORP
ALLEN GROUP INC
ALLIANCE SEMICONDUCT
ALLIANT TECHSYSTEMS
ALLIED GROUP INC
ALLWASTE INC
AMAX GOLD INC
AMC ENTMT INC
AMCAST INDUSTRIAL CORP
AMCORE FINANCIAL INC
AMERICA WEST AIRLINES
AMERICAN ANNUITY GROUP
AMERICAN BANKERS INSURANCE
AMERICAN BUSINESS INFORMATION
AMERICAN BUSINESS PRODUCTS
AMERICAN CLASSC VOYAGES
AMERICAN COLLOID CO
AMERICAN FREIGHTWAYS
AMERICAN HERITAGE LIFE INVESTMENT
AMERICAN MAIZE PRODUCTS
AMERICAN MEDIA INC
AMERICAN MEDICAL RESPONSE
AMERICAN MGMT SYSTEMS
AMERICAN MOBILE SATELLITE
AMERICAN SAVINGS BK OF FLORIDA
AMERICAN SUPERCONDUCTOR
AMETEK
AMSCO INTL
ANALOGIC CORP
ANCHOR BANCORP
ANGELICA
ANTEC
ANTHONY INDUSTRIES
APOGEE ENTERPRISES
APPLE SOUTH
APPLEBEE'S INTERNATIONAL
APPLIED POWER
APS HLDG CORP
APTARGROUP
AQUILA GAS PIPELINE
ARBOR DRUGS
ARCTCO
ARGOSY GAMING CORP
ARKANSAS BEST
ARMOR ALL PRODUCTS
ARNOLD INDUSTRIES
60
<PAGE> 78
ARVIN INDUSTRIES
ASHLAND COAL
ASPECT TELECOMMUNICATIONS
ASSOCIATED BANC-CORP
AST RESEARCH
ATARI CORP
ATLANTIC SOUTHEAST AIRLINES
ATMOS ENERGY CORP
AU BON PAIN
AUGAT
AUTHENTIC FITNESS CORP
AUTOMOTIVE INDUSTRIES HOLDING
AUTOTOTE CORP
AVATAR HOLDINGS
AVID TECHNOLOGY
AZTAR CORP
BAKER J INC
BALDOR ELEC CO
BALDWIN & LYONS
BALLARD MEDICAL PRODUCTS
BALLY ENTMT CORP
BANCORPSOUTH INC
BANCTEC INC
BANTA CORP
BANYAN SYSTEMS
BAREFOOT
BARNES GROUP
BARR LABS
BARRETT RESOURCES
BASSETT FURNITURE
BAY ST GAS CO
BEARINGS
BELDEN INC
BELL BANCORP
BENTON OIL & GAS CO
BERKLEY W R CORP
BERRY PETE
BET HLDGS
BIG B
BIO RAD LABS
BIOCRAFT LABS
BIRMINGHAM STEEL
BISYS GROUP
BJ SERVICES
BLACK BOX CORP
BLACK HILLS CORP
BLAIR CORP
BLANCH E W HOLDINGS
BLOCK DRUG CO
BLOUNT INC
BMC INDS INC
BOLT BERANEK & NEWMAN
BOMBAY CO
BOOKS-A-MILLION
BOOLE & BABBAGE
BORG WARNER SECURITY
BORLAND INTL
BOSTON TECHNOLOGY
BOWNE & CO
BOX ENERGY CORP
BOYD GAMING CORP
BRADY WH CO
BROADBAND TECHNOLOGIES
BROADWAY & SEYMOUR
BROADWAY STORES
BROWN GROUP INC
BROWN TOM INC
BRUNOS INC
BRUSH WELLMAN INC
BUFFETS INC
BURLINGTON COAT FACTORY
BUSINESS RECORDS CP HLDGS
BW/IP INC
C COR ELECTRONICS
C D I CORP
C TEC CORP
CABOT OIL & GAS CORP
CAERE CORP
CALDOR CORP
CALGENE INC
CALGON CARBON CORP
CALIFORNIA ENERGY
CALIFORNIA FED BK
CALIFORNIA MICROWAVE
CALIFORNIA WTR SVC CO
CALMAT
61
<PAGE> 79
CAMCO INTERNATIONAL
CANANDAIGUA WINE
CAPITAL RE CORP
CAPITOL AMERN FINL CORP
CAPSURE HLDGS CORP
CARAUSTAR INDS INC
CARLISLE COS INC
CARMIKE CINEMAS INC
CARPENTER TECHNOLOGY
CARTER WALLACE
CASEYS GEN STORES
CASH AMER INTL INC
CATALINA MARKETING
CATELLUS DEV CORP
CATO CORP
CCB FINL CORP
CCP INS INC
CELLULAR COMMUNICATIONS
CENTENNIAL CELLULAR
CENTEX CORP
CENTRAL HUDSON GAS&ELEC
CENTRAL JERSEY BANCORP
CENTRAL LA ELEC INC
CENTRAL MAINE PWR CO
CENTURA BKS
CENTURY COMMUNICATIONS
CERNER
CHAMBERS DEV INC
CHAMPION ENTERPRISES
CHAPARRAL STEEL
CHARTER MEDICAL
CHARTER ONE FINANCIAL
CHECKPOINT SYSTEMS
CHEMED
CHEMICAL FINANCIAL
CHERRY CORP
CHEYENNE SOFTWARE
CHRONIMED
CHURCH & DWIGHT
CIDCO
CILCORP
CIRCA PHARMACEUTICALS
CITIZENS BANCORP
CITIZENS BANKING CORP
CITIZENS CORP
CITY NATIONAL CORP
CLAIRE'S STORES
CLARCOR
CLEVELAND CLIFFS
CMAC INVT CORP
CML GROUP
CNB BANCSHARES
COAST SAVINGS FINANCIAL
COASTAL HEALTHCARE
COBRA GOLF INC
COCA-COLA BOTTLING
COEUR D'ALENE MINES
COGNEX
COHERENT
COLLAGEN
COLLECTIVE BANCORP
COLONIAL BANCGROUP
COLONIAL DATA TECH
COLONIAL GROUP
COMAIR HOLDINGS
COMMERCE CLEARING HOUSE
COMMERCIAL FEDERAL
COMMERCIAL INTERTECH
COMMERCIAL METALS CO
COMMNET CELLULAR
COMMONWEALTH ENERGY
COMMUNITY HEALTH SYSTEMS
COMMUNITY PSYCHIATRIC CENTERS
COMPUSA
COMPUTERVISION
COMVERSE TECHNOLOGY
CONCORD COMPUTING
CONE MILLS
CONNECTICUT NATURAL GAS
CONNER PERIPHERALS
CONTINENTAL AIRLINES
CONTINENTAL MED SYS
CONTINUUM INC
CONVERSE INC
CONVEX COMPUTER CORP
COPLEY PHARMACEUTICAL
62
<PAGE> 80
COR THERAPEUTICS
CORRECTIONS CORP OF AMERICA
CPI
CRAIG JENNY
CRAWFORD & CO
CRAY RESEARCH
CREDENCE SYSTEMS
CROSS A T CO
CROSS TIMBERS OIL CO
CSF HOLDINGS
CSS INDUSTRIES
CULLEN FROST BANKERS
CURTISS WRIGHT CORP
CYRIX CORP
CYRK INC
CYTEC INDUSTRIES
DALLAS SEMICONDUCTOR
DAMES & MOORE INC
DATA GENERAL CORP
DATASCOPE
DAVIDSON & ASSOC INC
DELPHI FINL GROUP
DELTA WOODSIDE INDUSTRIES
DEPOSIT GUARANTY CORP
DESTEC ENERGY
DETROIT DIESEL
DEVON ENERGY CORP
DEVON GROUP INC
DEVRY INC
DEXTER CORP
DIAGNOSTEK INC
DIAGNOSTIC PRODS
DIAL PAGE
DIBRELL BROS INC
DIGI INTERNATIONAL
DIGIDESIGN INC
DIGITAL LINK
DIGITAL MICROWAVE
DIME BANCORP
DIONEX CORP
DISCOUNT AUTO PARTS
DISCOVERY ZONE
DONALDSON
DOWNEY SVGS & LN ASSN
DRAVO CORP
DRESS BARN
DREYERS GRAND ICE CREAM
DSP GROUP
DURACRAFT
DURIRON
DUTY FREE INTERNATIONAL
DYNATECH CORP
EAGLE HARDWARE&GARDEN
EASTERN ENTERPRISES
EASTERN UTILS ASSOCIATES
EATON VANCE
EDISON BROS STORES
EGGHEAD
ELECTROGLAS
ELECTRONICS FOR IMAGING
EMPIRE DIST ELEC
ENERGEN CORP
ENHANCE FINANCIAL SERVICES GRP
ENNIS BUSINESS FORMS
ENTERRA CORP
ENVOY CORP
ENZO BIOCHEM
EPITOPE
EQUICREDIT
ETHAN ALLEN INTERIORS
EXABYTE CORP
EXAR CORP
EXPEDITORS INTL OF WASHINGTON
EXPRESS SCRIPTS
F & M NATL CORP
FAB INDS INC
FAIR ISAAC & CO
FARMER BROS CO
FEDDERS CORP
FIELDCREST CANNON
FILENET CORP
FINANCIAL TRUST CORP
FIRST ALERT
FIRST AMERICAN FINANCIAL CP
FIRST CITIZENS BANCSHARES
FIRST COLONIAL BANCSHARES
63
<PAGE> 81
FIRST COMMERCE CORP
FIRST COMMERCIAL CORP
FIRST COMWLTH FINL
FIRST FINANCIAL BANCORP
FIRST FINANCIALL CORP
FIRST MICHIGAN BANK CORP
FIRST MIDWEST BANCORP
FIRST MISSISSIPPI CORP
FIRST NATIONAL BANCORP
1ST SOURCE CORP
FIRSTBANK OF ILLINOIS
FIRSTFED MICHIGAN CORP
FIRSTIER FINANCIAL
FISHER SCIENTIFIC
FLAGSTAR COS INC
FLORIDA EAST COAST
FLORIDA ROCK INDUSTRIES
FLUKE CORP
FMC GOLD
FOAMEX INTL
FOOTHILL GROUP INC
FOREMOST CORP
FOREST CITY ENTERPRI
FOXMEYER HEALTH CORP
FRAME TECHNOLOGY
FRANKLIN ELECTRIC
FRANKLIN QUEST
FREMONT GENERAL
FRESENIUS USA
FRITZ COS INC
FRONTIER INS GROUP
FROZEN FOOD EXPRESS
FT WAYNE NATIONAL CORP
FULLER H B CO
FULTON FINL CORP
FUND AMERN ENTRPR HLDG
FURON
FUTURE HEALTHCARE
G & K SVCS INC
GALLAGHER (ARTHUR J &) CO
GAYLORD CONTAINER
GC COMPANIES
GENCARE HEALTH SYSTEM
GENCORP
GENERAL BINDING CORP
GENERAL DATACOMM INDUSTRIES
GENESIS HEALTH VENTURES
GENEVA STEEL
GENTEX CORP
GEOTEK COMMUNICATIONS
GERBER SCIENTIFIC
GIBSON GREETINGS
GIDDINGS&LEWIS
GILEAD SCIENCES
GLENDALE FED BK
GLOBAL MARINE
GLOBAL NAT RES
GOULDS PUMPS
GRACO
GRANCARE
GRAND CASINOS
GRANITE CONSTRUCTION
GREENFIELD INDUSTRIES
GRENADA SUNBURST SYSTEM
GROW GROUP
GUARANTY NATIONAL
GUILFORD MILLS
HAEMONETICS
HAGGAR
HANCOCK FABRICS
HANCOCK HOLDING
HANDLEMAN CO
HANDY & HARMAN
HANOVER DIRECT
HARLAND JOHN H
HARLEYSVILLE GROUP
HARMAN INTL INDS
HARPER GROUP
HARTMARX CORP
HAWKEYE BANCORPORATION
HAYES WHEELS INTL
HCC INS HLDGS INC
HEALTH MGMT SYS INC
HEART TECHNOLOGY INC
HEARTLAND EXPRESS
HECHINGER CO
64
<PAGE> 82
HECLA MINING
HELENE CURTIS INDUSTRIES
HELMERICH & PAYNE
HERBALIFE INTERNATIONAL
HERITAGE MEDIA
HILB ROGAL & HAMILTON
HILLHAVEN CORP
HILLS STORES
HOLLY CORP
HOLLYWOOD ENTERTAINMENT
HOME BENEFICIAL CORP
HOME HOLDINGS
HOMEDCO GROUP INC
HORACE MANN EDUCATORS
HORSEHEAD RESOURCE DEVELOPMENT
HOUGHTON MIFFLIN CO
HS RESOURCES INC
HUDSON FOODS
HUFFY
HUNT JB TRANS SVC
HUNT MFG
HUNTCO INC
I-STAT CORP
ICN PHARMACEUTICAL
IDEX CORP
IDEXX LABS CORP
IHOP CORP
IMMUNEX CORP
IMO INDS INC
IMRS INC
IN FOCUS SYSTEMS
INDIANA ENERGY
INDRESCO
INFORMATION RESOURCES
INFOSOFT INTERNATIONAL
INGLES MARKETS
INPUT/OUTPUT INC
INSIGNIA FINANCIAL
INSILCO
INSTRUMENT SYSTEMS
INSURANCE AUTO AUCTIONS
INTEGON
INTELLIGENT ELECTRONICS
INTER REGL FINL GROUP
INTERCO
INTERDIGITAL COMMUNICATIONS
INTERGRAPH
INTERIM SVCS
INTERNATIONAL DAIRY QUEEN
INTERNATIONAL MULTIFOODS
INTERNATIONAL RECTIFIER
INTERPOOL
INTERSOLV INC
INTERSTATE BAKERIES
INTERSTATE PWR CO
INTERVOICE INC
INTL CABLETEL INC
INTL FAMILY ENTMT
INTL IMAGING MATERIALS
INVACARE CORP
IONICS INC
IOWA ILL GAS & ELEC
JACOBS ENGR GROUP
JACOR COMMUNICATIONS
JASON
JEFFERIES GROUP
JEFFERSON BANKSHARES
JONES INTERCABLE INC
JOSLYN CORP
JSB FINANCIAL INC
JUNO LTG INC
JUSTIN INDUSTRIES
KAISER ALUMINUM CORP
KAMAN CORP
KAUFMAN&BROAD HOME
KAYDON CORP
KCS ENERGY INC
KEANE INC
KELLWOOD CO
KEMET CORP
KENNAMETAL INC
KENT ELECTRS CORP
KEYSTONE INTL INC
KIMBALL INTL INC
KINDER-CARE LR
65
<PAGE> 83
KINETIC CONCEPTS INC
KIRBY CORP
KN ENERGY INC
KOMAG INC
LA Z BOY CHAIR CO
LABONE INC
LACLEDE GAS CO
LANCE INC
LANDMARK GRAPHICS CO
LANDS END INC
LANDSTAR SYS INC
LATTICE SEMICONDUCTOR
LAWSON PRODS INC
LAWTER INTL INC
LCI INTL INC
LEADER FINL CORP
LEARNING CO
LECHTERS CORP
LEGG MASON INC
LENNAR CORP
LEVEL ONE COMMUNICATIONS
LEVITZ FURNITURE
LIBBEY INC
LIBERTY BANCORP
LIBERTY CORP
LIFE PARTNERS GRP
LIFE RE CORP
LIFE TECHNOLOGIES
LILLY INDS INC
LIN TELEVISION CORP
LINCOLN TELECOMMICATIONS
LIPOSOME CO
LIQUI-BOX CORP
LITTELFUSE INC
LIVING CTRS AMER INC
LOGICON INC
LONE STAR INDS
LONGS DRUG STORES
LOUIS DREYFUS NATURAL GAS
LUBYS CAFETERIAS
LUKENS INC
LYDALL INC
M A COM INC
M S CARRIERS INC
MACFRUGALS BARGAINS
MACROMEDIA INC
MADISON GAS & ELECTRIC
MAGNA GROUP
MAGNETEK INC
MARCUS CORP
MARINER HEALTH GROUP
MARK TWAIN BANCSHARE
MARKEL CORP
MARSHALL INDUSTRIES
MASLAND CORP
MATERIAL SCIENCES
MAXUS ENERGY CORP
MAXXAM INC
MAYBELLINE INC
MCAFEE ASSOCS INC
MCCLATCHY NEWSPAPERS
MDU RES GROUP INC
MEASUREX CORP
MEDIC COMPUTER SYSTEMS
MEDICINE SHOPPE INTL
MEDUSA CORP
MENS WEARHOUSE
MENTOR CORP
MEREDITH CORP
MERISEL INC
MESA AIRLINES
MESA INC
METHODE ELECTRONICS
METRICOM INC
MICHAEL FOODS INC
MICROS SYSTEMS
MICROTEST
MICROTOUCH SYSTEMS
MID AM INC
MIDWEST GRAIN PRODUCTS
MILLER HERMAN INC
MINE SAFETY APPLIANCES
MINERALS TECHNOLOGIES
MK RAIL CORP
MOHAWK INDUSTRIES
MOLTEN METAL TECHNOLOGY
66
<PAGE> 84
MONEY STORE
MONK AUSTIN INC
MOORCO INTL INC
MORRISON KNUDSEN
MOSINEE PAPER CORP
MUELLER INDS INC
MULTICARE COS INC
MUSICLAND STORES
MUTUAL ASSURN INC
MYERS INDS INC
N S BANCORP INC
NABORS INDS INC
NAC RE CORP
NACCO INDS INC
NASH FINCH CO
NATIONAL AUTO CREDIT
NATIONAL BANCORP
NATIONAL COMMERCE BANCORP
NATIONAL COMPUTER SYSTEMS
NATIONAL DATA CORP
NATIONAL PRESTO INDS
NATIONAL STL CORP
NATL PENN BANCSHARES
NATL RE CORP
NAUTICA ENTERPRISES
NBB BANCORP
NCH CORP
NEIMAN MARCUS
NELLCOR INC
NELSON THOMAS INC
NETWORK EQUIPMENT TECHNOLOGIES
NETWORK GENERAL CORP
NETWORK SYSTEMS CORP
NEW ENG BUSINESS SERVICE
NEW JERSEY RESOURCES
NEWFIELD EXPLORATION
NEWPARK RESOURCES
NL INDUSTRIES
NOBLE DRILLING CORP
NORAM ENERGY CORP
NORAND CORP
NORTH AMERICAN MORTGAGE
NORTH FORK BANCORP
NORTHWEST NAT GAS CO
NORTHWESTERN PUB SVC
NOVACARE CORP
NOVEN PHARMACEUTICAL
NU-KOTE HLDG INC
NUEVO ENERGY CO
NYMAGIC INC
O REILLY AUTOMOTIVE
OAK INDS INC
OAKWOOD HOMES CORP
OCEANEERING INTL INC
OCTEL COMMUNICATIONS
OEA INC
OFFSHORE LOGISTICS
OFFSHORE PIPELINES
OM GROUP INC
OMI CORP
OMNICARE INC
ONBANCORP INC
ONE VALLEY BANCORP OF WV
ONECOMM CORP
ONEOK INC
OPTICAL DATA SYS
ORANGE & ROCKLAND
ORBITAL SCIENCES
OREGON STEEL MILLS
ORGANOGENESIS
ORION CAP CORP
ORNDA HEALTHCORP
OSHKOSH B GOSH
OSMONICS
OTTER TAIL POWER
OUTBOARD MARINE CORP
OWENS & MINOR INC
OXFORD INDS INC
PACIFIC PHYSICIAN SERVICES
PACIFIC SCIENTIFIC
PAIRGAIN TECHNOLOGIES
PAPA JOHNS INTL INC
PARK COMMUNICATIONS
PARK NATL CORP
PARKER DRILLING
67
<PAGE> 85
PATTERSON DENTAL
PAXAR CORP
PENN TRAFFIC
PENNCORP FINL GROUP
PEOPLES BK OF BRIDGEPORT
PEOPLES HERITAGE FINL GRP
PETROLEUM HEAT&PWR
PETROLITE CORP
PHH CORP
PHILADELPHIA SUBURBAN
PHILLIPS VAN HEUSEN
PHOENIX RESOURCE
PHOTRONICS
PHYCOR
PHYSICIANS HEALTH SERVICES
PICTURETEL
PIEDMONT NAT GAS
PIER 1 IMPORTS
PIKEVILLE NATL CORP
PILGRIMS PRIDE CORP
PIONEER GROUP INC
PIONEER STANDARD ELECTRONICS
PIPER JAFFRAY
PITTSTON MINERALS GROUP
PITTWAY CORP
PLAINS PETE CO
PLANAR SYS INC
PLATINUM TECHNOLOGY
PLAYERS INTL INC
PLY GEM INDS INC
POE & BROWN INC
POGO PRODUCING CO
POPE & TALBOT INC
PRATT & LAMBERT UNIT
PRECISION CASTPARTS
PREMIER BANCORP INC
PRESIDENT RIVERBOAT CASINOS
PRESIDENTIAL LIFE
PRESSTEK INC
PRIMARK CORP
PRIME HOSPITALITY CO
PRODUCTION OPERATORS
PROFFITTS INC
PROGRESS SOFTWARE
PROTEIN DESIGN LABS
PROVIDENT BANCORP
PROXIMA CORP
PUBLIC SVC CO OF N C
PUBLIC SVC CO OF N MEX
PULITZER PUBG CO
PULTE CORP
PURITAN BENNETT CORP
PXRE CORP
PYRAMID TECHNOLOGY
QUAKER STATE
QUALITY FOOD CTRS
QUANEX CORP
QUANTUM HEALTH RES
QUEENS CNTY BANCORP
QUICK&REILLY GROUP
RAYMOND JAMES FINL
READING & BATES CORP
RECOTON CORP
REGAL BELOIT CORP
REGAL CINEMAS INC
REGENCY HEALTH SVCS
REINSURANCE GROUP OF AMERICA
RELIANCE GROUP HLDGS
REN CORP-USA
RESPIRONICS
REXALL SUNDOWN
REXENE CORP
RICHFOOD HLDGS INC
RIGGS NATL
RIO HOTEL & CASINO
RIVER FOREST BANCORP
ROBERT HALF INTL
ROBERTS PHARMACEUTIC
ROCHESTER CMNTY SVGS BK
ROGERS CORP
ROHR INC
ROLLINS ENVIRMTL SVC
ROLLINS TRUCK LEASIN
ROOSEVELT FINL GROUP
ROPER INDS
ROSS STORES INC
68
<PAGE> 86
ROTECH MED CORP
ROWAN COS INC
RUDDICK CORP
RUSS BERRIE & CO
RYANS FAMILY STEAK HOUSE
RYKOFF-SEXTON INC
RYLAND GROUP INC
S & T BANCORP INC
S3 INC
SAFECARD SVCS INC
SAFESKIN CORP
SAFETY 1ST INC
SALICK HEALTH CARE
SANDERSON FARMS INC
SANIFILL INC
SANTA CRUZ OPERATION
SAVANNAH FOODS & IND
SBARRO INC
SCHULER HOMES
SCI SYS INC
SCIOS NOVA INC
SCOTTS CO
SEABOARD CORP
SEAFIELD CAP CORP
SEALRIGHT CO
SECURITY CAP BANCORP
SECURITY-CONN CORP
SEI CORP
SELECTIVE INS GROUP
SEQUA CORPORATION
SEQUENT COMPUTER SYSTEMS
SERVICE MERCHANDISE
SHONEYS INC
SHOPKO STORES INC
SHOREWOOD PACKAGING
SHOWBOAT INC
SIERRA HEALTH SERVICES
SIERRA ON-LINE INC
SIERRA PACIFIC RESOURCES
SILICON VALLEY GROUP
SITHE ENERGIES INC
SKYLINE CORP
SMART & FINAL
SMITH A O
SMITH INTL INC
SMITHFIELD FOODS
SNYDER OIL CORP
SODAK GAMING INC
SOFAMOR/DANEK GROUP
SONAT OFFSHORE DRILL
SOTHEBYS HLDGS
SOUTH JERSEY INDUSTRIES
SOUTHDOWN INC
SOUTHERN IND GAS & ELECTRIC
SOUTHERN UNION CO
SOUTHESTN MICH GAS ENTERPRISES
SOUTHWEST GAS CORP
SOUTHWESTERN ENERGY
SOVEREIGN BANCORP
SPACELABS MEDICAL
SPECTRUM HOLOBYTE
SPORTS & RECREATION
SPRINGS INDUSTRIES
SPX CORP
ST JOHN KNITS
ST PAUL BANCORP INC
STANDARD MICROSYSTEMS
STANDARD MOTOR PRODUCTS
STANDARD PACIFIC
STANDARD PRODS CO
STANDARD REGISTER CO
STANDEX INTL CORP
STANHOME INC
STANT CORP
STARTER CORP
STATION CASINOS
STEIN MART INC
STERIS CORP
STEWART ENTERPRISES
STONE & WEBSTER INC
STRAWBRIDGE & CLOTHIER
STRIDE RITE CORP
STUDENT LOAN
STURM RUGER & CO
SUMMIT BANCORP
69
<PAGE> 87
SUMMIT TECHNOLOGY
SUNGLASS HUT INTL
SUNRISE MED INC
SUNSHINE MINING
SUSQUEHANNA BKSHS
SWIFT TRANSN CO
SYMANTEC CORP
SYMMETRICOM INC
SYNETIC INC
SYQUEST TECHNOLOGY
SYRATECH CORP
SYSTEM SOFTWARE ASSOCIATES
SYSTEMS & COMPUTER
TECHNOLOGY TARGET
THERAPEUTICS
TBC CORP
TCA CABLE TV
TCF FINL CORP
TECH DATA CORP
TECNOL MED PRODS
TEJAS GAS CORP
TELEFLEX INC
TELXON CORP
TENCOR INSTRS
TENNANT CO
TESORO PETE CORP
TEXAS INDS
THERMEDICS
THERMO CARDIOSYSTEMS
THERMO FIBERTEK
THERMOTREX CORP
THIOKOL CORP
3DO CO
THREE FIVE SYSTEMS
TIFFANY & CO
TIMBERLAND CO
TITAN WHEEL INTL INC
TJ INTL INC
TNT FREIGHTWAYS CORP
TOLL BROTHERS INC
TOOTSIE ROLL INDS
TOP SOURCE TECH INC
TOPPS INC
TORO CO
TRACTOR SUPPLY CO
TRENWICK GROUP INC
TRIARC COS INC
TRIDENT NGL HOLDING
TRIMBLE NAVIGATION LTD
TRUE NORTH COMMUNICATIONS
TRUST CO OF NJ
TRUSTCO BANK CORP
TRUSTMARK CORP
TUCSON ELEC PWR CO
20TH CENTURY INDUSTRIES
TYCO TOYS
U S CAN CORP
U S ROBOTICS
U S TRUST CORP
UGI CORP
ULTRATECH STEPPER INC
UMB FINL CORP
UNIFIRST CORP
UNION PLANTERS CORP
UNITED BANKSHARES
UNITED CAROLINA BANCSHARES
UNITED COS FINL CORP
UNITED FIRE & CASUALTY CO
UNITED ILLUMINATING
UNITED INS COS INC
UNITED INTL HLDGS IN
UNITED MERIDIAN CORP
UNITED STATES FILTER
UNITED STATIONERS
UNITED TELEVISION
UNITED WASTE SYSTEMS
UNITED WISCONSIN SERVICES
UNITED WTR RES INC
UNITRODE CORP
UNIVAR CORP
UNIVERSAL HLTH SVCS
UNR INDS INC
USA WASTE SVCS INC
USAIR GROUP INC
USLICO CORP
UST CORP
70
<PAGE> 88
VALASSIS COMMUNICATIONS
VALMONT INDUSTRIES
VALUE CITY DEPT STORES
VALUE LINE INC
VARCO INTERNATIONAL
VENTRITEX
VENTURE STORES
VERIFONE
VERTEX PHARMACEUTICALS
VESTA INS GROUP
VICOR CORP
VICTORIA BANKSHARES
VIEWLOGIC SYSTEMS
VIGORO CORP
VINTAGE PETE
VITALINK PHARMACY SERVICES
VIVRA INC
VLSI TECHNOLOGY
WABAN INC
WALL DATA INC
WALLACE COMPUTER SERVICES
WASHINGTON ENERGY
WASHINGTON NATL CORP
WATKINS JOHNSON
WATSON PHARMACEUTICALS
WATTS INDUSTRIES
WD-40
WEATHERFORD INTL INC
WEBB (DEL) CORP
WEIRTON STEEL
WELBILT CORP
WERNER ENTERPRISES
WESBANCO INC
WEST
WESTAMERICA BANCORP
WESTCORP
WESTCOTT COMMUNICATIONS
WESTERN CO OF NORTH AMERICA
WESTERN GAS RESOURCES
WESTERN PUBLISHING
WESTERN WASTE INDS
WESTPOINT STEVENS
WESTWOOD ONE
WHITE RIVER CORP
WHITNEY HLDG CORP
WHX CORP
WICOR INC
WILEY JOHN & SONS
WINNEBAGO INDUSTRIES
WLR FOODS INC
WMS INDS INC
WOLVERINE TUBE INC
WOLVERINE WORLD WIDE
WONDERWARE CORP
WORTHEN BKG CORP
WPS RESOURCES CORP
WYLE LABS
WYMAN GORDON CO
X-RITE INC
XCL LTD
XIRCOM INC
YANKEE ENERGY SYSTEM
ZALE CORP
ZEBRA TECHNOLOGIES
ZENITH ELECTRS CORP
ZENITH LABS
ZENITH NATL INS CORP
ZERO CORP
ZILOG INC
ZIONS BANCORPORATION
ZURN INDUSTRIES
71
<PAGE> 89
THIS STATEMENT OF ADDITIONAL INFORMATION DOES NOT CONSTITUTE AN OFFERING BY THE
TRUST, ANY SERIES THEREOF, OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT BE LAWFULLY MADE.
72
<PAGE> 90
FINANCIAL STATEMENTS
73
<PAGE> 91
SchwabFunds(R) 1
- --------------------------------------------------------------------------------
SCHWAB INTERNATIONAL INDEX FUND(TM)
STATEMENT OF NET ASSETS
October 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- ------
<S> <C> <C>
COMMON STOCK--97.2%
AUSTRALIA--2.6%
Australia & New Zealand
Banking Group 49,700 $ 144
BTR Nylex 116,332 207
Broken Hill Proprietary Co. 70,134 1,075
CRA 24,700 351
Coles Myer 50,456 157
Commonwealth Bank 37,577 208
National Australia Bank 58,769 464
News Corp. 78,390 483
Western Mining Corp. 47,000 293
Westpac Banking Corp. 79,986 268
-------
3,650
-------
BELGIUM--0.6%
Electrabel 1,800 320
Electrabel, AFV1 300 54
Petrofina SA 1,000 307
Societe Generale de Belgique 2,640 184
-------
865
-------
CANADA--3.1%
Alcan Aluminum 8,845 237
American Barrick
Resources Corp. 14,800 353
BCE Inc. 13,564 474
Bank of Montreal 9,793 182
Bank of Nova Scotia 8,185 166
Canadian Imperial Bank
of Commerce 8,161 193
Canadian Pacific Ltd. 14,600 233
Imperial Oil 8,563 307
Newbridge Networks Corp. 3,300 92
Northern
Telecom 10,700 386
Nova Corp. 19,200 192
PanCanadian Petroleum 5,000 158
Placer Dome Inc. 9,200 199
Royal Bank of Canada 13,200 277
Seagram Co. 16,300 502
Thomson Corp. 23,700 285
Toronto-Dominion Bank 11,600 176
-------
4,412
-------
DENMARK--0.4%
D/S 1912 Series B 10 173
D/S Svendborg Series B 5 125
Tele Danmark AS Series B 5,290 305
-------
603
-------
FRANCE--7.4%
AXA Groupe SA 13,100 608
Alcatel Cable 1,723 201
Assurances Generales
de France 15,800 646
Banque Nationale de Paris 10,018 496
Canal Plus 819 135
Carrefour 1,100 485
Cie Financiere de
Paribas (Bearer) 4,681 312
Cie Generale des Eaux 4,803 440
Compagnie de
Saint-Gobain SA 3,273 415
Compagnie de Suez 6,400 306
Credit Lyonnais 1,800 163
Danone Groupe 3,000 423
GAN Group 1,900 105
L'Air Liquide 2,784 393
L'Air Liquide (Rights -
exp. 11/04/94)* 2,384 33
L'Oreal SA 2,650 576
LVMH Moet-Hennessy
Louis Vuitton 7,100 1,145
Lafarge Coppee SA 3,500 278
Lyonnaise des
Eaux-Dumez 2,430 221
Michelin Class B (Reg.) 4,450 186
Peugeot Citroen 2,200 330
Rhone-Poulenc SA
A Shares 13,500 333
Schneider SA 2,650 199
Societe Generale 3,473 392
Societe Nationale
Elf Aquitaine 11,256 832
TOTAL Compagnie
Francaise des Petroles
Class B 9,300 603
Union des Assurances
de Paris 12,650 334
-------
10,590
-------
GERMANY--7.5%
BASF AG 2,500 529
Bankgesellschaft Berlin 1,029 246
Bayer AG 2,866 671
Bayerische Hypotheken &
Wechsel Bank 913 240
Bayerische Hypotheken &
Wechsel Bank (New)* 91 23
Bayerische Motoren Werke AG 820 423
Bayerische Vereinsbank AG 924 274
Commerzbank AG 1,345 283
Daimler-Benz AG 2,721 1,399
Deutsche Bank AG 2,016 994
Dresdner Bank AG 1,897 508
Hoechst AG 2,550 559
Mannesmann AG 1,561 417
Muenchener
Rueckversicherung 11 18
Muenchener
Rueckversicherung (Reg.) 311 573
Preussag AG 615 180
RWE AG 1,370 420
SAP AG 242 156
Siemens AG 2,356 985
Thyssen AG 1,189 227
VEBA AG 2,018 676
VIAG AG 873 275
Vereinigte Elektrizitat
Westfalen Series B 807 203
Volkswagen AG 1,129 332
-------
10,611
-------
HONG KONG--4.3%
CITIC Pacific 85,000 256
Cathay Pacific
Airways 118,000 175
China Light & Power 77,400 403
Hang Seng Bank 81,100 588
Henderson Land
Development Co. 68,000 444
Hong Kong
Telecom 469,200 1,005
Hongkong Electric Holdings 84,000 264
</TABLE>
See accompanying Notes to Financial Statements.
74
<PAGE> 92
SchwabFunds(R) 2
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- ------
<S> <C> <C>
Hongkong Land Holdings 111,000 $284
Hutchison Whampoa 154,000 711
Jardine Matheson
Holdings (Reg.) 29,811 248
New World
Development Co. 69,709 222
Sun Hung Kai Properties 86,500 660
Swire Pacific Class A 68,000 519
Wharf Holdings 89,000 351
-------
6,130
-------
ITALY--2.4%
Alleanza Assicurazioni 22,500 235
Alleanza Assicurazioni
(Non-Convertible) 3,750 35
Assicurazioni Generali 35,200 882
Banco di Roma SpA 141,900 151
Fiat Finance SpA 65,000 266
Fiat Finance SpA
(Non-Convertible) 14,000 32
First Bank San Paolo
di Torino 27,700 165
IMI 24,800 162
INA* 161,000 233
RAS Assicurazioni 6,310 79
RAS Assicurazioni
(Non-Convertible) 2,790 19
STET 137,000 414
STET (Non-Convertible) 66,000 163
Telecom Italia 200,000 549
Telecom Italia
(Non-Convertible) 42,000 93
-------
3,478
-------
JAPAN--32.7%
Ajinomoto Co., Inc. 11,000 151
All Nippon Airways Co. 28,000 332
Asahi Bank 45,000 497
Asahi Breweries 8,000 88
Asahi Chemical
Industry Co. 28,000 227
Asahi Glass Co. 21,000 271
Ashikaga Bank 8,000 59
Bank of Fukuoka 11,000 103
Bank of Tokyo 39,000 600
Bank of Yokohama 20,000 184
Bridgestone Corp. 15,000 248
Canon Inc. 16,000 297
Chiba Bank 13,000 123
Chubu Electric Power Co. 14,300 366
Chugoku Electric
Power Co., Inc. 5,900 147
Cosmo Oil Co. 11,000 88
Dai Nippon Printing Co. 15,000 279
Dai-Ichi Kangyo Bank 54,000 987
Daiei Inc. 14,000 210
Daiichi Pharmaceutical Co. 5,000 76
Daiwa Bank 29,000 305
Daiwa House Industry Co. 9,000 125
Daiwa Securities Co. 26,000 378
East Japan Railway Co. 100 499
Ebara Corp. 5,000 91
Eisai Co. 5,000 86
FamilyMart Co. 1,000 65
Fanuc 5,000 243
Fuji Bank 50,000 1,110
Fuji Photo Film Co. 9,000 215
Fujitsu Ltd. 35,000 401
Furukawa Electric Co. 13,000 90
Gunma Bank 10,000 114
Hachijuni Bank 10,000 126
Hankyu Corp. 17,000 103
Hanwa Co. 5,000 20
Hiroshima Bank 13,000 83
Hitachi Ltd. 57,000 594
Hitachi Zosen 19,000 111
Hokkaido Electric Power Co. 4,000 100
Hokkaido Takushoku Bank 12,000 58
Hokuriku Bank 13,000 98
Hokuriku Electric Power Co. 4,000 99
Honda Motor Co. 18,000 314
Industrial Bank of Japan 46,000 1,425
Ishikawajima-Harima
Heavy Industries 25,000 120
Isuzu Motors 20,000 107
Ito-Yokado Co. 8,000 437
Itochu Corp. 28,000 218
Japan Airlines Co. 35,000 271
Japan Energy Co. 21,000 93
Joyo Bank 14,000 123
Jusco Co. 6,000 135
Kajima Corp. 16,000 152
Kandenko Co. 5,000 91
Kansai Electric Power Co. 18,800 474
Kao Corp. 12,000 142
Kawasaki Heavy Industries 25,000 123
Kawasaki Steel Co. 52,000 244
Keio Teito Railway Co. 8,000 46
Kinden Co. 3,000 49
Kinki Nippon Railway Co. 31,000 268
Kirin Brewery Co. 19,000 228
Kobe Steel 48,000 166
Kokusai Denki 1,100 113
Komatsu Ltd. 18,000 171
Kubota Co. 23,000 177
Kyocera Corp. 4,000 305
Kyowa Hakko Kogyo 6,000 61
Kyushu Electric Power Co. 8,500 214
Kyushu Matsushita
Electric Co. 3,000 76
Long-Term Credit Bank
of Japan 42,000 503
Marubeni Corp. 27,000 156
Marui Co. 7,000 128
Matsushita Communication
Industrial 4,000 111
Matsushita Electric
Industrial Co. 41,000 681
Matsushita Electric Works 12,000 133
Matsushita-Kotokuki
Electronics 3,000 85
Mazda Motor Corp. 21,000 125
Mitsubishi Bank 51,000 1,279
Mitsubishi Chemical Corp. 28,000 165
Mitsubishi Corp. 30,000 409
Mitsubishi Electric Corp. 39,000 292
Mitsubishi Estate Co. 25,000 294
Mitsubishi Heavy Industries 59,000 481
Mitsubishi Materials Co. 21,000 119
Mitsubishi Motors Co. 17,000 159
Mitsubishi Oil Co. 8,000 87
</TABLE>
See accompanying Notes to Financial Statements.
75
<PAGE> 93
SchwabFunds(R) 3
- --------------------------------------------------------------------------------
SCHWAB INTERNATIONAL INDEX FUND(TM)
STATEMENT OF NET ASSETS
October 31, 1994
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- ------
<S> <C> <C>
Mitsubishi Trust &
Banking Corp. 25,000 $ 387
Mitsui & Co. 30,000 269
Mitsui Fudosan Co. 16,000 180
Mitsui Marine & Fire
Insurance Co. 14,000 106
Mitsui O.S.K. Lines 14,000 61
Mitsui Trust & Banking Co. 22,000 254
Mitsukoshi 6,000 62
Murata Manufacturing Co. 4,400 180
NEC Corp. 28,000 358
NGK Insulators 5,000 53
NKK Corp. 57,000 176
Nagoya Railroad Co. 10,000 52
New Oji Paper Co. 12,000 134
Nichii Co. 4,000 56
Nikko Securities Co. 29,000 341
Nintendo Co. 3,000 168
Nippon Credit Bank 34,000 226
Nippon Express Co. 21,000 228
Nippon Fire & Marine
Insurance Co. 7,000 52
Nippon Oil Co. 21,000 152
Nippon Paper
Industries Co. 39,000 308
Nippon Steel Corp. 121,000 500
Nippon Telegraph &
Telephone Corp. 303 2,831
Nippon Yusen 21,000 143
Nippondenso Co. 15,000 321
Nissan Motor Co. 49,000 418
Nisshin Steel Co. 20,000 105
Nomura Securities Co. 38,000 796
Obayashi Corp. 10,000 71
Odakyu Electric
Railway Co. 14,000 103
Oki Electric Industry Co. 12,000 96
Ono Pharmaceutical Co. 2,000 94
Osaka Gas Co. 45,000 193
Pioneer Electronic Co. 4,000 104
Ricoh Co. 13,000 130
Sakura Bank 58,000 796
Sankyo Co. 7,000 182
Sanwa Bank 50,000 1,048
Sanyo Electric Co. 33,000 199
Secom Co. 2,000 134
Sega Enterprises 2,000 104
Seibu Railway Co. 11,000 477
Sekisui Chemical Co. 11,000 113
Sekisui House 11,000 125
Seven-Eleven Japan Co. 7,000 574
Sharp Co. 22,000 411
Shikoku Electric Power Co. 4,800 118
Shimizu Corp. 14,000 145
Shin-Etsu Chemical Co. 6,000 128
Shiseido Co. 8,000 97
Shizuoka Bank 16,000 218
Showa Shell Sekiyu 7,000 93
Sony Corp. 7,000 427
Sony Music Entertainment
(Japan) 2,100 119
Sumitomo Bank 56,000 1,052
Sumitomo Chemical Co. 29,000 171
Sumitomo Corp. 21,000 217
Sumitomo Electric Industries 12,000 180
Sumitomo Marine & Fire
Insurance Co. 13,000 118
Sumitomo Metal Industries 51,000 193
Sumitomo Metal Mining Co. 11,000 109
Sumitomo Trust &
Banking Co. 22,000 320
Suzuki Motor Co. 10,000 127
TDK 3,000 147
Taisei Corp. 19,000 127
Taisho Pharmaceutical Co. 6,000 110
Takeda Chemical Industries 17,000 211
Teijin Ltd. 19,000 113
Tobu Railway Co. 16,000 102
Tohoku Electric Power Co. 8,900 228
Tokai Bank 39,000 483
Tokio Marine & Fire
Insurance Co. 30,000 356
Tokyo Electric Power Co. 26,000 762
Tokyo Electron 3,000 100
Tokyo Gas Co. 50,000 236
Tokyo Steel Manufacturing 2,000 50
Tokyu Corp. 18,000 126
Tonen 13,000 207
Toppan Printing Co. 12,000 177
Toray Industries 24,000 190
Toshiba Corp. 56,000 442
Tostem Corp. 4,000 114
Toto 6,000 94
Toyo Seikan 4,000 134
Toyo Trust & Banking Co. 13,000 152
Toyoda Automatic Loom 4,000 84
Toyota Motor Corp. 66,000 1,458
Yamaichi Securities Co. 20,000 159
Yamanouchi
Pharmaceutical Co. 6,000 118
Yamazaki Baking Co. 5,000 104
Yasuda Fire & Marine
Insurance Co. 15,000 110
Yasuda Trust & Banking Co. 18,000 160
-------
46,554
-------
NETHERLANDS--5.1%
ABN-Amro Holding NV 12,240 435
AEGON NV 4,400 272
Akzo Nobel NV 3,000 379
Elsevier NV 29,000 296
Heineken NV 1,600 234
Internationale
Nederlanden Groep 11,582 542
Koninklijke PTT Nederland 19,700 628
Philips Electronics NV 13,300 441
PolyGram NV 7,900 352
Royal Dutch Petroleum Co.
(Bearer) 23,200 2,702
Unilever NV 6,700 798
Wolters Kluwer CVA 2,700 195
-------
7,274
-------
SINGAPORE--1.8%
OCBC Bank 35,833 386
Singapore Airlines 52,000 499
Singapore Telecom 640,000 1,395
United Overseas Bank 30,000 329
-------
2,609
-------
</TABLE>
See accompanying Notes to Financial Statements.
76
<PAGE> 94
SchwabFunds(R) 4
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- ------
<S> <C> <C>
SPAIN--1.7%
Argentaria 5,700 $220
Banco Central SA (Reg.) 5,500 132
Banco de Bilbao Vizcaya
SA (Reg.) 7,400 194
Banco de Santander 1,200 48
Banco de Santander
SA (Reg.) 5,600 228
Empresa Nacional
de Electricidad 10,000 458
Iberdrola SA 39,600 261
Repsol, SA 12,800 409
Telefonica de Espana, SA 35,800 484
-------
2,434
-------
SWEDEN--1.6%
ASEA AB Series A
Free shares 2,100 153
ASEA AB Series B
Free shares 800 58
Astra AB Series A
Free shares 19,400 524
Astra AB Series B
Free shares 3,400 91
BCP Branded Consumer
Products Series A
Free shares 5,300 57
BCP Branded Consumer
Products Series B
Free shares 2,800 31
L.M. Ericsson Series B
Free shares 9,300 565
Pharmacia AB Series A
Free shares 5,300 100
Pharmacia AB Series B
Free shares 2,800 52
Sandvik AB Series A
Free shares 8,600 146
Volvo AB Series A
Free shares 5,000 98
Volvo AB Series B
Free shares 20,700 408
-------
2,283
-------
SWITZERLAND--5.8%
BBC Brown
Boveri 331 284
BBC Brown Boveri (Reg.) 189 31
CS Holding (Bearer) 1,014 444
CS Holding (Reg.) 1,745 148
Ciba-Geigy AG (Bearer) 170 100
Ciba-Geigy AG (Reg.) 1,080 630
Cie Financiere Richemont
Series A (Bearer) 232 228
Nestle SA (Reg.) 1,669 1,562
Roche Holding AG 295 1,313
Roche Holding AG (Bearer) 70 631
SMH AG (Bearer) 156 87
SMH AG (Reg.) 682 90
Sandoz AG (Bearer) 91 48
Sandoz AG (Reg.) 1,673 835
Schweiz Bankgesellschaft
(Bearer) 886 831
Schweiz Bankgesellschaft
(Reg.) 950 202
Schweiz Bankverein (Bearer) 940 271
Schweiz Bankverein (Reg.) 1,030 142
Zurich Versicherung (Bearer) 150 137
Zurich Versicherung (Reg.) 206 189
-------
8,203
-------
UNITED KINGDOM--20.2%
Abbey National 56,600 385
Allied-Lyons PLC 43,900 429
Argyll Group PLC 44,593 190
BAA PLC 42,200 355
BAT Industries PLC 127,800 916
BOC Group 18,525 204
BTR PLC 148,712 746
Barclays PLC 70,097 667
Bass PLC 37,200 338
Boots Co. PLC 42,448 368
British Airways PLC 40,000 230
British Gas PLC 181,600 870
British Petroleum PLC 236,575 1,683
British Steel 80,800 212
Cable & Wireless PLC 146,900 1,009
Cadbury Schweppes PLC 33,655 239
Commercial Union 23,500 211
General Accident 17,300 166
General Electric Co. PLC 115,800 523
Glaxo Holdings PLC 133,126 1,303
Grand Metropolitan PLC 92,103 625
Great Universal Stores 43,000 394
Guinness PLC 84,200 643
HSBC Holdings PLC 36,191 430
HSBC Holdings PLC
(Hong Kong) 66,146 788
Hanson PLC 206,153 779
Imperial Chemical
Industries PLC 29,100 380
Inchcape 21,300 152
J. Sainsbury PLC 74,732 488
Kingfisher 28,500 221
Lloyds Abbey Life 26,700 153
Lloyds Bank 56,554 530
Marks & Spencer PLC 117,900 801
National Power 52,800 428
National Westminster
Bank PLC 73,299 603
New Rothmans (units) 62,400 428
Pearson PLC 21,837 226
Peninsular & Oriental
Steam Navigation 25,546 266
Powergen PLC 33,400 310
Prudential Corp. 82,019 428
RTZ Corp. PLC (Reg.) 44,900 631
Rank Organisation PLC 35,800 237
Redland 21,300 162
Reed International PLC 23,400 288
Reuters Holdings PLC 86,500 679
Royal Bank of
Scotland Group 30,100 216
Scot & Newcastle 20,100 170
Scottish Power 31,400 185
Shell Transport &
Trading Co. (Reg.) 143,700 1,723
SmithKline Beecham PLC
Series A 56,063 373
SmithKline Beecham units 54,100 329
Standard Chartered PLC 9,900 48
</TABLE>
See accompanying Notes to Financial Statements.
77
<PAGE> 95
SchwabFunds(R) 5
- --------------------------------------------------------------------------------
SCHWAB INTERNATIONAL INDEX FUND(TM)
STATEMENT OF NET ASSETS
October 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- ------
<S> <C> <C>
Sun Alliance Group 31,988 $172
TSB Group PLC 68,100 253
Tesco 83,900 322
Thorn-EMI PLC 17,500 278
Tomkins 46,100 159
Unilever PLC 34,600 644
Vendome (units) 29,850 253
Vodafone Group PLC 124,968 433
Waste Management
International* 16,000 133
Wellcome PLC 34,900 367
Zeneca Group 38,900 547
--------
28,719
--------
TOTAL COMMON STOCK
(Cost $128,564) 138,415
--------
PREFERRED STOCK--0.4%
GERMANY--0.4%
Henkel KGaA 542 213
RWE AG (Non Voting) 700 172
SAP AG (Non Voting) 161 93
Volkswagen AG (Non Voting) 201 47
--------
525
--------
ITALY--0.0%
Fiat Finance SpA 18,300 44
--------
TOTAL PREFERRED STOCK
(Cost $511) 569
--------
WARRANTS--0.0%
SWITZERLAND--0.0%
CS Holding expire 12/16/94* 2,759 11
--------
UNITED KINGDOM--0.0%
BTR Nylex expire 11/26/98* 4,019 3
--------
TOTAL WARRANTS
(Cost $16) 14
--------
Maturity Value
(000)s (000s)
-------- ------
<S> <C> <C>
REPURCHASE AGREEMENT--1.1%
UNITED STATES--1.1%
State Street Bank & Trust 4.25%
Dated 10/31/94
Due 11/01/94
Collateralized By:
U.S. Treasury Bill
$1,550,000 Par;
Due 4/30/95 $1,478 $ 1,478
--------
TOTAL REPURCHASE AGREEMENT
(Cost $1,478) 1,478
--------
TOTAL INVESTMENTS -- 98.7%
(Cost $130,569) 140,476
--------
OTHER ASSETS AND LIABILITIES -- 1.3%
Other Assets 4,564
Liabilities (2,685)
--------
1,879
--------
NET ASSETS -- 100.0%
Applicable to 13,066,324
outstanding $0.00001
par value shares
(unlimited shares authorized) $142,355
========
NET ASSET VALUE PER SHARE $10.89
======
</TABLE>
- ------------------
*Non-Income Producing Security
See accompanying Notes to Financial Statements.
78
<PAGE> 96
SchwabFunds(R) 6
- --------------------------------------------------------------------------------
SCHWAB INTERNATIONAL INDEX FUND(TM)
STATEMENT OF OPERATIONS (in thousands)
For the year ended October 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Investment income:
Dividends (net of foreign tax withheld of $350) $2,394
Interest 125
------
Total investment income 2,519
------
Expenses:
Investment advisory and administration fee 862
Transfer agency and shareholder service fees 308
Custodian fees 196
Registration fees 43
Professional fees 45
Shareholder reports 72
Trustees' fees 50
Amortization of deferred organization costs 24
Insurance and other expenses 6
------
1,606
Less expenses reduced (499)
------
Total expenses incurred by Fund 1,107
------
Net investment income 1,412
------
Net realized gain (loss) on investments and foreign currency transactions:
Proceeds from sales of investments 7,690
Cost of investments sold (8,384)
------
Net realized loss on investments from changes in market value (694)
Net realized gain on investments from changes in foreign
exchange rates 99
------
Net realized loss on investments sold (595)
Net realized gain on foreign currency transactions 15
------
Net realized loss on investments sold and foreign
currency transactions (580)
------
Change in net unrealized gain (loss) on investments and foreign
currency translation:
Changes in market value:
Beginning of period unrealized gain 4,200
End of period unrealized gain 413
------
Decrease in net unrealized gain in market value (3,787)
------
Changes in foreign exchange rates:
Beginning of period unrealized loss (3,131)
End of period unrealized gain 9,494
------
Increase in net unrealized gain in foreign exchange rates 12,625
------
Net increase in unrealized gain on investments from
changes in market value and foreign exchange rates 8,838
Net increase in unrealized gain on translating assets and
liabilities into the reporting currency 51
------
Net increase in unrealized gain on investments and
foreign currency translation 8,889
------
Net gain on investments 8,309
------
Net increase in net assets resulting from operations $9,721
======
</TABLE>
See accompanying Notes to Financial Statements.
79
<PAGE> 97
SchwabFunds(R) 7
- --------------------------------------------------------------------------------
SCHWAB INTERNATIONAL INDEX FUND(TM)
STATEMENT OF CHANGES IN NET ASSETS (in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the period
September 9, 1993
For the (commencement
year ended of operations) to
October 31, October 31,
1994 1993
------------ -----------------
<S> <C> <C>
Operations:
Net investment income $ 1,412 $ 301
Net realized gain (loss) on investments sold
and foreign currency transactions (580) 188
Net increase in unrealized gain on investments
and foreign currency translation 8,889 1,053
-------- --------
Net increase in net assets resulting from
operations 9,721 1,542
-------- --------
Distributions to Shareholders From:
Net investment income (433) --
Capital gains (188) --
-------- --------
Total distributions to shareholders (621) --
-------- --------
Capital Share Transactions:
Proceeds from shares sold 61,237 106,336
Net asset value of shares issued in
reinvestment of distributions 560 --
Early withdrawal fees 129 --
Less payments for shares redeemed (34,756) (1,793)
-------- --------
Increase in net assets from capital share
transactions 27,170 104,543
-------- --------
Total increase in net assets 36,270 106,085
Net Assets:
Beginning of period 106,085 --
-------- --------
End of period (including undistributed net invest-
ment income of $1,280 and $301, respectively) $142,355 $106,085
======== ========
Number of Fund Shares:
Sold 5,947 10,637
Reinvested 56 --
Redeemed (3,392) (182)
-------- --------
Net increase in shares outstanding 2,611 10,455
Shares Outstanding:
Beginning of period 10,455 --
-------- --------
End of period 13,066 10,455
======== ========
</TABLE>
See accompanying Notes to Financial Statements.
80
<PAGE> 98
SCHWABFUNDS(R) 8
- --------------------------------------------------------------------------------
SCHWAB INTERNATIONAL INDEX FUND(TM)
NOTES TO FINANCIAL STATEMENTS
For the year ended October 31, 1994
- --------------------------------------------------------------------------------
1. DESCRIPTION OF THE FUND
The Schwab International Index Fund (the "Fund") is a series of Schwab Capital
Trust (the "Trust"), an open-end, management investment company organized as a
Massachusetts business trust on May 7, 1993 and registered under the Investment
Company Act of 1940, as amended.
In addition to the Fund, the Trust also offers the Schwab Small-Cap Index
Fund(TM). The assets of each series are segregated and accounted for separately.
The investment objective of the Fund is to attempt to track the price and
dividend performance (total return) of the Schwab International Index(TM), 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 and
South Africa).
2. SIGNIFICANT ACCOUNTING POLICIES
Security valuation -- Investments in securities traded on an exchange 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.
Unlisted securities for which market quotations are readily available are valued
at the mean between the most recent bid and asked prices. Securities for which
no quotations are readily available are valued at fair value as determined in
good faith by the Fund's sub-advisor pursuant to Board of Trustees guidelines.
Short-term securities with 60 days or less to maturity are stated at amortized
cost, which approximates market value.
Security transactions and investment income -- Security transactions, in the
accompanying financial statements, are accounted for on a trade date basis (date
the order to buy or sell is executed). Dividend income and distributions to
shareholders are recorded on the ex-dividend date; interest income is recorded
on the accrual basis. Realized gains and losses from security transactions are
determined on an identified cost basis.
Repurchase agreements -- Repurchase agreements are fully collateralized by U.S.
Treasury or Government agency securities. All collateral is held by the Fund's
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 Fund are
maintained in U.S. dollars. Investment securities and all other assets and
liabilities of the Fund denominated in a foreign currency are translated into
U.S. dollars at the exchange rates on October 31. 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 Fund separates within its statement of operations the portion of realized
and unrealized gains and losses resulting from changes in foreign exchange rates
from that arising from changes in securities' market values.
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 Fund as an unrealized gain or loss. When the Forward is closed,
the Fund records a realized gain or loss equal to the difference between the
value at the time the
81
<PAGE> 99
SCHWABFUNDS(R) 9
- --------------------------------------------------------------------------------
SCHWAB INTERNATIONAL INDEX FUND(TM)
NOTES TO FINANCIAL STATEMENTS
For the year ended October 31, 1994
- --------------------------------------------------------------------------------
contract was opened and the value at the time the contract was closed. The Fund
engages in Forwards in connection with the purchase and sale of portfolio
securities to minimize the uncertainty of changes in future exchange rates (see
Note 9).
Deferred organization costs -- Costs incurred in connection with the
organization of the Fund, its initial registration with the Securities and
Exchange Commission and with various states are amortized on a straight-line
basis over a five year period from the Fund's commencement of operations.
Expenses -- Expenses arising in connection with the Fund are charged directly to
the Fund. Expenses common to all series of the Trust are allocated to each
series in proportion to their relative net assets.
Federal income taxes -- It is the 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. The Fund is considered a separate entity for tax purposes.
At October 31, 1994, (for financial reporting and federal income tax purposes),
net unrealized gain aggregated $9,907,000, of which $13,741,000 related to
appreciated securities and $3,834,000 related to depreciated securities.
3. TRANSACTIONS WITH AFFILIATES
Investment advisory and administration agreement -- The Trust has an investment
advisory and administration agreement with Charles Schwab Investment Management,
Inc. (the "Investment Manager"). For advisory services and facilities furnished,
the Fund pays an annual fee, payable monthly, of .70% of the first $300 million
of average daily net assets and .60% of such assets over $300 million. Under
this agreement, the Fund incurred investment advisory and administration fees of
$862,000 during the year ended October 31, 1994, before the Investment Manager
reduced its fee (see Note 5).
Sub-advisory agreement -- The Investment Manager has a sub-advisory agreement
with Dimensional Fund Advisors Inc. ("Dimensional") to perform day-to-day
portfolio management for the Fund. Dimensional does not receive compensation
directly from the Fund. However, the Investment Manager pays Dimensional an
annual fee, payable monthly, of .15% of the first $300 million of average daily
net assets and .05% of such assets over $300 million.
Transfer agency and shareholder service agreements -- The Trust has 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 .05% of average daily net assets for transfer
agency services and .20% of such assets for shareholder services. For the year
ended October 31, 1994, the Fund incurred transfer agency and shareholder
service fees of $308,000, before Schwab reduced its fees (see Note 5).
Officers and trustees -- During the period, certain officers and trustees of the
Trust were also officers or directors of the Investment Manager, Schwab or
Dimensional. During the year ended October 31, 1994, the Trust made no direct
payments to its officers or trustees who were "interested persons" within the
meaning of the Investment Company Act of 1940, as amended. The Fund incurred
fees of $50,000 related to the Trust's unaffiliated trustees.
82
<PAGE> 100
SCHWABFUNDS(R) 10
- --------------------------------------------------------------------------------
4. BORROWING AGREEMENT
The Trust has an arrangement with State Street Bank and Trust Company, the
Fund's custodian, whereby the Fund may borrow up to $10,000,000, on a temporary
basis, to fund redemptions. Amounts borrowed under this arrangement bear
interest at periodically negotiated rates and may be collateralized by the
assets of the Fund. During the year ended October 31, 1994, no borrowings were
made under this arrangement.
5. EXPENSES REDUCED BY THE INVESTMENT MANAGER AND SCHWAB
The Investment Manager and Schwab reduced a portion of their fees in
order to limit the Fund's ratio of operating expenses to average net
assets. During the year ended October 31, 1994, the total of such fees
reduced by the Investment Manager was $388,000 and the total of such
fees reduced by Schwab was $111,000.
6. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities, other than short-term obligations,
aggregated $36,420,000 and $7,690,000, respectively, during the year ended
October 31, 1994.
7. EARLY WITHDRAWAL FEES PAID TO THE FUND
The Fund assesses a .75% early withdrawal fee on redemption proceeds
attributable to shares purchased and held less than six months. The early
withdrawal fee is retained by the Fund and is treated as a contribution to
capital. For the year ended October 31, 1994, total early withdrawal fees
retained by the Fund amounted to $129,000.
8. COMPOSITION OF NET ASSETS
At October 31, 1994, net assets consisted of:
<TABLE>
<S> <C>
Capital paid in $131,687,000
Accumulated undistributed net investment income 1,306,000
Accumulated net realized loss on investments sold
and foreign currency transactions (580,000)
Net unrealized gain on investments 9,907,000
Net unrealized gain on translating assets and liabilities
into the reporting currency 35,000
------------
Total $142,355,000
============
</TABLE>
The Fund adopted Statement of Position 93-2 Determination, Disclosure, and
Financial Statement Presentation of Income, Capital Gain, and Return of Capital
Distributions by Investment Companies, which will generally present
undistributed income and realized gains on a tax basis. As a result of adoption,
certain reclassifications to increase undistributed net investment income and
decrease capital paid in by $26,000 have occurred. These reclassifications have
no impact on the net asset value of the Fund.
At October 31, 1994, the Fund's Statement of Net Assets included liabilities of
$896,000 for securities purchased, $280,000 for Fund shares redeemed, $52,000
for investment advisory and administration fee payable and $25,000 for transfer
agency and shareholder service fees payable.
83
<PAGE> 101
SCHWABFUNDS(R) 11
- --------------------------------------------------------------------------------
SCHWAB INTERNATIONAL INDEX FUND(TM)
NOTES TO FINANCIAL STATEMENTS
For the year ended October 31, 1994
- --------------------------------------------------------------------------------
9. COMMITMENTS
At October 31, 1994, the Fund had an open Forward contract which obligated the
Fund to deliver foreign currency in exchange for U.S. dollars at a specified
future date as follows:
<TABLE>
<CAPTION>
Contract In Exchange Settlement Unrealized
Currency Amount For Date Value Loss
-------- -------- ----------- ---------- ----- ----------
<S> <C> <C> <C> <C> <C>
British pound 770,000 $1,257,872 11/4/94 $1,259,405 $1,533
</TABLE>
10. FINANCIAL HIGHLIGHTS
Per share income and capital changes for a share outstanding throughout
the period:
<TABLE>
<CAPTION>
For the period
September 9, 1993
For the (commencement of
year ended operations) to
October 31, 1994 October 31, 1993
---------------- -----------------
<S> <C> <C>
Net asset value at beginning of period $ 10.15 $ 10.00
Income from Investment Operations
Net investment income .11 .03
Net realized and unrealized gain on investments
and foreign currency transactions .69 .12
-------- --------
Total from investment operations .80 .15
Less Distributions
Dividends from net investment income (.04) --
Distributions from net realized gain
on investments (.02) --
-------- --------
Total distributions (.06) --
-------- --------
Net asset value at end of period $ 10.89 $ 10.15
======== ========
Total return (%) 7.9 1.5
Ratios/Supplemental Data
Net assets, end of period (000s) $142,355 $106,085
Ratio of expenses to average net
assets (%) .90 .60*
Ratio of net investment income to
average net assets (%) 1.14 2.15*
Portfolio turnover rate (%) 6 2
</TABLE>
The Investment Manager and Schwab have reduced a portion of their fees and
absorbed certain expenses in order to limit the Fund's ratio of operating
expenses to average net assets. Had these fees and expenses not been reduced and
absorbed, the ratio of expenses to average net assets for the periods ended
October 31, 1994 and 1993, would have been 1.30% and 2.10%*, respectively, and
the ratio of net investment income to average net assets would have been .74%
and .65%*, respectively.
84
<PAGE> 102
SchwabFunds(R) 12
- --------------------------------------------------------------------------------
To the Board of Trustees
and Shareholders of the Schwab International Index Fund(TM)
In our opinion, the accompanying statement of net assets and the related
statements of operations and of changes in net assets present fairly, in all
material respects, the financial position of the Schwab International Index
Fund (one of the series constituting Schwab Capital Trust, hereafter referred
to as the "Trust") at October 31, 1994, the results of its operations and the
changes in its net assets for each of the periods presented, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Trust's 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 standards 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, 1994 by
correspondence with the custodian and broker, provide a reasonable basis for
the opinion expressed above.
PRICE WATERHOUSE LLP
San Francisco, California
November 30, 1994
85
<PAGE> 103
SchwabFunds(R) 1
- --------------------------------------------------------------------------------
SCHWAB SMALL-CAP INDEX FUND(TM)
STATEMENT OF NET ASSETS
October 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares Value
--------- -----
<S> <C> <C>
COMMON STOCK--96.0%
A.L. Laboratories, Inc.
Class A 2,300 $41,113
AAR Corp. 2,600 32,175
ABM Industries, Inc. 1,800 37,800
ABT Building Products Corp.* 1,900 29,450
ACX Technologies, Inc.* 2,300 80,788
ADAC Laboratories 3,000 25,500
AGCO Corp. 2,500 137,500
AMC Entertainment Inc.* 500 5,750
AMCORE Financial, Inc. 1,500 28,688
AMETEK, Inc. 6,500 117,813
APS Holding Corp. Class A* 2,100 61,163
AST Research, Inc.* 10,400 131,950
Acclaim Entertainment, Inc. 6,800 118,575
Acordia, Inc. 2,500 70,625
Acuson Corp.* 4,900 90,038
Acxiom Corp.* 1,600 47,400
Addington Resources, Inc.* 3,100 32,550
Adelphia Communications
Corp. Class A* 2,000 24,500
Adesa Corp.* 1,800 24,300
Adia Personnel Services, Inc. 1,000 36,000
Adobe Systems Inc. 1,600 57,900
Advanced Technology
Laboratories, Inc.* 2,200 35,750
Advanced Tissue
Sciences, Inc.* 5,000 37,500
ADVO, Inc. 3,300 58,575
Air & Water Technologies
Corp. Class A* 9,500 66,500
Air Express
International Corp. 2,200 61,600
Airborne Freight Corp. 1,700 32,513
Airgas, Inc. 2,700 78,300
Alaska Air Group, Inc.* 2,100 36,750
ALBANK Financial Corp. 2,200 48,813
Albany International Corp.
Class A 3,800 75,050
Alberto-Culver Co. Class A 1,800 42,525
Alberto-Culver Co. Class B
(Convertible) 2,100 53,288
Aldila, Inc. 3,900 50,213
Alex. Brown Inc. 2,400 66,300
Alfa Farmers
Federation Corp. 6,900 75,900
Allen Group Inc. 3,700 89,725
Alliance Pharmaceutical Corp.* 3,600 27,675
Alliant Techsystems Inc.* 1,700 58,438
Allied Group, Inc. 1,500 43,313
Allwaste, Inc.* 5,600 35,700
Alpha-Beta Technology, Inc.* 400 3,750
Altera Corp.* 3,400 134,088
Amax Gold Inc. 14,500 97,875
Amcast Industrial Corp. 1,500 30,188
America Online, Inc. 1,300 92,300
American Annuity Group, Inc. 7,500 71,250
American Bankers
Insurance Group, Inc. 3,400 67,575
American Business
Information, Inc.* 5,100 89,250
American Business
Products, Inc. 1,300 28,925
American Classic Voyages 1,900 32,775
American Colloid Co. 3,400 53,550
American Freightways Corp. 1,600 33,800
American Heritage Life
Investment Corp. 5,200 91,650
American Income
Holding Inc. 2,500 87,344
American Maize-Products Co. 1,000 22,625
American Management
Systems, Inc. 4,500 71,156
American Medical
Response, Inc.* 2,600 70,525
American President
Companies, Ltd. 4,600 111,550
American Savings Bank of
Florida (New)* 4,800 96,300
Americredit Corp.* 5,300 35,113
Ameridata Technologies Inc.* 2,600 34,775
Amphenol Corp. Class A* 3,100 67,813
Amsco International, Inc.* 10,700 102,988
Amtech Corp. 2,300 23,000
Analogic Corp.* 2,100 36,750
Anchor Bancorp, Inc.* 3,800 56,525
Andrew Corp. 950 49,519
Angelica Corp. 1,100 29,150
AnnTaylor Stores Corp.* 700 29,050
Antec Corp.* 3,800 107,350
Anthem Electronics, Inc.* 2,300 75,613
Anthony Industries, Inc. 2,400 41,100
Apogee Enterprises, Inc. 2,300 41,113
Apple South, Inc. 4,650 74,981
Applebee's International, Inc. 3,300 60,638
Applied Magnetics Corp.* 2,600 9,425
Applied Power Inc. Class A 1,500 36,938
Aptargroup, Inc. 2,700 73,575
Aquarion Co. 900 21,150
Aquila Gas Pipeline Corp. 4,800 36,600
Arbor Drugs, Inc. 2,800 59,150
Arctco, Inc. 4,650 95,325
Argosy Gaming Corp.* 3,900 67,275
Arkansas Best Corp. 4,100 53,044
Armco Inc.* 17,000 121,125
Armor All Products Corp. 3,600 80,100
Arnold Industries Inc. 4,300 99,438
Arrow International, Inc. 4,100 114,288
Arthur J. Gallagher & Co. 2,300 75,325
Artisoft, Inc.* 2,000 19,500
Arvin Industries, Inc. 3,700 90,188
Ashland Coal, Inc. 2,500 76,250
Aspect
Telecommunications Corp.* 1,800 62,100
Associated Banc-Corp 2,200 74,250
Associated Natural
Gas Corp. 2,000 76,250
Atari Corp.* 18,600 125,550
Atmos Energy Corp. 2,400 39,300
Au Bon Pain Co., Inc.
Class A* 1,700 33,575
Augat Inc. 3,500 69,563
Aura Systems, Inc.* 5,700 26,363
Authentic Fitness Corp. 5,500 83,188
AutoFinance Group, Inc.* 3,100 31,388
Automotive Industries
Holding, Inc.* 2,800 68,600
Autotote Corp. Class A 5,000 87,500
</TABLE>
See accompanying Notes to Financial Statements.
86
<PAGE> 104
SchwabFunds(R) 2
- --------------------------------------------------------------------------------
SCHWAB SMALL-CAP INDEX FUND(TM)
STATEMENT OF NET ASSETS
October 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares Value
--------- -----
<S> <C> <C>
Avatar Holdings, Inc.* 1,500 $52,688
Aviall, Inc. 7,275 72,750
Avid Technology, Inc.* 1,700 64,175
Aztar Corp.* 7,400 44,400
BWIP Holding, Inc. Class A 4,100 72,775
BET Holdings, Inc. Class A* 1,500 24,750
BISYS Group, Inc.* 2,600 57,200
BJ Services Co.* 2,700 55,013
BMC West Corp. 1,400 23,800
Baldor Electric Co. 2,860 74,360
Baldwin & Lyons, Inc.
Class A 100 1,550
Baldwin & Lyons, Inc.
Class B 1,800 27,000
Ballard Medical Products 9,900 96,525
Bally Entertainment Corp.* 7,600 53,200
Baltimore Bancorp 2,800 57,050
BancTec, Inc.* 1,800 36,000
Bancorpsouth, Inc. 1,300 41,600
Bank of Montreal 1,180 21,919
Bankers Corp. 240 3,465
Banyan Systems, Inc.* 2,800 49,000
Barefoot Inc. 2,800 39,550
Barnes Group Inc. 700 26,250
Barr Laboratories, Inc.* 1,000 25,250
Barrett Resources Corp.* 1,900 37,288
Bassett Furniture
Industries, Inc. 2,500 67,500
Bay State Gas Co. 2,100 50,925
Bay View Capital Corp. 1,200 27,000
Bearings, Inc. 900 29,363
Belden Inc. 2,800 56,000
Bell Bancorp, Inc. 1,800 47,250
Bell Sports Corp.* 1,300 27,300
Benton Oil & Gas Co.* 4,500 35,156
Bergen Brunswig Corp.
Class A 6,175 101,888
Berkley (W.R.) Corp. 600 21,525
Berry Petroleum Co. Class A 2,900 27,550
Best Power Technology, Inc.* 1,100 15,538
Big B, Inc. 2,900 35,525
Bio-Technology
General Corp.* 3,800 7,363
Biocraft Laboratories, Inc. 1,700 30,388
Birmingham Steel Corp. 1,500 38,813
Black Box Corp. 3,000 42,000
Black Hills Corp. 2,300 47,150
Blair Corp. 1,400 58,800
Blanch (E.W.) Holdings, Inc. 2,200 44,825
Block Drug Co., Inc. Class A 1,900 67,450
Blount, Inc. Class A 1,300 55,413
Blount, Inc. Class B 500 21,750
Bolt Beranek and
Newman Inc.* 2,200 39,050
Bombay Company, Inc. 5,950 71,400
Books-A-Million, Inc. 3,000 42,563
Borg-Warner
Security Corp.* 3,400 35,275
Borland International, Inc.* 9,300 99,975
Boston Bancorp 1,000 30,750
Boston Technology, Inc.* 8,400 138,600
Bowne & Co., Inc. 2,800 44,800
Box Energy Corp. Class A* 500 6,000
Box Energy Corp. Class B
(Non Voting)* 3,000 27,000
Breed Technologies, Inc. 1,100 38,913
BroadBand
Technologies, Inc.* 1,900 49,400
Broadway Stores Inc.* 8,500 95,625
Broderbund Software, Inc. 1,400 89,950
Brown (Tom), Inc.* 3,000 38,250
Brown Group, Inc. 500 16,938
Bruno's, Inc. 14,200 135,788
Brush Wellman Inc. 2,700 45,225
Buffets, Inc. 5,000 51,563
Bush Industries, Inc. 800 20,900
C-TEC Corp.* 1,300 35,750
CCB Financial Corp. 1,500 60,750
CCP Insurance, Inc. 5,400 83,700
CDI Corp.* 3,400 57,800
CILCORP Inc. 2,400 73,200
CKE Restaurants Inc. 2,600 21,450
CLARCOR Inc. 2,400 48,300
CMAC Investment Corp. 2,100 57,750
CML Group, Inc. 8,250 81,469
CNB Bancshares, Inc. 2,200 75,625
COR Therapeutics, Inc.* 4,400 57,200
CPI Corp. 1,700 36,975
Cross (A.T.) Co. Class A 2,800 42,350
CSF Holdings, Inc.* 1,600 41,600
CSS Industries, Inc. 1,700 28,263
Cabot Oil & Gas Corp.
Class A 3,300 61,050
Cadence Design
Systems, Inc.* 1,800 36,000
CalMat Co. 4,300 89,225
Caldor Corp.* 3,000 85,875
Calgene, Inc.* 4,600 39,963
Calgon Carbon Corp. 6,600 74,250
California Energy Co., Inc.* 6,800 115,600
California Federal Bank 3,000 34,500
California Microwave, Inc.* 1,900 59,138
California Water Service Co. 800 25,100
Camco International, Inc. 4,600 94,875
Canandaigua Wine Co.,
Inc. Class A* 2,100 68,775
Canandaigua Wine Co.,
Inc. Class B* 400 13,500
Capital Re Corp. 5,400 118,800
Capitol American
Financial Corp. 6,500 144,625
Capsure Holdings Corp.* 2,800 37,100
Caraustar Industries, Inc. 4,200 82,950
Carlisle Companies Inc. 2,800 91,350
Carpenter Technology Corp. 1,200 67,800
Carr-Gottstein Food Co.* 2,000 13,750
Casey's General Stores, Inc. 4,700 62,275
Cash America
Investments, Inc. 3,400 28,050
Casino America, Inc. 850 9,350
Castle & Cooke Homes, Inc.* 9,300 145,313
Catalina Marketing Corp.* 1,500 76,313
Catellus Development Corp.* 13,300 88,113
Cato Corp. (New) Class A 4,500 42,750
Cell Genesys, Inc.* 2,300 17,250
CellPro, Inc.* 2,300 38,525
Cellular Communications
Class A (Redeemable)* 4,500 239,063
Centennial Cellular Corp. 4,100 70,725
</TABLE>
See accompanying Notes to Financial Statements.
87
<PAGE> 105
SchwabFunds(R) 3
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares Value
--------- -----
<S> <C> <C>
Centerbank Waterbury
Connecticut* 2,200 $27,775
Centocor, Inc.* 9,300 165,075
Central Hudson Gas &
Electric Corp. 3,100 75,950
Central Jersey Bancorp 1,500 48,750
Central Louisiana Electric
Co., Inc. (New) 4,100 88,663
Central Maine Power Co. 5,200 59,800
Central Vermont Public
Service Corp. 2,100 27,825
Centura Banks, Inc. 2,700 59,400
Century Communications
Corp. Class A 3,900 33,150
Cerner Corp.* 2,400 98,700
Chambers Development
Co., Inc.* 1,900 3,800
Chambers Development
Co., Inc. Class A* 9,400 18,800
Champion Enterprises, Inc.* 1,400 49,700
Chaparral Steel Co. 6,000 48,000
Charter Medical Corp.* 4,900 121,275
Charter One Financial, Inc. 4,000 81,000
Checkers Drive-In
Restaurants, Inc. 8,800 29,975
Checkpoint Systems, Inc.* 2,100 39,375
Cheesecake Factory, Inc. 1,600 30,600
Chemed Corp. 1,500 51,188
Chemical Financial Corp. 1,330 52,535
Chesapeake Corp. 4,300 133,300
Cheyenne Software, Inc. 6,250 69,531
Chipcom Corp. 1,800 108,450
Chiquita Brands
International, Inc. 8,200 101,475
Church & Dwight Co., Inc. 3,600 81,000
Circa Pharmaceuticals, Inc.* 3,500 52,063
Citizens Bancorp 2,100 59,325
Citizens Banking Corp. 2,400 63,600
Citizens First Bancorp, Inc. 7,500 72,656
City National Corp. 8,200 90,200
Claire's Stores, Inc. 3,300 38,363
Clear Channel
Communications, Inc. 575 28,966
Cleveland-Cliffs Inc. 1,800 68,625
Coast Savings
Financial, Inc.* 2,300 32,775
Coastal Healthcare
Group, Inc.* 3,400 106,250
Cobra Golf, Inc. 3,400 126,225
Coca-Cola Bottling Co.
Consolidated 1,300 34,288
Coeur d'Alene Mines Corp. 2,600 48,425
Cognex Corp. 2,700 66,825
Collagen Corp. 1,800 39,600
Collective Bancorp, Inc. 3,600 64,125
Colonial BancGroup, Inc. 1,600 36,800
Colonial Gas Co. 900 17,438
Colonial Group, Inc. Class A 1,300 44,688
Comair Holdings, Inc. 3,800 81,700
Commerce Clearing
House, Inc. Class A 2,800 49,350
Commerce Clearing
House, Inc. Class B
(Non Voting) 2,900 49,663
Commercial Federal Corp.* 2,200 46,338
Commercial Intertech Corp. 2,850 54,863
Commercial Metals Co. 2,733 74,474
Commonwealth Energy
System 1,900 71,725
Community Health
Systems, Inc. 1,800 47,250
Community Psychiatric
Centers 7,300 72,088
Comnet Cellular Inc.* 1,900 53,913
CompUSA, Inc.* 2,700 31,388
Comverse Technology Inc.* 3,000 37,125
Concord EFS Inc. 2,700 66,825
Cone Mills Corp.* 3,600 42,750
Connecticut Energy Corp. 900 19,125
Connecticut Natural
Gas Corp. 1,400 33,075
Conner Peripherals, Inc.* 4,500 51,750
Consolidated
Freightways, Inc.* 2,000 44,750
Consolidated Stores Corp.* 8,700 157,688
Consorcio G Grupo Dina* 4,202 42,545
Continental Airlines, Inc.
Class A* 800 13,300
Continental Airlines, Inc.
Class B* 3,600 59,400
Continental Medical
Systems, Inc.* 15,000 106,875
Continuum Company, Inc.* 3,500 94,063
Copley Pharmaceutical, Inc. 3,064 54,003
CopyTele, Inc.* 3,900 19,378
Coram Healthcare Corp.* 4,662 76,923
Cordis Corp.* 1,200 69,375
Coventry Corp. 4,600 114,425
Crawford & Co. Class A 2,300 35,650
Crawford & Co. Class B 2,100 32,813
Cray Research, Inc.* 4,300 82,238
Credence Systems Corp.* 4,500 113,625
Credit Acceptance Corp. 3,500 131,688
Cross Timbers Oil Co. 4,900 78,400
CrossComm Corp.* 1,000 10,250
Crown Central
Petroleum Corp.* 600 10,200
Cullen/Frost Bankers, Inc. 1,900 63,175
Cypress Semiconductor Corp.* 6,200 129,425
Cyrix Corp.* 3,100 127,681
Cyrk, Inc.* 1,500 58,875
Cytec Industries, Inc.* 2,100 86,100
CytRx Corp.* 3,200 7,700
Dallas Semiconductor Corp.* 9,500 133,000
Dames & Moore, Inc. 4,700 69,325
Daniel Industries, Inc. 1,400 18,900
Data General Corp.* 5,900 57,525
Datascope Corp.* 2,700 46,238
DeVRY Inc.* 3,500 101,938
Dell Computer Corp.* 3,150 140,569
Delphi Financial Group, Inc.
Class A* 700 13,738
Delta Woodside
Industries, Inc. 8,100 84,038
Department 56, Inc.* 400 14,650
Deposit Guaranty Corp. 3,000 86,250
Destec Energy, Inc.* 11,500 126,500
Detroit Diesel Corp.* 4,700 116,325
Devon Energy Corp. 3,400 74,375
Dexter Corp. 4,500 92,813
</TABLE>
See accompanying Notes to Financial Statements.
88
<PAGE> 106
SchwabFunds(R) 4
- --------------------------------------------------------------------------------
SCHWAB SMALL-CAP INDEX FUND(TM)
STATEMENT OF NET ASSETS
October 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares Value
--------- -----
<S> <C> <C>
Diagnostek, Inc.* 4,000 $63,000
Diagnostic Products Corp. 1,600 38,400
Dial Page, Inc.* 1,600 34,800
Dibrell Brothers, Inc. 2,000 44,000
Digi International, Inc.* 2,300 38,813
Digital Microwave Corp.* 800 11,900
Dime Bancorp Inc.* 10,400 91,000
Dionex Corp.* 1,500 56,063
Discount Auto Parts, Inc.* 2,600 39,650
Discovery Zone, Inc. 6,800 130,900
Donaldson Co., Inc. 4,800 110,400
Downey Savings and
Loan Association 1,900 35,863
Dress Barn, Inc.* 3,800 37,050
Dreyer's Grand Ice
Cream, Inc. 2,600 66,625
Dual Drilling Co.* 1,900 24,819
Duff & Phelps Corp. 4,200 74,025
Duriron Co., Inc. 3,000 53,625
Duty Free International, Inc. 5,300 70,888
Dynatech Corp.* 1,700 49,300
E'town Corp. 700 18,200
E-Z Serve Corp.* 4,300 7,659
ENVOY Corp.* 2,000 40,750
Eagle Hardware &
Garden, Inc.* 3,400 33,150
Eastern Enterprises 3,900 101,400
Eastern Utilities Associates 3,600 78,750
Eaton Vance Corp.
(Non Voting) 1,400 44,275
Edison Brothers Stores, Inc. 3,500 83,125
Education Alternatives, Inc.* 2,000 42,750
Elcor Corp.* 1,000 16,875
Electroglas Inc.* 1,400 55,825
Electronics for Imaging, Inc.* 2,300 60,375
Empire District Electric Co. 2,200 35,475
Energen Corp. 1,300 29,575
Energy Service Co., Inc. 2,275 32,988
Energy Ventures, Inc.* 1,400 20,300
Enhance Financial
Services Group, Inc. 3,100 56,188
Ennis Business Forms, Inc. 2,700 36,450
Enquirer/Star Group, Inc.
Class A 3,300 55,275
Enterra Corp.* 2,700 61,763
Envirotest Systems Corp.
Class A* 2,500 31,563
Ethan Allen Interiors, Inc.* 2,200 53,900
Evergreen Media Corp.
Class A* 700 12,600
Exabyte Corp.* 3,900 86,044
Exar Corp. 1,200 24,750
Excel Industries, Inc. 1,900 28,500
Expeditors International of
Washington, Inc. 2,300 47,438
Express Scripts, Inc. Class A 1,200 40,800
F & M National Corp. 2,255 36,644
FHP International Corp.* 1,056 30,624
FHP International Corp. 3,520 96,360
FMC Gold Co. 17,500 72,188
FTP Software Inc.* 3,600 90,000
Fab Industries, Inc. 900 27,788
Fair, Issac & Co. Inc. 1,000 40,250
Farmer Bros. Co. 300 38,400
Fastenal Co. 800 35,900
Fidelity National
Financial, Inc. 2,900 32,988
Fieldcrest Cannon, Inc.* 1,300 33,150
Figgie International Inc.
Class A 4,600 35,938
Figgie International Inc.
Class B 600 5,025
FileNet Corp.* 1,500 37,875
Filene's Basement Corp.* 3,900 29,738
Financial Trust Corp. 1,200 34,200
First Alert Inc. 3,800 80,275
First American
Financial Corp. 3,600 67,050
First Bancorporation of Ohio 900 21,713
First Citizens BancShares,
Inc. Class A 1,300 58,825
First Colonial Bankshares Corp.
Class A 1,500 34,031
First Commerce Corp. 1,162 30,793
First Commercial Corp. 2,800 58,450
First Commonwealth
Financial Corp. 3,000 42,750
First Financial Bancorp 1,600 61,400
First Financial Corp. 4,000 56,000
First Michigan Bank Corp. 2,959 69,537
First Midwest Bancorp, Inc. 2,100 57,488
First Mississippi Corp. 3,200 67,200
First National Bancorp 2,700 52,650
First Pacific Networks, Inc.* 1,100 7,425
FirstFed Financial Corp.* 200 2,850
FirstFed Michigan Corp. 3,300 68,888
Firstbank of Illinois Co. 1,000 38,250
Fisher Scientific
International, Inc. 2,600 72,475
Flagstar Companies, Inc.* 7,200 59,400
Florida East Coast
Industries, Inc. 1,400 106,575
Florida Rock Industries, Inc. 1,400 37,275
Fluke Corp. 1,100 32,588
Foamex International Inc.* 4,300 38,431
Foodmaker, Inc. (New)* 11,100 59,663
Foote, Cone & Belding
Communications, Inc. 1,900 85,025
Foothill Group, Inc. Class A 2,400 36,000
Foremost Corp. of America 1,800 58,500
Forest City Enterprises, Inc.
Class A 900 27,338
Forest City Enterprises, Inc.
Class B (Convertible) 500 17,781
Fort Wayne National Corp. 1,800 49,725
Fossil, Inc.* 2,200 61,325
FoxMeyer Health Corp.* 5,473 90,989
Franklin Electric Co., Inc. 1,100 34,650
Franklin Quest Co.* 1,700 60,138
Fremont General Corp. 2,800 68,950
Fritz Companies, Inc.* 1,800 69,750
Frontier Insurance
Group, Inc. 2,350 64,331
Frozen Food Express
Industries, Inc. 2,100 34,650
Fuller (H.B.) Co. 2,400 79,200
Fulton Financial Corp. 3,300 62,700
G&K Services, Inc. Class A 2,950 47,938
GAINSCO, Inc. 2,315 20,256
GC Companies, Inc.* 1,280 36,160
</TABLE>
See accompanying Notes to Financial Statements.
89
<PAGE> 107
SchwabFunds(R) 5
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares Value
--------- -----
<S> <C> <C>
Galey & Lord, Inc.* 1,800 $28,350
Gartner Group Inc. Class A 4,000 128,500
Gaylord Container Corp.
Class A* 8,700 73,950
GenCare Health Systems, Inc.* 1,700 78,838
GenCorp Inc. 5,800 69,600
General Binding Corp. 2,900 62,350
General DataComm
Industries, Inc.* 3,100 103,463
Genesco Inc.* 2,800 6,300
Genesis Health
Ventures, Inc.* 2,100 61,950
Genetic Therapy, Inc.* 2,400 16,200
Geneva Steel Class A* 2,200 38,775
Gensia Pharmaceuticals, Inc.* 5,400 25,650
Gentex Corp. 2,900 70,325
Geon Co. 700 21,000
Geotek Communications Inc.* 10,300 88,838
Gerber Scientific, Inc. 3,900 52,163
Germantown Savings Bank 500 30,500
Gerrity Oil & Gas Corp.* 1,600 9,400
Getty Petroleum Corp.* 1,800 20,475
Gibson Greetings, Inc. 2,600 39,000
Giddings & Lewis, Inc. 6,200 95,325
Gilead Sciences, Inc.* 1,200 10,500
Glendale Federal Bank (New) 5,400 58,725
Global Natural
Resources Inc.* 4,400 33,000
Good Guys, Inc., The* 2,300 26,306
Goody's Family
Clothing, Inc.* 2,700 28,688
Goulds Pumps, Inc. 3,600 78,075
Graco Inc. 1,350 24,975
GranCare, Inc.* 5,000 77,500
Grand Casinos, Inc.* 3,800 51,300
Granite Construction Inc. 1,900 41,563
Greenfield Industries, Inc. 2,700 64,125
Grenada Sunburst
System Corp. 1,300 40,300
Grey Advertising Inc. 100 15,450
Grow Group, Inc. 2,000 28,750
Guaranty National
Corp. (New) 1,500 25,125
Guilford Mills, Inc. 1,600 33,000
Gupta Corp.* 600 6,675
Gymboree Corp. 4,000 131,000
HBO & Co. 2,600 84,825
HS Resources, Inc.* 2,100 43,050
Hach Co. 2,075 28,531
Haemonetics Corp.* 5,300 106,000
Haggar Corp. 1,200 28,500
Hancock Fabrics, Inc. 4,000 30,500
Hancock Holding Co. 1,300 37,700
Handleman Co. 6,300 70,875
Handy & Harman 1,700 28,263
Hanover Direct, Inc.* 13,300 54,031
Harleysville Group Inc. 4,600 111,550
Harman International
Industries, Inc. 2,200 78,650
Harnischfeger
Industries Corp. 5,100 127,500
Harper Group, Inc. 2,800 37,800
Harry's Farmers Market, Inc.
Class A* 400 3,550
Hartmarx Corp.* 5,300 30,475
Haverty Furniture
Companies, Inc. 3,000 36,750
Hawkeye Bancorporation 2,000 40,750
Hayes Wheels International, Inc. 3,200 75,200
Health Care and
Retirement Corp.* 2,500 67,188
Health Systems
International Inc.* 4,700 126,313
HealthCare Compare Corp.* 5,600 155,400
Healthsouth
Rehabilitation Corp.* 2,500 95,000
Heart Technology, Inc.* 2,900 68,875
Heartland Express, Inc. 2,000 58,500
Hechinger Co. Class A 4,900 55,125
Hechinger Co. Class B
(Convertible) 2,300 26,163
Hecla Mining Co.* 7,800 87,750
Helene Curtis Industries, Inc. 1,800 63,675
Herbalife International, Inc. 1,000 16,625
Heritage Media Corp.
Class A* 1,900 46,075
Hibernia Corp. Class A 2,900 23,200
Hilb, Rogal and Hamilton Co. 2,700 32,063
Hillhaven Corp. 12,500 278,125
Holly Corp. 1,000 24,625
Home Beneficial Corp.
Class B 1,700 35,063
Homedco Group, Inc.* 2,300 82,800
Hometown Buffet, Inc. 2,800 31,850
Horizon Healthcare Corp.* 4,100 113,263
Hornbeck Offshore
Services, Inc.* 2,200 33,000
Houghton Mifflin Co. 900 41,400
Hovnanian Enterprises,
Inc. Class A* 1,400 8,400
Hudson Foods, Inc. 1,300 28,600
Huffy Corp. 2,200 33,000
Hunt Manufacturing Co. 3,000 48,375
Huntco, Inc. Class A 700 15,400
ICN Pharmceuticals, Inc.* 3,900 45,338
IDEX Corp.* 2,300 100,050
IDEXX Laboratories, Inc. 2,600 72,800
IHOP Corp.* 1,500 41,250
INDRESCO, Inc.* 3,800 47,500
INTERCO Inc. (New)* 2,100 30,450
IVAX Corp. 2,092 40,010
Immunex Corp. (New)* 7,100 96,738
Immunomedics, Inc.* 3,600 15,525
Imperial Bancorp 2,000 32,000
Independent Insurance
Group, Inc. (Non Voting) 800 9,400
Indiana Energy, Inc. 4,100 79,950
Information Resources, Inc.* 4,200 61,950
Ingles Markets Inc. 1,100 12,100
Input/Output, Inc. 2,800 60,550
Insignia Financial Group
Class A (New)* 1,700 34,213
Insilco Corp.* 1,500 39,750
Insituform Technologies, Inc.
Class A* 2,600 33,800
Instrument Systems Corp.* 5,300 39,750
Insurance Auto Auctions, Inc.* 1,600 51,800
Integon Corp. 2,800 42,000
</TABLE>
See accompanying Notes to Financial Statements.
90
<PAGE> 108
SchwabFunds(R) 6
- --------------------------------------------------------------------------------
SCHWAB SMALL-CAP INDEX FUND(TM)
STATEMENT OF NET ASSETS
October 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares Value
--------- -----
<S> <C> <C>
Integrated Device
Technology, Inc.* 1,000 $28,500
Integrated Health
Services, Inc.* 3,200 130,400
Intelligent Electronics, Inc. 6,400 99,200
Inter-Regional Financial
Group, Inc. 1,400 32,900
Interface Systems, Inc.
Class A 2,400 27,750
Intergraph Corp.* 11,900 102,638
Intergroup Healthcare Corp.* 1,600 101,200
Intermet Corp. 9,200 63,250
International Dairy Queen,
Inc. Class A* 2,600 43,225
International Dairy Queen,
Inc. Class B* 1,800 30,825
International Family
Entertainment, Inc.
Class B* 5,700 74,813
International Multifoods Corp. 2,900 52,200
International Rectifier Corp.* 3,500 81,375
Interneuron
Pharmaceuticals, Inc.* 500 2,813
Interpool, Inc.* 2,100 28,875
Interstate Bakeries Corp. 4,000 51,500
Interstate Power Co. 1,500 33,375
Intuit, Inc.* 600 42,225
Invacare Corp. 1,600 48,600
Ionics, Inc.* 1,000 53,750
Iowa-Illinois Gas &
Electric Co. 4,800 98,400
J. Baker, Inc. 2,200 37,400
JSB Financial, Inc. 1,800 44,775
Jacobs Engineering
Group Inc.* 4,500 96,188
Jacor Communications,
Inc. Class A* 3,700 51,800
Jan Bell Marketing, Inc.* 10,100 55,550
Jason Inc. 3,125 28,516
Jefferies Group, Inc. 1,000 34,250
Jefferson Bankshares, Inc. 2,500 47,969
John Wiley & Sons, Inc.
Class A 1,600 70,000
Johnson Worldwide
Associates, Inc. Class A* 1,200 27,450
Johnstown America
Industries, Inc.* 1,500 29,813
Jones Intercable, Inc.* 1,300 18,200
Jones Intercable, Inc.
Class A* 2,300 31,769
Joslyn Corp. 1,200 32,400
Joy Technologies Inc.* 7,200 99,900
Juno Lighting, Inc. 2,900 54,738
Justin Industries, Inc. 4,300 56,975
K N Energy, Inc. 4,268 105,100
KCS Energy, Inc. 1,900 31,825
KLA Instruments Corp.* 700 36,750
Kaiser Aluminum Corp.* 10,600 119,250
Kaman Corp. Class A 3,200 31,000
Kasler Corp. 1,300 6,663
Kaufman & Broad
Home Corp. 5,700 74,100
Kaydon Corp. 2,700 63,113
Keane, Inc. 4,500 92,250
Kelley Oil Corp.* 700 4,375
Kellwood Co. 3,300 66,413
Kemet Corp.* 2,700 58,050
Kendall Square
Research Corp.* 1,700 186
Kennametal Inc. 800 22,500
Keystone Financial, Inc. 3,500 96,688
Kimball International, Inc.
Class B 2,200 52,800
Kinder-Care Learning
Centers, Inc. (New)* 3,400 45,050
Kirby Corp.* 3,900 65,325
Komag, Inc.* 3,700 92,038
L.A. Gear, Inc.* 2,700 18,900
LCI International, Inc. 2,400 58,200
La Quinta Inns, Inc. 2,700 67,838
La-Z-Boy Chair Co. 3,000 90,750
LabOne, Inc. 2,100 36,225
Laclede Gas Co. 2,500 52,188
Lance Inc. 5,100 90,525
Landmark Graphics Corp.* 2,100 43,050
Landstar Systems, Inc.* 2,200 72,600
Lattice Semiconductor Corp. 2,900 49,119
Lawson Products, Inc. 2,300 59,513
Lawter International, Inc. 7,600 95,950
Leader Financial Corp.* 2,000 47,750
Lechters, Inc.* 2,900 51,113
Legg Mason, Inc. 1,900 39,900
Lennar Corp. 4,800 72,600
Level One
Communications, Inc. 2,150 38,700
Levitz Furniture Inc.* 11,000 96,250
Libbey, Inc. 2,400 38,100
Liberty Bancorp, Inc. 1,200 38,100
Liberty Corp. 3,600 94,950
Life Partners Group, Inc. 3,800 82,650
Life Re Corp. 2,000 36,500
Life Technologies, Inc. 2,500 46,875
Life USA Holding, Inc.* 2,900 23,744
Lilly Industries, Inc. Class A 3,750 50,625
Lincare Holdings, Inc. 4,800 129,600
Lincoln
Telecommunications Co. 5,500 90,750
Liposome Technology, Inc.* 2,200 14,300
Liqui-Box Corp. 1,000 34,500
Littelfuse, Inc.* 3,400 88,400
Living Centers of
America, Inc.* 1,900 57,238
Logicon, Inc. 1,100 33,825
Lone Star Industries Inc.* 2,300 44,563
Lone Star Steakhouse &
Saloon, Inc.* 6,100 156,313
Lottery Enterprises, Inc. 45 293
Louis Dreyfus Natural
Gas Corp.* 7,400 108,225
Loyola Capital Corp. 2,800 56,000
Luby's Cafeterias, Inc. 4,700 108,688
Lukens Inc. 2,450 77,481
M.S. Carriers, Inc.* 2,100 49,088
M/A-COM., Inc.* 3,000 21,000
MAXXAM Inc.* 1,500 50,438
MDU Resources Group, Inc. 3,200 86,800
MICROS Systems, Inc. 1,100 40,975
Mac Frugal's
Bargains-Close-outs, Inc.* 4,800 99,000
</TABLE>
See accompanying Notes to Financial Statements.
91
<PAGE> 109
SchwabFunds(R) 7
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares Value
--------- -----
<S> <C> <C>
Madison Gas and Electric Co. 1,500 $49,875
Magma Copper Co. (New)* 1,900 33,963
Magna Group, Inc. 4,600 95,163
MagneTek, Inc.* 4,100 60,988
Manitowoc Co., Inc. 1,600 41,200
Marcus Corp. 1,200 31,500
Marine Drilling
Companies, Inc.* 12,400 50,375
Mariner Health Group, Inc.* 3,100 69,944
Mark Twain Bancshares, Inc. 2,500 67,813
Markel Corp.* 900 37,013
Marquette Electronics, Inc.
Class A* 1,900 36,575
Marsam
Pharmaceuticals Inc.* 2,300 30,619
Marshall Industries 2,700 70,538
Masland Corp. 2,100 33,731
Material Sciences Corp. 1,800 28,575
Maxim Integrated
Products, Inc.* 1,200 80,700
Maybelline, Inc. 2,500 45,313
McClatchy Newspapers,
Inc. Class A 600 13,950
Measurex Corp. 2,900 62,713
Medaphis Corp.* 2,500 95,625
Medicine Shoppe
International, Inc. 900 21,150
Medusa Corp. 2,800 63,700
Men's Wearhouse, Inc. 2,300 57,213
Mentor Graphics Corp. 8,000 107,500
Meredith Corp. 1,200 58,800
Merisel, Inc.* 5,500 50,188
Merrill Corp. 900 16,650
Mesa Airlines, Inc.* 6,000 49,500
MESA Inc.* 10,300 52,788
Methode Electronics, Inc.
Class A 4,000 75,000
Methode Electronics, Inc.
Class B (Convertible) 200 4,175
Metricom, Inc.* 2,100 27,300
Metropolitan Financial Corp. 5,600 134,400
Michael Foods, Inc. 2,300 23,000
Michaels Stores, Inc.* 3,900 158,438
Micom Communications* 1,599 22,986
Micro Warehouse, Inc. 6,300 219,713
MicroAge Computer
Centers, Inc. 1,950 24,131
Microchip Technology, Inc. 1,700 79,900
Mid Atlantic Medical
Services Inc. 2,000 46,250
Mid-Am, Inc. 2,200 32,450
Midwest Grain Products, Inc. 1,600 42,200
Mine Safety Appliances Co. 1,200 54,150
Minerals Technologies, Inc. 800 23,800
Mohawk Industries, Inc. 5,300 85,463
Molten Metal Technology, Inc.* 3,800 84,550
Money-Store Inc., The 2,300 47,150
Monk-Austin, Inc. 2,900 42,413
Moorco International, Inc. 1,800 26,325
Morgan Keegan, Inc. 2,100 26,775
Mosinee Paper Corp. 900 24,413
Mueller Industries, Inc.* 1,500 47,438
Multicare Companies, Inc.* 3,200 65,800
Musicland Group, Inc.* 6,200 84,475
Mutual Assurance, Inc. 1,550 45,144
Mycogen Corp.* 3,200 32,800
Myers Industries, Inc. 2,500 42,500
N.S. Bancorp, Inc. 1,300 35,994
NAC Re Corp. 3,200 83,200
NACCO Industries, Inc.
Class A 1,300 76,700
NBB Bancorp, Inc. 1,300 62,075
NCH Corp. 1,400 93,275
NL Industries, Inc.* 8,700 110,925
NUI Corp. 1,500 23,063
NYMAGIC, Inc. 1,400 23,450
Nabors Industries, Inc.* 11,900 87,763
Nash Finch Co. 2,000 32,000
Nashua Corp. 700 15,925
National Auto Credit Inc.* 4,100 49,969
National Bancorp of
Alaska, Inc. 1,400 72,100
National Commerce Bancorp 4,100 95,325
National Computer
Systems, Inc. 1,800 25,650
National Data Corp. 2,400 49,800
National Gypsum Co. (New)* 3,500 118,125
National Penn
Bancshares, Inc. 1,155 31,329
National Presto
Industries, Inc. 1,100 43,313
National RE Holdings Corp. 3,100 75,950
National Steel Corp. Class B* 2,300 40,825
Nautica Enterprises, Inc. 2,300 66,700
Navigators Group, Inc. 600 9,750
Neiman Marcus Group, Inc. 6,400 92,000
Nellcor Inc.* 3,000 93,000
Netmanage, Inc. 5,400 152,550
Network General Corp.* 3,000 64,313
Network Systems Corp.* 4,800 33,300
New England Business
Service, Inc. 2,400 45,300
New Jersey
Resources Corp. 3,200 69,600
Noble Drilling Corp.* 18,975 138,755
Noise Cancellation
Technologies, Inc.* 15,400 20,213
Norand Corp.* 1,200 47,100
North American
Mortgage Co. 2,800 50,400
North Carolina Natural
Gas Corp. 700 15,750
North Fork Bancorp, Inc. 3,000 45,750
Northwest Natural Gas Co. 2,000 60,750
Northwestern Public
Service Co. 900 23,400
Northwestern Steel & Wire* 3,900 23,888
NovaCare, Inc.* 4,280 42,800
Novellus Systems, Inc.* 2,800 152,950
Noven Pharmaceuticals, Inc.* 2,600 39,325
Nuevo Energy Co.* 1,300 29,088
O'Reilly Automotive, Inc.* 1,400 35,350
O'Sullivan Corp. 2,000 19,000
OEA, Inc. 3,500 86,188
OM Group, Inc. 2,000 39,875
OMI Corp. 3,600 23,400
ONBANCorp, Inc. 2,100 55,125
Oak Industries Inc.* 2,900 74,675
</TABLE>
See accompanying Notes to Financial Statements.
92
<PAGE> 110
SchwabFunds(R) 8
- --------------------------------------------------------------------------------
SCHWAB SMALL-CAP INDEX FUND(TM)
STATEMENT OF NET ASSETS
October 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
--------- -------
<S> <C> <C>
Oakwood Homes Corp. 3,700 $87,875
Oceaneering International, Inc.* 3,600 46,350
Octel Communications Corp.* 4,400 95,150
Offshore Logistics, Inc.* 2,800 36,225
Offshore Pipelines, Inc.* 2,100 42,788
Ogden Projects, Inc.* 600 10,500
Omega Environmental, Inc.* 5,000 30,000
Omnicare, Inc. 1,100 40,150
One Valley Bancorp of West Virginia, Inc. 2,800 83,650
Oneok Inc. 4,300 75,788
OrNda Heathcorp* 6,660 106,560
Orange & Rockland Utilities, Inc. 2,500 75,938
Orbital Sciences Corp.* 2,500 53,438
Oregon Steel Mills, Inc. 6,300 107,888
Orion Capital Corp. 2,300 70,438
Oshkosh B'Gosh, Inc. Class A 2,400 35,700
Oshkosh B'Gosh, Inc. Class B 200 2,975
Otter Tail Power Co. 1,600 52,200
Outboard Marine Corp. 3,400 70,125
Owens & Minor, Inc. 5,100 75,863
Oxford Health Plans, Inc. 1,300 107,250
Oxford Industries, Inc. 1,600 40,800
PAXAR Corp. 2,750 29,219
PLATINUM technology, inc.* 3,200 71,200
PXRE Corp. 1,100 27,225
Pacific Crest Capital, Inc.* 126 725
Papa John's International* 1,900 60,563
Paragon Trade Brands* 1,800 43,200
Park Communications, Inc.* 3,100 87,188
Park National Corp. 800 31,600
Parker Drilling Co.* 11,100 67,988
Patterson Dental Co. 3,850 72,669
Penn Traffic Co.* 1,900 78,375
PennCorp Financial Group, Inc. 2,900 45,675
Pentair, Inc. 700 29,488
People's Bank Bridgeport Connecticut 5,200 67,925
PeopleSoft, Inc.* 1,900 117,800
Peoples Choice TV Corp.* 1,100 21,725
Peoples Heritage Financial Group, Inc. 2,800 39,550
PerSeptive Biosystems, Inc.* 2,000 22,125
Petroleum Heat and Power Co., Inc. Class A 3,200 28,400
Petrolite Corp. 1,900 56,525
Pharmaceutical Resources, Inc.* 1,800 17,100
Philadelpia Suburban Corp. 1,300 23,075
PhyCor, Inc.* 1,600 54,800
Physicians Health Services, Inc.* 600 15,225
PictureTel Corp.* 2,300 44,850
Piedmont Natural Gas Co., Inc. 4,800 96,600
Pier 1 Imports, Inc. 5,600 43,400
Pikeville National Corp. 1,200 27,600
Pilgrim's Pride Corp. 4,500 45,000
Pillowtex Corp.* 2,100 25,725
Pioneer Group, Inc. 2,000 94,000
Pioneer-Standard Electronics, Inc. 2,550 46,219
Piper Jaffray Inc. 4,600 53,475
Pittston Minerals Group 900 21,600
Pittway Corp. 300 11,213
Pittway Corp. Class A 1,400 51,100
Plains Petroleum Co. 1,200 32,400
Platinum Software Corp. 1,500 17,906
Playboy Enterprises, Inc. Class B* 2,100 17,325
Players International, Inc.* 2,800 62,825
Ply-Gem Industries, Inc. 2,200 47,300
Poe & Brown, Inc. 1,500 32,063
Pogo Producing Co. 700 15,663
Policy Management Systems Corp.* 2,000 94,000
Pope & Talbot, Inc. 1,800 31,950
Powersoft Corp.* 1,500 95,250
Precision Castparts Corp. 3,300 75,488
Premier Bancorp, Inc. 4,600 75,325
President Riverboat Casinos, Inc. 4,700 38,188
Presidential Life Corp. 6,800 40,375
Presstek, Inc. 1,125 37,898
Primark Corp.* 3,500 45,500
Prime Hospitality Corp.* 5,500 42,625
Production Operators Corp. 1,600 41,000
Proffitt's, Inc.* 1,600 28,800
Progress Software Corp.* 900 28,238
Protective Life Corp. 2,200 99,000
Protein Design Labs, Inc.* 2,500 43,438
Provident Bancorp, Inc. 2,800 94,850
Public Service Co. of New Mexico* 6,300 77,963
Public Service Co. of North Carolina, Inc. 3,300 48,263
Pulitzer Publishing Co. 2,100 75,075
Puritan-Bennett Corp. 4,200 108,938
Purolator Products Co. 1,600 39,800
Quaker State Corp. 4,100 55,863
Quality Food Centers, Inc. 3,100 66,650
Quanex Corp. 2,100 52,238
Quantum Corp.* 8,100 123,525
Quantum Health Resources, Inc.* 2,600 94,900
Queens County Bancorp 1,200 31,200
Quick & Reilly Group, Inc. 1,680 43,260
REN Corporation-USA* 2,200 27,500
Raymond James Financial, Inc. 2,800 42,000
Read-Rite Corp.* 5,900 102,144
Reading & Bates Corp. (New)* 10,600 71,550
Recognition International, Inc.* 1,800 13,275
Recoton Corp. 1,900 35,625
Regal-Beloit Corp. 2,800 39,200
Regency Health Services* 3,300 37,538
Reinsurance Group of America, Inc. 3,000 66,750
Reliance Group Holdings, Inc. 18,600 113,925
Republic Bancorp Inc. 2,750 33,000
Rexall Sundown, Inc. 2,700 28,181
Richfood Holdings, Inc. 3,500 56,000
</TABLE>
See accompanying Notes to Financial Statements.
93
<PAGE> 111
SchwabFunds(R) 9
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
--------- -------
<S> <C> <C>
Riggs National Corp.* 11,100 $101,288
Rio Hotel and Casino, Inc.* 3,900 50,700
Rival Co. 1,500 38,250
River Forest Bancorp, Inc. 1,200 40,350
RoTech Medical Corp.* 1,800 46,125
Robert Half International Inc. 4,600 98,900
Roberts Pharmaceutical Corp.* 3,100 82,538
Rochester Community Savings Bank 2,300 42,263
Rohr Inc.* 6,600 60,225
Rollins Environmental Services, Inc. 11,500 67,563
Rollins Leasing Corp. 8,400 98,700
Roosevelt Financial Group, Inc. 3,300 49,913
Roper Industries, Inc. 2,600 63,050
Ross Stores, Inc. 4,000 56,000
Ruddick Corp. 4,200 81,900
Russ & Berrie Co., Inc. 3,500 47,688
Ryan's Family Steak Houses, Inc.* 21,100 134,513
Ryland Group, Inc. 2,900 46,763
S & T Bancorp, Inc. 2,000 40,250
S.E. Rykoff & Co.* 1,400 28,175
S3, Inc. 2,500 35,625
SCI Systems, Inc.* 4,800 87,000
SCIMED Life Systems, Inc.* 2,800 134,050
SCOR Reinsurance U.S. Corp. 2,200 24,475
SEI Corp. 2,900 60,175
SFFed Corp. 1,400 24,150
SLM Interational, Inc. 3,350 20,519
SPI Pharmaceuticals, Inc. 3,107 71,461
SPX Corp. 2,300 39,963
SafeCard Services, Inc. 3,700 59,200
Safeskin Corp.* 2,200 35,750
Sanifill, Inc.* 2,500 56,875
Santa Cruz Operation, Inc.* 5,500 59,813
Savannah Foods & Industries, Inc. 4,900 61,250
Savoy Pictures Entertainment, Inc.* 4,200 37,275
Sbarro, Inc. 3,000 74,625
Scholastic Corp.* 2,800 128,100
Schuler Homes, Inc.* 3,300 51,563
Scios Nova, Inc.* 5,200 34,450
Scotts Co. Class A* 7,400 114,700
Seabord Corp. 200 36,250
Seafield Capital Corp. 1,100 39,188
Sealed Air Corp.* 3,700 126,263
Sealright Co., Inc. 1,300 22,100
Security Capital Bancorp 2,100 32,550
Seitel, Inc.* 1,000 28,000
Selective Insurance Group, Inc. 4,400 110,550
Sequa Corp. Class A 1,100 26,950
Sequa Corp. Class B 700 19,600
Sequent Computer Systems, Inc.* 5,400 103,275
Shared Medical Systems Corp. 3,900 115,294
Shoe Carnival, Inc. 500 3,250
ShopKo Stores, Inc. 8,800 86,900
Shorewood Packaging Corp.* 2,800 56,350
Showboat, Inc. 2,400 28,800
Sierra Health Services, Inc.* 2,000 65,000
Sierra Pacific Resources 5,400 103,950
Silicon Valley Group, Inc.* 1,000 19,500
Simpson Industries, Inc. 3,000 39,000
Sizzler International, Inc. 11,500 69,000
SkyWest Airlines, Inc. 1,900 38,950
Skyline Corp. 1,300 25,675
Smart & Final Inc. 3,800 56,525
Smith (A.O.) Corp. Class A 1,000 24,500
Smith (A.O.) Corp. Class B 2,600 63,375
Smith International, Inc.* 7,100 118,925
Smith's Food & Drug Centers, Inc. Class B 3,200 82,800
Smithfield Foods, Inc.* 2,600 75,400
Smucker (J.M.) Co. Class B 500 10,688
Snyder Oil Corp. 4,300 74,175
Sodak Gaming Inc.* 1,700 24,013
Sofamor Danek Group, Inc.* 4,600 77,050
Sonat Inc. 5,200 103,350
Sotheby's Holdings, Inc. Class A 700 8,488
South Jersey Industries, Inc. 1,200 20,850
Southdown, Inc.* 6,400 111,200
Southeastern Michigan Gas Enterprises, Inc. 1,890 35,201
Southern California Water Co. 900 14,063
Southern Indiana Gas & Electric Co. 2,866 76,666
Southern Union Co. (New) 2,000 33,750
Southwest Gas Corp. 3,400 58,225
Southwestern Energy Co. 4,200 72,450
Southwestern Life Insurance Co.* 7,200 31,500
Sovereign Bancorp, Inc. 6,280 57,305
SpaceLabs Medical Inc.* 1,700 35,913
Spectravision, Inc.* 1,300 1,381
Spectrum Information Technologies, Inc.* 8,100 13,542
Spelling Entertainment Group, Inc. 12,300 147,600
Sports & Recreation, Inc. 3,000 84,750
Springs Industries, Inc. 3,200 129,200
St. John's Knits, Inc. 1,300 39,650
St. Paul Bancorp, Inc. 3,500 71,969
Standard Microsystems Corp.* 1,900 46,669
Standard Motor Products, Inc. 2,500 45,625
Standard Pacific Corp. 5,800 39,875
Standard Products Co. 2,700 65,138
Standard Register Co. 4,800 85,200
Standex International Corp. 1,800 58,275
Stanhome Inc. 400 13,450
Stant Corp. 2,600 29,250
Starbucks Corp. 1,100 29,838
Starter Corp.* 4,900 36,138
State Auto Financial Corp. 2,100 29,925
Station Casinos Inc.* 4,800 63,600
Steel Technologies Inc. 2,100 25,988
Stein Mart, Inc. 3,600 63,900
Sterling Chemicals, Inc. 10,100 122,463
Sterling Software, Inc.* 3,700 115,625
Stewart Enterprises, Inc. Class A 3,700 89,725
</TABLE>
See accompanying Notes to Financial Statements.
94
<PAGE> 112
SchwabFunds(R) 10
- --------------------------------------------------------------------------------
SCHWAB SMALL-CAP INDEX FUND(TM)
STATEMENT OF NET ASSETS
October 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
--------- -------
<S> <C> <C>
Stone & Webster, Inc. 2,700 $87,413
Stone Container Corp.* 6,112 102,376
Stratacom Inc.* 3,100 175,150
Stratus Computer, Inc.* 2,000 74,500
Strawbridge & Clothier Class A 1,700 36,975
Structural Dynamics Research Corp.* 4,300 20,694
Student Loan Corp. 2,800 53,550
Sturm, Ruger & Co., Inc. 2,000 53,000
Summa Four, Inc.* 500 10,375
Summit Bancorp 4,600 96,888
Summit Technology, Inc.* 2,800 79,800
Sun Healthcare Group, Inc.* 3,608 82,984
Sunglass Hut International, Inc.* 1,600 66,600
Sunrise Medical Inc.* 3,300 85,800
Sunshine Mining Co. 23,000 48,875
Supercuts, Inc.* 1,200 13,200
Surgical Care Affiliates, Inc. 7,150 140,319
Susquehanna Bancshares, Inc. 1,700 39,525
Swift Transportation Co. 2,100 90,825
SyStemix, Inc.* 1,200 18,750
Sybron Corp.* 1,900 65,788
Symantec Corp.* 6,000 107,250
Symbol Technologies, Inc.* 4,300 145,125
Symmetricom, Inc.* 1,600 19,300
Syncor International Corp.* 700 5,950
Synergen, Inc.* 6,800 36,975
Synetic, Inc.* 3,300 54,038
Synopsys, Inc.* 300 13,838
Syratech Corp.* 1,600 29,400
System Software Associates, Inc. 4,600 57,213
Systems & Computer Technology Corp.* 1,700 33,788
TBC Corp.* 4,300 41,656
TCA Cable TV, Inc. 4,000 94,000
TCF Financial Corp. 2,000 78,000
TJ International 3,100 55,800
TNP Enterprises, Inc. 1,300 18,038
TNT Freightways Corp. 3,500 89,688
Taco Cabana Class A 2,500 19,844
Tandycrafts, Inc.* 1,900 22,800
Tech Data Corp. 9,000 176,625
Tecnol Inc.* 3,200 50,800
Tejas Gas Corp.* 1,800 81,450
Tejon Ranch Co. 1,900 25,888
Teleflex Inc. 2,450 94,938
Telxon Corp. 2,500 33,125
Tencor Instruments* 1,900 83,600
Tennant Co. 900 41,063
Terra Industries, Inc. 25,800 274,125
Tesoro Petroleum Corp.* 4,600 43,125
Tetra Tech, Inc. (New) 3,125 60,156
Texas Industries, Inc. 1,800 57,600
Thermedics Inc. 4,800 72,600
Thermo Cardiosystems Inc. 3,300 58,163
Thermo Fibertek, Inc.* 10,700 164,513
Thermotrex Corp. 2,700 41,175
Thiokol Corp. 3,000 73,875
Thomas Nelson, Inc. 2,100 40,163
Thor Industries, Inc. 1,200 24,600
Tiffany & Co. (New) 2,700 105,300
Timberland Co. Class A* 1,400 47,425
Titan Wheel International, Inc. 200 5,750
Toll Brothers, Inc.* 5,700 62,700
Topps Co., Inc. 7,500 43,594
Toro Co. 2,100 58,275
Transco Energy Co. 1,100 15,813
Trenwick Group Inc. 1,100 40,563
TriMas Corp. 2,500 57,813
Triarc Cos., Inc. Class A* 3,900 45,338
Trident NGL Holding, Inc. 6,000 63,750
Trimble Navigation Ltd.* 3,100 44,369
Trust Co. of New Jersey (New) 3,900 57,525
TrustCo Bank Corp NY 2,420 47,190
Trustmark Corp. 5,300 94,075
Tuscon Electric Power Co.* 26,000 91,000
Tyco Toys, Inc. 5,900 38,350
U.S. Bioscience, Inc.* 7,600 55,100
U.S. Can Corp.* 1,800 29,025
U.S. Home Corp. (New)* 1,200 19,050
U.S. Robotics, Inc.* 2,100 83,738
U.S. Trust Corp. 1,500 90,750
UMB Financial Corp. 3,240 104,895
UNR Industries, Inc. 9,700 58,806
USAir Group, Inc.* 9,800 42,875
USLICO Corp. 2,800 56,000
UST Corp.* 3,200 36,400
UniFirst Corp. 3,000 35,625
Unilab Corp. (New)* 6,600 32,588
Union Planters Corp. 2,700 62,100
Union Switch & Signal* 2,600 41,275
United Bankshares, Inc. 1,900 46,550
United Carolina Bancshares Corp. 2,400 62,100
United Companies Financial Corp. 2,200 72,325
United Fire & Casualty Co. 700 29,400
United Illuminating Co. 2,300 70,150
United Insurance Companies, Inc.* 1,500 46,125
United International Holdings Inc. 1,600 24,200
United Meridian Corp.* 3,900 57,038
United States Shoe Corp. 4,000 71,500
United Stationers Inc. 6,000 59,250
United Television, Inc.* 1,500 79,313
United Waste Systems, Inc.* 3,400 81,175
United Water Resources Inc. 6,000 82,500
United Wisconsin Services, Inc. 2,200 80,850
Unitog Co. 1,650 30,319
Unitrode Corp.* 1,600 30,800
Univar Corp. 2,300 31,913
Universal Health Services, Inc. Class B* 1,800 47,925
VISX, Inc.* 1,800 21,825
VLSI Technology, Inc.* 5,900 76,331
Valassis Communications, Inc. 2,900 44,225
Valence Technology, Inc.* 2,700 8,775
Valhi, Inc. 21,000 141,750
Valmont Industries, Inc. 1,600 27,400
</TABLE>
See accompanying Notes to Financial Statements.
95
<PAGE> 113
SchwabFunds(R) 11
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
--------- -------
<S> <C> <C>
Value City Department Stores, Inc.* 5,900 $67,113
Value Health, Inc.* 1,232 47,740
Value Line, Inc. 1,700 53,550
Varco International, Inc.* 9,900 69,300
Vencor, Inc. 4,650 138,919
Ventritex, Inc.* 3,700 96,200
Venture Stores, Inc. 2,900 44,950
VeriFone, Inc.* 4,300 95,675
Vertex Pharmaceuticals, Inc.* 2,500 33,438
Vesta Insurance Group 1,500 39,563
Vicor Corp.* 3,600 100,800
Victoria Bankshares, Inc. 1,000 25,750
ViewLogic Systems, Inc.* 2,300 50,600
Vigoro Corp. 3,300 101,475
Vintage Petroleum, Inc. 3,700 71,688
Viratek, Inc. 2,295 26,679
Vivra Inc. 2,800 79,100
W.H. Brady Co. Class A 900 2,975
WD-40 Co. 1,200 51,450
WHX Corp.* 11,000 165,000
WICOR, Inc. 2,300 65,838
WLR Foods, Inc. 1,800 47,250
WMS Industries Inc.* 4,000 70,500
Waban, Inc.* 6,000 106,500
Wabash National Corp. 3,000 104,250
Walbro Corp. 1,400 25,025
Wall Data, Inc.* 1,500 54,938
Wallace Computer Services, Inc. 1,400 38,850
Washington Energy Co. 3,800 51,775
Washington National Corp. 4,900 105,963
Waterhouse Securities, Inc. 1,600 25,800
Watson Pharmaceuticals, Inc.* 2,600 68,250
Watts Industries, Inc. Class A 3,100 74,400
Weatherford International Inc.* 3,500 39,813
Webb (Del) Corp. 2,100 33,863
Weirton Steel Corp.* 4,300 37,088
Welbilt Corp.* 1,500 37,313
Wellman, Inc. 500 16,438
Werner Enterprises, Inc. 500 12,688
WesBanco, Inc. 1,400 38,325
West Company, Inc. 3,000 84,375
Westamerica Bank 1,000 32,000
Westcorp Financial Services 4,130 39,235
Westcott Communications, Inc. 2,900 39,875
Western Co. of North America* 2,900 51,475
Western Digital Corp.* 8,200 139,400
Western Waste Industries* 2,400 42,000
WestPoint Stevens, Inc.* 5,600 82,600
Westwood One, Inc.* 5,000 47,813
White River Corp.* 1,000 32,875
Whitney Holding Corp. 2,400 54,300
Whole Foods Market, Inc. 1,900 29,213
Williams-Sonoma, Inc. 4,200 145,950
Winnebago Industries, Inc. 4,100 36,388
Wisconsin Central Transportation Corp. 2,800 129,150
Wolverine Tube, Inc.* 2,000 50,250
Wolverine World Wide, Inc. 1,700 41,650
Worthen Bank & Trust Co. 2,500 71,563
Wyle Laboratories 2,300 42,550
X-Rite, Inc. 1,600 58,600
XCL Limited* 20,500 28,188
Xircom, Inc.* 2,500 43,438
Yankee Energy System, Inc. 1,900 42,513
Yellow Corp. 5,100 99,131
Younkers, Inc.* 1,000 19,625
Zebra Technologies Corp. Class A* 900 36,563
Zenith Electronics Corp.* 7,700 107,800
Zenith Laboratories, Inc. (New) 2,400 57,000
Zenith National Insurance Corp. 3,100 73,238
Zero Corp. 1,900 24,463
Zilog, Inc.* 400 11,600
Zions Bancorp 2,300 86,408
Zurn Industries, Inc. 2,000 36,500
1st Source Corp. 1,145 28,482
3DO Co.* 3,200 53,200
-----------
TOTAL COMMON STOCK(Cost $64,786,151) 65,383,543
Maturity -----------
--------
REPURCHASE AGREEMENT--4.0%
State Street Bank & Trust 4.25%
Dated 10/31/94
Due 11/01/94
Collateralized By:
U.S. Treasury Bill
$2,860,000 Par;
Due 4/30/95 $2,730,000 2,730,000
-----------
TOTAL REPURCHASE AGREEMENT
(Cost $2,730,000) 2,730,000
-----------
TOTAL INVESTMENTS -- 100.0%
(Cost $67,516,151) 68,113,543
-----------
OTHER ASSETS AND LIABILITIES -- 0.0%
Other Assets 230,704
Liabilities (216,246)
-----------
14,458
-----------
NET ASSETS -- 100.0%
Applicable to 6,779,517
outstanding $0.00001
par value shares
(unlimited shares authorized) $68,128,001
===========
NET ASSET VALUE PER SHARE $ 10.05
===========
</TABLE>
- ---------------
*Non-Income Producing Security
See accompanying Notes to Financial Statements.
96
<PAGE> 114
SchwabFunds(R) 12
- --------------------------------------------------------------------------------
SCHWAB SMALL-CAP INDEX FUND(TM)
STATEMENT OF OPERATIONS
For the period December 3, 1993 (commencement of operations) to October 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Investment income:
Dividends $ 588,017
Interest 112,525
-----------
Total investment income 700,542
-----------
Expenses:
Investment advisory and administration fee 258,394
Transfer agency and shareholder service fees 129,197
Custodian fees 82,467
Registration fees 32,217
Professional fees 28,173
Shareholder reports 48,377
Trustees' fees 18,495
Amortization of deferred organization costs 13,320
Insurance and other expenses 4,609
-----------
615,249
Less expenses reduced and absorbed (267,476)
-----------
Total expenses incurred by Fund 347,773
-----------
Net investment income 352,769
-----------
Net realized gain (loss) on investments:
Proceeds from sales of investments 8,478,561
Cost of investments sold (9,006,296)
-----------
Net realized loss on investments sold (527,735)
-----------
Net unrealized appreciation on investments:
Beginning of period --
End of period 597,392
-----------
Net unrealized appreciation on investments 597,392
-----------
Net gain on investments 69,657
-----------
Net increase in net assets resulting from operations $ 422,426
===========
</TABLE>
See accompanying Notes to Financial Statements.
97
<PAGE> 115
SchwabFunds(R) 13
- --------------------------------------------------------------------------------
SCHWAB SMALL-CAP INDEX FUND(TM)
STATEMENT OF CHANGES IN NET ASSETS
For the period December 3, 1993 (commencement of operations) to October 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Operations:
Net investment income $ 352,769
Net realized loss on investments sold (527,735)
Net unrealized appreciation on investments 597,392
------------
Net increase in net assets resulting from operations 422,426
------------
Dividends to shareholders from net investment income (56,830)
Capital Share Transactions:
Proceeds from shares sold 78,645,543
Net asset value of shares issued in reinvestment of dividends 52,690
Early withdrawal fees 27,385
Less payments for shares redeemed (10,963,213)
------------
Increase in net assets from capital share transactions 67,762,405
------------
Total increase in net assets $ 68,128,001
Net Assets:
Beginning of period --
------------
End of period (including undistributed net
Investment income of $295,939) $ 68,128,001
============
Number of Fund Shares:
Sold 7,883,827
Reinvested 5,322
Redeemed (1,109,632)
------------
Net increase in shares outstanding 6,779,517
Shares Outstanding:
Beginning of period --
------------
End of period 6,779,517
============
</TABLE>
See accompanying Notes to Financial Statements.
98
<PAGE> 116
SchwabFunds(R) 14
- --------------------------------------------------------------------------------
SCHWAB SMALL-CAP INDEX FUND(TM)
NOTES TO FINANCIAL STATEMENTS
For the period December 3, 1993 (commencement of operations) to October 31, 1994
- --------------------------------------------------------------------------------
1. DESCRIPTION OF THE FUND
The Schwab Small-Cap Index Fund (the "Fund") is a series of Schwab Capital Trust
(the "Trust"), an open-end, management investment company organized as a
Massachusetts business trust on May 7, 1993 and registered under the Investment
Company Act of 1940, as amended. The Fund commenced operations on December 3,
1993.
In addition to the Fund, the Trust also offers the Schwab International Index
Fund(TM). The assets of each series are segregated and accounted for separately.
The investment objective of the Fund is to attempt to track the price and
dividend performance (total return) of the Schwab Small-Cap Index(TM), an index
created to represent the performance of the second 1,000 largest publicly traded
common stocks issued by United States companies.
2. SIGNIFICANT ACCOUNTING POLICIES
Security valuation -- Investments in securities traded on an exchange 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.
Unlisted securities for which market quotations are readily available are valued
at the mean between the most recent bid and asked prices. Securities for which
no quotations are readily available are valued at fair value as determined in
good faith by the Fund's sub-advisor pursuant to Board of Trustees guidelines.
Short-term securities with 60 days or less to maturity are stated at amortized
cost, which approximates market value.
Security transactions and investment income -- Security transactions, in the
accompanying financial statements, are accounted for on a trade date basis (date
the order to buy or sell is executed). Dividend income and distributions to
shareholders are recorded on the ex-dividend date; interest income is recorded
on the accrual basis. Realized gains and losses from security transactions are
determined on an identified cost basis.
Repurchase agreements -- Repurchase agreements are fully collateralized by U.S.
Treasury or Government agency securities. All collateral is held by the Fund's
custodian and is monitored daily to ensure that its market value at least equals
the repurchase price under the agreement.
Deferred organization costs -- Costs incurred in connection with the
organization of the Fund, its initial registration with the Securities and
Exchange Commission and with various states are amortized on a straight-line
basis over a five year period from the Fund's commencement of operations.
Expenses -- Expenses arising in connection with the Fund are charged directly to
the Fund. Expenses common to all series of the Trust are allocated to each
series in proportion to their relative net assets.
Federal income taxes -- It is the 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. The Fund is considered a separate entity for tax purposes.
99
<PAGE> 117
SchwabFunds(R) 15
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
At October 31, 1994, (for financial reporting and federal income tax purposes),
net unrealized appreciation aggregated $597,392 of which $7,021,886 related to
appreciated securities and $6,424,494 related to depreciated securities.
3. TRANSACTIONS WITH AFFILIATES
Investment advisory and administration agreement -- The Trust has an investment
advisory and administration agreement with Charles Schwab Investment Management,
Inc. (the "Investment Manager"). For advisory services and facilities furnished,
the Fund pays an annual fee, payable monthly, of .50% of the first $300 million
of average daily net assets and .45% of such assets over $300 million. Under
this agreement, the Fund incurred investment advisory and administration fees of
$258,394 during the period from December 3, 1993 (commencement of operations) to
October 31, 1994, before the Investment Manager reduced its fee (see Note 5).
Sub-advisory agreement -- The Investment Manager has a sub-advisory agreement
with Dimensional Fund Advisors Inc. ("Dimensional") to perform day-to-day
portfolio management for the Fund. Dimensional does not receive compensation
directly from the Fund. However, the Investment Manager pays Dimensional an
annual fee, payable monthly, of .10% of the first $300 million of average daily
net assets and .05% of such assets over $300 million.
Transfer agency and shareholder service agreements -- The Trust has 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 .05% of average daily net assets for transfer
agency services and .20% of such assets for shareholder services. For the period
from December 3, 1993 (commencement of operations) to October 31, 1994, the Fund
incurred transfer agency and shareholder service fees of $129,197, before Schwab
reduced its fees (see Note 5).
Officers and trustees -- During the period, certain officers and trustees of the
Trust were also officers or directors of the Investment Manager, Schwab or
Dimensional. During the period ended October 31, 1994, the Trust made no direct
payments to its officers or trustees who were "interested persons" within the
meaning of the Investment Company Act of 1940, as amended. The Fund incurred
fees of $18,495 related to the Trust's unaffiliated trustees.
4. BORROWING AGREEMENT
The Trust has an arrangement with State Street Bank and Trust Company, the
Fund's custodian, whereby the Fund may borrow up to $10,000,000, on a temporary
basis, to fund redemptions. Amounts borrowed under this arrangement bear
interest at periodically negotiated rates and may be collateralized by the
assets of the Fund. During the period December 3, 1993 (commencement of
operations) to October 31, 1994, no borrowings were made under this arrangement.
100
<PAGE> 118
SchwabFunds(R) 16
- --------------------------------------------------------------------------------
SCHWAB SMALL-CAP INDEX FUND(TM)
NOTES TO FINANCIAL STATEMENTS
For the period December 3, 1993 (commencement of operations) to October 31, 1994
- --------------------------------------------------------------------------------
5. EXPENSES REDUCED AND ABSORBED BY THE INVESTMENT MANAGER AND SCHWAB
The Investment Manager and Schwab reduced a portion of their fees and absorbed
certain expenses in order to limit the Fund's ratio of operating expenses to
average net assets. For the period from December 3, 1993 (commencement of
operations) to October 31, 1994, the total of such fees and expenses reduced and
absorbed by the Investment Manager was $153,640 and the total of such fees
reduced by Schwab was $113,836.
6. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities, other than short-term obligations,
aggregated $73,792,447 and $8,478,561, respectively, for the period from
December 3, 1993 (commencement of operations) to October 31, 1994.
7. EARLY WITHDRAWAL FEES PAID TO THE FUND
The Fund assesses a .50% early withdrawal fee on redemption proceeds
attributable to shares purchased and held less than six months. The early
withdrawal fee is retained by the Fund and is treated as a contribution to
capital. For the period from December 3, 1993 (commencement of operations) to
October 31, 1994, total early withdrawal fees retained by the Fund amounted to
$27,385.
8. COMPOSITION OF NET ASSETS
At October 31, 1994, net assets consisted of:
<TABLE>
<S> <C>
Capital paid in $67,762,405
Accumulated undistributed net investment income 295,939
Accumulated net realized loss on investments sold (527,735)
Net unrealized appreciation on investments 597,392
-----------
Total $68,128,001
===========
</TABLE>
At October 31, 1994, the Fund's Statement of Net Assets included liabilities of
$106,248 for Fund shares redeemed and $24,610 for investment advisory and
administration fee payable.
101
<PAGE> 119
SchwabFunds(R) 17
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
9. FINANCIAL HIGHLIGHTS
Per share income and capital changes for a share outstanding throughout the
period, from December 3, 1993 (commencement of operations) to October 31, 1994:
<TABLE>
<S> <C>
Net asset value at beginning of period $ 10.00
Income from Investment Operations
Net investment income .06
Net realized and unrealized gain (loss) on investments --
-----------
Total from investment operations .06
Less Distributions
Dividends from net investment income (.01)
Distributions from realized gain on investments --
-----------
Total distributions (.01)
Net asset value at end of period $ 10.05
===========
Total return (%) .63
Ratios/Supplemental Data
Net assets, end of period $68,128,001
Ratio of expenses to average net assets (%)* .67
Ratio of net investment income to average net assets (%)* .68
Portfolio turnover rate (%) 16
</TABLE>
The Investment Manager and Schwab have reduced a portion of their fees and
absorbed certain expenses in order to limit the Fund's ratio of operating
expenses to average net assets. Had these fees and expenses not been reduced and
absorbed, the ratio of expenses to average net assets for the period ended
October 31, 1994, would have been 1.19%*, and the ratio of net investment income
to average net assets would have been .16%*.
* Annualized
102
<PAGE> 120
SchwabFunds(R) 18
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
To the Board of Trustees
and Shareholders of the Schwab Small-Cap Index Fund(TM)
In our opinion, the accompanying statement of net assets and the related
statements of operations and of changes in net assets present fairly, in all
material respects, the financial position of the Schwab Small-Cap Index Fund(TM)
(one of the series constituting Schwab Capital Trust, hereafter referred to as
the "Trust") at October 31, 1994, the results of its operations and the changes
in its net assets for the period presented, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Trust's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our audit
of these financial statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit, which included confirmation of securities at October 31, 1994 by
correspondence with the custodian, provides a reasonable basis for the opinion
expressed above.
PRICE WATERHOUSE LLP
San Francisco, California
November 30, 1994
1994 SPECIAL TAX INFORMATION (UNAUDITED)
Notice to Corporate Shareholders
- -------------------------------------------------------------------------------
100% of the Fund's distributions for the fiscal year ended October 31, 1994
qualify for the corporate dividends received deduction.
- -------------------------------------------------------------------------------
103
<PAGE> 121
PART C
OTHER INFORMATION
DECEMBER 15, 1995
SCHWAB CAPITAL TRUST
Item 24. Financial Statements and Exhibits.
(a) Financial Statements for Schwab International Index Fund(TM) and
Schwab Small-Cap Index Fund(TM) (as of the filing date of this
Post-Effective Amendment, Schwab Asset Director-High Growth,
Schwab Asset Director-Balanced, and Schwab Asset Director
conservative (the "Asset Director Funds") had no financial
statements):
-- Incorporated by reference to Prospectuses for Schwab
International Index Fund and Schwab Small-Cap Index Fund
filed with the Securities and Exchange Commission under
Rule 497(e) on June 30, 1995
-- Condensed Financial Information
-- Included in Part B, Statement of Additional Information:
-- Statement of Net Assets for Schwab International
Index Fund as of October 31, 1994 (Audited)
-- Statement of Operations for Schwab International
Index Fund for the year ended October 31, 1994
(Audited)
-- Statement of Changes in Net Assets for Schwab
International Index Fund for the year ended
October 31, 1994 (Audited)
-- Notes to Financial Statements for Schwab
International Index Fund for the year ended
October 31, 1994 (Audited)
-- Report of the Independent Accountants for Schwab
International Index Fund, dated November 30, 1994
-- Statement of Net Assets for Schwab Small-Cap
Index Fund for the year ended October 31, 1994
-- Statement of Operations for Schwab Small-Cap
Index Fund for the period December 3, 1993
(commencement of operations) to October 31, 1994
(Audited)
-- Statement of Changes in Net Assets for Schwab
Small-Cap Index Fund for the period December 3,
1993 (commencement of operations) to October 31,
1994 (Audited)
C-1
<PAGE> 122
-- Notes to Financial Statements for Schwab
Small-Cap Index Fund(TM) for the period December
3, 1993 (commencement of operations) to October
31, 1994 (Audited)
-- Report of the Independent Accountants for Schwab
Small-Cap Index Fund, dated November 30, 1994
(b) Exhibits:
(1) -- Agreement and Declaration of Trust is
incorporated by reference to Exhibit (1) to
Registrant's Registration Statement on Form
N-1A, filed on May 10, 1993
(2) -- Amended and Restated By-Laws are incorporated
by reference to Exhibit (2) to Post-Effective
Amendment No. 4 to Registrant's Registration
Statement on Form N-1A, filed on February 24,
1995
(3) -- Inapplicable
(4) (a) -- Article III, Section 5, Article V, Article
VI, Article VIII, Section 4 and Article IX,
Sections 1, 5 and 7 of the Agreement and
Declaration of Trust is incorporated by
reference to Exhibit (1) to Registrant's
Registration Statement on Form N-1A, filed on
May 10, 1993
(b) -- Article 9, Article 10, Section 6 and Article
11 of the By-Laws is incorporated by
reference to Exhibit (2) to Post-Effective
Amendment No. 4 to Registrant's Registration
Statement on Form N-1A, filed on February 24,
1995
(5) (a) -- Investment Advisory and Administration
Agreement between Registrant and Charles
Schwab Investment Management, Inc. (the
"Investment Manager") is incorporated by
reference to Exhibit (5)(a) to Post-Effective
Amendment No. 4 to Registrant's Registration
Statement on Form N-1A, filed on February 24,
1995
(b) -- Revised Schedules to Investment Advisory and
Administration Agreement referred to at
Exhibit 5(a) above are filed herewith
(c) -- Investment Sub-Advisory Agreement between
Investment Manager and Symphony Asset
Management, Inc. ("Symphony") is filed
herewith
(6) (a) -- Distribution Agreement between Registrant and
Charles Schwab & Co., Inc. ("Schwab") is
incorporated by reference to Exhibit (6)(a)
to Post-Effective Amendment No. 1 to
Registrant's Registration Statement on Form
N-1A, filed on August 16, 1993
C-2
<PAGE> 123
(b) -- Revised Schedule to the Distribution
Agreement referred to at Exhibit (6)(a) above
is filed herewith
(7) -- Inapplicable
(8) (a) -- Custodian Agreement between Registrant and
State Street Bank and Trust Company is
incorporated by reference to Exhibit (8)(a)
to Post-Effective Amendment No. 2 to
Registrant's Registration Statement on Form
N-1A, filed on February 25, 1994
(b) -- Revised Schedules to the Custodian Agreement
referred to at Exhibit (8)(a) above are filed
herewith
(c) -- Transfer Agency Agreement between Registrant
and Schwab is incorporated by reference to
Exhibit (8)(b) to Post-Effective Amendment
No. 1 to Registrant's Registration Statement
on Form N-1A, filed on August 16, 1993
(d) -- Revised Schedules to the Transfer Agency
Agreement referred to at Exhibit (8)(c) above
are filed herewith
(e) -- Shareholder Service Agreement between
Registrant and Schwab is incorporated by
reference to Exhibit (8)(c) to Post-Effective
Amendment No. 1 to Registrant's Registration
Statement on Form N- 1A, filed on August 16,
1993
(f) -- Revised Schedules to the Shareholder Service
Agreement referred to at Exhibit (8)(e) above
are filed herewith
(9) -- License Agreement between Schwab Capital
Trust and Standard & Poor's is filed herewith
(10) -- Opinion and Consent of Ropes & Gray as to
legality of the securities being registered
is incorporated by reference to Registrant's
Rule 24f-2 Notice, filed on December 16, 1994
(11) (a) -- Consent of Ropes & Gray is filed herewith
(b) -- Consent of Price Waterhouse LLP, Independent
Accountants, is filed herewith
(12) -- Inapplicable
(13) (a) -- Purchase Agreement for the Schwab
International Index Fund(TM) is incorporated
by reference to Exhibit (13) to
Post-Effective Amendment No. 1 to
Registrant's Registration Statement on Form
N- 1A, filed on August 16, 1993
C-3
<PAGE> 124
(b) -- Purchase Agreement for the Schwab Small-Cap
Index Fund(TM) is incorporated by reference
to Exhibit (13)(b) to Post-Effective
Amendment No. 2 to Registrant's Registration
Statement on Form N-1A, filed on February 25,
1994
(c) -- Purchase Agreement for the Asset Director
Funds is filed herewith
(14) -- Inapplicable
(15) -- Inapplicable
(16) (a) -- Performance calculation for Schwab
International Index Fund is incorporated by
reference to Exhibit (16) to Post-Effective
Amendment No. 2 to Registrant's Registration
Statement on Form N- 1A, filed on February
25, 1994
(b) -- Performance calculation for Schwab Small-Cap
Index Fund is incorporated by reference to
Exhibit (16)(b) to Post-Effective Amendment
No. 4 to Registrant's Registration Statement
on Form N-1A, filed on February 24, 1995
(27) (a) Financial Data Schedule for Schwab International Index
Fund is filed herewith
(b) Financial Data Schedule for Schwab Small-Cap Index Fund
is filed herewith
Item 25. Persons Controlled by or under Common Control with Registrant.
The Charles Schwab Family of Funds, Schwab Investments, Schwab Annuity
Portfolios, and Schwab Advantage Trust each are Massachusetts business trusts
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), are advised by the Investment Manager, and employ Schwab as their
principal underwriter, transfer agent and shareholder services agent. As a
result, The Charles Schwab Family of Funds, Schwab Investments, Schwab Annuity
Portfolios, and Schwab Advantage Trust may be deemed to be under common control
with Registrant.
Item 26. Number of Holders of Registrant's Securities.
As of December 1, 1995, the number of record holders of shares of
beneficial interest for the series of Registrant was:
<TABLE>
<CAPTION>
Name of Fund Number of Record Holders
------------ ------------------------
<S> <C>
Schwab International Index Fund(TM) 1 (for the benefit of 24,771
accounts)
Schwab Small-Cap Index Fund(TM) 1 (for the benefit of 18,559
accounts)
</TABLE>
C-4
<PAGE> 125
<TABLE>
<CAPTION>
Name of Fund Number of Record Holders
------------ ------------------------
<S> <C>
Schwab Asset Director(R)-High Growth 1 (for the benefit of 11,253
Fund accounts)
Schwab Asset Director(R)-Balanced 1 (for the benefit of 6,671
Growth Fund accounts)
Schwab Asset Director(R)-Conservative 1 (for the benefit of 2,321
Growth Fund accounts)
</TABLE>
Item 27. Indemnification.
Article VIII of Registrant's Agreement and Declaration of Trust (Exhibit
(1) hereto, which is incorporated herein by reference) provides in effect that
Registrant will indemnify its officers and trustees against all liabilities and
expenses, including but not limited to amounts paid in satisfaction of
judgments, in compromise, or as fines and penalties, and counsel fees
reasonably incurred by any such officer or trustee in connection with the
defense or disposition of any action, suit, or other proceeding. However, in
accordance with Section 17(h) and 17(i) of the 1940 Act and its own terms, said
Agreement and Declaration of Trust does not protect any person against any
liability to Registrant or its shareholders to which he or she would otherwise
be subject by reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of his or her office.
In any event, Registrant will comply with 1940 Act Releases No. 7221 and 11330
respecting the permissible boundaries of indemnification by an investment
company of its officers and trustees.
Insofar as indemnification for liability arising under the Securities
Act of 1933, as amended (the "1933 Act"), may be permitted to trustees,
officers, and controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, Registrant has been advised that, in the opinion of
the Securities and Exchange Commission, such indemnification is against public
policy as expressed in the 1933 Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by Registrant of expenses incurred or paid by a trustee, officer or
controlling person of Registrant in the successful defense of any action, suit
or proceeding) is asserted by such trustee, officer or controlling person in
connection with the securities being registered, Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the 1933 Act and
will be governed by the final adjudication of such issue.
Item 28. Business and Other Connections of Investment Manager.
(a) Information pertaining to business and other connections of
Registrant's Investment Manager is hereby incorporated by reference to the
Prospectus section captioned "Management of the Fund" and to the section of the
Statement of Additional Information captioned "Management of the Trust" for the
Schwab International Index Fund(TM) and Schwab Small-Cap Index Fund(TM).
Information pertaining to business and other connections of
Registrant's Investment Manager and sub-adviser is incorporated by reference to
the Prospectus section captioned "Management Functions
C-5
<PAGE> 126
and Responsibilities" and to the section of the Statement of Additional
Information captioned "Management of the Trust" for the Asset Director Funds.
Information pertaining to business and other connections of
Registrant's Investment Manager and is incorporated by reference to the
Prospectus section captioned "Management Functions and Responsibilities" and to
the section of the Statement of Additional Information captioned "Management of
the Trust" for the Schwab S&P 500 Fund.
Registrant's Investment Manager, Charles Schwab Investment
Management, Inc., a Delaware corporation, organized in October 1989 to serve as
Investment Manager to The Charles Schwab Family of Funds, also serves as the
Investment Manager to Schwab Investments, Schwab Annuity Portfolios, and Schwab
Advantage Trust, each an open-end management investment company. The principal
place of business of the Investment Manager is 101 Montgomery Street, San
Francisco, California 94104. The only business in which the Investment Manager
engages is that of investment manager and administrator to Registrant, The
Charles Schwab Family of Funds, Schwab Investments, Schwab Annuity Portfolios,
Schwab Advantage Trust, and any other investment companies that Schwab may
sponsor in the future.
Registrant's sub-investment adviser for the Asset Director Funds
is Symphony. Symphony was formed on March 30, 1994 and, as of June 30, 1995,
manages approximately $600 million. BARRA, Inc. owns 100% of the outstanding
stock of Symphony.
(b) The business, profession, vocation or employment of a substantial
nature in which each director and/or executive officer of Schwab and/or the
Investment Manager is or has been engaged during the past two fiscal years for
his or her own account in the capacity of director, officer, employee, partner
or trustee is as follows:
<TABLE>
<CAPTION>
Name and Position
with Registrant Name of Company Capacity
- ----------------- --------------- --------
<S> <C> <C>
Charles R. Schwab, Charles Schwab & Co., Inc. Founder, Chairman and Director
Chairman and Trustee
The Charles Schwab Corporation Chairman, Chief Executive Officer
and Director
Charles Schwab Investment Chairman and Director
Management, Inc.
The Charles Schwab Trust Company Chairman and Director
Mayer & Schweitzer, Inc. Director
The Gap, Inc. Director
Transamerica Corporation Director
AirTouch Communications Director
Lawrence J. Stupski Charles Schwab & Co., Inc. Director until February 1995; Vice
Chairman until August 1994
</TABLE>
C-6
<PAGE> 127
<TABLE>
<CAPTION>
Name and Position
with Registrant Name of Company Capacity
- ----------------- --------------- --------
<S> <C> <C>
The Charles Schwab Corporation Vice Chairman and Director; Chief
Operating Officer until March 1994
The Charles Schwab Trust Company Director
David S. Pottruck Charles Schwab & Co., Inc. President, Chief Executive Officer,
and Director
The Charles Schwab Corporation President, Chief Operating Officer,
and Director
Charles Schwab Investment Director
Management, Inc.
Mayer & Schweitzer, Inc. Chairman and Chief Executive
Officer and Director
Ronald W. Readmond Charles Schwab & Co., Inc. Vice Chairman and Director; Senior
Executive Vice President and Chief
Operating Officer until January
1995
The Charles Schwab Corporation Executive Vice President; Senior
Executive Vice President until
January 1995
Mayer & Schweitzer, Inc. Director
John P. Coghlan Charles Schwab & Co., Inc. Executive Vice President - Schwab
Institutional
The Charles Schwab Corporation Executive Vice President - Schwab
Institutional
The Charles Schwab Trust Company Director and Executive Vice
President
A. John Gambs, Charles Schwab & Co., Inc. Executive Vice President, Chief
Treasurer and Principal Financial Financial Officer, and Director
Officer
The Charles Schwab Corporation Executive Vice President and Chief
Financial Officer
Charles Schwab Investment Chief Financial Officer and Director
Management, Inc.
The Charles Schwab Trust Company Chief Financial Officer
</TABLE>
C-7
<PAGE> 128
<TABLE>
<CAPTION>
Name and Position
with Registrant Name of Company Capacity
- ----------------- --------------- --------
<S> <C> <C>
Mayer & Schweitzer, Inc. Director
Dawn G. Lepore Charles Schwab & Co., Inc. Executive Vice President and Chief
Information Officer
The Charles Schwab Corporation Executive Vice President and Chief
Information Officer
Daniel O. Leemon The Charles Schwab Corporation Executive Vice President - Business
Strategy
Charles Schwab & Co., Inc. Executive Vice President - Business
Strategy
Timothy F. McCarthy, Charles Schwab Investment Chief Executive Officer
Trustee and President Management, Inc.
Charles Schwab & Co., Inc. Executive Vice President - Mutual
Funds
The Charles Schwab Corporation Executive Vice President - Mutual
Funds
Jardine Fleming Unit Trusts Ltd. Chief Executive Officer (until
October 1995)
Fidelity Investment Advisor Group President (until 1994)
Elizabeth G. Sawi Charles Schwab & Co., Inc. Executive Vice President -
Electronic Brokerage
The Charles Schwab Corporation Executive Vice President -
Electronic Brokerage
John N. Tognino Charles Schwab & Co., Inc. Executive Vice President - Capital
Markets and Trading
The Charles Schwab Corporation Executive Vice President - Capital
Markets and Trading
Mayer & Schweitzer, Inc. Director and Vice Chairman
Luis E. Valencia Charles Schwab & Co., Inc. Executive Vice President - Human
Resources and Administrative
Services
The Charles Schwab Corporation Executive Vice President - Human
</TABLE>
C-8
<PAGE> 129
<TABLE>
<CAPTION>
Name and Position
with Registrant Name of Company Capacity
- ----------------- --------------- --------
<S> <C> <C>
Resources and Administrative
Services
Commercial Credit Corporation Managing Director until February
1994
Christopher V. Dodds Charles Schwab & Co., Inc. Treasurer and Senior Vice President
The Charles Schwab Corporation Treasurer and Senior Vice President
Mayer & Schweitzer, Inc. Treasurer
William J. Klipp, Charles Schwab & Co., Inc. Senior Vice President;
Trustee, Senior Vice President, Treasurer until 1993
and Chief Operating Officer
Charles Schwab Investment President and Chief Operating
Management, Inc. Officer
Mayer & Schweitzer, Inc. Treasurer until 1993
Stephen B. Ward, Charles Schwab Investment Senior Vice President and Chief
Senior Vice President and Chief Management, Inc. Investment Officer
Investment Officer
Frances Cole, Charles Schwab Investment Vice President, Chief Counsel and
Secretary Management, Inc. Compliance Officer, and Assistant
Corporate Secretary
Pamela E. Herlich, The Charles Schwab Corporation Assistant Corporate Secretary
Assistant Secretary
Charles Schwab & Co., Inc. Assistant Corporate Secretary
Charles Schwab Investment Corporate Secretary
Management, Inc.
Mayer & Schweitzer, Inc. Corporate Secretary
David J. Neuman The Charles Schwab Trust Company Corporate Secretary
Mary B. Templeton Charles Schwab Investment Assistant Corporate Secretary
Management, Inc.
The Charles Schwab Corporation Corporate Secretary
</TABLE>
C-9
<PAGE> 130
<TABLE>
<CAPTION>
Name and Position
with Registrant Name of Company Capacity
- ----------------- --------------- --------
<S> <C> <C>
Charles Schwab & Co., Inc. Corporate Secretary
Mayer & Schweitzer Assistant Corporate Secretary
The Charles Schwab Trust Company Assistant Corporate Secretary
Christina M. Perrino Charles Schwab Investment Vice President and Senior Counsel
Assistant Secretary Management, Inc.
David H. Lui Charles Schwab Investment Vice President and Senior Counsel
Assistant Secretary Management, Inc.
</TABLE>
(b) The following information, which is believed to be accurate, is based
upon information provided by Symphony. The business, profession, vocation or
employment of a substantial nature in which each director and/or officer of
Symphony is or has been engaged during the past two fiscal years for his or her
own account in the capacity of director, officer, employee, partner or trustee
is as follows:
<TABLE>
<CAPTION>
Name Name of Company Capacity
- ---- --------------- --------
<S> <C> <C>
Andrew T. Rudd Symphony Asset Management, Inc. Director and Chairman
BARRA, Inc. Director, Chief Executive Officer and
Chairman
Jeffrey L. Skelton Symphony Asset Management, Inc. Director, Chief Executive Officer, and
President
BARRA, Inc. President, BARRA Ventures Div.
Wells Fargo Nikko Investment Advisors President -- WFNIA Europe until 1993
James D. Kirsner Symphony Asset Management, Inc. Director
BARRA, Inc. Chief Financial Officer
Arthur Andersen & Co. Partner until 1993
Maria L. Hekker Symphony Asset Management, Inc. General Counsel and Secretary
BARRA, Inc. Chief Legal Officer
Neil L. Rudolph Symphony Asset Management, Inc. Chief Operating Officer/Chief
Compliance Officer
Wells Fargo Nikko Investment Advisors Managing Director, Chief Operating
Officer -- Mutual Fund Group until 1994
</TABLE>
C-10
<PAGE> 131
<TABLE>
<CAPTION>
Name Name of Company Capacity
- ---- --------------- --------
<S> <C> <C>
Praveen K. Gottipalli Symphony Asset Management, Inc. Director of Investments
BARRA, Inc. Director of Active Strategies, 1994
Michael J. Henman Symphony Asset Management, Inc. Director of Business Development
Wells Fargo Nikko Investment Advisors Managing Director until 1994
</TABLE>
Item 29. Principal Underwriter.
(a) Schwab acts as principal underwriter and distributor of
Registrant's shares. Schwab currently also acts as principal underwriter for
The Charles Schwab Family of Funds, Schwab Investments, Schwab Annuity
Portfolios, Schwab Advantage Trust, and intends to act as such for any other
investment company which Schwab may sponsor in the future.
(b) See Item 28(b) for information on the officers and directors of
Schwab. The principal business address of Schwab is 101 Montgomery Street, San
Francisco, California 94104.
(c) Not applicable.
Item 30. Location of Accounts and Records.
All accounts, books and other documents required to be maintained
pursuant to Section 31(a) of the 1940 Act and the Rules thereunder are
maintained at the offices of: Registrant (transfer agency and shareholder
records); Registrant's investment manager and administrator, Charles Schwab
Investment Management, Inc., 101 Montgomery Street, San Francisco, California
94104; Registrant's former sub-investment adviser, Dimensional Fund Advisors
Inc., 1299 Ocean Avenue, Suite 1100, Santa Monica, California 90401;
Registrant's sub-investment adviser for the Asset Director Funds is Symphony
Asset Management, Inc., 555 California Street, Suite 2975, San Francisco,
California 94104; Registrant's principal underwriter, Charles Schwab & Co.,
Inc., 101 Montgomery Street, San Francisco, California 94104; Registrant's
Custodian and fund accountants, State Street Bank and Trust Company, 225
Franklin Street, Boston, MA 02180 (ledgers, receipts, and brokerage orders); or
Ropes & Gray, counsel to Registrant, 1301 K Street, N.W., Suite 800 East,
Washington, D.C. 20005 (minute books, bylaws, and declaration of trust).
Item 31. Management Services.
Not applicable.
C-11
<PAGE> 132
Item 32. Undertakings.
(a) Registrant undertakes to call a meeting of Shareholders, at the
request of at least 10% of registrant's outstanding shares, for the purpose of
voting upon the question of removal of a trustee or trustees and to assist in
communications with other Shareholders as required by Section (16) of the 1940
Act.
(b) Registrant undertakes to furnish to each person to whom a
prospectus is delivered a copy of Registrant's latest Annual Report to
Shareholders upon request and without charge.
(c) Registrant undertakes to file a post-effective amendment using
financial statements, which need not be audited, for the Asset Director Funds,
within four to six months from the commencement of operations for each the
Schwab Asset Director-High Growth, Schwab Asset Director-Balanced Growth, and
Schwab Asset Director-Conservative Growth.
(d) Registrant undertakes to file a post-effective amendment using
financial statements, which need not be audited, for the Schwab S&P 500 Index
Fund, within four to six months from the commencement of operations for the
Schwab S&P 500 Index Fund.
C-12
<PAGE> 133
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended
(the "1933 Act"), and the Investment Company Act of 1940, as amended,
Registrant has duly caused this Post-Effective Amendment No. 6 to be signed on
its behalf by the undersigned, thereto duly authorized, in the City of San
Francisco, State of California, on the 15th day of December 1995.
SCHWAB CAPITAL TRUST
Registrant
Charles R. Schwab*
------------------------------------------
Charles R. Schwab, Chairman
Pursuant to the requirements of the 1933 Act, this Post-Effective
Amendment No. 6 to Registrant's Registration Statement on Form N-1A has been
signed below by the following persons in the capacities indicated this 15th day
of December 1995.
<TABLE>
<CAPTION>
Signature Title
- --------- -----
<S> <C>
Charles R. Schwab* Chairman and Trustee
- --------------------------
Charles R. Schwab
Timothy F. McCarthy* President and Trustee
- --------------------------
Timothy F. McCarthy
William J. Klipp* Senior Vice President, Chief
- -------------------------- Operating Officer, and Trustee
William J. Klipp
Donald F. Dorward* Trustee
- --------------------------
Donald F. Dorward
Robert G. Holmes* Trustee
- --------------------------
Robert G. Holmes
Donald R. Stephens* Trustee
- --------------------------
Donald R. Stephens
Michael W. Wilsey* Trustee
- --------------------------
Michael W. Wilsey
A. John Gambs* Principal Financial Officer
- --------------------------
A. John Gambs
*By: /s/ Frances Cole
----------------------------------------------
Frances Cole, Attorney-in-Fact pursuant
to Powers of Attorney filed herewith
</TABLE>
<PAGE> 134
POWER OF ATTORNEY
I, the undersigned trustee and officer of The Charles Schwab Family of
Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and
Schwab Advantage Trust (each a "Trust" and collectively the "Trusts"),
Massachusetts business trusts, do hereby constitute and appoint William J.
Klipp, Frances Cole, Martin E. Lybecker and Alan G. Priest, and each of them
singly, my true and lawful attorneys, with full power to them and each of them,
to sign for me and in my name and in the capacity listed below, any and all
amendments to the Registration Statement on Form N-1A of each Trust, and to file
the same with all exhibits thereto, and other documents in connection
thereunder, with the Securities and Exchange Commission, granting unto my said
attorneys, and each of them acting alone, full power and authority to do and
perform each and every act and thing requisite or necessary to be done in the
premises, as fully as to all intents and purposes as he or she might or could do
in person, hereby ratifying and confirming all that said attorneys or any of
them may lawfully do or cause to be done by virtue thereof.
WITNESS my hand on the date set forth below.
November 8, 1995 /s/ Charles R. Schwab
------------------------------
Charles R. Schwab, Trustee and Officer
<PAGE> 135
POWER OF ATTORNEY
I, the undersigned trustee and officer of The Charles Schwab Family of
Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and
Schwab Advantage Trust (each a "Trust" and collectively the "Trusts"),
Massachusetts business trusts, do hereby constitute and appoint Frances Cole,
Martin E. Lybecker and Alan G. Priest, and each of them singly, my true and
lawful attorneys, with full power to them and each of them, to sign for me and
in my name and in the capacity listed below, any and all amendments to the
Registration Statement on Form N-1A of each Trust, and to file the same with all
exhibits thereto, and other documents in connection thereunder, with the
Securities and Exchange Commission, granting unto my said attorneys, and each of
them acting alone, full power and authority to do and perform each and every act
and thing requisite or necessary to be done in the premises, as fully as to all
intents and purposes as he or she might or could do in person, hereby ratifying
and confirming all that said attorneys or any of them may lawfully do or cause
to be done by virtue thereof.
WITNESS my hand on the date set forth below.
November 8, 1995 /s/ William J. Klipp
------------------------------
William J. Klipp, Trustee and Officer
<PAGE> 136
POWER OF ATTORNEY
I, the undersigned trustee and officer of The Charles Schwab Family of
Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and
Schwab Advantage Trust (each a "Trust" and collectively the "Trusts"),
Massachusetts business trusts, do hereby constitute and appoint William J.
Klipp, Frances Cole, Martin E. Lybecker and Alan G. Priest, and each of them
singly, my true and lawful attorneys, with full power to them and each of them,
to sign for me and in my name and in the capacity listed below, any and all
amendments to the Registration Statement on Form N-1A of each Trust, and to file
the same with all exhibits thereto, and other documents in connection
thereunder, with the Securities and Exchange Commission, granting unto my said
attorneys, and each of them acting alone, full power and authority to do and
perform each and every act and thing requisite or necessary to be done in the
premises, as fully as to all intents and purposes as he or she might or could do
in person, hereby ratifying and confirming all that said attorneys or any of
them may lawfully do or cause to be done by virtue thereof.
WITNESS my hand on the date set forth below.
November 8, 1995 /s/ Donald F. Dorward
------------------------------
Donald F. Dorward, Trustee
<PAGE> 137
POWER OF ATTORNEY
I, the undersigned trustee and officer of The Charles Schwab Family of
Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and
Schwab Advantage Trust (each a "Trust" and collectively the "Trusts"),
Massachusetts business trusts, do hereby constitute and appoint William J.
Klipp, Frances Cole, Martin E. Lybecker and Alan G. Priest, and each of them
singly, my true and lawful attorneys, with full power to them and each of them,
to sign for me and in my name and in the capacity listed below, any and all
amendments to the Registration Statement on Form N-1A of each Trust, and to file
the same with all exhibits thereto, and other documents in connection
thereunder, with the Securities and Exchange Commission, granting unto my said
attorneys, and each of them acting alone, full power and authority to do and
perform each and every act and thing requisite or necessary to be done in the
premises, as fully as to all intents and purposes as he or she might or could do
in person, hereby ratifying and confirming all that said attorneys or any of
them may lawfully do or cause to be done by virtue thereof.
WITNESS my hand on the date set forth below.
November 8, 1995 /s/ Robert G. Holmes
------------------------------
Robert G. Holmes, Trustee
<PAGE> 138
POWER OF ATTORNEY
I, the undersigned trustee and officer of The Charles Schwab Family of
Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and
Schwab Advantage Trust (each a "Trust" and collectively the "Trusts"),
Massachusetts business trusts, do hereby constitute and appoint William J.
Klipp, Frances Cole, Martin E. Lybecker and Alan G. Priest, and each of them
singly, my true and lawful attorneys, with full power to them and each of them,
to sign for me and in my name and in the capacity listed below, any and all
amendments to the Registration Statement on Form N-1A of each Trust, and to file
the same with all exhibits thereto, and other documents in connection
thereunder, with the Securities and Exchange Commission, granting unto my said
attorneys, and each of them acting alone, full power and authority to do and
perform each and every act and thing requisite or necessary to be done in the
premises, as fully as to all intents and purposes as he or she might or could do
in person, hereby ratifying and confirming all that said attorneys or any of
them may lawfully do or cause to be done by virtue thereof.
WITNESS my hand on the date set forth below.
November 8, 1995 /s/ Timothy F. McCarthy
------------------------------
Timothy F. McCarthy, Trustee and Officer
<PAGE> 139
POWER OF ATTORNEY
I, the undersigned trustee and officer of The Charles Schwab Family of
Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and
Schwab Advantage Trust (each a "Trust" and collectively the "Trusts"),
Massachusetts business trusts, do hereby constitute and appoint William J.
Klipp, Frances Cole, Martin E. Lybecker and Alan G. Priest, and each of them
singly, my true and lawful attorneys, with full power to them and each of them,
to sign for me and in my name and in the capacity listed below, any and all
amendments to the Registration Statement on Form N-1A of each Trust, and to file
the same with all exhibits thereto, and other documents in connection
thereunder, with the Securities and Exchange Commission, granting unto my said
attorneys, and each of them acting alone, full power and authority to do and
perform each and every act and thing requisite or necessary to be done in the
premises, as fully as to all intents and purposes as he or she might or could do
in person, hereby ratifying and confirming all that said attorneys or any of
them may lawfully do or cause to be done by virtue thereof.
WITNESS my hand on the date set forth below.
November 8, 1995 /s/ Donald R. Stephens
---------------------------
Donald R. Stephens, Trustee
<PAGE> 140
POWER OF ATTORNEY
I, the undersigned trustee and officer of The Charles Schwab Family of
Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and
Schwab Advantage Trust (each a "Trust" and collectively the "Trusts"),
Massachusetts business trusts, do hereby constitute and appoint William J.
Klipp, Frances Cole, Martin E. Lybecker and Alan G. Priest, and each of them
singly, my true and lawful attorneys, with full power to them and each of them,
to sign for me and in my name and in the capacity listed below, any and all
amendments to the Registration Statement on Form N-1A of each Trust, and to file
the same with all exhibits thereto, and other documents in connection
thereunder, with the Securities and Exchange Commission, granting unto my said
attorneys, and each of them acting alone, full power and authority to do and
perform each and every act and thing requisite or necessary to be done in the
premises, as fully as to all intents and purposes as he or she might or could do
in person, hereby ratifying and confirming all that said attorneys or any of
them may lawfully do or cause to be done by virtue thereof.
WITNESS my hand on the date set forth below.
November 8, 1995 /s/ Michael W. Wilsey
---------------------------
Michael W. Wilsey, Trustee
<PAGE> 141
POWER OF ATTORNEY
I, the undersigned trustee and officer of The Charles Schwab Family of
Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and
Schwab Advantage Trust (each a "Trust" and collectively the "Trusts"),
Massachusetts business trusts, do hereby constitute and appoint William J.
Klipp, Frances Cole, Martin E. Lybecker and Alan G. Priest, and each of them
singly, my true and lawful attorneys, with full power to them and each of them,
to sign for me and in my name and in the capacity listed below, any and all
amendments to the Registration Statement on Form N-1A of each Trust, and to file
the same with all exhibits thereto, and other documents in connection
thereunder, with the Securities and Exchange Commission, granting unto my said
attorneys, and each of them acting alone, full power and authority to do and
perform each and every act and thing requisite or necessary to be done in the
premises, as fully as to all intents and purposes as he or she might or could do
in person, hereby ratifying and confirming all that said attorneys or any of
them may lawfully do or cause to be done by virtue thereof.
WITNESS my hand on the date set forth below.
November 8, 1995 /s/ A. John Gambs
---------------------------
A. John Gambs
Principal Financial Officer
<PAGE> 142
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No.
- -----------
<S> <C>
(5)(b) Revised Schedules to the Investment Advisory and
Administration Agreement
(5)(c) Investment Sub-Advisory Agreement
(6)(b) Revised Schedule to the Distribution Agreement
(8)(b) Revised Schedules to the Custodian Agreement
(8)(d) Revised Schedules to the Transfer Agency Agreement
(8)(f) Revised Schedules to the Shareholder Services Agreement
(9) License Agreement
(11)(a) Consent of Ropes & Gray
(11)(b) Consent of Price Waterhouse LLP
(13)(c) Purchase Agreement
(27)(a) Financial Data Schedule for Schwab International Index
Fund
(27)(b) Financial Data Schedule for Schwab Small-Cap Index Fund
</TABLE>
<PAGE> 1
EXHIBIT NO. (5)(b)
REVISED SCHEDULES TO THE INVESTMENT ADVISORY
AND ADMINISTRATION AGREEMENT
<PAGE> 2
SCHEDULE A
<TABLE>
<CAPTION>
Fund Effective Date
- ---- --------------
<S> <C>
Schwab International Index Fund July 21, 1993
Schwab Small-Cap Index Fund October 14, 1993
Schwab Asset Director-High Growth September 25, 1995
Fund
Schwab Asset Director-Balanced September 25, 1995
Growth Fund
Schwab Asset Director-Conservative September 25, 1995
Growth Fund
</TABLE>
SCHWAB CAPITAL TRUST
By: /s/ William J. Klipp
------------------------------
Name: William J. Klipp
Title: Senior Vice President and
Chief Operating Officer
CHARLES SCHWAB INVESTMENT
MANAGEMENT, INC.
By: /s/ Stephen B. Ward
------------------------------
Name: Stephen B. Ward
Title: Senior Vice President
A-1
<PAGE> 3
Dated: September 25, 1995
A-2
<PAGE> 4
SCHEDULE B
ADVISORY FEE SCHEDULE
<TABLE>
<CAPTION>
Fund Fee
- ---- ---
<S> <C>
Schwab International Index Seventy one-hundredths of one percent (0.70%)
Fund of the Fund's average daily net assets not in
excess of $300,000,000 and sixty one-hundredths
of one percent (0.60%) of such assets over
$300,000,000
Schwab Small-Cap Index Fund Fifty one-hundredths of one percent (0.50%) of
the Fund's average daily net assets not in
excess of $300,000,000 and forty-five
one-hundredths of one percent (0.45%) of such
assets over $300,000,000
Schwab Asset Director-High Seventy-four one-hundredths of one percent
Growth Fund (0.74%) of the Fund's average daily net assets
not in excess of $1 billion; sixty-nine
one-hundredths of one percent (0.69%)of such
net assets over $1 billion, but not more than
$2 billion; and sixty-four one-hundredths of
one percent (0.64%) of such net assets over $2
billion
Schwab Asset Director-Balanced Seventy-four one-hundredths of one percent
Growth Fund (0.74%) of the Fund's average daily net assets
not in excess of $1 billion; sixty-nine
one-hundredths of one percent (0.69%)of such
net assets over $1 billion, but not
</TABLE>
B-1
<PAGE> 5
<TABLE>
<CAPTION>
Fund Fee
- ---- ---
<S> <C>
more than $2 billion; and sixty-four
one-hundredths of one percent (0.64%) of such
net assets over $2 billion
Schwab Asset Director- Seventy-four one-hundredths of one percent
Conservative Growth Fund (0.74%) of the Fund's average daily net assets
not in excess of $1 billion; sixty-nine
one-hundredths of one percent (0.69%)of such
net assets over $1 billion, but not more than
$2 billion; and sixty-four one-hundredths of
one percent (0.64%) of such net assets over $2
billion
</TABLE>
SCHWAB CAPITAL TRUST
By: /s/ William J. Klipp
------------------------------
Name: William J. Klipp
Title: Senior Vice President and
Chief Operating Officer
CHARLES SCHWAB INVESTMENT
MANAGEMENT, INC.
By: /s/ Stephen B. Ward
------------------------------
Name: Stephen B. Ward
Title: Senior Vice President
Dated: September 25, 1995
B-2
<PAGE> 1
EXHIBIT NO. (5)(C)
INVESTMENT SUB-ADVISORY AGREEMENT
<PAGE> 2
EXHIBIT (5)(c)
INVESTMENT SUB-ADVISORY AGREEMENT
AGREEMENT executed and effective as of September 12,1995 by and
between CHARLES SCHWAB INVESTMENT MANAGEMENT, INC., a Delaware corporation and
registered investment adviser ("CSIM"), and SYMPHONY ASSET MANAGEMENT, INC., a
California corporation and registered investment adviser ("Symphony").
WHEREAS, CSIM is the investment manager for Schwab Capital Trust (the
"Trust"), an open-end management investment company registered under the
Investment Company Act of 1940, as amended ("1940 Act"); and
WHEREAS, CSIM desires to retain Symphony as CSIM's agent to furnish
various services to the investment portfolios of the Trust listed on Schedule A
hereto (each a "Fund" and collectively the "Funds"); and
WHEREAS, the services to be provided by Symphony under this Agreement
may be construed to be investment advisory services;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto agree as follows:
1. Appointment. CSIM hereby appoints Symphony to provide
services to the Funds for the period and on the terms set forth in this
Agreement. Symphony accepts such appointment and agrees to furnish the
services herein set forth for the compensation herein provided.
2. Delivery of Documents. CSIM has furnished Symphony with
copies properly certified or authenticated of each of the following:
(a) the Trust's Agreement and Declaration of the Trust, as
filed with the Secretary of State of The Commonwealth of Massachusetts
on May
-1-
<PAGE> 3
7, 1993, and all amendments thereto or restatements thereof
(such Declaration, as presently in effect and as it shall from time to
time be amended or restated, is herein called the "Declaration of
Trust");
(b) the Trust's By-Laws and amendments thereto;
(c) resolutions of the Trust's Board of Trustees authorizing
the appointment of Symphony and approving this Agreement;
(d) the Trust's Notification of Registration on Form N-8A
under the 1940 Act as filed with the Securities and Exchange Commission
(the "SEC") on May 10, 1993 and all amendments thereto;
(e) the Trust's Registration Statement on Form N-1A under the
Securities Act of 1933, as amended ("1933 Act") (File No. 33-62470) and
under the 1940 Act (File No. 811-07704) as filed with the SEC and all
amendments thereto insofar as such Registration Statement and such
amendments relate to the Funds; and
(f) the Trust's most recent prospectus and Statement of
Additional Information for the Funds (such prospectus and Statement of
Additional Information, as presently in effect, and all amendments and
supplements thereto, are herein collectively called the "Prospectus").
CSIM will furnish Symphony from time to time with copies of
all amendments of or supplements to the foregoing.
3. Services. Subject always to the supervision of the Trust's Board of
Trustees and CSIM, Symphony will
-2-
<PAGE> 4
provide information and services to the Fund in connection with evaluating the
optimal allocation of the Funds' assets among major asset categories e.g.,
stocks, bonds and cash, based on a computer-based optimization model known as
Tactical Asset Allocation which is managed and run on a daily basis.
Symphony will furnish to CSIM for each Fund a written report
on a daily basis, which includes (i)a detailed description of the financial data
input to the Asset Allocation Model, e.g., historical data on expected returns
for each asset category, yield data and other assumptions used to run the
model,and (ii) recommendations as to the percentage of each Funds' assets that
should be invested among major asset categories, as well as sub-categories.
CSIM agrees to use the recommended asset mix from the Tactical Asset Allocation
Model solely in connection with the Schwab Asset Director Funds listed on
Schedule A hereto, except as consented to by Symphony.
Symphony will provide additional information and services to
the Funds as may be agreed upon from time to time by Symphony and CSIM.
Symphony and CSIM will each make its officers and employees available to the
other from time to time at reasonable times to review investment policies of
the Funds and to consult with each other regarding the investment affairs of
the Funds. Symphony will report to the Board of Trustees and to CSIM with
respect to the services provided under this Agreement.
Symphony further agrees that it:
(a) will use the same skill and care in providing such
services as it uses in providing services to fiduciary accounts for
which it has investment responsibilities;
(b) will conform with all applicable statutes,rules and
regulations of the SEC and states pertaining to its investment
advisory activities and services provided under this Agreement;
-3-
<PAGE> 5
(c) will report regularly to CSIM and to the Board of
Trustees and will make appropriate persons available for the purpose
of reviewing with representatives of CSIM and the Board of Trustees on
a regular basis at reasonable times the services provided to the
Funds, including, without limitation, review of the general investment
strategy of the Funds, the performance of the Funds in relation to
standard industry indices, interest rate considerations and general
conditions affecting the marketplace and will provide various other
reports from time to time as requested by CSIM;
(d) will furnish CSIM and the Trust's Board of Trustees such
periodic and/or special reports as the Board or CSIM may request;
(e) will act upon instructions from CSIM not inconsistent with
its fiduciary duties hereunder;
(f) will treat confidentially and as proprietary information
of the Trust and CSIM or its affiliates all such records and other
information relative to the Trust, or CSIM and its affiliates, as
applicable, maintained by Symphony, and will not use such records and
information for any purpose other than performance of its
responsibilities and duties hereunder, except after prior notification
to and approval in writing by the Trust, or CSIM and its affiliates,
as applicable, which approval shall not be unreasonably withheld and
may not be withheld where Symphony may be exposed to civil or criminal
contempt proceedings for failure to comply, when requested to divulge
such information by duly constituted authorities, or when so requested
by the Trust;
4. Books and Records. In compliance with the requirements of Rule
31a-3 under the 1940 Act, and applicable requirements of the Investment
Advisers Act of 1940 and rules thereunder, Symphony hereby agrees Symphony
-4-
<PAGE> 6
agrees to maintain and preserve all required accounts, books and records with
respect to Symphony's duties related to the Funds and the Trust. Symphony
understands and agrees that all accounts, books and records it maintains for
the Trust are the property of the Trust and further agrees to surrender
promptly to the Trust any of such records upon the Trust's request.
5. Expenses. During the term of this Agreement, Symphony will pay all
expenses incurred by it in connection with its activities under this Agreement.
6. Compensation. For the services provided and the expenses assumed
pursuant to this Agreement, CSIM will pay Symphony, and Symphony agrees to
accept as full compensation therefor, the fee, accrued daily and payable
monthly, as described on Schedule B hereto. From time to time, Symphony may
agree to waive or reduce some or all of the compensation to which it is
entitled under this Agreement.
7. Limitation of Liability. Symphony will not be liable for any error
of judgment or mistake of law or for any loss suffered by the Fund in connection
with the performance of Symphony's duties under this Agreement, except a loss
resulting from Symphony willful misfeasance, bad faith, or gross negligence in
the performance of its duties under this Agreement.
8. Indemnification. CSIM and Symphony each agree to indemnify the
other against any claim against, loss or liability to such other party
(including reasonable attorneys' fees) arising out of any action on the part of
the indemnifying party which constitutes willful misfeasance, bad faith or
gross negligence.
9. Duration and Termination. This Agreement will become effective as
to each Fund as of the date set forth opposite each Fund's name on Schedule A,
provided that it has been approved by a vote of a majority of the outstanding
voting securities of such Fund in accordance with the requirements under the
1940 Act and, unless sooner terminated as provided herein, will continue in
effect for two years from such date.
-5-
<PAGE> 7
Thereafter, if not terminated as to a Fund, this Agreement will
continue in effect as to a Fund for successive periods of 12 months, provided
that such continuation is specifically approved at least annually (a) by the
vote of a majority of those members of the Trust's Board of Trustees who are not
interested persons of the Trust, Symphony, or CSIM, cast in person at a meeting
called for the purpose of voting on such approval, and (b) by the Trust's Board
of Trustees or by vote of a majority of the outstanding voting securities of
such Fund. Notwithstanding the foregoing, this Agreement may be terminated as to
the Fund at any time, without the payment of any penalty, on sixty days' written
notice by the Trust or by CSIM or on ninety days' written notice by Symphony.
This Agreement will immediately terminate in the event of its assignment. (As
used in this Agreement, the terms "majority of the outstanding voting
securities", "interested persons" and "assignment" have the same meaning of such
terms in the 1940 Act.)
10. Amendment of this Agreement. No provision of this Agreement may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought.
11. Miscellaneous. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement is held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement will not be affected
thereby. This Agreement will be binding upon and shall inure to the benefit of
the parties hereto and their respective successors and will be governed by the
laws of the State of California.
The name "Schwab Capital Trust" and "Trustees of Schwab Capital
Trust" refer respectively to the Trust created by, and the Trustees, as trustees
but not individually or personally, acting from time to time under the
Declaration of the Trust, to which reference is hereby made and a copy of which
is on file at the office of the Secretary of State of The Commonwealth of
Massachusetts and elsewhere as required by law, and to any and all amendments
-6-
<PAGE> 8
thereto so filed or hereafter filed. The obligations of the "Schwab Capital
Trust" entered in the name or on behalf thereof by any of the Trustees,
representatives or agents are made not individually but only in such capacities
and are not binding upon any of the Trustees, Shareholders or representatives of
the Trust personally, but bind only the assets of the Trust, and persons dealing
with the Fund must look solely to the assets of the Trust belonging to such Fund
for the enforcement of any claims against the Trust.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below as of the day and year first
above written.
CHARLES SCHWAB INVESTMENT
MANAGEMENT, INC.
By: /s/ William J. Klipp
----------------------------
Name: William J. Klipp
Title: Senior Vice President and
Chief Operating Officer
SYMPHONY ASSET MANAGEMENT, INC.
By: /s/ Neil Rudolph
---------------------------
Name: Neil Rudolph
Title: Chief Operating Officer
-7-
<PAGE> 9
SCHEDULE A
<TABLE>
<CAPTION>
Fund Effective Date
- ---- --------------
<S> <C>
Schwab Asset Director Funds
(i.e., Schwab Asset Director-High Growth
Fund, Schwab Asset Director-Balanced
Growth Fund, and Schwab Asset Director-
Conservative Growth Fund)
</TABLE>
CHARLES SCHWAB INVESTMENT
MANAGEMENT, INC.
By: /s/ William J. Klipp
----------------------------
Name: William J. Klipp
Title: Senior Vice President and
Chief Operating Officer
SYMPHONY ASSET MANAGEMENT, INC.
By: /s/ Neil Rudolph
---------------------------
Name: Neil Rudolph
Title: Chief Operating Officer
-8-
<PAGE> 10
SCHEDULE B
<TABLE>
<CAPTION>
Fund Fee
- ---- ---
<S> <C>
Schwab Asset Director Funds
(i.e., Schwab Asset Director-High Growth
Fund, Schwab Asset Director-Balanced
Growth Fund, and Schwab Asset Director-
Conservative Growth Fund)
</TABLE>
Eight one-hundredths of one percent (0.08%) of
the Funds' aggregate average daily net assets
not in excess of $100 million and six
one-hundredths of one percent (0.06%) of the
next $150 million and four one-hundredths of
one percent (0.04%) of the next $600 million
and two one-hundredths of one percent (0.02%)
over $850 million
CHARLES SCHWAB INVESTMENT
MANAGEMENT, INC.
By: /s/ William J. Klipp
-------------------------
Name: William J. Klipp
Title: Senior Vice President and
Chief Operating Officer
-9-
<PAGE> 11
SYMPHONY ASSET MANAGEMENT, INC.
By: /s/ Neil Rudolph
-------------------------
Name: Neil Rudolph
Title: Chief Operating Officer
-10-
<PAGE> 1
EXHIBIT NO. (6)(B)
REVISED SCHEDULE TO THE DISTRIBUTION AGREEMENT
<PAGE> 2
SCHEDULE A
TO THE
DISTRIBUTION AGREEMENT
BETWEEN SCHWAB CAPITAL TRUST AND
CHARLES SCHWAB & CO., INC.
DATED SEPTEMBER 22, 1995
<TABLE>
<CAPTION>
Fund Effective Date
- ---- --------------
<S> <C>
Schwab International Index Fund July 21, 1993
Schwab Small-Cap Index Fund October 14, 1993
Schwab Asset Director(R)- High September 25, 1995
Growth Fund
Schwab Asset Director(R)-Balanced September 25, 1995
Growth Fund
Schwab Asset Director(R)- September 25, 1995
Conservative Growth Fund
</TABLE>
SCHWAB CAPITAL TRUST
By: /s/ William J. Klipp
-------------------------
Name: William J. Klipp
Title: Senior Vice President and
Chief Operating Officer
CHARLES SCHWAB & CO., INC.
<PAGE> 3
By: /s/ Elizabeth G. Sawi
-------------------------
Name: Elizabeth G. Sawi
Title: Executive Vice President
<PAGE> 1
EXHIBIT NO. (8)(B)
REVISED SCHEDULES TO THE CUSTODIAN AGREEMENT
<PAGE> 2
SCHEDULE C
<TABLE>
<CAPTION>
PORTFOLIO INCEPTION DATE
- --------- --------------
<S> <C>
Schwab International Index Fund September 9, 1993
Schwab Small Cap Index Fund December 2, 1994
Schwab Asset Director Fund - High Growth November 15, 1995
Schwab Asset Director Fund - Balanced Growth November 15, 1995
Schwab Asset Director Fund - Conservative Growth November 15, 1995
</TABLE>
SCHWAB CAPITAL TRUST
BY: /s/ William J. Klipp
-------------------------
NAME: William J. Klipp
TITLE: Senior Vice President and Chief
Operating Officer
STATE STREET BANK AND TRUST COMPANY
BY: /s/ Matthew Karstetter
-------------------------
NAME: Matthew Karstetter
TITLE: Vice President
<PAGE> 3
STATE STREET BANK AND TRUST
FEE SCHEDULE
SCHWAB ASSET DIRECTOR - HIGH GROWTH
SCHWAB ASSET DIRECTOR - BALANCED GROWTH
SCHWAB ASSET DIRECTOR - CONSERVATIVE GROWTH
- -------------------------------------------------------------------------------
I. ADMINISTRATION
Custody, Portfolio and Fund Accounting Service - Maintain custody of fund
assets. Settle portfolio purchases and sales. Report buy and sell fails.
Determine and collect portfolio income. Make cash disbursements and report
cash transactions. Maintain investment ledgers, provide selected portfolio
transactions, position and income reports. Maintain general ledger and
capital stock accounts. Prepare daily trial balance. Calculate net asset
value daily. Provide selected general ledger reports. Market value quotations
will be provided via State Street's Automated Pricing Service.
The administration fee shown below is an annual charge, billed and payable
monthly, based on average monthly net assets.
<TABLE>
<CAPTION>
Fund Net Assets Annual fees
- --------------- -----------
(in basis points)
<S> <C>
First $50 Million 3
Next $50 Million 2
Excess over $100 Million 1
</TABLE>
II. GLOBAL CUSTODY - COMPRISED OF ASSET CHARGES AND TRANSACTION CHARGES
Asset charges all foreign locations
(in Basis Points)
<TABLE>
<S> <C>
First $50 Million 7 Basis Points
Over $50 Million 5 Basis Points
Transaction Charges
(all foreign equity and bond trades) $28.00
III. PORTFOLIO TRADES - FOR EACH LINE ITEM PROCESSED
State Street Bank Repos $ 7.00
DTC or Fed Book Entry $10.00
New York Physical Settlements $20.00
Maturity Collections $ 8.00
PTC Purchase, Sale, Deposit or Withdrawal $20.00
</TABLE>
<PAGE> 4
<TABLE>
<S> <C>
All other trades $16.00
IV. OPTIONS
Option charge for each option written or
closing contract, per issue, per broker $25.00
Option expiration charge, per issue, per broker $15.00
Option exercised charge, per issue, per broker $15.00
V. INTEREST RATE FUTURES
Transactions--no security movement $ 8.00
VI. HOLDINGS CHARGE
For each issue maintained--monthly charge $ 1.00
VII. PRINCIPAL REDUCTION PAYMENTS
Per Paydown $10.00
VIII. DIVIDEND CHARGES (For items held at the Request of
Traders over ecord date in street form) $50.00
IX. SPECIAL SERVICES
Fees for activities of a non-recurring nature such as fund onsolidations
or reorganzations, extraordinary security shipments and the preparation of
special reports will be subject to negotiation. Fees for automated pricing,
yield calculation and other special item will be negotiated separately.
X. AUTOMATED PRICING
Monthly base fee per portfolio $375.00
Monthly Quote Charge (based on the average number
of positions in the portfolio at month end)
- - Municipal Bonds via Muller Data $ 16.00
- - Municipal Bonds via Kenny Information Systems $ 16.00
- - Government, Corporate and Convertible Bonds via
Merrill Lynch $ 11.00
- - Corporate and Government Bonds via Muller Data $ 11.00
- - Options, Futures and Private Placements $ 6.00
- - Foreign Equities and Bonds via Extel Ltd. $ 6.00
- - Listed Equities, DTC Equities, and Bonds $ 2.00
</TABLE>
<PAGE> 5
<TABLE>
<S> <C>
- - Corporate, Municipal, Convertible and Government
Bonds, Adjustable Rate Preferred Stocks via IDSI $ 6.00
</TABLE>
XI. BALANCE CREDITS
A balance credit will be applied against the custody fee above based
on the 90 day T-Bill rate adjusted by the current Federal Reserve
requirements. The rate will be utilized against the average collected
balances in the Custody Demand Deposit Account maintained at State
Street. Excess balance credits will be carried forward from month to
month until December 31st.
XII. OUT-OF-POCKET EXPENSES
A billing for the recovery of applicable out-of-pocket expenses will
be made as of the end of each month. Out-of-pocket expenses include,
but are not limited to the following:
Telephone
Wire Charges ($5.25 per wire in and $5.00 out)
Postage and Insurance
Courier Service
Duplicating
Legal Fees
Supplies Related to Fund Records
Rush Transfers--$8.00 Each
Transfer Fees
Sub-Custodian Charges
Price Waterhouse Audit Letter
Federal Reserve Fee for Return Check items over $2,500 - $4.25
GNMA Transfer - $15.00 each
PTC Deposit/Withdrawal for same day turnarounds - $50.00
SCHWAB ASSET DIRECTOR - HIGH GROWTH STATE STREET BANK & TRUST CO.
SCHWAB ASSET DIRECTOR - BALANCED GROWTH
SCHWAB ASSET DIRECTOR - CONSERVATIVE GROWTH
BY: /s/ William J. Klipp BY: /s/ Matthew Karstetter
------------------------- ----------------------
TITLE: Senior Vice President and TITLE: Vice President
Chief Operating Officer
DATE: October 6, 1995 DATE: 9/28/95
<PAGE> 1
EXHIBIT NO. (8)(d)
REVISED SCHEDULES TO THE TRANSFER AGENCY AGREEMENT
<PAGE> 2
SCHEDULE A
<TABLE>
<CAPTION>
Fund Effective Date
- ---- --------------
<S> <C>
Schwab International Index Fund July 21, 1993
Schwab Small-Cap Index Fund October 14, 1993
Schwab Asset Director-High Growth Fund September 25, 1995
Schwab Asset Director-Balanced Growth Fund September 25, 1995
Schwab Asset Director-Conservative Growth Fund September 25, 1995
</TABLE>
SCHWAB CAPITAL TRUST
By: /s/ William J. Klipp
-----------------------------
Name: William J. Klipp
Title: Senior Vice President and
Chief Operating Officer
CHARLES SCHWAB & CO., INC.
By: /s/ Colleen M. Hummer
-----------------------------
Name: Colleen M. Hummer
Title: Senior Vice President
Dated: September 25, 1995
A-1
<PAGE> 3
SCHEDULE B
TRANSFER AGENCY SERVICES
I. Record Maintenance.
Schwab will provide full maintenance of all shareholder records for
each account in the Trust. Such records will include:
A. Share balance;
B. Account transaction history, including dividends paid and the
date and price for all transactions;
C. Name and address of the record shareholder (including zip
codes and tax identification numbers but will not include
responsibility for obtaining certified tax identification
numbers or impending back-up withholding);
D. Records of distributions and dividend payments;
E. Transfer records; and
F. Overall control records.
II. Regular Daily Operations.
Schwab will perform the following functions:
A. Process new accounts on the shareholder file by processing
directly from the Trust's distributor or dealer;
B. Process additional purchases to the records of accounts
already on the shareholder file. In such instances, on the
distributor's or dealer's instructions, allocate investor
payments among the Funds;
C. Process purchases and redemptions to accounts already on the
shareholder file in accordance with the terms of all automatic
purchase and redemption provisions set forth in shareholders'
account relationship with the Trust's distributor;
D. Transfer shares upon the receipt of proper instructions from
distributor or dealer; and
E. Process changes of dealer/representative on accounts.
B-1
<PAGE> 4
III. Periodic Operations.
A. Upon receipt of instructions as to payment of dividends and
distributions, which may be standing instructions, compute
distributions and inform the Trust of the amount to be
reinvested in additional shares.
B. Process redemptions as instructed by distributor or dealer.
C. Mail semi-annual and annual Trust and/or Fund reports and
prospectuses.
D. Produce transcripts of account history as requested by the
Trust or by the distributor or dealer.
E. Prepare and file Form 1099's with Internal Revenue Service.
F. Monitor sales of the Funds' shares in the various States and
other jurisdictions where the Funds' shares are registered for
sale, and report on such monitoring efforts to the Funds'
Investment Manager.
IV. Controls.
A. Maintain all balance controls daily and produce monthly
summaries expressed in:
1. shares; and
2. dollar amounts.
V. Special Services Included.
A. Prepare envelopes/labels (from address data supplied by
distributor or dealer as to transmission accounts) and mail
proxy statements; tabulate and certify votes from returned
ballots.
SCHWAB CAPITAL TRUST
By: /s/ William J. Klipp
------------------------------
Name: William J. Klipp
Title: Senior Vice President and
Chief Operating Officer
CHARLES SCHWAB & CO., INC.
By: /s/ Colleen M. Hummer
------------------------------
Name: Colleen M. Hummer
Title: Senior Vice President
B-2
<PAGE> 5
SCHEDULE C
FEES
<TABLE>
<CAPTION>
Fund Fee
- ---- ---
<S> <C>
Schwab International Index Fund Five one-hundredths of one
percent (.05%) of the Fund's
average daily net assets
Schwab Small-Cap Index Fund Five one-hundredths of one
percent (.05%) of the Fund's
average daily net assets
Schwab Asset Director-High Growth Fund Five one-hundredths of one
percent (.05%) of the Fund's
average daily net assets
Schwab Asset Director-Balanced Growth Fund Five one-hundredths of one
percent (.05%) of the Fund's
average daily net assets
Schwab Asset Director-Conservative Growth Fund Five one-hundredths of one
percent (.05%) of the Fund's
average daily net assets
</TABLE>
SCHWAB CAPITAL TRUST
By: /s/ William J. Klipp
-------------------------------
Name: William J. Klipp
Title: Senior Vice President and
Chief Operating Officer
CHARLES SCHWAB & CO., INC.
By: /s/ Colleen M. Hummer
-------------------------------
Name: Colleen M. Hummer
Title: Senior Vice President
Dated: September 25, 1995
C-1
<PAGE> 6
SCHEDULE D
REPORTS
VI. Daily Activity Report (liquidations processed that day)
VII. Daily Share Summary Report (by Fund)
A. Beginning balance
B. Liquidations
C. Payments
D. Exchanges
E. Adjustments
F. Ending Balance
G. Sales by each State and jurisdiction
VIII. Daily Proof Sheet Summary and Transaction Register
IX. Daily Share Reconciliation Report (reconciling Share Summary Report to
Daily Proof Summary Sheet)
X. Weekly Position Reports (showing all account balances)
XI. Monthly Dividend Reports
XII. Report by independent public accountants concerning Schwab's accounting
system and internal accounting controls, at such times, as the Trust
may reasonably require. These reports shall be of sufficient detail and
scope to provide reasonable accuracy that any material inadequacies
would be disclosed by such examination, and, if there are no such
inadequacies, shall state.
SCHWAB CAPITAL TRUST
By: /s/ William J. Klipp
-------------------------------
Name: William J. Klipp
Title: Senior Vice President and
Chief Operating Officer
CHARLES SCHWAB & CO., INC.
By: /s/ Colleen M. Hummer
-------------------------------
Name: Colleen M. Hummer
Title: Senior Vice President
D-1
<PAGE> 1
EXHIBIT NO. (8)(f)
REVISED SCHEDULES TO THE SHAREHOLDER SERVICES AGREEMENT
<PAGE> 2
SCHEDULE A
<TABLE>
<CAPTION>
Fund Effective Date
- ---- --------------
<S> <C>
Schwab International Index Fund July 21, 1993
Schwab Small-Cap Index Fund October 14, 1993
Schwab Asset Director-High Growth Fund September 25, 1995
Schwab Asset Director-Balanced Growth Fund September 25, 1995
Schwab Asset Director-Conservative Growth Fund September 25, 1995
</TABLE>
SCHWAB CAPITAL TRUST
By: /s/ William J. Klipp
-------------------------------
Name: William J. Klipp
Title: Senior Vice President and
Chief Operating Officer
CHARLES SCHWAB & CO., INC.
By: /s/ Colleen M. Hummer
-------------------------------
Name: Colleen M. Hummer
Title: Senior Vice President
Dated: September 25, 1995
A-1
<PAGE> 3
SCHEDULE B
SHAREHOLDER SERVICES
Schwab will maintain accounts for, and serve as a customer liaison to,
the shareholders of each Fund, and through its employees will perform various
services in relation thereto, which services shall include responding to
requests for information and other types of shareholder account inquiries, both
by telephone and in writing. The parties hereto expressly agree that the
services provided under this Agreement shall not include, and the amounts
payable hereunder shall not constitute compensation for, services relating to
transfer agency or sub-accounting services for the Trust or any Fund thereof.
SCHWAB CAPITAL TRUST
By: /s/ William J. Klipp
-------------------------------
Name: William J. Klipp
Title: Senior Vice President and
Chief Operating Officer
CHARLES SCHWAB & CO., INC.
By: /s/ Colleen M. Hummer
-------------------------------
Name: Colleen M. Hummer
Title: Senior Vice President
B-1
<PAGE> 4
SCHEDULE C
<TABLE>
<CAPTION>
Fund Fee
- ---- ---
<S> <C>
Schwab International Index Fund Twenty one-hundredths of
one percent (.20%) of the
Fund's average daily net
assets
Schwab Small-Cap Index Fund Twenty one-hundredths of
one percent (.20%) of the
Fund's average daily net
assets
Schwab Asset Director-High Growth Fund Twenty one-hundredths of
one percent (.20%) of the
Fund's average daily net
assets
Schwab Asset Director-Balanced Growth Fund Twenty one-hundredths of
one percent (.20%) of the
Fund's average daily net
assets
Schwab Asset Director-Conservative Growth Fund Twenty one-hundredths of
one percent (.20%) of the
Fund's average daily net
assets
</TABLE>
SCHWAB CAPITAL TRUST
By: /s/ William J. Klipp
-------------------------------
Name: William J. Klipp
Title: Senior Vice President and
Chief Operating Officer
CHARLES SCHWAB & CO., INC.
By: /s/ Colleen M. Hummer
-------------------------------
Name: Colleen M. Hummer
Title: Senior Vice President
Dated: September 25, 1995
C-1
<PAGE> 1
EXHIBIT NO. (9)
LICENSE AGREEMENT
<PAGE> 2
EXHIBIT 9
LICENSE AGREEMENT
LICENSE AGREEMENT, dated as of November 28, 1995 (the "Commencement
Date") by and between STANDARD & POOR'S, a division of The McGraw-Hill
Companies, Inc. ("S&P"), a New York corporation, having an office at 25
Broadway, New York, New York 10004, and Schwab Capital Trust ("Licensee"),a
Massachusetts business trust having an office at 101 Montgomery Street, San
Francisco, CA 94104.
WHEREAS, S&P compiles, calculates, maintains and owns rights in and to
the S&P 500 Composite Stock Price Index and to the proprietary data therein
contained (such rights being hereinafter individually and collectively referred
to as the "S&P 500 Index"); and
WHEREAS, S&P uses in commerce and has trade name and trademark rights
to the designations "Standard & Poor's(R)", "S&P(R)", "Standard & Poor's 500",
"S&P 500(R)" and "500", in connection with the S&P 500 Index (such rights being
hereinafter individually and collectively referred to as the "S&P Marks"); and
- --------------------------------------------------------------------------------
S&P 500 STND. FORM LICENSE AGREEMENT [PUBLIC FUNDS] (PUBFNDS.500)
<PAGE> 3
- 2 -
WHEREAS, Licensee wishes to use the S&P 500 Index as a component of the
product or products described in Exhibit A attached hereto and made a part
hereof (individually and collectively referred to as the "Product"); and
WHEREAS, Licensee wishes to use the S&P Marks in connection with the
marketing and/or promotion of the Product and in connection with making
disclosure about the Product under applicable law, rules and regulations in
order to indicate that S&P is the source of the S&P 500 Index; and
WHEREAS, Licensee wishes to obtain S&P's authorization to use the S&P
500 Index and the S&P Marks in connection with the Product pursuant to the terms
and conditions hereinafter set forth.
NOW, THEREFORE, the parties hereto agree as follows:
1. Grant of License.
(a) Subject to the terms and conditions of this Agreement, S&P
hereby grants to Licensee a non-transferable, non-exclusive license (i) to use
the S&P 500 Index as a component of the Product to be marketed and/or promoted
by Licensee and (ii) to use and refer to the S&P Marks in connection with the
<PAGE> 4
- 3 -
distribution, marketing and promotion of the Product (including in the name of
the Product) and in connection with making such disclosure about the Product as
Licensee deems necessary or desirable under any applicable law, rules,
regulations or provisions of this Agreement, but, in each case, only to the
extent necessary to indicate the source of the S&P 500 Index. It is expressly
agreed and understood by Licensee that no rights to use the S&P 500 Index and
the S&P Marks are granted hereunder other than those specifically described and
expressly granted herein.
(b) S&P agrees that no person or entity (other than the
Licensee) shall need to obtain a license from S&P with respect to the Product.
2. Term.
The term of this Agreement shall commence on the Commencement
Date and shall continue in effect thereafter until it is terminated in
accordance with its terms.
3. License Fees.
(a) Licensee shall pay to S&P the license fees ("License
Fees") specified and provide the data called for in Exhibit B, attached hereto
and made a part hereof.
<PAGE> 5
- 4 -
(b) During the term of this Agreement and for a period of one
(1) year after its termination, S&P shall have the right, during normal business
hours and upon reasonable notice to Licensee, to audit on a confidential basis
the relevant books and records of Licensee to determine that License Fees have
been accurately determined. The costs of such audit shall be borne by S&P unless
it determines that it has been underpaid by five percent (5%) or more; in such
case, costs of the audit shall be paid by Licensee.
4. Termination.
(a) At any time during the term of this Agreement, either
party may give the other party sixty (60) days prior written notice of
termination if the terminating party believes in good faith that material damage
or harm is occurring to the reputation or goodwill of that party by reason of
its continued performance hereunder, and such notice shall be effective on the
date specified therein of such termination, unless the other party shall correct
the condition causing such damage or harm within the notice period.
(b) In the case of breach of any of the material terms or
conditions of this Agreement by either party, the other party may terminate this
Agreement by giving sixty (60) days prior
<PAGE> 6
- 5 -
written notice of its intent to terminate, and such notice shall be effective on
the date specified therein for such termination unless the breaching party shall
correct such breach within the notice period.
(c) S&P shall have the right, in its sole discretion, to cease
compilation and publication of the S&P 500 Index and, in such event, to
terminate this Agreement if S&P does not offer a replacement or substitute
index. In the event that S&P intends to discontinue the S&P 500 Index, S&P shall
give Licensee at least one (1) year's written notice prior to such
discontinuance, which notice shall specify whether a replacement or substitute
index will be made available. Licensee shall have the option hereunder within
sixty (60) days after receiving such written notice from S&P to notify S&P in
writing of its intent to use the replacement or substitute index, if any, under
the terms of this Agreement. In the event that Licensee does not exercise such
option or no substitute or replacement index is made available, this Agreement
shall be terminated as of the date specified in the S&P notice and the License
Fees to the date of such termination shall be computed as provided in Subsection
4(f).
(d) Licensee may terminate this Agreement upon ninety (90)
days prior written notice to S&P if (i) Licensee is informed of the final
adoption of any legislation or regulation or the
<PAGE> 7
- 6 -
issuance of any interpretation that in Licensee's reasonable judgment materially
impairs Licensee's ability to market and/or promote the Product; (ii) any
material litigation or regulatory proceeding regarding the Product is threatened
or commenced; or (iii) Licensee elects to terminate the public offering or other
distribution of the Product, as may be applicable. In such event the License
Fees to the date of such termination shall be computed as provided in Subsection
4(f).
(e) S&P may terminate this Agreement upon ninety (90) days (or
upon such lesser period of time if required pursuant to a court order) prior
written notice to Licensee if (i) S&P is informed of the final adoption of any
legislation or regulation or the issuance of any interpretation that in S&P's
reasonable judgment materially impairs S&P's ability to license and provide the
S&P 500 Index and S&P Marks under this Agreement in connection with such
Product; or (ii) any litigation or proceeding is threatened or commenced and S&P
reasonably believes that such litigation or proceeding would have a material and
adverse effect upon the S&P Marks and/or the S&P 500 Index or upon the ability
of S&P to perform under this Agreement. In such event the License Fees to the
date of such termination shall be computed as provided in Subsection 4(f).
<PAGE> 8
- 7 -
(f) In the event of termination of this Agreement as provided
in Subsections 4(a), (b), (c), (d) or (e), the License Fees to the date of such
termination shall be computed by prorating the amount of the applicable annual
License Fees shown in Exhibit B on the basis of the number of elapsed days in
the current term. Any excess License Fees amount paid by Licensee for the
current term shall be refunded by S&P.
(g) Upon termination of this Agreement, Licensee shall cease
to use the S&P 500 Index and the S&P Marks in connection with the Product;
provided that Licensee may continue to utilize any previously printed materials
which contain the S&P Marks for a period of ninety (90) days following such
termination.
5. S&P's Obligations.
(a) It is the policy of S&P to prohibit its employees who are
directly responsible for changes in the components of the S&P 500 Index from
purchasing or beneficially owning any interest in the Product and S&P believes
that its employees comply with such policy. Licensee shall have no
responsibility for ensuring that such S&P employees comply with such S&P policy
and shall have no duty to inquire whether any purchasers or sellers of the
Product are such S&P employees. S&P shall have no liability to the Licensee with
respect to its employees' adherence or failure
<PAGE> 9
- 8 -
to adhere to such policy.
(b) S&P shall not and is in no way obliged to engage in any
marketing or promotional activities in connection with the Product or in making
any representation or statement to investors or prospective investors in
connection with the promotion by Licensee of the Product.
(c) S&P agrees to provide reasonable support for Licensee's
development and educational efforts with respect to the Product as follows: (i)
S&P shall provide Licensee, upon request but subject to any agreements of
confidentiality with respect thereto, copies of the results of any marketing
research conducted by or on behalf of S&P with respect to the S&P 500 Index; and
(ii) S&P shall respond in a timely fashion to any reasonable requests for
information by Licensee regarding the S&P 500 Index.
(d) S&P or its agent shall calculate and disseminate the S&P
500 Index at least once each fifteen (15) seconds in accordance with its current
procedures, which procedures may be modified by S&P.
(e) S&P shall promptly correct or instruct its agent to
correct any mathematical errors made in S&P's computations of
<PAGE> 10
- 9 -
the S&P 500 Index which are brought to S&P's attention by Licensee, provided
that nothing in this Section 5 shall give Licensee the right to exercise any
judgment or require any changes with respect to S&P's method of composing,
calculating or determining the S&P 500 Index; and, provided further, that
nothing herein shall be deemed to modify the provisions of Section 9 of this
Agreement.
6. Informational Materials Review.
Licensee shall use its best efforts to protect the goodwill
and reputation of S&P and of the S&P Marks in connection with its use of the S&P
Marks under this Agreement. Licensee shall submit to S&P for its review and
approval all informational materials pertaining to and to be used in connection
with the Product, including, where applicable, all prospectuses, plans,
registration statements, advertisements, brochures and promotional and any other
similar informational materials (including documents required to be filed with
governmental or regulatory agencies) that in any way use or refer to S&P, the
S&P 500 Index, or the S&P Marks (the "Informational Materials"). S&P's approval
shall be required with respect to the use of and description of S&P, the S&P
Marks and the S&P 500 Index and shall
<PAGE> 11
- 10 -
not be unreasonably withheld or delayed by S&P. Specifically, S&P shall notify
Licensee, by facsimile transmission in accordance with Subsection 12(d) hereof,
of its approval or disapproval of any Informational Materials within twenty-four
(24) hours (excluding Saturday, Sunday and New York Stock Exchange Holidays)
following receipt thereof from Licensee. Any disapproval shall state S&P's
reasons therefor. Any failure by S&P to respond within such twenty-four (24)
hour period shall be deemed to constitute a waiver of S&P's right to review such
Informational Materials. Informational Materials shall be addressed to S&P, c/o
Shirley Petersen, Director-International Indices - Index Services, at the
address specified in Subsection 12(d) or via Fax--Fax#:212/412-0429. Once
Informational Materials have been approved by S&P, subsequent Informational
Materials which do not alter the use or description of S&P, the S&P Marks or the
S&P 500 Index need not be submitted for review and approval by S&P.
7. Protection of Value of License.
(a) During the term of this Agreement, S&P shall use its best
efforts to maintain in full force and effect federal registrations for "Standard
& Poor's(R)", "S&P(R)", and "S&P 500(R)". S&P shall at S&P's own expense and
sole discretion exercise S&P's common law and statutory rights against
infringement of the S&P Marks, copyrights and other proprietary rights.
<PAGE> 12
- 11 -
(b) Licensee shall cooperate with S&P in the maintenance of
such rights and registrations and shall take such actions and execute such
instruments as S&P may from time to time reasonably request, and shall use the
following notice when referring to the S&P 500 Index or the S&P Marks in any
Informational Material:
"Standard & Poor's(R)", "S&P(R)", "S&P 500(R)", "Standard &
Poor's 500", and "500" are trademarks of The McGraw-Hill
Companies, Inc. and have been licensed for use by Schwab
Capital Trust. The Product is not sponsored, endorsed, sold or
promoted by Standard & Poor's and Standard & Poor's makes no
representation regarding the advisability of investing in the
Product.
or such similar language as may be approved in advance by S&P, it being
understood that such notice need only refer to the specific S&P Marks referred
to in the Informational Material.
8. Proprietary Rights.
(a) Licensee acknowledges that the S&P 500 Index is selected,
coordinated, arranged and prepared by S&P through the application of methods and
standards of judgment used and developed through the expenditure of considerable
work, time and money by S&P. Licensee also acknowledges that the S&P 500 Index
and the S&P Marks are the exclusive property of S&P, that S&P has and retains
all proprietary
<PAGE> 13
- 12 -
rights therein (including, but not limited to trademarks and copyrights) and
that the S&P 500 Index and its compilation and composition and changes therein
are in the control and discretion of S&P.
(b) S&P reserves all rights with respect to the S&P 500 Index
and the S&P Marks except those expressly licensed to Licensee hereunder.
(c) Each party shall treat as confidential and shall not
disclose or transmit to any third party any documentation or other written
materials that are marked as "Confidential and Proprietary" by the providing
party ("Confidential Information"). Confidential Information shall not include
(i) any information that is available to the public or to the receiving party
hereunder from sources other than the providing party (provided that such source
is not subject to a confidentiality agreement with regard to such information)
or (ii) any information that is independently developed by the receiving party
without use of or reference to information from the providing party.
Notwithstanding the foregoing, either party may reveal Confidential Information
to any regulatory agency or court of competent jurisdiction if such information
to be disclosed is (a) approved in
<PAGE> 14
- 13 -
writing by the other party for disclosure or (b) required by law, regulatory
agency or court order to be disclosed by a party, provided, if permitted by law,
that prior written notice of such required disclosure is given to the other
party and provided further that the providing party shall cooperate with the
other party to limit the extent of such disclosure. The provisions of this
Subsection 8(c) shall survive any termination of this Agreement for a period of
five (5) years from disclosure by either party to the other of the last item of
such Confidential Information.
9. Warranties; Disclaimers.
(a) S&P represents and warrants that S&P has the right to
grant the rights granted to Licensee herein and that, subject to the terms and
conditions of this Agreement, the license granted herein shall not infringe any
trademark, copyright or other proprietary right of any person not a party to
this Agreement.
(b) Licensee agrees expressly to be bound itself by and
furthermore to include all of the following disclaimers and limitations in each
prospectus relating to the Product and upon request to furnish a copy thereof to
S&P:
<PAGE> 15
- 14 -
The Product is not sponsored, endorsed, sold or promoted by
Standard & Poor's ("S&P"). S&P makes no representation or warranty, express or
implied, to the owners of the Product or any member of the public regarding the
advisability of investing in securities generally or in the Product particularly
or the ability of the S&P 500 Index to track general stock market performance.
S&P's only relationship to the Licensee is the licensing of certain trademarks
and trade names of S&P and of the S&P 500 Index which is determined, composed
and calculated by S&P without regard to the Licensee or the Product. S&P has no
obligation to take the needs of the Licensee or the owners of the Product into
consideration in determining, composing or calculating the S&P 500 Index. S&P is
not responsible for and has not participated in the determination of the prices
and amount of the Product or the timing of the issuance or sale of the Product
or in the determination or calculation of the equation by which the Product is
to be converted into cash. S&P has no obligation or liability in connection with
the administration, marketing or trading of the Product.
S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF
THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN AND S&P SHALL HAVE NO LIABILITY
FOR ANY ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. S&P MAKES NO WARRANTY,
<PAGE> 16
- 15 -
EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY LICENSEE, OWNERS OF THE
PRODUCT, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE S&P 500 INDEX OR ANY
DATA INCLUDED THEREIN. S&P MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY
DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE
OR USE WITH RESPECT TO THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT
LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL S&P HAVE ANY LIABILITY FOR ANY
SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS),
EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
Any changes in the foregoing disclaimers and limitations must be
approved in advance in writing by an authorized officer of S&P.
(c) Each party represents and warrants to the other that it
has the authority to enter into this Agreement according to its terms and that
its performance does not violate any laws, regulations or agreements applicable
to it.
(d) Licensee represents and warrants to S&P that the Product
shall at all times comply with the description in
<PAGE> 17
- 16 -
Exhibit A.
(e) Licensee represents and warrants to S&P that the Product
shall not violate any material applicable law, which violation has or can be
expected to have a material adverse effect on S&P, including but not limited to
any material banking, commodities and securities laws.
(f) Neither party shall have any liability for lost profits or
indirect, punitive, special, or consequential damages arising out of this
Agreement, even if notified of the possibility of such damages. Without
diminishing the disclaimers and limitations set forth in Subsection 9(b), or the
indemnification obligations of either party under Subsections 10 (a) or 10 (b),
in no event shall the cumulative liability of either party exceed the average
annual License Fees actually paid to S&P hereunder.
(g) Use of any marks by Licensee in connection with its
Product (including in the name of such Product) which are not the S&P Marks is
at Licensee's sole risk.
(h) The provisions of this Section 9 shall survive
<PAGE> 18
- 17 -
any termination of this Agreement.
10. Indemnification.
(a) Licensee shall indemnify and hold harmless S&P, its
affiliates and their officers, directors, employees and agents against any and
all judgments, damages, costs or losses of any kind (including reasonable
attorneys' and experts' fees) as a result of any claim, action or proceeding
that arises out of or relates to (a) any breach by Licensee of its
representations or warranties under this Agreement, or (b) the Product;
provided, however, that S&P notifies Licensee promptly of any such claim, action
or proceeding. Licensee shall periodically reimburse S&P for its reasonable
expenses incurred under this Subsection 10(a). S&P shall have the right, at its
own expense, to participate in the defense of any claim, action or proceeding
against which it is indemnified hereunder; provided, however, it shall have no
right to control the defense, consent to judgment, or agree to settle any such
claim, action or proceeding without the written consent of Licensee without
waiving the indemnity hereunder. Licensee, in the defense of any such claim,
action or proceeding except with the written consent of S&P, shall not consent
to entry of any judgment or enter into any settlement which either (a) does not
include, as an
<PAGE> 19
- 18 -
unconditional term, the grant by the claimant to S&P of a release of all
liabilities in respect of such claims or (b) otherwise adversely affects the
rights of S&P. This provision shall survive the termination or expiration of
this Agreement.
(b) S&P shall indemnify and hold harmless Licensee, its
affiliates and their officers, directors, employees and agents against any and
all judgments, damages, costs or losses of any kind (including reasonable
attorneys' and experts' fees) as a result of any claim, action, or proceeding
that arises out of or relates to any breach by S&P of its representations or
warranties under this Agreement; provided, however, that (a) Licensee notifies
S&P promptly of any such claim, action or proceeding; (b) Licensee grants S&P
control of its defense and/or settlement; and (c) Licensee cooperates with S&P
in the defense thereof. S&P shall periodically reimburse Licensee for its
reasonable expenses incurred under this Subsection 10(b). Licensee shall have
the right, at its own expense, to participate in the defense of any claim,
action or proceeding against which it is indemnified hereunder; provided,
however, it shall have no right to control the defense, consent to judgment, or
agree to settle any such claim, action or proceeding without the
<PAGE> 20
- 19 -
written consent of S&P without waiving the indemnity hereunder. S&P, in the
defense of any such claim, action or proceeding, except with the written consent
of Licensee, shall not consent to entry of any judgment or enter into any
settlement which either (a) does not include, as an unconditional term, the
grant by the claimant to Licensee of a release of all liabilities in respect of
such claims or (b) otherwise adversely affects the rights of Licensee. This
provision shall survive the termination or expiration of this Agreement.
11. Suspension of Performance.
Neither S&P nor Licensee shall bear responsibility or
liability for any losses arising out of any delay in or interruptions of their
respective performance of their obligations under this Agreement due to any act
of God, act of governmental authority, act of the public enemy or due to war,
the outbreak or escalation of hostilities, riot, fire, flood, civil commotion,
insurrection, labor difficulty (including, without limitation, any strike, or
other work stoppage or slow down), severe or adverse weather conditions,
communications line failure, or other similar cause beyond the reasonable
control of the party so affected.
<PAGE> 21
- 20 -
12. Other Matters.
(a) This Agreement is solely and exclusively between the
parties hereto and shall not be assigned or transferred by either party, without
the prior written consent of the other party, and any attempt to so assign or
transfer this Agreement without such written consent shall be null and void.
(b) This Agreement constitutes the entire agreement of the
parties hereto with respect to its subject matter and may be amended or modified
only by a writing signed by duly authorized officers of both parties. This
Agreement supersedes all previous agreements between the parties with respect to
the subject matter of this Agreement. There are no oral or written collateral
representations, agreements, or understandings except as provided herein.
(c) No breach, default, or threatened breach of this Agreement
by either party shall relieve the other party of its obligations or liabilities
under this Agreement with respect to the protection of the property or
proprietary nature of any property which is the subject of this Agreement.
<PAGE> 22
- 21 -
(d) Except as set forth in Section 6 hereof with respect to
Informational Materials, all notices and other communications under this
Agreement shall be (i) in writing, (ii) delivered by hand, by registered or
certified mail, return receipt requested, or by facsimile transmission to the
address or facsimile number set forth below or such address or facsimile number
as either party shall specify by a written notice to the other and (iii) deemed
given upon receipt.
Notice to S&P: Standard & Poor's
25 Broadway
New York, New York 10004
Attn: James G. Branscome
Senior Vice President
Equity Information
Services
Fax #:(212) 412-0294
Notice to Licensee: Schwab Capital Trust
101 Montgomery Street
San Francisco, CA 94104
Attn: Frances Cole
Senior Vice President
and Secretary
Fax #:(415) 974-7651
(e) This Agreement shall be interpreted, construed and
enforced in accordance with the laws of the State of New York.
(f) Each party agrees that in connection with any
<PAGE> 23
- 22 -
legal action or proceeding arising with respect to this Agreement, they will
bring such action or proceeding only in the United States District Court for the
Southern District of New York or in the Supreme Court of the State of New York
in and for the First Judicial Department and each party agrees to submit to the
jurisdiction of such court and venue in such court and to waive any claim that
such court is an inconvenient forum.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the date first set forth above.
SCHWAB CAPITAL TRUST STANDARD & POOR'S,
A division of
The McGraw-Hill Companies,Inc.
BY:/s/ Stephen B. Ward BY:/s/ Elliott Shurgin
------------------- ---------------------------
TITLE:Senior Vice President TITLE:Vice President and
--------------------- ------------------
General Manager
---------------
<PAGE> 24
- 23 -
EXHIBIT A
Product
Product: The Schwab S&P 500 Index Fund, (the "Product") is a publicly offered
mutual fund whose investment objective is to track the price and yield
performance of publicly-traded common stocks of companies as
represented by the S&P 500 Index.
<PAGE> 25
- 24 -
EXHIBIT B
LICENSE FEES
Licensee shall pay S&P License Fees computed as follows:
The annual License Fees shall be the greater of $10,000 (the "Minimum Annual
Fee") or 1 basis point (.0001) of the average daily net assets of the Product
computed quarterly. The Minimum Annual Fee shall be payable on the Commencement
Date. Amounts in excess of the Minimum Annual Fee shall be paid to S&P within
thirty (30) days after the close of each calendar quarter in which they are
incurred; each such payment shall be accompanied by a statement setting forth
the basis for its calculation. For the first year of this Agreement, the annual
License Fees for the Product shall not exceed $50,000 (the "Maximum Annual
Fee"); thereafter, the Maximum Annual Fee shall be increased annually on each
anniversary of the Commencement Date by the amount of the increase (if any) in
the Consumer Price Index ("CPI") for Urban Consumers, All Items, as issued by
the Bureau of Labor Statistics, U.S. Department of Labor, over the prior twelve
month period.
<PAGE> 1
EXHIBIT NO. (11)(a)
CONSENT OF ROPES & GRAY
<PAGE> 2
EXHIBIT (11)(a)
CONSENT OF COUNSEL
We hereby consent to the use of our name and to the reference to our
firm under the caption "Legal Counsel" included in or made a part of
Post-Effective Amendment No. 6 to the Registration Statement of Schwab Capital
Trust on Form N-1A (Nos. 33-62420 and 811-07704) under the Securities Act of
1933, as amended.
/s/ Ropes & Gray
----------------------
Ropes & Gray
Washington, D.C.
December 11, 1995
<PAGE> 1
EXHIBIT NO. (11)(b)
CONSENT OF PRICE WATERHOUSE LLP
<PAGE> 2
EXHIBIT NO. (11)(b)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 6 to the registration
statement of Schwab Capital Trust on Form N-1A (Registration Statement) of our
reports dated November 30, 1994, relating to the financial statements of Schwab
International Index Fund and Schwab Small-Cap Index Fund, which appear in such
Statement of Additional Information, and to the incorporation by reference of
our reports into the Prospectuses which constitute part of this Registration
Statement. We also consent to the references to us under the heading Additional
Information and to the references "Accountants and Reports to Shareholders" in
such Statement of Additional Information and to the references to us under the
headings "Financial Highlights" in such Prospectuses.
/s/ Price Waterhouse
Price Waterhouse
San Francisco, California
December 15, 1995
<PAGE> 1
EXHIBIT NO. (13)(c)
PURCHASE AGREEMENT
<PAGE> 2
EXHIBIT (13)(c)
PURCHASE AGREEMENT
Schwab Capital Trust (the "Trust"), a Massachusetts business trust, and
Charles Schwab & Co., Inc. ("Schwab"), a California corporation, hereby agree on
the 22nd day of September, 1995 as follows:
1. The Trust hereby offers and Schwab hereby purchases 100 units of
beneficial interest of each of Series C, D, and E representing interests in the
series of shares known as Schwab Asset Director-High Growth Fund, Schwab Asset
Director-Balanced Growth Fund, and Schwab Asset Director-Conservative Growth
Fund, respectively, (such 100 units of beneficial interest being hereafter
collectively known as "Shares") at a price of $10.00 per Share. Schwab hereby
acknowledges purchase of the Shares and the Trust hereby acknowledges receipt
from Schwab of funds in the amount of $3,000 in full payment for the Shares. It
is further agreed that no certificate for the Shares will be issued by the
Trust.
2. Schwab represents and warrants to the Trust that the Shares are
being acquired for investment purposes and not with a view to the distribution
thereof.
3. The names "Schwab Capital Trust" and "Trustees of Schwab Capital
Trust" refer, respectively to the Trust created and the Trustees as Trustees but
not individually or personally, acting from time to time under an Agreement and
Declaration of Trust dated as of May 6, 1993, to which reference is hereby made
and a copy of which is on file at the Office of the Secretary of State of the
Commonwealth of Massachusetts and elsewhere as required by law, and to any and
all amendments thereto so filed or hereafter filed. The obligations of "Schwab
Capital Trust" entered into in the name or on behalf thereof by any of the
Trustees, representatives or agents are not made individually, but only in such
capacities, and are not binding upon any of the
-1 of 2-
<PAGE> 3
Trustees, Shareholders or representatives of the Trust personally, but bind only
the assets of the Trust, and all persons dealing with any series of Shares of
the Trust must look solely to the assets for the Trust belonging to such series
for the enforcement of any claims against the Trust.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed day and year first written above.
Attest: SCHWAB CAPITAL TRUST
Christina Perrino By: /s/ Stephen B. Ward
- ----------------- ------------------------------
Name: Stephen B. Ward
Title: Senior Vice President
and Chief Investment
Officer
Attest: CHARLES SCHWAB & CO., INC.
Christina Perrino By: /s/ William J. Klipp
- ----------------- ------------------------------
Name: William J. Klipp
Title: Senior Vice President
-2 of 2-
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> SCHWAB INTERNATIONAL INDEX FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-01-1994
<PERIOD-END> APR-30-1995
<INVESTMENTS-AT-COST> 143366
<INVESTMENTS-AT-VALUE> 155233
<RECEIVABLES> 3163
<ASSETS-OTHER> 417
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 158813
<PAYABLE-FOR-SECURITIES> 2330
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2421
<TOTAL-LIABILITIES> 4751
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 142200
<SHARES-COMMON-STOCK> 14053
<SHARES-COMMON-PRIOR> 13066
<ACCUMULATED-NII-CURRENT> 355
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (383)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 11890
<NET-ASSETS> 154062
<DIVIDEND-INCOME> 1205
<INTEREST-INCOME> 54
<OTHER-INCOME> 0
<EXPENSES-NET> 653
<NET-INVESTMENT-INCOME> 606
<REALIZED-GAINS-CURRENT> 198
<APPREC-INCREASE-CURRENT> 1948
<NET-CHANGE-FROM-OPS> 2752
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1532
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2882
<NUMBER-OF-SHARES-REDEEMED> 2029
<SHARES-REINVESTED> 134
<NET-CHANGE-IN-ASSETS> 11707
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 1306
<OVERDISTRIB-NII-PRIOR> (580)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 481
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 862
<AVERAGE-NET-ASSETS> 138677
<PER-SHARE-NAV-BEGIN> 10.89
<PER-SHARE-NII> 0.04
<PER-SHARE-GAIN-APPREC> 0.15
<PER-SHARE-DIVIDEND> 0.12
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.96
<EXPENSE-RATIO> 0.010
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> SCHWAB SMALL-CAP INDEX FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-01-1994
<PERIOD-END> APR-30-1995
<INVESTMENTS-AT-COST> 82436
<INVESTMENTS-AT-VALUE> 84414
<RECEIVABLES> 309
<ASSETS-OTHER> 71
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 84794
<PAYABLE-FOR-SECURITIES> 669
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 174
<TOTAL-LIABILITIES> 843
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 79873
<SHARES-COMMON-STOCK> 8000
<SHARES-COMMON-PRIOR> 6780
<ACCUMULATED-NII-CURRENT> 183
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1917
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1978
<NET-ASSETS> 83951
<DIVIDEND-INCOME> 491
<INTEREST-INCOME> 76
<OTHER-INCOME> 0
<EXPENSES-NET> 272
<NET-INVESTMENT-INCOME> 295
<REALIZED-GAINS-CURRENT> 2445
<APPREC-INCREASE-CURRENT> 1381
<NET-CHANGE-FROM-OPS> 4121
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 408
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2239
<NUMBER-OF-SHARES-REDEEMED> 1057
<SHARES-REINVESTED> 38
<NET-CHANGE-IN-ASSETS> 15823
<ACCUMULATED-NII-PRIOR> 296
<ACCUMULATED-GAINS-PRIOR> (528)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 181
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 390
<AVERAGE-NET-ASSETS> 73030
<PER-SHARE-NAV-BEGIN> 10.05
<PER-SHARE-NII> 0.08
<PER-SHARE-GAIN-APPREC> 0.42
<PER-SHARE-DIVIDEND> 0.06
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.49
<EXPENSE-RATIO> 0.008
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
