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CONTENTS
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Expenses.............................. 2
Key Features of Our Fund.............. 4
Matching the Fund to Your
Investment Needs.................... 5
Investment Objective, Policies,
Techniques, and Risk Factors........ 6
Investing in Our Fund................. 11
How to Buy Shares................... 12
How to Sell or Exchange Shares...... 14
Important Information About
Your Investment..................... 15
Dividends and Other Distributions... 15
Federal Income Tax Information...... 16
How We Determine the Price of
Your Shares...................... 17
How Our Fund Reports Performance.... 17
Annual and Semi-Annual
Report Mailings.................. 18
Organization and Management of Our
Fund................................ 18
Management Functions and
Responsibilities................. 18
Operating Fees and Expenses......... 19
Other Information on the Operation
of Our Fund...................... 20
Glossary of Important Terms........... 22
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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 ONESOURCE(R)
PORTFOLIOS - INTERNATIONAL
SCHWAB ONESOURCE PORTFOLIOS - INTERNATIONAL (THE "FUND") is a mutual fund that
seeks long-term capital appreciation. To achieve this goal the Investment
Manager will attempt to identify and select a diversified portfolio of
international equity funds which presents the greatest capital growth potential
based on an analysis of many factors, including the underlying funds' investment
objective, the history of portfolio manager(s), total return, volatility, and
expenses. THE FUND'S STRATEGY OF INVESTING IN INTERNATIONAL EQUITY FUNDS RESULTS
IN GREATER EXPENSES THAN YOU WOULD INCUR IF YOU INVESTED IN THE SAME
INTERNATIONAL EQUITY FUNDS DIRECTLY. The Fund is a diversified investment
portfolio of Schwab Capital Trust, a no-load, open-end management investment
company.
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 September 2, 1996 (as amended from time to time). The SAI has
been filed with the 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 SAI by calling Schwab at 800-2 NO-LOAD, or by writing
Schwab at 101 Montgomery Street, San Francisco, CA 94104.
TO PLACE ORDERS AND FOR ACCOUNT INFORMATION: Contact your local Schwab office,
or call 800-2 NO-LOAD. TDD users may contact Schwab at 800-345-2550, 24 hours a
day.
PROSPECTUS SEPTEMBER 2, 1996
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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 investment management fees paid to the
Investment Manager for analyzing, selecting, and monitoring the underlying funds
and direct investments in the portfolio, transfer agency fees, and other
expenses. The Fund's expenses cover, for example, services such as investment
research and management of the Fund, maintaining shareholder records, and
issuing shareholder statements. The Fund pays its own annual operating expenses
from its income, which is factored into the dividends paid to shareholders and
into the Fund's share price. As a shareholder, you are not charged any of these
fees directly.
The table below does not reflect any of the operating costs and investment
advisory fees of the underlying funds. By investing in the Fund, you bear not
only the Fund's expenses detailed below, but also the expenses of the underlying
funds. You would not incur the Fund's expenses detailed below if you were to
perform your own review and analysis and invest in the underlying funds
directly.
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SHAREHOLDER TRANSACTION EXPENSES
Sales Charge on Purchases and
Reinvested Dividends......... None
Deferred Sales Charge or
Redemption Fees.............. None
Exchange Fees.................. None
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE DAILY NET
ASSETS)
Fund Selection and Investment
Management Fee (after fee
reduction) 1................. 0.50%
12b-1 Fees 2................... None
Other Expenses (after fee
reduction and expense
reimbursement) 3,4........... None
TOTAL FUND OPERATING EXPENSES (AFTER
FEE REDUCTIONS AND EXPENSE
REIMBURSEMENTS) 4,5............... 0.50%
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1 This amount reflects a reduction guaranteed by the Investment Manager through
at least February 28, 1999. If there were no such reduction, the maximum Fund
Selection and Investment Management fee would be 0.74% of the Fund's average
daily net assets.
2 The Fund does not charge any Rule 12b-1 fees, however, the underlying funds in
which the Fund invests may charge a Rule 12b-1 fee. If the Fund invests in
underlying funds with a Rule 12b-1 fee, shareholders of the Fund would
indirectly bear that expense.
3 "Other Expenses" are based on estimated amounts for the current fiscal year
for the Fund after fee reductions and expense reimbursements. "Other Expenses"
include Transfer Agent and Shareholder Service fees payable to Schwab. Schwab
currently receives remuneration from fund companies participating in its
Mutual Fund OneSource(R) service equal to 0.25% to 0.35% per annum of assets
invested in those funds by Schwab customers. In light of this remuneration and
compensation, Schwab guarantees, through at least December 31, 2001, to waive
the Fund's Transfer Agent and Shareholder Service fees. After that, the
guarantee may be terminated, modified or continued. If there were no such
reduction, reimbursement, or waiver, the current estimated "Other Expenses"
would be 0.40% of the Fund's average daily net assets. See "Organization and
Management of Our Fund - Operating Fees and Expenses" for information
regarding the Fund's expenses.
4 This amount reflects the guarantee by Schwab and the Investment Manager that,
through at least February 28, 1999, the Fund's total operating expenses will
not exceed 0.50% of its average daily net assets. After that, the guarantee
may be terminated, modified or continued. If there were no such guarantee, and
no guarantee by Schwab to
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waive its Transfer Agent and Shareholder Service fee until December 31,
2001, the Fund's current total operating expenses would be 1.14% of its
average daily net assets.
5 You may be charged a fee if applicable minimum balances are not maintained
in your Schwab brokerage or Schwab One(R) account. Schwab Individual
Retirement Accounts ("IRAs") with balances of $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.
The table above does not reflect any of the operating costs and investment
advisory fees for the underlying funds. By investing in the Fund, you bear not
only the Fund's expenses detailed above, but also the expenses of the underlying
funds. For example, assuming the Fund were fully invested in OneSource Funds in
all international equity categories 1 and using the average total operating
expense ratio weighted by underlying fund assets for the underlying funds in
these categories, direct and indirect expenses would be as follows:
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Average weighted total operating
indirect expense ratio for
underlying funds in all OneSource
international equity categories..... 1.47%
Combined direct and indirect operating
expenses 2.......................... 1.97%
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1 These international equity categories include emerging market funds, Europe
equity funds, global equity funds, international equity funds and Pacific
equity funds.
2 This amount reflects the guarantee by Schwab and the Investment Manager
that, through at least February 28, 1999, the Fund's total operating
expenses will not exceed 0.50% of its average daily net assets. After that,
the guarantee may be terminated, modified or continued. If there were no
such guarantee, total combined direct and indirect operating expenses would
be 2.61% of the Fund's average daily net assets.
EXAMPLE. You would pay the following expenses on a $1,000 investment in the Fund
assuming: (1) 5% annual return and (2) redemption at the end of each period.
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1 YEAR 3 YEARS
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$5 $16
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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 February 28, 1999, total fund operating expenses will not
exceed 0.50% of the Fund's average daily net assets. Please remember that, while
this example assumes a 5% annual return on investment, the actual returns 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.")
3
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KEY FEATURES OF OUR FUND
INVESTMENT OBJECTIVE. The Fund seeks long-term capital appreciation.
STRATEGY. Under normal market conditions, at least 65% of the Fund's total
assets will be invested in OneSource Funds and at least 65% of the Fund's total
assets will be invested in underlying funds that are international equity funds.
International equity funds are those which invest, under normal market
conditions, primarily in equity securities of companies located in one or more
countries other than the United States with a developed securities market.
FUND SELECTION STRATEGY. The Investment Manager will seek to enhance the overall
return of the Fund both by utilizing the insight of the Fund's portfolio manager
and by applying quantitative analytical techniques to the selection of a
diversified portfolio of underlying funds with the greatest long-term capital
growth potential. Underlying funds will be selected based on their investment
objective, practices and policies, their management, and other factors. The
Investment Manager also performs style analysis on the underlying funds and
their managers. Selection of underlying funds will also be based on quantifiable
factors such as historic total returns, volatility, expenses, and size.
Quantitative techniques and tools will also be used to assess and rank the
relative growth potential of individual countries, geographic regions and
emerging markets. As opportunities are identified, the Investment Manager may
allocate some portion of the Fund's assets to underlying funds which invest
primarily in individual countries, geographic regions, or emerging markets.
DIVERSIFICATION AND RISK. The Fund's portfolio of international equity funds
reduces the risk associated with investing in a single underlying fund with a
single manager. Holding a diversified portfolio of international equity funds
also provides access to a wider range of management talent, companies,
industries, countries, and markets than would be available through any one
underlying fund. International securities, markets and underlying funds are
subject to currency rate fluctuations and potentially greater price volatility
and liquidity considerations than U.S. securities. Investors have historically
sought to reduce these risks through multi-country diversification. This Fund is
designed to give shareholders a single investment that offers broad
international diversification.
For more details on the Fund's and the underlying funds' investments and the
risks associated with them, see "Investment Objectives, Policies, Techniques,
and Risk Factors."
MANAGEMENT. The Investment Manager currently manages the SchwabFunds Family(R)
of 24 mutual funds with over $39 billion in assets. For more details about CSIM,
see "Organization and Management of Our Fund."
FEES AND EXPENSES. You pay no sales fees or charges when you buy or sell Fund
shares. The Investment Manager guarantees that the Fund Selection and Investment
Management fee will not exceed 0.50% through at least February 28, 1999; Schwab
guarantees that the Transfer Agent and Shareholder Service fees will be waived
entirely through at least December 31, 2001; and the Investment Manager and
Schwab guarantee that the Fund's total operating expenses will not exceed 0.50%
through at least February 28, 1999. After these dates, the guarantees may be
terminated, modified, or continued. By investing in the Fund, you bear not only
the Fund's total operating expenses, but the operating expenses of the
underlying funds as well.
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For more details, see "Investing in Our Fund" and "Operating Fees and Expenses."
SHAREHOLDER SERVICES. Schwab's professional representatives are available
toll-free 24 hours a day at 800-2 NO-LOAD to service your account, or you can
visit or call your local Schwab office during regular business hours. TDD users
may contact Schwab at 800-345-2550, 24 hours a day. Schwab also enables you to
execute your trading requests through electronic products and services such as
StreetSmart(TM), e.Schwab(TM), The Equalizer(R), TeleBroker(R), and the World
Wide Web (address: http://www.schwab.com). See "Investing in Our Fund."
CONVENIENT REPORTING. You receive regular Schwab statements that combine all
your investment activity, including mutual funds, in one report.
FREE AUTOMATIC INVESTMENT PLAN. Schwab's free Automatic Investment Plan allows
you to make regular investments in the Fund in amounts and at intervals that you
select. For more details, see "Investing in Our Fund - Schwab's Automatic
Investment Plan."
RETIREMENT PLANS. Schwab offers tax-advantaged retirement plans for which the
Fund may be an appropriate investment. For more information, see "Investing in
Our Fund - Tax-Advantaged Retirement Plans."
MATCHING THE FUND TO YOUR
INVESTMENT NEEDS
We designed the Fund to provide you with a simple means of investing
internationally. Our expert professional management group reviews, analyzes,
selects and monitors the portfolio of underlying funds for you. The Fund offers
you broad diversification with the convenience of a single investment. United
States investors have historically increased their returns and reduced their
overall portfolio volatility by diversifying internationally.(1) International
diversification is appropriate for most investors. The Fund can be used to
fulfill all or a part of the international equity component of your asset
allocation plans. For example, the Fund may be an appropriate investment for a
portion of an account invested for your child's education; or for retirement
savings in your personal account, in your IRA, or other retirement plan. An
international fund is not a complete investment plan.
The Fund is designed for long-term investors. Investors with market timing or
short-term trading objectives should not invest in this Fund. Because short-term
trading activities can disrupt our investment strategy, operations and expenses,
we reserve the right to refuse purchase (buy) orders in accounts with a pattern
of these transactions.
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1 According to Investments, Second Edition, by Bodie, Kane, and Marcus, a
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long-term portfolio having 70% U.S. securities consisting of all the
securities in the Standard & Poor's Composite Index of 500 Stocks (the "S&P
500"(R)) and 30% international securities consisting of all the securities
in the Morgan Stanley Capital International EAFE Index ("EAFE") historically
has produced approximately 1% greater return per year with a slightly lower
overall portfolio volatility than a portfolio comprised entirely of S&P 500
stocks. The Fund has not independently verified the accuracy of this
information.
5
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INVESTMENT OBJECTIVE, POLICIES, TECHNIQUES, AND RISK FACTORS
The Fund's investment objective is to seek long-term capital appreciation. The
Fund will not concentrate its assets (i.e., invest 25% or more of its total
assets) in any one industry or in underlying funds that concentrate their
investments in any one industry. The Fund, however, intends to concentrate its
investments in the shares of other investment companies. The Fund's investment
objective and concentration policy are fundamental and cannot be changed without
shareholder approval. While there is no assurance that the Fund will achieve its
investment objective, it will endeavor to do so by following the investment
policies and techniques described below and on the following pages.
Under normal market conditions, we will invest at least 65% of the Fund's total
assets in OneSource Funds. The Fund will invest only in OneSource Funds that are
not affiliated with the Fund, as defined in the 1940 Act. Under normal market
conditions, we also will invest at least 65% of the Fund's total assets in
underlying funds that are international equity funds. International equity funds
are those which invest primarily in equity securities of companies located in
one or more countries other than the United States with a developed securities
market. The Fund may invest up to 25% of its total assets in a single underlying
fund. However, the 1940 Act currently provides that the Fund may not purchase
the securities of an underlying fund, if as a result, the Fund, together with
any of its affiliates, would own more than 3% of the total outstanding
securities of that underlying fund. Thus, the Fund's ability to invest in shares
of certain underlying funds could be restricted and the Investment Manager may
have to select alternative investments. The assets not invested in international
equity funds may be invested in global funds, emerging market funds, non-mutual
fund investments in domestic and foreign securities, and other instruments. By
investing in the Fund, you bear not only the Fund's total operating expenses,
but the operating expenses of the underlying funds as well.
The Investment Manager will attempt to identify and select a diversified
portfolio of international equity funds which presents the greatest long-term
capital growth potential based on an analysis of many factors. The selection
process involves an initial review of potential underlying funds' investment
objectives and policies. The Investment Manager also will perform an analysis of
the investment styles employed by each underlying fund's investment adviser
(such as value investing or growth investing) and will select an appropriate mix
of investment styles to seek to achieve the Fund's investment objective.
In succeeding steps of the process, the Investment Manager will use quantitative
techniques to analyze and rank these potential underlying funds based on their
historic total return, volatility, and operating expenses over various time
periods. Potential underlying funds ranking highest by these criteria will then
be subject to further evaluation of size, management, portfolio holdings,
investment practices and policies, and other factors prior to their purchase for
the Fund. Much of the data used in making these evaluations is supplied by
Schwab's Mutual Fund Research Department.
To seek to enhance the Fund's overall performance, the Investment Manager will
apply sophisticated quantitative techniques, valuation formulas, and
optimization procedures to assess the relative attractiveness of individual
6
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countries, geographic regions, and/or emerging markets. After identifying the
most and least attractive countries or regions, consideration will be given to
the expected returns and risks before deciding which areas, if any, to
overweight or underweight.
Also, under normal market conditions, we will invest at least 65% of the Fund's
total assets in international equity funds and at least 65% of the Fund's total
assets in OneSource Funds. With its remaining assets, the Fund may purchase
underlying funds other than international equity funds or OneSource Funds and
make investments in securities other than underlying funds. Schwab currently
receives remuneration from fund companies participating in its Mutual Fund
OneSource(R) service equal to 0.25% to 0.35% per annum of assets invested in
OneSource Funds. In light of this remuneration, Schwab guarantees, through at
least December 31, 2001, to waive the Fund's Transfer Agent and Shareholder
Service fees.
The Fund is a diversified investment company, and many of the underlying funds
also will be diversified funds. The level of diversification the Fund obtains
from being invested in a number of underlying funds reduces the risk associated
with an investment in a single underlying fund. This risk is further reduced
because each underlying fund's investments are also spread over a range of
issuers, industries, and countries.
Many of the underlying funds may invest up to 100% of their total assets in
international equity securities, which may have greater price volatility and
illiquidity than U.S. equity securities. An underlying fund may concentrate its
investments within one industry. Because the scope of investment alternatives
within an industry is limited, the value of the shares of such an underlying
fund may be subject to greater market fluctuation than an investment in a fund
which invests in a broader range of securities. In addition, the underlying
funds may use certain investment strategies such as foreign currency exchange
transactions and trading in options and futures which also may involve increased
risks to the Fund. Although the Fund will not invest 25% or more of its total
assets in any one industry or underlying funds that concentrate their
investments in any one industry, the Fund, through its investment in the
underlying funds, may indirectly invest 25% or more of its total assets in one
industry.
INVESTMENT COMPANIES. The Fund will normally invest in open-end management
investment companies, or "mutual funds." The Fund also may invest in closed-end
management investment companies and/or unit investment trusts. All of the
underlying investment companies, or underlying funds, in which the Fund invests
must be registered under the 1940 Act. The Fund will be considered to be
concentrated (i.e., having 25% or more of its total assets invested) in the
shares of other investment companies.
Under certain circumstances an underlying fund may determine to make payment of
a redemption by the Fund wholly or in part by a distribution in-kind of
securities from its portfolio in lieu of cash. In such cases, the Fund may hold
securities distributed by an underlying fund until the Investment Manager
determines that it is appropriate to dispose of such securities. Investment
decisions of the underlying funds are made independently of the Fund and the
Investment Manager. Therefore, one underlying fund may be purchasing shares of
an issuer whose shares are being sold by another underlying fund. The result
would be an indirect cost to the Fund without accomplishing any investment
purpose. The Fund
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may purchase shares of no-load funds available without a transaction fee and
load funds that are available to the Fund without a sales charge.
INTERNATIONAL INVESTMENTS. We expect that many of the underlying funds may
invest up to 100% of their total assets in the securities of foreign issuers.
The Fund also may invest directly in securities, including international stocks.
International stocks are issued by publicly traded companies from countries
around the world, excluding the United States. Therefore, an investment in the
Fund involves risks of investing in a portfolio of foreign equity securities.
The underlying funds' investments often will be denominated in foreign currency,
and the value of these investments will be affected by changes in currency
exchange rates versus the U.S. dollar in addition to normal market fluctuations.
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, by changes in
interest rates, as well as by political and economic factors. Other risks and
considerations of international investing include: differences in accounting,
auditing and financial reporting standards; generally higher transaction costs
on foreign portfolio transactions; small trading volumes and generally lower
liquidity of foreign stock markets, which may result in greater price
volatility; foreign withholding taxes payable on portfolio holdings, which may
reduce dividend income payable to shareholders; the possibility of
expropriation, nationalization or confiscatory taxation; adverse changes in
investment or exchange control regulations; political instability which could
affect U.S. investment in foreign countries; and potential restrictions on the
flow of international capital. These international investment risks are present
when investing in both developed and developing and emerging markets. Some of
the underlying funds may attempt to hedge against currency fluctuations by
entering into currency futures, options or forward contracts. The risks of such
investments are discussed below.
EMERGING MARKETS. The Fund may invest in underlying funds which invest primarily
in developing or emerging market countries. These countries tend to have
economic structures that are less diverse and mature and political systems that
are less stable than developed market countries. A developing or emerging market
country generally is considered to be in the initial stages of
industrialization. The risks of investing in developing or emerging markets are
similar to but greater than the risks of investing in developed international
markets.
GLOBAL FUNDS. The Fund may invest in underlying funds which invest primarily in
equity securities of issuers located throughout the world, including the United
States. As global funds may invest in both developed and emerging market
countries, the risks associated with investments in both markets, as discussed
above, are present when investing in global funds. Investing in global funds,
which may invest in the United States, also exposes the Fund to risks associated
with investments in the United States.
ILLIQUID SECURITIES. The Fund may invest up to 15% of its net assets in illiquid
securities. Generally, an "illiquid security" is any security that cannot be
disposed of within 7 days at approximately the amount at which the Fund has
valued the instrument.
The 1940 Act currently provides that any underlying fund is not required to
redeem any shares held by the Fund in excess of 1% of
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the underlying fund's outstanding shares in any 30-day period and any of the
Fund's holdings in excess of that amount may be considered illiquid. However,
since the Fund has elected to reserve the right to pay redemption requests in
investment securities, these positions may be treated as liquid.
REPURCHASE AGREEMENTS. The Fund may engage in repurchase agreements as a cash
management technique. In a repurchase agreement, the Fund buys a security at one
price and simultaneously 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 may incur expenses in enforcing its rights and could experience losses,
including a decline in the value of the underlying securities and loss of
income. The underlying funds may also engage in repurchase agreements and
thereby incur similar expenses and risks.
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 one-third of its total assets or
pledge up to one-third of its total assets to secure such borrowings. The Fund
may not borrow to leverage. The Fund's borrowing and pledging policies are
fundamental. The underlying funds may also engage in borrowing, including
borrowing to leverage their portfolio. As a result, the Fund's overall exposure
to borrowing may be greater than its direct exposure.
SECURITIES LENDING. As a means of increasing income, the Fund may lend
securities it owns worth up to one-third of its total assets. Loans must be
fully collateralized by the borrower at all times. If the borrower defaults or
becomes insolvent, the Fund may incur expenses or losses. The Fund may not
recover the loaned securities immediately and may even lose them entirely. The
underlying funds may lend portfolio securities under similar conditions and with
similar risk of loss.
PORTFOLIO TURNOVER. The Fund anticipates that its annual portfolio turnover rate
will not exceed 100%, however, there is no limit on the Fund's or the underlying
funds' portfolio turnover rates.
FUTURES AND OPTIONS. The Fund also may purchase futures contracts on stocks,
stock indices and options contracts (including options on futures contracts) to
accommodate cash flows or in anticipation of taking a market position when, in
the opinion of the Investment Manager, available cash balances do not permit
economically efficient purchases. Moreover, the Fund may sell futures and
options to "close out" futures and options it may have purchased or to protect
against a decrease in the price of securities it owns but intends to sell.
Futures contracts and options also may be used to: maintain cash reserves while
simulating full investment; facilitate trading; 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. The Fund may enter into futures contracts and options on futures
contracts provided that the aggregate deposits required on these contracts do
not exceed 5% of the Fund's total assets. In addition, certain provisions of the
Code may limit the Fund's use of futures contracts and options.
Futures contracts and options pose certain risks. The primary risks associated
with the use of futures contracts and options include imper-
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fect correlation between the change in market value of the securities held by
the Fund and the prices of futures contracts and options, and possible lack of a
liquid secondary market for a futures contract and the resulting inability to
close a futures position prior to its maturity date. The risk of imperfect
correlation will be minimized by investing only in those contracts whose
behavior is expected to resemble that of the Fund's underlying securities. The
risk that the Fund will be unable to close out a futures position will be
minimized by entering into such transactions on a national exchange with an
active and liquid secondary market.
The risk of loss in trading futures contracts and options in some strategies can
be substantial, due both to the low margin deposits required and the extremely
high degree of leverage that can be involved in futures and options pricing. As
a result, a relatively small price movement in a futures contract or an option
may result in immediate and substantial loss (or gain) to the investor. While
futures contracts and options can be used as leveraged instruments, the Fund may
not use futures contracts or options to leverage its portfolio. When investing
in futures contracts and options, the Fund will segregate cash, cash-equivalents
or liquid debt instruments in the amount of the underlying obligation.
The underlying funds may purchase futures contracts and option contracts for a
variety of reasons under similar conditions and with similar risk of loss.
CURRENCY HEDGING. The Fund and the underlying funds may engage in foreign
currency exchange transactions to protect against uncertainty in the level of
future exchange rates. The Fund expects 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 Fund enters into foreign currency
transactions with respect to specific receivables or payables of the Fund
arising in connection with the purchase or sale of its portfolio securities. By
transaction hedging, the Fund will attempt to protect itself 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 transaction's settlement date.
When it engages in position hedging, the Fund enters into foreign currency
exchange transactions to protect against a decline in the values of the foreign
currencies in which its portfolio securities are denominated (or against an
increase in the value of currency for securities which the Fund expects to
purchase).
When it engages in position and/or transaction hedging, the Fund may purchase or
sell a foreign currency on a spot (or cash) basis at the prevailing spot rate,
and also may 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 Fund also may 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 or currency gives the Fund the
right to assume a short position in the futures or to sell a currency at an
exercise price until the expiration of the option. A call option on a futures
contract or currency gives the Fund the right to assume a long position in the
futures contract or to
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purchase a currency at the exercise price until the expiration of the option.
Hedging transactions involve costs and may result in losses, and the Fund's
ability to engage in hedging transactions may be limited by tax considerations.
Transaction and position hedging do not eliminate fluctuations in the prices of
the underlying securities that the Fund owns or expects to purchase or sell.
They simply establish a rate of currency exchange which the underlying
securities can achieve at some future point in time. Additionally, although
these techniques tend to minimize the risk of loss due to a decline in the value
of the hedged currency, they tend to limit any potential gain that might result
from an increase in the value of such currency.
Transaction and position hedging by an underlying fund would entail similar
risks.
For further information on currency forward and futures contracts and foreign
currency options, see "Investment Securities" in the SAI.
MONEY MARKET FUNDS. The Fund may invest in underlying money market funds that
invest in U.S. dollar denominated short-term money market instruments that the
underlying fund's investment manager has determined present minimal credit risk.
OTHER INVESTMENTS. The underlying funds also may engage in foreign currency
transactions with respect to foreign securities investments; invest in
restricted securities; invest in warrants; lend their portfolio securities; sell
securities short; write (sell) or purchase call or put options on securities or
on stock indices; and invest in master demand notes. The risks associated with
these investments are described in the SAI under the headings "Investment
Securities" and "Underlying Fund Investment Techniques."
RISK FACTORS. As a shareholder you are subject to risks presented by each
security in which the Fund invests, whether that investment is made directly, or
indirectly through an investment made in an underlying fund. These risks are
discussed more fully above. In addition, by investing in the Fund, you bear not
only the Fund's total operating expenses, but you indirectly bear the operating
expenses of the underlying funds in which the Fund invests as well. Each
underlying fund provides a Prospectus and other disclosure documents to the
Fund. These documents are also available to Fund shareholders directly from the
underlying fund.
The Fund's investment policies and restrictions apply at the time the Fund makes
an investment. Except with respect to futures, options, borrowings and illiquid
securities, 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 also may purchase U.S. Government securities, including
U.S. Government "mortgage-backed" securities. See "Investment Securities" in the
SAI.
INVESTING IN OUR FUND
SHAREHOLDER SERVICES
You may place purchase and redemption orders for shares of the Fund as well as
request exchanges at any one of over 230 Schwab offices nationwide or by calling
800-2 NO-LOAD, where trained representatives are available to answer questions
about the Fund and your account. The right to initiate transactions by
telephone, as discussed below, is
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automatically available through your Schwab account. TDD users may contact
Schwab at 800-345-2550, 24 hours a day.
We will follow reasonable procedures to confirm that your telephone instructions
are genuine. If the Fund follows telephone orders that it reasonably believes to
be genuine, it will not be liable for any losses you may experience. If the Fund
does not follow reasonable procedures to confirm that a telephone order is
genuine, the Fund 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 on the following
pages.
You may buy shares through an account maintained with Schwab or through any
other entity that has been designated by Schwab. The following information
regarding the purchase, exchange and redemption of Fund shares through a Schwab
account relates solely to transactions through Schwab accounts and should not be
read to apply to transactions through other designated entities. For more
information, see "Purchase and Redemption of Shares" in the SAI.
HOW TO BUY SHARES
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 also may open your account in person as
described below.
EXISTING SCHWAB INVESTORS must have funds in their Schwab account in order to
buy Fund shares. Schwab will charge your Schwab brokerage account a $15 service
fee for any check returned because of insufficient or uncollected funds or
because of a stop payment order.
Schwab also enables you to execute your trading requests through electronic
products and services such as StreetSmart(TM), e.Schwab(TM), The Equalizer(R),
TeleBroker(R), and the World Wide Web.
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 securities, including Fund shares, that you hold in a
Schwab account. Of course, SIPC account protection does not protect you from
share price fluctuations.
SCHWAB ACCOUNT AND FUND MINIMUMS AND FEES
- ------------------------------------------------------
<TABLE>
<S> <C>
SCHWAB ACCOUNT MINIMUM BALANCE
Brokerage account.............. $1,000
Custodial account.............. $500
FUND INITIAL PURCHASE
Brokerage account.............. $1,000
IRA, other retirement plan and
custodial account............ $500
FUND ADDITIONAL PURCHASE
Any type of account............ $100
</TABLE>
- ------------------------------------------------------
Schwab reserves the right to waive these minimums for clients of Schwab
Institutional
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and The Charles Schwab Trust Company (the "Trust Company") and for certain tax-
advantaged retirement plans.
Schwab will charge a $7.50 fee at the end of each quarter on Schwab brokerage
accounts that have remained below the minimum for the entire quarter. Schwab
will waive the fee if there has been at least one commissionable trade within
the last 6 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 balance of $5,000. Schwab will charge Schwab One
accounts with balances below $5,000 a $5 per month fee if there have been fewer
than 2 commissionable trades within the last 12 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. All orders to buy shares must be accepted by the Fund, and orders
are not binding until the Fund confirms or accepts them in writing.
METHODS OF BUYING SHARES
Whether by phone, mail, electronically, or in person, the following information
is always needed:
- - your Schwab account number.
- - the name of the Fund you wish to buy.
- - the amount you wish to invest.
BY PHONE
- - Call 800-2 NO-LOAD.
- - Place a buy order for your account.
- - TDD users may contact Schwab at 800-354-2550, 24 hours a day.
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.
- - Once your letter is mailed, you may not modify or cancel your instructions.
ELECTRONICALLY
- - Refer to product information on StreetSmart(TM), e.Schwab(TM), The
Equalizer(R), and TeleBroker(R) for details.
- - World Wide Web address: http://www.schwab.com
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
- - Use Schwab's 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 non-money market SchwabFunds(R) (and certain other funds
available through Schwab) automatically and conveniently. You can make
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<PAGE> 14
automatic investments in any amount, from $100 to $50,000, once you meet the
Fund's investment minimum. Automatic investments are made from your Schwab
account, and you may select from the following methods to make automatic
investments: using the uninvested cash in your Schwab account; using the
proceeds of redemption of shares of the Schwab Money Fund linked to your Schwab
account; or using the Schwab MoneyLink(R) Transfer Service. As long as you are
purchasing a Fund's shares through AIP, all distributions paid by the Fund must
be reinvested in additional shares of that Fund and may not be received in cash.
For more detailed information about this service, or to establish your AIP, call
your local Schwab office or 800-2 NO-LOAD, 24 hours a day.
TAX-ADVANTAGED RETIREMENT PLANS. Schwab offers tax-advantaged retirement plans
for which the Fund may be a particularly appropriate investment. Schwab's
retirement plans allow participants to defer taxes while helping them build
their retirement savings. The Schwab IRA is a retirement plan with a wide choice
of investments offering individuals with earned income the opportunity to
compound earnings on a tax-deferred basis. The Schwab Keogh is a tax-advantaged
plan for self-employed individuals and their employees that permits the employer
to make annual tax-deductible contributions of up to $30,000. Schwab also offers
Corporate Retirement Plans to help a company attract and retain valuable
employees. Call your local Schwab office or 800-2 NO-LOAD, 24 hours a day, for
more information.
SPECIAL SUBSCRIPTION OFFERING
The distributor, Schwab, is soliciting subscriptions for Fund shares during an
initial offering period, currently scheduled to end October 15, 1996, subject to
extension by the Fund and Schwab. Shares are being offered at the initial net
asset value of $10 per share. The Fund and Schwab reserve the right to withdraw,
cancel, or modify the offering without notice and to refuse any order in whole
or in part. The Fund expects to commence continuous offerings of its shares
immediately following the settlement of the subscription offerings.
HOW TO SELL OR EXCHANGE SHARES
You can sell your Fund shares at any time, in person, by telephone,
electronically, or by mail. 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 that Fund's eligibility requirements. Thus, you can
conveniently modify your investments if your goals or market conditions change.
An exchange of shares will be treated as a sale of the shares for federal income
tax purposes. Note that you must meet the minimum initial or subsequent
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.
Whether by phone, mail, electronically, or in person, the following information
is always needed:
- - your Schwab account number.
- - the number of shares you want to sell or exchange.
- - the name of the Fund from which you wish to sell or exchange shares.
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<PAGE> 15
- - the name of the Fund and class into which shares are to be exchanged.
- - if exchanging shares, the distribution option you select.
BY PHONE
- - Call 800-2 NO-LOAD.
- - Place a sell or exchange request for your account.
- - TDD users may contact Schwab at 800-354-2550, 24 hours a day.
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, you may not modify or cancel your instructions.
ELECTRONICALLY
- - Refer to product information on StreetSmart(TM), e.Schwab(TM), The
Equalizer(R), and TeleBroker(R) for details.
- - World Wide Web address: http://www.schwab.com
IN PERSON
- - Place your sell or exchange request at your local Schwab office.
- - For the Schwab office nearest you, call 800-2 NO-LOAD.
Payment for redeemed shares will be credited directly to your Schwab account no
later than 7 days after the Transfer Agent or its authorized agent receives your
sell instructions in proper form. Proceeds will then be held in your Schwab
account 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.
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 (the "Exchange") is restricted or 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. Although the Fund expects to pay redemption requests in
cash, the Fund has reserved the right to pay redemption requests in investment
securities, including underlying fund shares and other securities owned by the
Fund. Although underlying fund shares are readily redeemable or marketable, you
would normally incur brokerage expenses in converting any other securities into
cash. See "Purchase and Redemption of Shares" in the SAI.
IMPORTANT INFORMATION ABOUT
YOUR INVESTMENT
DIVIDENDS AND OTHER DISTRIBUTIONS
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 distributions in additional
shares of the Fund. The Fund chooses this option automatically unless you
specify otherwise. If you are
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<PAGE> 16
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 invest capital gains for you in additional Fund shares.
3. ALL CASH: We will pay you both income dividends and any capital gains in
cash.
The Fund reinvests distributions at the net asset value determined on the
ex-dividend 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 on 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
and capital gain, if any, each year, as determined by the Board of Trustees. The
Fund will distribute net investment income and capital gains, if any, annually
in December. You should be aware that your per share equity in undistributed net
investment and capital gains income may be diluted by the continuing purchases
and redemptions of the Fund's shares. We will automatically reinvest all your
distributions in additional Fund shares unless you elect otherwise.
FEDERAL INCOME TAX INFORMATION
The following is only a brief summary for general information purposes of how
some of the federal income tax laws affect you and the Fund. Thus, you must
consult with your own tax adviser about your particular tax situation.
The Fund intends to qualify as a regulated investment company under the Code. To
qualify, the Fund will distribute substantially all of the Fund's investment
company taxable income and capital gain net income (if any) each year. In
addition, we will meet certain other Code requirements. As a regulated
investment company, the Fund will pay no federal income taxes insofar as its
earnings are distributed to its shareholders.
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 shares of the Fund. These tax rules apply whether
the distributions are received in cash or reinvested.
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.
Dividends and distributions the Fund pays are not eligible for the
dividends-received deduction for corporate shareholders if, as expected, none of
the Fund's income consists of dividends paid by U.S. corporations.
Income received by the underlying funds from sources within various foreign
countries may be subject to foreign income taxes withheld at the source. Since
less than 50% of the value of the Fund's total assets at the close of its
taxable year is expected to consist of foreign securities, the Fund is not
permitted to elect to "pass through" to the Fund's shareholders the amount of
foreign income taxes paid by
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<PAGE> 17
the underlying funds. Each shareholder's respective pro rata share of foreign
taxes paid by the underlying funds will, therefore, be netted against their
share of the underlying fund's gross income.
The Fund's transactions in foreign currencies and hedging activities may give
rise to ordinary income or loss to the extent such income or loss results from
fluctuations in value of the foreign currency concerned. In addition, such
activities will likely produce a difference between book income and taxable
income. This difference may cause a portion of the Fund's income distributions
to constitute a return of capital for tax purposes or require the Fund to make
distributions exceeding book income to qualify as a regulated investment company
for tax purposes.
The foregoing discussion relates only to U.S. 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 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
Fund generally are not subject to U.S. taxation. Different tax consequences may
result if the foreign shareholder is engaged in a U.S. trade or business or is
present in the United States for more than 183 days during the year. 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 the Fund also may be subject to state, local and foreign taxes,
and their treatment under applicable tax laws may differ from the federal income
tax treatment.
We will provide you with a record of all distributions, purchases, and sales on
your Schwab brokerage account statement. Each year we will notify you of the
federal income tax status of all distributions made that year to your account.
HOW WE DETERMINE THE PRICE OF YOUR SHARES
The price of a share is its net asset value, which we determine each Business
Day as of the close of trading on the Exchange, generally at 4:00 p.m. (Eastern
time). We determine the price by adding our total assets, subtracting any
liabilities, and then dividing the resulting amount by the number of shares
outstanding.
In accordance with the 1940 Act, the underlying funds are valued at their
respective net asset values as determined by those funds. The underlying money
market funds value their portfolio securities in accordance with Rule 2a-7
promulgated under the 1940 Act. The other underlying funds generally value their
portfolio securities based on market quotes if they are readily available. The
Investment Manager assigns fair values to the Fund's other investments in good
faith under guidelines adopted by the Board of Trustees. The Board of Trustees
regularly reviews these values.
Purchase or redemption orders and exchange requests will be executed at the NAV
next determined after receipt by the Transfer Agent or its authorized agent.
HOW OUR FUND REPORTS PERFORMANCE
From time to time the Fund may advertise its total return and yield. These
figures reflect past results and are not intended to predict future performance.
We often will compare our per-
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formance to Morgan Stanley Capital International's EAFE and World ex-U.S.
indices, other indices, or combinations of indices.
Total return measures the percentage change in the value of your investment in
the shares of a fund over time. It reflects all share price movements,
distributions, and expenses. It assumes the reinvestment of all distributions.
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 may also show aggregate or cumulative returns.
ANNUAL AND SEMI-ANNUAL REPORT MAILINGS
Twice a year, the Fund provides you a report showing its performance and
outlining its investments. To reduce mailing costs, we combine these mailings by
household. If a household has multiple accounts and the same record address 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 or Semi-Annual Report, call your local Schwab
office or 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 the Trust. The
Investment Manager also is responsible for overall management of the Fund's
investments. 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 mutual funds in The SchwabFunds Family(R), a family of
24 mutual funds. As of August 20, 1996, the SchwabFunds had aggregate net assets
in excess of $39 billion.
Cynthia Liu is the portfolio manager for the Fund and a Vice President of CSIM.
She is responsible for day-to-day portfolio management of the Fund and any other
CSIM-managed mutual funds that will invest primarily in other mutual funds.
Before joining Schwab, Ms. Liu was most recently Director of Investment Services
at Jardine Fleming Unit Trust Limited in Hong Kong, where she was responsible
for overall investment strategy. She has held portfolio management and
investment research positions at several major firms, including MeesPierson
Securities (Asia) Limited and Union Bank of Switzerland, and has more than ten
years experience in international investments.
Stephen B. Ward, CSIM's Senior Vice President and Chief Investment Officer, has
overall management responsibility for CSIM's portfolio management group.
TRANSFER AGENT AND SHAREHOLDER SERVICES. Schwab serves as the Shareholder
Services Agent and Transfer Agent for the Fund. Schwab
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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 230 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. As a result of his
beneficial ownership interests in and other relationships with The Charles
Schwab Corporation and its affiliates, Mr. Schwab may be deemed to be a
controlling person of Schwab and the Investment Manager.
OPERATING FEES AND EXPENSES
The Investment Manager provides underlying fund analysis, selection, ongoing
monitoring, and 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
0.74% of the first $1 billion of the Fund's average daily net assets; 0.69% of
the next $1 billion; and 0.64% of net assets over $2 billion.
The Investment Manager guarantees that, through at least February 28, 1999, the
management fees for the Fund will not exceed 0.50% of its average daily net
assets.
For its services as Transfer Agent and Shareholder Services Agent, Schwab is
entitled to receive annual fees from the Fund of 0.05% and 0.20%, respectively,
of its average daily net assets. Schwab currently receives remuneration from
fund companies participating in its Mutual Fund OneSource(R) service equal to
0.25% to 0.35% per annum of assets invested in OneSource Funds by Schwab
customers. In light of this remuneration, Schwab has agreed, through at least
December 31, 2001, to waive its Transfer Agent and Shareholder Services fees.
The Investment Manager and Schwab also guarantee that, through at least February
28, 1999, total Fund operating expenses will not exceed 0.50% of the Fund's
average daily net assets (after waivers and reimbursements). For purposes of
this guarantee, "operating expenses" do not include interest expenses, taxes,
foreign taxes withheld or paid, 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.
The operating costs and investment advisory fees of the underlying funds are not
included in the discussion of the Fund's fees and expenses above. By investing
in the Fund, you bear not only the Fund's expenses, but also similar expenses of
the underlying funds. You would not incur the Fund's expenses if you were to
invest in the underlying funds directly.
OTHER EXPENSES. The Trust pays the expenses of the Fund's operations. These
expenses include the fees and expenses for independent accountants, legal
counsel and the custodian of its assets; the cost of maintaining books and
records of account; taxes; registration fees; the fees and expenses of
qualifying the Trust and its shares for distribution under federal and state
securities laws; and industry association
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membership dues. The Fund seeks to keep transaction costs and other expenses
low. Schwab may absorb or reimburse certain expenses incurred by the Fund in
order to limit its ratio of operating expenses.
The Trust generally allocates these expenses among the individual investment
portfolios or series of the Trust, including the Fund. This allocation is based
on the relative net assets of each series at the time the expenses are incurred.
However, expenses directly attributable to a particular series are charged to
that series.
PORTFOLIO BROKERAGE. As discussed above, under normal market conditions at least
65% of the Fund's total assets will be invested in OneSource Funds. Orders for
transactions in these underlying funds and, where possible and appropriate,
other underlying funds will be placed with Schwab.
When placing orders for the Fund's other securities or for funds not available
at Schwab, 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 or other
qualified affiliated brokers or dealers to execute the Fund's transactions. To
do so, it must reasonably believe that commissions (or prices) paid to and
transaction quality received from Schwab or other qualified affiliated brokers
or dealers will be at least comparable to those available from qualified non-
affiliated 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 eight 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 distributions, assets
and liquidation of such series except to the extent that such voting rights or
rights as to distributions, assets and liquidation vary among classes of a
series.
Due to the relatively high cost of maintaining accounts with smaller holdings,
the Fund reserves the right to redeem your shares if, as a result of
redemptions, the aggregate value of your account drops below the Fund's $500
minimum balance requirement ($250 in the case of IRAs, other retirement plans
and custodial accounts). You will be given 30 days' advance written notice and a
chance to increase your Fund balance to the minimum requirement before the Fund
redeems your shares. Fund shares will automatically be redeemed should the
Schwab account in which they are carried be closed.
SHAREHOLDER MEETINGS. The Trust is not required to hold annual shareholders'
meetings and does not intend to do so. The Trust may, however, hold special
meetings in connection with certain matters. These include a change in a Fund's
fundamental policies, election or removal of Trustees, or approval of or
amendment to any investment advisory agreement. In addition, shareholders may
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
funda-
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mental 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 for you to return. 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 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.
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GLOSSARY OF IMPORTANT TERMS
BUSINESS DAY: any day the New York Stock Exchange is open for business. A
Business Day normally begins at 9:30 a.m. (Eastern time) when the Exchange
opens, and usually ends at 4 p.m. (Eastern time), when it closes.
CAPITAL GAIN OR LOSS: the increase or decrease in the value of a security
relative to 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.
DEVELOPED SECURITIES MARKETS: as of the date of this prospectus, the countries
usually considered to have "developed" securities markets include Australia,
Austria, Belgium, Canada, Denmark, Finland, France, Germany, Hong Kong, Ireland,
Italy, Japan, Malaysia, Netherlands, New Zealand, Norway, Singapore, Spain,
Sweden, Switzerland, Thailand, United Kingdom, and the United States.
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. As described in the SAI, investments in U.S.
Government securities and other investment companies are excepted from this
policy.
EMERGING MARKET FUND: an investment company that invests primarily in equity
securities of companies located in countries other than the United States with
an undeveloped securities market.
FUND: any investment company registered under the 1940 Act, which may include
open-end mutual funds, closed-end funds, and unit investment trusts.
FUNDAMENTAL: a policy which cannot be changed without the approval of a majority
of the shareholders of the Fund.
GLOBAL FUND: an investment company that invests primarily in equity securities
of companies around the world, including the United States.
INTERNATIONAL EQUITY FUND: an investment company that invests, under normal
market conditions, primarily in equity securities of companies located in one or
more countries other than the United States with a developed securities market.
INVESTMENT MANAGER: Charles Schwab Investment Management, Inc. (or CSIM), 101
Montgomery Street, San Francisco, CA 94104.
NET ASSET VALUE (NAV): on a per share basis, the value of one share in a fund.
This value is determined by adding the total assets, subtracting all
liabilities, and then dividing the resulting amount by the number of shares
outstanding.
1940 ACT: the Investment Company Act of 1940, as amended.
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ONESOURCE FUNDS: funds that participate in Schwab's Mutual Fund OneSource(R)
service and certain other funds Schwab makes available without a transaction
fee.
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 an investment, that the value of
an investment will decrease or that there will be little or no return on an
investment.
SAI: the Trust's Statement of Additional Information, as amended from time to
time.
SCHWAB: Charles Schwab & Co., Inc., 101 Montgomery Street, San Francisco,
CA 94104.
SCHWABFUNDS(R): Schwab's family of proprietary funds, currently consisting of
the following funds:
Schwab 1000 Fund(R)
Schwab International Index Fund(R)
Schwab Small-Cap Index Fund(R)
Schwab S&P 500 Fund - Investor Shares
Schwab S&P 500 Fund - e.Shares(TM)
Schwab Analytics Fund(TM)
Schwab OneSource(R) Portfolios - International
Schwab Asset Director(R) - High Growth Fund
Schwab Asset Director(R) - Balanced Growth Fund
Schwab Asset Director(R) - Conservative Growth Fund
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
Schwab California Long-Term Tax-Free Bond Fund
Schwab Money Market Fund
Schwab Government Money Fund
Schwab U.S. Treasury Money Fund
Schwab Value Advantage Money Fund(R)
Schwab Tax-Exempt Money Fund - Sweep Shares
Schwab Tax-Exempt Money Fund - Value Advantage Shares(TM)
Schwab California Tax-Exempt Money Fund - Sweep Shares
Schwab California Tax-Exempt Money Fund - Value Advantage Shares(TM)
Schwab Retirement Money Fund(R)
Schwab Institutional Advantage Money Fund(R)
Schwab New York Tax-Exempt Money Fund - Sweep Shares
Schwab New York Tax-Exempt Money Fund - Value Advantage Shares(TM)
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.
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, a no-load management investment company.
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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.
- ------------------------------------------------------
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THIS SPACE RESERVED FOR YOUR COMMENTS AND QUESTIONS.
A SCHWAB REPRESENTATIVE WILL BE HAPPY TO ASSIST YOU.
<PAGE> 26
THIS SPACE RESERVED FOR YOUR COMMENTS AND QUESTIONS.
A SCHWAB REPRESENTATIVE WILL BE HAPPY TO ASSIST YOU.
<PAGE> 27
THIS SPACE RESERVED FOR YOUR COMMENTS AND QUESTIONS.
A SCHWAB REPRESENTATIVE WILL BE HAPPY TO ASSIST YOU.
<PAGE> 28
SchwabFunds(R) Schwab OneSource(R)
101 Montgomery Street Portfolios-
San Francisco, CA 94104 International
[Cover Contains Graphic
Image of a Globe.]
2693 CRS 6786(9/96) Prospectus
Printed on recycled paper. September 2, 1996
SchwabFunds(R)
