SCHWAB CAPITAL TRUST, 485APOS, 1997-12-17

SCHWAB CAPITAL TRUST
485APOS, 1997-12-17

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<PAGE> 1

As filed with the Securities and Exchange Commission on DECEMBER 17, 1997
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. 21
and

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 23

-------------

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

Tom D. Seip, 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
1301 K Street, N.W., Suite 800 East Management, Inc.
Washington, D.C. 20005 101 Montgomery Street
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)
/X/ On February 28, 1998 pursuant to paragraph (a)(1)
/ / 75 days after filing pursuant to paragraph (a)(2)
/ / On (date) pursuant to paragraph (a)(2) of Rule 485
if appropriate, check the following box:
/ / This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE> 2
PART A

SCHWAB CAPITAL TRUST

The information required by Items 1 through 9 for the Schwab International
Index Fund(R), Schwab Small-Cap Index Fund(R), Schwab S&P 500 Fund, each a
separate portfolio of the Registrant, is hereby incorporated by reference to the
Prospectus for these portfolios filed with the Securities and Exchange
Commission under Rule 485(a) on October 23, 1997.

C-1
<PAGE> 3
CROSS REFERENCE SHEET

SCHWAB CAPITAL TRUST:
SCHWAB ONESOURCE(R) PORTFOLIOS-BALANCED ALLOCATION, SCHWAB ONESOURCE
PORTFOLIOS-GROWTH ALLOCATION, SCHWAB ONESOURCE PORTFOLIOS-INTERNATIONAL, SCHWAB
ONESOURCE PORTFOLIOS-SMALL COMPANY; SCHWAB ASSET DIRECTOR(R)-HIGH GROWTH FUND,
SCHWAB ASSET DIRECTOR- BALANCED GROWTH FUND, SCHWAB ASSET DIRECTOR -
CONSERVATIVE GROWTH FUND AND SCHWAB ANALYTICS FUND(R)

Part A Item Prospectus Caption

Cover Page Cover Page

Synopsis Expenses; Key Features

Condensed Financial Information Financial Highlights

General Description of Registrant Organization & Management; Investment
Objectives, Policies & Risks

Management of the Fund Organization & Management

Management's Discussion of Fund Discussion to be Included in each
Performance Fund's Annual Report

Capital Stock and Other Securities Investing in Shares; Organization &
Management

Purchase of Securities Being Offered Investing In Shares

Redemption or Repurchase Investing in Shares

Pending Legal Proceedings Not Applicable

C-2
<PAGE> 4
TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
KEY FEATURES .......................................................... 2
EXPENSES .............................................................. 3
FINANCIAL HIGHLIGHTS .................................................. 4
PERFORMANCE ........................................................... 5
ORGANIZATION & MANAGEMENT ............................................. 6
INVESTMENT OBJECTIVES, POLICIES & RISKS ............................... 8
INVESTING IN SHARES ................................................... 11
</TABLE>

This Prospectus provides concise information that you should know before
investing. Please retain it for future reference.

The Statement of Additional Information (SAI), dated February 28, 1998, contains
additional information and is incorporated by reference into the Prospectus. The
SAI has been filed with the Securities and Exchange Commission (SEC). The SEC
maintains a World Wide Web site (http://www.sec.gov) that contains the SAI,
material incorporated by reference and other information. The SAI is available
without charge by calling 1-800-435-4000 (1-800-345-2550 for TDD users) or
writing to 101 Montgomery Street, San Francisco, California 94104.

LIKE ALL MUTUAL FUNDS, THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SEC OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SEC OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

SCHWAB ANALYTICS FUND(R)

PROSPECTUS

FEBRUARY 28, 1998

SCHWAB ANALYTICS FUND (the Fund) seeks long-term capital growth.
<PAGE> 5
KEY FEATURES

MATCHING THE FUND TO YOUR INVESTMENT NEEDS. The Fund uses a systematic and
disciplined investment approach designed to outperform the Standard & Poor's
Composite Index of 500 stocks (the S&P 500(R)) over the long-term. Because the
Fund will invest in a broad range of stocks, the Fund could provide a
diversified domestic stock fund investment for your asset allocation plan. The
Fund also may be an excellent choice for a variety of long-term investment
programs, such as Schwab's Automatic Investment Plan or retirement plans.

GOAL. The Fund seeks long-term capital growth.

There is no guarantee the Fund will achieve its goal.

STRATEGY. The Fund intends to achieve its goal by investing primarily in equity
securities with favorable characteristics, as determined using quantitative and
statistical techniques, proprietary software models and databases with extensive
"real-time" information and research. The Fund intends to operate as a
diversified mutual fund.

RISKS. While broad diversification and a disciplined approach in managing the
Fund's portfolio may reduce certain risks associated with a less structured
portfolio management style, they do not ensure against other risks typically
associated with investing in stocks, such as a decline in the value of a
particular stock, industry or market. Read the "Investment Objectives, Policies
& Risks" section for more details.

MANAGEMENT. Charles Schwab Investment Management, Inc. (the Investment Manager)
currently provides investment management services to the SchwabFunds(R), a
family of [__] mutual funds with over $[xx] billion in assets as of [date].
Symphony Asset Management, Inc. (Symphony) is the Fund's sub-adviser

SHAREHOLDER SERVICE. Charles Schwab & Co., Inc. (Schwab) provides professional
representatives 24 hours a day at 1-800-435-4000 to service your accounts. Read
the "Investing in Shares" section of the prospectus for information on how to
buy, sell or exchange shares of the Fund.

LOW COST INVESTING: The Investment Manager and Schwab have voluntarily
guaranteed that, through at least [date], total operating expenses of the Fund
will not exceed 0._% of average daily net assets.

2
<PAGE> 6
EXPENSES

SHAREHOLDER TRANSACTION EXPENSES are charges you may pay when you buy, sell or
exchange shares of the Fund.

<TABLE>
<S> <C>
Maximum sales charge on purchases and reinvested dividends None
Deferred sales charge on redemptions None
Redemption fee None*
Exchange fee None
</TABLE>

* Read the "Investing in Shares" section of the prospectus for information
concerning wire redemption fees.

The information on shareholder transaction expenses is for transactions through
a Schwab account. If you are buying, selling, exchanging or maintaining shares
of the Fund through an entity other than Schwab, transaction expenses may be
charged by that entity.

ANNUAL OPERATING EXPENSES are paid by the Fund. These expenses include
management fees paid to the Investment Manager and other fees for services such
as maintaining shareholder records and furnishing shareholder statements and
financial reports. These expenses are factored into the price of the Fund's
shares and into the dividends paid to shareholders. As a shareholder, you are
not charged any of these fees directly.

The annual operating expenses stated below are based on historical expenses and
are stated as a percentage of average daily net assets of the Fund.

<TABLE>
<S> <C>
Management fee (after reduction 0.xx%
12b-1 fee None
Other expenses (after reduction) 0.xx%
TOTAL OPERATING EXPENSES (AFTER REDUCTION) 0.xx%
</TABLE>

EXAMPLE: If the Fund was to provide an annual return of 5%, you would pay the
following expenses on a $1,000 investment, whether you redeemed your shares at
the end of each period or left your shares invested.

<TABLE>
<S> <C> <C> <C>
1 Year 3 Years 5 Years 10 Years
</TABLE>

THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN.

The Investment Manager and Schwab have voluntarily agreed to guarantee, at least
through [date], that total operating expenses (excluding interest, taxes,
brokerage commissions and extraordinary expenses) of the Fund will not exceed
0.xx% of average daily net assets. If this guarantee was not in effect, the
management fee, other expenses and total operating expenses of the Fund, as a
percentage of average daily net assets, would have been [0.xx%, 0.xx% and
0.xx%], respectively.

Read the "Organization & Management" section of the prospectus for more
information on expenses.

3
<PAGE> 7
FINANCIAL HIGHLIGHTS

The following information has been audited by _____________, independent
accountants for the Fund. Their report is included in the Annual Report for the
Fund, which is a separate report that contains additional financial information.

Their report, financial highlights and financial statements for the Fund are
incorporated by reference into the SAI. For free copies of an Annual Report
and/or the SAI, call 1-800-435-4000.

4
<PAGE> 8
PERFORMANCE

Typically, mutual funds report performance in terms of total return.

TOTAL RETURN is the actual annual return of an investment assuming both the
reinvestment of any income earned and any change in share price. A cumulative
total return is the actual total return of an investment over a stated period of
time, while an average annual total return is a hypothetical rate of return,
which, if achieved annually would have produced the same cumulative total
return. An average annual total return will smooth out the actual year-to-year
fluctuations of an investment's return.

The Fund intends to outperform the S&P 500(R), a widely recognized, unmanaged
index of common stock prices of 500 U.S. companies. The performance of the S&P
500, typically reported as total return, assumes reinvestment of dividends paid
by stocks in the Index, but does not take into account any fees or expenses
associated with investing directly in those stocks, such as brokerage
commissions.

Fund strategies, performance and holdings are detailed in financial reports
which are sent to shareholders twice a year. For a free copy of a most recent
financial report, call 1-800-435-4000.

5
<PAGE> 9
ORGANIZATION & MANAGEMENT

THE FUND IS A DIVERSIFIED MUTUAL FUND and is a series of Schwab Capital Trust (a
Trust).

THE FUND IS OVERSEEN BY A BOARD OF TRUSTEES. The Board of Trustees meets
regularly to review the Fund's activities, contractual arrangements and
performance. The Board of Trustees is responsible for protecting the interests
of the Fund's shareholders.

THE FUND MAY HOLD SPECIAL MEETINGS. These meetings may be called for purposes
such as electing Trustees, changing fundamental policies and amending management
contracts. Shareholders are entitled to one vote for each share owned and may
vote by proxy or in person. Proxy materials will be mailed to shareholders prior
to any meetings, and will include a voting card and information explaining the
matters to be voted upon.

THE FUND IS MANAGED BY THE INVESTMENT MANAGER. The Investment Manager is
responsible for managing the Fund's day-to-day business affairs, including
picking the Fund's investments; although the Investment Manager is subject to
the overall authority of the Board of Trustees.

Geri Hom is a Vice President of the Investment Manager and Senior Portfolio
Manager for the Fund. She joined Schwab in March 1995 as Portfolio Manager -
Equities and currently manages four Schwab Equity Index Funds and co-manages
three Schwab Asset Director(R) Funds with approximately $[0.xx] billion in
assets.

For the prior seven years before joining Schwab, Ms. Hom was Vice President and
Manager of the Domestic Equity Portfolio Management Group for Wells Fargo Nikko.
She holds a B.A. in Business Education from San Francisco State University.

Stephen B. Ward is the Trust's Senior Vice President and Chief Investment
Officer. He has overall responsibility for the management of the Fund's
portfolio. Mr. Ward joined the Investment Manager as Vice President and
Portfolio Manager in April 1991 and was promoted to his current position in
August 1993. Prior to joining the Investment Manager, Mr. Ward was Vice
President and Portfolio Manager at Federated Investors. He graduated with a
Masters of Business Administration from the Wharton School and a Bachelor of
Arts in Economics from Virginia Tech and is a Chartered Financial Analyst.

The Investment Manager has hired Symphony, located at 555 California Street, San
Francisco, California, as sub-adviser to the Fund. Symphony, a registered
investment adviser owned by BARRA, Inc., was established in 1994. BARRA, Inc.
was founded in 1975 and is a leading provider of innovative analytical models,
software and other services. Symphony and its affiliate, Symphony Asset
Management, LLC, serve as sub-adviser to two other investment companies and
manage over $2 million in institutional and private account assets. Symphony,
subject to the supervision of the Investment Manager, provides investment
assistance and day-to-day management of the Fund's non-cash investments, as well
as investment research and statistical information.

6
<PAGE> 10
Symphony's portfolio manager for the Fund is Praveen Gottipalli. Since 1994, he
has been Symphony's Director of Investment. Prior to holding this position, he
was at BARRA, Inc. for nine years where his last position was Director of the
Active Strategies Group. He received his Masters of Business Administration and
Masters of Science in Chemical Engineering from Rensselaer Polytechnic Institute
and his B.S. in Engineering from the Indian Institute of Technology.

For the services performed under its contract with the Fund, the Investment
Manager is entitled to receive a graduated annual fee, payable monthly from the
Fund.

For the fiscal year ended October 31, 1997, the Fund paid the Investment Manager
investment management fees, as a percentage of its daily net assets, of __%.

The Investment Manager pays the sub-adviser an annual fee, payable monthly,
based on a percentage of the Fund's daily net assets. The sub-adviser does not
receive compensation directly from the Fund.

For the fiscal year ended October 31, 1997, the Investment Manager paid Symphony
investment management fees, as a percentage of the Fund's daily net assets, of
__%.

SCHWAB IS THE FUND'S SHAREHOLDER SERVICES AND TRANSFER AGENT. Schwab provides
Fund information to shareholders, including share price, reporting shareholder
ownership and account activities and distributing the Fund's prospectuses,
financial reports and other informational literature about the Fund. Schwab also
maintains the office space, equipment and personnel necessary to provide these
services. Schwab also distributes and markets SchwabFunds(R) and provides other
services.

For the services performed as transfer agent under its contract with the Fund,
Schwab is entitled to receive an annual fee from the Fund. The fee is payable
monthly in the amount of 0.05% of the Fund's average daily net assets. For the
services performed as shareholder services agent under its contract with the
Fund, Schwab is entitled to receive an annual fee from the Fund. The fee is
payable monthly in the amount of 0.20% of the Fund's average daily net assets.

THE FUND PAYS OTHER EXPENSES. These expenses are typically connected with the
Trust's operations, and include legal, audit and custodian fees, as well as the
costs of accounting and registration of the Fund. Expenses not directly
attributable to a particular fund will generally be allocated among the funds in
the Trust on the basis of each fund's relative net assets at the time the
expense is incurred.

For the fiscal year ended October 31, 1997, the Fund paid total operating
expenses, as a percentage of daily net assets, of __%.

The sub-adviser may use affiliated broker-dealers, including Schwab, to execute
the Fund's securities transactions.

The Charles Schwab Corporation is the parent company of the Investment Manager
and Schwab. Charles R. Schwab is the founder, Chairman, Chief Executive Officer
and Director of The Charles Schwab Corporation. As a result of his ownership of
and interests in The Charles Schwab Corporation, Mr. Schwab may be deemed to be
a controlling person of the Investment Manager and Schwab.

7
<PAGE> 11
INVESTMENT OBJECTIVE, POLICIES & RISKS

INVESTMENT OBJECTIVE THE FUND seeks long-term capital growth.

The Fund's investment objective may be changed only by vote of a majority of the
Fund's shareholders. Unless otherwise noted, policies and limitations may be
changed without shareholder approval.

INVESTMENT STRATEGIES

The Fund normally intends to achieve its objective by investing primarily in
equity securities with favorable characteristics, as determined using
quantitative and statistical techniques, proprietary software models and
databases with extensive "real-time" information and research. These tools are
used to select investments for the Fund, typically common stocks of at least 50
U.S. companies that are expected to produce an aggregate total return
outperforming the S&P 500(R). These securities are typically the common stock of
large or medium size companies.

The Fund utilizes is a systematic and disciplined approach to portfolio
investment management. From a universe of more than 1,300 common stocks of U.S.
companies, stocks are identified and ranked using quantitative factors, such as
the size of the company, dividend payout or yield, price to book and price to
earnings ratios, historical earnings growth, stock price momentum, earnings
estimates and revisions, and the sale of stock by corporate insiders.
Information from several extensive databases is monitored and updated on a
"real-time" basis, and Symphony's proprietary software models are constantly
reviewed and refined based on advanced money management techniques and academic
research. Once stocks are ranked, statistical methodologies are used to
construct a diversified portfolio of common stocks, typically of at least 50
U.S. companies, whose aggregate total return is expected to outperform that of
the S&P 500(R).

THE RISKS for the Fund are basically those risks associated with investing in
equity securities. Generally speaking, there are three types of risk inherent to
investing in equity securities.

STOCK RISK is the risk that a stock may decline in price over the short- or
long-term. When a stock's price declines, its market value is lowered even
though the intrinsic value of the company may not have changed. Diversifying
investments across companies can help to lower the stock risk of the Fund.

INDUSTRY RISK is the risk that the companies of a particular industry will
experience a decline in the price of this stock. Sometimes a negative economic
condition will affect a single industry or group of industries. For example, the
automotive industry may have a greater exposure to a single factor, such as an
increase in the price of oil, which may affect the sale of automobiles and
impact the value of the industry's securities. Diversifying investments across
industries can help to reduce the industry risk of the Fund.

MARKET RISK is typically the result of a negative economic condition that
affects the value an entire class of securities, such as stocks or bonds. Unlike
stock and industry risk, the Fund does not attempt to reduce market risk, which
can only be removed by diversification among various asset classes (e.g.,
stocks, bonds, cash and real estate).

The amount of each type of risk the Fund will be subject to depends on its
portfolio of investments. Because the Fund intends to invest primarily in
stocks, it will be exposed to stock risk, as well as stock market risk. The
Fund's analytical investment selection favoring stocks with above-average
investment potential, as well as its diversification of investments across
stocks and industries, are designed to minimize those risks as compared to
potential return. The Fund also will seek to constrain the beta of its stock
portfolio (the measurement of a portfolio's sensitivity to changes in the stock
market) within a targeted range around 1.0. Setting the portfolio beta near to
1.0 means that an upward movement in the overall stock market would, on average,
also increase the value of the Fund's portfolio in a manner consistent with the
S&P 500.

PRINCIPAL SECURITIES AND INVESTMENT TECHNIQUES

The different types of securities that the Fund

8
<PAGE> 12
may invest are described below.

EQUITY SECURITIES include common stocks, preferred stocks, convertible
securities and warrants. Common stocks which represent an ownership interest in
a company are probably the most recognized type of equity security. Equity
securities have historically outperformed most other securities, although their
prices can be volatile. Market conditions, political, economic and even
company-specific news can cause significant changes in the price of a stock.
Smaller companies (as measured by market capitalization), sometimes called
small-cap companies or small-cap stocks, may be especially sensitive to these
factors.

DEBT SECURITIES are obligations issued by various entities, including
governments and corporations in order to raise money. They are basically "IOUs",
but are commonly referred to as bonds or money market securities. These
securities normally require the issuer to pay a fixed, variable or floating rate
of interest on the amount of money borrowed (the "principal") until it is paid
back upon maturity. A money market security is a high-quality debt security that
has short-term maturity.

ILLIQUID SECURITIES are securities that are not actively traded and, therefore,
may be difficult to sell quickly. The sale of some illiquid securities and
certain other securities may be subject to legal restrictions. A Fund could
incur losses if it has difficulty selling a security.

Restriction: The Fund may invest up to 10% of its net assets in illiquid
securities.

SECURITIES OF OTHER INVESTMENT COMPANIES may be purchased by the Fund. These
investments will cause the Fund to bear duplicative fees for certain services.

ADJUSTING INVESTMENT EXPOSURE are investment techniques used by the Fund to
increase or decrease its exposure to a number of conditions, including changing
interest rates and other conditions affecting the value of securities. These
investment techniques include buying and selling futures and options contracts,
entering into swap agreements (an exchange of one security or asset for
another), purchasing index securities and selling securities short. Generally
futures and options transactions are agreements between two parties to buy or
sell, at the option of one of the parties, securities at a specified price
within a designated period.

The Fund intends to use these investment techniques to adjust risk exposure and
increase returns, and to manage its cash position. The use of any of these
techniques will increase the Fund's risks and volatility. The potential losses
to the Fund could be substantially more than the initial cost of the investment
itself.

REPURCHASE AGREEMENTS involve a Fund buying securities (usually U.S. Government
securities) from a seller and simultaneously agreeing to sell them back at an
agreed-upon price (usually higher) and time. There are risks that losses will
result if the seller does not perform as agreed.

The Fund also employs the policies described below.

DIVERSIFICATION involves investing in a wide range of securities and, thereby,
spreading and reducing the risks of investment.

BORROWING money is a form of leveraging if the Fund continues to make
investments while borrowings remain outstanding. Borrowing subjects a Fund to
interest costs, which may exceed the interest received on the securities
purchased with the borrowed funds.

Restriction: The Fund may borrow up to 33 1/3% of its total assets for temporary
or emergency purpose; provided that the Fund will not purchase securities while
borrowings exceed 5% of its total assets.

LENDING securities may earn income for the Fund, but could result in losses to
the Fund, and possibly affect share price.

Restriction. The Fund will not lend more than 33 1/3% of its total assets.

9
<PAGE> 13
INVESTING IN SHARES

BUSINESS DAYS

The Fund is open each day the New York Stock Exchange (NYSE) is open (business
days).

NET ASSET VALUE

The price of each share of the Fund is its net asset value per share (NAV). NAV
is determined each business day at the close of the NYSE, generally 4:00 p.m.
Eastern time. NAV is calculated by adding the value of the Fund's assets,
subtracting its liabilities and dividing the result by the number of outstanding
shares. The Fund's NAV will fluctuate and is not insured against loss in its
NAV. The Fund values its portfolio securities based on market quotes if they are
readily available. If market quotes are not readily available, portfolio
securities are assigned fair market values pursuant to guidelines adopted by the
Board of Trustees.

MINIMUM INVESTMENTS

<TABLE>
<S> <C>
INITIAL INVESTMENT $1,000
for custodial and retirement plan accounts $ 500
ADDITIONAL SHARES $ 100
MINIMUM BALANCE* $1,000
for custodial accounts and IRAs $ 500
</TABLE>

*Your shares may be automatically redeemed if, as a result of selling shares,
you no longer meet the Fund's minimum balance requirements. You will be given 30
days' notice prior to redemption to increase your holdings to the required
minimum balance.

These minimums may be different if you hold shares of the Fund through an entity
other than Schwab. Also, these minimums may not be applicable to certain
customers of Schwab's Institutional Services for the Investment Managers or
Schwab's Retirement Plan Services.

HOW TO BUY, SELL OR EXCHANGE SHARES

Shares may be purchased, sold or exchanged through a Schwab account or through
an account with any other entity designated by Schwab. The following information
on how to buy, sell and exchange shares is for transactions through a Schwab
account. Shares are purchased, sold or exchanged at the NAV next determined
after your order has been received in good order. Orders received in good order
by Schwab prior to 4:00 p.m. Eastern time will be executed that day. Shares
bought normally begin to earn dividends on the next business day, while shares
sold or exchanged normally earn dividends on that day.

BY TELEPHONE. Call 1-800-435-4000, 24 hours a day (1-800-345-2550 for TDD
users).

BY MAIL. Write to the Fund at 101 Montgomery Street, San Francisco, CA 94104.

ELECTRONICALLY. Visit Schwab's World Wide Web site at http://www.schwab.com. For
more information about, StreetSmart(R), The Equalizer(R) and Telebroker(R), call
1-800-435-4000.

Please provide the following information:

- - your name and Schwab account number;

- - the name of your Fund;

- - the dollar amount you would like to buy, sell or exchange;

- - for initial purchases only, one of the three distribution choices
below.

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<PAGE> 14
AUTOMATIC REINVESTMENT. Dividends and capital gain distributions will
be reinvested in shares of your Fund. If you do not choose an option,
this option will be assigned to you and all distributions will be
reinvested;

CASH OPTION. All distributions will be paid to your Schwab account and,
if requested, mailed to you the next business day; or

CASH DIVIDENDS/REINVESTED CAPITAL GAINS. Dividends will be paid to you
in cash and any capital gains distributions will be reinvested in
additional shares.

- - for exchanges only, the name of Fund and class, if applicable, into
which you would like to exchange and a distribution choice; and

- - if selling or exchanging by mail, a signature of at least one of the
persons named on your Schwab account.

PLEASE NOTE THE FOLLOWING WHEN SELLING OR EXCHANGING SHARES OF THE FUND:

- - redemption and exchange requests by mail are irrevocable, and, once
mailed, may not be modified or canceled;

- - a check may be mailed to you upon request;

- - if you bought your shares by check, a check will be issued as soon as
your check clears, which may take up to 15 days from the date of
purchase;

- - depending on the type of Schwab account you have, your money may earn
interest during any holding period;

- - a fee may be charged for redemptions by wire;

- - you may exchange your shares for shares of any other SchwabFund,
provided you meet its minimum investment and any other requirements;

- - the Fund and Schwab reserve the right to modify, limit or terminate the
exchange privilege upon 60 days' written notification;

- - an exchange of the Fund's shares for shares of other SchwabFunds(R)
will be treated as a taxable event for federal income tax purposes; and

- - the Fund may suspend the right to sell shares or postpone payment for a
sale of shares when trading on the NYSE is restricted, the NYSE is
closed for any reason other than its customary weekend and holiday
closings, emergency circumstances exist as determined by the SEC or as
otherwise permitted by the SEC.

DIVIDENDS & TAXES

The following is only a brief summary of some of the federal income tax
consequences that may affect the Fund and its shareholders. Unless your
investment in the Fund is through a retirement account, you should consider the
tax implications of investing, and consult with your own tax adviser.

The Fund will distribute its net investment income and capital gains, if any, to
shareholders each year. All distributions received by shareholders are subject
to federal income tax, and may be subject to state and/or local taxes.
Distributions are taxable when paid, whether they are received in cash or
reinvested, although distributions declared in December, but paid in January,
are taxable as if they were paid on December 31.

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<PAGE> 15
Shareholders receive a record of all distributions by the Fund, as well as
purchases and sales they have made, via their monthly Schwab account statement.
Each year, the Fund notifies shareholders of the federal income tax treatment of
all distributions made by the Fund that year.

OPENING A SCHWAB ACCOUNT

Schwab was established in 1971 and is one of America's largest discount brokers.
Schwab helps over [XX] million customers make investment decisions by offering
them low cost brokerage services and providing them with financial products and
information. Visit one of Schwab's [number] branch offices or Schwab's World
Wide Web site (http://www.schwab.com) for information on investment products and
services.

Investors may open a Schwab account by simply completing an application,
although institutional investors should contact Schwab to find out if any
additional forms need to be completed.

Using a Schwab account, investors have access to investments other than just
mutual funds, such as stocks and bonds. The Securities Investor Protection
Corporation (SIPC) provides insurance protection of up to $500,000 for the
securities held in a Schwab account, including shares of the Fund. It is
important to remember that SIPC insurance does not protect against losses due to
market or economic conditions.

Schwab accounts require a $1,000 minimum investment and account balance ($500
for custodial accounts). A fee of $7.50 will be charged to Schwab accounts that
fall below this minimum for three consecutive months in a quarter. The fee, if
applicable, will be charged at the end of each quarter, but will be waived if
there has been at least one commissionable trade within the previous six months,
or if the investor's combined Schwab accounts equal $10,000 or more.

Schwab One(R) accounts require a $5,000 minimum investment and account balance.
A monthly fee of $5.00 will be charged to Schwab One accounts that fall below
this minimum, unless there have been at least two commissionable trades within
the previous twelve months.

12
<PAGE> 16
Deposits may be made to Schwab accounts by check, wire and other forms of
electronic funds transfer. Securities also may be deposited. All checks should
be made out to Charles Schwab & Co., Inc. Schwab will charge a $15 service fee
for any checks returned as a result of insufficient or uncollected funds or a
stop order. Monies received by Schwab before 4:00 p.m. Eastern time will be
available for investment in the Fund that day. Monies received by Schwab after
4:00 p.m. Eastern time will be available for investment in the Fund the next
business day.

Contact Schwab for instructions and any applicable fees if you would like to
wire money from your Schwab account.

TAX-ADVANTAGED RETIREMENT PLANS.

Retirement plans offer excellent tax advantage and the Fund may be especially
suitable investments for them. Schwab's retirement plans allow participants to
defer taxes while helping them build their retirement savings.

SCHWAB IRA. A retirement plan with a wide choice of investments offering people
with earned income the opportunity to compound earnings on a tax-deferred basis.
Schwab IRA accounts with balances of $10,000 or more by September 15, 1998 will
not be charged Schwab's $29 annual IRA account fee for the life of the account.

SCHWAB KEOGH. A tax-advantaged plan for self-employed individuals and their
employees that permit the employer to make annual tax-deductible contributions
of up to $30,000. Schwab Keogh Plans are currently charged an annual fee of $45.

SCHWAB CORPORATE RETIREMENT ACCOUNT. A well-designed retirement program can help
a company attract and retain valuable employees. Call 1-800-435-4000 for more
information.

SCHWAB AUTOMATIC INVESTMENT PLAN. 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 automatic investments in any amount, from $100 to $50,000, once you
meet a Fund's investment minimum.

Automatic investments are made from your Schwab account using uninvested cash or
shares of the Schwab money fund linked to your Schwab account or by using the
Schwab MoneyLink(R) Transfer Service. As long as you are purchasing the Fund's
shares through AIP, you must chose the automatic reinvestment option for
distributions. For more detailed information about this service, or to establish
your AIP, call 1-800-435-4000, 24 hours a day.

GENERAL INFORMATION

As long as the Fund or Schwab follow reasonable procedures to confirm that your
telephone order is genuine, they will not be liable for any losses an investor
may experience due to unauthorized or fraudulent instructions.

These procedures may include:

- - requiring a form of personal identification before acting upon any
telephone order;

- - providing written confirmation of telephone orders; and

- - tape recording all telephone orders.

13
<PAGE> 17
It may be difficult to place orders by telephone during periods of drastic
economic or market changes because Schwab's phone lines may become very busy
with calls from other investors. Consider other methods for placing an order,
such as writing to the Funds or visiting a Schwab branch office.

Share certificates will not be issued in order to avoid additional
administrative costs, however, share ownership records are maintained by Schwab.
Twice a year, financial reports will be mailed to shareholders describing the
Fund's performance and investment holdings. In order to reduce these mailing
costs, each household with multiple accounts will receive one consolidated
mailing. If you do not want to receive consolidated mailings, you may write the
Fund and request that your mailings not be consolidated.

- --------------------------------------------------------------------------------

NO ONE HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY STATEMENTS
ABOUT THIS OFFERING OTHER THAN THE INFORMATION CONTAINED IN THIS PROSPECTUS AND
IN OFFICIAL SALES MATERIALS. IF ANYONE GIVES ANY OTHER INFORMATION OR MAKES ANY
OTHER REPRESENTATIONS, DO NOT RELY ON SUCH INFORMATION OR REPRESENTATIONS.

- --------------------------------------------------------------------------------

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
BE MADE.

14
<PAGE> 18
TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
KEY FEATURES .........................................................
EXPENSES .............................................................
FINANCIAL HIGHLIGHTS .................................................
PERFORMANCE ..........................................................
ORGANIZATION & MANAGEMENT ............................................
INVESTMENT OBJECTIVES, POLICIES & RISKS ..............................
INVESTING IN SHARES ..................................................
</TABLE>

This Prospectus provides concise information that you should know before
investing. Please retain it for future reference.

The Statement of Additional Information (SAI), dated February 28, 1998, contains
additional information and is incorporated by reference into the Prospectus. The
SAI has been filed with the Securities and Exchange Commission (SEC). The SEC
maintains a World Wide Web site (http://www.sec.gov) that contains the SAI,
material incorporated by reference and other information. The SAI is available
without charge by calling 1-800-435-4000 (800-345-2550 for TDD users) or writing
to 101 Montgomery Street, San Francisco, California 94104.

SCHWAB ASSET DIRECTOR(R) FUNDS

HIGH GROWTH FUND

BALANCED GROWTH FUND

CONSERVATIVE GROWTH FUND

PROSPECTUS
FEBRUARY 28, 1998

SCHWAB ASSET DIRECTOR - HIGH GROWTH FUND seeks high capital growth with less
volatility than an all stock portfolio.

SCHWAB ASSET DIRECTOR - BALANCED GROWTH FUND seeks capital growth and income
through a more balanced investment between stocks and bonds.

SCHWAB ASSET DIRECTOR - CONSERVATIVE GROWTH FUND seeks income and capital growth
with more growth potential than an all bond portfolio.

1
<PAGE> 19
KEY FEATURES

MATCHING A FUND TO YOUR INVESTMENT NEEDS. The Funds are asset allocation funds
that are diversified across major asset classes, such as stocks, bonds and money
market securities, either by investing directly in these securities or
indirectly through other SchwabFunds(R). The Funds are designed to provide
varying degrees of exposure to the stock market, and may be suited for long-,
intermediate- and even short-term investing. Each Fund could be an excellent
choice for retirement plans, college saving or to meet other long term goals.

GOALS. SCHWAB ASSET DIRECTOR - HIGH GROWTH FUND (HIGH GROWTH FUND) seeks high
capital growth with less volatility than an all stock portfolio.

SCHWAB ASSET DIRECTOR - BALANCED GROWTH FUND (BALANCED GROWTH FUND) seeks
capital growth and income through a more balanced investment between stocks and
bonds.

SCHWAB ASSET DIRECTOR - CONSERVATIVE GROWTH FUND (CONSERVATIVE GROWTH FUND)
seeks income and capital growth with more growth potential than an all bond
portfolio.

There is no guarantee that a Fund will achieve its goal.

MANAGEMENT: Charles Schwab Investment Management, Inc. (the Investment Manager)
currently provides investment management services to the SchwabFunds(R), a
family of [xx] mutual funds with over $[xx] billion in assets as of [date].

SHAREHOLDER SERVICE: Charles Schwab & Co., Inc. (Schwab) provides professional
representatives 24 hours a day at 1-800-435-4000 to service your accounts. Read
the "Investing in Shares" section of the prospectus for information on how to
buy, sell and exchange shares of the Funds.

STRATEGIES. Each Fund intends to achieve its goal by following an indexing
investment strategy, and investing in other SchwabFunds, and directly in stocks,
bonds and money market securities. Each Fund follows an asset allocation
investment strategy, which means it invests in a targeted mix of stocks, bonds
and money market securities, including mutual funds. The High Growth Fund
normally invests more heavily in stocks and stock funds than the other Funds,
and the Balanced Growth Fund normally invests more heavily in stocks and stock
funds than the Conservative Growth Fund.

RISKS. The Funds attempt to reduce the risks associated with investing by
diversifying your investment across asset classes, as well as across securities
and industries within those asset classes. In addition, each Fund's indexing
strategy may reduce the risks associated with active investment management.
Nonetheless, the risk of investing in each of the stock, bond and money markets
still exists, and could affect the value of your investment. The Funds may
invest in securities of foreign issuers or small companies, and, therefore,
involve additional considerations and risks. Read the "Investment Objectives,
Policies & Risks" section for more details.

LOW COST INVESTING: The Investment Manager and Schwab have voluntarily
guaranteed that, through at least [date], total operating expenses of each Fund
will not exceed 0.xx% of each Fund's daily net assets.

2
<PAGE> 20
EXPENSES

SHAREHOLDER TRANSACTION EXPENSES are charges you may pay when you buy, sell or
exchange shares of the Funds.

<TABLE>
<CAPTION>
HIGH BALANCED CONSERVATIVE
GROWTH GROWTH GROWTH
FUND FUND FUND
---- ---- ----
<S> <C> <C> <C>
Maximum sales charge on purchases and reinvested dividends None None None
Deferred sales charge on redemptions None None None
Redemption fee None* None* None*
Exchange fee None None None
</TABLE>

* Read the "Investing in Shares" section of the prospectus for information
concerning wire redemption fees.

The information on shareholder transaction expenses is for transactions through
a Schwab account. If you are purchasing, selling, exchanging or maintaining
shares through an entity other than Schwab, transaction expenses may be charged
by that entity.

ANNUAL OPERATING EXPENSES are paid by the Funds. These expenses include
management fees paid to the Investment Manager and other fees for services such
as maintaining shareholder records and furnishing shareholder statements and
financial reports. These expenses are factored into the price of a Fund's shares
and into the dividends paid to shareholders. As a shareholder, you are not
charged any of these fees directly.

The annual operating expenses stated below are based on historical expenses and
are stated as a percentage of average daily net assets of each Fund.

<TABLE>
<CAPTION>
HIGH BALANCED CONSERVATIVE
GROWTH GROWTH GROWTH
FUND FUND FUND
---- ---- ----
<S> <C> <C> <C>
Management fee (after reduction) 0.xx% 0.xx% 0.xx%
12b-1 fee None None None
Other expenses (after reduction) 0.xx% 0.xx% 0.xx%
TOTAL OPERATING FEES (AFTER REDUCTION) 0.xx% 0.xx% 0.xx%
</TABLE>

EXAMPLE: If each Fund were to provide an annual return of 5%, you would pay the
following expenses on a $1,000 investment, whether you redeemed your shares at
the end of each period or left your shares invested.

<TABLE>
<CAPTION>
1 3 5 10
Year Years Years Years
---- ----- ----- -----
<S> <C> <C> <C> <C>
HIGH GROWTH FUND

BALANCED GROWTH FUND

CONSERVATIVE GROWTH FUND
</TABLE>

THE EXAMPLES SHOULD NOT BE CONSIDERED REPRESENTATIONS OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN.

The Investment Manager and Schwab have voluntarily agreed to guarantee, at least
through [date], that total operating expenses (excluding interest, taxes,
brokerage commissions and extraordinary expenses) of each Fund, including the
impact of the operating expenses of underlying SchwabFunds(R) in which a Fund
invests, will not exceed 0.xx% of each Fund's average daily net assets. If these
guarantees were not in effect, the management fee, other expenses and total
operating expenses for the High Growth Fund, Balanced Growth Fund and
Conservative Growth Fund, as a percentage of average daily net assets, would
have been would have been [0.XX%], [0.XX%] and [0.XX%]; [0.XX%], [0.XX%] and
[0.XX%]; and [0.XX%], [0.XX%] and [0.XX%], respectively.

Read the "Organization & Management" section of the prospectus for more
information on expenses.

3
<PAGE> 21
FINANCIAL HIGHLIGHTS

The following information has been audited by ____, independent accountants for
the Funds. Their report is included in the Annual Report for the Funds, which is
a separate Report that contains additional financial information.

The auditor's report, financial highlights and financial statements are
incorporated by reference into the SAI. For free copies of the Annual Report
and/or the SAI, call 1-800-435-4000.

4
<PAGE> 22
PERFORMANCE

Typically, mutual funds report performance in terms of total return or yield.

YIELD is the actual income earned on an investment over a stated period of time
and annualized (assumed to be generated over a year). For example, a thirty-day
yield measures the income earned on an investment over thirty days, annualizes
it and expresses that income as a percentage of the original investment. An
effective yield is calculated similarly, but income earned is assumed to be
reinvested. Because of this compounding effect, effective yields are generally
higher.

Fund strategies, performance and holdings are detailed in financial reports,
which are sent to shareholders twice a year. For a free copy of the most recent
financial report, call 1-800-435-4000.

5
<PAGE> 23
ORGANIZATION & MANAGEMENT

EACH FUND IS A DIVERSIFIED MUTUAL FUND and is a series of Schwab Capital Trust
(the Trust).

THE FUNDS ARE OVERSEEN BY A BOARD OF TRUSTEES. The Board of Trustees meets
regularly to review each Fund's activities, contractual arrangements and
performance. The Board of Trustees is responsible for protecting the interests
of each Fund's shareholders.

THE FUNDS MAY HOLD SPECIAL MEETINGS. These meetings may be called for purposes
such as electing Trustees, changing fundamental policies and amending management
contracts. Shareholders are entitled to one vote for each share owned and may
vote by proxy or in person. Proxy materials will be mailed to shareholders prior
to any meetings, and will include a voting card and information explaining the
matters to be voted upon.

THE FUNDS ARE MANAGED BY THE INVESTMENT MANAGER. The Investment Manager is
responsible for managing each Fund's day-to-day business affairs, including
picking each Fund's investments; although the Investment Manager is subject to
the overall authority of the Board of Trustees.

Geri Hom is a Vice President of the Investment Manager and Senior Portfolio
Manager. She joined Schwab in March 1995 as Portfolio Manager-Equities and
currently co-manages each Fund, and manages four Schwab Equity Index Funds with
approximately $6.1 billion in assets. For the seven years prior to joining
Schwab, Ms. Hom was Vice President and Manager of the Domestic Equity Portfolio
Management Group for Wells Fargo Nikko. She holds a B.A. in business education
from San Francisco State University.

Kimon Daifotis is a Vice President of the Investment Manager and Senior
Portfolio Manager. He joined Schwab in October 1997 and is responsible for the
day-to-day management of the Funds' bond and cash assets. Prior to joining
Schwab, Mr. Daifotis was employed by Lehman Brothers, most recently, as Vice
President in fixed income institutional sales and, prior to that, as a Senior
Portfolio Strategist. He is a Chartered Financial Analyst and graduated with a
Masters in Business Administration from the University of Chicago. He received
his Bachelor or Arts Degree in Economics from Claremont McKenna College.

Stephen B. Ward is Senior Vice President and Chief Investment Officer of the
Investment Manager. He has overall responsibility for the management of the
Funds' portfolios. Mr. Ward joined Schwab as Vice President and Portfolio
Manager in April 1991 and was promoted to his current position in August 1993.
Prior to joining Schwab, Mr. Ward was Vice President and Portfolio Manager at
Federated Investors. He graduated with a Masters in Business Administration from
the Wharton School and a Bachelor of Arts in Economics from Virginia Tech and is
a Chartered Financial Analyst.

For the services performed under its contract with each Fund, the Investment
Manager is entitled to receive a graduated annual fee, payable monthly from each
Fund.

For the fiscal year ended October 31, 1997, the High Growth Fund, Balanced
Growth Fund and Conservative Growth Fund paid the Investment Manager investment
management fees of [0.XX]%, [0.XX]% and [0.XX]%, respectively, of each Fund's
daily net assets.

SCHWAB IS THE FUNDS' SHAREHOLDER SERVICES AND TRANSFER AGENT. Schwab provides
Fund information to shareholders, including share price, reporting shareholder
ownership and account activities and distributing the Fund's prospectuses,
financial reports and other informational literature about the Funds. Schwab
also maintains the office space, equipment and personnel necessary to provide
these services. Schwab also distributes and markets SchwabFunds and provides
other services.

6
<PAGE> 24
For the services performed as shareholder services agent under its contract with
each Fund, Schwab is entitled to receive an annual fee from each Fund. The fee
is payable monthly in the amount of 0.20% of each Fund's average daily net
assets.

THE FUNDS PAY OTHER EXPENSES. These expenses are typically connected with the
Trust's operations and include legal, audit and custodian fees, as well as the
costs of accounting and registration of the Funds. Expenses not directly
attributable to a particular fund will generally be allocated among the funds in
the Trust on the basis of each fund's relative net assets at the time the
expense is incurred.

For the fiscal year ended October 31, 1997, the High Growth Fund, Balanced
Growth Fund, and Conservative Growth Fund paid total operating expenses of
[0.XX]%, [0.XX]% and [0.XX]%, respectively, of each Fund's average daily net
assets.

THE UNDERLYING SCHWABFUNDS(R) CHARGE FEES AND EXPENSES. These costs are not
included in the Funds' management fees, shareholder services and transfer agent
fees, or other expenses. These expenses, like those of the Funds, are factored
into the price of the underlying mutual fund's shares and into its dividends.
Although you are not charged any of these fees directly, you still bear the
expenses of an investment in the underlying mutual funds, in addition to the
expenses of your investment in a Fund.

The Investment Manager may use affiliated broker-dealers, including Schwab, to
execute the Funds' securities transactions.

7
<PAGE> 25
INVESTMENT OBJECTIVES, POLICIES & RISKS

INVESTMENT OBJECTIVES

HIGH GROWTH FUND seeks high capital growth with less volatility than an all
stock portfolio.

BALANCED GROWTH FUND seeks maximum total return, including both capital growth
and income.

CONSERVATIVE GROWTH FUND seeks income and more growth potential than an all bond
portfolio.

Each Fund's investment objective may be changed only by vote of a majority of
the Fund's shareholders. Unless otherwise noted, policies and limitations may be
changed without shareholder approval.

INVESTMENT STRATEGIES

Each Fund intends to achieve its investment objective by investing, directly or
through investments in underlying SchwabFunds, in a targeted mix of securities
from the stock, bond and money markets. The Funds intend to use an indexing
investment strategy for selecting the investments within each asset class.

ASSET-ALLOCATION STRATEGY is an investment strategy that allocates investments
among a mix of different asset classes. The allocation of assets across major
asset classes will typically play a much more significant role in a portfolio's
risk/return profile than either market timing or individual stock and bond
selections. The Funds will invest within the defined ranges for each major asset
class and normally try to emphasize investments within the most attractive asset
classes. The Funds utilize a Tactical Asset Allocation Model to measure the
relative value of each asset category and determine the most promising
allocation within the defined ranges for each Fund among the asset classes. The
target mixes for the Funds are set out in the charts to the right.

HIGH GROWTH FUND TARGET MIX

[PIE CHART]

<TABLE>
<S> <C>
CASH 5%
BONDS 15%
STOCKS 80%
</TABLE>

(Defined range 65% - 95%)
(International 0% - 20%)
(Small Cap 20% - 40%)
(Large Cap 40% - 65%)

BALANCED GROWTH FUND TARGET MIX

[PIE CHART]

<TABLE>
<S> <C>
CASH 5%
BONDS 35%
STOCKS 60%
</TABLE>

(Defined range 50% - 70%)
(International 0% - 15%)
(Small Cap 15% - 30%)
(Large Cap 30% - 50%)

CONSERVATIVE GROWTH FUND TARGET MIX

[PIE CHART]

<TABLE>
<S> <C>
CASH 5%
BONDS 55%
STOCKS 40%
</TABLE>

(Defined range 30% - 50%)
(International 0% - 10%)
(Small Cap 10% - 20%)
(Large Cap 20% - 30%)

INDEXING STRATEGY is a method of investment management that relies on an index
to determine the investments of a fund, rather than the individual judgement of
a portfolio manager. Of course, a portfolio manager of an index fund still uses
his/her judgment, but not in the traditional sense of active investment
management. By following indexing strategies, each Fund seeks to match or track
the investment performance of the indexes corresponding to its major asset
classes. Each Fund will invest in SchwabFunds and other securities selected from
each of its indexes, which, when taken together, is expected to perform
similarly to the index.

THE INDEXES currently include the S&P 500 Index(R), Schwab Small-Cap Index(R)
and Schwab International Index(R) for the stock asset allocations, the Lehman
Brothers Aggregate Bond Index and

8
<PAGE> 26
Lehman 20+ Treasury Index for the bond asset allocations and 3-Month Treasury
bills for the money market asset allocations.

Each Fund attempts to manage each asset class so that its performance tracks
that of a relevant index. A perfect correlation is unlikely as the Funds incur
operating expenses unlike the indices. The Investment Manager will monitor the
performance of each Fund against its indices and will rebalance a Fund
periodically to reduce tracking differential. The Investment Manager may adopt a
different portfolio management style and may change indices without prior notice
to shareholders.

THE RISKS for each Fund are similar to those risks associated with investing
directly in a diversified portfolio of assets, bonds and money market
securities. Generally speaking, there are seven types of risk inherent to
investing in these types of securities.

STOCK RISK is the risk that a stock may decline in price over the short- or
long-term. When a stock's price declines, its market value is lowered,even
though the intrinsic value of the company may not have changed. Some stocks,
like small-cap and international stocks, are more sensitive to stock risk than
others.

INDUSTRY RISK is the risk that the companies of a particular industry will
experience a decline in the price of this stock. Sometimes a negative economic
condition affects a single industry or group of industries. For example, the
automotive industry may have a greater exposure to a single factor, such as an
increase in the price of oil, which may affect the sale of automobiles and
impact the value of the industry's securities.

MARKET RISK is typically the result of a negative economic condition that
affects an entire class of securities, such as stocks or bonds. Market risk may
be reduced by diversification among various asset classes (e.g., stocks, bonds,
cash and real estate).

INTEREST RATE RISK is the potential for fluctuations in bond prices due to
changing interest rates. Generally, when interest rates rise, bond prices
decline or "fall" and when interest rates fall, bond prices rise.

INCOME RISK is the potential for a decline in income due to falling interest
rates.

CREDIT RISK is the possibility that a bond issuer will fail to make timely
payments of either interest or principal.

PREPAYMENT RISK or CALL RISK is the likelihood that, during periods of falling
interest rates, bonds will be prepaid (or "called") prior to maturity, requiring
the proceeds to be invested at a generally lower interest rate.

The amount of each type of risk each Fund will be subject to depends on its
portfolio of investments. Diversifying investments across securities and markets
can help reduce risk. The High Growth Fund will have the greatest exposure to
stock and stock market risks, and therefore, may be a more volatile investment
than the other Funds. However, the High Growth Fund has the greatest potential
for growth of capital over the long-term. The Balanced Growth Fund has a more
moderate exposure to each type of risk because its target mix of asset classes
is more balanced. The Conservative Growth Fund has greater exposure to bond
market risk and other risks associated with investing more heavily in bonds.

9
<PAGE> 27
PRINCIPAL SECURITIES AND INVESTMENT TECHNIQUES

The different types of funds and other securities in which the Funds and
underlying SchwabFunds(R) may invest are described below.

STOCK FUNDS typically seek growth of capital and invest primarily in equity
securities. Some stock funds invest exclusively in equity securities and may
focus in a specialized segment of the stock market, like small company stocks or
international investments. The greater a fund's investment in stock, the greater
exposure it will have to stock risk and stock market risk.

Equity Securities include common stocks, preferred stocks, convertible
securities and warrants. Common stocks, which represent an ownership interest in
a company, are probably the most recognized type of equity security. Preferred
stock, unlike common stock, pays specified dividends, and has preference over
common stock in the payment of dividends. Preferred stock, however, does not
ordinarily carry voting rights. Equity securities have historically outperformed
most other securities, although their prices can be volatile. Market conditions,
political, economic and even company-specific news can cause significant changes
in the price of a stock. Smaller companies (as measured by market
capitalization), sometimes called small-cap companies or small-cap stocks, may
be especially sensitive to these factors.

SMALL-CAP STOCK FUNDS seek capital growth and invest primarily in equity
securities of companies with smaller market capitalization. Small-cap stocks can
be more volatile as they are normally less liquid than the stocks of companies
with medium and large capitalization. There may be less publicly available
information on small-cap companies and their stocks.

INTERNATIONAL STOCK FUNDS seek capital growth and invest primarily in equity
securities of foreign issuers. Some international funds invest exclusively in
international securities. Some of these funds invest in securities of issuers
located in emerging or developing securities markets. These funds have greater
exposure to the risks associated with international investing.

International Investments include investments in foreign currency and depository
receipts. Depository receipts represent interests in the shares of a foreign
corporation held in trust at a financial institution. International investments
involve additional risks and considerations. Foreign entities may not be subject
to the same regulatory and reporting requirements as domestic entities, and
foreign markets may provide less stringent investor protections, including lower
disclosure standards. In addition, foreign economic, political and legal
developments, the degree of industrialization achieved among lesser developed
countries, as well as fluctuating foreign currency values and withholding taxes,
could have more dramatic effects on the value of a foreign security. All of
these factors and others can cause foreign investments to be volatile.

BOND FUNDS seek high current income by investing primarily in debt securities.
The Funds will invest in bond funds that invest primarily in investment-grade
debt securities, including U.S. Government securities.

Debt Securities are obligations issued by domestic and foreign entities,
including governments and corporations, in order to raise money. They are
basically "IOUs", but are commonly referred to as bonds or money market
securities. These securities normally require the issuer to pay a fixed,
variable or floating rate of interest on the amount of money borrowed (the
"principal") until it is paid back upon maturity.

Debt securities experience price changes when interest rates change. Typically,
longer-maturity bonds react to interest rate changes more severely than
shorter-term bonds (all things being equal) but generally offer greater rate of
interest. Debt securities also are subject to credit risk, and their price may
be affected by the perceived credit quality of the issuer. Investment-grade
securities are medium- and high-quality securities, although some still possess
varying degrees of speculative characteristics and risks.

10
<PAGE> 28
Corporate Bonds are debt securities issued by corporations. Although a higher
return is expected from corporate bonds, these securities, while subject to the
same general risks as U.S. Government securities, are subject to greater credit
risk than U.S. Government securities.

International Bonds involve additional risks because these debt securities are
issued by foreign entities, including foreign governments, banks and
corporations. Credit and liquidity supports also may be provided by foreign
entities.

U.S. Government Securities are debt securities issued by the U.S. Treasury or
issued or guaranteed by the U.S. Government or any of its agencies or
instrumentalities. Not all U.S. Government securities are backed by the full
faith and credit of the United States. Of course U.S. Government securities are
among the safest securities, but they are still subject to interest rate risk.

Illiquid Securities are securities that are not actively traded, and, therefore,
may be difficult to sell quickly or without losses. The sale of some illiquid
securities and certain other securities may be subject to legal restrictions. A
Fund could incur losses of it has difficulty selling a security.

Restriction: Each Fund may not invest more than 10% of its net assets in
illiquid securities. This policy may be changed only by a Fund's shareholders.

Asset-Backed Securities are securities that are backed by the loans or account
receivables of an entity, such as a bank or credit card company. Mortgage-backed
securities represent an interest in an underlying pool of mortgages. Issuers of
these securities include agencies and instrumentalities of the U.S. Government
and private entities, such as banks. Payment depends largely on the cash-flows
generated by the assets backing the securities. These securities, like other
debt securities, are subject to interest rate risk, as well as credit and
prepayment risks.

Variable and Floating Rate Securities pay an interest rate, which is adjusted
either periodically or at specific intervals or floats continuously according to
a formula or benchmark. Although these structures generally are intended to
minimize the fluctuations in value that occur when interest rates rise and fall,
some structures may be linked to a benchmark in such as ways as to cause greater
volatility in the security's value.

When-Issued Securities and Delayed Delivery Securities are securities that are
purchased but are to be delivered to the buyer at a later than customary date at
a set price and yield. Generally, the purchaser does not pay for these
securities or earn interest on them until they are delivered, but their value
could change prior to delivery.

Stripped Securities are securities whose income and principal components are
detached and sold separately from each other. While the risks associated with
stripped securities are similar to other securities, stripped securities are
typically subject to greater changes in value.

Repurchase Agreements involve buying securities (usually U.S. Government
securities) from a seller and simultaneously agreeing to sell them back at an
agreed-upon price (usually higher) and time. There are risks that losses will
result if the seller does not perform as agreed.

MONEY MARKET FUNDS typically seek current income and a stable share price of
$1.00 by investing in high-quality, short-term debt securities (money market
securities).

Money Market Securities are high-quality, short-term debt securities that may be
issued by entities such as the U.S. Government, corporations and financial
institutions (like banks).

11
<PAGE> 29
instability. Precious metals and related investments are sensitive to changes in
inflation rates and to perceptions of economic and political stability. These
investments have been subject to dramatic changes in value.

ADJUSTING INVESTMENT EXPOSURE may involve using investment techniques designed
to increase or decrease investment exposure to a number of conditions, including
changing interest or currency exchange rates and other conditions affecting the
value of securities. These investment techniques include buying and selling
futures and options contracts, entering into currency exchange contracts or swap
agreements (an exchange of one security or asset for another), purchasing index
securities and selling securities short. Generally, futures and options
transactions involve an agreement between two parties to buy or sell securities
at a specified price within a designated period, usually at one party's option.

The Funds intend to use investment techniques to adjust risk exposure and
increase returns, and to manage their cash positions. The use of any of these
techniques will increase a Fund's risks and volatility. The potential losses to
a Fund could be substantially more than the initial cost of the investment
itself. The underlying funds may use these techniques and others for a variety
of purposes.

The Funds also employ the policies described below.

DIVERSIFICATION involves investing in a wide range of securities and, thereby,
spreading and reducing the risks of investment.

CONCENTRATION means that substantial amounts of assets are invested in a
particular industry or group of industries. Concentration increases exposure to
the risks inherent to that industry or group of industries.

Restriction: Each Fund does not intend to invest more than 25% of its total
assets in any one industry. Although each Fund may indirectly concentrate in a
particular industry or group of industries if its underlying mutual fund
investments are so concentrated.

Restriction: Each Fund may borrow up to 33 1/3% of its total assets for
temporary or emergency purposes; provided that no Fund will purchase securities
while borrowings represent more than 5% of its total assets. This policy may be
changed only by a Fund's shareholders.

LENDING securities may earn income for a Fund, but could result in losses to the
Fund, and possibly affect share price.

Restriction. Each Fund may lend up to 33 1/3 of its total assets.

12
<PAGE> 30
INVESTING IN SHARES

BUSINESS DAYS

The Fund is open each day the New York Stock Exchange (NYSE) is open (business
days).

NET ASSET VALUE

The price of each share of each Fund is its net asset value per share (NAV). NAV
is determined each business day at the close of the NYSE, generally 4:00 p.m.
Eastern time. NAV is calculated by adding the value of the Fund's assets,
subtracting its liabilities and dividing the result by the number of outstanding
shares. The Fund's NAV will fluctuate and is not insured against loss in its
NAV. Each Fund values each underlying mutual fund investment at its NAV as
determined by the underlying fund. Other portfolio securities are valued based
on market quotes if they are readily available. If market quotes are not readily
available, portfolio securities are assigned fair market values pursuant to
guidelines adopted by the Board of Trustees.

MINIMUM INVESTMENTS

<TABLE>
<S> <C>
INITIAL INVESTMENT $1,000
for custodial and retirement plan accounts $ 500
ADDITIONAL SHARES $ 100
MINIMUM BALANCE* $1,000
for custodial accounts and IRAs $ 500
</TABLE>

*Your shares may be automatically redeemed if, as a result of selling shares,
you no longer meet a Fund's minimum balance requirements. You will be given 30
days' notice prior to redemption to increase your holdings to the required
minimum balance.

These minimums may be different if you hold shares of the Fund through an entity
other than Schwab. Also, these minimums may not be applicable to certain Schwab
customers.

HOW TO BUY, SELL OR EXCHANGE SHARES

BY TELEPHONE. Call 1-800-435-4000, 24 hours a day (1-800-345-2550 for TDD
users).

BY MAIL. Write to the Fund at 101 Montgomery Street, San Francisco, CA 94104.

ELECTRONICALLY. Visit Schwab's World Wide Web site at http://www.schwab.com. For
more information about, StreetSmart(R), The Equalizer(R) and Telebroker(R), call
1-800-435-4000.

Please provide the following information:

- - your name and Schwab account number;

- - the name of your Fund;

- - the dollar amount you would like to buy, sell or exchange;

- - for initial purchases only, one of the three distribution choices
below.

AUTOMATIC REINVESTMENT. Dividends and capital gain distributions will
be reinvested in shares of your Fund. If you do not choose an option,
this option will be assigned to you and all distributions will be
reinvested;

CASH OPTION. All distributions will be paid to your Schwab account and,
if requested, mailed to you the next business day; or

CASH DIVIDENDS/REINVESTED CAPITAL GAINS. Dividends will be paid to you
in

13
<PAGE> 31
cash and any capital gains distributions will be reinvested in
additional shares.

- - for exchanges only, the name of Fund and class, if applicable, into
which you would like to exchange and a distribution choice; and

- - if selling or exchanging by mail, a signature of at least one of the
persons named on your Schwab account.

PLEASE NOTE THE FOLLOWING WHEN SELLING OR EXCHANGING SHARES OF THE FUND:

- - redemption and exchange requests by mail are irrevocable, and, once
mailed, may not be modified or canceled;

- - payment for redeemed shares will be made to your Schwab account within
7 days;

- - a check may be mailed to you upon request;

- - if you bought your shares by check, a check will be issued as soon as
your check clears, which may take up to 15 days from the date of
purchase;

- - depending on the type of Schwab account you have, your money may earn
interest during any holding period;

- - a fee may be charged for redemptions by wire;

- - you may exchange your shares for shares of any other SchwabFund,
provided you meet its minimum investment and any other requirements;

- - the Fund and Schwab reserve the right to modify, limit or terminate the
exchange privilege upon 60 days' written notification;

- - an exchange of the Fund's shares for shares of other SchwabFunds(R)
will be treated as a taxable event for federal income tax purposes;

- - redemptions may be made in-kind, i.e., by distributing portfolio
securities instead of cash.

DIVIDENDS & TAXES

The Funds will distribute its net investment income and capital gains, if any,
to shareholders each year. Both the High Growth Fund and Balanced Growth Fund
intend to distribute its net investment income (pay a dividend) annually in
December. The Conservative Growth Fund intends to pay a dividend quarterly in
March, June, September and December. All distributions received by shareholders
are subject to federal income tax, and may be subject to state and/or local
taxes. Distributions are taxable when paid, whether they are received in cash or
reinvested, although distributions declared in December, but paid in January,
are taxable as if they were paid on December 31.

Income received by the Funds and their underlying fund investments from foreign
sources may be subject to foreign income taxes withheld at the source. The Funds
will not be allowed to pass-through to shareholders the amount of foreign income
taxes paid by the Funds or underlying funds.

Shareholders receive a record of all distributions by the Fund, as well as
purchases and sales they have made, via their monthly Schwab account statement.
Each year, the Fund notifies shareholders of the federal tax treatment of all
distributions made by the Fund that year.

OPENING A SCHWAB ACCOUNT

14
<PAGE> 32
Investors may open a Schwab account by simply completing an application,
although institutional investors should contact Schwab to find out if any
additional forms need to be completed.

Deposits may be made to Schwab accounts by check, wire and other forms of
electronic funds transfer. Securities also may be deposited. All checks should
be made out to Charles Schwab & Co., Inc. Schwab will charge a $15 service fee
for any checks returned as a result of insufficient or uncollected funds or a
stop order. Monies received by Schwab before 4:00 p.m. Eastern time will be
available for investment in the Fund that day. Monies received by Schwab after
4:00 p.m. Eastern time will be available for investment in the Fund the next
business day.

Contact Schwab for instructions and any applicable fees if you would like to
wire money from your Schwab account.

TAX-ADVANTAGED RETIREMENT PLANS.

SCHWAB CORPORATE RETIREMENT ACCOUNT. A well-designed retirement program can help
a company attract and retain valuable employees. Call 1-800-435-4000 for more
information.

Automatic investments are made from your Schwab account using uninvested cash or
shares of the Schwab money fund linked to your Schwab account or by using the
Schwab MoneyLink(R) Transfer Service. As long as you are purchasing the Fund's
shares through AIP, you must choose the automatic reinvestment option for
distributions. For more detailed information about this service, or to establish
your AIP, call 1-800-435-4000, 24 hours a day.

15
<PAGE> 33
GENERAL INFORMATION

As long as either Fund or Schwab follows reasonable procedures to confirm that
your telephone order is genuine, they will not be liable for any losses an
investor may experience due to unauthorized or fraudulent instructions.

These procedures may include:

- - requiring a form of personal identification before acting upon any
telephone order;

- - providing written confirmation of telephone orders; and

- - tape recording all telephone orders.

Share certificates will not be issued in order to avoid additional
administrative costs, however, share ownership records are maintained by Schwab.
Twice a year, financial reports will be mailed to shareholders describing each
Fund's performance and investment holdings. In order to reduce these mailing
costs, each household will receive one consolidated mailing. If you do not want
to receive consolidated mailings, you may write to your Fund and request that
your mailings not be consolidated.

Each Fund, in its sole discretion and without prior notice, reserves the right
to reject orders to purchase shares, change minimum investment requirements or
withdraw or suspend any part of the offering made by the prospectus.

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
BE MADE.

16
<PAGE> 34

TABLE OF CONTENTS

PAGE
KEY FEATURES............
EXPENSES................
FINANCIAL HIGHLIGHTS....
PERFORMANCE.............
ORGANIZATION & MANAGEMENT
INVESTMENT OBJECTIVES,
POLICIES & RISKS .......
INVESTING IN SHARES.....

This Prospectus provides concise information that you should know before
investing. Please retain it for future reference.

The Statement of Additional Information (SAI), dated February 28, 1998 contains
additional information and is incorporated by reference into the Prospectus. The
SAI has been filed with the Securities and Exchange Commission (SEC). The SEC
maintains a World Wide Web site (http://www.sec.gov) that contains the SAI,
material incorporated by reference and other information. The SAI is available
without charge by calling 1-800-435-4000 (1-800-345-2550 for TDD users) or
writing to 101 Montgomery Street, San Francisco, California 94104.

SCHWAB ONESOURCE(TM) PORTFOLIOS

GROWTH ALLOCATION FUND

BALANCED ALLOCATION FUND

INTERNATIONAL FUND

SMALL COMPANY FUND

PROSPECTUS
FEBRUARY 28, 1998

Each Fund seeks capital growth (and income for the Balanced Allocation Fund) by
investing in other actively managed mutual funds.
<PAGE> 35
KEY FEATURES

MATCHING A FUND TO YOUR INVESTMENT NEEDS. The Funds were designed for investors
looking to combine diversification among mutual fund investments with the
convenience of a single, professionally managed portfolio. The Growth Allocation
Fund and Balanced Allocation Fund are diversified across major asset classes,
such as stocks, bonds and money markets, and are suited for long- and
intermediate-term investing, respectively. The International Fund and Small
Company Fund provide diversification for the international and small-cap equity
portions of your asset allocation plans, and are designed for long-term
investing. Each Fund could be an excellent choice for retirement plans, college
savings or to meet other long term goals.

GOALS. Balanced Allocation Fund seeks capital growth and income.

Growth Allocation Fund seeks capital growth.

International Fund and Small Company Fund seek long-term capital growth.

There is no guarantee a Fund will achieve its goal.

MANAGEMENT. Charles Schwab Investment Management, Inc. (the Investment
Manager) currently provides investment management services to the
SchwabFunds(R), a family of [xx] mutual funds with over $[xx] billion in assets
as of [date].

SHAREHOLDER SERVICE. Charles Schwab & Co., Inc. (Schwab) provides
professional representatives 24 hours a day at 1-800-435-4000 to service your
accounts. Read the "Investing in Shares" section of the prospectus for
information on how to buy, sell and exchange shares.

STRATEGIES. Each Fund intends to achieve its goal by investing primarily in
other mutual funds, mainly those mutual funds that participate in Schwab's
Mutual Fund OneSource(R) service. Each Fund intends to operate as a diversified
mutual fund.

The Growth Allocation Fund and Balanced Allocation Fund follow an asset
allocation investment strate which means they invest primarily in a targeted mix
of stock, bond and money market funds. The Growth Allocation Fund normally
invests more heavily in stock funds than the Balanced Allocation Fund, and
therefore may be more volatile, but has the potential to offer higher returns.

The International Fund invests primarily in international equity (stock) funds.

The Small Company Fund invests primarily in small company equity (stock) funds.

RISKS. These Funds attempt to reduce the risks associated with investing by
diversifying your investment, not only across securities, but across fund
companies and portfolio managers. The Growth Allocation Fund and Balanced
Allocation Fund seek to reduce risk further by diversifying across asset
classes, although the risk of investing in each asset class still exists and
could affect the value of your investment in a Fund. The International Fund and
Small Company Fund involve additional risks and considerations associated with
investing in specialized segments of the stock market. Read the "Investment
Objectives, Policies & Risks" section for more details.

LOW COST INVESTING. The Investment Manager and Schwab have voluntarily
guaranteed that, through at least February 28, 1999, total operating expenses of
each Fund, as a percentage of average daily net assets, will not exceed 0.50%.
Read the "Expenses" section for more details.

2
<PAGE> 36
EXPENSES

SHAREHOLDER TRANSACTION EXPENSES are charges you may pay when you buy, sell or
exchange shares of each of the Funds.

Maximum sales charge on purchases and reinvested dividends.................None
Deferred sales charge on redemptions. .....................................None
Redemption fee.............................................................None*
Exchange fee...............................................................None

* Read the "Investing in Shares" section of the prospectus for information
concerning wire redemption fees.

The annual operating expenses stated below are based on historical expenses and
are stated as a percentage of average daily net assets of each
Fund
Management fee (after reduction )..................
12b-1 fee................................................
Other expenses (after reduction).....................
TOTAL OPERATING EXPENSES (AFTER REDUCTION)....

BALANCED GROWTH INTERNATIONAL SMALL
ALLOCATION ALLOCATION COMPANY
0.xx% 0.xx% 0.xx% 0.xx%
None None None None
0.xx% 0.xx% 0.xx% 0.xx%
0.50% 0.50% 0.50% 0.50%

EXAMPLE: If each of the Funds were to provide an annual return of 5%, you would
pay the following expenses on a $1,000 investment, whether you redeemed your
shares at the end of each period or left your shares invested.

1 3 5 10
Year Years Years Years
BALANCED
ALLOCATION

GROWTH
ALLOCATION

INTERNATIONAL

SMALL
COMPANY

THE EXAMPLES SHOULD NOT BE CONSIDERED REPRESENTATIONS OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN.

3
<PAGE> 37
The Investment Manager and Schwab have voluntarily agreed to guarantee, at least
through February 28, 1999, that total operating expenses (excluding interest,
taxes, brokerage commissions and extraordinary expenses) of each Fund will not
exceed 0.50% of average daily net assets. Additionally, the Investment Manager
has voluntarily agreed to limit, through at least February 28, 1999, its
management fee to 0.50% of each Fund's average daily net assets, and Schwab has
voluntarily agreed to waive, through at least December 31, 2001, its transfer
agent and shareholder services fees for each Fund. If these guarantees were not
in effect, the management fees, other expenses and total operating expenses, as
a percentage of average daily net assets, respectively, would have been __%,
__%, and __% for Growth Allocation Fund; __%, __% and __% for Balanced
Allocation fund; __%, __% and __% for International Fund and __%, __% and __%
for Small Company Fund.

Read the "Organization & Management" section of this prospectus for more
information on expenses.

4
<PAGE> 38
FINANCIAL HIGHLIGHTS

The following information has been audited by _____________, independent
accountants for the Funds. Their report is included in the Annual Report for the
Funds, which is a separate report that contains additional financial
information.

Their report, financial highlights and financial statements for the Funds are
incorporated by reference into the SAI. For free copies of an Annual Report
and/or the SAI, call 1-800-435-4000.

5
<PAGE> 39
PERFORMANCE

Typically, mutual funds report performance in terms of total return and yield.

TOTAL RETURN is the actual annual return of an investment assuming both the
reinvestment of any income earned and any change in share price. A cumulative
total return is the actual total return of an investment over a stated period of
time, while an average annual total return is a hypothetical rate of return,
which, if achieved annually, would have produced the same cumulative total
return. An average annual total return will smooth out the actual year-to-year
fluctuations of an investment's return.

YIELD is the actual income earned on an investment over a stated period of time
and annualized (assumed to be generated over a year). For example, a 30-day
yield measures the income earned on an investment over 30-day period, annualizes
it and expresses that income as a percentage of the original investment.

An effective yield is calculated similarly but income earned is assumed to be
reinvested. Because of this compounding effect, effective yields are generally
higher.

Fund strategies, performance and holdings are detailed in financial reports
which are sent to shareholders twice a year. For a free copy of a most recent
financial report, call 1-800-435-4000.

6
<PAGE> 40
MANAGEMENT & ORGANIZATION

EACH FUND IS A DIVERSIFIED MUTUAL FUND. Each Fund is a series of Schwab
Capital Trust (the Trust).

EACH FUND IS OVERSEEN BY A BOARD OF TRUSTEES. The Board of Trustees meets
regularly to review each Fund's activities, contractual arrangements and
performance. The Board of Trustees is responsible for protecting the interests
of each Fund's shareholders.

Cynthia Liu is the portfolio manager for the Funds and a Vice President of the
Investment Manager. She is responsible for the day-to-day portfolio management
of the 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
Mees Pierson Securities (Asia) Limited and Union Bank of Switzerland, and has
more than fifteen years experience in international investments, investment
research and portfolio management. She holds a Bachelor of Arts in Economics
from the National Cheng-Chi University, Taiwan and is a Chartered Financial
Analyst.

Jeffrey Mortimer joined Schwab in October, 1997 as a director and portfolio
manager. Mr. Mortimer is responsible for the day-to-day management of the
Balanced Allocation Fund and the Growth Allocation Fund.

Prior to joining Schwab, Mr. Mortimer was Chief Investment Officer at Higgins
Associates, Inc., a firm specializing in 401(k) and pension management
utilizing mutual funds. He has also held positions with Gannet, Welsh & Kotler
and State Street Bank, where he was responsible for researching relationships
within the capital markets, developing investment strategies, and evaluating
individual mutual funds. Altogether, he has over 10 years experience in asset
allocation analysis and mutual fund selection.

Mr. Mortimer received a Masters of Business Administration from the University
of Chicago majoring in finance, and a Bachelor of Science degree from Babson
College. He is a Chartered Financial Analyst and a member of the Security
Analyst Society of San Francisco.

7
<PAGE> 41
For the services performed under its contract with each Fund, the Investment
Manager is entitled to receive a graduated annual fee, payable monthly from each
Fund.

For the fiscal year ended December 31, 1997, each Fund paid the Investment
Manager investment management fees, as a percentage of its daily net assets, of
[_%].

SCHWAB IS THE FUNDS' SHAREHOLDER SERVICES AND TRANSFER AGENT. Schwab provides
Fund information to shareholders, including share price, reporting shareholder
ownership and account activities and distributing the Funds' prospectuses,
financial reports and other informational literature about the Funds. Schwab
also maintains the office space, equipment and personnel necessary to provide
these services. Schwab also distributes and markets SchwabFunds and provides
other services.

For the services performed as transfer agent under its contract with each Fund,
Schwab is entitled to receive an annual fee from each Fund. The fee is payable
monthly in the amount of 0.05% of each Fund's average daily net assets. For the
services performed as shareholder services agent under its contract with each
Fund, Schwab is entitled to receive an annual fee from each Fund. The fee is
payable monthly in the amount of 0.20% of each Fund's average daily net assets.

THE FUNDS PAY OTHER EXPENSES. These expenses are typically connected with the
Trust's operations, and include legal, audit and custodian fees, as well as the
costs of accounting and registration of the Funds. Expenses not directly
attributable to a particular fund will generally be allocated equitably among
the funds in the Trust on the basis of each Fund's relative net assets at the
time the expense is incurred.

For the fiscal year ended December 31, 1997, each Fund paid total operating
expenses, as a percentage of average daily net assets, of [_%].

THE UNDERLYING MUTUAL FUNDS CHARGE FEES AND EXPENSES. These costs are not
included in the Funds' management fees, shareholder services and transfer agent
fees, or other expenses. These expenses, like those of the Funds, are factored
into the price of the underlying mutual fund's shares and into its dividends.
Although you are not charged any of these fees directly, you still bear the
expenses of an investment in the underlying mutual funds, in addition to the
expenses of your investment in a Fund. The Funds do not intend to pay any sales
loads or transaction fees when buying underlying funds.

The Investment Manager may use affiliated broker-dealers, including Schwab, to
execute the Funds' transactions.

8
<PAGE> 42
INVESTMENT OBJECTIVES, POLICIES & RISKS

INVESTMENT OBJECTIVES
BALANCED ALLOCATION FUND seeks capital growth and income with less volatility
than the Growth Allocation Fund.

GROWTH ALLOCATION FUND seeks capital growth with less volatility than a
portfolio comprised entirely of stock funds.

INTERNATIONAL FUND AND SMALL COMPANY FUND seek long-term capital appreciation.

Each Fund's investment objective may be changed only by vote of a majority of a
Fund's shareholders. Unless otherwise noted, policies and limitations may be
changed without shareholder approval.

INVESTMENT STRATEGIES
Each Fund intends to achieve its objective by investing primarily in other
mutual funds, mainly those participating in Schwab's Mutual Fund OneSource
service. This investment style is commonly referred to as a "fund-of-funds"
investment strategy.

Each of the Balanced Allocation Fund and Growth Allocation Fund normally will
invest at least 65% of its total assets in stock, bond and money market funds.

The International Fund normally will invest at least 65% of its total assets in
international equity (stock) funds.

The Small Company Fund normally will invest at least 65% of its total assets in
small company equity (stock) funds.

FUND-OF-FUNDS INVESTMENT STRATEGY allows a single fund to provide investors
access to a wide range of mutual funds. By investing in more than one mutual
fund, you are reducing the risks associated with a particular mutual fund
company or fund family, and portfolio manager. The Funds are actively managed
and each underlying fund investment is subjected to a thorough analysis and
selection process. The Investment Manager analyzes each potential underlying
fund's investment objective and policies, as well as its portfolio manager's
style and asset size. Using quantitative techniques, potential underlying funds
are ranked based on their historic total return, volatility and operating
expenses. The Investment Manager intends to select each Fund's underlying fund
investments to provide an appropriate mix of investment styles designed to
achieving the Fund's investment objective.

ASSET ALLOCATION STRATEGY is an investment strategy that allocates investments
among a mix of different asset classes. The allocation of assets across major
asset classes will typically play a much more significant role in a portfolio's
risk/return profile than either market timing or individual stock and bond
selections. The Growth Allocation Fund and Balanced Allocation Fund follow asset
allocation investment strategies and their targeted investment allocations are
set out in the charts below.

BALANCED ALLOCATION FUND

[PIE CHART]
<TABLE>
<CAPTION>
Neutral Defined
Market Ranges
Position
<S> <C> <C>
Stock Funds 60% 50% - 70%
Bond Funds 35% 25% - 45%
Money 5% 0% - 25%
Market Funds
</TABLE>

9
<PAGE> 43
GROWTH ALLOCATION FUND

[PIE CHART]
<TABLE>
<CAPTION>
Neutral Defined
Market Ranges
Position
<S> <C> <C>
Stock Funds 80% 65% - 95%
Bond Funds 15% 0% - 30%
Money 5% 0% - 35%
Market Funds
</TABLE>

THE RISKS for each Fund are similar to those risks associated with investing in
a mutual fund that invests in individual equity, bond and money market
securities. Generally speaking, there are seven types of risk inherent to
investing in these types of securities.

STOCK RISK is the risk that a stock may decline in price over the short- or
long-term. When a stock's price declines, its market value is lowered, even
though the intrinsic value of the company may not have changed. Some stocks,
like small company and international stocks, are more sensitive to stock market
risks than others.

INDUSTRY RISK is the risk that the companies of a particular industry will
experience a decline in the price of their stocks. Sometimes a negative economic
condition affects a single industry or group of industries. For example, the
automotive industry may have a greater exposure to a single factor, such as an
increase in the price of oil, which may affect the sale of automobiles and
impact the value of the industry's securities.

MARKET RISK is typically the result of a negative economic condition that
affects the value of an entire class of securities, such as stocks or bonds.
Market risk may be reduced by diversification among various asset classes (e.g.,
stocks, bonds, cash and real estate.

INCOME RISK is the potential for a decline in income due to falling interest
rates.

CREDIT RISK is the possibility that a bond issuer will fail to make timely
payments of either interest or principal.

The amount of each type of risk each Fund will be subject to will depend on its
portfolio of investments. Diversifying investments across securities and markets
can help reduce risk. The Growth Allocation Fund and Balanced Allocation Fund
seek to reduce market risk by diversifying their investments across securities
markets, i.e. stocks, bonds and cash. These Funds have the added benefit of
providing diversification across fund companies and portfolio managers.

PRINCIPAL SECURITIES AND INVESTMENT TECHNIQUES
The different types of funds and other securities in which the Funds and
underlying funds may invest are described below.

10
<PAGE> 44
common stock in the payment of dividends. Preferred stock, however, does not
ordinarily carry voting rights. Equity securities have historically outperformed
most other securities, although their prices can be volatile. Market conditions,
political, economic and even company-specific news can cause significant changes
in the price of a stock. Smaller companies (as measured by market
capitalization), sometimes called small-cap companies or small-cap stocks, may
be especially sensitive to these factors.

SMALL-CAP STOCK FUNDS seek capital growth and invest primarily in equity
securities of companies with smaller market capitalization. Small-cap stocks may
be volatile, as they normally are less liquid and less information may be
available on small-cap companies.

International Securities include investments in foreign currencies and
depository receipts. Depository receipts represent an interest in the shares of
a foreign corporation held in trust at a financial institution. International
investments involve additional risks and considerations. Foreign entities may
not be subject to the same regulatory and reporting requirements as domestic
entities, and foreign markets may provide less stringent investor protections,
including lower disclosure standards. In addition, foreign economic, political
and legal developments, the degree of industrialization achieved among lesser
developed countries, as well as fluctuating foreign currency values and
withholding taxes, could have more dramatic effects on the value of a foreign
security. All of these factors and others can cause foreign investments to be
volatile.

Emerging or Developing Markets exist in countries that are considered to be in
the initial stages of industrialization. The risks of investing in these markets
are similar to the risks of international investing in general, although the
risks are greater in emerging and developing markets. Countries with emerging or
developing securities markets tend to have economic structures that are less
stable than countries with developed securities markets.

Debt securities experience price changes when interest rates change. Typically,
longer-maturity bonds react to interest rate changes more severely than
shorter-term bonds (all things being equal) but generally offer greater rate of
interest. Debt securities also are subject to credit risk, and their prices may
be affected by the perceived credit quality of the issuer. Investment-grade
securities are medium- and high-quality securities, although some still possess
varying degrees of speculative characteristics and risks.

Corporate Bonds are debt securities issued by corporations. Although a higher
return is expected from corporate bonds, these securities, while subject to the
same general risks as U.S. Government securities, are subject to greater credit
risk than U.S. Government securities.

International Bonds involve additional risks because they are debt securities
issued by foreign entities, including foreign governments, banks and
corporations. Credit and liquidity supports also may be provided by foreign
entities.

U.S. Government Securities are debt securities issued by the U.S. Treasury or
issued or guaranteed by the U.S. Government or any of its

11
<PAGE> 45
agencies or instrumentalities. Not all U.S. Government securities are backed by
the full faith and credit of the United States. Of course U.S. Government
securities are among the safest securities, but they are still subject to
interest rate risk.

Asset-Backed Securities are securities that are backed by the loans or account
receivables of an entity, such as a bank or credit card company. Mortgage-backed
securities represent an interest in an underlying pool of mortgages. Issuers of
these securities include agencies and instrumentalities of the U.S. Government
and private entities, such as banks. Payment depends largely on the cash-flows
generated by the assets backing the securities. Asset-backed securities are
subject to credit and prepayment risks. Mortgage-backed securities are subject
to interest rate risks, like other debt securities, in addition to prepayment
risk.

Variable and Floating Rate Securities pay an interest rate, which is adjusted
either periodically or at specific intervals or floats continuously according to
a formula or benchmark. Although these structures generally are intended to
minimize the fluctuations in value that occur when interest rates rise and fall,
some structures may be linked to a benchmark in such ways to cause greater
volatility in a security's value.

Illiquid Securities are securities that are not actively traded and, therefore,
may be difficult to sell quickly. The sale of some illiquid securities and
certain other securities may be subject to legal restrictions. A Fund could
incur losses if it has difficulty selling a security.

Restriction: Each Fund may not invest more than 15% of its net assets in
illiquid securities.

When-Issued and Delayed Delivery Securities are securities that are purchased at
a set price and yield but are to be delivered to the buyer at a later than
customary date. Generally, the purchaser does not pay for these securities or
earn interest on them until they are delivered, but their values could change
prior to delivery.

BALANCED FUNDS must invest at least 25% of their assets in debt securities, and
typically also invest substantial amounts in stocks. The stock portion of a
balanced fund has the risk associated with stock investments, and the bond
portion has the risks associated with bond investments.

MONEY MARKET FUNDS typically seek current income and a stable share price of
$1.00 by investing in high-quality, short-term debt securities (money market
securities).

Money Market Securities are high-quality, short-term debt securities that may be
issued by entities such as the U.S. Government, corporations and financial
institutions (like banks).

OTHER FUNDS in which the Funds may invest include unregistered or
privately-placed funds, such as hedge funds and off-shore funds, closed-end
funds and unit investment trusts. Closed-end funds offer a fixed number of
shares that trade on an exchange. Hedge funds and off-shore funds are typically
not subject to the same regulatory requirements as open-end, domestic mutual
funds. As a result, they have greater ability to use investment techniques that
offer a higher degree of investment return but at substantial risk to the
investment principal. Investments of this kind may be more difficult to sell.

OTHER SECURITIES in which the Funds or underlying funds may invest include real
estate-related and precious metals investments. Real estate-related investments
generally are sensitive to changes in tax law, tax rates, interest rates,
overbuilding, creditworthiness of the interested parties and regulatory
requirements. Precious metals investments are typically made during periods of
inflation or political or economic instability. Precious metals and related
investments are sensitive to changes in inflation rates and to perceptions of
economic and political stability. These investments have been subject to
dramatic changes in value.

ADJUSTING INVESTMENT EXPOSURE may involve the Funds or underlying funds using

12
<PAGE> 46
investment techniques designed to increase or decrease investment exposure to a
number of conditions, including changing interest or currency exchange rates and
other conditions affecting the value of securities. These investment techniques
include buying and selling futures and options contracts, entering into currency
exchange contracts or swap agreements (an exchange of one security or asset for
another), purchasing index securities and selling securities short. Generally,
futures and options transactions involve an agreement between two parties to buy
or sell securities at a specified price within a designated period, usually at
one party's option.

The Funds also employ the policies described below.

DIVERSIFICATION involves investing in a wide range of securities and, thereby,
spreading and reducing the risks of investment.

MUTUAL FUND INVESTMENTS for each Fund are currently restricted under federal
regulations, and, therefore, a Fund's ability to invest in other mutual funds
may be restricted. Alternative investments may become necessary for a Fund.

BORROWING is a form of leveraging if a Fund continues to make investments while
borrowings remain outstanding. Borrowing subjects a Fund to interest costs,
which may exceed the interest received on the securities purchased with the
borrowed funds.

Restriction: Each Fund may borrow up to 33 1/3% of its total assets.

LENDING securities may earn income for a Fund, but could result in losses to the
Fund, and possibly affect share price.

Restriction. Each Fund may lend up to 33 1/3 of its total assets.

13
<PAGE> 47
INVESTING IN SHARES

BUSINESS DAYS
The Funds are open each day the New York Stock Exchange (NYSE) is open (business
days).

NET ASSET VALUE
The price of each share of each Fund is its net asset value per share (NAV). NAV
is determined each business day at the close of the NYSE, generally 4:00 p.m.
Eastern time. NAV is calculated by adding the value of each Fund's assets,
subtracting its liabilities and dividing the result by the number of outstanding
shares. Each Fund's NAV will fluctuate and none of the Funds is insured against
loss in its NAV. Each Fund values underlying fund investments at their
respective NAVs as determined by the underlying funds. Other portfolio
securities are valued based on market quotes if they are readily available. If
market quotes are not readily available, portfolio securities are assigned fair
market values pursuant to guidelines adopted by the Board of Trustees.

MINIMUM INVESTMENTS
<TABLE>
<S> <C>
INITIAL INVESTMENT $1,000
for custodial and retirement plan
accounts $ 500
ADDITIONAL SHARES $ 100
MINIMUM BALANCE* $ 500
for custodial and retirement plan
accounts $ 250
</TABLE>

These minimums may be different if you hold shares of a Fund through an entity
other than Schwab. Also, these minimums may not be applicable to certain
customers of Schwab Institutionals Services for Investment Managers or Schwab's
Retirement Plan Services.

HOW TO BUY, SELL OR EXCHANGE SHARES
Shares may be purchased, sold or exchanged through a Schwab account or through
an account with any other entity designated by Schwab. The following information
on how to buy, sell and exchange shares is for transactions through a Schwab
account. Shares are purchased, sold or exchanged at the NAV next determined
after your order has been received in good order. Orders received in good order
by Schwab prior to 4:00 p.m. Eastern time will be executed that day. Shares
bought normally begin to earn dividends on the next business day, while shares
sold or exchanged normally earn dividends on that day.

BY TELEPHONE. Call 1-800-435-4000, 24 hours a day (1-800-345-2550 for TDD
users).

BY MAIL. Write to the Funds at 101 Montgomery Street, San Francisco, CA 94104.

ELECTRONICALLY. Visit Schwab's World Wide Web site at http://www.schwab.com.
For more information about StreetSmart(R), The Equalizer(R) and Telebroker(R)
call 1-800-435-4000.

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<PAGE> 48
Please provide the following information:
- - your name and Schwab account number;

- - the name of your Fund;

- - the dollar amount you would like to buy, sell or exchange;

- - for initial purchases only, one of the three distribution choices
below:

AUTOMATIC REINVESTMENT. Dividends and/or capital gain distributions will
be reinvested in shares of your Fund. If you do not choose an option, this
option will be assigned to you and all your distributions will be
reinvested;

CASH OPTION. Dividends will be paid to your Schwab account and, if
requested, mailed to you the next business day;

CASH DIVIDENDS/REINVESTED CAPITAL GAINS. Dividends will be paid to you in
cash and any capital gains will be reinvested in additional shares.

- - for exchanges, the name of the Fund and class, if applicable, into which
you would like to exchange and a distribution choice; and

- - if selling or exchanging by mail, a signature of at least one of the
persons named on your Schwab account.

PLEASE NOTE THE FOLLOWING WHEN SELLING OR EXCHANGING SHARES OF THE FUNDS:

- - redemption and exchange requests by mail are irrevocable, and, once
mailed, may not be modified or canceled;

- - payment for redeemed shares will be made to your Schwab account within 7
days;

- - a check may be mailed to you upon request;

- - if you bought your shares by check, a check will be issued as soon as your
check clears, which may take up to 15 days from the date of purchase;

- - depending on the type of Schwab account you have, your money may earn
interest during any holding period;

- - a fee may be charged for redemptions by wire;

- - you may exchange your shares for shares of any other SchwabFund,
provided you meet its minimum investment and any other requirements;

- - the Funds and Schwab reserve the right to modify, limit or terminate the
exchange privilege upon 60 days' written notification;

- - an exchange of a Fund's shares for shares of other SchwabFunds will be
treated as a taxable event for federal income tax purposes;

- - the Funds may suspend the right to sell shares or postpone payment for a
sale of shares when trading on the NYSE is restricted, the NYSE is closed
for any reason other than its customary weekend and holiday closings,
emergency circumstances exist as determined by the SEC or as otherwise
permitted by the SEC; and

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<PAGE> 49
- - redemptions may be made in-kind, i.e. by distributing portfolio
securities instead of cash.

DIVIDENDS & TAXES

The following is only a brief summary of some of the federal income tax
consequences that may affect each Fund and its shareholders. Unless your
investment in a Fund is through a retirement account, you should consider the
tax implications of investing, and consult with your own tax adviser.

Each Fund will distribute its net investment income and capital gains, if any,
to shareholders each year. All distributions received by shareholders are
subject to federal income tax, and may be subject to state and/or local taxes.
Distributions are taxable when paid, whether they are received in cash or
reinvested, although distributions declared in December, but paid in January,
are taxable as if they were paid on December 31.

Income received by an underlying fund from foreign sources may be subject to
foreign income taxes withheld at the source. The Funds will not be allowed to
pass-through to shareholders the amount of foreign income taxes paid by the
underlying fund, but will net the amount against gross income from the
underlying fund.

Shareholders receive a record of all distributions by a Fund, as well as
purchases and sales they have made, via their monthly Schwab account statement.
Each year, each Fund notifies shareholders of the federal income tax treatment
of all distributions made by the Fund that year.

OPENING A SCHWAB ACCOUNT

Investors may open a Schwab account by simply completing an application,
although institutional investors should contact Schwab to find out if any
additional forms need to be completed.

Using a Schwab account, investors have access to investments other than just
mutual funds, such as stocks and bonds. The Securities Investor Protection
Corporation (SIPC) provides insurance protection of up to $500,000 for the
securities held in a Schwab account, including shares of the Funds. It is
important to remember that SIPC insurance does not protect against losses due to
market or economic conditions.

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<PAGE> 50
Schwab accounts require a $1,000 minimum investment and account balance ($500
for custodial accounts). A fee of $7.50 will be charged to Schwab accounts that
fall below this minimum for three consecutive months in a quarter. The fee, if
applicable, will be charged at the end of each quarter, but will be waived if
there has been at least one commissionable trade within the previous six months,
or if the investor's combined Schwab accounts equal $10,000 or more.

Contact Schwab for instructions and any applicable fees if you would like to
wire money from your Schwab account.

TAX-ADVANTAGED RETIREMENT PLANS.

Retirement plans offer excellent tax advantage and the Funds may be especially
suitable investments for them. Schwab's retirement plans allow participants to
defer taxes while helping them build their retirement savings.

SCHWAB CORPORATE RETIREMENT ACCOUNT. A well-designed retirement program can help
a company attract and retain valuable employees. Call 1-800-435-4000 for more
information.

SCHWAB AUTOMATIC INVESTMENT PLAN.

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 automatic investments in
any amount, from $100 to $50,000, once you meet a Fund's investment minimum.

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<PAGE> 51
Automatic investments are made from your Schwab account using cash, Sweep Shares
of a Schwab Money Fund or the Schwab MoneyLink(R) Transfer Service. As long as
you are purchasing a Fund's shares through AIP, distributions paid to you by the
Fund must be reinvested in additional shares of that Fund. For more detailed
information about this service, or to establish your AIP, call 1-800-435-4000,
24 hours a day.

GENERAL INFORMATION

As long as the Funds or Schwab follow reasonable procedures to confirm that your
telephone order is genuine, they will not be liable for any losses an investor
may experience due to unauthorized or fraudulent instructions.

These procedures may include:
- requiring a form of personal identification before acting upon any
telephone order;

- providing written confirmation of telephone orders; and

- tape recording all telephone orders.

It may be difficult to place orders by telephone during periods of drastic
economic or market changes because Schwab's phone lines may become very busy
with calls from other investors. Consider other methods for placing an order,
such as writing to the Funds or visit a Schwab branch office. Share certificates
will not be issued in order to avoid additional administrative costs, however,
share ownership records are maintained by Schwab.

Twice a year, financial reports will be mailed to shareholders describing each
Fund's performance and investment holdings. In order to reduce these mailing
costs, each household will receive one consolidated mailing. If you do not want
to receive consolidated mailings, you may write to your Fund and request that
your mailings not be consolidated.

The Funds are designed for long-term investors. Because short-term trading
activity can disrupt the investment strategies, operations and expenses, Schwab
reserves to right to refuse purchase orders in accounts with a pattern of
short-term trading.

Each Fund, in its sole discretion and without prior notice, reserves the right
to refuse orders to purchase shares, change minimum investment requirements or
withdraw or suspend any part of the offering made by this prospectus.

- -------------------------------------------------------------------------------
NO ONE HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY STATEMENTS
ABOUT THIS OFFERING OTHER THAN THE INFORMATION CONTAINED IN THIS PROSPECTUS AND
IN OFFICIAL SALES MATERIALS. IF ANYONE GIVES ANY OTHER INFORMATION OR MAKES ANY
OTHER REPRESENTATIONS, DO NOT RELY ON SUCH INFORMATION OR REPRESENTATIONS.
- -------------------------------------------------------------------------------
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
BE MADE.

18
<PAGE> 52
PART B

SCHWAB CAPITAL TRUST

The information required by Items 10 through 23 for the Schwab International
Index Fund(R), Schwab Small-Cap Index Fund(R), Schwab S&P 500 Fund, each a
separate portfolio of the Registrant, is hereby incorporated by reference to the
Statement of Additional Information for these portfolios filed with the
Securities and Exchange Commission under Rule 485(a) on October 23, 1997.

C-3
<PAGE> 53
CROSS REFERENCE SHEET

SCHWAB CAPITAL TRUST
SCHWAB ONESOURCE(R) PORTFOLIOS-BALANCED ALLOCATION, SCHWAB ONESOURCE(TM)
PORTFOLIOS-GROWTH ALLOCATION, SCHWAB ONESOURCE PORTFOLIOS-INTERNATIONAL, SCHWAB
ONESOURCE PORTFOLIOS-SMALL COMPANY; SCHWAB ASSET DIRECTOR(R)-HIGH GROWTH FUND,
SCHWAB ASSET DIRECTOR-BALANCED GROWTH FUND, SCHWAB ASSET DIRECTOR -
CONSERVATIVE GROWTH FUND AND SCHWAB ANALYTICS FUND(R)

Statement of Additional
Part B Item Information Caption
- ----------- -----------------------

Cover Page Cover Page; Table of Contents

General Information and History General Information; The Benefits of
International Investing; Asset
Allocation--the Schwab Index Funds and
the Schwab Asset Allocation Funds

Investment Objectives and Policies Investment Policies and Restrictions

Management of the Fund Management of the Trust

Control Persons and Principal Holders General Information
of Securities

Investment Advisory and Other Services Management of the Trust

Brokerage Allocation and Other Portfolio Transactions and Turnover
Practices

Capital Stock and Other Securities General Information

Purchase, Redemption and Pricing of Share Price Calculation; Purchase and
Securities Being Offered Redemption of Shares

Tax Status Distributions and Taxes

Underwriters Management of the Trust

Calculation of Performance Data How the Funds Reflect Performance

Financial Statements Not Applicable

C-4
<PAGE> 54
STATEMENT OF ADDITIONAL INFORMATION

SCHWAB CAPITAL TRUST
101 Montgomery Street, San Francisco, CA 94104

FEBRUARY 28, 1998

The Statement of Additional Information (SAI) is not a prospectus. It should be
read in conjunction with the joint Prospectus dated February 28, 1998 (as
amended from time to time) for Schwab Analytics(R) Fund (the "Analytics Fund");
the joint Prospectus dated February 28, 1998, (as amended from time to time) for
the Schwab Asset Director(R) Funds, (jointly the "Asset Director Funds")
the High Growth Fund (the "High Growth Fund"), Schwab Asset Director-Balanced
Growth Fund (the "Balanced Growth Fund") and Schwab Asset Director-Conservative
Growth Fund (the "Conservative Growth Fund"); and the joint Prospectus dated
February 28, 1998 (as amended from time to time) for the Schwab OneSource
Portfolios (jointly, the "One Source Portfolios")-One Source Portfolios-Growth
Allocation (the "Growth Allocation"), OneSource Portfolios-Balanced Allocation
(the "Balanced Allocation") Schwab OneSource Portfolios-Small Company ("Small
Company Fund"), "Schwab OneSource-International" ("International") each a
separately managed investment portfolios (collectively the "Funds") of Schwab
Capital Trust (the "Trust").

To obtain a copy of any of these Prospectuses, please call Charles Schwab & Co.,
Inc. ("Schwab") at 1-800-435-4000, 24 hours a day, or write to 101 Montgomery
Street, San Francisco, California 94104. TDD users may contact Schwab at
1-800-345-2550, 24 hours a day. These Prospectuses also may be available
electronically by visiting our World Wide Web site at:
http://www.schwab.com/schwab funds.

TABLE OF CONTENTS
Page
----
INVESTMENT OBJECTIVES.........................................................
INVESTMENT SECURITIES.........................................................
INVESTMENT RESTRICTIONS.......................................................
MANAGEMENT OF THE TRUST.......................................................
PORTFOLIO TRANSACTIONS AND TURNOVER...........................................
TAXES.........................................................................
SHARE PRICE CALCULATION.......................................................
HOW THE FUNDS REFLECT PERFORMANCE.............................................
THE BENEFITS OF DIVERSIFIED INVESTING.........................................
ASSET ALLOCATION --
THE SCHWAB ASSET ALLOCATION FUNDS.............................................
GENERAL INFORMATION...........................................................
PURCHASE AND REDEMPTION OF SHARES.............................................
OTHER INFORMATION.............................................................

<PAGE> 55
INVESTMENT OBJECTIVES

ASSET DIRECTOR - HIGH GROWTH FUND. The investment objective of the 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.

ASSET DIRECTOR - BALANCED GROWTH FUND. The investment objective of the Balanced
Growth Fund is to provide maximum total return, including both capital growth
and income. This Fund represents a more balanced approach to stocks and bonds.

ASSET DIRECTOR - CONSERVATIVE GROWTH FUND. The investment objective of the
Conservative Growth Fund is to provide income and more growth potential than an
all-bond portfolio. This Fund's stock component is designed to help offset
inflation.

Each of the Asset Director(R) Funds may seek to achieve its investment objective
by investing directly in portfolio securities or by investing indirectly in
underlying affiliated mutual funds ("underlying SchwabFunds"), as described
herein.

ANALYTICS FUND(R). The investment objective of the Analytics Fund is to achieve
long-term capital growth.

INTERNATIONAL AND SMALL COMPANY FUND. Schwab OneSource Portfolios-International
and the Small Company Fund are mutual funds that seek long-term capital
appreciation. To achieve their goals, the Investment Manager, Charles Schwab
Investment Management, Inc. ("CSIM"), will attempt to identify and select a
diversified portfolio of international and small company equity funds,
respectively, which present the greatest capital growth potential ("underlying
fund(s)") based on the analysis of many factors, including the underlying funds'
investment objective, the history of portfolio manager(s), total return,
volatility and expenses.

GROWTH ALLOCATION AND BALANCED ALLOCATION. The Funds are asset allocation funds
that provide easy access to actively managed mutual funds from well-known mutual
fund families. The investment objective of the Growth Allocation is to provide
capital growth with less volatility than a portfolio comprised entirely of stock
funds. Of course, a portfolio with lower volatility also has lower growth
potential than a portfolio comprised entirely of stock funds. The investment
objective of the Balanced Allocation is to provide you with capital growth and
income with less volatility than the Growth Allocation.

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, as amended (the
"1940 Act").

INVESTMENT SECURITIES

FOREIGN INVESTMENTS. The Asset Director(R) Funds expect to invest in stocks of
foreign issuers. International expects to invest primarily in other investment
companies which invest in stocks of foreign issuers, and may invest directly in
domestic and foreign securities. Growth Allocation and Balanced Allocation may
invest in other investment companies which invest in stocks of foreign issuers,
and may invest directly in domestic and foreign securities. We expect that many
of the underlying funds may invest up to 100% of their assets in foreign
securities. Investing in foreign issuers involves certain special
considerations, including those set forth below, which typically are not
associated with investing in U.S. issuers. Since investments in the securities
of foreign issuers usually are made and held in foreign currencies, and since
the Asset Director(R) Funds, OneSource Portfolios and underlying funds may hold
cash in foreign

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<PAGE> 56
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. Securities of foreign
companies typically have less volume, are less liquid and are more volatile than
securities of U.S. companies. Fixed commissions on foreign securities exchanges
are generally higher than negotiated commissions on U.S. exchanges, although the
Asset Director Funds and OneSource Portfolios endeavor 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 United States, 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 Asset Director Funds, OneSource Portfolios
and underlying funds is uninvested and no return is earned thereon. The
inability to make intended security purchases due to settlement problems could
cause the Asset Director Funds, OneSource Portfolios and underlying funds to
miss attractive investment opportunities. Losses to the Asset Director Funds,
OneSource Portfolios and underlying funds arising out of the inability to
fulfill a contract to sell such securities could result in potential liability
to the Asset Director Funds, OneSource Portfolios and underlying funds.

In addition, with respect to those countries in which the Asset Director Funds,
OneSource Portfolios and underlying funds may invest or other countries which
may have a significant impact on the companies in which the Asset Director
Funds, OneSource Portfolios and underlying 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 Asset Director Funds', OneSource Portfolios' and underlying 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(R) Funds may invest up to 5% of its net assets in
companies located in developing countries. The International may invest directly
or indirectly through underlying funds, which invest primarily in companies
located in developing countries. Growth Allocation, Balanced Allocation and the
Small Company Fund may invest up to 10% of their net assets directly, or
indirectly through underlying funds, in companies located in developing
countries, 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 that trade a small number of securities. Prices on these exchanges tend
to be volatile, and securities in these countries have historically 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 unforeseeable what
risk, if any, may exist to the Asset Director Funds', OneSource Portfolios' and
underlying funds' investments as a result of the recent 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.

3
<PAGE> 57
DEPOSITARY RECEIPTS. Each Fund may invest in American Depositary Receipts,
European Depositary Receipts, Global Depositary Receipts, Global Depositary
Shares ("ADRs," "EDRs," "GDRs" and "GDSs," respectively), or other similar
global instruments which are receipts representing ownership of shares of a
foreign-based issuer held in trust by a bank or similar financial institution.
The Asset Director Funds', Growth Allocation's, Balanced Allocation's and the
Small Company's direct investments in these instruments currently will not
exceed 10% of each Fund's net assets, but underlying funds may invest in ADRs,
EDRs, GDRs, GDSs or other similar global instruments. These are designed for
U.S. and European securities markets as alternatives to purchasing underlying
securities in their corresponding national markets and currencies. ADRs, EDRs,
GDRs and GDSs can be sponsored or unsponsored. Sponsored ADRs, EDRs, GDRs and
GDSs are certificates in which a bank or financial institution participates with
a custodian. Issuers of unsponsored ADRs, EDRs, GDRs and GDSs 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 ADRs, EDRs, GDRs or GDSs.

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, 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 the Funds write 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 ("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 also may 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

4
<PAGE> 58
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.

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) an exchange may impose restrictions on opening transactions 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 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 the staff of the SEC
approves. Each of the Funds will write or purchase an option only when 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 net assets.

The underlying funds may also write (sell) covered call and put options and
purchase put and call options. The nature of the conditions and risks associated
with such transactions by the underlying funds is similar to those described for
the Funds.

FOREIGN CURRENCY TRANSACTIONS.
Forward Foreign Currency Exchange Contracts. The Asset Director(R) Funds and
OneSource Portfolios may enter into forward foreign currency exchange contracts
in several circumstances. The Asset Director(R) Funds and OneSource Portfolios
may engage in foreign currency exchange transactions to protect against
uncertainty in the level of future exchange rates. The Asset Director Funds and
OneSource Portfolios 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"). The underlying funds may also engage in transaction and
position hedging.

For transaction hedging purposes, the Asset Director Funds, OneSource Portfolios
and underlying 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 Asset
Director Funds and OneSource Portfolios

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will attempt to protect against a possible loss resulting from an adverse change
in the relationship between (i) the U.S. dollar and the applicable foreign
currency during the period between the date on which the security is purchased
or sold and (ii) the transaction's settlement date. When engaging in position
hedging, the Asset Director(R) Funds, OneSource Portfolios and underlying 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 Asset Director Funds, OneSource Portfolios and underlying funds expect
to purchase).

When engaging in position and/or transaction hedging, the Asset Director Funds,
OneSource Portfolios and underlying funds may purchase or sell foreign
currencies 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"). Asset Director Funds, OneSource Portfolios and underlying
funds 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 gives the Asset Director Funds, OneSource Portfolios and
underlying funds the right to assume a short position in the futures contract
until expiration of the option. A put option on currency gives the Asset
Director(R) Funds, OneSource Portfolios and underlying 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 Asset Director Funds, OneSource Portfolios and
underlying 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 Asset
Director Funds, OneSource Portfolios and underlying 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 ability of
the Asset Director Funds, OneSource Portfolios and underlying funds 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 that the Funds or the underlying funds own or expect to purchase or
sell. They simply establish a rate of exchange that may be achieved 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 that 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 ability of the Asset Director
Funds, OneSource Portfolios and underlying funds 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 net assets.

The Asset Director Funds and OneSource Portfolios generally will not enter into
a forward contract with a term of greater than one year.

While the Asset Director Funds and OneSource Portfolios will, and underlying
funds may, enter into forward contracts to reduce currency exchange rate risks,
transactions in such contracts involve certain other risks. Thus, while the
Asset Director Funds, OneSource Portfolios and underlying funds may benefit from
such transactions, unanticipated changes in currency prices may result in a
poorer overall performance for the Asset Director Funds, OneSource Portfolios
and underlying funds than if they had not engaged in any such transactions.
Moreover, there may be imperfect correlation between the Asset Director Funds',
OneSource Portfolios' and underlying funds' portfolio holdings of securities
denominated in a particular currency and forward contracts into which the Asset
Director(R) Funds, OneSource Portfolios and underlying funds enter. Such
imperfect correlation may cause the Asset Director Funds, OneSource Portfolios
and

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underlying funds to sustain losses, which will prevent the Asset Director Funds,
OneSource Portfolios and underlying funds from achieving a complete hedge or
expose the Asset Director Funds, OneSource Portfolios and underlying funds to
risk of foreign exchange loss.

Writing and Purchasing Currency Call and Put Options. The Asset Director Funds,
OneSource Portfolios and underlying 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 U.S. dollar value of portfolio securities and
against increases in the dollar cost of securities to be acquired. A call option
written by the Asset Director Funds, OneSource Portfolios and underlying funds
obligates the Asset Director Funds, OneSource Portfolios and underlying funds to
sell specified currency to the holder of the option at a specified price at any
time before the expiration date. A put option written by the Asset Director
Funds, OneSource Portfolios and underlying funds would obligate the Asset
Director Funds, OneSource Portfolios and underlying 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 Asset Director Funds,
OneSource Portfolios and underlying 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 Asset Director Funds and OneSource Portfolios 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 Asset Director Funds and OneSource Portfolios would also be
able to enter into closing sale transactions in order to realize gains or
minimize losses on options purchased by the Asset Director Funds and OneSource
Portfolios.

The purchase of a call option would entitle the Asset Director Funds, OneSource
Portfolios and underlying funds to purchase specified currency at a specified
price during the option period in return for the premium paid. The Asset
Director Funds, OneSource Portfolios and underlying funds ordinarily would
realize a gain or a loss on the purchase of the call option.

The purchase of a put option would entitle the Asset Director Funds, OneSource
Portfolios and underlying funds to sell specific currency at a specified price
during the option period in exchange for the premium paid. The purchase of
protective puts is designed merely to offset or hedge against a decline in the
U.S. dollar value of the Asset Director(R) Funds', OneSource Portfolios' and
underlying funds' portfolio securities due to currency exchange rate
fluctuations. The Asset Director Funds, OneSource Portfolios and underlying
funds ordinarily would realize a gain, if, during the option period, the value
of the underlying currency were to decrease below the exercise price
sufficiently to more than cover the premium and transaction costs; otherwise the
Asset Director Funds, OneSource Portfolios and underlying funds would realize
neither a gain nor 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 that provides a
secondary market for an option of the same series. Although the Asset Director
Funds and OneSource Portfolios generally will 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
Asset Director Funds, OneSource Portfolios and underlying funds would have to
exercise their options in order to realize any profit and would incur
transaction costs upon the sale of underlying securities pursuant to the
exercise of put options. If the Asset Director Funds, OneSource Portfolios and
underlying funds, as covered call option writers, are unable to effect a

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closing purchase transaction in a secondary market, they will not be able to
sell the underlying currency (or security denominated in that currency) until
the option expires or they deliver 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. This could result in an exchange instituting special procedures
that may interfere with the timely execution of customers' orders.

The Asset Director Funds and OneSource Portfolios will purchase and write
over-the-counter options only to the extent consistent with their 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. The Funds may purchase and
sell various kinds of futures contracts and options on futures contracts. 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. All futures contracts entered into by the Funds are
traded on U.S. exchanges or boards of trade that the CFTC licenses and regulates
on foreign exchanges. The Funds and the underlying funds are not permitted to
engage in speculative futures trading.

Futures Contracts. A futures contract generally may 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 and
the underlying funds may seek, through the sale of futures contracts, to offset
a decline in the value of their current portfolio securities. When rates are
falling or prices are rising, the Funds and the underlying funds, through the
purchase of futures contracts, may attempt to secure better rates or prices than
might later be available in the market when they effect anticipated purchases.
Similarly, the Asset Director(R) Funds, OneSource Portfolios and the underlying
funds may sell futures contracts on a specified currency to protect against a
decline in the value of that currency and their portfolio securities that are
denominated in that currency. The Asset Director Funds, OneSource Portfolios and
the underlying funds may purchase futures contracts on a foreign currency to fix
the price in U.S. dollars of a security denominated in that currency that the
Asset Director Funds, OneSource Portfolios and underlying 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 and the underlying
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' and the underlying funds' futures contracts on
securities or currency will usually be liquidated in this manner, the Funds and
the underlying 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 currencies are traded guarantees that, if still open, the sale or
purchase will be performed on the settlement date.

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Options on Futures Contracts. The acquisition of put and call options on futures
contracts will give the Funds and the underlying 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 and the underlying 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 that may
partially offset a decline in the value of the Funds' and the underlying funds'
assets. By writing a call option, the Funds and the underlying funds become
obligated, in exchange for the premium, to sell a futures contract that may have
a value lower than the exercise price. Thus, the loss incurred by the Funds and
the underlying funds in writing options on futures is potentially unlimited and
may exceed the amount of the premium received. The Funds and the underlying
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 these closing transactions can be effected. The Funds' and
the underlying funds' ability to establish and close out positions on these
options will be subject to the development and maintenance of a liquid market.

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 Asset Director(R) Funds, and OneSource
Portfolios sell futures contracts on currency in which their 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 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
contracts, the Investment Manager will attempt to estimate the extent of this
difference in volatility based on historical patterns. The Investment Manager
will attempt 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 be substantially 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 will 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 expect the prices or currency exchange rates available on the intended
date of purchase in the applicable market to be less favorable than prices that
are currently available.

The underlying funds may engage in similar hedging transactions using futures
contracts, which would operate in a similar manner and entail similar risks to
the underlying funds.

When buying or selling futures contracts, a Fund and an underlying fund must
deposit an amount of cash, cash equivalents or liquid, high-quality debt
instruments with its broker equal to a fraction of the contract amount. This

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amount is known as "initial margin" and is in the nature of a performance bond
or good faith deposit on the contract, which will be returned to the Fund and
underlying fund upon termination of the futures contract, assuming all
contractual obligations have been satisfied. Subsequent payments to and from the
broker, known as "variation margin," will be made at least daily as the price of
the futures contract fluctuates and the Fund's and the underlying funds'
position in the contract becomes more or less valuable. This process is known as
"marking-to-market."

Regulations of the Commodities Futures Trading Commission ("CFTC") applicable to
the Funds and the underlying funds generally require that all of their futures
transactions constitute "bona fide" hedging transactions. As a result, a Fund
and an underlying fund will normally sell futures contracts to protect against a
decrease in the price of securities it owns but intends to sell or purchase
futures contracts to protect against an increase in the price of securities it
intends to purchase. In addition, the Funds and the underlying funds may
purchase and sell futures contracts and options as a substitute for a comparable
market position in the underlying securities. Futures transactions need not
constitute "bona fide" hedging under CFTC regulations if the aggregate initial
margin and premiums required to establish such positions do not exceed 5% of
each Fund's and each underlying fund's net assets.

Risks Involved in Futures and Options Transactions. Futures and options
transactions involve risks, which in some strategies can be substantial due to
the low margin deposits required and the extremely high degree of leverage
involved in futures and options trading. However, to the extent the Funds'
futures and options practices are limited to hedging purposes, the Investment
Manager does not believe that the Funds are subject to the degree of risk
frequently associated with futures and options transactions. To the extent the
Funds and the underlying funds engage in the use of futures and options on
futures other than for hedging purposes, the Funds and the underlying funds may
be subject to additional risk.

The primary risks associated with the use of futures and options include:
imperfect correlation between the change in market value of the securities held
by a Fund and the prices of the futures or options, possible lack of a liquid
secondary market for futures or options, and the resulting inability to close
such positions prior to their maturity dates. To minimize these risks, the Funds
will invest only in those contracts whose behavior is expected to resemble that
of a Fund's underlying securities. The risk that a 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.

Three principal areas of risk are present when futures and options contracts are
used even in a hedging context. First, there may not always be a liquid
secondary market for a futures or option contract at the time a Fund or an
underlying fund seeks to "close out" its position. If a Fund or an underlying
fund is unable to "close out" a futures or option position and prices move
adversely, the Fund or an underlying fund would have to continue to make daily
cash payments to maintain its required margin, and if the Fund or an underlying
fund has insufficient cash to meet this requirement, it may have to sell
portfolio securities at a disadvantageous time. In addition, the Fund or an
underlying fund might be required to deliver the securities underlying futures
or options contracts it holds. Each Fund will seek to and the underlying funds
may seek to reduce the risk that it will be unable to "close out" contracts by
entering into only futures or options contracts that are traded on national
exchanges and for which there appears to be a liquid secondary market.

It is also possible that changes in the prices of futures or options contracts
might correlate imperfectly, or not at all, with changes in the market values of
the securities being hedged. This situation could result from price distortions
in the futures or options markets due to, among other things, active trading by
speculators and use of offsetting "closing" transactions by other investors
seeking to avoid meeting additional margin deposit requirements. In the event of
significant market distortions, it is possible that a Fund or an underlying fund
could lose money on futures or options contracts and experience appreciation in
the value of its portfolio securities, or vice versa.

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Finally, adverse market movements could cause a Fund or an underlying fund to
lose up to its full investment in an options contract and/or to experience
substantial losses on an investment in a futures contract. However, barring such
significant market distortions, a similar result could be expected were the Fund
or an underlying fund to invest directly in the securities being hedged. There
is also the risk of loss by a Fund or an underlying fund of margin deposits in
the event of bankruptcy of a broker with whom the Fund or an underlying fund has
an open position in a futures contract or option.

The extent to which each Fund may purchase and sell futures, options, equity
index participations and index participation contracts may be limited by each
Fund's intention to meet Code requirements for qualification as a regulated
investment company. See "Taxes" in this Statement of Additional Information
(SAI) for more information. An underlying fund's investment in such instruments
may similarly be restricted by Code requirements.

SWAPS. Each of the Asset Director(R) Funds may enter into swaps on various
securities (such as U.S. Government securities), securities indices, interest
rates, prepayment rates, foreign currencies or other financial instruments or
indices 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. These uses of swap contracts (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 SAI for more
information.

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 Fund's 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. Each Asset Director Fund
will invest only up to 5% of its net assets in swaps.

PREFERRED STOCK. The Funds may invest in preferred stock, although Balanced
Allocation's and Growth Allocation's direct investments in preferred stock will
not exceed 10% of their net assets. Preferred stock has priority over common
stock as to income and generally as to assets of an 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(R) Funds
will invest up to 5% of their net assets in preferred stock.

CONVERTIBLE SECURITIES. Each of the Asset Director Funds may invest up to 5% of
its net assets in securities that are convertible into common stock, including
convertible bonds that are investment grade, 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

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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
and preferred stockholders would have claims senior to those of common
stockholders.

WARRANTS. The Funds or underlying funds may invest in warrants, which are
options to purchase equity securities at specific prices valid for a specific
period of time. The prices do not necessarily move parallel to the prices of the
underlying securities. Warrants have no voting rights, receive no dividends and
have no rights with respect to the assets of the issuer. If a warrant is not
exercised within the specified time period, it will become worthless and a Fund
or an underlying fund will lose the purchase price and the right to purchase the
underlying security.

REAL ESTATE-RELATED INVESTMENTS. The Asset Director Funds, and Balanced
Allocation and Growth Allocation may invest no more than 10% of their respective
net 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 also may be affected by tax and regulatory
requirements, such as those relating to the environment.

PRECIOUS METAL-RELATED INVESTMENTS . The Asset Director(R) Funds, Growth
Allocation and Balanced Allocation may invest no more than 10% of their
respective net assets in precious metal-related investments. The Asset Director
Funds, Analytics Fund, Growth Allocation and Balanced Allocation may invest in
common stocks of domestic companies principally engaged in precious
metal-related activities, which include companies principally engaged in the
extraction, processing, distribution or marketing of precious metals 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, Growth Allocation and Balanced Allocation
also may invest in securities of foreign companies principally engaged in the
precious metals industry. For further disclosure on foreign securities, see
"Foreign Investments" in this SAI.

The Asset Director Funds, Analytics Fund, Growth Allocation and Balanced
Allocation also may invest in futures on precious metals, such as gold futures,
and options thereon. Such investments are subject to the investment limitations
on investments in futures and options for the Asset Director Funds, Analytics
Fund, Growth Allocation and Balanced Allocation as set forth in "Futures
Contracts and Options on Futures Contracts" in this SAI.

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 have been subject to extreme
fluctuations, as a result of, among other reasons, wider economic or political
instability.

U.S. GOVERNMENT SECURITIES. The Funds may purchase U.S. Government securities.
Direct obligations of the U.S. Government are supported by the full faith and
credit of the U.S. Treasury. While obligations of certain U.S. Government
agencies and instrumentalities are similarly backed, 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

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of the issuing agency or instrumentality. There can be no assurance that the
U.S. Government would provide financial support to U.S. Government sponsored
agencies or instrumentalities if it were 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 U.S. Treasury only when the Investment Manager is satisfied that
the credit risk with respect to their issuer is minimal.

GOVERNMENT "MORTGAGE BACKED" SECURITIES. Government "mortgage-backed" (or
government guaranteed mortgage-related) securities are among the U.S. Government
securities in which the Funds may invest. Mortgages backing the securities
purchased by the Funds include, among others, conventional 30-year fixed rate
mortgages, graduated payment mortgages, 15-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 interests 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 than their stated maturity indicates. 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. The U.S. government, to the extent described below, guarantees
principal and interest payments on the mortgage-related securities. 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 mortgage securities which evidence an undivided interest in a pool
or pools of mortgages. 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 U.S. Government. GNMA also is 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

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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 10 years. The FHLMC guarantee is not backed by the full faith and
credit of the U.S. Government.

FNMA Securities. The Federal National Mortgage Association ("FNMA") was
established in 1938 to create a secondary market in mortgages the FHA insures.
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 U.S. Government.

OTHER ASSET-BACKED SECURITIES. The Asset Director(R) Funds may invest a portion
of their assets in debt obligations known as "Asset-Backed Securities" that are
rated in one of the four highest rating categories by a nationally recognized
statistical rating organization ("NRSRO") (e.g., S&P or Moody's) or, if not so
rated, deemed to be of equivalent quality by the Investment Manager pursuant to
guidelines adopted by the Board of Trustees. Growth Allocation, Balanced
Allocation and the Small Company Fund do not currently intend to invest directly
in Asset-Backed Securities, but they may invest in them indirectly through
underlying funds. 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.

CORPORATE BONDS. Each Asset Director(R) Fund may invest in corporate bonds rated
in one of the four highest categories by a NRSRO. Corporate Bonds are issued in
the form of debt instruments by a private corporation and are different in
character from bonds issued by a government agency or municipality. Typical
distinguishing features include: (1) they are taxable; (2) they have a par value
of $1,000; (3) they have a term maturity (which means they come due all at once)
and are paid for out of a sinking fund accumulated for that purpose and they may
be callable; and (4) they are often traded on major exchanges, with prices
published in the newspapers.

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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 used as a method of
providing credit support. This is typically accomplished by creating one or more
classes with a right to payments on the Asset-Backed Security that is
subordinate to that of the remaining class or classes. Second, multiple classes
may permit the issuance of securities with payment terms, interest rates or
other characteristics that differ both from those of each other and from those
of the underlying assets. Examples include "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 that entitle 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 that mimic the characteristics of
non-Asset-Backed Securities, such as floating interest rates (i.e., interest
rates that 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 timely. 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 that arise 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, so that defaults on the underlying
assets are borne first by the holders of the subordinated class) and
Asset-Backed Securities that have "reserve funds" (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" (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 generally based on historical
information respecting the level of credit risk associated with such payments.
Delinquency or loss in excess of that anticipated could adversely affect the
return on an investment in an Asset-Backed Security.

CREDIT CARD RECEIVABLE SECURITIES. The Asset Director(R) Funds may invest
directly, and the Growth Allocation and Balanced Allocation may invest
indirectly through underlying funds, 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 of additional credit card charges made on an
account to the pool of assets supporting the related Credit Card Receivable
Securities. The initial fixed period may usually 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

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<PAGE> 69
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 BANKER'S 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. Banker's 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 invest only in certificates of deposit
and banker's acceptances of banks that have capital, surplus and undivided
profits in excess of $100 million.

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 invest only 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 SECURITIES. Under certain circumstances, an underlying fund may make
payment of a redemption by a Fund wholly, or in part, by a distribution in-kind
of securities from its portfolio rather than payment in cash. In such a case,
the Fund may hold the securities distributed until the Investment Manager
determined that it was appropriate to sell them.

OTHER INVESTMENT POLICIES

Securities that are acquired by the Asset Director(R) Funds, and OneSource
Portfolios outside the United States and that are publicly traded in the United
States on a foreign securities exchange or in a foreign securities market, are
not considered by the Funds to be illiquid assets provided that: (i) the Funds
acquire and hold the securities with the intention of reselling the securities
in the foreign trading market, (ii) the Funds reasonably believe they can
dispose of the securities readily in the foreign trading market or for cash in
the United States, or (iii) 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 United States 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 economic or monetary policies in the United
States or abroad, or changed circumstances regarding 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 many
U.S. securities. Notwithstanding that the Funds generally intend to acquire the
securities of foreign issuers where there are public trading markets, the Funds'
investments 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

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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 United States 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.

Loans of Portfolio Securities. The Funds or underlying funds may loan
securities to qualified broker-dealers or other institutional investors
provided: (i) the loan is secured continuously by collateral consisting of U.S.
Government securities, cash or cash equivalents maintained on a daily
marked-to-market basis in an amount at least equal to the current market value
of the securities loaned; (ii) the Fund or underlying fund may at any time call
the loan and obtain the return of the securities loaned; (iii) the Fund or
underlying fund will receive any interest or dividends paid on the loaned
securities; and (iv) the aggregate market value of securities loaned will not at
any time exceed one-third of the total assets of the Fund or underlying fund.

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. Loans of securities involve a risk that the borrower may
fail to return the securities or provide additional collateral.

Repurchase Transactions. Repurchase agreements are instruments under
which a buyer acquires ownership of a security from a seller who 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 a Fund's loan of money 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 a Fund enters into 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 or its agencies or instrumentalities). The period of these repurchase
agreements will be usually short--from overnight to one week--and at no time
will the Funds invest in repurchase agreements for more than one year. However,
securities 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 the Funds invest 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 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
net assets at the time of purchase in repurchase agreements maturing in more
than seven days and other illiquid securities.

Illiquid Securities. Each Fund, except the OneSource Portfolios,
reserves the right to invest up to 10% of its net assets in illiquid securities.
Each of the OneSource Portfolios reserves the right to invest up to 15% of its
net assets in illiquid securities. Generally, an "illiquid security" is any
security that cannot be disposed of promptly and in the

<PAGE> 71
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 when 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 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' portfolios may be increased if qualified institutional
buyers become uninterested in purchasing these securities contracts.

The 1940 Act currently provides that any underlying fund is not
required to redeem any shares held by the Funds in excess of 1% of 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
Funds have elected to reserve the right to pay redemption requests in investment
securities, these positions may be treated as liquid by the funds.

When-Issued and Delayed Delivery Securities. The Funds may hold
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, a Fund will not pay for securities 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 a
Fund.

INVESTMENT IN UNDERLYING SCHWAB FUNDS

The Asset Director(R) Funds may invest in underlying SchwabFunds(R).
The investment objectives and investment policies, limitations, and techniques
and associated risks of certain SchwabFunds(R) are described in the Asset
Director Fund's Prospectus, or in this SAI. The investment policies, limitations
and techniques and associated risks of each SchwabFund is fully described in its
prospectus and SAI. These are available by contacting Schwab at 1 800-435-4000,
24 hours a day, or by writing to a Fund at 101 Montgomery Street, San Francisco,
California 94104 or electronically at Schwab's World Wide Website at
http://www.schwab.com/schwabfunds. TDD users please contact Schwab at
1-800-345-2550.

In addition to utilizing the investment securities, techniques and
policies and exposing themselves to similar limitations and risks as described
in this SAI, the other underlying SchwabFunds may also invest in restricted
securities, collateralized mortgage obligations, municipal securities and index
options.

Each Fund reserves the right to invest all of the assets allocated to a
particular class in one or more newly created SchwabFund, that would expose the
Fund and its shareholders to the risks described below. Some of the SchwabFunds
in which the Asset Director Funds may invest are noted below.

Schwab Total Bond Market Index Fund seeks current income by tracking
the performance of the Lehman Brothers Aggregate Bond Index, a broad-based index
covering bonds with maturities over 1 year. Investments in this SchwabFund
expose a Fund to bond market risks that are described in this SAI and in the
prospectus.

The Schwab S&P 500 Fund seeks to track the price and dividend
performance (total return) of common stocks of U. S. companies, as represented
by the S&P 500 Index(R), by investing in substantially all of the 500

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common stocks composing the S&P 500 Index. Investments in this SchwabFund expose
a Fund to stock risk. The Schwab S&P 500 Fund may also invest in short-term debt
securities with attendant risks described above regarding investment in debt
securities.

The International Index Fund attempts to track the price and dividend
performance (total return) of the Schwab International Index(R), an index
created by Schwab to represent the performance of common stocks and other equity
securities including preferred stocks, rights and warrants issued by large,
publicly traded companies from countries around the world with major developed
securities markets, excluding the U.S. To the extent a Fund invests in this
SchwabFund, which normally invests 80% of its assets in stocks which comprise
the Schwab International Index, the Fund will be exposed to international stock
risk, which is described above. The International Index Fund may also engage in
foreign currency hedging, which involves certain costs that may result in losses
to that SchwabFund, and although tending to minimize risk of certain losses also
tends to limit certain potential gains.

The Small-Cap Index Fund attempts to track the price and dividend
performance (total return) of the Schwab Small-Cap Index(R), an index created by
Schwab to represent the performance of common stocks of the second 1,000 largest
U.S. corporations (excluding investment companies). To the extent a Fund invests
in the Small-Cap Index Fund, which normally invests 80% of its assets in stocks
which comprise the Schwab Small-Cap Index, the Fund will be exposed to risks of
small company stocks.

Each of the Schwab Index Funds engages in index or passive investing,
and also seeks to minimize capital gain distributions by offsetting capital
gains and capital losses and lowering portfolio turnover. These investment
policies are intended to minimize the adverse federal income tax consequences of
portfolio trading, but may increase the differences between the Schwab Index
Funds' performance and the relevant index's performance. Each Schwab Index Fund
may also purchase other investment securities or engage in securities techniques
(normally up to 20% of its total assets) that are similar to the Asset
Director(R) Funds' and will entail similar risks.

Schwab's family of proprietary low-cost money market funds, bond funds,
stock funds, asset allocation funds and index funds (equity and bond) are
included in Schwab's Mutual Fund OneSource service. The Funds may invest in any
Schwab proprietary index fund as an interim investment while selecting an
underlying fund. In addition, the Funds normally will invest all assets
allocated as money market fund investments in Schwab's proprietary money market
funds. Investments in Schwab proprietary mutual funds are subject to the same
selection process as all the Fund's investments, and will only be made if they
are determined to be the most suitable investment for a Fund and in the best
interests of the Fund's shareholders.

UNDERLYING FUND INVESTMENT TECHNIQUES

Investment decisions for an underlying fund are made by its portfolio
manager independently of the Funds and their Investment Manager. An underlying
fund may purchase securities that are being sold by a different underlying fund.
This could result in indirect costs to a Fund without any corresponding
investment benefit. The underlying funds for the OneSource Portfolios may also
engage in foreign currency transactions with respect to foreign securities
investments; invest in restricted securities; sell securities short; borrow
money for investment purposes (i.e., leverage their portfolio); write (sell) or
purchase call or put options on securities or on stock indices; concentrate
their assets in one industry; invest in master demand notes; invest in domestic
equity securities; and enter into futures contracts and options on futures
contracts. The underlying funds for the Asset Director Funds may also engage in
foreign currency transactions with respect to foreign securities investments,
borrow money and invest in futures and options. The risks associated with these
investments are discussed below.

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To the extent that the underlying funds also invest or engage in swaps,
preferred stock, convertible securities, real estate-related investments,
precious metal related investments, U.S. Government securities, government
"mortgage-backed" securities, asset-backed securities, certificates of deposit
and bankers' acceptances, commercial paper, repurchase transactions, and
when-issued and delayed delivery securities, the underlying funds would be
subject to risks associated with such investments similar to those risks
discussed above regarding such investments by the Funds.

Short Sales. An underlying fund may sell securities short. In a short
sale, the underlying fund sells stock which it does not own, making delivery
with securities "borrowed" from a broker. The underlying fund is then obligated
to replace the security borrowed by purchasing it at the market price at the
time of replacement. This price may or may not be less than the price at which
the security was sold by the underlying fund. Until the security is replaced,
the underlying fund is required to pay the lender any dividends or interest that
accrue during the period of the loan. In order to borrow the security, the
underlying fund may also have to pay a premium, which would increase the cost of
the security sold. The broker will retain the proceeds of the short sale to the
extent necessary to meet margin requirements until the short position is closed
out.

The underlying fund must also deposit in a segregated account an amount
of cash or U.S. Government securities equal to the difference between (a) the
market value of the securities sold short at the time they were sold short and
(b) the value of the collateral deposited with the broker in connection with the
short sale (not including the proceeds from the short sale). While the short
position is open, the underlying fund must maintain daily the segregated account
at such a level that (i) the amount deposited in it plus the amount deposited
with the broker as collateral equals the current market value of the securities
sold short and (ii) the amount deposited in it plus the amount deposited with
the broker as collateral is not less than the market value of the securities at
the time they were sold short. Depending upon market conditions, up to 80% of
the value of an underlying fund's net assets may be deposited as collateral for
the obligation to replace securities borrowed to effect short sales and
allocated to a segregated account in connection with short sales. The underlying
fund will incur a loss as a result of the short sale if the price of the
security increases between the date of the short sale and the date on which the
underlying fund replaces the borrowed security. The underlying fund will realize
a gain if the security declines in price between those dates. The amount of any
gain will be decreased and the amount of any loss increased by the amount of any
premium dividends or interest the underlying fund may be required to pay in
connection with a short sale.

A short sale is "against the box" if at all times when the short
position is open the underlying fund owns an equal or greater amount of the
securities or securities convertible into, or exchangeable without further
consideration for, securities of the same issue as the securities sold short.
Such a transaction defers a gain or loss for Federal income tax purposes. The
procedures described above regarding deposits in a segregated account are not
required to be followed for short sales "against the box."

Leverage Through Borrowing. An underlying fund may borrow up to 25% of
the value of its net assets on an unsecured basis from banks to increase its
holdings of portfolio securities. Under the 1940 Act, the underlying fund is
required to maintain continuous asset coverage of 300% with respect to such
borrowings and to sell (within three days) sufficient portfolio holdings to
restore such coverage if it should decline to less than 300% due to market
fluctuations or otherwise, even if it is disadvantageous to do so from an
investment standpoint. Leveraging will exaggerate the effect of any increase or
decrease in the value of portfolio securities on the underlying fund's net asset
value. Money borrowed will also be subject to interest costs (which may include
commitment fees and/or the cost of maintaining minimum average balances), which
may or may not exceed the interest and option premiums received from the
securities purchased with borrowed underlying funds.

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Derivatives. An underlying fund may invest in the following instruments
that are known commonly as derivatives. Generally, a derivative is a financial
arrangement, the value of which is based on or "received" from a traditional
security, asset or market index.

Hedging. An underlying fund may employ many of the investment
techniques described herein not only for investment purposes which may be
considered speculative, but also for hedging purposes. For example, an
underlying fund may purchase or sell put and call options on common stocks to
hedge against movement in individual common stock prices, or purchase and sell
stock index futures and related options to hedge against marketwide movements in
common stock prices. Although such hedging techniques generally tend to minimize
the risk of loss that is hedged against, they may also limit commensurably the
potential gain that might have resulted had the hedging transaction not
occurred. Also, the desired protection generally resulting from hedging
transactions may not always be achieved.

Master Demand Notes. Although the Funds will not do so, underlying
funds (particularly money market mutual funds) may invest up to 100% of their
assets in master demand notes. Master demand notes are unsecured obligations of
U.S. corporations redeemable upon notice that permit investment by an underlying
fund of fluctuating amounts at varying rates of interest pursuant to direct
arrangements between the fund and the issuing corporation. Because they are
direct arrangements between the underlying fund and the issuing corporation,
there is no secondary market for the notes. However, they are redeemable at face
value, plus accrued interest, at any time.

Domestic Equity Securities. The underlying funds, particularly global
underlying funds, also may be able to purchase equity securities of U.S.
companies. Equity securities are ownership interests in the net worth of a
corporation and include common stocks, convertible securities and warrants.
Common stock prices can be volatile in the short term. Market conditions or
other company, political and economic news can often cause large changes in a
stock's price. Such investments entail market risk, i.e., the risk of being
invested in stocks when the market goes down, resulting in stock prices
declining over short or even long periods.

INVESTMENT RESTRICTIONS

FUNDAMENTAL INVESTMENT RESTRICTIONS FOR HIGH GROWTH FUND, BALANCED GROWTH FUND,
CONSERVATIVE GROWTH FUND, ANALYTICS FUND(TM), AND ONESOURCE
PORTFOLIOS-INTERNATIONAL

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). With respect to the
Analytics Fund and the Schwab OneSource Portfolios-International, investment
restriction numbers 3, 4, 6 and 7 are non-fundamental and may be changed by the
Trust's Board of Trustees. Each of the Funds listed above may not:

1) As to 75% of its assets, purchase securities of any issuer (other
than obligations of, or guaranteed by, the U.S. Government, its agencies or
instrumentalities or investments in other registered investment companies) 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 Analytics Fund may purchase securities under such
circumstances only to the extent that the S&P 500 is also so concentrated, and
except that the Schwab OneSource Portfolios-International will invest 25% or
more of its total assets in other investment companies).

21
<PAGE> 75
3) Invest more than 10% of its net assets in illiquid securities,
including repurchase agreements with maturities in excess of seven days (except
that the Schwab OneSource Portfolios-International may not invest more than 15%
of its net assets in illiquid securities).

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, commodity contracts 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(R) Funds, and Analytics Fund(TM), 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 SEC.

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 agreements) that are distributed publicly or customarily
purchased by institutional investors, and (ii) lend its portfolio securities.

9) Borrow money or issue senior securities, except that each Fund may
borrow 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.

NON-FUNDAMENTAL RESTRICTIONS FOR HIGH GROWTH FUND, BALANCED GROWTH FUND,
CONSERVATIVE GROWTH FUND, ANALYTICS FUND AND ONESOURCE PORTFOLIOS INTERNATIONAL

The following restrictions are non-fundamental and may be changed by
the Trust's Board of Trustees. Each of the Funds, with the exception of Growth
Allocation, Balanced Allocation and the Small Company Fund, 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.

22
<PAGE> 76
2) 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.

3) 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 net assets.

4) Make short sales, except for short sales against the box.

5) 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.

6) Purchase securities on margin, except such short-term credits as may
be necessary for the clearance of purchases and sales of securities.

FUNDAMENTAL INVESTMENT RESTRICTIONS FOR GROWTH ALLOCATION, BALANCED ALLOCATION
AND THE SMALL COMPANY FUND

The restrictions numbered 1, 2 and 3 immediately 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). For more detailed
information, see "1940 Act Restrictions" and "Other Investment Policies"
discussed below. The Growth Allocation, Balanced Allocation and the Small
Company Fund:

1) May purchase securities of any issuer only when consistent with the
maintenance of its status as a diversified company under the 1940 Act.

2) May not concentrate investments in a particular industry or group of
industries as concentration is defined under the 1940 Act, or the rules or
regulations thereunder.

3) May (i) purchase or sell commodities, commodities contracts, or real
estate, (ii) lend or borrow money, (iii) issue senior securities, (iv)
underwrite securities, or (v) pledge, mortgage or hypothecate any of its assets,
only if permitted by the 1940 Act or the rules or regulations thereunder.

The Growth Allocation's, Balanced Allocation's and the Small Company
Fund's fundamental investment policies have been adopted to avoid wherever
possible the necessity of shareholder meetings otherwise required under the 1940
Act. This recognizes the need to react quickly to changes in the law or new
investment opportunities in the securities markets and the cost and time
involved in obtaining shareholder approvals for diversely held investment
companies. However, the Growth Allocation, Balanced Allocation and the Small
Company Fund have also adopted non-fundamental investment policies, set forth
below, which are more restrictive than their fundamental investment policies.
The Growth Allocation's, Balanced Allocation's and the Small Company Fund's
non-fundamental investment policies may be changed by a vote of the Board of
Trustees. Any changes in either the Growth Allocation's, Balanced Allocation's
or the Small Company Fund's non-fundamental investment policies will be
communicated to the Fund's shareholders prior to the effectiveness of the
changes.

1940 ACT RESTRICTIONS. Under the 1940 Act and the rules, regulations
and interpretations thereunder, a "diversified company," as to 75% of its total
assets, may not purchase securities of any issuer (other than obligations of, or
guaranteed by, the U.S. Government or its agencies, or instrumentalities or
investments in other registered investment companies) if, as a result, more than
5% of the value of its total assets would be invested in the securities of

23
<PAGE> 77
such issuer or more than 10% of the issuer's voting securities would be held by
the fund. "Concentration" is generally interpreted under the 1940 Act as
investing 25% or more of total assets in an industry or group of industries. The
1940 Act limits the ability of investment companies to borrow and lend money and
to underwrite securities. The 1940 Act currently prohibits an open-end fund from
issuing senior securities, as defined in the 1940 Act, except under very limited
circumstances.

OTHER INVESTMENT POLICIES FOR GROWTH ALLOCATION, BALANCED ALLOCATION
AND SMALL COMPANY FUND

The following investment policies and restrictions are non-fundamental
and may be changed by the Trust's Board of Trustees. The Growth Allocation,
Balanced Allocation and the Small Company Fund, may not:

1) Invest more than 15% of its net assets in illiquid securities,
including repurchase agreements with maturities in excess of 7 days.

2) 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.

3) Invest for the purpose of exercising control or management of
another issuer.

4) Purchase securities of other investment companies, except as
permitted by the 1940 Act, including any exemptive relief granted by the SEC.

5) 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.

6) 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.

7) 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 net assets.

8) Make short sales, except for short sales against the box.

9) 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.

10) Purchase securities on margin, except such short-term credits as
may be necessary for the clearance of purchases and sales of securities.

Investments in Other Mutual Funds. The Schwab OneSource Portfolios
intend to purchase shares of underlying funds in compliance with the
requirements of Section 12(d)(1)(F) of the 1940 Act. Under that provision, a
Fund is prohibited from purchasing the securities of an underlying fund if, as a
result, the Fund together with its affiliates would own more than 3% of the
total outstanding securities of that underlying fund. In addition, a Fund is
required to seek voting instructions from its shareholders regarding underlying
fund proxies, and to vote such proxies in

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<PAGE> 78
accordance with the instructions received or to vote such proxies in the same
proportion as the vote of all other holders of the underlying fund 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 the Investment Manager, are as
follows:

<TABLE>
<CAPTION>
POSITION WITH
NAME/DATE OF BIRTH THE TRUST PRINCIPAL OCCUPATION
- ------------------ --------- --------------------
<S> <C> <C>
CHARLES R. SCHWAB* Chairman and Chairman, Chief Executive Officer and
July 29, 1937 Trustee Director, The Charles Schwab Corporation;
Chairman, Chief Executive Officer and
Director, Charles Schwab Holdings, Inc.;
Chairman and Director, Charles Schwab &
Co., Inc, Charles Schwab Investment
Management, Inc., The Charles Schwab Trust
Company, and Schwab Retirement Plan
Services, Inc.; Chairman and Director
(current board positions), and Chairman
(officer position) until December 1995,
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), AirTouch Communications (a
telecommunications company) and Siebel
Systems (a software company).

TOM D. SEIP Executive Vice President, The Charles
February 15, 1950 Schwab Corporation; Enterprise President -
International and Mutual Funds, Charles
Schwab & Co., Inc.; Chief Executive Officer,
Charles Schwab Investment Management,
Inc.

DONALD F. DORWARD Trustee Executive Vice President and Managing
September 23, 1931 Director, Grey Advertising. From 1990 to
1996, Mr. Dorward was President and Chief
Executive Officer, Dorward & Associates.
Dorward & Associates is an advertising and
</TABLE>

25
<PAGE> 79

<TABLE>
<S> <C> <C>
marketing/consulting firm.

ROBERT G. HOLMES Trustee Chairman, Chief Executive Officer and
May 15, 1931 Director, Semloh Financial, Inc. Semloh
Financial is an international financial
services and investment advisory firm.

DONALD R. STEPHENS Trustee Managing Partner, D.R. Stephens & Co.
June 28, 1938 (investment banking). Prior to 1995, Mr.
Stephens was Chairman and Chief Executive
Officer of North American Trust (a real
estate investment trust). Prior to 1992,
Mr. Stephens was Chairman and Chief
Executive Officer of the Bank of San
Francisco.

MICHAEL W. WILSEY Trustee Chairman, Chief Executive Officer and
August 18, 1943 Director, Wilsey Bennett, Inc. (truck and air
transportation, real estate investment and
management, and investments).

TAI-CHIN TUNG Treasurer and Vice President - Finance, Charles Schwab &
March 7, 1951 Principal Co., Inc.; Controller, Charles Schwab
Financial Officer Investment Management, Inc. From 1994
to 1996, Ms. Tung was Controller for
Robertson Stephens Investment
Management, Inc. From 1993 to 1994, she
was Vice President of Fund Accounting,
Capital Research and Management Co. Prior
to 1993, Ms. Tung was Senior Vice President
of the Sierra Funds and Chief Operating
Officer of Great Western Financial Securities.

WILLIAM J. KLIPP* Executive Vice Executive Vice President, SchwabFunds(R),
December 9, 1955 President, Chief Charles Schwab & Co., Inc.; President and
Operating Officer and Chief Operating Officer, Charles Schwab
Trustee Investment Management, Inc. Prior to 1993,
Mr. Klipp was Treasurer of Charles Schwab &
Co., Inc. and Mayer & Schweitzer, Inc.
</TABLE>

* This Trustee is an "interested person" of the Trust.

26
<PAGE> 80

<TABLE>
<S> <C> <C>
STEPHEN B. WARD Senior Vice President Senior Vice President and Chief Investment
April 5, 1955 and Chief Investment Officer, Charles Schwab Investment
Officer Management, Inc.

FRANCES COLE Secretary Senior Vice President, Chief Counsel, Chief
September 9, 1955 Compliance Officer and Assistant Corporate
Secretary, Charles Schwab Investment
Management, Inc.

DAVID H. LUI Assistant Secretary Vice President and Senior Counsel, Charles
October 14, 1960 Schwab Investment Management, Inc. From
1991 to 1992, he was Assistant Secretary for
the Franklin Group of Mutual Funds and
Assistant Corporate Counsel for Franklin
Resources, Inc.

KAREN L. SEAMAN Assistant Secretary Corporate Counsel, Charles Schwab
February 27, 1968 Investment Management, Inc. From
October 1994 to July 1996, she was an
Attorney for Franklin Resources, Inc. Prior
to 1994, Ms. Seaman was an Attorney for
The Benham Group.

MATTHEW O'TOOLE Assistant Secretary Corporate Counsel, Charles Schwab
September 26, 1964 Investment Management, Inc. From
November 1995 to April 1997, Mr. O'Toole
was Assistant General Counsel for Chancellor
LGT Asset Management, Inc. Prior there to,
Mr. O'Toole was Senior Counsel at the U.S.
Securities and Exchange Commission in
Washington, D.C.

AMY L. MAUK Assistant Secretary Corporate Counsel, Charles Schwab
January 5, 1969 Investment Management, Inc. From April
1995 to March 1997, she was a Legal
Product Manager for Fidelity Investments.
</TABLE>

* An interested person of the Trust.

Each of the above-referenced Officers and/or Trustees also serves in
the same capacity as described for the Trust, Schwab Investments, The Charles
Schwab Family of Funds and Schwab Annuity Portfolios. The address of each
individual listed above is 101 Montgomery Street, San Francisco, California
94104.

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<PAGE> 81

COMPENSATION TABLE 1

Pension or
Retirement Estimated Annual
Benefits Accrued as Benefits upon Total
Aggregate Part of Fund Retirement from Compensation
Name of Person, Compensation Expenses from the the Fund from the Fund
Position from the Trust Fund Complex 2 Complex 2 Complex 2
- --------------- -------------- ------------------- ---------------- --------------
<S> <C> <C> <C> <C>
Charles R. Schwab, 0 N/A N/A 0
Chairman and Trustee

Timothy F. McCarthy, 0 N/A N/A 0
President and Trustee

William J. Klipp, 0 N/A N/A 0
Executive Vice
President, Chief
Operating Officer and
Trustee

Donald F. Dorward, N/A N/A
Trustee

Robert G. Holmes, N/A N/A
Trustee

Donald R. Stephens, N/A N/A
Trustee

Michael W. Wilsey, N/A N/A
Trustee
</TABLE>

1 Figures are for the Trust's fiscal year ended October 31, 1997.

2 "Fund Complex" comprises all 30 funds of the Trust, The Charles Schwab
Family of Funds, Schwab Investments and Schwab Annuity Portfolios.

DEFERRED COMPENSATION PLAN

Pursuant to exemptive relief received by the Trust from the SEC, 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 SAI, 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 or SchwabFunds(R) selected by the

28
<PAGE> 82
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 in this SAI for
more information."

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 Family(R),
a family of 27 mutual funds with over $50 billion in assets as of July 15, 1997.
The Investment Manager is an affiliate of: Schwab; the Trust's distributor; the
shareholder services; and the transfer agent. The Advisory Agreement will
continue in effect until May 30, 1998 with respect to each of the Funds 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 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.

Asset Director(R) 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, 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 ___________, 199_, the total fund operating expenses for each Asset
Director Fund will not exceed 0.xx% of the Fund's average daily net assets.

For the fiscal period of November 20, 1995 (commencement of operations)
to October 31, 1996, the High Growth Fund, the Balanced Growth Fund, and the
Conservative Growth Fund respectively paid investment advisory fees of $337,000
$219,000, and $26,000, (fees were reduced by $296,000, $242,000 and $118,000
respectively) for fiscal year end October 31, 1997 advisory fees were,
respectively, $____, $_____, and $_____ (fees were reduced by $_____, $_____,
and $_____).

Analytics Fund(TM). For its advisory and administrative services to the
Analytics Fund, the Investment Manager is entitled to receive a graduated annual
fee, payable monthly, of 0.74% of the Fund's average daily net assets not in
excess of $1 billion, 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 ___________, 199_, the total fund operating expenses for the Analytics
Fund will not exceed 0.xx% of its average daily net assets.

For the fiscal period of July 1, 1996 (commencement of operations) to
October 31, 1996, and for fiscal year end October 31, 1997, respectively, the
Analytics Fund paid investment advisory fees of $66,000 (fees were reduced by
$151,000) and $_____ (which were reduced by $_____).

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<PAGE> 83
Schwab OneSource Portfolios-International. For its advisory and
administrative services to the Schwab OneSource Portfolios-International, the
Investment Manager is entitled to receive a graduated annual fee, payable
monthly, of 0.74% of the Fund's average daily net assets not in excess of $1
billion, 0.69% of the next $1 billion and 0.64% of net assets over $2 billion.

The Investment Manager and Schwab have guaranteed that, through at
least February 28, 1999, the total fund operating expenses for the Schwab
OneSource Portfolios-International will not exceed 0.50% of its average daily
net assets.

For the fiscal period of October 16, 1996 (commencement of operations)
to October 31, 1996, and for fiscal year end October 31, 1997, respectively, the
Schwab OneSource Portfolios-International paid investment advisory fees of $0
(fees were reduced by $17,000) and $_____ (fees were reduced by $_____).

Growth Allocation and Balanced Allocation. For its advisory and
administrative services to the Growth Allocation and Balanced Allocation, the
Investment Manager is entitled to receive a graduated annual fee, payable
monthly, of 0.74% of the first $1 billion of each 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 and Schwab have guaranteed that, through at
least February 28, 1999, the fund selection and investment management fees for
Growth Allocation and Balanced Allocation will not exceed 0.50% of its average
daily net assets.

For the fiscal period of August 3, 1997 (commencement of operations) to
October 31, 1997, Growth Allocation and Balanced Allocation, respectively, paid
investment advisory fees of $__ (fees were reduced by $__) and $__ (fees were
reduced by $__).

Small Company Fund For its advisory and administrative services to
Small Company Fund, the Investment Manager is entitled to receive a graduated
annual fee, payable monthly, of 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 and Schwab have guaranteed that, through at
least February 28, 1999, the fund selection and investment management fees for
Small Company Fund will not exceed 0.50% 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 the OneSource Portfolios. The Investment Manager
and Schwab provide investment management and other services to all of Schwab's
proprietary funds and receive compensation from them. In light of this
remuneration and compensation, Schwab guarantees, through at least December 31,
2001, to waive its Transfer Agent and Shareholder Service fees for OneSource
Portfolios International, Growth Allocation, Balanced Allocation and Small
Company Fund. These fees normally total 0.25% for each Fund. After December 31,
2001, the guarantee may be terminated, modified or continued.

Additional Information. 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").

30
<PAGE> 84
SUB-ADVISER

With respect to the Analytics Fund(TM), the Investment Manager has
entered into an investment sub-advisory agreement (the "Sub-Advisory Agreement")
with Symphony Asset Management, Inc. (the "Sub-Adviser" or "Symphony") pursuant
to which Symphony Asset Management, Inc. will act as the Fund's 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 makes investment decisions for the Analytics Fund's
non-cash investments and uses quantitative techniques and proprietary real-time
databases and software models to continually identify and rank stocks that
exhibit a favorable combination of attributes that have historically been
associated with aggregate total returns greater than that of the S&P 500. Once
rankings are determined, statistical methodologies will be used to construct a
portfolio of the most attractive stocks in terms of potential long-term capital
growth.

For the Sub-Adviser's services relating to the Analytics Fund(TM), the
Investment Manager pays the Sub-Adviser an annual investment sub-advisory fee,
payable monthly, of 0.20% of the Fund's average daily net assets not in excess
of $300 million, 0.15% of the next $500 million and 0.10% of such assets over
$800 million.

As of February 28, 1997, Symphony no longer served as sub-adviser to
the Asset Director(R) Funds. Instead, the Investment Manager became responsible
for providing all investment advisory services to the Asset Director Funds.

Asset Director Funds for the fiscal period from November 20, 1995
(commencement of operations) to October 31, 1996 paid Symphony $120,156.

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 of 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.

CONSULTANT

Symphony provides the Tactical Asset Allocation Model described below
under "Asset Allocation -- the Schwab Asset Allocation Funds."

CUSTODIAN AND FUND ACCOUNTANT

Morgan Stanley Trust Company, 1 Pierrepont Plaza, Brooklyn, New
York 11201, and Federated Services Company, 1001 Liberty Avenue, Pittsburgh,
Pennsylvania 15222, serve as Custodian and Fund Accountant for the Asset
Director Funds, Schwab OneSource Portfolios-International, Growth Allocation,
Balanced Allocation and Small Company Fund.

PNC Bank, National Association, at the Airport Business Center, 200
Stevens Drive, Suite 440, Lester, Pennsylvania 19113, serves as Custodian for
the Analytics Fund(TM). PFPC Inc., at 400 Bellevue Parkway, Wilmington, Delaware
19809, serves as Fund Accountant for the Analytics Fund.

ACCOUNTANTS AND REPORTS TO SHAREHOLDERS

The Trust's independent accountants, ___________________, audit and
report on the annual financial statements of each series of the Trust and review
certain regulatory reports and each Fund's federal income tax return.
__________________ also performs other professional accounting, auditing, tax
and advisory services when the Trust

31
<PAGE> 85
engages it to do so. Shareholders will be sent audited annual and unaudited
semi-annual financial statements. The address of _______________________ is
____________________________________________________.

PORTFOLIO TRANSACTIONS AND TURNOVER

PORTFOLIO TRANSACTIONS

In effecting securities transactions for the Funds, the Investment
Manager and the Sub-Adviser seek to obtain best price and execution. Subject to
the supervision of the Board of Trustees, the Investment Manager and the
Sub-Adviser 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 and the Sub-Adviser 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 and the Sub-Adviser 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 and the Sub-Adviser 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 and the
Sub-Adviser 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 and the Sub-Adviser 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
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 Schwab provides 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 members of the exchange
not associated with Schwab perform

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the floor brokerage element of portfolio transactions (that is, execution on the
exchange floor or through use of exchange facilities) 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 Schwab selects 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 years ended October 31, 1997 and
the fiscal period November 20, 1995 (commencement of operations) to October 31,
1996, the High Growth Fund, the Balance Fund and the Conservative Growth Fund
paid brokerage commissions of $_____, $_____, and $_____ in fiscal year end 1997
and $92,248, $48,733, and $10,741 in fiscal period 1996. For fiscal year ended
October 31, 1997 and fiscal period July1, 1996 (commencement of operations to
October 31, 1996 the Analytics Fund paid brokerage commissions of ($_____ in
fiscal year 1997 and $90,932 in fiscal period 1996. For fiscal period October
16, 996 (commencement of operations) to October 31, 1996 and for fiscal year end
October 31, 1997 the OneSource Portfolios-International paid brokerage
commissions of $0 and $_____. For fiscal period November 18, 1996 (commencement
of operations) to October 31, 1997 the Allocation Funds paid brokerage
commissions of $0. For fiscal period August 3, 1997 (commencement of operations)
to October 31, 1997 Small Company paid brokerage commissions of $0.

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
the Fund owned 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.

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(R) Funds, the portfolio turnover rate applies to the Funds' stock and
bond categories.

The High Growth Fund, Balanced Growth Fund (equity portion) and
Conservative Growth Fund's (equity portion) portfolio turnover rates for the
fiscal year ended October 31, 1997 and 1996 were __%, __%, and __% and 36%, 44%,
and 64%, respectively. The portfolio turnover rate for the bond portion of both
the Balanced Growth Fund and the Conservative Growth Fund for this same period
was 0%.

The Analytics Fund's(TM) portfolio turnover rate for the fiscal year
end October 31, 1997 and the fiscal period from July 1, 1996 (commencement of
operations) to October 31, 1996 was __% and 33% respectively.

The Schwab OneSource Portfolios-International portfolio turnover rate
for the period from October 16, 1996 (commencement of operations) to October 31,
1996 was 0.0% and for the fiscal year end October 31, 1997 was __%. Balanced
Allocation and Growth Allocation's portfolio turnover rates for the period
November 18, 1996 (commencement of operations) to fiscal year end October 31,
1997, respectively, were __% and __% for equity portions of each portfolios and
were __% and __% for bond portions of the portfolios.

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<PAGE> 87
Small Company Fund's portfolio turnover rate for the period from August
3, 1997 to October 31, 1997 was __% and is not anticipated that its annual
portfolio turnover rate will not exceed 100%, however, there is no limit on the
Fund's portfolio turnover rate.

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 each Fund's policy 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 and (2)
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, U.S. 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 U.S. 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 requirements may restrict the degree to which a Fund may engage
in 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.

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 in which they were declared.

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<PAGE> 88
Dividends the Funds pay 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, will generally be
taxable to shareholders as ordinary income. 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. For corporate investors in
the Funds, dividend distributions the Funds designate to be from dividends
received from 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. 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
U.S. Treasury 31% of taxable dividends paid to any shareholder who (1) fails to
provide a correct taxpayer identification number certified under penalty of
perjury; (2) is subject to withholding by the Internal Revenue Service for
failure to properly report all payments of interest or dividends; or (3) 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) are generally 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 are generally 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 also may be
subject to state, local and foreign taxes, and its treatment under applicable
tax laws may differ from the federal income tax treatment.

Income which the Asset Director(R) Funds, and OneSource Portfolios
receive from sources within various foreign countries may be subject to foreign
income taxes withheld at the source. If a Fund has at least 50% of its assets
invested in foreign securities at the end of its taxable year, it may elect to
pass through to its shareholders the ability to take either the foreign tax
credit or the deduction for foreign taxes. Pursuant to this election, U.S.
shareholders must include in gross income, even though not actually received,
their respective pro rata share of foreign taxes, and may either deduct their
pro rata share of foreign taxes (but not for alternative minimum tax purposes)
or credit the tax against U.S. income taxes, subject to certain limitations
described in Code sections 901 904 (but not both). A shareholder who does not
itemize deductions may not claim a deduction for foreign taxes. It is expected
that the Asset Director Funds, and OneSource Portfolios will not have 50% of
their assets invested in foreign securities at the close of their taxable years,
and therefore will not be permitted to make this election and "pass through" to
their shareholders. Also, to the extent the Asset Director(R) Funds, and
OneSource Portfolios invest in an underlying fund that elects to "pass through"
foreign taxes, these Funds will not be able to "pass through" the taxes paid by
the underlying fund. Each shareholder's respective pro rata share of foreign
taxes these Funds pay will, therefore, be netted against their share of the
Fund's gross income.

The Asset Director Funds and OneSource Portfolios may invest in a
non-U.S. corporation which could be treated as a passive foreign investment
company ("PFIC") or become a PFIC under the Code. This could result in adverse
tax consequences upon the disposition of, or the receipt of "excess
distributions" with respect to, such equity

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investments. To the extent the Asset Director Funds and OneSource Portfolios do
invest in PFICs, they may elect to treat the PFIC as a "qualified fund" or
mark-to-market its investments in PFICs annually. In either case, the Funds may
be required to distribute amounts in excess of realized income and gains. To the
extent that the Asset Director Funds and OneSource Portfolios 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 Asset Director Funds' and OneSource Portfolios'
shareholders. Therefore, the payment of this tax would reduce the Asset Director
Funds' and OneSource Portfolios' economic return from their PFIC shares, and
excess distributions received with respect to such shares are treated as
ordinary income rather than capital gains.

An underlying fund may invest in non-U.S. corporations which would be
treated as PFICs or become a PFIC. 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 an underlying fund does invest in
PFICs, it may elect to treat the PFIC as a "qualified electing fund" or
mark-to-market its investments in PFICs annually. In either case, the underlying
fund may be required to distribute amounts in excess of its realized income and
gains. To the extent that the underlying fund itself is required to pay a tax on
income or gain from investment in PFICs, the payment of this tax would reduce
the Asset Director Funds' and OneSource Portfolios' economic return.

A Fund's transactions in futures contracts, forward contracts, foreign
currency transactions, options and certain other investment and hedging
activities are 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.

The 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 Business Day
at the close of trading on the New York Stock Exchange, generally as of 4:00
p.m. Eastern time. 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.
On any day that the New York Stock Exchange or principal government securities
markets closes early, such as days in advance or holidays, the Funds reserve the
right to advance the time by which purchase, redemption and exchange orders must
be received on that day. Shares purchased begin to earn dividends on the next
day with the following exceptions: Columbus Day and Veterans Day.

The Funds value their portfolio securities daily based on their fair
value. Securities traded on stock exchanges are valued at the last quoted sales
price on the exchange on which such securities are primarily traded, or, lacking
any sales, at the mean between the bid and ask prices. Securities traded in the
over-the-counter market are valued at the last sales price that day, or if no
sales that day, at the mean between the bid and ask prices. In addition,
securities that are primarily traded on foreign exchanges are generally valued
at the preceding closing values of such securities on their respective exchanges
with these values then translated into U.S. dollars at the current exchange

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<PAGE> 90
rate. Foreign securities for which the closing values are not readily available
are valued at fair value as determined in good faith pursuant to the Board of
Trustees' guidelines.

Securities for which market quotations are not readily available
(including restricted securities that are subject to limitations on their sale
and illiquid securities) are valued at fair value as determined in good faith
pursuant to the Trust's 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. In
accordance with the 1940 Act, the underlying funds are valued at their
respective net asset values as determined by those funds. The underlying funds
that are money market funds value their portfolio securities based on the
amortized cost method. The other underlying funds value their portfolio
securities based on market quotes if they are readily available. The Investment
Manager assigns fair values to the Funds' other investments in good faith under
Board of Trustees guidelines. The Board of Trustees regularly reviews these
values.

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 a 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, a Fund
assumes the reinvestment of all distributions at net asset value on applicable
reinvestment dates.

Fund Commencement Date* One Year Since Commencement
----------------------- -------- ------------------
International
(10/16/96)
Growth Allocation
(11/18/96)
Balanced Allocation
(11/18/96)
Small Company
8/3/96
High Growth
(11/20/95)
Balanced Growth
(11/20/95)
Conservative Growth
(11/20/95)
Analytics
(7/1/96)

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

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<PAGE> 91
attributable to capital gain 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 also may 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.

A Fund may also advertise its cumulative total return since inception.
This number is calculated using the same formula that is used for average annual
total return except that, rather than calculating the total return based on a
one-year period, cumulative total return is calculated from inception to the
date specified.

Name of Fund and Date Fund Cumulative Total Return From
Commenced Operations* Commencement of Operations
- -------------------------- -------------------------------
Asset Director
High Growth Fund(11/20/95)
Balanced Growth Fund(11/20/95)
Conservative Growth Fund(11/20/95)
International(10/16/96)
OneSource Portfolios
Growth Allocation(11/18/96)
Balanced Allocation(11/18/96)
Small Company(8/3/96)
Analytics Fund(TM)(7/1/96)

* Data is for Investor Shares only. Cumulative (aggregate) total return from
commencement of operations to October 31, 1997.

YIELD

A Fund's yield refers to the net investment income generated by a
hypothetical investment in the Fund over a specific 30 day period. This net
investment income is then annualized, which means that the net investment income
generated during the 30-day period is assumed to be generated in each 30-day
period over an annual period, and is shown as a percentage of the investment.

EFFECTIVE YIELD

A Fund's effective yield is calculated similarly, but the net
investment income earned by the investment is assumed to be compounded monthly
when annualized. The effective yield will be slightly higher than the yield due
to this compounding effect.

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 performance, U.S. Government obligations, bank
certificates of deposit, the consumer price index and other investments for
which reliable data is available.

The Asset Director(R) Funds, OneSource Portfolios-Growth Allocation,
Balanced Allocation and Small Company Fund also may compare their historical
performance figures to the performance of indices similar to their asset
categories and sub-categories, and to the performance of "blended indices"
similar to the Funds' portfolio strategies, such as those indices named in the
Funds' Prospectus under "Market Performance."

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<PAGE> 92
The indices and asset categories for large company stocks is the S&P
500 Index; for Small Company stocks, Ibbottson and BARRA Small-Cap Index; for
foreign stocks, MSCI/EAFE Index; and for bonds the Ibbottson and Lehman
long-term government bond indices.

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 BENEFITS OF DIVERSIFIED STOCK 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 historically has 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 21 years ending December 31,
1997, 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 international markets produced also have 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. According to Morgan
Stanley, as of December 31, 1979, the United States made up more than half of
the world's stock market, a value of over $11 trillion. As of December 31, 1997,
it represented forty-five percent.

SMALL-COMPANY STOCKS. Using the Russell 2000 Index as measurement, small
companies now account for more than 22% of the market capitalization of the U.S.
representing some of the fastest growing industries. Long-term returns of the
fifth quintile of the NYSE from 1926 through 1981 and performance of the DFA
Small Company Fund show small company stocks out performing large company
stocks.

ASSET ALLOCATION - THE SCHWAB ASSET ALLOCATION FUNDS

ASSET ALLOCATION STRATEGIES USING SCHWABFUNDS(R)

Shareholders of SchwabFunds may wish to invest in the SchwabFunds as
components of their personal asset allocation plan. They also may choose to
invest in the Schwab Asset Director(R) Funds, Growth Allocation or Balanced
Allocation or the OneSource Portfolios-Growth, Balanced and Allocation funds,
which offer the benefits of asset allocation in a single fund. An asset
allocation program is available through Schwab. This program may help
shareholders select investments, including investments in SchwabFunds, which
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.

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<PAGE> 93
ASSET DIRECTOR FUNDS

As stated in the Funds' prospectus, under neutral market conditions,
each Asset Director Fund seeks to meet its investment objective by investing,
either directly or through investments in affiliated underlying mutual funds, in
a different mix of stocks, bonds and cash-equivalents. The Asset Director Funds
invest a portion of their assets in all or a representative sample of the common
stocks in the following stock sub-categories: large company; small company; and
international. As stated in the Funds' prospectus, under normal market
conditions the Investment Manager currently intends to utilize an indexing
approach to investing within each asset sub-category, which provides
shareholders with the potential benefits to be realized from both an asset
allocation strategy and an indexing approach with one investment.

For the Asset Director Funds, the Investment Manager also consults a
Tactical Asset Allocation Model, which measures the relative value of each asset
category and makes recommendations for allocations within the defined ranges.
Tactical Asset Allocation is a value-oriented strategy that 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. The Funds may also make
other investments that do not fall within the asset categories.

For the period of 1970 through 1996, the historical average annual
returns for stocks, bonds and cash were, respectively, 12.3%, 9.0% and 6.9%.
Using the same period of time, a hypothetical investment in five asset
allocation plans weighted on the average returns of certain indices would have
produced these returns. An aggressive allocation plan 12.9%, a moderately
aggressive allocation plan 12.4%, a moderate allocation plan 11.6%, a moderately
conservative allocation plan 10.7%, and a conservative allocation plan 9.4%.
Each hypothetical allocation plan is weighted on the average returns of indices
representing major asset classes. They are the S&P 500 (large company), CRSP 6 -
10 (small company), Morgan Stanley International Europe, Australasia, Far East
Index (international), Ibbotson Intermediate U.S. Government Bonds (bonds) and
30-day Treasury bills (cash). Dividends are assumed to be reinvested and not
other fees or expenses deducted.

ACCESS TO SCHWAB'S MUTUAL FUND ONESOURCE(R) SERVICE

With Schwab's Mutual Fund OneSource Service ("OneSource"), a
shareholder can invest in over 1400 mutual funds from many fund companies,
subject to the following. Schwab's standard transaction fee will be charged on
each redemption of fund shares held for 90 days or less to discourage short-term
trading. Mutual fund shares held for more than 90 days are exempt from the
short-term redemption policy and may be sold without penalty. Up to 15
short-term redemptions of fund shares per calendar year are permitted. If you
exceed this number, you will no longer be able to buy or sell fund shares
without paying a transaction fee. As a courtesy, we will notify you in advance
if your short-term redemptions are nearing the point where all of your future
trades will be subject to transaction fees. Schwab reserves the right to modify
OneSource's terms and conditions at any time. For more information, a
shareholder should call 800-2 NO-LOAD, 24 hours a day.

ONESOURCE PORTFOLIOS--SELECTION AND MANAGEMENT STRATEGY

The OneSource Portfolios are four portfolios of mutual funds that offer
investors easy access to actively managed funds from well-known fund families.
Each portfolio invests in well-established and lesser know mutual funds,
building a fully diversified portfolio all through one investment. Underlying
funds are selected by a

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<PAGE> 94
specialized management team based on their investment objective, practices and
policies, their management and other factors. Selection will also be based on
quantifiable factors such as historic total returns, volatility, expenses and
size. The OneSource Portfolios will include both a "core" component that
represents holdings specific to the Funds' objectives and long term horizons as
well as a "tactical" position that consists of special investment opportunities
that arise due to market conditions.

OTHER INFORMATION

Each Fund, except for the Analytics Fund(TM) and Schwab OneSource
Portfolios-International, is managed to offset capital gains with capital losses
in order to minimize each Fund's capital gain distributions. 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, distributing 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, each 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 each 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 generally is 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, 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

41
<PAGE> 95
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 a majority of shares entitled to vote shall be
a quorum for the transaction of business at a shareholders' meeting, except that
where any provision of law, of the Declaration of Trust or of the Bylaws permits
or requires that (i) holders of any series shall vote as a series, then a
majority of the aggregate number of shares of that series entitled to vote shall
be necessary to constitute a quorum for the transaction of business by that
series, or (ii) holders of any class shall vote as a class, then a majority of
the aggregate number of shares of that class entitled to vote shall be necessary
to constitute a quorum for the transaction of business by that class. Any lesser
number shall be sufficient for adjournments. Any adjourned session or sessions
may be held, within a reasonable time after the date set for the original
meeting, without the necessity of further notice. 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.

PRINCIPAL HOLDERS OF SECURITIES

As of ____________, ______ trustees owned approximately ____% of the
total outstanding shares of the Conservative Growth Fund. As of this same date,
the officers and Trustees of the Trust, as a group, owned of record or
beneficially ___________% of the outstanding voting securities of the remaining
classes and series of Schwab Capital Trust.

As of _________, ______________________________________________________
directly or beneficially owned ______% of shares of _____________________.

42
<PAGE> 96
PURCHASE AND REDEMPTION OF SHARES

Each Fund has set minimum initial investment requirements, as disclosed
in its respective Prospectus. 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 Sub-Adviser.

The Funds, other than the OneSource Portfolios have 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. The OneSource Portfolios
have not so elected. This election is irrevocable without the SEC's prior
approval. Redemption requests in excess of applicable limits (as summarized
below) 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. A redeeming
shareholder would normally incur brokerage expenses if he or she were to convert
the securities to cash.

OTHER INFORMATION

The Trust was organized as a business trust under the laws of
Massachusetts on May 7, 1993 and may issue an unlimited number of shares of
beneficial interest in one or more investment portfolios or series ("Series").
Currently, shares of eleven Series are offered. The Board of Trustees may
authorize the issuance of shares of additional Series if it deems ot desirable.
Shares within each Series have equal, non cumulative voting rights and equal
rights as to dividends, assets and liquidation of such Series.

Shares will vote by Series and not in the aggregate (for example, when
voting to approve the investment advisory agreement), except when in the
aggregate is permitted under the 1940 Act, such as for election of trustees.

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 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.

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.

43
<PAGE> 97
PART C
OTHER INFORMATION

DECEMBER 17, 1997

SCHWAB CAPITAL TRUST

Item 24. Financial Statements and Exhibits.

(a) Financial Statements

Financial statements and financial highlights included in the Annual Report for
Schwab International Index Fund(R) for the fiscal year ended October 31, 1996,
incorporated by reference into the SAI, were filed on January 3, 1997, pursuant
to Rule 30d-1 under the Investment Company Act of 1940 ("1940 Act"), and are
incorporated herein by reference.

Financial statements and financial highlights included in the Annual Report for
Schwab Small-Cap Index Fund(R) for the fiscal year ended October 31, 1996,
incorporated by reference into the SAI, were filed on January 3, 1997, pursuant
to Rule 30d-1 under the 1940 Act, and are incorporated herein by reference.

Financial statements and financial highlights included in the Annual Report for
Schwab Asset Director Funds(R) for the fiscal year ended October 31, 1996,
incorporated by reference into the SAI, were filed on January 3, 1997, pursuant
to Rule 30d-1 under the 1940 Act, and are incorporated herein by reference.

Financial statements and financial highlights included in the Annual Report for
Schwab S&P 500 Fund for the fiscal year ended October 31, 1996, incorporated by
reference into the SAI, were filed on January 3, 1997, pursuant to Rule 30d-1
under the 1940 Act, and are incorporated herein by reference.

Financial statements and financial highlights included in the Annual Report for
Schwab Analytics Fund(R) for the fiscal year ended October 31, 1996,
incorporated by reference into the SAI, were filed on January 3, 1997, pursuant
to Rule 30d-1 under the 1940 Act, and are incorporated herein by reference.

Financial statements and financial highlights included in the Annual Report for
Schwab OneSource(R) Portfolios for the fiscal year ended October 31, 1996,
incorporated by reference into the SAI, were filed on January 3, 1997, pursuant
to Rule 30d-1 under the 1940 Act, and are incorporated herein by reference.

(b) Exhibits:

(1) -- Agreement and Declaration of Trust, dated May 6, 1993
is electronically filed herein as an Exhibit 1.

(2) -- Amended and Restated Bylaws are incorporated by
reference to Exhibit (2) to Post-Effective Amendment
No. 7 to Registrant's Registration Statement on Form
N-1A, electronically filed on February 27, 1996.

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(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,
dated May 6, 1993, referenced in Exhibit 1 above, are
incorporated herein by reference to Exhibit 1 filed
herein.

(b) -- Articles 9 and 11 of the Amended and Restated Bylaws
are incorporated by reference to Exhibit (2) to
Post-Effective Amendment No. 7 to Registrant's
Registration Statement on Form N-1A, filed on
February 27, 1996.

(5) (a) -- Investment Advisory and Administration Agreement
between Registrant and Charles Schwab Investment
Management, Inc. (the "Investment Manager"), dated
June 15, 1994, is electronically filed herein as
Exhibit 5(a).

(b) -- Amended Schedule B to Investment Advisory and
Administration Agreement referred to at Exhibit
(5)(a) above are electronically filed herein as
Exhibit 5(b).

(c) -- Investment Sub-Advisory Agreement between Investment
Manager, on behalf of the Schwab Analytics Fund(R), and
Symphony Asset Management is incorporated by reference
to Exhibit (5)(d) to Post-Effective Amendment No. 10 to
Registrant's Registration Statement on Form N-1A, filed
on May 17, 1996.

(6) (a) -- Distribution Agreement between Registrant and Charles
Schwab & Co., Inc. ("Schwab"), dated July 21, 1993,
is filed electronically herein as Exhibit 6(a).

(b) -- Amended Schedule A to the Distribution Agreement
referred to at Exhibit (6)(a) above is electronically
filed herein as Exhibit 6(b).

(7) -- Inapplicable.

(8) (a) -- Custodian Agreement between Registrant, on behalf of
the Schwab International Index Fund(R), Schwab
Small-Cap Index Fund(R), Schwab Asset Director(R)-High
Growth Fund, Schwab Asset Director(R)-Balanced Growth
Fund, Schwab Asset Director(R)-Conservative Growth
Fund, Schwab OneSource Portfolios-International,
Schwab OneSource Portfolios Growth Allocation and
Schwab OneSource Portfolios Balanced Allocation, and
Morgan Stanley Trust Company, dated April 4, 1997, is
incorporated by reference to Exhibit (8)(a) to
Post-Effective Amendment No. 18 to Registrant's
Registration Statement on Form N-1A, filed on April
14, 1997.

C-6
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(b) -- Amended Appendix 2 to Custodian Agreement referred to
at Exhibit 8(a) above is electronically filed herein as
Exhibit 8(b).

(c) -- Amendment to Custodian Agreement referred to at
Exhibit 8(a) above is electronically filed herein as
Exhibit 8(c).

(d) -- Accounting Services Agreement between Registrant, on
behalf of the Schwab International Index Fund(R),
Schwab Small-Cap Index Fund(R), Schwab Asset
Director(R)-High Growth Fund, Schwab Asset
Director(R)-Balanced Growth Fund, Schwab Asset
Director(R)-Conservative Growth Fund, Schwab OneSource
Portfolios-International, Schwab OneSource Portfolios
Growth Allocation and Schwab OneSource Portfolios
Balanced Allocation and Federated Services Company is
incorporated by reference to Exhibit 8(b) to Post
Effective Amendment No. 18 to Registrant's
Registration Statement on Form N1-A, filed on April
14, 1997.

(e) -- Amended Exhibit 1 to Accounting Services Agreement
referred to at Exhibit 8(d) above is electronically
filed herein as Exhibit 8(e).

(f) -- Custodian Services Agreement between Registrant, on
behalf of the Schwab S&P 500 Fund, and PNC Bank,
National Association ("PNC Bank") is incorporated by
reference to Exhibit (8)(c) to Post-Effective Amendment
No. 7 to Registrant's Registration Statement on Form
N-1A, filed on February 27, 1996.

(g) -- Amended Schedule to the Custodian Services Agreement
referred to at Exhibit (8)(f) above between
Registrant, on behalf of the Schwab S&P 500 Fund and
the Schwab Analytics Fund(TM), and PNC Bank are
incorporated by reference to Exhibit (8)(d) to
Post-Effective Amendment No. 10 to Registrant's
Registration Statement on Form N-1A, filed on May 17,
1996.

(h) -- Accounting Services Agreement between Registrant, on
behalf of the Schwab S&P 500 Fund, and PFPC Inc. is
incorporated by reference to Exhibit (8)(d) to
Post-Effective Amendment No. 7 to Registrant's
Registration Statement on Form N-1A, filed on
February 27, 1996.

(i) -- Amended Schedule to the Accounting Services Agreement
referred to at Exhibit (8)(h) above between
Registrant, on behalf of the Schwab S&P 500 Fund and
the Schwab Analytics Fund, and PFPC Inc. is
incorporated by reference to Exhibit (8)(f) to
Post-Effective Amendment No. 10 to Registrant's
Registration Statement on Form N-1A, filed on May 17,
1996.

(j) -- Transfer Agency Agreement between Registrant and Charles
Schwab & Co., Inc. dated July 21, 1993 is electronically
filed herein as Exhibit 8(j).

C-7
<PAGE> 100
(k) -- Amended Schedules A and C to the Transfer Agency
Agreement referred to at Exhibit 8(i) above are
electronically filed herein as Exhibit 8(k).

(l) -- Shareholder Service Agreement between Registrant and
Schwab, dated July 21, 1993 is electronically filed
herein as Exhibit 8(l).

(m) -- Amended Schedules A and C to the Shareholder Service
Agreement between Registrant and Schwab referred to at
Exhibit (8)(l) above are electronically filed herein as
Exhibit 8(m).

(9) -- License Agreement between Schwab Capital Trust, on
behalf of Schwab S&P 500 Fund, and Standard & Poor's
is incorporated by reference to Exhibit (9) to
Post-Effective Amendment No. 10 to Registrant's
Registration Statement on Form N-1A, filed on May 17,
1996.

(10) -- Opinion to be filed by subsequent amendment.

(11) -- Consent to be filed by subsequent amendment.

(12) -- Inapplicable.

(13)(a) -- Purchase Agreement for the Schwab International Index
Fund(R), dated June 17, 1993, is electronically filed
herein as Exhibit 13(a).

(b) -- Purchase Agreement for the Schwab Small-Cap Index
Fund(R), dated October 13, 1993, is electronically filed
herein as Exhibit 13(b).

(c) -- Purchase Agreement for the Schwab Asset Director(R)
Funds is incorporated by reference to Exhibit (13)(c)
to Post-Effective Amendment No. 6 to Registrant's
Registration Statement on Form N-1A, filed on
December 15, 1995.

(d) -- Purchase Agreement for the Schwab S&P 500
Fund-Investor Shares and e.Shares(TM) is incorporated by
reference to Exhibit (13)(d) to Post-Effective Amendment
No. 7 to Registrant's Registration Statement on Form
N-1A, filed on February 27, 1996.

(e) -- Purchase Agreement for the Schwab Analytics Fund(R)
is incorporated by reference to Exhibit (13)(e) to
Post-Effective Amendment No. 13 to Registrant's
Registration Statement on Form N-1A, filed on October
10, 1996.

(f) -- Purchase Agreement for Schwab OneSource(R)
Portfolios-International is incorporated by reference to
Exhibit (13)(f) to Post-Effective Amendment No. 13 to
Registrant's Registration Statement on Form N-1A, filed
on October 10, 1996.

(g) -- Purchase Agreement for Schwab OneSource
Portfolios-Growth Allocation and Schwab OneSource
Portfolios-Balanced Allocation

C-8
<PAGE> 101
is incorporated by reference to Exhibit 13(g) to
Post-Effective Amendment No. 14 to Registration
Statement on Form N-1A, filed on December 18, 1996.

(h) -- Purchase Agreement for Schwab OneSource(R)
Portfolios-Small Company is electronically filed
herein as Exhibit 13(h).

(14) -- Inapplicable.

(15) -- Inapplicable.

(16)(a) -- Performance calculation for the Schwab International
Index Fund(R), to be filed by subsequent amendment.

(b) -- Performance calculation for the Schwab Small-Cap
Index Fund(R), dated October 31, 1994, is incorporated
by reference to Exhibit (16)(i) to Post-Effective
Amendment No. 18 to Registration Statement on Form N-1A,
filed on April 14, 1997.

(c) -- Performance calculation for the Schwab Asset
Director(R)-High Growth Fund is incorporated by
reference to Exhibit (16)(c) to Post-Effective Amendment
No. 10 to Registrant's Registration Statement on Form
N-1A, filed on May 17, 1996.

(d) -- Performance calculation for the Schwab Asset
Director(R)-Balanced Growth Fund is incorporated by
reference to Exhibit (16)(d) to Post-Effective Amendment
No. 10 to Registrant's Registration Statement on Form
N-1A, filed on May 17, 1996.

(e) -- Performance calculation for the Schwab Asset
Director(R)-Conservative Growth Fund is incorporated by
reference to Exhibit (16)(e) to Post-Effective Amendment
No. 10 to Registrant's Registration Statement on Form
N-1A, filed on May 17, 1996.

(f) -- Performance calculation for the Schwab S&P 500 Fund
is incorporated by reference to Exhibit (16)(f) to
Post-Effective Amendment No. 13 to Registrant's
Registration Statement on Form N-1A, filed on October
10, 1996.

(g) -- Performance calculation for the Schwab Analytics
Fund(R) is incorporated by reference to Exhibit (16)(g)
to Post-Effective Amendment No. 14 to Registrant's
Registration Statement on Form N-1A, filed on
December 18, 1996.

(h) -- Performance calculation for the Schwab OneSource
Portfolios - International is incorporated by reference
to Exhibit (16)(h) to Post-Effective Amendment No.18 to
Registration Statement on Form N1-A, filed on April 14,
1997.

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(i) -- Performance calculation for the Schwab OneSource(R)
Portfolios - Growth Allocation is incorporated by
reference to Exhibit (16)(i) to Post-Effective Amendment
No. 18 to Registration Statement on Form N-1A, filed on
April 14, 1997.

(j) -- Performance calculation for the Schwab OneSource
Portfolios - Balanced Allocation is incorporated by
reference to Exhibit (16)(j) to Post-Effective Amendment
No. 18 to Registration Statement on Form N1-A, filed on
April 14, 1997.

(17) -- Financial Data Schedules to be filed by subsequent
amendment.

(18)(a) -- Amended and Restated Multiple Class Plan, dated April
10, 1997, for Schwab International Index Fund, Schwab
Small-Cap Index Fund and Schwab S&P 500 Fund is
incorporated by reference to Post Effective Amendment
18 to Registrant's Registration Statement on Form
N1-A, filed on April 14, 1997.

Item 25. Persons Controlled by or under Common Control with Registrant.

The Charles Schwab Family of Funds, Schwab Investments and Schwab Annuity
Portfolios 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 and Schwab Annuity Portfolios may be deemed to be
under common control with Registrant.

Item 26. Number of Holders of Registrant's Securities.

As of February __, 1998 the number of record holders of shares of
beneficial interest for the series of Registrant was:
<TABLE>
<CAPTION>
Name of Fund/Class Number of Record Holders
- ------------------ ------------------------
<S> <C>
Schwab International Index Fund(R) 1 (for the benefit of accounts)
Schwab Small-Cap Index Fund(R) 1 (for the benefit of accounts)
Schwab Asset Director(R)-High Growth Fund 1 (for the benefit of accounts)
Schwab Asset Director(R)-Balanced Growth Fund 1 (for the benefit of accounts)
Schwab Asset Director(R)-Conservative Growth Fund 1 (for the benefit of accounts)
Schwab S&P 500 Fund-Investor Shares 1 (for the benefit of accounts)
Schwab S&P 500 Fund-e.Shares(TM) 1 (for the benefit of accounts)
Schwab Analytics Fund(R) 1 (for the benefit of accounts)
Schwab OneSource Portfolios-International 1 (for the benefit of accounts)
Schwab OneSource Portfolios-Growth Allocation 1 (for the benefit of accounts)
</TABLE>

C-10
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<TABLE>
<CAPTION>
Name of Fund/Class Number of Record Holders
- ------------------ ------------------------
<S> <C>
Schwab OneSource Portfolios-Balanced Allocation 1 (for the benefit of accounts)
Schwab OneSource Portfolios-Small Company
</TABLE>

Item 27. Indemnification.

Article VIII of Registrant's Agreement and Declaration of Trust (Exhibit
(1) hereto, which is incorporated 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
section of the Prospectuses captioned "Management of the Fund(s)" and to the
section of the Statement of Additional Information captioned "Management of the
Trust."
Registrant's Investment Manager, Charles Schwab Investment
Management, Inc., a Delaware corporation, organized in October 1989 to serve as
Investment Manager to the Schwab Fund Family, also serves as the Investment
Manager to Schwab Capital Trust and Schwab Annuity Portfolios, 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, Schwab Fund Family, Schwab Capital Trust,
Schwab Annuity Portfolios and any other investment companies that Schwab may
sponsor in the future.

(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

C-11
<PAGE> 104
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. Chairman and Director
Chairman and Trustee
The Charles Schwab Corporation Chairman, Chief
Executive Officer and
Director

Schwab Holdings, Inc. 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. Chairman and Director

Schwab Retirement Plan Services, Chairman and Director
Inc.

Charles Schwab Limited Chairman, Chief
Executive Officer and
Director

Performance Technologies, Inc. Chairman and Director

TrustMark, Inc. Chairman and Director

Schwab (SIS) Holdings, Inc. I Chairman, Chief
Executive Officer and
Director

Schwab International Holdings, Inc. Chairman, Chief
Executive Officer and
Director

The Gap, Inc. Director

Transamerica Corporation Director

AirTouch Communications Director

Siebel Systems Director

Lawrence J. Stupski Charles Schwab & Co., Inc. Director until
February 1995; Vice
Chairman until August
1994

The Charles Schwab Corporation Vice Chairman and
Director; Chief
Operating Officer
until March 1994
</TABLE>

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<PAGE> 105
<TABLE>
<CAPTION>
Name and Position
with Registrant Name of Company Capacity
--------------- --------------- --------
<S> <C> <C>
Mayer & Schweitzer, Inc. Director until
February 1995

The Charles Schwab Trust Company Director until
December 1996

David S. Pottruck Charles Schwab & Co., Inc. Chief Executive
Officer and Director

The Charles Schwab Corporation President, Chief
Operating Officer and
Director

Schwab Holdings, Inc. Director

Schwab Retirement Plan Services, Director
Inc.

Charles Schwab Limited Director

Charles Schwab Investment Director
Management, Inc.

Mayer & Schweitzer, Inc. Director

Performance Technologies, Inc. Director

Schwab (SIS) Holdings, Inc. I President, Chief
Operating Officer and
Director

Schwab International Holdings, Inc. President, Chief
Operating Officer and
Director

Ronald W. Readmond Charles Schwab & Co., Inc. Vice Chairman and
Director until January
1996; Senior Executive
Vice President and
Chief Operating
Officer until January
1995

The Charles Schwab Corporation Executive Vice
President until
January 1996; Senior
Executive Vice
President until
January 1995

Mayer & Schweitzer, Inc. Director until January
1996

John P. Coghlan Charles Schwab & Co., Inc. Enterprise President

The Charles Schwab Corporation Executive Vice
President

The Charles Schwab Trust Company President, Chief
Executive Officer and
Director
</TABLE>

C-13
<PAGE> 106
<TABLE>
<CAPTION>
Name and Position
with Registrant Name of Company Capacity
--------------- --------------- --------
<S> <C> <C>
Schwab Retirement Plan Services, Director
Inc.

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

Charles Schwab & Co., Inc. Executive Vice
President and Chief
Strategy Officer

Timothy F. McCarthy Charles Schwab & Co., Inc. President and Chief
Operating Officer

The Charles Schwab Corporation Executive Vice
President

Jardine Fleming Unit Trusts Ltd. Chief Executive
Officer until October
1995

Fidelity Investment Advisor Group President until 1994

Mayer & Schweitzer, Inc. Director

Gideon Sasson Charles Schwab & Co., Inc. Enterprise President

Beth Sawi The Charles Schwab Corporation Executive Vice
President

Charles Schwab & Co., Inc. Executive Vice
President until
December 1997

Steven L. Scheid Charles Schwab & Co., Inc. Executive Vice
President, Chief
Financial Officer and
Director

The Charles Schwab Corporation Executive Vice
President and Chief
Financial Officer

Schwab Holdings, Inc. Executive Vice
President, Chief
Financial Officer and
Director
</TABLE>

C-14
<PAGE> 107
<TABLE>
<CAPTION>
Name and Position
with Registrant Name of Company Capacity
--------------- --------------- --------
<S> <C> <C>
Charles Schwab Investment Chief Financial
Management, Inc. Officer and Director

The Charles Schwab Trust Company Chief Financial
Officer and Director

Charles Schwab Limited Finance Officer and
Director

Schwab Retirement Plan Services, Director
Inc.

Performance Technologies, Inc. Director

Mayer & Schweitzer, Inc. Director

Schwab (SIS) Holdings, Inc. I Chief Financial
Officer and Director

Schwab International Holdings, Inc. Chief Financial
Officer and Director

Tom D. Seip Charles Schwab & Co., Inc. Enterprise President

The Charles Schwab Corporation Executive Vice
President

Charles Schwab Investment Chief Executive Officer
Management, Inc.

Luis E. Valencia Charles Schwab & Co., Inc. Executive Vice
President and Chief
Administrative Officer

The Charles Schwab Corporation Executive Vice
President and Chief
Administrative Officer

Commercial Credit Corporation Managing Director
until February 1994

Karen W. Chang Charles Schwab & Co., Inc. Enterprise President

Linnet F. Deily Charles Schwab & Co., Inc. Enterprise President

Lon Gorman Charles Schwab & Co., Inc. Enterprise President

Susanne D. Lyons Charles Schwab & Co., Inc. Enterprise President

Carrie Dwyer Charles Schwab & Co., Inc. Executive Vice
President

Wayne W. Fieldsa Charles Schwab & Co., Inc. Executive Vice
President
</TABLE>

C-15
<PAGE> 108
<TABLE>
<CAPTION>
Name and Position
with Registrant Name of Company Capacity
--------------- --------------- --------
<S> <C> <C>
James M. Hackley Charles Schwab & Co., Inc. Executive Vice
President

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. Executive Vice
Trustee, Executive President
Vice President and
Chief Operating
Officer

Charles Schwab Investment President and Chief
Management, Inc. Operating Officer

Peter J. McIntosh Charles Schwab & Co., Inc. Executive Vice
President

Leonard Short Charles Schwab & Co., Inc. Executive Vice
President

Stephen B. Ward, Charles Schwab Investment Senior Vice President
Senior Vice Management, Inc. and Chief Investment
President and Chief Officer
Investment Officer

Frances Cole, Charles Schwab Investment Senior Vice President,
Secretary Management, Inc. Chief Counsel, Chief
Compliance Officer and
Assistant Corporate
Secretary

Tai-Chin Tung, Charles Schwab & Co., Inc. Vice President
Treasurer and
Principal
Financial Officer

Charles Schwab Investment Controller
Management, Inc.

Robertson Stephens Investment Controller until 1996
Management, Inc.

Cynthia K. Holbrook The Charles Schwab Corporation Assistant Corporate
Secretary

Charles Schwab & Co., Inc. Assistant Corporate
Secretary
</TABLE>

C-16
<PAGE> 109
<TABLE>
<CAPTION>
Name and Position
with Registrant Name of Company Capacity
--------------- --------------- --------
<S> <C> <C>
Charles Schwab Investment Corporate Secretary
Management, Inc.

The Charles Schwab Trust Company Assistant Corporate
Secretary

Mayer & Schweitzer Secretary

Mary B. Templeton Charles Schwab Investment Assistant Corporate
Management, Inc. Secretary until
September 1997

The Charles Schwab Corporation Senior Vice President,
General Counsel and
Corporate Secretary
until September 1997

Charles Schwab & Co., Inc. Senior Vice President,
General Counsel and
Corporate Secretary
until September 1997

Mayer & Schweitzer Assistant Corporate
Secretary until
September 1997

The Charles Schwab Trust Company Assistant Corporate
Secretary until
February 1996 until
September 1997

David H. Lui, Charles Schwab Investment Vice President and
Assistant Secretary Management, Inc. Senior Counsel

Matthew M. O'Toole, Charles Schwab Investment Corporate Counsel
Assistant Secretary Management, Inc.

Karen L. Seaman, Charles Schwab Investment Corporate Counsel
Assistant Secretary Management, Inc.

Amy L. Mauk Charles Schwab Investment Corporate Counsel
Assistant Secretary Management, Inc.

Colleen M. Hummer Charles Schwab & Co., Inc. Senior Vice President
</TABLE>

C-17
<PAGE> 110
(c) 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:

Name Name of Company Capacity
- ---- --------------- --------
Andrew T. Rudd Symphony Asset Management, Director and Chairman
Inc.

BARRA, Inc. Director, Chief Executive
Officer and Chairman

Jeffrey L. Skelton Symphony Asset Management, Director, Chief Executive
Inc. Officer and President

BARRA, Inc. President, BARRA Ventures
Div. until 1994

Neil L. Rudolph Symphony Asset Management, Chief Operating
Inc. Officer/Chief Compliance
Officer

Wells Fargo Nikko Investment Managing Director, Chief
Advisors Operating Officer -- Mutual
Fund Group until 1994

Praveen K. Symphony Asset Management, Director of Investments
Gottipalli Inc.

BARRA, Inc. Director of Active
Strategies until 1994

Michael J. Henman Symphony Asset Management, Director of Business
Inc. Development

Wells Fargo Nikko Investment Managing Director
Advisors until 1994

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 and Schwab Annuity Portfolios, 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-18
<PAGE> 111
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 Schwab Analytics Fund(TM) 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, Morgan
Stanley Trust Company, 1 Pierrepont Plaza, Brooklyn, New York 11201, and
Federated Services Company, 1001 Liberty Avenue, Pittsburgh, Pennsylvania 15222;
Registrant's former custodians and fund accountants, State Street Bank and Trust
Company, 225 Franklin Street, Boston, Massachusetts 02180 and PNC Bank, National
Association/PFPC Inc., 400 Bellevue Parkway, Wilmington, Delaware 19809
(ledgers, receipts, and brokerage orders); or Ropes & Gray, counsel to
Registrant, 1301 K Street, N.W., Suite 800 East, Washington, District of
Columbia 20005 (minute books, bylaws, and declaration of trust).

Item 31. Management Services.

Not applicable.

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-19
<PAGE> 112
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. 21 to be signed on its behalf by
the undersigned, thereto duly authorized, in the City of Washington, District of
Columbia, on this 15th day of December, 1997.

SCHWAB CAPITAL TRUST
Registrant

Charles R. Schwab*
------------------
Charles R. Schwab, Chairman

Pursuant to the requirements of the 1933 Act, this Post-Effective Amendment
No. 21 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,
1997.

Signature Title

Charles R. Schwab* Chairman and Trustee
- -----------------
Charles R. Schwab

Tom D. Seip* President and Trustee
- -----------------
Tom D. Seip

William J. Klipp* Executive 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

Tai-Chin Tung* Treasurer and Principal Financial Officer
- -----------------
Tai-Chin Tung

*By: /s/ Alan G. Priest
-------------------
Alan G. Priest, Attorney-in-Fact pursuant
to Powers of Attorney filed previously

C-20
<PAGE> 113
EXHIBIT INDEX

EXH. NO. DOCUMENT

1 Agreement and Declaration of Trust

5(a) Investment Advisor and Administration Agreement between Registrant and
Charles Schwab Investment Management, Inc. (the "Investment Manager")

5(b) Amended Schedules B to Investment Advisory and Administration
Agreement

6(a) Distribution Agreement

6(b) Amended Schedule A to Distribution Agreement

8(b) Amended Appendix 2 to Custodian Agreement

8(c) Amendment to Custodian Agreement

8(e) Amended Exhibit 1 to Accounting Services Agreement

8(j) Transfer Agency Agreement between Registrant and Schwab

8(k) Amended Schedules A to Transfer Agency Agreement

8(l) Shareholder Services Agreement between Registrant and Schwab

8(m) Amended Schedules A and C to Shareholder Service Agreement

13(a) Purchase Agreement for the Schwab International Index Fund

13(b) Purchase Agreement for the Schwab Small-Cap Index Fund

13(h) Purchase Agreement for Schwab OneSource Portfolios-Small Company

C-21

<PAGE> 1
EXHIBIT 1

SCHWAB CAPITAL TRUST

AGREEMENT AND DECLARATION OF TRUST

AGREEMENT AND DECLARATION OF TRUST made at Boston, Massachusetts on the
6th day of May, 1993, by the Trustees hereunder, and by the holders of shares of
beneficial interest to be issued hereunder as hereinafter provided.

WITNESSETH that

WHEREAS, this Trust has been formed to carry on the business of an
investment company; and

WHEREAS, the Trustees have agreed to manage all property coming into their
hands as trustees of a Massachusetts voluntary association with transferable
shares in accordance with the provisions hereinafter set forth.

NOW, THEREFORE, the Trustees hereby declare that they will hold all cash,
securities and other assets, which they may from time to time acquire in any
manner as Trustees hereunder IN TRUST to manage and dispose of the same upon the
following terms and conditions for the pro rata benefit of the holders from time
to time of Shares in this Trust as hereinafter set forth.
<PAGE> 2
ARTICLE I
Name and Definitions

Name

Section 1. This Trust shall be known as "SCHWAB CAPITAL TRUST", and the
Trustees shall conduct the business of the Trust under that name or any other
name as they may from time to time determine.

Definitions

Section 2. Whenever used herein, unless otherwise required by the context
or specifically provided:

(a) The "Trust" refers to the Massachusetts business trust
established by this Agreement and Declaration of Trust, as amended from
time to time;

(b) "Trustees" refers to the Trustees of the Trust named herein
or elected in accordance with Article IV;

(c) "Shares" means the equal proportionate transferable units of
interest into which the beneficial interest in the Trust shall be divided
from time to time or, if more than one series or classes of Shares is
authorized by the Trustees, the equal proportionate transferable units
into which the beneficial interest of each series or classes of Shares
shall be divided from time to time, and includes fractions of Shares as
well as whole Shares;

(d) "Shareholder" means a record owner of Shares;

(e) The "1940 Act" refers to the Investment Company Act of 1940 and
the Rules and Regulations thereunder, all as amended from time to time;

(f) The terms "Affiliated Person", "Assignment", "Commission",
"Interested Person", "Principal Underwriter" and "Majority Shareholder
Vote" (the 67% or 50% requirement of the third sentence of Section
2(a)(42) of the 1940 Act, whichever may be applicable) shall have the
meanings given them in the 1940 Act;

(g) "Declaration of Trust" shall mean this Agreement and
Declaration of Trust, as amended or restated from time to time; and

(h) "Bylaws" shall mean the Bylaws of the Trust, as amended from
time to time.

ARTICLE II
Purpose of Trust

The purpose of the Trust is to provide investors a managed investment
primarily in securities and debt instruments and to carry on such other business
as the Trustees may from time to time determine pursuant to their authority
under this Declaration of Trust.

ARTICLE III
Shares

Division of Beneficial Interests

Section 1. The Shares of the Trust shall be issued in one or more

-2-
<PAGE> 3
series as the Trustees may, without Shareholder approval, authorize. Each series
shall be preferred over all other series in respect of the assets allocated to
that series. Each series may be divided into two or more classes, as the
Trustees may, without Shareholder approval, authorize. The beneficial interest
in each series shall be divided into Shares, with a par value of $0.00001.
Unless the Trustees have authorized the issuance of Shares of a series in two or
more classes, each Share of a series shall represent an equal proportionate
interest in the series with each other Share of the same series, none having
priority or preference over another. If the Trustees have authorized the
issuance of Shares of a series in two or more classes, then the classes may have
such variations as to dividend, redemption, and voting rights, net asset values,
expenses borne by the classes, and other matters as the Trustees have
authorized. The number of Shares authorized shall be unlimited. The Trustees may
from time to time divide or combine the Shares of any series or of any class of
a series into a greater or lesser number without thereby changing the
proportionate beneficial interests in the series.

Ownership of Shares

Section 2. The ownership of Shares shall be recorded on the books of the
Trust or a transfer or similar agent. No certificates certifying the ownership
of Shares shall be issued except as the Trustees may otherwise determine from
time to time. The Trustees may make such rules as they consider appropriate for
the issuance of Share certificates, the transfer of Shares and similar matters.
The record books of the Trust as kept by the Trust or by any transfer or similar
agent, as the case may be, shall be conclusive as to who are the Shareholders of
each series and as to the number of Shares of each series held from time to time
by each Shareholder.

-3-
<PAGE> 4
Investment in the Trust

Section 3. The Trustees shall accept investments in the Trust from such
persons and on such terms and for such consideration, which may consist of cash
or tangible or intangible property or a combination thereof, as they from time
to time authorize.

All consideration received by the Trust for the issue or sale of Shares of
each series, together with all income, earnings, profits, and proceeds thereof,
including any proceeds derived from the sale, exchange or liquidation thereof,
and any funds or payments derived from any reinvestment of such proceeds in
whatever form the same may be, shall irrevocably belong to the series of Shares
with respect to which the same were received by the Trust for all purposes,
subject only to the rights of creditors, and shall be so handled upon the books
of account of the Trust and are herein referred to as "assets of" such series.

No Preemptive Rights

Section 4. Shares shall have no preemptive or other right to subscribe to
any additional Shares or other securities issued by the Trust.

Status of Shares and Limitation of Personal Liability

Section 5. Shares shall be deemed to be personal property giving only the
rights provided in this instrument. Every Shareholder by virtue of having become
a Shareholder shall be held to have expressly assented and agreed to the terms
hereof and to have become a party hereto. The death of a Shareholder during the
continuance of the Trust shall not operate to terminate the same nor entitle the
representative of any deceased Shareholder to an accounting or to take any
action in court or elsewhere against the Trust or the Trustees, but only to the
rights of said decedent under this Trust. Ownership of Shares shall not entitle
the Shareholder to any title in or to the whole or any part of the Trust
property or right to call for a partition or division of the same or for an
accounting, nor shall the ownership of Shares constitute the Shareholders
partners. Neither the Trust nor the Trustees, nor any officer, employee or agent
of the Trust shall have any power to bind personally any Shareholder, nor except
as specifically provided herein to call upon any Shareholder for the payment of
any sum of money or assessment whatsoever other than such as the Shareholder may
at any time personally agree to pay.

-4-
<PAGE> 5
ARTICLE IV
The Trustees

Election

Section 1. The number of Trustees shall be as provided in the Bylaws or as
fixed from time to time by the Trustees. The Shareholders may elect Trustees at
any meeting of Shareholders called by the Trustees for that purpose. Each
Trustee shall serve during the continued lifetime of the Trust until he or she
dies, resigns or is removed, or, if sooner, until the next meeting of
Shareholders called for the purpose of electing Trustees and the election and
qualification of his or her successor. Any Trustee may resign at any time by
written instrument signed by him and delivered to any officer of the Trust, to
each other Trustee or to a meeting of the Trustees. Such resignation shall be
effective upon receipt unless specified to be effective at some other time.
Except to the extent expressly provided in a written agreement with the Trust,
no Trustee resigning and no Trustee removed shall have any right to any
compensation for any period following his or her resignation or removal, or any
right to damages on account of such removal.

Effect of Death, Resignation, etc. of a Trustee

Section 2. The death, declination, resignation, retirement, removal or
incapacity of the Trustees, or any one of them, shall not operate to annul the
Trust or to revoke any existing agency created pursuant to the terms of this
Declaration of Trust.

Powers

Section 3. Subject to the provisions of this Declaration of Trust, the
business of the Trust shall be managed by the Trustees, and they shall have all
powers necessary or convenient to carry out that responsibility. Without
limiting the foregoing, the Trustees may adopt Bylaws not inconsistent with this
Declaration of Trust providing for the conduct of the business of the Trust and
may amend and repeal them to the extent that such Bylaws do not reserve that
right to the Shareholders; they may enlarge or reduce their number, may fill
vacancies in their number, including vacancies caused by enlargement of their
number, and may remove Trustees with or without cause; they may elect and
remove, with or without cause, such officers and appoint and terminate such
agents as they consider appropriate; they may appoint from their own number, and
terminate, any one or more committees consisting of two or more Trustees,
including an executive committee which may, when the Trustees are not in
session, exercise some or all of the power and authority of the Trustees as the
Trustees may determine; they may employ one or more custodians of the assets of
the Trust and may authorize such custodians to employ subcustodians and to
deposit all or any part of such assets in a system or systems for the central
handling of securities, retain a transfer agent or a Shareholder servicing
agent, or both, provide for the distribution of Shares by the Trust, through one
or more principal underwriters or otherwise, set record dates for the
determination of Shareholders with respect to various matters, and in general
delegate such authority as they consider desirable to any officer of the Trust,
to any committee of the Trustees and to any agent or employee of the Trust or to
any such custodian or underwriter.

Without limiting the foregoing, the Trustees shall have power and authority:

(a) To invest and reinvest cash, and to hold cash uninvested;

(b) To sell, exchange, lend, pledge, mortgage, hypothecate,
write options on and lease any or all of the assets of the Trust;

-5-
<PAGE> 6
(c) To act as a distributor of Shares and as underwriter of, or
broker or dealer in, securities or other property;

(d) To vote or give assent, or exercise any rights of ownership,
with respect to stock or other securities or property; and to execute and
deliver proxies or powers of attorney to such person or persons as the
Trustees shall deem proper, granting to such person or persons such power
and discretion with relation to securities or property as the Trustees
shall deem proper;

(e) To exercise powers and rights of subscription or otherwise
which in any manner arise out of ownership of securities;

(f) To hold any security or property in a form not indicating any
trust, whether in bearer, unregistered or other negotiable form, or in the
name of the Trustees or of the Trust or in the name of a custodian,
subcustodian or other depository or a nominee or nominees or otherwise;

(g) To allocate assets, liabilities and expenses of the Trust to a
particular series of Shares or to apportion the same among two or more
series, provided that any liabilities or expenses incurred by a particular
series of Shares shall be payable solely out of the assets of that series;

-6-
<PAGE> 7
(h) To consent to or participate in any plan for the reorganization,
consolidation or merger of any corporation or issuer, any security of
which is or was held in the Trust; to consent to any contract, lease,
mortgage, purchase or sale of property by such corporation or issuer, and
to pay calls or subscriptions with respect to any security held in the
Trust;

(i) To join with other security holders in acting through a
committee depositary, voting trustee or otherwise, and in that connection
to deposit any security with, or transfer any security to, any such
committee, depositary or trustee, and to delegate to them such power and
authority with relation to any security (whether or not so deposited or
transferred) as the Trustees shall deem proper, and to agree to pay, and
to pay, such portion of the expenses and compensation of such committee,
depositary or trustee as the Trustees shall deem proper;

(j) To compromise, arbitrate or otherwise adjust claims in favor of
or against the Trust or any matter in controversy, including but not
limited to claims for taxes;

(k) To enter into joint ventures, general or limited
partnerships and any other combinations or associations;

(l) To borrow funds;

(m) To endorse or guarantee the payment of any notes or other
obligations of any person; to make contracts of guaranty or suretyship, or
otherwise assume liability for payment thereof; and to mortgage and pledge
the Trust property or any part thereof to secure any of or all such
obligations;

(n) To purchase and pay for entirely out of Trust property such
insurance as they may deem necessary or appropriate for the conduct of the
business, including without limitation, insurance policies insuring the
assets of the Trust and payment of distributions and principal on its
portfolio investments, and insurance policies insuring the Shareholders,
Trustees, officers, employees, agents, investment advisers or managers,
principal underwriters, or independent contractors of the Trust
individually against all claims and liabilities of every nature arising by
reason of holding, being or having held any such office or position, or by
reason of any action alleged to have been taken or omitted by any such
person as Shareholder, Trustee, officer, employee, agent, investment
adviser or manager, principal underwriter, or independent contractor,
including any action taken or omitted that may be determined to constitute
negligence, whether or not the Trust would have the power to indemnify
such person against such liability;

(o) To pay pensions for faithful service, as deemed appropriate by
the Trustees, and to adopt, establish and carry out pension,
profit-sharing, Share bonus, Share purchase, savings, thrift and other
retirement, incentive and benefit plans, trusts and provisions, including
the purchasing of life insurance and annuity contracts as a means of
providing such retirement and other benefits, for any or all of the
Trustees, officers, employees and agents of the Trust; and

(p) To engage in any other lawful act or activity in which
corporations organized under the Massachusetts Business Corporation Law
may engage. The Trustees shall not in any way be bound or limited by any
present or future law or custom in regard to investments by trustees.

-7-
<PAGE> 8
Except as otherwise provided herein or from time to time in the Bylaws,
any action to be taken by the Trustees may be taken by a majority of the
Trustees present at a meeting of Trustees (a quorum being present), within or
without Massachusetts, including any meeting held by means of a conference
telephone or other communications equipment by means of which all persons
participating in the meeting can hear each other at the same time and
participation by such means shall constitute presence in person at a meeting, or
by written consents of a majority of the Trustees then in office.

Payment of Expenses by Trust

Section 4. The Trustees are authorized to pay or to cause to be paid out
of the principal or income of the Trust, or partly out of principal and partly
out of income, as they deem fair, all expenses, fees, charges, taxes and
liabilities incurred or arising in connection with the Trust, in connection with
the management thereof, or in connection with the financing of the sale of
Shares, including, but not limited to, the Trustees' compensation and such
expenses and charges for the services of the Trust's officers, employees, any
investment adviser, sub-adviser, principal underwriter, auditor, counsel,
custodian, sub-custodian, transfer agent, administrator, sub-administrator,
distributor, shareholder servicing agent, and such other agents or independent
contractors and such other expenses and charges as the Trustees may deem
necessary or proper to incur, provided, however, that all expenses, fees,
charges, taxes and liabilities incurred or arising in connection with a
particular series of Shares as determined by the Trustees, shall be payable
solely out of the assets of that series.

Ownership of Assets of the Trust

Section 5. Title to all of the assets of each series of Shares and of the
Trust shall at all times be considered as vested in the Trustees.

Advisory, Management and Distribution

Section 6. The Trustees may, at any time and from time to time, contract
for exclusive or nonexclusive advisory and/or management services with any
corporation, trust, association or other organization (the "Manager"), every
such contract to comply with such requirements and restrictions as may be set
forth in the Bylaws; and any such contract may provide for one or more
Sub-advisers who shall perform all or part of the obligations of the Manager
under such Contract and may contain such other terms interpretive of or in
addition to said requirements and restrictions as the Trustees may determine,
including, without limitation, authority to determine from time to time what
investments shall be purchased, held, sold or exchanged and what portion, if
any, of the assets of the Trust shall be held uninvested and to make changes in
the Trust's investments. The Trustees may also, at any time and from time to
time, contract with the Manager or any other corporation, trust, association or
other organization, appointing it exclusive or nonexclusive distributor or
principal underwriter for the Shares, every such contract to comply with such
requirements and restrictions as may be set forth in the Bylaws; and any such
contract may contain such other terms interpretive of or in addition to said
requirements and restrictions as the Trustees may determine.

The fact that:

(i) any of the Shareholders, Trustees or officers of the Trust is a
shareholder, director, officer, partner, trustee, employee, manager,
adviser, principal underwriter or distributor or agent of or for any
corporation, trust, association, or other organization, or of or for any

-8-
<PAGE> 9
parent or affiliate of any organization, with which an advisory or
management contract, or principal underwriter's or distributor's contract,
or transfer, Shareholder servicing or other agency contract may have been
or may hereafter be made, or that any such organization, or any parent or
affiliate thereof, is a Shareholder or has an interest in the Trust, or
that

(ii) any corporation, trust, association or other organization with
which an advisory or management contract or principal underwriter's or
distributor's contract, or transfer, Shareholder servicing or other agency
contract may have been or may hereafter be made also has an advisory or
management contract, or principal underwriter's or distributor's contract,
or transfer, Shareholder servicing or other agency contract with one or
more other corporations, trusts, associations, or other organizations, or
has other business or interests shall not affect the validity of any such
contract or disqualify any Shareholder, Trustee or officer of the Trust
from voting upon or executing the same or create any liability or
accountability to the Trust or its Shareholders.

ARTICLE V
Shareholders' Voting Powers and Meetings

Shareholders shall have such power to vote as is provided for in, and may
hold meetings and take actions pursuant to the provisions of the Bylaws.

ARTICLE VI
Distributions, Redemptions and Repurchases

Distributions

Section 1. The Trustees may each year, or more frequently if they so
determine, distribute to the Shareholders of each series such income and capital
gains, accrued or realized, as the Trustees may determine, after providing for
actual and accrued expenses and liabilities (including such reserves as the
Trustees may establish) determined in accordance with good accounting practices.
The Trustees shall have full discretion to determine which items shall be
treated as income and which items as capital and their determination shall be
binding upon the Shareholders. Distributions of each year's income of each
series shall be distributed pro rata to Shareholders in proportion to the number
of Shares of each series held by each of them. Such distributions shall be made
in cash or Shares or a combination thereof as determined by the Trustees. Any
such distribution paid in Shares will be paid at the net asset value thereof as
determined in accordance with the Bylaws.

Redemptions and Repurchases

Section 2. The Trust shall purchase such Shares as are offered by any
Shareholder for redemption, upon the presentation of any certificate for the
Shares to be purchased, a proper instrument of transfer and a request directed
to the Trust or a person designated by the Trust that the Trust purchase such
Shares, or in accordance with such other procedures for redemption as the
Trustees may from time to time authorize; and the Trust will pay therefor the
net asset value thereof, as next determined in accordance with the Bylaws, less
such redemption charge or fee as the Trustees may determine from time to time.
Payment for said Shares shall be made by the Trust to the Shareholder within
seven days after the date on which the request is made. The obligation set forth
in this Section 2 is subject to the provision that in the event that any time
the New York Stock Exchange is closed for other than customary weekends or
holidays, or, if permitted by rules of the Commission, during periods when
trading on the Exchange is restricted or during any emergency

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<PAGE> 10
which makes it impractical for the Trust to dispose of its investments or to
determine fairly the value of its net assets, or during any other period
permitted by order of the Commission for the protection of investors, such
obligation may be suspended or postponed by the Trustees. The Trust may also
purchase or repurchase Shares at a price not exceeding the net asset value of
such Shares in effect when the purchase or repurchase or any contract to
purchase or repurchase is made. The Trust may refuse to honor a request by a
Shareholder for redemption of his or her Shares for a specified time after such
Shareholder's purchase of such Shares, such specified time, if any, to be set
forth in the Bylaws.

Redemptions at the Option of the Trust

Section 3. The Trust shall have the right at its option and at any time to
redeem Shares of any Shareholder at the net asset value thereof as determined in
accordance with the Bylaws: (i) if at such time such Shareholder owns fewer
Shares than, or Shares having an aggregate net asset value of less than, an
amount determined from time to time by the Trustees; or (ii) to the extent that
such Shareholder owns Shares of a particular series of Shares equal to or in
excess of a percentage of the outstanding Shares of that series determined from
time to time by the Trustees; or (iii) to the extent that such Shareholder owns
Shares of the Trust representing a percentage equal to or in excess of such
percentage of the aggregate number of outstanding Shares of the Trust or the
aggregate net asset value of the Trust determined from time to time by the
Trustees. In addition, if the Net Income of any series of Shares of the Trust
which uses the amortized cost method of valuation pursuant to the 1940 Act is
determined at any time to be a negative amount, then, with respect to a
Shareholder owning Shares of such series, such Shareholder's pro rata share of
such negative amount shall constitute a liability of such Shareholder to the
Trust which shall be paid at such times and in such manner as the Trustees may
from time to time determine out of such Shareholder's accrued dividend account
in such series or otherwise. As used in this Article VI, Section 3, "Net Income"
shall mean all interest income accrued on portfolio investments of the series
plus or minus realized or unrealized gains and losses on portfolio investments
of the series, less all actual and accrued expenses and liabilities determined
in according with generally accepted accounting practices. Determination of Net
Income of a series made by the Trustees, or as they may authorize, in good
faith, shall be binding on all parties concerned.

Dividends, Distributions, Redemptions and Repurchases

Section 4. No dividend or distribution (including, without limitation, any
distribution paid upon termination of the Trust or of any series) with respect
to, nor any redemption or repurchase of, the Shares of any series shall be
effected by the Trust other than from the assets of such series.

ARTICLE VII
Compensation and Limitation of Liability of Trustees

Compensation

Section 1. The Trustees as such shall be entitled to reasonable
compensation from the Trust; they may fix the amount of their compensation.
Nothing herein shall in any way prevent the employment of any Trustee for
advisory, management, legal, accounting, investment banking, underwriting,
brokerage, or investment dealer or other services and payment for the same by
the Trust.

Limitation of Liability

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<PAGE> 11
Section 2. The Trustees shall not be responsible or liable in any event
for any neglect or wrongdoing of any officer, agent, employee, manager or
principal underwriter of the Trust, nor shall any Trustee be responsible for the
act or omission of any other Trustee, but nothing herein contained shall protect
any Trustee against any liability to which he or she would otherwise be subject
by reason of wilful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his or her office.

Every note, bond, contract, instrument, certificate or undertaking and
every other act or thing whatsoever executed or done by or on behalf of the
Trust or the Trustees or any of them in connection with the Trust shall be
conclusively deemed to have been executed or done only in or with respect to
their or his or her capacity as Trustees or Trustee, and such Trustees or
Trustee shall not be personally liable thereon.

ARTICLE VIII
Indemnification

Trustees, Officers, etc.

Section 1. The Trust shall indemnify each of its Trustees and officers
(including persons who serve at the Trust's request as directors, officers or
trustees of another organization in which the Trust has any interest as a
shareholder, creditor or otherwise) (hereinafter referred to as a "Covered
Person") 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 Covered Person in
connection with the defense or disposition of any action, suit or other
proceeding, whether civil or criminal, before any court or administrative or
legislative body, in which such Covered Person may be or may have been involved
as a party or otherwise or with which such Covered Person may be or may have
been threatened, while in office or thereafter, by reason of being or having
been such a Covered Person except with respect to any matter as to which such
Covered Person shall have been finally adjudicated in any such action, suit or
other proceeding to be liable to the Trust or its Shareholders by reason of
wilful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of such Covered Person's office. Expenses,
including counsel fees so incurred by any such Covered Person (but excluding
amounts paid in satisfaction of judgments, in compromise or as fines or
penalties), shall be paid from time to time by the Trust in advance of the final
disposition of any such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such Covered Person to repay amounts so paid to
the Trust if it is ultimately determined that indemnification of such expenses
is not authorized under this Article, provided, however, that either (a) such
Covered Person shall have provided appropriate security for such undertaking,
(b) the Trust shall be insured against losses arising from any such advance
payments or (c) either a majority of the disinterested Trustees acting on the
matter (provided that a majority of the disinterested Trustees then in office
act on the matter), or independent legal counsel in a written opinion, shall
have determined, based upon a review of readily available facts (as opposed to a
full trial type inquiry) that there is reason to believe that such Covered
Person will be found entitled to indemnification under this Article.

Compromise Payment

Section 2. As to any matter disposed of (whether by a compromise payment,
pursuant to a consent decree or otherwise) without an adjudication by a court,
or by any other body before which the proceeding was brought, that such Covered
Person either (a) did not act in good faith in the reasonable belief that his or
her action was in the best interests of the Trust or (b) is

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<PAGE> 12
liable to the Trust or its Shareholders by reason of wilful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of his or her office, indemnification shall be provided if (a) approved
as in the best interests of the Trust, after notice that it involves such
indemnification, by at least a majority of the disinterested Trustees acting on
the matter (provided that a majority of the disinterested Trustees then in
office act on the matter) upon a determination, based upon a review of readily
available facts (as opposed to a full trial type inquiry) that such Covered
Person acted in good faith in the reasonable belief that his or her action was
in the best interests of the Trust and is not liable to the Trust or its
Shareholders by reasons of wilful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his or her office,
or (b) there has been obtained an opinion in writing of independent legal
counsel, based upon a review of readily available facts (as opposed to a full
trial type inquiry) to the effect that such Covered Person appears to have acted
in good faith in the reasonable belief that his or her action was in the best
interests of the Trust and that such indemnification would not protect such
Person against any liability to the Trust to which he or she would otherwise be
subject by reason of wilful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his or her office. Any
approval pursuant to this Section shall not prevent the recovery from any
Covered Person of any amount paid to such Covered Person in accordance with this
Section as indemnification if such Covered Person is subsequently adjudicated by
a court of competent jurisdiction not to have acted in good faith in the
reasonable belief that such Covered Person's action was in the best interests of
the Trust or to have been liable to the Trust or its Shareholders by reason of
wilful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of such Covered Person's office.

Indemnification Not Exclusive

Section 3. The right of indemnification hereby provided shall not be
exclusive of or affect any other rights to which such Covered Person may be
entitled. As used in this Article VIII, the term "Covered Person" shall include
such person's heirs, executors and administrators and a "disinterested Trustee"
is a Trustee who is not an "interested person" of the Trust as defined in
Section 2(a)(19) of the 1940 Act (or who has been exempted from being an
"interested person" by any rule, regulation or order of the Commission) and
against whom none of such actions, suits or other proceedings or another action,
suit or other proceeding on the same or similar grounds is then or has been
pending. Nothing contained in this Article shall affect any rights to
indemnification to which personnel of the Trust, other than Trustees or
officers, and other persons may be entitled by contract or otherwise under law,
nor the power of the Trust to purchase and maintain liability insurance on
behalf of any such person; provided, however, that the Trust shall not purchase
or maintain any such liability insurance in contravention of applicable law,
including without limitation the 1940 Act.

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<PAGE> 13
Shareholders

Section 4. In case any Shareholder or former Shareholder shall be held to
be personally liable solely by reason of his or her being or having been a
Shareholder and not because of his or her acts or omissions or for some other
reason, the Shareholder or former Shareholder (or his or her heirs, executors,
administrators or other legal representatives or in the case of a corporation or
other entity, its corporate or other general successor) shall be entitled to be
held harmless from and indemnified against all loss and expense arising from
such liability, but only out of the assets of the particular series of Shares of
which he or she is or was a Shareholder.

ARTICLE IX
Miscellaneous

Trustees, Shareholders, etc. Not Personally Liable; Notice

Section 1. All persons extending credit to, contracting with or having any
claim against the Trust or a particular series of Shares shall look only to the
assets of the Trust or the assets of that particular series of Shares for
payment under such credit, contract or claim; and neither the Shareholders nor
the Trustees, nor any of the Trust's officers, employees or agents, whether
past, present or future, shall be personally liable therefor. Nothing in this
Declaration of Trust shall protect any Trustee against any liability to which
such Trustee would otherwise be subject by reason of wilful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of the office of Trustee.

Every note, bond, contract, instrument, certificate or undertaking made or
issued by the Trustees or by any officer or officers shall give notice that this
Declaration of Trust is on file with the Secretary of The Commonwealth of
Massachusetts and shall recite that the same was executed or made by or on
behalf of the Trust or by them as Trustee or Trustees or as officer or officers
and not individually and that the obligations of such instrument are not binding
upon any of them or the Shareholders individually but are binding only upon the
assets and property of the Trust, and may contain such further recital as he or
she or they may deem appropriate, but the omission thereof shall not operate to
bind any Trustee or Trustees or officer or officers or Shareholder or
Shareholders individually.

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<PAGE> 14
Trustee's Good Faith Action, Expert Advice, No Bond or Surety

Section 2. The exercise by the Trustees of their powers and discretion
hereunder shall be binding upon everyone interested. A Trustee shall be liable
for his or her own wilful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of the office of Trustee, and
for nothing else, and shall not be liable for errors of judgment or mistakes of
fact or law. The Trustees may take advice of counsel or other experts with
respect to the meaning and operation of this Declaration of Trust, and shall be
under no liability for any act or omission in accordance with such advice or for
failing to follow such advice. Except as may be required by applicable law,
including, without limitation, the 1940 Act, the Trustees shall not be required
to give any bond as such, nor any surety if a bond is required.

Liability of Third Persons Dealing with Trustees

Section 3. No person dealing with the Trustees shall be bound to make any
inquiry concerning the validity of any transaction made or to be made by the
Trustees or to see to the application of any payments made or property
transferred to the Trust or upon its order.

Duration and Termination of Trust

Section 4. Unless terminated as provided herein, the Trust shall continue
without limitation of time. The Trust may be terminated at any time by the vote
of Shareholders holding at least a majority of the Shares of each series
entitled to vote or by the Trustees by written notice to the Shareholders. Any
series of Shares may be terminated at any time by vote of Shareholders holding
at least a majority of the Shares of such series entitled to vote or by the
Trustees by written notice to the Shareholders of such series.

Upon termination of the Trust or of any one or more series of Shares,
after paying or otherwise providing for all charges, taxes, expenses and
liabilities, whether due or accrued or anticipated, of the Trust or of the
particular series as may be determined by the Trustees, the Trust shall, in
accordance with such procedures as the Trustees consider appropriate, reduce the
remaining assets to distributable form in cash or shares or other securities, or
any combination thereof, and distribute the proceeds to the Shareholders of the
series involved, ratably according to the number of Shares of such series held
by the several Shareholders of such series on the date of termination.

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<PAGE> 15
Filing of Copies, References, Headings

Section 5. The original or a copy of this instrument and of each amendment
hereto shall be kept at the office of the Trust where it may be inspected by any
Shareholder. A copy of this instrument and of each amendment hereto shall be
filed by the Trust with the Secretary of The Commonwealth of Massachusetts and
with the Boston City Clerk, as well as any other governmental office where such
filing may from time to time be required. Anyone dealing with the Trust may rely
on a certificate by an officer of the Trust as to whether or not any such
amendments have been made and as to any matters in connection with the Trust
hereunder, and, with the same effect as if it were the original, may rely on a
copy certified by an officer of the Trust to be a copy of this instrument or of
any such amendments. In this instrument and in any such amendment, references to
this instrument, and all expressions like "herein", "hereof" and "hereunder"
shall be deemed to refer to this instrument as amended or affected by any such
amendments. Headings are placed herein for convenience of reference only and
shall not be taken as a part hereof or control or affect the meaning,
construction or effect of this instrument. This instrument may be executed in
any number of counterparts each of which shall be deemed an original.

Applicable Law

Section 6. This Declaration of Trust is made in The Commonwealth of
Massachusetts, and it is created under and is to be governed by and construed
and administered according to the laws of said Commonwealth. The Trust shall be
of the type commonly called a Massachusetts business trust, and without limiting
the provisions hereof, the Trust may exercise all powers which are ordinarily
exercised by such a trust.

Amendments

Section 7. This Declaration of Trust may be amended at any time by an
instrument in writing signed by a majority of the then Trustees when authorized
to do so by vote of Shareholders holding a majority of the Shares of each series
entitled to vote, except that an amendment which shall affect the holders of one
or more series of Shares but not the holders of all outstanding series shall be
authorized by vote of the Shareholders holding a majority of the Shares entitled
to vote of each series affected and no vote of Shareholders of a series not
affected shall be required. Amendments having the purpose of changing the name
of the Trust, of establishing, changing, or eliminating the par value of the
Shares or of supplying any omission, curing any ambiguity or curing, correcting
or supplementing any defective or inconsistent provision contained herein shall
not require authorization by Shareholder vote.

IN WITNESS WHEREOF, the undersigned has executed this Agreement and
Declaration of Trust as Trustee and not individually, as of the 6th day of May,
1993.

/s/ Peter M. Gaetani
Peter M. Gaetani
Trustee

COUNTY OF SUFFOLK :
: ss
COMMONWEALTH OF MASSACHUSETTS :

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<PAGE> 16
On this 6th day of May, 1993, Peter M. Gaetani, known to me and known to
be the individual described herein and who executed the foregoing instrument,
before me and acknowledged the foregoing instrument to be her free act and deed.

/s/
Notary Public
[Notary's Seal] My Commission Expires: 12/23/95

Address of the Trustee:

127 Congress Street
Boston, MA 02110

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<PAGE> 1
EXHIBIT 5A

INVESTMENT ADVISORY AND ADMINISTRATION AGREEMENT

AGREEMENT made as of June 15, 1994 between SCHWAB CAPITAL TRUST, a
Massachusetts business trust (herein called the "Trust"), and CHARLES SCHWAB
INVESTMENT MANAGEMENT, INC., a Delaware corporation (the "Investment Adviser").

WHEREAS, the Trust is registered as an open-end, management investment
company under the Investment Company Act of 1940, as amended (1940 Act"); and

WHEREAS, the Trust desires to retain the Investment Adviser to furnish
investment advisory and administrative services to the investment portfolios of
the Trust listed on Schedule A hereto (each a "Schwab Fund" and collectively,
the "Schwab Funds"),

NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:

1. Appointment. The Trust hereby appoints the Investment Adviser to act as
investment adviser and administrator to the Schwab Funds for the period and on
the terms set forth in this Agreement. The Investment Adviser accepts such
appointment and agrees to furnish the services herein set forth for the
compensation herein provided.

2. Delivery of Documents. The Trust has furnished the Investment
Adviser with copies properly certified or authenticated of each of the
following:

(a) the Trust's Agreement and Declaration of Trust, as filed with
the Secretary of State of The Commonwealth of Massachusetts on May 7, 1993
and all amendments thereto or restatements thereof (such Agreement and
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 the Investment Adviser 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 ("SEC") on
May 10, 1993 and all amendments thereto;
<PAGE> 2
(e) the Trust's Registration Statement on Form N-lA 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; and

(f) the Trust's most recent prospectus and Statement of Additional
Information for the Schwab Funds (such prospectuses and Statement of
Additional Information, as presently in effect, and all amendments and
supplements thereto are herein collectively called the "Prospectus").

The Trust will furnish the Investment Adviser from time to

time with copies of all amendments of or supplements to the foregoing.

3. Management. Subject to the direction and control of the Board of
Trustees of the Trust, the Investment Adviser will supervise or perform for the
Schwab Funds all aspects of the operations of the Schwab Funds except for those
performed by the custodian, shareholder service agent and transfer agent for the
Schwab Funds, provide general economic and financial analysis and advice to the
Schwab Funds, and provide a continuous investment program for the Schwab Funds,
including investment research and management as to all securities and
investments and cash equivalents in the Schwab Funds. more particularly, the
Investment Adviser will: determine from time to time what securities and other
investments will be purchased, retained, or sold by the Schwab Funds; maintain
office facilities (which may be in the offices of the Investment Adviser or a
corporate affiliate but shall be in such location as the Trust reasonably
determines); furnish statistical and research data, clerical services and
stationery and office supplies; compile data for, prepare for execution by the
Schwab Funds and file all the Schwab Funds' federal and state tax returns and
required tax filings other than those required to be made by the Schwab Funds,
custodian, shareholder service agent and transfer agent; prepare the Trust's
Annual and Semi-Annual Reports to Shareholders and amendments to its
Registration Statements on Form N-lA (or any replacement therefor); compile data
for, prepare and file timely Notices to the SEC required pursuant to Rule 24f-2
under the 1940 Act; and generally assist in all aspects of the operations of the
Schwab Funds.

Subject to the provisions of the Agreement and Declaration of Trust
and the 1940 Act, the Investment Adviser, at its expense, may select and
contract with investment advisers (the "Sub-Advisers") for one or more of the
Schwab Funds. So long as any Sub-Adviser serves as Sub-Adviser to a Schwab Fund,
it must be a party to a sub-investment advisory agreement and will be obligated
to: (1) furnish continuously an investment program as to those assets of the
Trust and the Schwab Funds involved allocated by the Investment Adviser, (ii) in
connection therewith, adhere to such guidelines as may, be established by the
Investment Adviser from time to time to insure compliance with applicable
investment objectives, policies and restrictions of the Trust and the Schwab
Funds, and (iii) place all orders for the purchase and sale of investments. The
Investment Adviser may also delegate or subcontract some or all of the
Investment Adviser's other duties enumerated in this Agreement. The Investment
Adviser will be responsible for payment of all compensation to all Sub-Advisers
and other persons and entities to which Investment Adviser delegates any duties
hereunder.
<PAGE> 3
The Investment Adviser further agrees that it:

(a) will use the same skill and care in providing such services as
it would use in providing services to fiduciary accounts if it had
investment responsibilities for such accounts;

(b) will conform with all applicable Rules and Regulations of the
SEC and will in addition conduct its activities under this Agreement in
accordance with any applicable regulations of any governmental authority
pertaining to the investment advisory activities of the Investment
Adviser;

(c) will not make loans to any person to purchase or carry
units of beneficial interest in the Trust or make loans to the Trust;

(d) will place orders pursuant to its investment determinations for
the Schwab Funds either directly with the issuer or with an underwriter,
market maker, or broker or dealer. In placing orders with brokers and
dealers the Investment Adviser will attempt to obtain prompt execution of
orders in an effective manner at the most favorable price. Consistent with
this obligation, when the execution and price offered by two or more
brokers or dealers are comparable, the Investment Adviser may, in its
discretion, purchase or sell portfolio securities to and from brokers and
dealers who provide the Investment Adviser with research advice and other
services. In no instance will portfolio securities be purchased from or
sold to the Investment Adviser or any Sub-Adviser, or any affiliated
person of either the Trust, the Investment Adviser, or any Sub-Adviser,
except as may be permitted under the 1940 Act;

(e) will treat confidentially and as proprietary information of the
Trust all records and other information relative to the Trust, 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, which approval
shall not be unreasonably withheld and may not be withheld where the
Investment Adviser 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; and

(f) will direct its personnel when making investment recommendations
for the Trust, not to inquire or take into consideration whether the
issuers of securities proposed for purchase or sale for the Trust's
accounts are customers of the Investment Adviser or of its parent or its
subsidiaries or affiliates. In dealing with such customers, the Investment
Adviser and its parent, subsidiaries, and affiliates will not inquire or
take into consideration whether securities of those customers are held by
the Trust.

4. Services to Others. The Trust understands that the Investment Adviser
may in the future act as an investment adviser to fiduciary and other managed
accounts, and as
<PAGE> 4
investment adviser, sub-investment adviser, and/or administrator to other
investment companies. The Trust has no objection to the Investment-Adviser's
acts in such capacities, provided that whenever one of the Schwab Funds and
one or more other investment companies advised by the Investment Adviser have
available funds for investment, investments suitable and appropriate for each
will be allocated in accordance with a formula believed by the investment
Adviser to be equitable to each company. The Trust recognizes that in some cases
this procedure may adversely affect the size of the position that a Schwab Fund
may obtain in a particular security. In addition, the Trust understands that the
persons employed by the Investment Adviser to assist in the Investment Adviser's
duties under this Agreement will not devote their full time to such service and
nothing contained in this Agreement will be deemed to limit or restrict the
right of the Investment Adviser or any of its affiliates to engage in and devote
Lime and attention to other businesses or to render services of whatever kind or
nature.

5. Books and Records. In compliance with the requirements of Rule 3la-3
under the 1940 Act, the Investment Adviser hereby agrees that all 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 and
will require the same type of agreement from each Sub-Adviser. The Investment
Adviser further agrees to preserve for the periods prescribed by Rule 3la-2
under the 1940 Act the records required to be maintained by Rule 3la-1 under the
1940 Act.

6. Expenses. During the term of this Agreement, the Investment Adviser
will pay all expenses incurred by it in providing general economic and financial
analysis and advice to the Schwab Funds and providing a continuous investment
program for the Schwab Funds pursuant to Section 3 above and in providing its
activities under this Agreement other than the cost of securities (including
brokerage commissions, if any) purchased for the Trust. The Investment Adviser
will also pay all compensation of any person or person employed by or associated
with the Investment Adviser to assist in the performance of the Investment
Adviser's obligations under this Agreement, whether or not such person is also a
officer or employee of the Trust, and the Investment Adviser will not cause any
obligation to be incurred on behalf of the Trust in respect of any such
compensation. Other expenses to be incurred in the operation of the Schwab Funds
- -- including without limitation taxes, interest, brokerage fees and commissions,
if any, fees of Trustees who are not officers, directors, shareholders, or
employees of the Investment Adviser or any Sub-Adviser, SEC fees and state "blue
sky" qualification fees, costs of performing the pricing of portfolio
securities, transfer and dividend disbursing agents' fees, certain insurance
premiums, outside auditing and legal expenses, costs of maintaining the Trust's
existence as a Massachusetts business trust, typesetting and printing
prospectuses for regulatory purposes and for distribution to current
shareholders of the Schwab Funds, costs of shareholders, and Trustees' reports
and meetings and any extraordinary expenses -- will be borne by the Schwab
Funds; provided, however, that the Schwab Funds will not bear, directly or
indirectly, the cost of any activity that is primarily intended to result in the
distribution of shares of the Schwab Funds.
<PAGE> 5
7. Compensation. For the services provided and the expenses assumed
pursuant to this Agreement, the Trust will pay the Investment Adviser and the
Investment Adviser will accept as full compensation therefor, an advisory fee,
accrued daily and payable monthly, in accordance with Schedule B hereto.

If in any fiscal year the aggregate expenses (as defined under the
securities regulations of any state having jurisdiction over the Trust) of a
Schwab Fund exceed the expense limitations of any such state, the Investment
Adviser will reimburse such Schwab Fund for a portion of such excess expenses
equal to such excess times the ratio of the fees otherwise payable by such
Schwab Fund to the Investment Adviser hereunder to the aggregate fees otherwise
payable by such Schwab Fund to the Investment Adviser hereunder, and to Charles
Schwab & Co., Inc. under the Transfer Agency and Shareholder Service Agreements
between it and the Trust. The obligation of the Investment Adviser to reimburse
a Schwab Fund hereunder is limited in any fiscal year to the amount of its fee
hereunder from such Schwab Fund for such fiscal year, provided, however, that
notwithstanding the foregoing, the Investment Adviser will reimburse each Schwab
Fund for such proportion of such excess expenses regardless of the amount of
fees paid to it during such fiscal year to the extent that the securities
regulations of any state having jurisdiction over the Trust so require. Such
expense reimbursement, if any, will be estimated daily and reconciled and paid
on a monthly basis.

8. Limitation of Liability. The Investment Adviser will not be liable for
any error of judgment or mistake of law or for any loss suffered by the Trust in
connection with the performance of this Agreement, except a loss resulting from
a breach of fiduciary duty with respect to the receipt of compensation for
services or a loss resulting from willful misfeasance, bad faith or gross
negligence on the part of the Investment Adviser in the performance of its
duties or from reckless disregard by it of its obligations and duties under this
Agreement.

9. Duration and Termination. This Agreement will become effective as to
each Schwab 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 Schwab Fund in accordance with the requirements under
the 1940 Act.

Thereafter, if not terminated as to a Schwab Fund, this Agreement will
continue in effect as to such Schwab Fund for successive periods each ending on
May 30 of each year, provided such continuance 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 parties to this Agreement or interested persons of the
Trust, the Investment Adviser, or any Sub-Adviser, 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 Schwab Fund. Notwithstanding the foregoing, this Agreement may be
terminated as to a Schwab Fund at any time, without the payment of any penalty,
on sixty days, written notice by the Trust (by vote of the Trust's Board of
Trustees or by vote of a majority of the outstanding voting securities of such
Schwab Fund) or by the Investment Adviser. This Agreement will immediately
terminate in the event of its assignment. (As used in this Agreement, the terms
"majority of the outstanding voting
<PAGE> 6
securities," "interested persons" and "assignment" shall 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 shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement shall not be
affected thereby. This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and shall be
governed by the laws of the State of California.

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 the Declaration
of Trust, to which reference is hereby made and a copy of which is on file at
the office of the Secretary 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 the "Schwab Capital Trust" entered into in the name or
on behalf thereof by any of the Trustees, representatives or agents are made not
individually, but in such capacities, and are not binding upon any of the
Trustees, interest holders or representatives of the Trust personally, but bind
only the assets of the Trust, and all persons dealing with any series of units
of interest of the Trust must look solely to the assets of the Trust belonging
to such series 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.

SCHWAB CAPITAL TRUST

By: /s/ Elizabeth G. Sawi
Name: Elizabeth G. Sawi
Title: President

CHARLES SCHWAB INVESTMENT
MANAGEMENT INC.

By: /s/ William J. Klipp
Name: William J. Klipp
Title: Senior Vice President and
Chief Operating Officer

<PAGE> 1
EXHIBIT 5(B)

AMENDED SCHEDULE A
TO THE INVESTMENT ADVISORY AND
ADMINISTRATION AGREEMENT
FOR SCHWAB CAPITAL TRUST

Fund Effective Date
- ---- --------------
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
Schwab S&P 500 Fund February 28, 1996
Schwab Analytics Fund May 21, 1996
Schwab OneSource Portfolios-International September 2, 1996
Schwab OneSource Portfolios-Growth Allocation October 13, 1996
Schwab OneSource Portfolios-Balanced Allocation October 13, 1996
Schwab OneSource Portfolios-Small Company August 3, 1997

A-1
<PAGE> 2
SCHWAB CAPITAL TRUST

By: /s/ William J. Klipp
Name: William J. Klipp
Title: Trustee, Executive Vice
President and
Chief Operating Officer

CHARLES SCHWAB INVESTMENT
MANAGEMENT, INC.

By: /s/ Stephen B. Ward
Name: Stephen B. Ward
Title: Senior Vice President and
Chief Investment Officer

A-2
<PAGE> 3
EXHIBIT 5(b)

AMENDED SCHEDULE B
TO THE INVESTMENT ADVISORY AND
ADMINISTRATION AGREEMENT
FOR SCHWAB CAPITAL TRUST

ADVISORY FEE SCHEDULE
THE FEES LISTED BELOW ARE FOR SERVICES PROVIDED UNDER THIS AGREEMENT
AND ARE TO BE ACCRUED DAILY AND PAID MONTHLY IN ARREARS:

Fund Fee
- ---- ---
Schwab International Index Fund Seventy one-hundredths of one percent
(0.70%) 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 Growth Fund Seventy-four one-hundredths of one
percent (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 Growth Seventy-four one-hundredths of one
Fund percent (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-Conservative Seventy-four one-hundredths of one
Growth Fund percent (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

B-1
<PAGE> 4
EXHIBIT 5(b)

Fund Fee
- ---- ---
Schwab S&P 500 Fund Thirty-six one-hundredths of one
percent (0.36%) of the Fund's average
daily net assets not in excess of $1
billion; thirty-three one hundredths
of one percent (0.33%) of such net
assets over $1 billion, but not more
than $2 billion; and thirty-one one
hundredths of one percent (0.31%) of
such net assets over $2 billion.

Schwab Analytics Fund Seventy-four one hundredths of one
percent (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 OneSource Seventy-four one hundredths of one
Portfolios-International percent (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 OneSource Portfolios-Growth Seventy-four one hundredths of one
Allocation percent (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 OneSource Portfolios-Balanced Seventy-four one hundredths of one
Allocation percent (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.

B-2
<PAGE> 5
EXHIBIT 5(b)

Fund Fee
- ---- ---
Schwab OneSource Portfolios-Small Seventy-four one hundredths of one
Company percent (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.

B-3
<PAGE> 6
SCHWAB CAPITAL TRUST

By: /s/ William J. Klipp
Name: William J. Klipp
Title: Trustee, Executive Vice
President and
Chief Operating Officer

CHARLES SCHWAB INVESTMENT
MANAGEMENT, INC.

By: /s/ Stephen B. Ward
Name: Stephen B. Ward
Title: Senior Vice President and
Chief Investment Officer

B-4

<PAGE> 1
EXHIBIT 6(a)

DISTRIBUTION AGREEMENT

July 21, 1993

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

Ladies and Gentlemen:

This is to confirm that, in consideration of the agreements hereinafter
contained, the undersigned, SCHWAB CAPITAL TRUST (the "Trust"), a Massachusetts
business trust, has agreed that CHARLES SCHWAB & CO., INC. (the "Distributor")
shall be, for the period of this Agreement, the distributor of the units of
beneficial interest of the investment portfolios of the Trust identified on
Schedule A hereto (each a "Fund", and collectively, the "Funds"). Such units of
beneficial interest are hereinafter called "Shares."

1. Services as Distributor.

1.1. Distributor will act as agent for the distribution of the Shares
covered by the registration statement and prospectus of the Trust in effect
under the Securities Act of 1933, as amended.

1.2. Distributor agrees to use appropriate efforts to solicit orders
for the sale of the Shares and will undertake such advertising and promotion as
it believes reasonable in connection with such solicitation. The Trust
understands that Distributor may, in the future, be the distributor of the
shares of several investment companies or series (together, "Companies"),
including Companies having investment objectives similar to those of the Trust.
The Trust further understands that investors and potential investors in the
Trust may invest in shares of such other Companies. The Trust agrees that
Distributor's duties to such Companies shall not be deemed to be in conflict
with its duties to the Trust under this paragraph 1.2.

Distributor shall, at its own expense, finance appropriate activities
which it deems reasonable which are primarily intended to result in the sale of
the Shares, including, but not limited to, advertising, compensation of
underwriters, dealers and sales personnel, the printing and mailing of
prospectuses to other than current Shareholders, and the printing and mailing of
sales literature.

1.3. All activities by Distributor and its partners, agents, and
employees as distributor of the Shares shall comply with all applicable laws,
rules and regulations, including, without limitation, all rules and regulations
made or adopted pursuant to the Investment Company Act of 1940 by the Securities
and Exchange Commission or any securities association registered under the
Securities Exchange Act of 1934.

1.4. Distributor will provide one or more persons, during normal
business hours, to respond to telephone questions with respect to the Trust.

1.5. Distributor will transmit any orders received by it for purchase
or redemption of the Shares to the transfer agent and custodian for the Funds.
<PAGE> 2
1.6. Whenever in their judgment such action is warranted by unusual
market, economic or political conditions, or by abnormal circumstances of any
kind, the Trust's officers may decline to accept any orders for, or make any
sales of the Shares until such time as those officers deem it advisable to
accept such orders and to make such sales.

1.7. Distributor will act only on its own behalf as principal if it
chooses to enter into selling agreements with selected dealers or others.

1.8. The Trust agrees at its own expense to execute any and all
documents and to furnish any and all information and otherwise to take all
actions that may be reasonably necessary in connection with the qualification of
the Shares for sale in such states as Distributor may designate.

1.9. The Trust shall furnish from time to time, for use in connection
with the sale of the Shares, such information with respect to the Funds and the
Shares as Distributor may reasonably request; and the Trust warrants that the
statements contained in any such information shall fairly show or represent what
they purport to show or represent. The Trust shall also furnish Distributor upon
request with: (a) unaudited semi-annual statements of the Funds' books and
accounts prepared by the Trust, (b) quarterly earnings statements prepared by
the Trust, (c) a monthly itemized list of the securities in the Funds, (d)
monthly balance sheets as soon as practicable after the end of each month, and
(e) from time to time such additional information regarding the financial
condition of the Funds as Distributor may reasonably request.

1.10. The Trust represents to Distributor that all registration
statements and prospectuses filed by the Trust with the Securities and Exchange
Commission under the Securities Act of 1933, as amended, with respect to the
Shares have been carefully prepared in conformity with the requirements of said
Act and rules and regulations of the Securities and Exchange Commission
thereunder. As used in this agreement the terms "registration statement" and
"prospectus" shall mean any registration statement and any prospectus and
Statement of Additional Information relating to the Funds filed with the
Securities and Exchange Commission and any amendments and supplements thereto
which at any time shall have been filed with the same Commission. The Trust
represents and warrants to Distributor that any registration statement and
prospectus, when such registration statement becomes effective, will contain all
statements required to be stated therein in conformity with said Act and the
rules and regulations of said Commission; that all statements of fact contained
in any such registration statement and prospectus will be true and correct when
such registration statement becomes effective; and that neither any registration
statement nor any prospectus when such registration statement becomes effective
will include an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading to a purchaser of the Shares. The Distributor may but shall not
be obligated to propose from time to time such amendment or amendments to any
registration statement and such supplement or supplements to any prospectus as,
in the light of future developments, may, in the opinion of the Distributor's
counsel, be necessary or advisable. If the Trust shall not propose such
amendment or amendments and/or supplement or supplements within fifteen days
after receipt by the Trust of a written request from Distributor to do so,
Distributor may, at its option, terminate this agreement. The Trust shall not
file any amendment to any registration statement or supplement to any prospectus
without giving Distributor reasonable notice thereof in advance; provided,
however, that

-2-
<PAGE> 3
nothing contained in this agreement shall in any way limit the Trust's right to
file at any time such amendments to any registration statement and/or
supplements to any prospectus, of whatever character, as the Trust may deem
advisable, such right being in all respects absolute and unconditional.

1.11. The Trust authorizes Distributor and dealers to use any
prospectus in the form furnished from time to time in connection with the sale
of the Shares. The Trust agrees to indemnify, defend and hold Distributor, its
directors, officers and employees, and any person who controls Distributor
within the meaning of Section 15 of the Securities Act of 1933, as amended, free
and harmless from and against any and all claims, demands, liabilities and
expenses (including the cost of investigating or defending such claims, demands
or liabilities and any counsel fees incurred in connection therewith) which
Distributor, its partners and employees, or any such controlling person, may
incur under the Securities Act of 1933, as amended, or under common law or
otherwise, arising out of or based upon any untrue statement, or alleged untrue
statement, of a material fact contained in any registration statement or any
prospectus or arising out of or based upon any omission, or alleged omission, to
state a material fact required to be stated in either any registration statement
or any prospectus or necessary to make the statements in either thereof not
misleading; provided, however, that the Trust's agreement to indemnify
Distributor, its directors, officers or employees, and any such controlling
person shall not be deemed to cover any claims, demands, liabilities or expenses
arising out of any statements or representations as are contained in any
prospectus and in such financial and other statements as are furnished in
writing to the Trust by Distributor and used in the answers to the registration
statement or in the corresponding statements made in the prospectus, or arising
out of or based upon any omission or alleged omission to state a material fact
in connection with the giving of such information required to be stated in such
answers or necessary to make the answers not misleading; and further provided
that the Trust's agreement to indemnify Distributor and the Trust's
representations and warranties hereinbefore set forth in paragraph 1.10 shall
not be deemed to cover any liability to the Trust or its Shareholders to which
Distributor would otherwise be subject by reason of willful misfeasance, bad
faith or gross negligence in the performance of its duties, or by reason of
Distributor's reckless disregard of its obligations and duties under this
agreement. The Trust's agreement to indemnify Distributor, its partners and
employees, and any such controlling person, as aforesaid, is expressly
conditioned upon the Trust's being notified of any action brought against
Distributor, its directors, officers or employees, or any such controlling
person, such notification to be given by letter or by telegram addressed to the
Trust at its principal office in San Francisco, California and sent to the Trust
by the person against whom such action is brought, within 10 days after the
summons or other first legal process shall have been served. The failure to so
notify the Trust of any such action shall not relieve the Trust from any
liability which the Trust may have to the person against whom such action is
brought by reason of any such untrue, or allegedly untrue, statement or
omission, or alleged omission, otherwise than on account of the Trust's
indemnity agreement contained in this paragraph 1.11. The Trust will be entitled
to assume the defense of any suit brought to enforce any such claim, demand or
liability, but, in such case, such defense shall be conducted by counsel of good
standing chosen by the Trust and approved by Distributor, which approval shall
not be unreasonably withheld. In the event the Trust elects to assume the
defense of any such suit and retain counsel of good standing approved by
Distributor, the defendant or defendants in such suit shall bear the fees and
expenses of any additional counsel retained by any of them; but in case the
Trust does not

-3-
<PAGE> 4
elect to assume the defense of any such suit, or in case Distributor reasonably
does not approve of counsel chosen by the Trust, the Trust will reimburse
Distributor, its directors, officers and employees, or the controlling person or
persons named as defendant or defendants in such suit, for the fees and expenses
of any counsel retained by Distributor or them. The Trust's indemnification
agreement contained in this paragraph 1.11 and the Trust's representations and
warranties in this agreement shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of Distributor, its
partners and employees, or any controlling person, and shall survive the
delivery of any Shares. This agreement of indemnity will inure exclusively to
Distributor's benefit, to the benefit of its several partners and employees, and
their respective estates, and to the benefit of the controlling persons and
their successors. The Trust agrees promptly to notify Distributor of the
commencement of any litigation or proceedings against the Trust or any of its
officers or Trustees in connection with the issue and sale of any Shares.

1.12. Distributor agrees to indemnify, defend and hold the Trust, its
several officers and Trustees and any person who controls the Trust within the
meaning of Section 15 of the Securities Act of 1933, as amended, free and
harmless from and against any and all claims, demands, liabilities and expenses
(including the costs of investigating or defending such claims, demands or
liabilities and any counsel fees incurred in connection therewith) which the
Trust, its officers or Trustees or any such controlling person, may incur under
the Securities Act of 1933, as amended, or under common law or otherwise, but
only to the extent that such liability or expense incurred by the Trust, its
officers or Trustees or such controlling person resulting from such claims or
demands, shall arise out of or be based upon any untrue, or alleged untrue,
statement of a material fact contained in information furnished in writing by
Distributor to the Trust and used in the answers to any of the items of the
registration statement or in the corresponding statements made in the
prospectus, or shall arise out of or be based upon any omission, or alleged
omission, to state a material fact in connection with such information furnished
in writing by Distributor to the Trust required to be stated in such answers or
necessary to make such information not misleading. Distributor's agreement to
indemnify the Trust, its officers and Trustees, and any such controlling person,
as aforesaid, is expressly conditioned upon Distributor's being notified of any
action brought against the Trust, its officers or Trustees, or any such
controlling person, such notification to be given by letter or telegram
addressed to Distributor at its principal office in San Francisco, California
and sent to Distributor by the person against whom such action is brought,
within 10 days after the summons or other first legal process shall have been
served. Distributor shall have the right of first control of the defense of such
action, with counsel of its own choosing, satisfactory to the Trust, if such
action is based solely upon such alleged misstatement or omission on
Distributor's part, and in any other event the Trust, its officers or Trustees
or such controlling person shall each have the right to participate in the
defense or preparation of the defense of any such action. The failure to so
notify Distributor of any such action shall not relieve Distributor from any
liability which Distributor may have to the Trust, its officers or Trustees, or
to such controlling person by reason of any such untrue or alleged untrue
statement, or omission or alleged omission, otherwise than on account of
Distributor's indemnity agreement contained in this paragraph 1.12.

1.13. No Shares shall be offered by either Distributor or the Trust
under any of the provisions of this agreement and no orders for the purchase

-4-
<PAGE> 5
or sale of Shares hereunder shall be accepted by the Trust if and so long as the
effectiveness of the registration statement then in effect or any necessary
amendments thereto shall be suspended under any of the provisions of the
Securities Act of 1933, as amended, or if and so long as a current prospectus as
required by Section 10(b)(2) of said Act, as amended, is not on file with the
Securities and Exchange Commission; provided, however, that nothing contained in
this paragraph 1.13 shall in any way restrict or have an application to or
bearing upon the Trust's obligation to repurchase Shares from any Shareholder in
accordance with the provisions of the Trust's prospectus, Declaration of Trust,
or By-laws.

1.14. The Trust agrees to advise Distributor as soon as reasonably
practical by a notice in writing delivered to Distributor or its counsel:

(a) of any request by the Securities and Exchange Commission for
amendments to the registration statement or prospectus then in effect or for
additional information;

(b) in the event of the issuance by the Securities and Exchange
Commission of any stop order suspending the effectiveness of the registration
statement or prospectus then in effect or the initiation by service of process
on the Trust of any proceeding for that purpose;

(c) of the happening of any event that makes untrue any statement of
a material fact made in the registration statement or prospectus then in effect
or which requires the making of a change in such registration statement or
prospectus in order to make the statements therein not misleading; and

(d) of all action of the Securities and Exchange Commission with
respect to any amendment to any registration statement or prospectus which may
from time to time be filed with the Securities and Exchange Commission.

For purposes of this section, informal requests by or acts of the Staff
of the Securities and Exchange Commission shall not be deemed actions of or
requests by the Securities and Exchange Commission.

1.15. Distributor agrees on behalf of itself and its directors,
officers and employees to treat confidentially and as proprietary information of
the Trust all records and other information relative to the Trust and its prior,
present or potential Shareholders, and not to 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, which approval shall not be unreasonably withheld and may not be withheld
where Distributor 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.

1.16. This agreement shall be governed by the laws of the Commonwealth
of Massachusetts.

-5-
<PAGE> 6
2. Issuance of Shares.

The Trust reserves the right to issue, transfer or sell Shares of the
Funds at net asset value (a) in connection with the merger or consolidation of
the Trust or the Funds with any other investment company or the acquisition by
the Trust or the Funds of all or substantially all of the assets or of the
outstanding Shares of any other investment company; (b) in connection with a pro
rata distribution directly to the holders of Shares of a Fund in the nature of a
stock dividend or split; (c) upon the exercise of subscription rights granted to
the holders of Shares of a Fund on a pro rata basis; (d) in connection with the
issuance of Shares of a Fund pursuant to any exchange and reinvestment
privileges described in any then-current prospectus of a Fund; and (e) otherwise
in accordance with any then-current prospectus of the Funds.

3. Term and Matters Relating to the Trust as a Massachusetts Business
Trust.

This agreement shall become effective as to the Trust on July 21, 1993
and, unless sooner terminated as provided herein, shall continue until two
years, and thereafter shall continue automatically for successive one-year
periods ending on July 21 of each successive year; provided, however, that such
continuance is specifically approved at least annually by (i) the Trust's Board
of Trustees or (ii) by "vote of a majority of the outstanding Shares" (as
defined below) of the Trust, and provided further, that in either event the
continuance is also approved at least annually by the majority of the Trust's
Trustees who are not parties to the agreement or interested persons (as defined
in the 1940 Act) of any party to this agreement, by vote cast in person at a
meeting called for the purpose of voting on such approval. This agreement is
terminable on not less than sixty days' notice by the Trust's Board of Trustees,
by "vote of a majority of the outstanding Shares" (as defined below) of the
Trust or by Distributor. This agreement will also terminate automatically in the
event of its assignment (as defined in the 1940 Act). For purposes of this
Agreement, the term "vote of a majority of the outstanding Shares" shall mean
the approval, at a meeting of Shareholders duly called, of the lesser of (i) the
holders of 67% or more of the votes present at any such meeting, if the holders
of more than 50% of the outstanding votes are present or represented by proxy
thereat; or (ii) the holders of more than 50% of the outstanding votes.

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 a Declaration of
Trust dated as of May 10, 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 made not individually, but 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 all persons dealing
with any series of Shares of the Trust must look solely to the assets of the
Trust belonging to such series for the enforcement of any claims against the
Trust.

4. Severability

-6-
<PAGE> 7
If any provision of this Agreement is found by a court or agency of
competent jurisdiction to be in violation of any state or federal law, rule or
regulation, then the invalidity of such provision shall not affect the
enforceability or validity of the remaining provisions.

-7-
<PAGE> 8
Please confirm that the foregoing is in accordance with your
understanding by indicating your acceptance hereof at the place below indicated,
whereupon it shall become a binding agreement between us.

Yours very truly,

SCHWAB CAPITAL TRUST

By: /s/ David H. Lui
----------------------------
Name: David H. Lui
Title: Assistant Secretary

Accepted:

CHARLES SCHWAB & CO., INC.

By: /s/ Timothy B. Pawloski
-----------------------------------
Name: Timothy B. Pawloski
Title: Vice President

-8-

<PAGE> 1
EXHIBIT 6(b)

AMENDED SCHEDULE A
TO THE DISTRIBUTION AGREEMENT
FOR SCHWAB CAPITAL TRUST

Fund Effective Date
- ---- --------------

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

Schwab S&P 500 Fund February 28, 1996

Schwab Analytics Fund May 21, 1996

Schwab OneSource Portfolios- September 2, 1996
International

Schwab OneSource Portfolios-Growth October 13, 1996
Allocation

Schwab OneSource Portfolios- October 13, 1996
Balanced Allocation

Schwab OneSource Portfolios-Small August 3, 1997
Company

SCHWAB CAPITAL TRUST

By: /s/ William J. Klipp
-----------------------------
Name: William J. Klipp
Title: Executive Vice President
and Chief Operating Officer

CHARLES SCHWAB & CO., INC.

By: /s/ Colleen M. Hummer
-----------------------------
Name: Colleen M. Hummer
Title: Senior Vice President

<PAGE> 1
Exhibit 8(b)

AMENDED APPENDIX 2
TO CUSTODIAN AGREEMENT

CLIENT ACCOUNTS

<TABLE>
<CAPTION>
Account Name Account Number Account Mnemonic
- ------------ -------------- ----------------

<S> <C> <C>
1. Schwab International Index Fund 00042986 SIIF

2. Schwab Small-Cap Index Fund 00043001 SCIF

3. Schwab Asset Director - High Growth 00042988 ADHG
Fund

4. Schwab Asset Director - Balanced 00042989 ADBG
Growth Fund

5. Schwab Asset Director - Conservative 00042990 ADCG
Growth Fund

6. Schwab OneSource Portfolios - 00042992 SOPI
International

7. Schwab OneSource Portfolios - 00042993 SOPG
Growth Allocation

8. Schwab OneSource Portfolios - 00042994 SOPB
Balanced Allocation

9. Schwab OneSource Portfolios-Small Company 00043359 SOPS
</TABLE>
<PAGE> 2
PART II - SYSTEM USER ID NUMBERS

PROFILE I: FEDERATED STAFF PROFILE
(4) USERS: ESW1870: Julie Quigley
ESW1885: Greg Podgorski
ESW1886: Dave Marsh
ESW1887: Elaine Dawes

ACCOUNTS ACCESS:

<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Reports: SIIF SCIF ADHG ADBG ADCG SHGP SOPI SOPG SOPB SOPS

Trades: SIIF SCIF ADHG ADBG ADCG SHGP SOPI SOPG SOPB SOPS
</TABLE>

<TABLE>
<CAPTION>
TE FX CA ME TD SL MA MC MF INQ
-- -- -- -- -- -- -- -- -- ---

PROFILE 2: INVESTMENT MANAGEMENT STAFF PROFILE
(6) USERS: ESW1892: Sonia Yiu
ESW1893: Geri Hom
ESW1894: Jeff Tumolo
ESW1895: Patrick Conway
ESW1896: Andrea Regan
ESW1897: Joe Kupferschmidt

ACCOUNTS ACCESS:

<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Reports: SIIF SCIF ADHG ADBG ADCG SHGP SOPI SOPG SOPB SOPS

Trades: SIIF SCIF ADHG ADBG ADCG SHGP SOPI SOPG SOPB SOPS
</TABLE>

<TABLE>
- ------------------------------------------------------------------------------------------------------------
MORGAN STANLEY GLOBAL SECURITIES
<S> <C> <C> <C> <C> <C> <C> <C>
Hong Kong London Luxembourg Mumbai New York San Francisco Sydney Tokyo
</TABLE>
<PAGE> 3
PROFILE 3: INVESTMENT MANAGEMENT STAFF PROFILE
(6) USERS: ESW1892: Judy Wolfe
ESW1893: Nelly Sit
ESW1894: Durwin Hom
ESW1895: Bing Chan
ESW1896: Vicky Aguila
ESW1897: Rodan St. James

ACCOUNTS ACCESS:

<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Reports: SIIF SCIF ADHG ADBG ADCG SHGP SOPI SOPG SOPB SOPS

Trades: SIIF SCIF ADHG ADBG ADCG SHGP SOPI SOPG SOPB SOPS
</TABLE>

LEGEND:

TE: Trades
FX: Foreign Exchange Entry
CA: Cash Movements
ME: Multiple Cash Entry
TD: Time Deposit and Repos
SL: Securities Lending
MA: Mass Client Trade Authorization
MC: Mass Client Cash Authorization
MF: Mass Client Foreign Exchange Authorization
INQ: Inquiry Functions *

* Please note Inquiry Functions includes the following:
Trade Inquiry
Trade Settlement Status
Trade Entry Status
FX/Cash Movement/Time Deposit Status
Pricing Inquiry
Products Inquiry
Stock Record Inquiry
Journal Inquiry
Income Inquiry

TRADES PROFILE REPORTS PROFILE
MTSW1TPF MTSW1RPF
MTSW2TPF MTSW2RPF
MTSW3TPF MTSW3RPF

<PAGE> 1
Exhibit 8(c)

AMENDMENT DATED AS OF APRIL 4, 1997
BETWEEN MORGAN STANLEY TRUST COMPANY (THE "CUSTODIAN")
AND SCHWAB CAPITAL TRUST (THE "CLIENT")

WHEREAS, the Custodian and the Client have entered into a Custody
Agreement dated as of April 4, 1997 (as amended from time to time, the
"Agreement") for the safekeeping of securities and cash received by the
Custodian for the account of the Client;

WHEREAS, the Client has opened an account with Short-Term Investments
Co. in order to invest in their Liquid Assets Portfolio, MSTC Cash Reserves
Class (the "Fund");

WHEREAS, the Client and the Custodian have agreed to enter into this
Amendment in order to authorize the Custodian to take certain additional actions
on behalf of the Client;

NOW, THEREFORE, in consideration of the premises, the parties hereto
agree as follows:

1. Terms defined in the Agreement are used herein with their defined
meanings.

2. Notwithstanding any provisions in the Custody Agreement to the
contrary, the Client hereby directs the Custodian to transfer to Client's
account #_________________ with the Fund (the "Fund Account"), on a daily basis,
any US dollar cash received by the Custodian for the Client's Accounts
specified on Schedule I hereto, in excess of the amount deemed necessary to
settle Client's cash and securities transactions. If the US dollar cash received
by the Custodian on the Client's behalf is not adequate to settle such
transactions, the Client hereby authorizes the Custodian to cause shares to be
redeemed from Client's Fund Account in amounts necessary to settle such
transactions.

3. The Client hereby authorizes the Custodian to provide to Fund
Management Company ("FMC"), an agent on behalf of the Fund, such information
with respect to the Client as may be required by applicable laws and regulations
or as may be reasonably requested by FMC and approved by the Client in writing.

4. The Client acknowledges that the Custodian has entered into a
Shareholder Service Agreement with FMC on behalf of the Fund for certain
administrative services the Custodian provides to the Fund. The Custodian
receives a fee for such services as set forth in the Prospectus of the Fund
under "Annual Portfolio Operating Expenses, 12b-1 Fees."

1
<PAGE> 2
Exhibit 8(c)

5. The Client confirms that any decision to invest in the Fund is
solely a decision of the Client and the Client has not relied on the Custodian
for any investment advice. The Client confirms further that the Custodian is not
exercising any discretionary authority with respect to the Client's investments
in the Fund.

6. Except as expressly amended hereby, all terms and provisions of the
Agreement shall continue to be in full force and effect. This Amendment shall be
construed in accordance with the applicable laws of the State of New York. This
Amendment may be executed by one or both of the parties hereto on any number of
separate counterparts, and all of said counterparts taken together shall be
deemed to constitute one and the same instrument.

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered by their respective authorized officers as of the
day and year first above written.

MORGAN STANLEY TRUST COMPANY

By: /s/ Peter A. Needham
Name: Peter A. Needham
Title: Principal and Treasurer

SCHWAB CAPITAL TRUST

By: /s/ William J. Klipp
Name: William J. Klipp
Title: Executive Vice President
and Chief Operating Officer

<PAGE> 1
Exhibit 8(e)

AMENDED EXHIBIT 1
TO ACCOUNTING SERVICES AGREEMENT

INVESTMENT COMPANIES
SCHWAB CAPITAL TRUST
Schwab Asset Director - High Growth Fund
Schwab Asset Director - Balanced Growth Fund
Schwab Asset Director - Conservative Growth Fund
Schwab International Index Fund
Schwab Small-Cap Index Fund
Schwab OneSource Portfolios - International
Schwab OneSource Portfolios - Growth Allocation
Schwab OneSource Portfolios - Balanced Allocation
Schwab OneSource Portfolios - Small Company

SCHWAB ANNUITY PORTFOLIOS
Schwab Asset Director - High Growth Portfolio

INVESTMENT COMPANIES
(LISTED ON EXHIBIT 1)

By: /s/ William J. Klipp
--------------------------------------
Name: William J. Klipp
Title: Executive Vice President &
Chief Operating Officer

FEDERATED SERVICES COMPANY

By: /s/ Douglas L. Hein
--------------------------------------
Name: Douglas L. Hein
Title: Senior Vice President

<PAGE> 1
Exhibit 8(j)

TRANSFER AGENCY AGREEMENT

AGREEMENT made this 21st day of July 1993, between SCHWAB CAPITAL TRUST
(the "Trust"), a Massachusetts business trust having its principal place of
business at 101 Montgomery Street, San Francisco, California 94104, and CHARLES
SCHWAB & CO., INC. ("Schwab"), a corporation organized under the laws of the
State of California which is a Securities and Exchange Commission licensed
transfer agent and which has its principal place of business at 101 Montgomery
Street, San Francisco, California 94104.

WHEREAS, the Trust desires that Schwab perform certain services for the
Trust, and for its series denominated as "Funds" and whose shares of beneficial
interest currently comprise the shares of the Trust identified on Schedule A
hereto (individually referred to herein as a "Fund" and collectively as the
"Funds"); and

WHEREAS, Schwab is willing to perform such services on the terms and
conditions set forth in this Agreement;

NOW, THEREFORE, in consideration of the mutual premises and covenants
herein set forth, the parties agree as follows:

1. SERVICES; USE OF SUBTRANSFER AGENTS. Schwab will perform for the Trust
the services set forth in Schedule B hereto, including services as Transfer
Agent.

Schwab also agrees to perform for the Trust such special services
incidental to the performance of the services enumerated herein as agreed to by
the parties from time to time. Schwab will perform such additional services as
are provided on an amendment to Schedule B hereof, in consideration of such fees
as the parties hereto may agree.

Schwab may, in its discretion, appoint in writing other parties
qualified to perform transfer agency and shareholder services (individually, a
"Subtransfer Agent") to carry out some or all of its responsibilities under this
Agreement with respect to a Fund; provided, however, that the Subtransfer Agent
will be the agent of Schwab and not the agent of the Trust or such Fund, and
that Schwab will be fully responsible for the acts of such Subtransfer Agent and
shall not be relieved of any of its responsibilities hereunder by the
appointment of such Subtransfer Agent.

unless the Trust otherwise agrees to such change in writing; thereafter, Schwab
may change its fees only upon the written consent of the Trust. Fees for any
additional services to be provided by Schwab pursuant to an amendment to
Schedule B hereto shall be subject to mutual agreement at the time such
amendment to Schedule B is proposed.

3. REIMBURSEMENT OF EXPENSES. In addition to paying Schwab the fees
described in Section 2 hereof, the Trust agrees to reimburse Schwab for Schwab's
out-of-pocket expenses in providing services hereunder, including without
limitation the following:

A. All freight and other delivery and bonding charges incurred by
Schwab in delivering materials to and from the Trust and in delivery of
all materials to shareholders;

B. All direct telephone, telephone transmission and telecopy or other
electronic transmission expenses incurred by Schwab in communication
with the Trust, the Trust's investment adviser, sub-investment adviser
or custodian, dealers, shareholders or others as required for Schwab to
perform the services to be provided hereunder;

C. Costs of postage, couriers, stock computer paper, statements,
labels, envelopes, checks, reports, letters, tax forms, proxies,
notices or other forms of printed material which shall be required by
Schwab for the performance of the services to be provided hereunder;

D. The cost of microfilm or microfiche of records or other materials;
and

E. Any expenses Schwab may incur at the written direction of an
officer of the Trust thereunto duly authorized.

4. EFFECTIVE DATE. This Agreement will become effective with respect to
each Fund as of the date set forth across from its name on Schedule A, such date
for each Fund to be referred to herein as the "Effective Date."

5. TERM AND TERMINATION. This Agreement will continue in effect with
respect to the Trust and to each Fund, unless earlier terminated as to a Fund by
either party hereto as provided hereunder, for an initial term of one year from
the Effective Date. Thereafter, this Agreement will continue in effect unless
either party hereto terminates this Agreement with respect to a Fund by giving
90 days', written notice to the other party, whereupon this Agreement with
respect to that Fund will terminate automatically upon the expiration of said 90
days; provided, however, that after such termination, for so long as Schwab,
with the written consent of the Trust, in fact continues to perform any one or
more of the services contemplated by this Agreement or any Schedule or exhibit
hereto, the provisions of this Agreement, including without limitation the
provisions dealing with indemnification, shall continue in full force and
effect. Fees and out-of-pocket expenses

-2-
<PAGE> 3
Exhibit 8(j)

incurred by Schwab but unpaid by the Trust upon such termination shall be
immediately due and payable upon and notwithstanding such termination. Schwab
will be entitled to collect from the Trust, in addition to the fees and
disbursements provided by Paragraphs 2 and 3 hereof, the amount of Schwab's cash
disbursements and a reasonable fee (which fee shall be not less than the actual
costs incurred by Schwab in performing such service) for services in connection
with Schwab's activities in effecting such termination, including without
limitation, the delivery to the Trust and/or its distributors or investment
advisers and/or other parties, of the Trust's property, records, instruments and
documents, or any copies thereof.

6. SCHWAB'S RELIANCE ON RECORDS AND INSTRUCTIONS. Schwab may rely on any
written records or instructions provided to it by the Trust or any investment
adviser and on any written records provided by any prior transfer agent or
custodian thereof, and each Fund agrees to indemnify Schwab and hold it, its
employees, officers, directors and agents harmless from and against any and all
claims, demands, actions, suits, judgments, liabilities, losses, damages, costs,
charges, counsel fees and other expenses of every nature arising out of or in
any way relating to any actions taken by Schwab with respect to such Fund in
reasonable reliance upon such records or instructions.

7. UNCONTROLLABLE EVENTS. Schwab assumes no responsibility hereunder, and
will not be liable, for any damage, loss of data, delay or any other loss
whatsoever caused by events beyond its reasonable control.

8. STANDARD OF CARE. Schwab will use its best efforts to insure the
accuracy of all services performed under this Agreement, but will not be liable
to the Trust for any action taken or omitted by Schwab in the absence of bad
faith, willful misconduct or gross negligence.

9. LEGAL ADVICE. Schwab will notify the Trust at any time Schwab believes
that it is in need of the advice of counsel with regard to Schwab's
responsibilities and duties pursuant to this Agreement; upon the Trust's
consent, Schwab, at its discretion, will be entitled to seek, receive and act
upon advice of legal counsel of its choosing, such advice to be at the expense
of the Trust or the Fund involved unless such advice relates to a matter
involving Schwab's bad faith, willful misconduct or gross negligence with
respect to Schwab's responsibilities and duties hereunder, and Schwab in no
event be liable to the Trust or the Fund involved or any shareholder or
beneficial owner of the Trust or such Fund for any action reasonably taken
pursuant to such advice.

10. INSTRUCTIONS. Whenever Schwab is requested or authorized to take action
hereunder pursuant to instructions from a shareholder concerning an account in
the Trust, Schwab will be entitled to rely upon any certificate, letter or other
instrument or communication, whether in writing or by electronic or telephone
transmission, believed by Schwab to be genuine and to have been properly made,
signed or authorized by an officer or other authorized agent of the Trust or by
the shareholder, as the case may be, and shall be entitled to receive as
conclusive proof of any fact or matter required to be ascertained

-3-
<PAGE> 4
Exhibit 8(j)

by it hereunder a certificate signed by an officer of the Trust or any other
person authorized by the Trust's Board of Trustees or by the shareholder, as the
case may be.

As to the services to be provided hereunder, Schwab may rely
conclusively upon the terms of the Prospectus of a Fund and the Statement of
Additional Information of the Trust to the extent that such services are
described therein unless Schwab receives written instructions to the contrary in
a timely manner from the Trust.

11. INDEMNIFICATION. Each Fund agrees to indemnify and hold harmless Schwab
and Schwab's employees, agents, directors, officers and nominees from and
against any and all claims, demands, actions and suits, whether groundless or
otherwise, and from and against any and all judgments, liabilities, losses,
damages, costs, charges, counsel fees and other expenses of every nature and
character arising out of or in any way relating to Schwab's actions taken or
non-actions with respect to the performance of services under this Agreement
with respect to such Fund or based, if applicable, upon information,
instructions or requests with respect to such Fund given or made to Schwab by an
officer of the Trust thereunto duly authorized; provided that this
indemnification shall not apply to actions or omissions of Schwab in cases of
its own bad faith, willful misconduct or gross negligence, and further provided
that prior to confessing any claim against it which may be the subject of this
indemnification, Schwab shall give the Trust written notice of and reasonable
opportunity to defend against said claim in its own name or in the name of
Schwab.

12. RECORD RETENTION AND CONFIDENTIALITY. Schwab will keep and maintain on
behalf of the Trust all records which the Trust or Schwab is, or may be,
required to keep and maintain pursuant to any applicable statutes, rules and
regulations, including without limitation Rules 3la-1 and 3la-2 under the
Investment Company Act of 1940, relating to the maintenance of records in
connection with the services to be provided hereunder. Schwab agrees to make
such records available for inspection by the Trust or by the Securities and
Exchange Commission at reasonable times and otherwise to keep confidential all
records and other information relative to the Trust and its shareholders, except
when requested to divulge such information by duly-constituted authorities or
court process, or requested by a shareholder with respect to information
concerning an account as to which such shareholder has either a legal or
beneficial interest or when requested by the Trust, the shareholder, or the
dealer of record as to such account.

13. REPORTS. Schwab will furnish to the Trust and to the Trust's
properly-authorized auditors, investment advisers, examiners, distributors,
dealers, underwriters, salesmen, insurance companies and others designated by
the Trust in writing, such reports at such times as are prescribed in Schedule D
attached hereto, or as subsequently agreed upon by the parties pursuant to an
amendment to Schedule D. The Trust agrees to examine each such report or copy
promptly and will report or cause to be reported any errors or discrepancies
therein no later than three business days from the receipt thereof. In the event
that errors or discrepancies, except such errors and discrepancies as may not

-4-
<PAGE> 5
Exhibit 8(j)

reasonably be expected to be discovered by the recipient within three days after
conducting a diligent examination, are not so reported within the aforesaid
period of time, a report will for all purposes be accepted by and binding upon
the Trust and any other recipient, and Schwab shall have no liability for errors
or discrepancies therein and shall have no further responsibility with respect
to such report except to perform reasonable corrections of such errors and
discrepancies within a reasonable time after requested to do so by the Trust.

14. RIGHTS OF OWNERSHIP. All computer programs and procedures developed to
perform services required to be provided by Schwab under this Agreement are the
property of Schwab. All records and other data except such computer programs and
procedures are the exclusive property of the Trust and all such other records
and data will be furnished to the Trust in appropriate form as soon as
practicable after termination of this Agreement for any reason.

15. RETURN OF RECORDS. Schwab may at its option at any time, and shall
promptly upon the Trust's demand, turn over to the Trust and cease to retain
Schwab's files, records and documents created and maintained by Schwab pursuant
to this Agreement which are no longer needed by Schwab in the performance of its
services or for its legal protection. If not so turned over to the Trust, such
documents and records will be retained by Schwab for six years from the year of
creation. At the end of such six-year period, such records and documents will be
turned over to the Trust unless the Trust authorizes in writing the destruction
of such records and documents.

16. BANK ACCOUNTS. The Trust and a Fund shall establish and maintain such
bank accounts with such bank or banks as are selected by the Trust, as are
necessary in order that Schwab may perform the services required to be performed
hereunder. To the extent that the performance of such services shall require
Schwab directly to disburse amounts for payment of dividends, redemption
proceeds or other purposes, the Trust and a Fund will provide such bank or banks
with all instructions and authorizations necessary for the Fund to effect such
disbursements.

17. PURCHASE AND REDEMPTION OF SHARES. Schwab will process instructions
from the Shareholders of the Trust to purchase and redeem shares of the Trust as
the agent for the Trust.

With respect to those Funds identified on Schedule A hereto as "Sweep
Funds" (if any), Schwab will perform such daily, and/or weekly monitoring and
other related tasks as is necessary to carry out the automatic investment and
redemption features associated with each individual shareholder's account with
Schwab.

18. REPRESENTATIONS OF THE TRUST. The Trust certifies to Schwab that: (1)
as of the close of business on the Effective Date, each Fund has authorized
unlimited shares and (2) by virtue of its Declaration of Trust, shares of each
Fund which are redeemed by the Trust may be sold by the Trust from its treasury
and (3) this Agreement

-5-
<PAGE> 6
Exhibit 8(j)

has been duly authorized by the Trust and, when executed and delivered by the
Trust, will constitute a legal, valid and binding obligation of the Trust,
enforceable against the Trust in accordance with its terms, subject to
bankruptcy, insolvency, reorganization, moratorium and other laws of general
application affecting the rights and remedies of creditors and secured parties.

19. REPRESENTATIONS OF SCHWAB. Schwab represents and warrants that the
various procedures and systems which Schwab has implemented with regard to
safeguarding from loss or damage attributable to fire, theft, or any other cause
of the blank checks, records, and other data of the Trust and Schwab's records,
data, equipment facilities and other property used in the performance of its
obligations hereunder are adequate and that it will make such changes therein
from time to time as are required for the secure performance of its obligations
hereunder.

20. INSURANCE. Schwab will use reasonable efforts to obtain insurance
covering the services to be performed by it under this Agreement and shall
notify the Trust in the event it is unable to do so within 90 days after the
Effective Date of this Agreement. Thereafter, Schwab will notify the Trust
should any of its insurance coverage be changed for any reason. Such
notification shall include the date of change and the reasons therefor.
Schwab-will notify the Trust of any material claims against it with respect to
services performed under this Agreement, whether or not they may be covered by
insurance, and shall notify the Trust from time to time as may be appropriate of
the total outstanding claims made by Schwab under its insurance coverage.

21. INFORMATION TO BE FURNISHED BY THE TRUST. The Trust has furnished to
Schwab the following:

A. Copies of the Declaration of Trust of the Trust and of any
amendments thereto, certified by the proper official of the state in
which such Declaration has been filed.

B. Copies of the following documents:

1. The Trust's By-Laws and any amendments thereto.

2. Certified copies of resolutions of the Board of Trustees
covering the following matters:

a. Approval of this Agreement, authorization of an
officer of the Trust to execute and deliver this
Agreement and authorization for officers of the
Trust to instruct Schwab hereunder; and

b. Authorization of Schwab to act as Registrar,
Transfer Agent and Dividend Disbursing Agent for
the Trust.

-6-
<PAGE> 7
Exhibit 8(j)

C. A list of all the officers of the Trust, together with specimen
signatures of those officers who are authorized to instruct Schwab in
all matters.

D. Two copies of the following:

1. Prospectuses for each Fund and the Statement of Additional
Information of the Trust;

2. Distribution Agreement;

3. Investment Advisory and Administration Agreement(s); and

4. All other forms Commonly used by the Trust or its Distributor
with regard to their relationships and transactions with
shareholders of the Trust.

E. A certified statement as to shares of beneficial interest of the
Trust authorized, issued, and outstanding as of the Effective Date of
Schwab's appointment as Transfer Agent (or as of the date on which
Schwab's services are commenced, whichever is the later date) and as to
receipt of full consideration by the Trust for all shares outstanding,
such statement to be certified by the Treasurer of the Trust;

22. INFORMATION FURNISHED BY SCHWAB. Schwab has furnished to the Trust the
following:

A. Schwab's Articles of Incorporation.

B. Schwab's By-Laws and any amendments thereto.

C. Certified copies of actions of Schwab covering the following
matters:

1. Approval of this Agreement, and authorization of an officer
of Schwab to execute and deliver this Agreement; and

2. Authorization of Schwab to act as Transfer Agent for the
Trust.

23. AMENDMENTS TO DOCUMENTS. The Trust shall furnish Schwab written copies
of any amendments to, and changes in, any of the items referred to in Section 21
hereof forthwith upon such amendments and changes becoming effective. In
addition, the Trust agrees that no amendments will be made to the Prospectus of
a Fund or the Statement of Additional Information of the Trust which might have
the effect of changing the procedures employed by Schwab in providing the
services agreed to hereunder or which amendment might affect the duties of
Schwab hereunder unless the Trust first obtains Schwab's approval of such
amendments or changes.

-7-
<PAGE> 8
Exhibit 8(j)

24. RELIANCE ON AMENDMENTS. Schwab may rely on any amendments to or changes
in any of the documents and other items to be provided by the Trust pursuant to
Sections 21 and 23 of this Agreement and a Fund will indemnify and hold harmless
Schwab from and against any and all claims, demands, actions, suits, judgments,
liabilities, losses, damages, actions, suits, judgments, liabilities, losses,
damages, costs, charges, counsel fees and other expenses of every nature and
character which may result from actions or omissions on the part of Schwab with
respect to such Fund in reliance upon such amendments and/or changes. Although
Schwab is authorized to rely on the abovementioned amendments to and changes in
the documents and other items to be provided pursuant to Sections 21 and 23
hereof, Schwab will be under no duty to comply with or take any action as a
result of any of such amendments or changes unless the Trust first obtains
Schwab's written consent to and approval of such amendments or changes.

25. COMPLIANCE WITH LAW. Except for the obligations of Schwab set forth in
Section 12 hereof, the Trust assumes full responsibility for the preparation,
contents and distribution of each Prospectus of the Trust, as to compliance with
all applicable requirements of the Securities Act of 1933, as amended, the
Investment Company Act of 1940, as amended, and any other laws, rules and
regulations of governmental authorities having jurisdiction. Schwab will have no
obligation to take cognizance of any laws relating to the sale of the Trust's
shares.

26. NOTICES. Any notice provided hereunder shall be sufficient given when
sent by registered or certified mail to the party required to be served with
such notice, at the following address: 101 Montgomery Street, San Francisco,
California 94104 or at such other address as such party may from time to time
specify in writing to the other party pursuant to this Section.

27. HEADINGS. Paragraph headings in this Agreement are included for
convenience only and are not to be used to construe or interpret this Agreement.

28. ASSIGNMENT. This Agreement and the rights and duties hereunder shall
not be assignable with respect to a Fund by either of the parties hereto except
by the specific written consent of the other party. This Section 28 shall not
limit or in any way affect Schwab's right to appoint a Subtransfer Agent
pursuant to Section 1 hereof.

29. GOVERNING LAW. This Agreement shall be governed by and provisions
shall be construed in accordance with the laws of the State of California.

30. LIMITATION OF LIABILITY. A copy of the Declaration of Trust of the
Trust is on file with the Secretary of The Commonwealth of Massachusetts, and
notice is hereby given that this instrument is executed on behalf of the
Trustees of the Trust as Trustees and not individually and that the obligations
of this instrument are not binding upon any of the Trustees or shareholders
individually but are binding only upon the assets and property of the Trust.

-8-
<PAGE> 9
Exhibit 8(j)

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed all as of the day and year first above written.

SCHWAB CAPITAL TRUST

By: /s/ David Lui
-------------
Name: David H. Lui
Title: Assistant Secretary

CHARLES SCHWAB & CO., INC.

By: /s/ Timothy B. Pawloski
-----------------------
Name: Timothy B. Pawloski
Title: Vice President

-9-
<PAGE> 10
EXHIBIT 8(j)

SCHEDULE A

Name of Fund Effective Date
- ------------ --------------

Schwab International Index Fund July 21, 1993

SCHWAB CAPITAL TRUST

By: /s/ David Lui
-----------------------
Name: David Lui
Title: Assistant Secretary

CHARLES SCHWAB & CO., INC.

By: /s/ Timothy B. Pawloski
-----------------------
Name: Timothy B. Pawloski
Title: Vice President

Dated: July 21, 1993

A-1
<PAGE> 11
Exhibit 8(j)

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.

-11-
<PAGE> 12
Exhibit 8(j)

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/ David H. Lui
-----------------------------
Name: David H. Lui
Title: Assistant Secretary

CHARLES SCHWAB & CO., INC.

By: /s/ Timothy B. Pawloski
-----------------------------
Name: Timothy B Pawloski
Title: Vice President

-12-
<PAGE> 13
SCHEDULE C

FEES

Name of Fund Fee
- ------------ -------------------------

Schwab International Index Fund Five one-hundredths of
one percent (.05%) of the
Fund's average daily net
assets

SCHWAB CAPITAL TRUST

By: /s/ David H. Lui
-----------------------
Name: David H. Lui
Title: Assistant Secretary

CHARLES SCHWAB & Co., INC.

By: /s/ Timothy B. Pawloski
-----------------------
Name: Timothy B. Pawloski
Title: Vice President

Dated: July 21, 1993

C-1
<PAGE> 14
Exhibit 8(j)

SCHEDULE D

REPORTS

I. Daily Activity Report (liquidations processed that day)

II. 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

III. Daily Proof Sheet Summary and Transaction Register

IV. Daily Share Reconciliation Report (reconciling Share Summary Report to
Daily Proof Summary Sheet)

V. Weekly Position Reports (showing all account balances)

VI. Monthly Dividend Reports

VII. 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/ David H. Lui
-----------------------------
Name: David H. Lui
Title: Assistant Secretary

CHARLES SCHWAB & CO., INC.

By: /s/ Timothy B. Pawloski
-----------------------------
Name: Timothy B Pawloski
Title: Vice President

-15-
<PAGE> 15
EXHIBIT 8(j)
AMENDED SCHEDULE C
TO THE TRANSFER AGENCY AGREEMENT
FOR SCHWAB CAPITAL TRUST

FEES

THE FEES LISTED BELOW ARE FOR SERVICES PROVIDED UNDER THIS AGREEMENT
AND ARE TO BE ACCRUED DAILY AND PAID MONTHLY IN ARREARS:

FUND FEE
- ---- ---

Schwab International Index Five one-hundredths of one percent (.05%)
Fund of the Fund's average daily net assets

Schwab Small-Cap Index Five one-hundredths of one percent (.05%)
Fund of the Fund's average daily net assets

Schwab Asset Director-High Five one-hundredths of one percent (.05%)
Growth Fund of the Fund's average daily net assets

Schwab Asset Director- Five one-hundredths of one percent (.05%)
Balanced Growth Fund of the Fund's average daily net assets

Schwab Asset Director- Five one-hundredths of one percent (.05%)
Conservative Growth Fund of the Fund's average daily net assets

Schwab S&P 500 Fund- Five one-hundredths of one percent (.05%)
Investor Shares of the Fund's average daily net assets

Schwab S&P 500 Fund- Five one-hundredths of one percent (.05%)
e.Shares of the Fund's average daily net assets

Schwab Analytics Fund Five one-hundredths of one percent (.05%)
of the Fund's average daily net assets.

Schwab OneSource Five one-hundredths of one percent (.05%)
Portfolios-International of the Fund's average daily net assets.

Schwab OneSource Five one-hundredths of one percent (.05%)
Portfolios-Growth of the Fund's average daily net assets.
Allocation

Schwab OneSource Five one-hundredths of one percent (.05%)
Portfolios-Balanced of the Fund's average daily net assets.
Allocation

Schwab OneSource Five one-hundredths of one percent (.05%)
Portfolios-Small Company of the Fund's average daily net assets.

C-1
<PAGE> 16
SCHWAB CAPITAL TRUST

By: /s/ William J. Klipp
----------------------------
Name: William J. Klipp
Title: Executive Vice President
and Chief Operating Officer

CHARLES SCHWAB & CO., INC.

By: /s/ Colleen M. Hummer
----------------------------
Name: Colleen M. Hummer
Title: Senior Vice President

C-2

<PAGE> 1
EXHIBIT 8(k)

AMENDED SCHEDULE A
TO THE TRANSFER AGENCY AGREEMENT
FOR SCHWAB CAPITAL TRUST

Fund Effective Date

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 September 25, 1995
Growth Fund

Schwab S&P 500 Fund-Investor Shares February 28, 1996

Schwab S&P 500 Fund-e.Shares February 28, 1996

Schwab Analytics Fund May 21, 1996

Schwab OneSource Portfolios- September 2, 1996
International

Schwab OneSource Portfolios-Growth October 13, 1996
Allocation

Schwab OneSource Portfolios-Balanced October 13, 1996
Allocation

Schwab OneSource Portfolios-Small August 3, 1997
Company

SCHWAB CAPITAL TRUST

By: /s/ William J. Klipp
----------------------------------
Name: William J. Klipp
Title: Executive Vice President
and Chief Operating Officer

CHARLES SCHWAB & CO., INC.

By: /s/ Colleen M. Hummer
----------------------------------
Name: Colleen M. Hummer
Title: Senior Vice President

A-1

<PAGE> 1
EXHIBIT 8(l)

SHAREHOLDER SERVICE AGREEMENT

AGREEMENT made this 21st day of July 1993 between SCHWAB CAPITAL TRUST
(the "Trust"), a Massachusetts business trust having its principal place of
business at 101 Montgomery Street, San Francisco, California 94104, and CHARLES
SCHWAB & CO., INC. ("Schwab"), a corporation organized under the laws of the
State of California and a broker-dealer registered with the Securities and
Exchange Commission and member of the National Association of Securities
Dealers, Inc., which has its principal place of business at 101 Montgomery
Street, San Francisco, California 94104.

WHEREAS, the Trust desires that Schwab perform certain
shareholder-related services for the Trust and for its series denominated as
"Funds" whose shares of beneficial interest currently comprise the shares of the
Trust identified on Schedule A hereto (individually referred to herein as a
"Fund" and collectively as the "Funds"); and

WHEREAS, Schwab is willing to perform such services on the terms and
conditions set forth in this Agreement;

NOW, THEREFORE, in consideration of the mutual premises and covenants
herein set forth, the parties agree as follows:

1. SERVICES. Schwab will perform for the Trust and the Funds the
services set forth in Schedule B hereto.

2. FEES. The Trust will pay Schwab for the services to be provided by
Schwab under this Agreement in accordance with, and in the manner set forth in,
Schedule C hereto. Schwab will not change the fees it charges pursuant to the
fee schedule until the expiration of one year from the Effective Date of this
Agreement (as defined below), unless the Trust otherwise agrees to such change
in writing; thereafter, Schwab may change its fees only upon the written consent
of the Trust. Fees for any additional services to be provided by Schwab pursuant
to an amendment to Schedule B hereto shall be subject to mutual agreement at the
time such amendment to Schedule B is proposed.

3. REIMBURSEMENT OF EXPENSES. In addition to paying Schwab the fees
described in Section 2 hereof, the Trust agrees to reimburse Schwab for Schwab's
out-of-pocket expenses in providing additional services incurred at the written
direction of an officer of the Trust thereunto duly authorized.

4. EFFECTIVE DATE. This Agreement will become effective with respect
to each Fund as of the date set forth across from its name on Schedule A, such
date for each Fund to be referred to
<PAGE> 2
herein as the "Effective Date."

5. TERM AND TERMINATION. This Agreement will continue in effect with
respect to each Fund, unless earlier terminated by either party hereto as to a
Fund as provided hereunder, for an initial term of one year from its Effective
Date. Thereafter, this Agreement will continue in effect unless either party
hereto terminates this Agreement with respect to a Fund by giving 90 days'
written notice to the other party, whereupon this Agreement with respect to that
Fund will terminate automatically upon the expiration of said 90 days; provided,
however, that after such termination, for so long as Schwab, with the written
consent of the Trust, in fact continues to perform any one or more of the
services contemplated by this Agreement or any Schedule or exhibit hereto, the
provisions of this Agreement, including without limitation the provisions
dealing with indemnification, shall continue in full force and effect. Fees and
out-of-pocket expenses incurred by Schwab but unpaid by the Trust upon such
termination shall be immediately due and payable upon and notwithstanding such
termination. Schwab will be entitled to collect from the Trust, in addition to
the fees and disbursements provided by Paragraphs 2 and 3 hereof, the amount of
all of Schwab's cash disbursements and a reasonable fee (which fee shall be not
less than the actual costs incurred by Schwab in performing such service) for
services in connection with Schwab's activities in effecting such termination.

6. SCHWAB'S RELIANCE ON RECORDS AND INSTRUCTIONS. Schwab may rely on
any written records or instructions provided to it by the Trust or any
investment adviser or sub-adviser thereto, and on any written records provided
by any transfer agent or custodian thereof, and each Fund agrees to indemnify
Schwab and hold it, its employees, officers, directors and agents harmless from
and against any and all claims, demands, actions, suits, judgments, liabilities,
losses, damages, costs, charges, counsel fees and other expenses of every nature
arising out of or in any way relating to any actions taken by Schwab with
respect to such Fund in reasonable reliance upon such records or instructions.

7. UNCONTROLLABLE EVENTS. Schwab assumes no responsibility hereunder,
and will not be liable, for any damage, loss of data, delay or any other loss
whatsoever caused by events beyond its reasonable control.

-2-
<PAGE> 3
9. LEGAL ADVICE. Schwab will notify the Trust at any time Schwab
believes that it is in need of the advice of counsel with regard to Schwab's
responsibilities and duties pursuant to this Agreement; upon the Trust's
consent, Schwab, at its discretion, will be entitled to seek, receive and act
upon advice of legal counsel of its choosing, such advice to be at the expense
of the Trust or the Fund involved unless such advice relates to a matter
involving Schwab's bad faith, willful misconduct or gross negligence with
respect to Schwab's responsibilities and duties hereunder, and Schwab in no
event be liable to the Trust or the Fund involved or any shareholder or
beneficial owner of the Trust or such Fund for any action reasonably taken
pursuant to such advice.

10. INSTRUCTIONS. Whenever Schwab is requested or authorized to take
action hereunder pursuant to instructions from a shareholder concerning an
account in the Trust, Schwab will be entitled to rely upon any certificate,
letter or other instrument or communication, whether in writing or by electronic
or telephone transmission, believed by Schwab to be genuine and to have been
properly made, signed or authorized by an officer or other authorized agent of
the Trust or by the shareholder, as the case may be, and shall be entitled to
receive as conclusive proof of any fact or matter required to be ascertained by
it hereunder a certificate signed by an officer of the Trust or any other person
authorized by the Trust's Board of Trustees or by the shareholder, as the case
may be.

11. INDEMNIFICATION. Each Fund agrees to indemnify and hold harmless
Schwab and Schwab's employees, agents, directors, officers and nominees from and
against any and all claims, demands, actions and suits, whether groundless or
otherwise, and from and against any and all judgments, liabilities, losses,
damages, costs, charges, counsel fees and other expenses of every nature and
character arising out of or in any way relating to Schwab's actions taken or
non-actions with respect to the performance of services under this Agreement
with respect to such Fund or based, if applicable, upon information,
instructions or requests with respect to such Fund given or made to Schwab by an
officer of the Trust thereunto duly authorized; provided that this
indemnification shall not apply to actions or omissions of Schwab in cases of
its own bad faith, willful misconduct or gross negligence, and further provided
that, prior to confessing any

-3-
<PAGE> 4
claim against it which may be the subject of this indemnification, Schwab shall
give the Trust written notice of and reasonable opportunity to defend against
said claim in its own name or in the name of Schwab.

12. RECORD RETENTION AND CONFIDENTIALITY. Schwab will keep and maintain
all records which Schwab is, or may be, required to keep and maintain pursuant
to any applicable statutes, rules and regulations in connection with the
services to be provided hereunder. Schwab agrees to make such records available
for inspection by the Trust or by the Securities and Exchange Commission at
reasonable times and otherwise to keep confidential all records and other
information relative to the Trust and its shareholders, except when requested to
divulge such information by duly-constituted authorities or court process, or
requested by a shareholder with respect to information concerning an account as
to which such shareholder has either a legal or beneficial interest or when
requested by the Trust.

13. RIGHTS OF OWNERSHIP. All computer programs and procedures developed
to perform services required to be provided by Schwab under this Agreement are
the property of Schwab. All records and other data except such computer programs
and procedures are the exclusive property of the Trust and all such other
records and data will be furnished to the Trust in appropriate form as soon as
practicable after termination of this Agreement for any reason.

14. RETURN OF RECORDS. Schwab may at its option at any time, and shall
promptly upon the Trust's demand, turn over to the Trust and cease to retain all
files, records and documents created and maintained by Schwab pursuant to this
Agreement which are no longer needed by Schwab in the performance of its
services or for its legal protection. If not so turned over to the Trust, such
documents and records will be retained by Schwab for six years from the year of
creation. At the end of such six-year period, such records and documents will be
turned over to the Trust unless the Trust authorizes in writing the destruction
of such records and documents.

15. REPRESENTATIONS OF THE TRUST. The Trust certifies to Schwab that
this Agreement has been duly authorized by the Trust and, when executed and
delivered by the Trust, will constitute a legal, valid and binding obligation of
the Trust, enforceable against the Trust in accordance with its terms, subject
to bankruptcy, insolvency, reorganization, moratorium and other laws of general
application affecting the rights and remedies of creditors and secured parties.

16. REPRESENTATIONS OF SCHWAB. Schwab represents and

-4-
<PAGE> 5
warrants that the various procedures and systems which Schwab has implemented
with regard to safeguarding from loss or damage attributable to fire, theft, or
any other cause of the records, data, equipment facilities and other property
used in the performance of its obligations hereunder are adequate and that it
will make such changes therein from time to time as are required for the secure
performance of its obligations hereunder.

17. INFORMATION TO BE FURNISHED BY THE TRUST. The Trust has furnished
to Schwab the following:

A. Copies of the Declaration of Trust of the Trust and of any
amendments thereto, certified by the proper official of the
state in which such Declaration has been filed.

B. Copies of the following documents:

1. The Trust's By-Laws and any amendments thereto.

2. Certified copies of resolutions of the Board of Trustees
covering the following matters:

a. Approval of this Agreement, authorization of an
officer of the Trust to execute and deliver this
Agreement, and authorization for officers of the
Trust to instruct Schwab hereunder; and

b. Authorization of Schwab to act as Shareholder
Service Agent for the Trust.

C. A list of all the officers of the Trust, together with
specimen signatures of those officers who are authorized to
instruct Schwab in all matters.

D. Two copies of the following (if such documents are employed
by the Trust):

1. Prospectuses for each Fund and the Statement(s) of
Additional Information of the Trust;

2. Distribution Agreement;

3. Investment Advisory and Administration Agreement(s); and

4. All other forms commonly used by the Trust or

-5-
<PAGE> 6
its Distributor with regard to their relationships and
transactions with shareholders of the Trust.

18. INFORMATION FURNISHED BY SCHWAB. Schwab has furnished to the Trust
the following:

A. Schwab's Articles of Incorporation.

B. Schwab's By-Laws and any amendments thereto.

C. Certified copies of actions of Schwab covering the following
matters:

1. Approval of this Agreement, and authorization of an
officer of Schwab to execute and deliver this Agreement;
and

2. Authorization of Schwab to act as Shareholder Service
Agent for the Trust.

19. AMENDMENTS TO DOCUMENTS. The Trust shall furnish Schwab written
copies of any amendments to, and changes in, any of the items referred to in
Section 17 hereof forthwith upon such amendments and changes becoming effective.
In addition, the Trust agrees that no amendments will be made to the Prospectus
of a Fund or a Statement of Additional Information of the Trust which might have
the effect of changing the procedures employed by Schwab in providing the
services agreed to hereunder or which amendment might affect the duties of
Schwab hereunder unless the Trust first obtains Schwab's approval of such
amendments or changes.

20. RELIANCE ON AMENDMENTS. Schwab may rely on any amendments to or
changes in any of the documents and other items to be provided by the Trust
pursuant to Sections 17 and 19 of this Agreement and a Fund will indemnify and
hold harmless Schwab from and against any and all claims, demands, actions,
suits, judgments, liabilities, losses, damages, actions, suits, judgments,
liabilities, losses, damages, costs, charges, counsel fees and other expenses of
every nature and character which may result from actions or omissions on the
part of Schwab with respect to such Fund in reliance upon such amendments and/or
changes. Although Schwab is authorized to rely on the above-mentioned amendments
to and changes in the documents and other items to be provided pursuant to
Sections 17 and 19 hereof, Schwab will be under no duty to comply with or take
any action as a result of any of such amendments or changes unless the Trust
first obtains Schwab's written consent to and approval of such amendments or
changes.

-6-
<PAGE> 7
21. NOTICES. Any notice provided hereunder shall be sufficient given
when sent by registered or certified mail to the party required to be served
with such notice, at the following address: 101 Montgomery Street, San
Francisco, California 94104 or at such other address as such party may from time
to time specify in writing to the other party pursuant to this Section.

22. HEADINGS. Paragraph headings in this Agreement are included for
convenience only and are not to be used to construe or interpret this Agreement.

23. ASSIGNMENT. This Agreement and the rights and duties hereunder
shall not be assignable with respect to a Fund by either of the parties hereto
except by the specific written consent of the other party.

24. GOVERNING LAW. This Agreement shall be governed by and provisions
shall be construed in accordance with the laws of the State of California.

25. LIMITATION OF LIABILITY. A copy of the Declaration of Trust of the
Trust is on file with the Secretary of The Commonwealth of Massachusetts, and
notice is hereby given that this instrument is executed on behalf of the
Trustees of the Trust as Trustees and not individually and that the obligations
of this instrument are not binding upon any of the Trustees or shareholders
individually but are binding only upon the assets and property of the Trust.

-7-
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed all as of the day and year first above written.

SCHWAB CAPITAL TRUST

By: /s/ David H. Lui
---------------------------------
Name: David H. Lui
Title: Assistant Secretary

CHARLES SCHWAB & CO., INC.

By: /s/ Timothy B. Pawloski
---------------------------------
Name: Timothy B. Pawloski
Title: Vice President

-8-

<PAGE> 1
EXHIBIT 8(m)

AMENDED SCHEDULE A
TO THE SHAREHOLDER SERVICE AGREEMENT
FOR SCHWAB CAPITAL TRUST

Fund Effective Date
- ---- --------------

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

Schwab S&P 500 Fund - Investor February 28, 1996
Shares

Schwab S&P 500 Fund -e.Shares February 28, 1996

Schwab Analytics Fund May 21, 1996

Schwab OneSource Portfolios- September 2, 1996
International

Schwab OneSource Portfolios-Growth October 13, 1996
Allocation

Schwab OneSource Portfolios- October 13, 1996
Balanced Allocation

Schwab OneSource Portfolios-Small August 3, 1997
Company

SCHWAB CAPITAL TRUST

By: /s/ William J. Klipp
--------------------------------
Name: William J. Klipp
Title: Executive Vice President
and Chief Operating Officer

CHARLES SCHWAB & CO., INC.

By: /s/ Colleen M. Hummer
--------------------------------
Name: Colleen M. Hummer
Title: Senior Vice President

C-1
<PAGE> 2
EXHIBIT 8(m)
AMENDED SCHEDULE C
TO THE SHAREHOLDER SERVICE AGREEMENT
FOR SCHWAB CAPITAL TRUST

THE FEES LISTED BELOW ARE FOR SERVICES PROVIDED UNDER THIS AGREEMENT
AND ARE TO BE ACCRUED DAILY AND PAID MONTHLY IN ARREARS:

Fund Fee
- ---- ---
Schwab International Index Twenty one-hundredths of one percent
Fund (.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 Twenty one-hundredths of one percent
Growth Fund (.20%) of the Fund's average daily
net assets

Schwab Asset Director- Twenty one-hundredths of one percent
Balanced Growth Fund (.20%) of the Fund's average daily
net assets

Schwab Asset Director- Twenty one-hundredths of one percent
Conservative Growth Fund (.20%) of the Fund's average daily
net assets

Schwab S&P 500 Fund - Twenty one-hundredths of one percent
Investor Shares (.20%) of the class' average daily
net assets

Schwab S&P 500 Fund - Five one-hundredths of one percent
e.Shares (0.05%) of the class' average daily
net assets

C-2
<PAGE> 3
Schwab Analytics Fund Twenty one-hundredths of one percent
(.20%) of the Fund's average daily
net assets.

Schwab OneSource Twenty one-hundredths of one percent
Portfolios-International (.20%) of the Fund's average daily
net assets.

Schwab OneSource Twenty one-hundredths of one percent
Portfolios-Growth (.20%) of the Fund's average daily
Allocation net assets.

Schwab OneSource Twenty one-hundredths of one percent
Portfolios-Balanced (.20%) of the Fund's average daily
Allocation net assets.

Schwab OneSource Twenty one-hundredths of one percent
Portfolios-Small Company (.20%) of the Fund's average daily
net assets.

SCHWAB CAPITAL TRUST

By: /s/ William J. Klipp
---------------------------------
Name: William J. Klipp
Title: Executive Vice President
and Chief Operating Officer

CHARLES SCHWAB & CO., INC.

By: /s/ Colleen M. Hummer
---------------------------------
Name: Colleen M. Hummer
Title: Senior Vice President

C-3

<PAGE> 1
EXHIBIT 13(a)

PURCHASE AGREEMENT

SCHWAB CAPITAL TRUST (the "Trust"), a Massachusetts business trust, and
CHARLES SCHWAB & CO., INC. ("Schwab") a California Corporation, hereby agree
with each other as follows:

1. The Trust hereby offers Schwab and Schwab hereby purchases 10,000
Series A units of beneficial interest (representing interests in the Schwab
International Index Fund)in the Trust (such 10,000 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 $100,000 in full
payment for the Shares.

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. Schwab agrees that if it or any direct or indirect transferee of
any of the Shares redeems any of the Shares prior to the fifth anniversary of
the date the Trust begins its investment activities, Schwab will pay to the
Trust an amount equal to the number resulting from multiplying the Trust's total
unamortized organizational expenses by a fraction, the numerator of which is
equal to the number of Shares redeemed by Schwab or such transferee and the
denominator of which is equal to the number of Shares outstanding as of the date
of such redemption, as long as the administrative position of the staff of the
Securities and Exchange Commission requires such reimbursement.

4. 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 the Declaration
of Trust, to which reference is hereby made and a copy of which is on file at
the office of the Secretary 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 made not
individually, but in such capacities, and are not binding upon any of the
Trustees, interest holders or representatives of the Trust personally, but bind
only the assets of the Trust, and all persons dealing with any series of units
of interest of the Trust
<PAGE> 2
must look solely to the assets of the Trust belonging to such series for the
enforcement of any claims against the Trust.

IN WITNESS THEREOF, the parties hereto have executed this Agreement as
of the 17th day of June, 1993.

Attest: SCHWAB CAPITAL TRUST

/s/ Carron Oswald By: /s/ Tom D. Seip
- ----------------------------------- --------------------------------

Name: Tom D. Seip
--------------------------------

Title: President and Chief
--------------------------------
Operating Officer
--------------------------------

Attest: CHARLES SCHWAB & CO., INC.

/s/ Carron Oswald By: /s/ William J. Klipp
- ----------------------------------- --------------------------------

Name: William J. Klipp
--------------------------------

Title: Senior Vice President
--------------------------------

<PAGE> 1
EXHIBIT 13(b)

PURCHASE AGREEMENT

Schwab Capital Trust (the "Fund"), a Massachusetts business trust, and
Charles Schwab & Co., Inc. ("Schwab"), a California corporation, hereby agree on
the ____ day of October 1993 as follows:

1. he Fund hereby offers and Schwab hereby purchases 100 Series B
units of beneficial interest representing interests in the Schwab Small-Cap
Index Fund, (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 Fund hereby acknowledges receipt from Schwab of
funds in the amount of $1,000 in full payment for the Shares. It is further
agreed that no certificate for the Shares will be issued by the Fund.

2. Schwab represents and warrants to the Fund that the Shares are
being acquired for investment purposes and not with a view to the distribution
thereof.

3. he 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 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.
<PAGE> 2
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed day and year first written above.

Attest: SCHWAB CAPITAL TRUST

/s/ Carron Oswald By: /s/ William J. Klipp
- -------------------------------------- -------------------------------
Name: William J. Klipp
Title: Senior Vice President

Attest: CHARLES SCHWAB & CO., INC.

/s/ David H. Lui By: /s/ Tom D. Seip
- -------------------------------------- -------------------------------
Name: Tom D. Seip
Title: Executive Vice President

<PAGE> 1
EXHIBIT 13(h)

PURCHASE AGREEMENT

Schwab Capital Trust (the "Trust"), a Massachusetts business trust, and
Charles Schwab & Co., Inc. ("Schwab"), a California corporation, hereby agree on
August 5, 1997 as follows:

1. The Trust hereby offers and Schwab hereby purchases 100 units of
beneficial interest for Series K of the trust representing interests in the
series of shares known as SCHWAB ONESOURCE PORTFOLIOS-SMALL COMPANY (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
$1,000 for such series of the Trust 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 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.

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed day and year first written above.

Attest: SCHWAB CAPITAL TRUST

/s/ Karen Seaman By: /s/ Stephen B. Ward
- ------------------------------ ---------------------------------
Name: Stephen B. Ward
Title: Senior Vice President and
Chief Investment Officer

Attest: CHARLES SCHWAB & CO., INC.

/s/ Karen Seaman By: /s/ Colleen M. Hummer
- ------------------------------ ---------------------------------
Name: Colleen M. Hummer
Title: Senior Vice President

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