<PAGE> 1
MANAGEMENT STATEMENT REGARDING COMPLIANCE WITH CERTAIN PROVISIONS OF THE
INVESTMENT COMPANY ACT OF 1940
We, as members of management of the Schwab OneSource Portfolios-International,
Schwab OneSource Portfolios-Balanced Allocation, Schwab OneSource
Portfolios-Growth Allocation, Schwab Asset Director High Growth Fund, Schwab
Asset Director Balanced Growth Fund, and Schwab Asset Director Conservative
Growth Fund, and Schwab OneSource Small Company Fund (each a series in the
Schwab Capital Trust, hereafter referred to as the "Funds") are responsible for
complying with the requirements of subsections (b) and (c) of Rule 17f-2,
Custody of Investments by Registered Management Investment Companies, of the
Investment Company Act of 1940. We are also responsible for establishing and
maintaining effective internal controls over compliance with those requirements.
We have performed an evaluation of the Funds' compliance with the requirements
of subsections (b) and (c) of Rule 17f-2 as of July 31, 1997, August 31, 1997
and October 31, 1997 and for the periods from October 31, 1996 (date of last
examination) or commencement of Fund operations through October 31, 1997.
Based on this evaluation, we assert that the Funds were in compliance with the
requirements of subsections (b) and (c) of Rule 17f-2 of the Investment Company
Act of 1940 as of July 31, 1997, August 31, 1997 and October 31, 1997 and for
the periods from October 31, 1996 (date of last examination) or commencement of
Fund operations through October 31, 1997, with respect to mutual fund
investments reflected in the investment accounts of the Funds.
Schwab Capital Trust
/s/ William J. Klipp
- ------------------------------------
William J. Klipp
Executive Vice President and Chief Operating Officer
/s/ Tai-Chin Tung
- ------------------------------------
Tai-Chin Tung
Principal Financial Officer and Treasurer
<PAGE> 2
REPORT OF INDEPENDENT ACCOUNTANTS
December 5, 1997
To the Trustees of
Schwab Capital Trust
We have examined management's assertion about the Schwab OneSource
Portfolios-International, Schwab OneSource Portfolios-Balanced Allocation,
Schwab OneSource Portfolios-Growth Allocation, Schwab Asset Director High Growth
Fund, Schwab Asset Director Balanced Growth Fund, and Schwab Asset Director
Conservative Growth Fund (each a series of the Schwab Capital Trust) compliance
with the requirements of subsections (b) and (c) of Rule 17f-2 under the
Investment Company Act of 1940 (the "Act") as of July 31, 1997, August 31, 1997
and October 31, 1997, and the Schwab OneSource Small Company Fund (one of a
series of the Schwab Capital Trust, hereafter collectively referred to as the
"Funds") compliance as of October 31, 1997 included in the accompanying
Management statement regarding Compliance with Certain Provisions of the
Investment Company Act of 1940. Management is responsible for the Funds'
compliance with those requirements. Our responsibility is to express an opinion
on management's assertion about the Funds' compliance based on our examination.
Our examination was made in accordance with standards established by the
American Institute of Certified Public Accountants and, accordingly, included
examining, on a test basis, evidence about the Funds' compliance with those
requirements and performing such other procedures as we considered necessary in
the circumstances. Included among our procedures were the following tests
performed as of July 31, 1997 and August 31, 1997, without prior notice to
management, and October 31, 1997.
- - Review of the Funds' mutual fund investments at July 31, 1997, August 31,
1997 and October 31, 1997 recorded on the books and records of Charles
Schwab & Co. Inc. ("CSC") in its capacity as depository for Morgan Stanley
Trust Company, the Funds' custodian.
- - Confirmation of CSC's omnibus accounts for mutual fund investments at July
31, 1997, August 31, 1997 and October 31, 1997 with either third party
mutual fund transfer agents or DST Systems, Inc. ("DST"), as applicable.
- - Review of management's reconciliation of the omnibus account confirmation
results to omnibus account positions recorded on the books and records of
CSC at July 31, 1997, August 31, 1997 and October 31, 1997, in all
material respects.
- - Review of management's reconciliation of omnibus account positions
recorded by CSC to mutual fund investments recorded on the books and
records of the Funds at July 31, 1997, August 31, 1997 and October 31,
1997, in all material respects.
We believe that our examination provides a reasonable basis for our opinion. Our
examination does not provide a legal determination on the Funds' compliance with
specified requirements.
In our opinion, management's assertion that the Funds were in compliance with
the requirements of subsections (b) and (c) of Rule 17f-2 under the Investment
Company Act of 1940 as of July 31, 1997, August 31, 1997 and October 31, 1997
with respect to mutual fund investments reflected in the investment account of
the Funds is fairly stated, in all material respects.
This report is intended solely for the information and use of management of the
Funds and the Securities and Exchange Commission and should not be used for any
other purpose.
/s/ Price Waterhouse
- ---------------------------------
<PAGE> 3
U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM N-17f-2
Certificate of Accounting of Securities and Similar Investments
in the Custody of Management Investment Companies
Pursuant to Rule 17f-2 [17 CFR.17f-2]
- --------------------------------------------------------------------------------
1. Investment Company Act File Number: Date examination completed:
811-7704 October 31, 1997
- --------------------------------------------------------------------------------
2. State Identification Number:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AL AK 98-00852 AZ S-0045510-QUAL AR 93-M0261-04 CA CO
CT SI35335 DE DC FL GA HI
ID 45976 IL IN IA I-34555 KS 96568 KY
LA ME MF98-2534 MD SM950820 MA 95-0424 MI 270299 MN
MS MF-95-07-080 MO MT 33572 NE 23090 NV NH
NJ NM 672539 NY S 27 32 28 NC ND N131 OH
OK OR PA RI SC MF9260 SD 6518
TN RM98-1618 TX C-48130 UT VT 7/24/95-15 VA WA C-51632
WV BC-30437 WI 303933-03 WY PUERTO RICO S16002
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Other (specify):
3. Exact name of investment company as specified in registration statement:
Schwab MarketTrack Growth Portfolio (formerly Schwab Asset Director(R) -
High Growth Fund, one of the series in Schwab Capital Trust)
- --------------------------------------------------------------------------------
4. Address of principal executive office: (number, street, city, state, zip
code)
101 Montgomery Street, San Francisco, CA 94104
- --------------------------------------------------------------------------------
<PAGE> 4
U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM N-17f-2
Certificate of Accounting of Securities and Similar Investments
in the Custody of Management Investment Companies
Pursuant to Rule 17f-2 [17 CFR.17f-2]
- --------------------------------------------------------------------------------
1. Investment Company Act File Number: Date examination completed:
811-7704 October 31, 1997
- --------------------------------------------------------------------------------
2. State Identification Number:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AL AK 98-00853 AZ S-0045508-QUAL AR 93-M0261-06 CA CO
CT SI35350 DE DC FL GA HI
ID 45975 IL IN IA I-34553 KS 96567 KY
LA ME MF98-2533 MD SM950826 MA 95-0438 MI 270298 MN
MS MF-95-07-106 MO MT 33571 NE 20469 NV NH
NJ NM 978879 NY S 27 32 26 NC ND N129 OH
OK OR PA RI SC MF9250 SD 6517
TN RM98-1618 TX C-48139 UT VT 7/24/95-14 VA WA C-51629
WV BC-30435 WI 303932-03 WY PUERTO RICO S16021
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Other (specify):
3. Exact name of investment company as specified in registration statement:
Schwab MarketTrack Balanced Portfolio (formerly Schwab Asset Director(R) -
Balanced Growth Fund, one of the series in Schwab Capital Trust)
- --------------------------------------------------------------------------------
4. Address of principal executive office: (number, street, city, state, zip
code)
101 Montgomery Street, San Francisco, CA 94104
- --------------------------------------------------------------------------------
<PAGE> 5
U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM N-17f-2
Certificate of Accounting of Securities and Similar Investments
in the Custody of Management Investment Companies
Pursuant to Rule 17f-2 [17 CFR.17f-2]
- --------------------------------------------------------------------------------
1. Investment Company Act File Number: Date examination completed:
811-7704 October 31, 1997
- --------------------------------------------------------------------------------
2. State Identification Number:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AL AK 98-00854 AZ S-0045509-QUAL AR 93-M0261-05 CA CO
CT SI35334 DE DC FL GA HI
ID 45978 IL IN IA I-34554 KS 96569 KY
LA ME MF98-2535 MD SM950827 MA 95-0423 MI 270300 MN
MS MF-95-07-083 MO MT 33573 NE 23089 NV NH
NJ NM 672627 NY NC ND N130 OH
OK OR PA RI SC MF9261 SD 6516
TN RM98-1618 TX C-48129 UT VT 7/24/95-13 VA WA C-51638
WV BC-30436 WI 303935-03 WY PUERTO RICO S16019
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Other (specify):
3. Exact name of investment company as specified in registration statement:
Schwab MarketTrack Conservative Portfolio (formerly Schwab Asset
Director(R) - Conservative Growth Fund, one of the series in Schwab
Capital Trust)
- --------------------------------------------------------------------------------
4. Address of principal executive office: (number, street, city, state, zip
code)
101 MONTGOMERY STREET, SAN FRANCISCO, CA 94104
<PAGE> 6
U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM N-17f-2
Certificate of Accounting of Securities and Similar Investments in the Custody
of Management Investment Companies
Pursuant to Rule 17f-2 [17 CFR.17f-2]
1. Investment Company Act File Number: Date examination completed:
811-7704 October 31, 1997
2. State Identification Number:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AL AK 97-03274 AZ S-0054648-QUAL AR 93-M0261-11 CA CO
CT SI43568 DE DC FL GA HI
ID 48080 IL IN IA I-38717 KS 9750001397 KY
LA ME 97-10404 MD SM970839 MA MI 275653 MN
MS MF97-06-085 MO MT 37100 NE 17654 NV NH
NJ NM 975043 NY S 27 94 93 NC ND T350 OH
OK OR PA RI SC MF10761 SD 10032
TN RM98-1618 TX C-53071 UT VT 6/06/97-03 VA WA C-56136
WV MF-22542 WI 332753-03 WY PUERTO RICO S-18158
</TABLE>
Other (specify):
3. Exact name of investment company as specified in registration statement:
Schwab MarketManager Small Cap Portfolio (formerly Schwab OneSource
Portfolios - Small Company Fund, one of the series in Schwab Capital Trust)
4. Address of principal executive office: (number, street, city, state, zip
code)
101 Montgomery Street, San Francisco, CA 94104
<PAGE> 7
U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM N-17f-2
Certificate of Accounting of Securities and Similar Investments in the Custody
of Management Investment Companies
Pursuant to Rule 17f-2 [17 CFR.17f-2]
1. Investment Company Act File Number: Date examination completed:
811-7704 October 31, 1997
2. State Identification Number:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AL AK 97-00336 AZ S-0051431-QUAL AR 93-M0261-10 CA CO
CT SI40451 DE DC FL GA HI
ID 47175 IL IN IA I-36814 KS 9750000158 KY
LA ME MF-R98-2641 MD SM961316 MA MI 274501 MN
MS MF-96-08-013 MO MT 35532 NE 17547 NV NH
NJ NM 672541 NY S 27 59 46 NC ND R487 OH
OK OR PA RI SC MF10155 SD 8359
TN RM98-1618 TX C-51014 UT VT 8/06/96-22 VA WA C-54138
WV BC-30440 WI 319301-03 WY PUERTO RICO S-17284
</TABLE>
Other (specify):
3. Exact name of investment company as specified in registration statement:
Schwab MarketManager Balanced Portfolio (formerly Schwab OneSource
Portfolios - Balanced Allocation Fund, one of the series in Schwab Capital
Trust)
4. Address of principal executive office: (number, street, city, state, zip
code)
101 Montgomery Street, San Francisco, CA 94104
<PAGE> 8
U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM N-17f-2
Certificate of Accounting of Securities and Similar Investments in the Custody
of Management Investment Companies
Pursuant to Rule 17f-2 [17 CFR.17f-2]
1. Investment Company Act File Number: Date examination completed:
811-7704 October 31, 1997
2. State Identification Number:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AL AK 97-00335 AZ S-0051432-QUAL AR 93-M0261-09 CA CO
CT SI40450 DE DC FL GA HI
ID 47176 IL IN IA I-36813 KS 9750000160 KY
LA ME MF-R98-2640 MD SM961315 MA MI 274500 MN
MS MF-96-08-012 MO MT 35533 NE 17548 NV NH
NJ NM 979025 NY S 27 59 45 NC ND R488 OH
OK OR PA RI SC MF10156 SD 8360
TN RM98-1618 TX C-51015 UT VT 08/06/96-21 VA WA C-54137
WV BC-30441 WI 319302-03 WY PUERTO RICO S-17285
</TABLE>
Other (specify):
3. Exact name of investment company as specified in registration statement:
Schwab MarketManager Growth Portfolio (formerly Schwab OneSource Portfolios-
Growth Allocation Fund, one of the series in Schwab Capital Trust)
4. Address of principal executive office: (number, street, city, state, zip
code)
101 Montgomery Street, San Francisco, CA 94104
<PAGE> 9
U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM N-17f-2
Certificate of Accounting of Securities and Similar Investments in the Custody
of Management Investment Companies
Pursuant to Rule 17f-2 [17 CFR.17f-2]
1. Investment Company Act File Number: Date examination completed:
811-7704 October 31, 1997
2. State Identification Number:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AL AK 96-03654 AZ S-0050673-QUAL AR 93-M0261-08 CA CO
CT SI39921 DE DC FL GA HI
ID 47037 IL IN IA I-36541 KS 9650001583 KY
LA ME 98-1908 MD SM961032 MA 96-5090-M MI 274319 MN
MS MF-96-06-188 MO 1993-00496 MT 35245 NE 17186 NV NH
NJ NM 975522 NY S 27 55 74 NC ND R115 OH
OK OR PA RI SC MF10061 SD 8092
TN RM98-1618 TX C-50677 UT VT 6/26/96-04 VA WA C-53855
WV BC-2425 WI 317865-03 WY PUERTO RICO S-17091
</TABLE>
Other (specify):
3. Exact name of investment company as specified in registration statement:
Schwab MarketManager International Portfolio (formerly Schwab OneSource
Portfolios - International Fund, one of the series in Schwab Capital Trust)
4. Address of principal executive office: (number, street, city, state, zip
code)
101 Montgomery Street, San Francisco, CA 94104
